TIDMSVT
RNS Number : 1916T
Severn Trent PLC
23 November 2021
Half Yearly Financial Report
23 November 2021
Interim results for the six months to 30 September 2021
Operational excellence supported by strong financials
Operational performance ahead of plan, increase in Customer ODI
guidance to at least GBP75 million(1) for the full year:
-- We continue to deliver strong operational performance, with
over 90% of Severn Trent Water's Customer ODIs on track across
Water, Waste, Customer, and the Environment
-- Continued positive momentum in Water, including another
successful period on water quality complaints (improving by 9%) and
speed of response (improving by 11%)
-- Sector-leading performance in Waste, resulting in less
disruption for customers as flooding and blockages falling by over
30% since the start of the AMP
Leading the sector with our environmental ambitions
-- Leading environmental performance, 4* EPA status confirmed by
the Environment Agency in July this year
-- Significant investment in river quality through our WINEP
scheme, with over GBP500 million being invested this AMP
-- Biodiversity commitments continue at pace with over 2,900
hectares of our 2027 target of 5,000 hectares delivered to date,
with plans to restore an additional 2,000 acres of peatland in
England and Wales by 2025
-- Green Recovery progressing well with all projects mobilised:
projects will help create c.2,500 jobs and include bathing quality
rivers, new net zero water resources, and nature-based flood
solutions
Strong financial performance supporting large-scale investment
programme
-- Group turnover of GBP958 million(2) in line with
expectations, up GBP71 million (8.0%), as a result of a strong
recovery in non-household consumption following the lifting of
lockdown restrictions
-- Group PBIT of GBP256 million, up GBP31 million (13.8%)
-- Effective interest cost(3) of 4.2% (2020/21: 3.3%) reflecting
higher inflation, effective cash cost of interest unchanged at
3.1%, with two thirds of debt fixed at low-cost rates
-- Strong balance sheet, including reduction in pension deficit
to GBP292 million, supporting over 10% RCV growth for AMP7
-- Adjusted basic EPS(4) of 54.4 pence, up 6% (basic loss per
share of 73.0 pence, reflecting an exceptional deferred tax charge
from the change in corporation tax rate)
-- Interim dividend of 40.86 pence, in line with policy confirmed in May 2021
Supporting our communities, colleagues and customers
-- Investing in the development of young people through our
graduate and apprentice programmes and 500 placements offered under
the Kickstarter initiative
-- Recognised as a leading socially responsible business: first
place on the Tortoise Responsibility100 Index and supporting
diversity with the #10000BlackInterns initiative
-- Supporting more customers than ever, with over 160,000 people receiving financial assistance
-- Over GBP8 million awarded since the start of the AMP through
schemes including the Severn Trent Community Fund, supporting those
most in need within our region
Footnotes: see definitions at the end of this RNS
Liv Garfield, Chief Executive Severn Trent Plc, said:
"We've made another strong start to the year as we focus on
delivering for stakeholders across our region and delivering for
customers in the areas that matter most to them, all while driving
the financial performance of our business.
We've continued to invest significantly in our network, in our
people and to support our strong commitment to the environment. Our
environmental ambitions remain at the heart of our company, whether
planting over a million trees, reducing our carbon emissions, or
producing an extra 95 million litres of water to tackle the threat
of water scarcity.
Severn Trent should be a force for good in our region and I'm
delighted our Green Recovery programme is creating valuable jobs,
helping support the Government's levelling up agenda and the
broader economic recovery."
