# Severn Trent Financially resilient, with results in line with expectations

- Link: https://www.directorstalkinterviews.com/severn-trent-financially-resilient-with-results-in-line-with-expectations/412823576
- Published: 2020-05-20T07:32:31+01:00
- Author: Amilia Stone

**[Severn Trent PLC](https://www.directorstalkinterviews.com/ftse-company/severn-trent/svt.l)**(
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 fund^(1) 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 AMP7****^(2)**** after strong final year of AMP6****^(2)****:**

·    Continued improvements in key customer measures^(3) 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 ODI^(4) 
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 anticipated^(5) 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 PBIT^(6) 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 PBIT^(7) 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 RoRE^(8) of 8.5%, delivered across all three levers of outperformance.

·    Underlying basic EPS^(9) 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 change^(10) 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**

|   |   | **2020 £m** | 2019 £m | Increase/ (decrease)% | 
| Group turnover |   | **1,843.5** | 1,767.4 | 4.3 | 
| Underlying Group PBIT^(6)  |   | **570.3** | 573.6 | (0.6) | 
| Group PBIT |   | **568.2** | 563.3 | 0.9 |

|   |   | **pence/share** | pence/share | Increase/(decrease)% | 
| Underlying basic EPS^(9) |   | **146.0** | 145.8 | 0.1 | 
| Basic earnings per share |   | **66.7** | 133.4 | (50.0) | 
| Total ordinary dividends |   | **100.08** | 93.37 | 7.2 |

**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._

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