Severn Trent Financially resilient, with results in line with expectations

Severn Trent PLC (LON:SVT) has today issued its preliminary announcement of annual results for the year to 31 March 2020.

Operationally and financially resilient as we begin our new regulatory period

Responding to COVID-19 by supporting our colleagues, customers and communities:

·    The health, safety and wellbeing of colleagues remains our first priority with adapted ways of working, mental health support and financial security assurances for frontline and home-working teams.

·    Operations remain resilient, as our agile approach enables us to continue delivering services reliably.

·    Customers supported with well-established social tariff schemes for those struggling to pay their bills and £3.5 million available through Severn Trent Trust Fund to further support those in need.

·    COVID-19 £1 million emergency fund¹ established with over £500k already donated to c.200 organisations.

·    Supporting SME suppliers with immediate payment and commitments to invest, providing much needed certainty for our supply chain.

Well placed for AMP7² after strong final year of AMP6²:

·    Continued improvements in key customer measures³ with year-on-year reductions in leakage (4%), supply interruptions (61%), water quality complaints (14%) and pollutions (11%).

·    Environmental performance contributing strongly to annual customer ODI⁴ outperformance of £36 million, taking total for AMP6 to £174 million, with £191 million (in nominal prices) deferred to AMP7 revenue.

·    Substantial £800 million capex investment in year completes £3 billion AMP6 programme, delivers flagship Birmingham Resilience Programme, improves 1,600km of river quality and provides a fast start to AMP7.

·    Industry leading 4* EPA accreditation anticipated⁵ from EA, reflecting strong environmental performance.

·    491GWh of renewable energy generated, equivalent to 51% of our energy needs, with the remainder purchased from renewable sources from 1 April 2020 – ten years ahead of our 2030 target.

·    £10 million Severn Trent Community Fund, made up of 1% of Severn Trent Water AMP7 profits, launched in April with over £400k already awarded in addition to amounts donated through our emergency fund.

Financially resilient, with results in line with expectations:

·    Group turnover of £1,844 million, up £76 million (4.3%).

·    Group underlying PBIT⁶ of £570 million, down £3 million (0.6%) following the deferral of customer ODIs to AMP7, an increase in our bad debt provision and a significant property sale in the prior year.

·    Group reported PBIT⁷ of £568 million, up £5 million (0.9%).

·    Effective interest cost reduced by a further 20bps to 3.7%, taking the total reduction over five years to 170bps.

·    Cumulative AMP6 RoRE⁸ of 8.5%, delivered across all three levers of outperformance.

·    Underlying basic EPS⁹ of 146.0 pence (up 0.1%) reflects lower underlying PBIT offset by improved finance costs.

·    We have recorded an exceptional loss of £46.8 million and provided £4.9 million against a loan receivable in relation to our joint venture, Water Plus; largely driven by impact of COVID-19 on the non-household retail market.

·    Reported profit after tax of £159 million (down 49.6%) and basic EPS of 66.7 pence (down 50.0%) after exceptional Water Plus losses and exceptional deferred tax charge from the rate change¹⁰ of £91.8 million.

·    Well positioned to manage the financial impacts of COVID-19 with £755 million undrawn debt facilities, £200 million raised on US Private Placement market and less than 2.5% of debt maturing in FY21.

·    IAS19 pension deficit of £234 million – down £219 million, reflecting temporary spike in credit spreads at year end, and lower long-term RPI forecast. Triennial contributions agreed in November 2019.

·    Proposed final dividend of 60.05 pence, in line with policy.

Liv Garfield, Chief Executive, Severn Trent, said:

“Operationally, this has been another year where we have delivered for all of our stakeholders. However, the last few weeks have been extraordinary; not only for our business, but for the country. I want to say thank you to all of my awesome colleagues; it has been a challenging time, and across each and every part of the business, they have shown amazing commitment to ensuring our customers have continued access to one of life’s essentials. We know that this is a difficult time for our customers, and I am incredibly proud of the ways in which the business has responded. We also understand that for many people this will be a difficult time financially, and we have stepped up our support for those on our Priority Services Register and customers that need extra help with their bills.

Our business remains strong and we have made further progress against the things that really matter to our customers with leakage, supply interruptions and water quality complaints all improving. We have invested £3 billion in our long- term future over the past five years and are now very focused on emerging from this crisis in the best possible shape to deliver against the exciting plans we have set out for the next five years.”

 Group results

Footnotes to pages 1 and 2 of this RNS

1.     Comprising £500,000 re-directed from our newly established Community Fund and £500,000 of historical share forfeiture proceeds.

2.     AMP: Asset Management Plan; AMP6: the regulatory period from 2015-2020; AMP7: the regulatory period from 2020-2025.

3.     References to 2019/20 or year-on-year movement on performance commitments relate to Severn Trent Water as it operates today, following the realignment to the Welsh boundary. In order to allow for a like-for-like comparison, all references to performance over the AMP relate to Severn Trent Water as it operated prior to the realignment.

4.     ODIs = Outcome Delivery Incentives, quoted pre-tax and in 2012/13 prices unless otherwise stated.

5.     Environmental Performance Assessment (EPA) status is expected to be confirmed by the Environment Agency (EA) later this year.

6.     Underlying profit before interest and tax (PBIT) excludes exceptional operating items and amortisation of acquired intangible assets.

7.     Exceptional items before tax are set out in note 4.

8.     Return on Regulated Equity quoted net, pre-tax at 2012/13 prices, using Ofwat’s RoRE methodology.

9.     Underlying basic earnings per share is set out in note 11.

10.   In March 2020 the Government’s proposal to reverse its previous decision to reduce the corporation tax rate to 17% with effect from 1 April 2020 was substantively enacted.