Group results
Increase/
2021 2020 (decrease)
GBPm GBPm %
Group turnover 958.2 887.6 8.0
Group PBIT 255.6 224.6 13.8
----------------- ------ ------ ------------
pence/ pence/
share share
--------------------------- -------- -------
Adjusted basic EPS(4) 54.40 51.30 6.0
Basic EPS (73.00) 42.70 (271.0)
Interim dividend declared 40.86 40.63 0.6
---------------------------- -------- ------- ---------------------
Footnotes to pages 1 & 2 of this RNS
1. Customer Outcome Delivery Incentives (ODIs) quoted in 2017/18
prices and pre-tax (applying corporation tax at 25%, the rate
expected to be applicable when the ODIs are taken to revenue)
unless otherwise stated
2. Includes GBP12.9 million revenue previously credited against operating costs - see note 1
3. Effective interest cost - see note 18 to the financial statements
4. Adjusted basic earnings per share (EPS) - see note 8 to the financial statements
Note: Technical guidance is included in the Chief Financial
Officer's section of this announcement
Enquiries
Investors & Analysts
Stuart Howell Severn Trent Plc +44 (0) 770 371 8361
Head of Investor Relations
Selina Soma Severn Trent Plc +44 (0) 797 693 8604
Investor Relations Manager
Media
Jonathan Sibun Tulchan Communications +44 (0) 207 353 4200
Press Office Severn Trent Plc +44 (0) 247 771 5640
Interim Results Presentation and video call
A presentation of these results hosted by Liv Garfield, CEO, and
James Bowling, CFO, will be available on our website
(severntrent.com) from 08:00am GMT today, 23 November 2021. We will
be hosting a live Q&A session with Liv, James and our wider
Executive team at 09:00am GMT today via video call, which you can
register for through our website.
Chief Executive's Review
In what has been a difficult 18 months for all of us, we have
been determined to support all our customers and colleagues, as
well as the communities in which we operate. We remain committed to
delivering the best possible service for our customers, and this is
reflected in our operational, environmental, and financial
performance.
We have had a strong operational start to the year, with more
than 90% of Severn Trent Water Customer ODI measures either ahead
of, or on target. This performance has been driven by improvements
in data and innovation. Our reinvestment plans continue to drive
efficient and more effective methods of operation, and, following
on from our sector-leading performance last year, we are increasing
our ODI guidance for the full year to at least GBP75 million.
In May, we announced the award of an extra GBP624 million(1) of
investment through our Green Recovery projects, resulting in around
10% real RCV growth for the AMP. We have now started all the
schemes, helping our region in the form of environmental benefits
and creating much needed jobs. All schemes are progressing well and
integrated within our AMP7 delivery plan.
At our recent Capital Markets Day, we outlined plans to reduce
our baseline carbon emissions by 470 ktonnes and to fulfil our Net
Zero pledge by 2030. Our plans call for a combination of
innovation, nature-based solutions, and targeted investment and,
while they remain a significant challenge, it's a challenge we are
confident we will deliver on. Following on from COP26, we also
signed up to the Get Nature Positive initiative which builds on our
long-term commitment to sustainability.
I am also delighted we continue to be recognised as a truly
socially responsible business. Last month we were named as the top
company in the Tortoise Responsibility100 Index, in which we were
ranked in first place on the Good Business metric, climbed to third
in Skills and Education, and were recognised as leaders in
Equality.
Strong operational performance
Following on from last year's success, we continue to deliver a
strong operational performance for our customers. ODIs are designed
with targets that get tougher every year, ensuring we must improve
and continue to invest in our network to deliver the best possible
service, and you can see from our results the excellent progress we
have made.
Momentum continues in Water, with over 85% of our ODIs - the
measures which matter most to our customers - performing on or
above target. Water quality complaints are expected to reduce by
18% since the start of the AMP as a result of targeted investment
and new technology such as a smartphone app that provides frontline
teams with critical information on valve operations, allowing our
engineers to carry out their work more quickly. Leakage performance
remains on track for a 15% reduction across the AMP. Our dedicated
teams have a deeper understanding of their region and are aided by
real-time data provided by acoustic loggers and AI predictive data
on where leaks may occur. We also targeted a reduction in
disruption for our customers and expect to have reduced the time it
takes us to respond to these issues by 11% by the end of the year.
We continue to promote water efficiency, aiming to install more
than 100,000 meters this financial year to give customers more
insight into their usage.
On the Waste side, our operational performance has remained very
strong. Data and analytics continue to be the focus of our
investments, and innovation. On blockages, we created a new
multimedia campaign in eight languages to help educate customers on
sewer misuse, and our flooding performance has improved with the
use of data analytics focussed on hotspot areas of repeat issues.
We expect our flooding and blockages performance to improve by over
30% since the start of the AMP. As part of our strategy to become
even more data driven, we are on track to install 40,000 sewer
sensors by the end of 2025, complementing our holistic approach to
customer service improvement.
