TIDMSVT
RNS Number : 6238Z
Severn Trent PLC
21 May 2019
Preliminary Announcement of Annual Results
21 May 2019
Results for the year to 31 March 2019
Continued momentum and fast-track status building a strong
platform for AMP7
Continuing our leading AMP6 performance:
- Maintaining the lowest bills in England for ten years(1) , set to continue to at least 2025
- Excellent progress on our capital programme with the largest
year of capital spend in a decade of GBP769 million, supporting our
commitment to invest GBP1,300 for every household we serve over
AMP6
- Cumulative AMP6 ODI(2) outperformance of GBP138 million,
including net GBP4.5 million penalty for FY18/19. Without the ODI
cap, this would have been our best year to date, with ODI
outperformance equivalent to GBP91 million
- Strong second half of operational improvements in Water gives confidence in FY19/20 and beyond
- On track to exceed 50% renewable energy self-generation target
in FY19/20, boosted by acquisition of Agrivert UK renewables
business, contributing to Group net carbon emissions reduction of
41% since the beginning of AMP6
Setting ourselves up for the future:
- Received Draft Determination for Severn Trent Water, confirming fast-track status for AMP7
- One of the first companies in the UK to make the triple pledge
to achieve net zero carbon, 100% electric fleet(3) and 100% of
energy from renewable sources by 2030
- Expect to earn at least GBP25 million in customer ODIs in
FY2019/20(2) , increasing the amount of outperformance payments
rolled into AMP7 to at least GBP177 million(4)
- Partners appointed for around GBP1.5 billion of our GBP2
billion AMP7 capital programme. New capital delivery model, with a
broader supply chain and in-house design team, progressing well
Delivering strong and resilient financial results:
- Group turnover of GBP1,767 million, up GBP71 million
(4.2%)
- Group underlying PBIT(5) of GBP574 million, up GBP34 million
(6.3%) having absorbed all hot weather costs
- Group reported PBIT of GBP563 million(6) , up GBP36 million
(6.8%)
- Cumulative RoRE of 9.1%(7) despite hitting the Waste customer
ODI cap
- Reduction in effective interest rate by 60 basis points to
3.9%, driving underlying basic EPS(8) of 145.8 pence (up 21.0%),
reported basic EPS from continuing operations 133.4 pence (up
31.0%)
- Proposed final dividend of 56.02 pence, in line with
policy
Liv Garfield, Chief Executive, Severn Trent Plc, said:
"This has been a year where our teams have really stepped up,
whether in response to customer needs in the face of one of the
hottest and driest summers we've seen or by being named by Ofwat as
one of the top companies in the sector when we received fast-track
status for our future plans.
At the heart of all of that is our drive to succeed for all of
our stakeholders, which is shown in the results we're announcing
today. They demonstrate not only that we can deliver for our
investors but also that we're putting ourselves at the heart of the
communities in which we live and work by building a lasting legacy
for future generations.
Whether that's spending time in our region's primary schools
exploring the importance of using water the right way, bringing an
employee's idea to life that finds an innovative new way to improve
our services, or the investment we make day after day in
maintaining our assets. By balancing the needs of everyone in this
way, we are confident we are doing the right things for all of our
stakeholders."
Footnotes included on page 2 of this RNS
Group results from continuing operations
Underlying results
2019 2018 Increase
(restated)(9)
Year ended 31 March GBPm GBPm %
Group turnover 1,767.4 1,696.4 4.2
Underlying group PBIT(5) 573.6 539.8 6.3
-------------------------- -------- -------------- ---------
pence/ pence/
share
share (restated) (9)
------------------------- ------ --------------- -----
Underlying basic EPS(8) 145.8 120.5 21.0
Total ordinary dividends 93.37 86.55 7.9
------------------------- ------ --------------- -----
Reported results
2019 2018 Increase
(restated)(9)
Year ended 31 March GBPm GBPm %
Group turnover 1,767.4 1,696.4 4.2
Group PBIT 563.3 527.2 6.8
--------------------- -------- -------------- ---------
pence/ pence/
share share
---------------------------------------------------- ------ ------- -----
Basic earnings per share from continuing operations 133.4 101.8 31.0
---------------------------------------------------- ------ ------- -----
Footnotes to pages 1 and 2 of this RNS
1. Based on 2019/20 average combined water and sewerage bill for households of GBP354
2. ODIs = Outcome Delivery Incentives, quoted pre-tax and in
2012/13 prices unless otherwise stated
3. Assumes suitable specialist vehicles such as tankers become
available within that time window
4. GBP177 million is quoted pre-tax in nominal prices, assuming
ODIs are spread evenly across AMP7. CPIH inflation assumptions are
taken from the Oxford Economics March forecast. The equivalent in
2012/13 prices is GBP132m. Figure includes FY19/20 guidance of at
least GBP25 million (pre-tax, 2012/13 prices) and excludes SIM,
which we expect to be determined by Ofwat in July 2019.
5. Underlying Profit before interest and tax (PBIT) excludes
exceptional operating items and amortisation of acquired intangible
assets.
6. Exceptional items are set out in note 4
7. Return on Regulatory Equity using Ofwat's RoRE methodology.
8. Underlying basic EPS is set out in note 12
9. Restated for implementation of IFRS 15 (see note 1b)
Note: FY2019/20 technical guidance is included in the Chief
Financial Officer's section of this announcement
Enquiries
Investors & Analysts
Richard Eadie Severn Trent Plc +44 (0) 788 980 6578
Head of Investor Relations
Rachel Martin Severn Trent Plc +44 (0) 782 462 4011
Investor Relations Manager
Media
Jonathan Sibun Tulchan Communications +44 (0) 207 353 4200
Press Office Severn Trent Plc +44 (0) 247 771 5640
Preliminary Results Presentation and Webcast
There will be a presentation of these results at 9:30am BST on
Tuesday 21 May at the Rothschild Sky Pavilion, New Court, St
Swithin's Lane, London EC4N 8AL. This presentation will be
available as a simultaneous webcast on the Severn Trent website
(www.severntrent.com) and will remain on the website for subsequent
viewing.
Chief Executive's Review
At this pivotal point in the regulatory cycle, we can reflect on
the progress we have made in AMP6, and look forward to AMP7, which
will see us reduce bills by 5%, invest GBP6.55 billion, and deliver
even more ambitious performance commitments for customers.
We have made pleasing progress in AMP6. We've kept our bills the
lowest in England for ten years running, locked in GBP460 million
outperformance on our totex plan, and we've reduced our financing
costs by 150 basis points, placing us firmly in the upper quartile.
We've delivered significant improvements in service for our
customers, communities and the wider environment, with a reduction
of 62% in external sewer flooding and 15% in water quality
complaints, and educated over 672,000 customers on water scarcity
and sewer misuse. We have earned net outperformance payments of
GBP138 million - the equivalent of GBP234 million on an uncapped
basis. And we've invested for the long term, strengthening the
resilience of our network, and driving real growth in our RCV of
around 9%.
It has also been a busy four years for Business Services, which
is now focused on the following core areas:
-- Green Power (non-regulated) and Bioresources (regulated): on
track to exceed our target of 50% self-generation in 2019/20,
boosted by the recent Agrivert acquisition;
-- Property Development: delivered GBP27 million of our
commitment to generate GBP100 million of cumulative PBIT by 2027,
freeing up valuable land to help solve community housing
shortages;
-- Operating Services: strong performance from long term
contracts with the MoD and Coal Authority.
In this fourth year of AMP6, we have successfully maintained our
leading performance on Waste measures, and agreed an increase in
the ODI cap, which we will see the full benefit of next year. We
have had a mixed performance on Water, with an operationally
challenging first half followed by a strong recovery in the second,
providing good momentum as we head into the final year of the AMP.
The hot, dry summer cost us GBP10 million in direct costs and GBP12
million in operational recovery, but we have managed to absorb this
to deliver a good set of financial results. We have also had our
biggest year of capital activity in a decade, with GBP769 million
invested, and great progress being made on the Birmingham
Resilience scheme. And it's been a good year for our people too,
with an employee-voted Glassdoor award that places us in the top 50
companies to work for, and recognition as a top four company in the
Hampton Alexander review.
Our track record gives us confidence that we are an organisation
that can keep on delivering in the next AMP. We are taking full
advantage of the head start that fast track status has provided.
Clarity on performance commitments has enabled us to step up our
preparation efforts, with Executive-led reviews of every
commitment, ensuring we have the tools, resources, and know-how to
deliver. We have already appointed our supply chain partners for
around GBP1.5 billion of our capital programme, and begun to embed
our new capital delivery strategy. We will be working with a much
broader range of partners, and insourcing our design function, to
better deliver our long-term asset strategy.
Finally, in the past couple of months we have announced two new
initiatives which could be huge steps forward both for us, and for
the sector as a whole. First, we have founded a new World Water
Innovation Fund, which brings together water companies from around
the globe, to collaboratively tackle some of the biggest challenges
we face today, starting with leakage. And second, we have played a
leading role in making a series of sector-wide pledges which we
feel truly reflect our socially purposeful approach. These include
net zero carbon emissions, the elimination of water poverty, and
the prevention of four billion plastic bottles going to landfill -
all by 2030. At Severn Trent, we want to go even further, with
additional commitments, such as the use of 100% renewable energy
and electric vehicles by 2030 and pledging 1% of our profits into
community schemes, reflecting our belief that we can, and should be
a force for good in society, for the benefit of all our
stakeholders.
AMP6 and in-year performance
The most trusted water company in England - Four years ago we
set ourselves the ambitious challenge of becoming the most trusted
water company by 2020. Since then we've made good progress in
delivering on the measures that our customers care about the most,
investing in the resilience of our network and renewable energy,
and pushing ourselves to do more for those customers who need a bit
more help. As a result, we are now the most trusted water company
in England, according to our most recent independent customer
satisfaction tracker run by Future Thinking. But we know that we
need to keep earning this trust and believe our plan for AMP7 will
allow us to do so. We are keeping bills low, making bigger and
bolder performance commitments that will further improve our
service to customers and the wider environment, and will be
delivering a substantial investment programme that will enhance our
network for future generations.
Serving our customers to meet their needs - We have worked hard
over this AMP to make sure our customers can interact with us in a
way that suits them. We have:
-- extended our customer contact centre to offer service 24 hours a day, seven days a week;
-- launched an online web chat function;
-- established a dedicated social media team;
-- overhauled our website to make it easy for customers to self-serve;
-- introduced virtual engineers to help serve customers more quickly and efficiently; and
-- created our TapChat platform, an online forum of 15,000 customers that we can interact with.
Importantly, we have been able to achieve this wider service
offering while continuing to drive cost efficiency, with one of the
lowest retail costs to serve in the sector.
Help for those who need it - Despite having the lowest average
combined bills in England and Wales, at GBP354 and GBP312
respectively, we know that some of our customers can still struggle
to pay. Earlier this AMP, we committed to helping 50,000 customers
a year, with 35,000 of these through our Big Difference Scheme
which offers up to 90% off bills, and we've met that commitment
once again this year. We're going even bigger in AMP7 with a target
of helping 200,000 customers a year by 2025. With strong
partnerships already established, and trials of new initiatives
underway, we are confident we will be able to meet these targets
and our customers will receive the help they need.
Maintaining our leading waste position - Over the course of AMP6
we have cemented our position as a leading company in waste
operations, both on costs and performance. Our combination of
advanced data modelling and rigorous delivery has earned ODI
outperformance payments substantially higher than any other company
in the sector. We have delivered this while driving down costs,
enabling us to submit a PR19 plan that was more efficient than the
Ofwat model. This year we continued to perform strongly against our
Waste measures, delivering GBP103 million worth of benefits to our
customers and the environment, though the inclusion of the cap for
the first three quarters of the year reduced this to an
outperformance payment of GBP7 million. The increase in the Waste
ODIs cap to 2.6% of RoRE locked in frontier performance for our
customers and the environment, and gives us the opportunity to earn
outperformance payments on our end-of-AMP Waste ODIs, such as the
Water Framework Directive, which will see us improve 1,600km of
rivers over the course of AMP6.
Delivering efficiency through catchment management - Typically
the industry has focused on spot interventions rather than
addressing the true root causes and drivers of performance. We
really understand our end-to-end process and how changes at a
component level can cause a chain reaction through our system. This
is clearly demonstrated in the area of catchment management, where
we have delivered improvements in water quality, environmental
benefits and long term totex efficiencies, and earned a specific
ODI reward of GBP11 million this year, in recognition of four years
of effort in this area. For example, by preventing pesticides from
entering the watercourse from farms near our Tittesworth Water
Treatment Works, we were able to save GBP400,000 of capital
expenditure and GBP40,000 of annual operating costs.
