TIDMSVT
RNS Number : 6346Z
Severn Trent PLC
12 December 2014
12 December 2014
Severn Trent Plc - Severn Trent Water response to Final
Determination
Note: 2012/13 prices unless stated otherwise
Ofwat has today published the Final Determination for Severn
Trent Water for the period 2015 to 2020 ("AMP6").
The Final Determination is a detailed document which will take
time to analyse and consider fully. From an initial analysis this
morning, we welcome the progress that has been made since the Draft
Determination through our constructive dialogue with Ofwat, but we
are disappointed on two points.
Firstly, Ofwat has reduced the allowed weighted average cost of
capital (WACC) for the wholesale business to 3.6% from 3.7%in the
Draft Determination of 29 August, giving a WACC for the appointed
business of 3.74%, compared to 3.85% in the Draft
Determination.
We also note that two maintenance schemes proposed, totaling
around GBP60 million, remain excluded. While we disagree with this
outcome, given stakeholder support we continue to include these
projects in our own total expenditure plans for 2015 to 2020 of
GBP5.6 billion.
Despite these points, the Final Determination includes the
Birmingham Resilience main scheme, Scenario A in the Draft
Determination, plus GBP50 million of the associated community risk
schemes, which were previously excluded from the Draft
Determination. We also note that wholesale totex in the Final
Determination of GBP5,623 million is broadly in line with the Draft
Determination and our revised business plan (see table 1).
We are pleased that legacy adjustments have been reduced by
around 30% to GBP58 million (14/15 year end prices) and based on
the Final Determination we anticipate our Regulatory Capital Value
(RCV) in April 2015 in nominal terms to be GBP7.8 billion(1) , with
average growth of 5% p.a. over the period to give an expected RCV
in 2020 of around GBP10 billion.(1)
We also note the revised Outcome Delivery Incentives package,
including positive changes to the ODI related to Birmingham
Resilience.
As Ofwat has highlighted today, customers will benefit from
higher levels of investment over the next 5 years, with bills
falling in real terms. Severn Trent Water customers will continue
to have the lowest combined average bills in the land over
AMP6.
The publication of the Final Determination is the culmination of
the price review process. There now follows a period of 2 months
during which Severn Trent Water can decide whether to appeal the
Final Determination to the Competition and Markets Authority (CMA).
The new price limits take effect in April 2015.
Liv Garfield, Chief Executive, said: "We have today received the
Final Determination from Ofwat, a complex document with a huge
volume of information to analyse. We will take the time necessary
to review its content and conclusions thoroughly before responding
to Ofwat and our stakeholders in February 2015. In the meantime we
continue to make good progress in preparing the business for AMP6.
We are proud that Severn Trent customers have the lowest average
combined bills in the land, and with bills falling in real terms
over the next 5 years, this is set to be the case until 2020, when
bills will be around GBP60 below the industry average.(2) "
The Ofwat Final Determination proposes the following for Severn
Trent Water:
TABLE 1
Severn Trent Water Ofwat Draft Determination Ofwat Final Determination
June revised business (inc. Birmingham
plan resilience)
Wholesale Totex GBP5,606m GBP5,586m GBP5,623m
(inc. pensions)
Retail Revenues GBP757m GBP728m GBP743m
Wholesale WACC 3.7% 3.7% 3.6%
PAYG rate 57.2% 57.2% 58.8%
Return on regulated 1.1% - 9.6% 1.0% - 9.2% 0.7% - 9.0%
equity
Regulatory Capital GBP10.1 billion GBP10.1 billion GBP10.0 billion
Value (RCV) in
2020(1)
1. Nominal, assumes year end 2.5% RPI for 14/15 and an average of 3.3% year end RPI for 2015-2020
2. In 2014/15 prices. Source: Ofwat
Enquiries:
0207 353 4200 (on the
Liv Garfield Severn Trent Plc day)
Chief Executive 02477 715000
0207 353 4200 (on the
Mike McKeon Severn Trent Plc day)
Finance Director 02477 715000
0207 353 4200 (on the
Rob Salmon Severn Trent Plc day)
Head of Communications 02477 715000
0207 353 4200 (on the
John Crosse Severn Trent Plc day)
Head of Investor Relations 02477 715000
Katharine Wynne /
Martha Walsh Tulchan Communications 0207 353 4200
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' or
'estimates' and, in each case, their negative or other variations
or comparable terminology. Any forward-looking statements in this
document are based on Severn Trent's current expectations and, by
their very nature, forward-looking statements are inherently
unpredictable, speculative and involve risk and uncertainty because
they relate to events and depend on circumstances that may or may
not occur in the future.
Forward-looking statements are not guarantees of future
performance and no assurances can be given that the forward-looking
statements in this document will be realised. There are a number of
factors, many of which are beyond Severn Trent's control, that
could cause actual results, performance and developments to differ
materially from those expressed or implied by these forward-looking
statements. These factors include, but are not limited to: the
Principal Risks disclosed in our Annual Report as at May 2013
(which have not been updated since); 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. Subject to compliance with applicable laws and
regulations, Severn Trent does not intend to update these
forward-looking statements and does not undertake any obligation to
do so,
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 company news service from the London Stock Exchange
END
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