(1) In nominal prices
Leading with our environment plans
Our environmental ambitions remain at the heart of our business,
from plans to plant over a million trees, to enhance over 5,000
hectares of land, including 2,000 acres of peatlands, and to
produce an extra 95 million litres of water in a low-carbon way to
tackle the threat of water scarcity. We are proud of gaining the 4*
EPA status accreditation in July this year. We continue to perform
above target on our environment ODIs and are well on our way to
hitting our biodiversity measure where, to date, we have already
enhanced over 2,900 hectares across our region.
As part of the recent COP26 we signed up to the Get Nature
Positive initiative, set up by the Council for Sustainable Business
to help protect and restore nature. The environment is a key part
of our supply chain and so, by supporting the Nature Handbook for
Business, which showcases some of the ways businesses can, and are,
becoming more nature positive, it in turn supports our company's
long-term operational and financial sustainability. We have pledged
to restore more than 2,000 acres of peatland across England and
Wales by 2025, building on our existing plans to create a more
sustainable future and in line with our Net Zero plans, we had our
carbon reduction plan approved by the Science Based Targets
initiative. In September we also published our full TCFD
disclosure, which is aligned to our Climate Change Adaption Report,
Strategic Direction Statement and Environment Strategy.
As a purposeful company, taking a key role in the environment is
something we embrace, and I am proud our work in this space has
been recognised through our leading position in the Sustainalytics
ESG risk index.
Caring for our rivers
There has been much discussion recently about the quality of our
rivers and coastline. Rivers are key to our supply chain and,
although we don't own our region's rivers, we take our role in
protecting and caring for them seriously. Our rivers are currently
the healthiest they have been since the Industrial Revolution, but
more needs to be done. That is why we plan to fulfil all our
actions set out in the Environment Act to improve river quality in
a nine-year timeframe, rather than the 25-year target. We are also
collaborating with those sectors that have the greatest impact on
river health, such as agriculture. To that end, we are working with
9,000 farmers in our region to focus on the negative effects on
river quality caused by fertiliser and other chemical runoff.
Defra, Ofwat and t he Environment Agency have recently announced an
industry-wide investigation into sewage treatment works; we welcome
the opportunity to work constructively and collaboratively with our
regulators on this.
Our Great Big Nature Boost will see us continuing to restoring
2,000km of rivers in our region, and we are working to become the
first water company to create bathing standard rivers in the UK as
part of our Green Recovery schemes. Over the last six months we
have been embedding a team of River Rangers to help educate
communities and to monitor rivers. We've also worked with local
partnerships on the reintroduction of beavers into our region, with
the aim of enhancing two wetland areas and reducing the risk of
flooding.
Investing in our network
Our capital programme continues to deliver for customers and, so
far this AMP, we have invested more than GBP800 million, in line
with our plans. We have benefitted from signing early agreements
with our framework partners and from insourcing our capital design
team, helping to set ourselves up for the rest of the AMP.
We have invested over GBP50 million to date on our Water
Framework Directive schemes, including work to reduce phosphate
levels and to improve river quality. Alongside this we are also
investing over GBP500 million on Water Industry National
Environment Programme (WINEP) schemes throughout the AMP. We are
now commissioning two new thermal hydrolysis plants improving the
yield on our biogas digestion. Our six Green Recovery projects will
help improve the environment of our region, and just as
importantly, help create around 2,500 jobs, both directly and
indirectly. All of the schemes address long-term issues we know are
important to our customers, which means, over the course of the
AMP, we will be delivering around GBP3 billion of investment to
help create a more sustainable network.
Delivering for our customers, colleagues and communities
We know the current economic climate continues to be difficult
for many of our customers. While we offer one of the lowest average
combined bills in the country at just over a pound a day, we have a
responsibility to help those who are struggling to pay their bills,
which is why we are providing financial support to more than
160,000 people.
Last year, we announced we would be a top employer for the
Government's Kickstart programme and pledged to offer 500
placements. We've been impressed by the contribution they have made
to our teams and delighted many have found full-time employment,
either with us or elsewhere following their time with us, or have
gone on to further education.
Diversity and inclusion remain a priority for our organisation,
and last year we signed the Race to Work Charter. We will also be
supporting the #10000BlackInterns programme next year, by hosting
100 placements across the business.