Building momentum in water - The first half of this year was
operationally challenging, with the tail end of the Freeze Thaw and
the hot, dry summer putting pressure on some of our key water
measures. We have seen a substantial turnaround in the second half
however, which gives us confidence in our FY2019/20 delivery.
Specifically:
-- Leakage: We have worked exceptionally hard to hit our leakage
performance commitment this year and delivered a reduction
year-on-year of 16ML/d, by maintaining our strong operational focus
on leakage recovery including a 67% increase in leakage fix teams,
accelerated installation of acoustic loggers, targeted WIP
reduction and the use of more innovative solutions such as
satellite technology. We have also focussed on better understanding
our leakage data at a more granular level - improving the accuracy
of our leakage reporting and driving improvements in finding and
fixing leaks more quickly. Having generated considerable momentum
in this area, and delivered significantly better performance in the
second half of 2018/19, our key focus is now on retaining that
energy to keep us on track to meet the 15% challenge in AMP7.
-- Supply interruptions: In the last quarter of this year we
have implemented a new performance framework of 'Prevent, Restore,
Repair'. Our aim is to prevent asset failure where we can by
maintaining a calm network, for example reducing pressure
transients in our network to lessen the number and impact of burst
mains. If supplies are interrupted, we aim to restore supplies by
moving water around the network in less than three hours. As a
result, we incurred 2.8 minutes in supply interruptions in the last
quarter of the year, compared to an average of 5.6 minutes in the
first three quarters. Our total for the year of 19.7 minutes
represents a 40% reduction year-on-year, but is clearly still not
good enough for our customers. We are confident, however that our
new strategy will deliver results, with the expectation of no
penalty in FY2019/20.
-- Water Quality complaints: We have delivered the 6% reduction
year-on-year we promised, with focused efforts on mains flushing,
abrasive cleansing, and catchment management continuing to drive
improvement.
-- Low pressure: The number of households on our low pressure
register increased tenfold over the dry summer months. We recovered
this position through great collaborative work across our business
and supply chain, to deliver the right solutions for customers and
ultimately beat our target by 32% in March 2019.
Biggest year of capital investment in a decade - At the
beginning of AMP6 we committed to investing GBP1,300 for every home
and business we serve in the five years to 2020. This year we have
completed 28 projects to improve our waste network, replaced 230km
of our water network, and met key milestones on the Birmingham
Resilience Programme, the biggest AMP6 water scheme in the sector.
We have invested GBP769 million in our asset base, as well as a
further GBP141 million in renewing our infrastructure network.
FY19/20 will be another big year as we complete our AMP6 programme,
and continue to reinvest for a fast start in AMP7.
Delivering efficiency for all stakeholders - Over AMP6, we have
locked in GBP460 million of efficiency above that required by our
PR14 plan. We have achieved this through a range of initiatives
including the roll out of standardised products, rebalancing risk
with our supply chain, embracing 'plug and play' construction, and
using smart programming to best utilise assets and resources. We
have chosen to reinvest GBP120 million of this efficiency saving
into security, water quality and vulnerable customers, and a
further GBP100 million in smart data, proactive asset management
and people, with most of this latter amount to be invested in the
final year of AMP6.
The power of our people - It is the power of our people that
really drives our business forward. Our Safer, Better, Faster
framework, in particular our communication ('comm') cells which
occur daily at a front line level, rolling up to an Executive level
on a fortnightly basis, provides a constant focus on the underlying
drivers of performance. It means that our people know what a good
day looks like, and are able to quickly identify when things aren't
going to plan, correct course, and ensure that we continue to
deliver.
AMP7 readiness
Preparing for our AMP7 customer ODIs - We have already begun an
Executive-led review of every performance commitment for AMP7, to
ensure that:
-- the measure and associated drivers of performance are well understood across relevant teams;
-- we are aware of the costs and benefits associated with the
range of solutions available to us;
-- we have access to the right data and reporting tools; and
-- we are mindful of the interdependencies that can drive performance.
This is particularly important for our 26 new bespoke
performance commitments, such as collaborative flood resilience and
green communities.
Acceleration of Capital Delivery preparation - With the benefit
of clarity that fast-track status provides, we recently announced
our supply chain partners for around GBP1.5 billion of our AMP7
capital programme, for which we will be using 20 partners, rather
than the six tier one partners in AMP6. This will give us direct
access to a much broader range of skills and expertise and allow
bespoke supplier selection across our range of projects. All
suppliers will be required to sign up to our Sustainable Supply
Chain charter and comply with our Code of Conduct. We are also in
the process of insourcing our design team which will give us more
control over our investment programme, help us design assets to
deliver operational efficiency and take a more holistic view of the
environmental and societal impact of our schemes.
Strengthening customer perception - The new AMP7 measure of
customer service (C-MeX) will be partly based on customer contact,
as with SIM, and partly on customer perception. Our SIM performance
has been disappointing in AMP6 - for those few customers that have
reason to contact us, our response is just not consistently good
enough. We are now using some of the frameworks and diagnostics
that have been used to successfully deliver our Waste performance
to provide insight into how we can deliver a great customer
service. Customer perception, which is a much wider measure,
encompasses our brand, reputation and presence in the community and
we have already increased our efforts on these ahead of AMP7.
An organisation ready to deliver - Last year we reorganised our
business into four distinct operational areas, bringing end-to-end
processes together under the same directorate, and re-aligning our
senior team to focus on the challenges of AMP7. One year on, we are
seeing the benefits, and with our organisation and people in the
right place, we're excited to get the most out of the final year of
AMP6, and build the best possible platform for AMP7.
Sustainability and Culture
Committed to sustainable energy use - Increasing the generation
of green energy helps reduce our Group costs, and is also the right
thing to do environmentally. We completed the acquisition of
Agrivert at the end of November 2018, which will boost our
performance beyond our commitment to self-supply the equivalent of
50% of our energy needs by 2020. But we want to do more, which is
why we're one of only a few companies in the UK to have signed up
to the triple pledge of:
-- Net zero carbon emissions by 2030;
-- 100% renewable energy use by 2030; and
-- 100% electric vehicles by 2030.
We'll achieve this through more efficient production and
distribution, generating and buying more green energy, and working
with our supply chain to find solutions to the environmental issues
we all face.
World Water Innovation Fund - Water scarcity is a problem that
is shared across the world, and in our own region we recognise the
impact that climate change and population growth could have on the
service we are able to offer our customers. So we have established
a new innovation fund, bringing together water companies from
around the globe, to collaboratively tackle some of the biggest
challenges we face today, and ensure we leave a legacy for future
generations of water users. This fund will initially focus on
leakage, supporting our sector-wide 15% reduction challenge in
AMP7.
Culture - While we are confident we're doing the right things to
create an awesome place to work, what really matters is what our
employees think. We are therefore proud to have been recently
awarded a Glassdoor Employees' Choice Award, recognising us as a
top 50 place to work in 2019, based solely on the input of
employees' feedback, and encouraged to see our scores increase
further from 3.7 in April 2018 to 3.9 in April 2019. We are also
pleased to maintain our strong engagement scores, with our annual
employee engagement survey, completed by 91% of our workforce,
placing us five points above the average for the UK and
Ireland.
Investing in skills - We want to have the most skilled and
efficient workforce in the sector. We also recognise that we have a
key part to play as a large, local employer, in helping the people
in our region get the skills they need in an evolving labour
market. So we are:
-- Investing GBP10 million in a new technical training academy;
-- Bringing new expertise, such as design engineering, into Severn Trent;
-- Targeting social mobility coldspots for our apprentice schemes; and
-- Working with the UK Government to develop a future skills
strategy for the next generation of employees.
Progress in diversity and inclusion - We were proud to have been
recognised as a top four company in the most recent Hampton
Alexander review, reflecting female representation at a senior
level of 43.1%, and 37.5% on our Board. Our graduate and
apprenticeship schemes are also becoming more balanced, with female
intake in our 2018 programme at 38%, up from 20% in our 2017
programme. We have also been working with local colleges to give
people with additional needs the opportunity to learn new skills on
year-long placements. And we have an active LGBT+ group who play a
key role in ensuring that gender neutrality and LGBT+ inclusion are
supported across the business.
We have strong momentum as we enter the last year of AMP6. Our
track record of outperformance in the last four years, combined
with an ambitious fast-track plan for the next five years, creates
the perfect platform to deliver for all of our stakeholders, and we
are excited to get started.
Chief Financial Officer's Review
We have built on our good financial performance in the first
half of the year to deliver a strong set of full year results for
2018/19. Our Regulated Water and Waste Water business delivered
good growth in PBIT, even after an additional GBP22 million of
operating costs from the hot, dry summer and our recovery after it.
In Business Services, stronger performance in the second half of
the year produced growth in both revenues and PBIT for the year as
a whole. In May we announced the sale of surplus land near
Nottingham and this, together with other smaller disposals later in
the year, generated property profits for the Group of GBP19.9
million.
Growth in underlying PBIT, lower finance costs and a reduction
in our effective tax rate drove a strong increase in underlying
basic earnings per share of 21.0% to 145.8 pence per share in the
current year. Basic earnings per share from continuing operations
were 133.4 pence.
We have delivered good performance on RoRE, which was 8.1% for
the year ended 2018/19. While this year's return was partly held
back by reaching our Waste ODI cap, our strong financial
performance helped us to an AMP6 cumulative RoRE of 9.1%, putting
us amongst the very best in the sector, with outperformance on all
three levers.
In line with our dividend policy for the remainder of AMP6 of
growth of RPI plus at least 4% per annum, the proposed dividend for
the year has increased by 7.9%.
Our funding position continues to be strong, with all our
projected investment and other cash flow needs covered by cash or
committed facilities through to September 2021 and we continue to
actively monitor and manage our interest rate exposure.
We completed the acquisition of Agrivert in November 2018 which
has been combined with our Green Power business.
We are committed to paying the right amount of tax at the right
time. We pay a range of taxes, including business rates, employers'
national insurance and environmental taxes such as the Climate
Change Levy and the Carbon Reduction Commitment as well as the
corporation tax shown in our tax charge in the income statement.
This year we have published a Tax Report that sets out details of
all of the taxes we incur at
www.severntrent.com/responsibility/tax/. Our corporation tax charge
for the year was just below the statutory rate at 18% as that some
items will be taxed in future periods when the corporation tax rate
falls to 17%. Cash tax payments were reduced by the benefit of tax
allowances on our capital programme, contributions to our pension
schemes and the timing of instalment payments to HMRC under the
current rules.
A brief overview of our financial performance for the year is as
follows:
-- Group turnover from continuing operations was GBP1,767.4
million (2017/18: GBP1,696.4 million), an increase of 4.2% as
Regulated Water and Waste Water revenue increased by 4.0%, mainly
due to the RPI-linked tariff increases and from growth in Business
Services' external turnover.
-- Underlying PBIT was up 6.3% to GBP573.6 million (2017/18:
GBP539.8 million). Underlying PBIT in our Regulated Water and Waste
Water business grew by GBP29.4 million, Business Services grew by
GBP0.7 million and Corporate and other growth was GBP12.8
million.
-- We recorded net exceptional costs of GBP9.6 million (2017/18:
GBP12.6 million) arising from the High Court judgment in the Lloyds
Bank case relating to Guaranteed Minimum Pension rights.
-- Reported Group PBIT was up by 6.8% to GBP563.3 million (2017/18: GBP527.2 million).
-- Net finance costs were GBP194.2 million (2017/18: GBP219.5
million). Our effective interest rate of 3.9% was down from 2017/18
(4.5%) due to the continued benefit of low interest rates on new
and refinanced debt and reduced RPI inflation on our index-linked
debt.
-- Our full effective tax rate was 18.0% and our underlying
effective tax rate was 11.6%, down from 12.7% in 2017/18 largely
due to higher capital allowances from the larger capital programme
in the year.
Changes to segmental presentation
In 2017/18 and prior years the sludge treatment activities of
the Bioresources business were managed by, and included in,
Regulated Water and Waste Water. The renewable energy generating
activities of the Bioresources business were managed by, and
included in, Business Services. These combined activities are now
managed as a single Bioresources business within Business
Services.