We continue to support charities and other organisations in our
region and, alongside the Severn Trent Community Fund, which
launched only last year, we have awarded over GBP8 million to
different causes since the start of the AMP.
Summary
While much of the last six months has been about a return to
more normal life following the pandemic, we continue to put
ourselves at the heart of our communities, offering support to
customers and to good causes throughout the Midlands and into
Wales. Operationally, we have seen further outperformance in those
areas that matter most to our customers and environmentally we are
doing more than ever for our region's natural resources.
All of that has helped us perform at a consistently high level
for all our stakeholders, whether customers, communities or
investors, something we are confident of continuing to achieve
Chief Financial Officer's Review
In the last six months we have seen the top-line benefit from
our business customers returning to more normal operations
following the lifting of COVID-19 restrictions. We have maintained
positive momentum on our capital and infrastructure renewals
programme; successfully managed our operational costs; and seen
Business Services more than double profits for the period.
Our balance sheet continues to strengthen, with an improved
pensions outlook; robust cash collection and credit management
performance; and a strong funding position ready to support future
growth.
Reported inflation has increased the cost of our index-linked
debt, but this will be more than offset by increased revenue and
RCV growth in future periods and our effective cash cost of
interest remains among the lowest in the sector.
A summary of our financial performance in the period is set out
below:
2021 2020 Change
-----------------------------------------
GBPm GBPm GBPm %
Turnover 958.2 887.6 70.6 8.0
-------------------- ---------------------- ----------------------- -------------------- -------------------
PBIT 255.6 224.6 31.0 13.8
Net finance costs (120.8) (91.1) (29.7) (32.6)
Gains/(losses) on
financial
instruments 13.9 (7.0) 20.9 298.6
Share of results of
joint
venture (1.8) - (1.8) N/A
-------------------- ---------------------- ----------------------- -------------------- -------------------
Profit before tax 146.9 126.5 20.4 16.1
Tax (326.9) (24.8) (302.1) (1,218.1)
(Loss)/profit for
the period (180.0) 101.7 (281.7) (277.0)
-------------------- ---------------------- ----------------------- -------------------- -------------------
Group turnover was GBP958.2 million(1) (2020/21: GBP887.6
million), up 8.0%, reflecting higher consumption from non-household
customers in our Regulated Water and Waste Water business and
strong performance in our Operating Services business.
Group PBIT was up 13.8% to GBP255.6 million (2020/21: GBP224.6
million). In Regulated Water and Waste Water the increased revenue
was partially offset by higher energy costs and higher
infrastructure renewals expenditure as planned.
Higher inflation in the period increased our net finance costs
to GBP120.8 million (2020/21: GBP91.1 million) and our effective
interest cost to 4.2% (2020/21: 3.3%). Our effective cash cost of
interest, which excludes the impact of inflation on our
index-linked debt, was unchanged at 3.1%. Average net debt was
broadly similar to the same period in the previous year.
In April we converted a GBP32.5 million loan advanced to Water
Plus to equity, reinstating the investment in Water Plus on our
balance sheet. As a result we have resumed recognising our share of
Water Plus's post tax results. With the relaxation of COVID-19
restrictions, Water Plus's revenues and operating results have
improved and our share of its loss in the period narrowed to GBP1.8
million (2020/21: unrecognised loss of GBP6.2 million).
The changes to corporation tax announced in the Chancellor's
budget in March, and enacted in May, significantly impacted our tax
charges. First, changes in the timing that capital expenditure is
deducted from taxable profits (including the 'Super Deduction')
reduced our adjusted effective tax rate for this year to nil%
(2020/21: 9.1%). Second, the increase in the corporation tax rate
to 25% with effect from 1 April 2023, resulted in an exceptional
deferred tax charge to the income statement of GBP294.2 million
from recalculating our opening deferred tax balances at the new
rate, which is included in our reported tax charge of GBP326.9
million. Deferred tax is an accounting adjustment that reflects
differences in timing between when profits are recorded in
financial statements and when they are subject to tax. Because of
the nature of our business, including our significant rolling
capital programme and the long lives of our assets, these timing
differences will not reverse for the foreseeable future, and may
never do so.
As a result of the exceptional deferred tax charge basic loss
per share was 73.0 pence (2020/21: earnings of 42.7 pence).