Implementing innovative treatment techniques and finding ways to
use our resources more effectively enables us to free up land for
development. The profits of this activity are shared between the
regulated and non-regulated businesses through the initial transfer
price and overage agreements relating to the land's development
potential. In 2017/18 and prior years the gains from the property
development activity attributable to the regulated business were
reported in Regulated Water and Waste Water and those relating to
the non-regulated business were reported in Corporate and other.
All of these activities are now managed and reported as a single
business within Business Services.
The segmental analysis that follows and in the financial
statements shows:
-- current period performance on the new and old basis; and
-- comparative information on the old basis.
Comparative information for the new segments is not available
and the cost to develop it would be excessive. All year-on-year
comparisons are on the old segmental basis.
Regulated Water and Waste Water
Turnover for our Regulated Water and Waste Water business was
GBP1,583.1 million and underlying PBIT was GBP527.0 million on the
new reporting basis. On the old basis turnover was GBP1,637.6
million (2017/18: GBP1,574.6 million) and underlying PBIT was
GBP544.3 million (2017/18: GBP514.9 million).
New basis Old basis
2019 2019 2018 Better/(worse)
GBPm GBPm GBPm GBPm %
Turnover 1,583.1 1,637.6 1,574.6 63.0 4.0
------------------------------------- ---------- -------- --------
Net labour costs (124.0) (134.4) (141.8) 7.4 5.2
Net hired and contracted costs (161.9) (165.6) (147.7) (17.9) (12.1)
Power (102.1) (105.8) (95.9) (9.9) (10.3)
Bad debts (25.5) (25.5) (25.7) 0.2 0.8
Other costs (186.3) (185.8) (192.9) 7.1 3.7
(599.8) (617.1) (604.0) (13.1) (2.2)
------------------------------------- ---------- -------- --------
Infrastructure renewals expenditure (141.4) (141.4) (135.2) (6.2) (4.6)
Depreciation (315.0) (334.8) (320.5) (14.3) (4.5)
------------------------------------- ---------- -------- -------- -------- -------
Underlying PBIT 527.0 544.3 514.9 29.4 5.7
---------- -------- -------- -------
Adjustments for new segmental
basis:
Bioresources PBIT transferred
to Business Services (8.7)
Property PBIT transferred to
Business Services (8.6)
--------
Underlying PBIT (new basis) 527.0
-------- -------- -------- -------
Hafren Dyfrdwy (formerly Dee Valley Water) was acquired on 15
February 2017 and integrated into the Regulated Water and Waste
Water segment. On 1 July 2018 the licences of Severn Trent Water
and Hafren Dyfrdwy were amended to align with the national
boundaries of England and Wales but the operating activities within
the Regulated Water and Waste Water segment were unchanged by this.
The following commentary on the Regulated Water and Waste Water
business includes all of our Regulated Water and Waste Water
activities in both years.
Turnover increased by 4.0% as:
-- RPI and the K factor increased revenue by GBP55.7 million;
-- Customer ODI rewards taken in the current year were GBP9.6
million lower than the previous year;
-- The adjustment from the WRFIM mechanism was GBP13.9 million
more favourable than the previous year;
-- Additional revenue from the higher consumption during the hot
weather was around GBP5 million; and
-- Other small factors reduced revenue by GBP2.2 million.
Net labour costs were GBP7.4 million (5.2%) lower. Gross
employee costs increased by 5.8%, due to the annual pay award and
the continuation of our strategy to bring more work in-house
(including the new design team). The growth in activity on capital
projects increased the level of own labour capitalised, up GBP23.2
million on the previous year.
Net hired and contracted costs were up GBP17.9 million (12.1%)
primarily in relation to costs incurred over the hot, dry summer
and resulting operational recovery activities in the second half of
the year.
Power costs were up GBP9.9 million driven by higher pass through
costs, as forecasted, and a higher demand for water during the
summer. The Group manages its power costs through a combination of
demand management, self-generation and forward price contracts.
Our bad debt charge decreased by GBP0.2 million this year, and
represented 2.0% of household revenue (2017/18: 2.2%). We continue
to improve the pace of collection for new debt but this also
experienced slightly slower recoveries of older debt, which we are
actively targeting our efforts on this year.
Other costs decreased by GBP7.1 million relating to increased
profit on the disposal of tangible assets (mainly property) during
the year.
Infrastructure renewals expenditure was GBP6.2 million higher in
the year. The increase was driven by additional activity to reduce
leakage and an acceleration of our trunk mains renewal
programme.
Depreciation of GBP334.8 million was GBP14.3 million higher than
the prior year, partly driven by the shift towards more investment
in technology assets with shorter lives and also by an increase in
abandonment charges of GBP5.4 million as we upgraded some of our
ageing assets.
Return on Regulated Equity (RoRE)
RoRE is a key performance indicator for the regulated business
and reflects our combined performance on totex, customer ODIs and
financing against the base return allowed in the Final
Determination.
Severn Trent Water's RoRE for the year ended 31 March 2019 and
for the four years ended on that date is set out in the following
table:
2018/19 AMP6 to
Date
% %
----------------------------------- ---- -------- --- --------
Base return 5.6 5.6
Totex outperformance -- 1.2
ODI outperformance (0.1) 1.0
Financing outperformance 2.6 1.3
Regulatory return for the year(1) 8.1 9.1
----------------------------------------- -------- --- --------
(1) Calculated in accordance with Ofwat guidance set out in RAG
4.07
We have delivered RoRE of 8.1% in the year thanks to our
significant outperformance on financing, ODIs were broadly neutral,
impacted by hitting the Waste cap of 2% of RoRE. We reinvested
totex savings for the benefit of our customers resulting in a flat
in-year performance. Our cumulative AMP6 RoRE remains strong at
9.1%, with four-year outperformance broadly based across:
-- sustained customer service delivery on ODIs;
-- early delivery of totex efficiencies; and
-- strong performance on financing.
Business Services
New basis Old basis
2019 2019 2018
(restated) Increase/(decrease)
GBPm GBPm GBPm GBPm %
------------------------------ ---------- ------ ----------- ---------- ----------
Turnover
Operating Services 60.2 73.8 80.6 (6.8) (8.4)
Green Power/Renewable Energy 29.7 72.6 60.4 12.2 20.2
Bioresources 97.5 -- -- -- --
Other 13.5 -- -- -- --
200.9 146.4 141.0 5.4 3.8
------------------------------ ---------- ----------- ----------
Underlying PBIT
Operating Services 7.0 14.1 14.7 (0.6) (4.1)
Green Power/Renewable Energy 0.6 21.4 20.1 1.3 6.5
Bioresources 29.5 -- -- -- --
Property Development 19.9 -- -- -- --
Other 7.1 -- -- -- --
64.1 35.5 34.8 0.7 2.0
------------------------------ ---------- ----------- ----------
Business Services turnover was GBP200.9 million and underlying
PBIT was GBP64.1 million on the new basis.
The division delivered growth in revenues (up 3.8%) and
underlying PBIT (up 2.0%) on a comparable basis. The prior year
figures have been restated to reflect the impact of the
implementation of IFRS 15 on the recognition of revenue and costs
for the MOD contract (see note 1 to the financial statements).
In our Operating Services business, turnover and underlying PBIT
decreased by GBP6.8 million and GBP0.6 million respectively. An
improvement in performance on our Homeserve contract was offset by
lower rechargeable activity on our MOD contract and additional
costs as a result of the hot, dry summer.
In our Renewable Energy business, turnover increased by 20.2%
and underlying PBIT increased by 6.5%. Higher energy prices
contributed to the increase together with the expansion of our crop
energy plant near Nottingham; the impact of a full year of
operations for our West Birmingham food waste plant; and the
purchase of Agrivert (a food waste company acquired in November
2018), which contributed GBP9.2 million of revenue and GBP1.6
million of underlying PBIT.
Corporate and Other
Corporate overheads of GBP13.4 million (2017/18: GBP8.9 million)
included GBP3.6 million acquisition costs for Agrivert. Our other
businesses generated PBIT of GBP11.7 million (2017/18: loss of
GBP0.8 million) including a profit of GBP11.3 million from
non-regulated Property Development (2017/18: GBP2.1 million), which
is included in Business Services on the new basis.
Exceptional items before tax
We recorded a net exceptional charge of GBP9.6 million (2017/18:
GBP12.6 million).
On 25 October 2018 the High Court issued a judgment in the
Lloyds Bank case in relation to gender equality in Guaranteed
Minimum Pension rights that has an impact on the Group's defined
benefit pension liabilities. We have obtained independent advice
from the Group's actuaries to determine the amount of the
additional liability and have made provision for our best estimate
in this year's financial statements.
In 2017/18 the exceptional charge of GBP12.6 million comprised
exceptional restructuring costs of GBP20.9 million preparing our
Bioresources business for AMP7 and an exceptional gain of GBP8.3
million from the net benefit of a Pension Increase Exchange
arrangement.
Net finance costs
Our net finance costs for the year were GBP194.2 million,
GBP25.3 million lower than the prior year. The reduction was driven
by the continued benefit of low interest rates on new and
refinanced debt and reduced RPI inflation on our index-linked debt
(down GBP14.4 million), which more than offset the impact of higher
average net debt.
Our effective interest rate was 3.9% (2017/18: 4.5%) and our
effective cash cost of interest (excluding the RPI uplift on
index-linked debt and pensions-related charges) was also down to
3.1% (2017/18: 3.4%). Net pension finance costs were broadly in
line with the previous year.
Capitalised interest of GBP33.2 million increased by GBP7
million year-on-year due to the higher level of capital activity in
the year.
Our earnings before interest, tax depreciation and amortisation
(EBITDA) interest cover was 5.1 times (2017/18: 4.3 times) and PBIT
interest cover was 3.2 times (2017/18: 2.6 times). See note 18 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
-- Forthcoming changes in the regulatory model from RPI to CPIH.
Note 7 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
around 75.5% of our estimated wholesale energy usage for
2019/20.
Taxation
We are committed to paying the right amount of tax at the right
time. As well as corporation tax on profits, which is included in
the tax charge in our accounts, we incur a range of taxes, charges
and levies imposed by government agencies:
2019 2018
GBPm GBPm
----------------------------------- ------ ------
Tax incurred:
Corporation tax 31.5 26.7
Business rates and property taxes 80.7 82.4
Employer's National Insurance 25.5 23.2
Environmental taxes -9.6 9.9
Other taxes 3.5 4.3
------------------------------------ ------ ------
150.8 146.5
----------------------------------- ------ ------
Further details on the taxes and levies that we pay can be found
in our report, "Explaining our Tax Contribution 2018/19", available
at www.severntrent.com/responsibility/tax/.
The corporation tax charge for the year recorded in the income
statement was GBP69.4 million (2017/18: GBP61.6 million) and we
made net corporation tax payments of GBP21.3 million in the year
(2017/18: GBP6.5 million). The difference between the tax charged
and the tax paid is summarised below:
2019 2018
GBPm GBPm
----------------------------------------------------- ------- -------
Tax on profit on ordinary activities 69.4 61.6
Tax effect of timing differences (37.6) (28.7)
Current tax credits recorded in Other Comprehensive
Income or equity (9.7) (10.1)
Overprovisions in previous years 9.4 3.9
Corporation tax payable for the year 31.5 26.7
Payable by instalments next year (15.9) (12.2)
------------------------------------------------------ ------- -------
Instalments paid in the year 15.6 14.5
Repayments received - (8.0)
Payments relating to prior years 5.7 -
----------------------------------------------------- ------- -------
Net tax paid in the year 21.3 6.5
------------------------------------------------------ ------- -------
Note 8 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 GBP31.8 million
(2017/18: GBP32.9 million) and the deferred tax charge was GBP37.6
million (2017/18: GBP28.7 million).
Our full effective tax rate this year was 18.0% (2017/18:
20.5%), which is lower than the UK rate of corporation tax (19%),
reflecting the fact that some of the items in our income statement
will be taxed in future periods when the UK corporation tax rate
falls to 17%.
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. The impact of this timing difference applied across our
significant and recurring capital programme tends to reduce our
underlying effective current tax rate and corporation tax payments
in the year. By the same token we make a provision for the tax that
we will pay in future periods when the tax relief on the capital
expenditure has been received and we receive no allowance for the
depreciation charge arising on that expenditure. This is the most
significant component of our deferred tax position.
Our underlying effective current tax rate was 11.6% (2017/18:
12.7%) (see note 18).
Profit for the year and earnings per share
Profit for the year from continuing operations increased by 32%
to GBP315.3 million (2017/18: GBP239.6 million).