Our adjusted basic earnings per share were 54.4 pence (2020/21:
51.3 pence). Growth in adjusted earnings accounted for an increase
of 4.9 pence per share but the higher number of shares in issue
following our successful equity placement (see below) reduced our
adjusted basic earnings per share by 1.8 pence.
Our cash flow and liquidity remain strong. Our undrawn committed
facilities were GBP950 million, and our cash flow requirements are
funded to July 2023.
Net cash capital expenditure was GBP238.0 million (2020/21:
GBP283.5 million).
Our net pension deficit at 30 September decreased to GBP291.5
million, benefiting from strong asset growth of GBP167.1 million
and planned contributions of GBP35.6 million, which more than
offset the impact of higher expected inflation. During the period
we also executed a bulk annuity buy-in for our MIPS scheme,
virtually eliminating future risk in relation to this scheme. The
overall funding level across all of our defined benefit schemes has
improved to 90% (31 March 2021: 88%).
To fund our planned Green Recovery programme in line with our
capital structure, we completed a successful equity placement in
the period raising net proceeds of GBP245 million.
The Board continues to recognise the important role that
dividends play in providing income for pensioners and other
investors. Taking into account the Group's prospects; its financial
position; and the interests of other stakeholders including
customers, our pension scheme members, colleagues and communities,
the Board determined that it remains appropriate to recommend to
shareholders that the interim dividend for the year ending 31 March
2022 be increased by 0.6% to 40.86 pence in line with our policy
for AMP7 to increase the dividend by CPIH. (1) Includes GBP12.9
million revenue previously credited against infrastructure renewals
expenditure - see note 1.
Regulated Water and Waste Water
Six months ended 30 September
2021 2020 Change
----------------
GBPm GBPm GBPm %
Turnover 893.9 829.9 64.0 7.7
------------------------------------- -------- -------- ------- -------
Net labour costs (83.3) (76.7) (6.6) (8.6)
Net hired and contracted costs (91.9) (90.5) (1.4) (1.5)
Power (54.6) (46.4) (8.2) (17.7)
Bad debts (15.3) (24.5) 9.2 37.6
Other costs (126.9) (118.0) (8.9) (7.5)
(372.0) (356.1) (15.9) (4.5)
------------------------------------- -------- -------- ------- -------
Infrastructure renewals expenditure (86.6) (65.6) (21.0) (32.0)
Depreciation (192.9) (188.6) (4.3) (2.3)
------------------------------------- -------- -------- ------- -------
PBIT 242.4 219.6 22.8 10.4
------------------------------------- -------- -------- ------- -------
Turnover for the Regulated Water and Waste Water segment was
GBP893.9 million (2020/21: GBP829.9 million) and PBIT was GBP242.4
million (2020/21: GBP219.6 million).
Turnover increased by GBP64.0 million with the main movements
being:
-- A GBP38.9 million net increase from higher non-household
consumption and lower household consumption, returning to more
normal patterns following the easing of COVID-19 restrictions
earlier in the year;
-- An increase of GBP12.9 million from the reclassification of
diversions income (previously credited to infrastructure renewals
expenditure as described at the previous year end);
-- An increase of GBP2.0 million in non-household revenue due to
additional properties successfully being brought into charge under
the Voids and Gaps Incentive Scheme; an offset is seen in higher
operating costs (see below);
-- An increase of GBP3.5 million in renewable energy income in our Bioresources business; and
-- Other net increases of GBP6.7 million, including higher
miscellaneous sales and the adjustment for inflation in the
year.
Net labour costs were GBP6.6 million (8.6%) higher
period-on-period. Gross employee costs increased by 3.6% due to the
annual pay award of 2.3% and an increase in FTE due to insourcing
activity. Our capitalisation of employee costs decreased by 1.2% as
the focus of our technology teams switched to operational
activities following the completion of major IT capital
projects.
Net hired and contracted costs increased by GBP1.4 million
(1.5%). Increases in biodiversity and catchment spend, along with
additional vendor management, software maintenance, cloud storage
and increased debt management costs offset the reduction achieved
from insourcing activity.
Power costs were GBP8.2 million or 17.7% higher than the
previous period, much less than the average wholesale energy prices
increase of more than 200% year-on-year. We benefited from
self-generation in Bioresources and internal hedges between our
regulated business (a net consumer of energy) and our non-regulated
business (a net generator).