There were no discontinued operations in the year (2017/18:
profit of GBP13.2 million).
Total profit for the year including discontinued operations was
GBP315.3 million (2017/18: GBP252.8 million).
Basic earnings per share from continuing operations increased by
31.0 % to 133.4 pence (2017/18: 101.8 pence). Underlying basic
earnings per share was 145.8 pence (2017/18: 120.5 pence). For
further details see note 12.
Cash flow
2019 2018
GBPm GBPm
Cash generated from operations 826.3 773.3
Net capital expenditure (769.3) (591.0)
Net interest paid (161.6) (182.1)
Purchase of subsidiaries net of cash acquired (50.9) (0.2)
Proceeds on disposal of subsidiary undertakings -- 25.1
Swap termination payment -- (40.0)
Tax paid (21.3) (6.5)
Free cash flow (176.8) (21.4)
Dividends (211.9) (197.0)
Issue of shares 11.1 5.6
Purchase of own shares (1.1) --
Change in net debt from cash flows (378.7) (212.8)
Debt acquired in subsidiaries (63.0) --
Non-cash movements (35.8) (61.4)
--------------------------------------------------
Change in net debt (477.5) (274.2)
Opening net debt (5,356.6) (5,082.4)
Closing net debt (5,834.1) (5,356.6)
-------------------------------------------------- ---------- ----------
2019 2018
GBPm GBPm
----------------------------------------------------------- ---------- ----------
Bank loans (1,120.1) (1,217.4)
Other loans (4,820.5) (4,223.9)
Finances leases (112.2) (113.9)
Net cash and cash equivalents 39.6 38.5
Cross currency swaps 37.1 24.5
Loans due from joint ventures and associated undertakings 142.0 135.6
Net debt (5,834.1) (5,356.6)
------------------------------------------------------------ ---------- ----------
We generated GBP826.3 million cash from operations (2017/18:
GBP773.3 million). Operating cash flows were higher mainly due to
higher PBIT, depreciation and amortisation and our increase in
working capital was lower than the previous year.
Our biggest year of capital investment in a decade led to net
capital expenditure of GBP769.3 million (2017/18: GBP591.0
million). The acquisition of Agrivert resulted in a net cash
outflow of GBP50.9 million and we also repaid GBP63.0 million of
debt acquired with the business.
Our net interest payments were lower at GBP161.6 million
(2017/18: GBP182.1 million). Our tax payments were GBP21.3 million,
an increase of GBP14.8 million. The previous year benefited from a
reduction of GBP8 million from overpayments in earlier years.
We received GBP11.1 million (2017/18: GBP5.6 million) from the
exercise of options under the employee Save As You Earn share
scheme and our dividends paid increased by 7.6% in line with our
policy.
These cash flows, together with the debt acquired with Agrivert
and accounting adjustments to the carrying value of debt, resulted
in an increase of GBP477.5 million in net debt (2017/18: GBP274.2
million).
At 31 March 2019 we held GBP39.6 million (2018: GBP38.5 million)
in net cash and cash equivalents. Average debt maturity was around
14 years (2018: 14 years). Including committed facilities, our cash
flow requirements are funded until September 2021.
Net debt at 31 March 2019 was GBP5,834.1 million (2018:
GBP5,356.6 million) and balance sheet gearing (net debt/net debt
plus equity) was 83.3% (2018: 84.4%). Group net debt, expressed as
a percentage of estimated Regulatory Capital Value (RCV gearing) at
31 March 2019 was 63.0% (2018: 60.6%) and STW Group RCV gearing was
62.3% (2018: 60.8%).
The estimated fair value of debt at 31 March 2019 was GBP1,219.6
million higher than book value (2018: GBP1,184.3 million higher).
The increase in the difference to book value is largely due to
lower prevailing market interest rates.
Our policy for the management of interest rates is that at least
40% of our borrowings in AMP6 should be at fixed interest rates, or
hedged through the use of interest rate swaps or forward rate
agreements. At 31 March 2019, 53% of our debt was at fixed rate,
22% was in floating and 25% was index-linked.
We continue to carefully monitor market conditions and our
interest rate exposure and, given the low flat current yield curve,
we believe it is the right time to start reducing our exposure to
floating rates of interest. To that end we have:
-- raised GBP200 million at competitive fixed rates prior to the end of the financial year;
-- since the year end, cancelled GBP575 million of pay floating
interest rate swaps that had a positive market value and
-- used the proceeds of the cancellations to cancel GBP100
million of expensive pay fixed swaps with an average fixed rate of
approximately 5%.
These actions reduced our floating rate exposure to around 15%
of gross debt at the end of April 2019.
Our long term credit ratings are:
Long term ratings Severn Trent Seven Trent Outlook
Plc Water
-------------------- ------------- ------------ ---------
Moody's Baa1 A3 Negative
Standard and Poor's BBB BBB+ Stable
-------------------- ------------- ------------ ---------
We invest cash in deposits with highly rated banks and liquidity
funds. We regularly review the list of counterparties and report 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 are closed to future accrual.
The most recent formal actuarial valuations for the Severn Trent
schemes ('the Schemes') were completed as at 31 March 2016. The
agreement reached with the Trustee for the STPS, which is by far
the largest of the schemes, included:
-- Inflation-linked payments of GBP15 million per annum through
an asset-backed funding arrangement, 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;
-- Payments under another asset-backed funding arrangement of
GBP8.2 million per annum to 31 March 2032; and
-- A deficit reduction payment of GBP10 million for each of the
three financial years ended 31 March 2019.
In addition to these payments, the company will directly pay the
annual PPF levy incurred by the STPS (GBP1.4 million in
2018/19).
The next formal actuarial valuations of the Schemes are
currently underway.
The Schemes have entered into additional hedging arrangements to
reduce the impact of fluctuations in interest rates and inflation
on the Schemes' liabilities without adversely impacting the
expected return from the Schemes' assets.
Hafren Dyfrdwy participates in the Dee Valley Water Limited
Section of the Water Companies Pension Scheme ("the Section"). The
Section funds are administered by trustees and are held separately
from the assets of the Group. The Section is closed to new
entrants. The most recent formal actuarial valuation of the Section
was completed as at 31 March 2017 and as a result deficit reduction
contributions to the Section ceased.
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
GBP452.9 million (2018: GBP519.8 million). To calculate the pension
deficit for accounting purposes, we are required to use 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 has improved to 84% (31
March 2018: 82%).
The movements in the net deficit during the year were:
Fair
value Defined
of scheme benefit
assets obligations Net deficit
GBPm GBPm GBPm
-------------------------------------------- ----------- ------------- ------------
At start of the year 2,339.8 (2,859.6) (519.8)
Amounts credited/(charged) to income
statement 58.7 (84.6) (25.9)
Actuarial gains/(losses) taken to reserves 95.9 (38.0) 57.9
Net contributions received and benefits
paid (75.5) 110.4 34.9
At end of the year 2,418.9 (2,871.8) (452.9)
-------------------------------------------- ----------- ------------- ------------
Dividends
In line with our policy for the remainder of AMP6 to increase
the dividend by at least RPI+4% each year, the Board has proposed a
final ordinary dividend of 56.02 pence per share for 2018/19
(2017/18: 51.92 pence per share). This gives a total ordinary
dividend for the year of 93.37 pence (2017/18: 86.55 pence). The
final ordinary dividend is payable on 19 July 2019 to shareholders
on the register at 14 June 2019.
Principal risks and uncertainties
The Board considers the principal risks and uncertainties
affecting the group's business activities to be those detailed
below:
Customer Perception:
-- We may be unable to improve and maintain our levels of
customer service sufficiently to deliver what our customers tell us
they want.
Legal, Political and Regulatory Environment:
-- We may be unable to effectively anticipate and/or influence
future developments in the UK water industry resulting in our
business plans becoming unsustainable.
-- The regulatory landscape is complex and subject to on-going
change. There is a risk that processes may fail or that our
processes may not effectively keep pace with changes in
legislation, leading to the risk of non-compliance. We specifically
continue to engage with the Government, MPs, the Welsh Government,
regulators and other stakeholders about the future shape and
direction of the water sector. The renationalisation of the water
industry remains a possibility in the event of a change of
Government, and any associated changes in Government policy may
fundamentally impact our ability to deliver the Group's strategic
objectives, impacting shareholder value. Our aim is to ensure the
water sector in England and Wales continues to deliver a world
class service for customers, is able to invest for the future and
maximises the benefits to wider society and all stakeholders
through the social and environmental benefits the current model
allows us to deliver. We seek to minimise potential risk and
maximise opportunities through regular communication and robust
scenario planning as Government policy evolves.
Operations, assets and people:
-- We may experience loss of data or interruptions to our key
business systems as a result of cyber threats.
-- We may fail to meet our regulatory targets including targets
from Ofwat in relation to operational performance of our assets
resulting in regulatory penalties.
-- Failure of certain key assets or processes may result in
inability to provide a continuous supply of clean water and safely
take waste water away within our area.
-- Due to the nature of our operations, we could endanger the
health and safety of our people, contractors and members of the
public as well as negatively impact our local and wider
environment.
-- We are unable to deal with the impact of extreme and
unpredictable weather events on our assets and infrastructure
and/or are unable to successfully plan for future water resource
supply and demand due to climate change.
Financial risks:
-- Lower interest rates, higher inflation or underperforming
equity markets may require us to provide more funding for our
pension schemes.
-- We may be unable to fund the business sufficiently in order
to meet our liabilities as they fall due.
The UK's decision to leave the European Union (EU):
-- At the time of writing, the terms of the UK's departure from
the EU ('Brexit') remain uncertain. Brexit does not give rise to a
new principal risk for the Group. However, it does have the
potential to impact risks in other areas of our operations, such as
supply chain, interest rates, availability of funding, regulatory
changes and uncertainty for the domestic economy.
-- Our preparations for a no deal Brexit are well advanced and
include a Brexit Steering Committee to oversee the contingency and
scenario planning necessary to operate effectively if the UK leaves
the EU without transition arrangements. The Committee covers;
Incident Management, People, Procurement, Security and Resilience,
Logistics, Communications, Finance and Capital Delivery. We have
been actively engaged with a Water UK coordinated group called the
Operations Strategy Group (OSG) at an executive level, focusing on
industry preparedness and industry wide testing of response plans
for a no deal scenario. The most significant risk identified is
associated with the availability of chemicals imported into the UK.
We identified this at an early stage and have ensured we have a
robust process for maintaining stock levels.
-- Progress in the Brexit negotiations will continue to be
monitored and the risks and uncertainties will be managed through
our existing ERM process.
Technical Guidance 2019/20
The following technical guidance is presented under the new
segmental basis. Please refer to note 2 to the accounts in the RNS
for more information regarding segmental changes.
Year-end guidance FY 18/19 Year-on-
(new basis) Year
Regulated Water and Waste Water
Turnover(1) GBP1.61 billion to GBP1.64 billion. GBP1.58bn
Opex Higher year-on-year as continued upward GBP600m
sector-wide cost pressures from energy
pass-through costs, licences and materials
offset ongoing efficiency programmes.
IRE GBP145 million to GBP170 million. GBP141m
Customer ODIs(2) At least GBP25 million net reward across GBP(5)m
Water and Waste measures.
--------------------- ----------------------------------------------- ------------- ---------
Business Services
Underlying PBIT Higher year-on-year. GBP44m
(excl. Property)
Underlying Property GBP5 million to GBP10 million. GBP20m
PBIT
--------------------- ----------------------------------------------- ------------- ---------
Group
Interest charge Higher year-on-year due to increased GBP194m
total debt reflecting end of AMP investment
in our capital programme and the acquisition
of Agrivert in the second half of the
prior year.
Total tax rate of c.19% and underlying
effective current tax rate between 10%
Tax rate and 12%. 11.6%
Group capex GBP700 million to GBP800 million. GBP769m
Annual dividend growth of at least RPI
+ 4% until March 2020. 2019/20 dividend
Dividend(3) set at 100.08p. 93.37p
--------------------- ----------------------------------------------- ------------- ---------
Footnotes to technical guidance
1. Includes GBP7m net penalty for ODIs (Customer Outcome
Delivery Incentives, quoted pre-tax at nominal prices) relating to
2017/18 with GBP79 million of that year's net reward deferred to
AMP7
2. Excludes AMP6 SIM ODI outcome. An update will be provided
later in the year following Ofwat's confirmation of the outcome
3. 2019/20 dividend growth is based on November 2018 RPI of 3.19% plus 4%
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) 13 June 2019
Record Date (Final) 14 June 2019
-----------------
AGM 17 July 2019
-----------------
Q1 Trading Update 17 July 2019
-----------------
Dividend Payment Date (Final) 19 July 2019
-----------------
Half Year Results Announcement 2018/19 21 November 2019
-----------------
Ex Dividend Date (Interim) 28 November 2019
-----------------
Record Date (Interim) 29 November 2019
-----------------
Dividend Payment Date (Interim) 3 January 2020
-----------------
For more information please visit:
https://www.severntrent.com/investors/financial-calendar
Consolidated income statement
For the year ended 31 March 2019
2019 2018
(restated
see note
2 a)
Note GBPm GBPm
Turnover 2,3 1,767.4 1,696.4
Other income 19.9 3.9
Operating costs before charge for bad and
doubtful debts, amortisation of acquired
intangible assets and exceptional items (1,188.1) (1,134.7)
Charge for bad and doubtful debts (25.6) (25.8)
-------------------------------------------------- ----- ---------- ----------
Operating costs before amortisation of acquired
intangible assets and exceptional items (1,213.7) (1,160.5)
Amortisation of acquired intangible assets (0.7) -
Exceptional items 4 (9.6) (12.6)
-------------------------------------------------- ----- ---------- ----------
Total operating costs 7 (1,224.0) (1,173.1)
-------------------------------------------------- ----- ---------- ----------
Profit before interest, tax, amortisation
of acquired intangible assets and exceptional
items 573.6 539.8
Amortisation of acquired intangible assets (0.7) -
Exceptional items 4 (9.6) (12.6)
Profit before interest and tax 563.3 527.2
-------------------------------------------------- ----- ---------- ----------
Finance income 5 68.9 67.7
Finance costs 6 (263.1) (287.2)
Net finance costs (194.2) (219.5)
Net gains/(losses) on financial instruments 7 16.0 (6.7)
Share of net (loss)/profit of joint ventures
accounted for using the equity method (0.4) 0.2
Profit on ordinary activities before taxation 384.7 301.2
Current tax 8 (31.8) (32.9)
Deferred tax 8 (37.6) (28.7)
Taxation on profit on ordinary activities 8 (69.4) (61.6)
Profit for the year from continuing operations 315.3 239.6
Profit for the year from discontinued operations 10 - 13.2
Profit for the year 315.3 252.8
-------------------------------------------------- ----- ---------- ----------
Earnings per share (pence)
2019 2018
(restated)
From continuing operations
Basic 133.4 101.8
Diluted 133.2 101.5
From continuing and discontinued operations
Basic 133.4 107.4
Diluted 133.2 107.1
---------------------------------------------- ------ -----------
Consolidated statement of comprehensive income
For the year ended 31 March 2019
2019 2018
(restated
see
note
2 a)
GBPm GBPm
Profit for the year 315.3 252.8
-------------------------------------------------------------- ------- ----------
Other comprehensive income
Items that will not be reclassified to the income statement:
Net actuarial gains 57.9 29.1
Tax on net actuarial gains (12.2) (7.6)
45.7 21.5
-------------------------------------------------------------- ------- ----------
Items that may be reclassified to the income statement:
(Losses)/gains on cash flow hedges (8.6) 5.8
Deferred tax on losses/gains on cash flow hedges 1.5 (1.0)
Amounts on cash flow hedges transferred to the income
statement 8.2 8.2
Deferred tax on transfer to the income statement (1.3) (1.4)
Exchange movement on translation of overseas results and
net assets -- (1.6)
Cumulative exchange gains taken to the income statement -- (29.8)
(0.2) (19.8)
-------------------------------------------------------------- ------- ----------
Other comprehensive income for the year 45.5 1.7
-------------------------------------------------------------- ------- ----------
Total comprehensive income for the year 360.8 254.5
-------------------------------------------------------------- ------- ----------
Consolidated statement of changes in equity
For the year ended 31 March 2019
Equity attributable to owners
of the company
------------------------------------------------------
Share Share Other Retained
capital premium reserves earnings Total
GBPm GBPm GBPm GBPm GBPm
As at 1 April 2017 as previously reported 234.7 112.5 121.8 454.3 923.3
Restatement (see note 2 a) -- -- -- 4.1 4.1
As at 1 April 2017 restated 234.7 112.5 121.8 458.4 927.4
------------------------------------------- --------- --------- ---------- ---------- --------
Profit for the year -- -- -- 252.8 252.8
Gains on cash flow hedges -- -- 5.8 -- 5.8
Deferred tax on gains on cash flow hedges -- -- (1.0) -- (1.0)
Amounts on cash flow hedges transferred
to the income statement -- -- 8.2 -- 8.2
Deferred tax on transfer to the income
statement -- -- (1.4) -- (1.4)
Exchange movement on translation of
overseas results and net assets -- -- (1.6) -- (1.6)
Cumulative exchange gains transferred
to income statement -- -- (29.8) -- (29.8)
Net actuarial gains -- -- -- 29.1 29.1
Tax on net actuarial gains -- -- -- (7.6) (7.6)
Transfer between reserves -- -- (9.0) 9.0 --
Total comprehensive income/(loss) for
the year -- -- (28.8) 283.3 254.5
------------------------------------------- --------- --------- ---------- ---------- --------
Share options and LTIPs
- proceeds from shares issued 0.4 5.2 -- -- 5.6
- value of employees' services -- -- -- 6.9 6.9
Current tax on share based payments -- -- -- 0.8 0.8
Deferred tax on share based payments -- -- -- (1.3) (1.3)
Dividends paid -- -- -- (197.0) (197.0)
As at 31 March 2018 restated 235.1 117.7 93.0 551.1 996.9
------------------------------------------- --------- --------- ---------- ---------- --------
As at 1 April 2018 as previously reported 235.1 117.7 93.0 547.9 993.7
Restatement (see note 2 a) -- -- -- 3.2 3.2
--------- --------- ---------- ---------- --------
As at 1 April 2018 restated 235.1 117.7 93.0 551.1 996.9
------------------------------------------- --------- --------- ---------- ---------- --------
Profit for the year -- -- -- 315.3 315.3
Losses on cash flow hedges -- -- (8.6) -- (8.6)
Deferred tax on losses on cash flow
hedges -- -- 1.5 -- 1.5
Amounts on cash flow hedges transferred
to the income statement -- -- 8.2 -- 8.2
Deferred tax on transfer to the income
statement -- -- (1.3) -- (1.3)
Net actuarial gains -- -- -- 57.9 57.9
Tax on net actuarial gains -- -- -- (12.2) (12.2)
Total comprehensive income/(loss) for
the year -- -- (0.2) 361.0 360.8
------------------------------------------- --------- --------- ---------- ---------- --------
Share options and LTIPs
- proceeds from shares issued 0.8 10.3 -- -- 11.1
- value of employees' services -- -- -- 8.1 8.1
- own shares purchased -- -- -- (1.1) (1.1)
Current tax on share based payments -- -- -- 0.2 0.2
Dividends paid -- -- -- (211.9) (211.9)
As at 31 March 2019 235.9 128.0 92.8 707.4 1,164.1
------------------------------------------- --------- --------- ---------- ---------- --------
Consolidated balance sheet
At 31 March 2019
2019 2018
(restated
see note
2 a)
Note GBPm GBPm
Non-current assets
Goodwill 90.9 62.2
Other intangible assets 124.2 88.4
Property, plant and equipment 9,085.6 8,471.9
Investments in joint ventures and associates 37.0 37.6
Derivative financial instruments 68.4 36.0
Trade and other receivables 204.0 185.3
Retirement benefit surplus 13 18.6 18.2
9,628.7 8,899.6
---------------------------------------------- ----- ------------------------- -------------------------
Current assets
Inventory 20.8 18.5
Trade and other receivables 513.5 456.4
Derivative financial instruments 0.1 0.2
Cash and cash equivalents 41.0 51.1
575.4 526.2
---------------------------------------------- ----- ------------------------- -------------------------
Current liabilities
Borrowings (197.0) (308.7)
Trade and other payables (496.7) (462.6)
Current tax payable (9.3) (8.6)
Provisions for liabilities (32.2) (40.6)
(735.2) (820.5)
---------------------------------------------- ----- ------------------------- -------------------------
Net-current liabilities (159.8) (294.3)
Non-current liabilities
Borrowings (5,857.2) (5,259.1)
Derivative financial instruments (126.5) (116.0)
Trade and other payables (1,082.9) (1,009.4)
Deferred tax (747.5) (675.2)
Retirement benefit obligations 13 (471.5) (538.0)
Provisions for liabilities (19.2) (10.7)
(8,304.8) (7,608.4)
---------------------------------------------- ----- ------------------------- -------------------------
Net assets 1,164.1 996.9
---------------------------------------------- ----- ------------------------- -------------------------
Equity
Called up share capital 235.9 235.1
Share premium account 128.0 117.7
Other reserves 92.8 93.0
Retained earnings 707.4 551.1
Total equity 1,164.1 996.9
---------------------------------------------- ----- ------------------------- -------------------------
Consolidated cash flow statement
For the year ended 31 March 2019
2019 2018
Note GBPm GBPm
------------------------------------------------------- ----- -------- --------
Cash generated from operations 14 826.3 773.3
Tax received 14 -- 8.0
Tax paid 14 (21.3) (14.5)
Net cash generated from operating activities 805.0 766.8
------------------------------------------------------- ----- -------- --------
Cash flows from investing activities
Purchase of subsidiaries net of cash acquired 9 (50.9) (0.2)
Investments in associates and joint ventures (6.2) --
Purchases of property, plant and equipment (782.1) (608.5)
Purchases of intangible assets and goodwill (35.1) (27.3)
Contributions and grants received 46.5 36.8
Proceeds on disposal of subsidiaries net of cash
disposed 10 -- 25.1
Proceeds on disposal of property, plant and equipment 1.4 8.0
Net loans advanced to joint ventures and associates -- (26.6)
Interest received 0.8 6.4
Net cash from investing activities (825.6) (586.3)
------------------------------------------------------- ----- -------- --------
Cash flow from financing activities
Interest paid (158.0) (183.4)
Interest element of finance lease payments (4.4) (5.1)
Dividends paid to shareholders of the parent (211.9) (197.0)
Repayments of borrowings (166.5) (552.6)
Repayments of obligations under finance leases (1.7) (1.8)
New loans raised 554.2 789.2
Issues of shares 11.1 5.6
Swap termination payment -- (40.0)
Purchase of own shares (1.1) --
Net cash flow from financing activities 21.7 (185.1)
------------------------------------------------------- ----- -------- --------
Net movement in cash and cash equivalents 1.1 (4.6)
Net cash and cash equivalents at the beginning
of the year 38.5 44.6
Effect of foreign exchange rates -- (1.5)
Net cash and cash equivalents at end of year 39.6 38.5
------------------------------------------------------- ----- -------- --------
Cash and cash equivalents 41.0 34.7
Bank overdrafts (1.4) (12.6)
Short term deposits -- 16.4
39.6 38.5
------------------------------------------------------- ----- -------- --------
Notes to the financial statements
1. General information
a) Basis of preparation
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS), International
Accounting Standards (IAS) and IFRIC interpretations issued and
effective and ratified by the European Union as at 31 March 2019
and those parts of the Companies Act 2006 applicable to companies
reporting under IFRS as adopted by the European Union. 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.
The financial statements have been prepared on the going concern
basis 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
2019 or 2018, 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 2018 have been
delivered to the Registrar of Companies and those for 2019 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.
b) Changes in accounting policies - IFRS 9 and IFRS 15
In the current financial year the Group has adopted IFRS 9
Financial Instruments and IFRS 15 Revenue from Contracts with
Customers.
The adoption of IFRS 9 has not resulted in any significant
changes to the Group's existing accounting practices for financial
instruments.
The Group has elected to restate comparative information in the
consolidated income statement and related notes, including
Alternative Performance Measures in note 18, upon adoption of IFRS
15.
The core principle of IFRS15 is that an entity should recognise
revenue from the transfer of promised goods or services to
customers in an amount that reflects the consideration the entity
expects to be entitled to in exchange for those goods or services.
The impact of the adoption of IFRS 15 on the Group's business
segments is set out below.
Regulated Water and Waste Water
There will be no change to the timing of recognition of revenue
from charges for water or waste water services.