Bad debt charges were GBP9.2 million lower than the previous
period and represent 2.2% of household revenue, (2020/21 full year:
3.0%). The outlook for unemployment has improved, and we have not
seen a deterioration in our collection performance. However
pressure on household budgets from increasing energy costs, other
inflationary impacts, the withdrawal of the GBP20 uplift in
universal credit and the prospect of higher national insurance has
led us to retain the forward-looking provision of GBP11.9 million
taken since the start of the pandemic (of which GBP8.2 million was
charged in the first half of 2020/21) at the balance sheet
date.
Reported other costs increased by GBP8.9 million. Raw materials
and consumables were largely unchanged as higher chemical costs
were offset by a reduction in COVID-19 related consumables. We
accrued GBP2.9 million this year for the Ofwat Innovation Fund
(2020/21: nil as the mechanism for the Fund was under discussion at
the reporting date last year) and the higher voids/gaps incentive
payments referred to above increased costs by GBP1.3 million. There
was an increase of GBP1.5 million in aborted capital expenditure
and the remaining increase arose from a combination of higher
pension administration costs, a resumption of employee training,
and increased insurance and telecoms costs.
Reported infrastructure maintenance expenditure was GBP21.0
million higher in the period, reflecting GBP8.1 million from a
planned step up in the programme and the GBP12.9 million
reclassification to turnover referred to above.
Depreciation was GBP4.3 million higher period-on-period due to
the growing asset base.
Business Services
Six months ended 30 September
2021 2020 Change
-------------
GBPm GBPm GBPm %
------------------------------ ----- ----- ----- ------
Turnover
Operating Services and Other 40.0 34.6 5.4 15.6
Green Power 26.1 24.5 1.6 6.5
66.1 59.1 7.0 11.8
------------------------------ ----- ----- ----- ------
Adjusted PBIT (see note 18)
Operating Services and Other 8.1 6.7 1.4 20.9
Green Power 0.4 0.1 0.3 300.0
Property Development 8.9 1.4 7.5 535.7
17.4 8.2 9.2 112.2
------------------------------ ----- ----- ----- ------
Business Services turnover was GBP66.1 million (up 11.8%) and
adjusted PBIT was GBP17.4 million (up 112.2%).
In our Operating Services and Other businesses, turnover and
adjusted PBIT increased by GBP5.4 million and GBP1.4 million
respectively. Increased activity on the 25-year MoD contract,
including additional ad-hoc contract wins drove increases in the
Operating Services business. Growth in the other businesses was
driven by higher volumes in our property searches business.
In Green Power, turnover increased by GBP1.6 million and
adjusted PBIT increased by GBP0.3 million. Higher energy prices and
incentive income from increased gas generation was partially offset
by lower gate fee income, primarily from local authority food waste
contracts, as domestic waste volumes were higher in the previous
year due to lockdown whereas volumes of commercial waste improved
this year. Intra-group energy price hedges, which significantly
benefited the regulated business, limited the increase in Green
Power's revenue that would have been achieved if all energy had
been sold at prevailing wholesale market rates.
Profits from Property Development were GBP7.5 million higher
than the prior year, when there were no large disposals. We remain
on track for our target of GBP100 million PBIT from Property
Development over the ten years to 2027, having generated GBP45.3
million since setting the target in 2017.
Corporate and other
Corporate overheads were higher at GBP3.7 million (2020/21:
GBP2.4 million). The main drivers of the increase were an increase
in legal costs; higher insurance premiums; Board recruitment and
triennial effectiveness review costs in the period.
Net finance costs
The Group's net finance costs for the six-month period were
GBP120.8 million (2020/21: GBP91.1 million). Average net debt of
GBP6,251.5 million was broadly in line with the prior year
(2020/21: GBP6,236.1 million), however higher inflation in the
period increased the interest cost on our index-linked debt by
GBP31.1 million, and our effective interest cost to 4.2% (2020/21:
3.3%). Our effective cash cost of interest (which excludes the
inflation uplift on index-linked debt) remained at 3.1% (2020/21:
3.1%). Interest capitalised of GBP15.2 million was broadly in line
with the prior period (2020/21: GBP14.9 million).