Business Services
The Operating Services business operates under a series of
bespoke contracts with specific performance obligations. The Group
has applied the methodology set out in IFRS 15 to each of these
contracts in order to identify differences from the current
accounting policy. The most significant differences arise in
relation to the Group's contract to provide water and waste water
services to the Ministry of Defence (MOD). The Group acts as the
service provider under the MOD Project Aquatrine Package C - a 25
year contract spanning 1,295 sites across England covering the
eastern sea border and from Lancashire in the North West to West
Sussex on the South coast.
Under this contract the Group maintains and upgrades the MOD
infrastructure assets and provides operating services for water and
waste water. Both the operating services and maintenance and
upgrade services are charged under a volumetric tariff, along with
standing charges, which are adjusted with inflation as agreed in
the contract.
Under IFRS 15, the expected revenue over the life of the
contract is allocated to the performance obligations based on an
expected margin for each performance obligation over the life of
the contract under the following headings:
-- Operating and maintaining the MOD infrastructure assets;
-- Upgrading the MOD infrastructure assets;
-- Administrating the services received from statutory water and sewerage undertakers;
-- Administrating billing services of the MOD's commercial and Non Base Dependent customers.
Revenue is recognised in line with the delivery of each
performance obligation. The expected whole life revenues and costs
on the contract are updated regularly. Any changes to revenue
relating to performance obligations already delivered are
recognised in the period in which they are identified.
The previous accounting policy for this contract was to
recognise revenue billed under the volumetric tariff at the point
of billing. The expected costs for the upgrade services were
recognised on a straight line basis, before adjusting for expected
inflation, over the life of the contract. The resulting asset was
recognised as a financial asset in accordance with IFRIC 12.
The tables below show the effect of the IFRS 15 adoption on the
income statement, balance sheet and earnings per share for the year
ended 31 March 2018.
Consolidated income statement (extract)
Year ended 31 March 2018
IFRS
As previously 15
reported impact Restated
GBPm GBPm GBPm
-------------------------------------------------------------------------------- -------------- -------- ----------
Turnover 1,694.1 2.3 1,696.4
Operating costs (1,165.7) (3.5) (1,169.2)
-------------------------------------------------------------------------------- -------------- -------- ----------
Profit before interest and tax 528.4 (1.2) 527.2
Net finance costs, losses on financial instruments and results of joint
ventures (226.0) - (226.0)
-------------------------------------------------------------------------------- -------------- -------- ----------
Profit on ordinary activities before taxation 302.4 (1.2) 301.2
Taxation on profit on ordinary activities (61.9) 0.3 (61.6)
-------------------------------------------------------------------------------- -------------- -------- ----------
Profit for the period from continuing operations 240.5 (0.9) 239.6
-------------------------------------------------------------------------------- -------------- -------- ----------
Earnings per share
Year ended 31 March 2018
IFRS
As previously 15
reported impact Restated
pence pence pence
---------------------------------------------------------------- -------------- -------- ---------
Underlying earnings per share
Underlying basic earnings per share 121.0 (0.3) 120.7
Underlying diluted earnings per share 120.6 (0.4) 120.2
---------------------------------------------------------------- -------------- -------- ---------
Earnings per share from continuing operations
Basic earnings per share 102.2 (0.4) 101.8
Diluted earnings per share 101.9 (0.4) 101.5
---------------------------------------------------------------- -------------- -------- ---------
Earnings per share from continuing and discontinued operations
Basic earnings per share 107.8 (0.4) 107.4
Diluted earnings per share 107.5 (0.4) 107.1
---------------------------------------------------------------- -------------- -------- ---------
Consolidated balance sheet (extract)
As at 31 March 2018
As
previously IFRS
reported 15 impact Restated
GBPm GBPm GBPm
----------------------------------------- ------------ ----------- ---------
Non-current trade and other receivables 181.3 4.0 185.3
Deferred tax (674.4) (0.8) (675.2)
Retained earnings 547.9 3.2 551.1
----------------------------------------- ------------ ----------- ---------
2. Segmental analysis
The group is organised into two main business segments:
Regulated Water and Waste Water includes the wholesale water and
waste water activities of Severn Trent Water Limited, its retail
services to domestic customers, and Hafren Dyfrdwy Cyfyngedig.
Business Services includes the Operating Services businesses in
the UK & Ireland, the Green Power business, the Bioresources
business, the Property Development business and our other
businesses including affinity and searches.
In 2017/18 and prior years, the sludge treatment activities of
the Bioresources business were managed by, and included in,
Regulated Water and Waste Water. The renewable energy generating
activities of the Bioresources business were managed by, and
included in, Business Services. These activities are now managed as
a single Bioresources business within Business Services.
On 30 November 2018 the group completed the acquisition of
Agrivert Holdings Limited. This business has been included in the
Business Services segment with effect from that date. Further
details of the acquisition are set out in note 9.
Surplus land in the regulated business is, in certain cases,
sold to Group companies outside the regulatory ring-fence where its
full development potential can be realised. The profits of this
activity are shared between the regulated and non-regulated
businesses through the initial transfer price and overage
agreements relating to the development potential. In 2017/18 and
prior years, the gains from the property development activity
attributable to the regulated business were reported in Regulated
Water and Waste Water and those relating to the non-regulated
business were reported in Corporate and other. All of these
activities are now managed and reported as a single business within
Business Services.
Comparative information for the new segmentation is not
available and the cost to develop it would be excessive. Therefore,
the current period results have been presented on both the old and
new basis of segmentation, in accordance with IFRS 8.
The Severn Trent Executive Committee (STEC) is considered to be
the group's chief operating decision maker. The reports provided to
STEC include segmental information prepared on the new basis
described above. Details of Regulated Water and Waste Water and
Business Services operations are described in the Annual Report and
Accounts.
Results from interests in joint ventures and associates are not
included in the segmental reports reviewed by STEC.
The measure of profit or loss that is reported to STEC for the
segments is underlying PBIT. A segmental analysis of turnover and
underlying PBIT is presented below.
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.
The tables below show the changes from the old to the new
segmentation for turnover and PBIT for the year ended 31 March
2019.
a) Segmental results
Regulated Regulated
Water Water
and Waste and Waste
Water Property Water
(old basis) Bioresources(1) Development(2) (new basis)
Regulated Water and Waste Water GBPm GBPm GBPm GBPm
--------------------------------------------- ------------- ---------------- ---------------- -------------
External turnover 1,637.6 (54.5) -- 1,583.1
Inter-segment turnover -- -- -- --
Total turnover 1,637.6 (54.5) -- 1,583.1
---------------------------------------------
Profit before interest, tax and exceptional
items 544.3 (8.7) (8.6) 527.0
Exceptional items (8.9) -- -- (8.9)
------------- ---------------- ---------------- -------------
Profit before interest and tax 535.4 (8.7) (8.6) 518.1
--------------------------------------------- ------------- ---------------- ---------------- -------------
Business Business
Services Property Services
(old basis) Bioresources(1) Development(2) (new basis)
Business Services GBPm GBPm GBPm GBPm
------------------------------------------- ------------- ---------------- ---------------- -------------
External turnover 128.9 54.5 -- 183.4
Inter-segment turnover 17.5 -- -- 17.5
Total turnover 146.4 54.5 -- 200.9
-------------------------------------------
Profit before interest, tax, amortisation
of acquired intangible assets and
exceptional items 35.5 8.7 19.9 64.1
Exceptional items and amortisation
of acquired intangible assets (1.0) -- -- (1.0)
------------- ---------------- ---------------- -------------
Profit before interest and tax 34.5 8.7 19.9 63.1
------------------------------------------- ------------- ---------------- ---------------- -------------
Corporate Corporate
and other Property and other
(old basis) Development(2) (new basis)
Corporate and other GBPm GBPm GBPm
--------------------------------------------- ------------- ---------------- -------------
External turnover -- -- --
Inter-segment turnover 0.4 -- 0.4
Total turnover 0.4 -- 0.4
---------------------------------------------
Profit before interest, tax and exceptional
items 3.1 (11.3) (8.2)
Exceptional items (0.4) -- (0.4)
--------------------------------------------- ------------- ---------------- -------------
Profit before interest and tax 2.7 (11.3) (8.6)
--------------------------------------------- ------------- ---------------- -------------
(1) In 2017/18 and prior years, the sludge treatment activities
of the Bioresources business were managed by, and included in,
Regulated Water and Waste Water. The renewable energy generating
activities of the Bioresources business were managed by, and
included in, Business Services. These combined activities are now
managed as a single Bioresources business within Business
Services.
(2) In 2017/18 and prior years, the gains from the property
development activity attributable to the regulated business were
reported in Regulated Water and Waste Water and those relating to
the non-regulated business were reported in Corporate and other.
All of these activities are now managed and reported as a single
business within Business Services.
The following table shows the segmental turnover and PBIT on the
old segmentation:
2019 2018
(restated)
----------------------- -----------------------
Regulated Regulated
Water Water
and Waste Business and Waste Business
Water Services Water Services
GBPm GBPm GBPm GBPm
------------------------------------------- ----------- ---------- ----------- ----------
External turnover 1,637.6 128.9 1,574.1 122.2
Inter-segment turnover -- 17.5 0.5 18.8
Total turnover 1,637.6 146.4 1,574.6 141.0
------------------------------------------- ----------- ---------- ----------- ----------
Profit before interest, tax, amortisation
of acquired intangible assets and
exceptional items 544.3 35.5 514.9 34.8
Exceptional items and amortisation
of acquired intangible assets(see
note 4) (8.9) (1.0) (11.1) (1.9)
Profit before interest and tax 535.4 34.5 503.8 32.9
------------------------------------------- ----------- ---------- ----------- ----------
The reportable segments' turnover is reconciled to group
turnover as follows:
2019 2019 2018
(new basis) (old basis) (restated)
GBPm GBPm GBPm
--------------------------------- ------------ ------------ -----------
Regulated Water and Waste Water 1,583.1 1,637.6 1,574.6
Business Services 200.9 146.4 141.0
Corporate and other 0.4 0.4 9.0
Consolidation adjustments (17.0) (17.0) (28.2)
1,767.4 1,767.4 1,696.4
--------------------------------- ------------ ------------ -----------
Segmental underlying PBIT is reconciled to the group's profit
before tax as follows:
2019 2019 2018
(new basis) (old basis) (restated)
GBPm GBPm GBPm
------------------------------------------------ ------------ ------------ -----------
Regulated Water and Waste Water 527.0 544.3 514.9
Business Services 64.1 35.5 34.8
Corporate and other (8.2) 3.1 (9.7)
Consolidation adjustments (9.3) (9.3) (0.2)
------------ ------------ -----------
Profit before interest, tax, amortisation
of acquired intangible assets and exceptional
items 573.6 573.6 539.8
Exceptional items and amortisation of
acquired intangible assets:
Regulated Water and Waste Water (8.9) (8.9) (11.1)
Business Services (1.0) (1.0) (1.8)
Corporate and other (0.4) (0.4) 0.3
Net finance costs (194.2) (194.2) (219.5)
Net losses on financial instruments 16.0 16.0 (6.7)
Share of (loss)/profit of joint ventures (0.4) (0.4) 0.2
Profit before tax 384.7 384.7 301.2
------------------------------------------------ ------------ ------------ -----------
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 following table shows the segmental capital employed:
Regulated
Water
and Waste
Regulated Water Water
and Waste Water Property (new
(old basis) Bioresources Development basis)
Regulated Water and Waste Water GBPm GBPm GBPm GBPm
--------------------------------- ----------------- ------------- ------------- -----------
Operating assets 9,501.9 (287.5) -- 9,214.4
Goodwill 63.5 -- -- 63.5
Interests in joint ventures and
associates -- -- -- --
----------------- ------------- ------------- -----------
Segment assets 9,565.4 (287.5) -- 9,277.9
Segment operating liabilities (1,993.4) 7.1 -- (1,986.3)
----------------- ------------- ------------- -----------
Capital employed 7,572.0 (280.4) -- 7,291.6
--------------------------------- ----------------- ------------- ------------- -----------
Business
Business Services
Services Property (new
(old basis) Bioresources Development basis)
Business Services GBPm GBPm GBPm GBPm
-------------------------------------------- ------------- ------------- ------------- ----------
Operating assets 314.7 287.5 20.1 622.3
Goodwill 28.7 -- -- 28.7
Interests in joint ventures and associates 37.0 -- -- 37.0
------------- ------------- ------------- ----------
Segment assets 380.4 287.5 20.1 688.0
Segment operating liabilities (55.2) (7.1) (6.4) (68.7)
------------- ------------- ------------- ----------
Capital employed 325.2 280.4 13.7 619.3
-------------------------------------------- ------------- ------------- ------------- ----------
Corporate
Corporate and other
and other Property (new
(old basis) Development basis)
Corporate and other GBPm GBPm GBPm
-------------------------------------------- ------------- ------------- -----------
Operating assets 24.1 (20.1) 4.0
Goodwill -- -- --
Interests in joint ventures and associates -- -- --
------------- -------------
Segment assets 24.1 (20.1) 4.0
Segment operating liabilities (68.7) 6.4 (62.3)
------------- ------------- -----------
Capital employed (44.6) (13.7) (58.3)
-------------------------------------------- ------------- ------------- -----------
The following table shows segmental capital employed on the old
basis:
2019 2018
(restated)
----------------------- -----------------------
Regulated Regulated
Water Water
and Waste Business and Waste Business
Water Services Water Services
GBPm GBPm GBPm GBPm
-------------------------------------------- ----------- ---------- ----------- ----------
Operating assets 9,501.9 314.7 8,900.8 200.6
Goodwill 63.5 28.7 63.5 --
Interests in joint ventures and associates -- 37.0 -- 37.6
Segment assets 9,565.4 380.4 8,964.3 238.2
Segment operating liabilities (1,993.4) (55.2) (1,957.6) (42.7)
Capital employed 7,572.0 325.2 7,006.7 195.5
-------------------------------------------- ----------- ---------- ----------- ----------
Operating assets comprise other intangible assets, property,
plant and equipment, 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
type of revenue and by business below:
Regulated
Year ended 31 March Water and Operating Green
2019 Waste Water Services Power Bioresources Other Group
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------------- ---------- ------- ------------- ------ --------
Water and waste
water services 1,581.7 -- -- 54.5 -- 1,636.2
Operating services -- 57.1 -- -- -- 57.1
Renewable energy -- -- 17.2 29.0 -- 46.2
Other sales 1.4 -- -- -- 26.5 27.9
1,583.1 57.1 17.2 83.5 26.5 1,767.4
--------------------- ------------- ---------- ------- ------------- ------ --------
The tables below show segmental turnover on the old basis of
segmentation:
Regulated
Water and Business
Year ended 31 March 2019 Waste Water Services Group
GBPm GBPm GBPm
-------------------------- ------------- ---------- --------
Water and waste water
services 1,636.2 -- 1,636.2
Operating services -- 57.1 57.1
Renewable energy -- 46.2 46.2
Other sales 1.4 26.5 27.9
1,637.6 129.8 1,767.4
-------------------------- ------------- ---------- --------
Regulated
Water and Business
Year ended 31 March 2018 Waste Water Services Group
GBPm GBPm GBPm
-------------------------- ------------- ---------- --------
Water and waste water
services 1,568.9 -- 1,568.9
Operating services -- 63.0 63.0
Renewable energy -- 41.6 41.6
Other sales 5.2 17.7 22.9
1,574.1 122.3 1,696.4
-------------------------- ------------- ---------- --------
4. Exceptional items before tax
The group classifies items of income or expenditure as
exceptional if individually or, if of a similar type, in aggregate
they 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.
2019 2018
GBPm GBPm
---------------------------------- ------ -------
Regulated Water and Waste Water
Restructuring costs -- (18.8)
Gain arising on pension exchange
arrangement -- 7.7
GMP equalisation costs (8.9) --
(8.9) (11.1)
---------------------------------- ------ -------
Business Services
Restructuring costs -- (2.1)
Gain arising on pension exchange
arrangement -- 0.3
GMP equalisation costs (0.3) --
(0.3) (1.8)
---------------------------------- ------ -------
Corporate and Other
Gain arising on pension exchange
arrangement -- 0.3
GMP equalisation costs (0.4) --
(0.4) 0.3
---------------------------------- ------ -------
(9.6) (12.6)
---------------------------------- ------ -------
5. Finance income
2019 2018
GBPm GBPm
Interest income earned on bank deposits 0.2 0.5
Other financial income 7.7 5.2
------------------------------------------ ----- -----
Total interest receivable 7.9 5.7
Interest income on defined benefit
scheme assets 61.0 62.0
68.9 67.7
----------------------------------------- ----- -----
6. Finance costs
2019 2018
GBPm GBPm
Interest expense charged on:
Bank loans and overdrafts 21.3 19.2
Other loans 153.0 183.4
Finance leases 4.4 4.4
Total borrowing costs 178.7 207.0
Other financial expenses 9.6 2.7
Interest cost on defined benefit scheme
liabilities 74.8 77.5
263.1 287.2
----------------------------------------- ------ ------
7. Net gains/(losses) on financial instruments
2019 2018
GBPm GBPm
------ -------
Gain/(loss) on swaps used as hedging instruments
in fair value hedges 0.3 (1.1)
Gain arising on debt in fair value hedges 0.5 --
Exchange (loss)/gain on other loans (8.1) 12.7
Loss on cash flow hedges transferred from
equity (8.2) (8.2)
Hedge ineffectiveness on cash flow hedges 1.9 1.4
Gain/(loss) arising on swaps where hedge
accounting is not applied 28.5 (12.6)
Amortisation of fair value adjustment on
debt 1.1 1.1
16.0 (6.7)
-------------------------------------------------- ------ -------
8. Tax
2019 2018
(restated)
GBPm GBPm
------ -----------
Current tax at 19% (2018: 19%)
Current year 41.2 36.8
Prior years (9.4) (3.9)
Total current tax 31.8 32.9
---------------------------------------------------- ------ -----------
Deferred tax
Origination and reversal of temporary differences:
Current year 30.1 21.1
Prior years 7.5 7.6
Total deferred tax 37.6 28.7
---------------------------------------------------- ------ -----------
69.4 61.6
---------------------------------------------------- ------ -----------
9. Acquisitions
On 30 November 2018, Severn Trent Green Power Limited acquired
100% of the issued share capital of Agrivert Holdings Limited.
The acquisition has been accounted for using the acquisition
method. Goodwill of GBP28.7 million has been capitalised
attributable to the anticipated future opportunities and
outperformance arising as a result of the acquisition.
No goodwill related to these acquisitions is expected to be
deductible for tax purposes.
The residual excess over the net assets acquired has been
recognised as goodwill.
GBPm
-------------------------------------------------------------------- --------
Provisional fair values on acquisition
Intangible assets 31.5
Property, plant and equipment 69.4
Inventories 0.6
Trade and other receivables 9.4
Cash and cash deposits 3.3
Borrowings (63.0)
Trade and other payables (4.9)
Provisions for liabilities (0.5)
Deferred tax (13.2)
Net assets acquired 32.6
Goodwill 28.7
Total consideration 61.3
-------------------------------------------------------------------- --------
Satisfied by:
Cash 54.2
Deferred consideration 4.1
Contingent consideration 3.0
61.3
-------------------------------------------------------------------- --------
Net cash flows arising on acquisition:
Cash consideration (54.2)
Cash and cash deposits acquired 3.3
(50.9)
-------------------------------------------------------------------- --------
Agrivert Group Limited for the period since acquisition to
31 March 2019:
Revenue 9.2
Profit before tax 0.9
Severn Trent Group for the year ended 31 March 2019 if acquisition
had happened on 1 April 2018:
Revenue 1,793.7
Profit before tax 385.7
-------------------------------------------------------------------- --------
As outlined by IFRS 3, management has until the earliest of the
date at which all information required is received or one year from
the acquisition date in order to satisfy the measurement period
criteria.
Acquisition related costs amounting to GBP3.6 million were
recognised as an expense in the income statement. No other
acquisition costs were recognised.
10. Discontinued operations
Operating Services US
The disposal of the group's US business (Operating Services,
US), which formed part of the Business Services segment, to US
investors PPC Enterprises LLC and Alston Capital Partners LLC was
completed on 30 June 2017.
The results of discontinued operations are disclosed separately
in the income statement and comprise:
2019 2018
GBPm GBPm
-------
Turnover -- 42.1
Total operating costs -- (42.2)
Loss before interest and
tax -- (0.1)
Net finance income -- --
Loss before tax -- (0.1)
Attributable tax expense -- 0.3
Gain on disposal of discontinued
operations -- 13.0
Profit for the period attributable to owners
of the company -- 13.2
--------------------------------------------------- ------ -------
Basic and diluted earnings per share from discontinued
operations are as follows:
2019 2018
------------------------------------------ ---------------------------------------
Profit Profit
attributable Weighted attributable Weighted
to owners average to owners average
of the number Per share of the number Per share
company of shares amount company of shares amount
GBPm m pence GBPm m pence
Basic earnings per share -- -- -- 13.2 235.3 5.6
Diluted earnings per
share -- -- -- 13.2 236.1 5.6
-------------------------- --------------- ------------ ------------ -------------- ----------- ----------
11. Dividends
Amounts recognised as distributions to owners of the company in
the year:
2019 2018
----------- ------ ----------- ------
Pence Pence
per share GBPm per share GBPm
-------------------------------------- ----------- ------ ----------- ------
Final dividend for the year ended
31 March 2018 (2017) 51.92 122.9 48.90 115.2
Interim dividend for the year ended
31 March 2019 (2018) 37.35 89.0 34.63 81.8
Total dividends paid 89.27 211.9 83.53 197.0
-------------------------------------- ----------- ------ ----------- ------
Proposed final dividend for the year
ended 31 March 2019 56.02 135.0
-------------------------------------- ----------- ------ ----------- ------
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.
12. Earnings 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 period, 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.
Basic and diluted earnings per share from continuing and
discontinued operations are calculated on the basis of profit from
continuing and discontinued operations attributable to the owners
of the company.
The calculation of basic and diluted earnings per share is based
on the following:
Earnings for the purpose of basic and diluted earnings per share
from continuing operations
2019 2018
(restated)
GBPm GBPm
Profit for the year 315.3 252.8
Adjusted for profit from discontinued operations
(see note 10) -- (13.2)
Profit for the year from continuing operations 315.3 239.6
--------------------------------------------------- ------ -----------
Number of shares
2019 2018
m m
---------------------------------------------------- ------ ------
Weighted average number of ordinary shares for the
purpose of basic earnings per share 236.3 235.3
Effect of dilutive potential ordinary shares:
- share options and LTIPs 0.4 0.8
Weighted average number of ordinary shares for the
purpose of diluted earnings per share 236.7 236.1
----------------------------------------------------- ------ ------
b) Underlying earnings per share
2019 2018
(restated)
pence pence
Underlying basic earnings per share 145.8 120.5
Underlying diluted earnings per share 145.6 120.1
---------------------------------------- ------ -----------
Underlying earnings per share figures are presented for
continuing operations. These exclude the effects of exceptional
items, net gains/losses on financial instruments, current tax on
exceptional items and on net gains/losses on financial instruments
and deferred tax in both 2019 and 2018. The directors consider that
the underlying figures provide a useful additional indicator of
performance. The denominators used in the calculations of
underlying basic and diluted earnings per share are the same as
those used in the unadjusted figures set out above.
The adjustments to earnings are as follows:
2019 2018
(restated)
GBPm GBPm
Earnings for the purpose of basic and diluted earnings
per share from continuing operations 315.3 239.6
Adjustments for:
- exceptional items before tax 9.6 12.6
- current tax related to exceptional items -- (0.7)
- amortisation of acquired intangible assets 0.7 --
- net (gains)/losses on financial instruments (16.0) 6.7
- current tax on net gains/losses on financial instruments (2.6) (3.3)
- deferred tax 37.6 28.7
-------------------------------------------------------------
Earnings for the purpose of underlying basic and
diluted earnings per share 344.6 283.6
------------------------------------------------------------- ------- -----------
13. 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 2016. 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 2017.
The assumptions used in calculating the defined benefit
obligations as at 31 March 2019 have been updated to reflect market
conditions prevailing at the balance sheet date as follows.