The Group's EBITDA interest cover was 3.9 times (2020/21: 4.8
times) and PBIT interest cover was 2.2 times (2020/21: 2.5 times).
See note 18 for further details.
Net gains/(losses) on financial instruments
The Group uses financial derivatives solely to hedge risks
associated with its normal business activities including:
-- Exchange rate exposure on borrowings denominated in foreign currencies;
-- Interest rate exposures on floating rate borrowings;
-- Exposures to increases in electricity prices; and
-- Changes in the regulatory model from RPI to CPIH.
The Group holds:
-- Interest rate swaps with a net notional principal of GBP652
million to balance our interest rate mix in line with our
strategy;
-- Cross currency swaps with a sterling principal of GBP142
million, which economically act to hedge exchange rate risk on
certain foreign currency borrowings; and
-- Inflation swaps with a notional principal of GBP350 million,
which swap RPI linked cash flows for CPI linked cash flows.
Where hedge accounting is not applied, if the risk being hedged
does not impact the income statement in the same period as the
change in value of the derivative, then an accounting mismatch
arises and there is a net charge or credit to the income statement.
During the period there was a gain of GBP19.5 million (2020/21:
loss of GBP10.0 million) in relation to these instruments.
An analysis of the amounts charged to the income statement in
the period is presented in note 5 to the financial statements.
The Group has fixed around 97% of estimated wholesale energy
usage for the remainder of 2021/22 through a combination of forward
price contracts and financial derivatives.
Taxation
We are committed to paying the right amount of tax at the right
time, and were pleased to have our Fair Tax Mark accreditation
renewed for the third year.
As well as corporation tax on profits, which is included in the
tax charge in our accounts, we pay a range of other taxes, charges
and levies imposed by government agencies including business rates;
employer's National Insurance; the Climate Change Levy; and
Insurance Premium Tax. Our 2020/21 Annual Report and Accounts sets
out an analysis of the taxes incurred in that year and we will set
out this year's amounts in our Annual Report to be published in
June 2022.
The tax charge reported in the income statement (excluding the
exceptional deferred tax charge arising from the change in the
corporation tax rate) is calculated at a rate of 22.3% (2020/21:
19.6%), representing the best estimate of the annual average tax
rate expected for the full year, applied to the profit for the six
month period. The increase in the rate arises from the deferred tax
charge on current year timing differences calculated at 25%, the
rate expected to be applied when the timing differences reverse
(2020/21: 19%) partially offset by the impact of the 'Super
Deduction', which reduced the effective rate by around 2.2
percentage points.
There was no current tax charge for the period (2020/21: GBP11.0
million), due to the benefit of the 'Super Deduction' and the
acceleration of other capital allowances on our capital programme.
Our adjusted effective current tax rate fell (in line with
guidance) to nil% (2020/21: 9.1%).
The deferred tax charge was GBP326.9 million (2020/21: GBP13.8
million), including an exceptional deferred tax charge of GBP294.2
million.
In May 2021 the increase in corporation tax rate to 25% was
substantively enacted and will take effect on 1 April 2023. We have
therefore calculated the tax effect of our deferred tax timing
differences at 25%, which has resulted in an exceptional charge to
the income statement of GBP294.2 million and a credit to other
comprehensive income of GBP8.3 million from recalculating our
opening deferred tax balances at the new rate.
Because of the nature of our business, including our significant
ongoing capital programme, and the long lives of our assets, these
timing differences will not reverse for the foreseeable future, and
may never do so.
Profit for the period and earnings per share
Reported loss for the period, after the exceptional deferred tax
charge described above, was GBP180.0 million (2020/21: profit of
GBP101.7 million).
Basic loss per share was 73.0 pence (2020/21: earnings of 42.7
pence). Adjusted basic earnings per share were 54.4 pence (2020/21:
51.3 pence). The increase in shares arising from the equity placing
reduced adjusted basic earnings per share by 1.8 pence. For further
details see note 8.