2019 2018
% %
-------------------------------- ----- -----
Price inflation - RPI 3.2 3.1
Price inflation - CPI 2.2 2.1
Discount rate 2.5 2.7
Pension increases in payment 3.2 3.1
Pension increases in deferment 3.2 3.1
--------------------------------- ----- -----
2019 2018
--------------------------------------------------------------------------------------- ----- -----
Remaining life expectancy for members currently aged 65 (years)
- men 21.9 22.4
- women 23.6 24.1
Remaining life expectancy for members currently aged 45 upon retirement at 65 (years)
- men 22.9 23.4
- women 24.8 25.3
--------------------------------------------------------------------------------------- ----- -----
The calculation of the scheme obligations is sensitive to the
actuarial assumptions and in particular to the assumptions relating
to 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 GBP46/GBP47
0.1% pa million
Price inflation Increase/decrease by Increase/decrease by GBP40/GBP39
0.1% pa million
Mortality Increase in life expectancy Increase by GBP106 million
by 1 year
---------------- ---------------------------- ---------------------------------
The defined benefit assets have been updated to reflect their
market value as at 31 March 2019. 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 and
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 2018 2,339.8 (2,859.6) (519.8)
Exceptional past service cost - (9.6) (9.6)
Current service cost - (0.2) (0.2)
Scheme administration costs (2.3) - (2.3)
Interest income/(cost) 61.0 (74.8) (13.8)
Return on plan assets 95.9 - 95.9
Actuarial losses recognised in the statement of comprehensive income - (38.0) (38.0)
Contributions from the sponsoring companies 34.9 34.9
Employees' contributions and benefits paid (110.4) 110.4 -
---------------- ------------- ------------
At 31 March 2019 2,418.9 (2,871.8) (452.9)
---------------------------------------------------------------------- ---------------- ------------- ------------
The net deficit is presented on the balance sheet as
follows:
2019 2018
GBPm GBPm
-------------------------------- -------- --------
Retirement benefit surplus 18.6 18.2
Retirement benefit obligations (471.5) (538.0)
-------------------------------- -------- --------
(452.9) (519.8)
-------------------------------- -------- --------
14. Cash flow
a) Reconciliation of operating profit to operating cash
flows
2019 2018
(restated)
GBPm GBPm
Profit before interest and tax from continuing
operations 563.3 527.2
Profit before interest and tax from discontinued
operations -- 13.6
Profit before interest and tax 563.3 540.8
Depreciation of property, plant and equipment 315.4 308.8
Amortisation of intangible assets 30.5 20.8
Pension service cost 9.8 (7.8)
Defined benefit pension scheme administration costs 2.3 1.8
Defined benefit pension scheme contributions (34.9) (35.2)
Share based payment charge 8.1 6.9
Loss/(profit) on sale of property, plant and equipment
and intangible assets 0.6 (7.3)
Exceptional depreciation - property, plant and
equipment -- 16.8
Profit on disposal of businesses" -- (13.7)
Deferred income movement (14.7) (14.3)
Provisions charged to the income statement 12.2 13.8
Utilisation of provisions for liabilities and charges (12.8) (5.4)
Operating cash flows before movements in working
capital 879.8 826.0
Increase in inventory (1.7) (2.9)
Increase in amounts receivable (60.0) (58.4)
Increase in amounts payable 8.2 8.6
Cash generated from operations 826.3 773.3
Tax received -- 8.0
Tax paid (21.3) (14.5)
Net cash generated from operating activities 805.0 766.8
--------------------------------------------------------- ------- -----------
b) Non-cash transactions
No additions to property, plant and equipment during the year
were financed by new finance leases (2018: nil). Assets transferred
from developers and under Private Drains and Sewers legislation at
no cost were recognised as their fair value of GBP42.1 million
(2018: GBP35.3 million).
c) Reconciliation of movements in net debt
Liabilities from financing activities comprise bank loans, other
loans and finance leases.
Loans
Net cash Cross due from
and cash currency joint
equivalents Bank Other Finance swaps ventures Net debt
GBPm loans loans leases GBPm GBPm GBPm
As at 1 April 2018 38.5 (1,217.4) (4,223.9) (113.9) 24.5 135.6 (5,356.6)
Cash flow (2.2) 163.5 (551.8) 2.3 -- 6.0 (382.2)
Fair value adjustments -- -- 1.6 -- 12.6 -- 14.2
RPI uplift on index-linked
debt -- (2.9) (36.8) -- -- -- (39.7)
Debt acquired on acquisition 3.3 (62.4) -- (0.6) -- -- (59.7)
Foreign exchange -- -- (8.1) -- -- -- (8.1)
Other non-cash movements -- (0.9) (1.5) -- -- 0.4 (2.0)
As at 31 March 2019 39.6 (1,120.1) (4,820.5) (112.2) 37.1 142.0 (5,834.1)
------------------------------ ------------- ---------- ---------- -------- ---------- ---------- ----------
15. Post balance sheet events
Dividends
Following the year end the board of directors have approved a
final dividend of 56.02 pence per share. Further details of this
are shown in note 11.
16. Contingent liabilities
Bonds and guarantees
Group undertakings have entered into bonds and guarantees in the
normal course of business. No liability (2018: GBPnil) is expected
to arise in respect of either bonds or guarantees.
17. 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.
Water Plus
-----------------
2019 2018
GBPm GBPm
--------------------- -------- -------
Sale of services 335.0 354.9
Net interest income 3.8 2.2
---------------------- -------- -------
338.8 357.1
--------------------- -------- -------
Outstanding balances between the Group and the joint venture as
at 31 March were as follows:
Water Plus
-----------------
2019 2018
GBPm GBPm
------------------------------------------------------ -------- -------
Trade and other receivables due from related parties 2.3 44.9
Loans receivable from joint ventures 142.0 135.6
------------------------------------------------------- -------- -------
144.3 180.5
------------------------------------------------------ -------- -------
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
13.
18. Alternative performance measures
Financial measures or metrics used in this report that are not
defined by IFRS are alternative performance measures ('APMs'). 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 with
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, if of a similar type, in aggregate 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.
b) Underlying PBIT
Underlying profit before interest and tax is profit before
interest and tax excluding exceptional items as recorded in the
income statement and amortisation of intangible assets recognised
on acquisition of subsidiaries. This provides a consistent measure
of operating performance excluding distortions caused by these
items and reflecting the operational performance of the acquired
subsidiaries. Following the acquisition of Agrivert this APM was
updated to include adjustment of amortisation on acquired
intangible assets. The calculation of this APM is shown on the face
of the income statement and in note 2 for reportable segments.
c) Underlying earnings per share
Underlying earnings per share figures are presented for
continuing operations. These exclude the effects of exceptional
items, amortisation of intangible assets recognised on acquisition
of subsidiaries, net gains/losses on financial instruments, current
tax on exceptional items and on net gains/losses on financial
instruments, exceptional current tax and deferred tax. The
directors consider that the underlying figures provide a useful
additional indicator of performance and remove non-performance
related distortions. See note 12.
d) 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 14.
e) Effective interest rate
The effective interest rate 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.
(net finance costs - net finance costs from pensions +
capitalised finance costs)
(monthly average net debt)
2019 2018
(restated)
GBPm GBPm
-------- -----------
Net finance costs 194.2 219.5
Net finance costs from pensions (13.8) (15.5)
Capitalised interest 33.2 26.2
213.6 230.2
--------------------------------- -------- -----------
Average net debt 5,547.7 5,134.4
Effective interest rate 3.9% 4.5%
--------------------------------- -------- -----------
This APM is used as it shows the average interest rate that is
attributable to the net debt of the business.
f) Effective cash cost of interest
The effective cash cost of interest is calculated on the same
basis as the effective interest rate 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).
(net finance costs - net finance costs from pensions - RPI
interest + capitalised finance costs)
(monthly average net debt)
2019 2018
(restated)
GBPm GBPm
--------------------------------- -------- -----------
Net finance costs 194.2 219.5
Net finance costs from pensions (13.8) (15.5)
RPI interest (39.7) (54.1)
Capitalised interest 33.2 26.2
---------------------------------
173.9 176.1
--------------------------------- -------- -----------
- -
Average net debt 5,547.7 5,134.4
--------------------------------- -------- -----------
- -
Effective cash cost of interest 3.1% 3.4%
--------------------------------- -------- -----------
This is used as it shows the average cash interest rate based on
the net debt of the business.
g) PBIT interest cover
The ratio of underlying PBIT (see (b) above) to net finance
costs excluding net finance costs from pensions.
underlying PBIT
(net finance costs - net finance costs from pensions)
2019 2018
(restated)
GBPm GBPm
------- -----------
Underlying PBIT 573.6 539.8
------------------------------------- ------- -----------
Net finance costs 194.2 219.5
Net finance costs from pensions (13.8) (15.5)
Net finance costs excluding finance
costs from pensions 180.4 204.0
------------------------------------- ------- -----------
PBIT interest cover ratio 3.2 2.6
------------------------------------- ------- -----------
This is used to show how the underlying PBIT of the business
covers the financing costs associated only with net debt on a
consistent basis.
h) EBITDA and EBITDA interest cover
The ratio of profit from continuing operations before interest,
tax, exceptional items, depreciation and amortisation to net
finance costs excluding net finance costs from pensions.
(underlying PBIT + depreciation + amortisation)
(net finance costs - net finance costs from pensions)
2019 2018
(restated)
GBPm GBPm
----------------------------------------------------------- ------- -----------
Underlying PBIT 573.6 539.8
Depreciation 315.4 308.2
Amortisation (excluding amortisation of intangible assets
recognised on acquisition of subsidiaries) 29.8 20.5
EBITDA 918.8 868.5
----------------------------------------------------------- ------- -----------
Net finance costs 194.2 219.5
Net finance costs from pensions (13.8) (15.5)
Net finance costs excluding finance costs from pensions 180.4 204.0
----------------------------------------------------------- ------- -----------
EBITDA interest cover ratio 5.1 4.3
----------------------------------------------------------- ------- -----------
This is used to show how the EBITDA of the business covers the
financing costs associated only with net debt on a consistent
basis.
i) Underlying effective current tax rate
Current tax charge for the year on continuing operations,
excluding prior year charges, exceptional current tax, and current
tax on exceptional items and on financial instruments, divided by
profit from continuing operations before tax, net gains/losses on
financial instruments, exceptional items and share of net profit of
joint ventures accounted for using the equity method.
(Current year current tax charge in the income statement - tax
on exceptional items - tax on financial instruments)
(PBT - share of net profit of JVs - exceptional items - net
losses on financial instruments)
2019 2018
(restated)
------- --------- ----------- -----------
Current Current
tax tax
thereon thereon
GBPm GBPm GBPm GBPm
---------------------------------------------- ------- --------- ----------- -----------
Profit before tax 384.7 (41.2) 301.2 (36.8)
---------------------------------------------- ------- --------- ----------- -----------
Adjustments:
Share of net (profit)/loss of joint ventures 0.4 -- (0.2) --
Exceptional items 9.6 - 12.6 (0.7)
Net (gains)/losses on financial instruments (16.0) (2.6) 6.7 (3.3)
378.7 (43.8) 320.3 (40.8)
---------------------------------------------- ------- --------- ----------- -----------
11.6% 12.7%
---------------------------------------------- ------- --------- ----------- -----------
This APM is used to be remove distortions in the tax charge and
create a metric consistent with the calculation of underlying
earnings per share in note 12. Share of net profit of joint
ventures is excluded from the calculation because this is included
after tax and the tax on joint venture profits is therefore not
included in the current tax charge.
Glossary
Asset Management Plan (AMP)
Price limit periods are sometimes known as AMP (Asset Management
Plan) periods. The current period is known as AMP6 (2015-2020)
because it is the sixth cycle since the water industry was
privatised in 1989.
C-MeX (Customer Measure of Experience)
The proposed Customer Measure of Experience (C-MeX) will replace
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.
PR14 / 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) will 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 Regulated 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.
Service Incentive Mechanism (SIM)
The SIM allows comparison of companies' customer service
performance. It measures the following aspects of service
delivery:
i) Where customers have made contact regarding a service issue,
for example, phoning about a billing error or writing to complain
about a water supply problem.
ii) A customer survey measuring how well companies have handled
all types of customer contacts, not just when things have gone
wrong.
Companies receive rewards or penalties in the Price Review
depending on their SIM performance.
Totex
Totex (shortened form of total expenditure) includes operating
expenditure (opex), infrastructure renewals expenditure (IRE) and
capital expenditure (capex).
Waste cap
The limit on the amount of outperformance payments for waste
water related customer ODIs. For Severn Trent in AMP6 this is
GBP190 million.
WRFIM (Wholesale Revenue Forecasting Incentive Mechanism)
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 latest Annual Report and Accounts
(which have not been updated since the date of its publication);
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
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SEFFUSFUSEFI
(END) Dow Jones Newswires
May 21, 2019 02:01 ET (06:01 GMT)
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