Cash flow
Six months ended 30 September
2021 2020
GBPm GBPm
Operational cashflow 474.6 492.7
Cash capex (238.0) (283.5)
Net interest paid (80.9) (75.7)
Proceeds on disposal of subsidiary undertakings -- 0.7
Proceeds from swap terminations 5.6 --
Net tax paid -- (4.9)
------------------------------------------------- ---------- ----------
Free cash flow 161.3 129.3
Dividends (152.2) (143.1)
Issue of shares 256.8 10.7
Change in net debt from cash flows 265.9 (3.1)
Non-cash movements (54.3) (8.6)
-------------------------------------------------
Change in net debt 211.6 (11.7)
Opening net debt (6,443.8) (6,231.5)
Closing net debt (6,232.2) (6,243.2)
------------------------------------------------- ---------- ----------
Net debt comprises:
30 September 31 March 30 September
2021 2021 2020
GBPm GBPm GBPm
------------------------------- ------------- ---------- -------------
Net cash and cash equivalents 32.2 44.0 22.7
Bank loans (928.0) (1,011.1) (966.3)
Other loans (5,316.0) (5,471.3) (5,351.4)
Lease liabilities (122.4) (121.3) (123.6)
Cross currency swaps 36.5 31.9 53.1
Loans due from joint venture 65.5 84.0 122.3
------------------------------- ------------- ---------- -------------
Net debt (6,232.2) (6,443.8) (6,243.2)
------------------------------- ------------- ---------- -------------
At 30 September 2021 we held GBP32.2 million (31 March 2021:
GBP44.0 million) in net cash and cash equivalents. Our average debt
maturity is 13 years. Including committed facilities, of which
GBP950 million was undrawn at the balance sheet date, the Group's
cash flow requirements are funded until July 2023.
We invest cash in deposits with highly rated banks and the Board
regularly reviews the list of counterparties.
Net debt at 30 September 2021 was GBP6,232.2 million (31 March
2021: GBP6,443.8 million). Balance sheet gearing (net debt/net debt
plus equity) at the half year was 84.4% (31 March 2021: 84.9%).
Severn Trent Water Group net debt, expressed as a percentage of
estimated Regulatory Capital Value at 30 September 2021 was 60.8%
(31 March 2021: 64.5%).
The estimated fair value of debt at 30 September 2021 was
GBP1,597.5 million higher than book value (31 March 2021:
GBP1,454.9 million higher). The increase in the difference to book
value is largely due to higher market expectations for inflation in
the long-term.
Pensions
We have three defined benefit pensions arrangements, two for
Severn Trent and one for Dee Valley Water. The two Severn Trent
schemes closed to future accrual on 31 March 2015.
Formal three-yearly actuarial valuations were completed at 31
March 2019 for the Severn Trent schemes and at 31 March 2020 for
the Dee Valley Water scheme.
Under the 2019 valuation, the future funding plan for the Severn
Trent Pension Scheme ('STPS'), which is by far the largest,
includes:
-- Inflation-linked payments of GBP15.0 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
-- Deficit reduction payments totalling GBP32.4 million
increasing in line with inflation through to 31 March 2027.
On an IAS 19 basis, the estimated net position (before deferred
tax) of all of the Group's defined benefit pension schemes at 30
September 2021 was a deficit of GBP291.5 million (31 March 2021:
GBP367.7 million). Defined benefit obligations increased due to the
impact of the higher long-term inflation assumption on the schemes'
liabilities and inflation in the period higher than the previous
assumption. However, strong asset performance more than compensated
for these and, together with the employer's contribution of GBP35.6
million in the period, led to the reduction in the deficit.
During the period we executed a bulk annuity buy-in for the MIPS
scheme, which represents around 4% of the Group's defined benefit
liabilities. Under the buy-in, the liabilities of this scheme are
met by an insurance policy and as a result the Group's risk is
substantially reduced. See notes 2 and 12 for further details.
The movements in the net deficit during the period were as
follows:
Fair value Defined
of scheme benefit
assets obligations Net deficit
GBPm GBPm GBPm
----------------------------------------- --------------------- ------------- ------------
At start of the period 2,600.4 (2,968.1) (367.7)
Amounts credited/(charged) to income
statement 24.5 (30.1) (5.6)
Actuarial gains/(losses) taken to
reserves 140.5 (94.3) 46.2
Net contributions received and benefits
paid (24.4) 60.0 35.6
At end of the period 2,741.0 (3,032.5) (291.5)
----------------------------------------- --------------------- ------------- ------------
On an IAS 19 basis, the funding level is 90% (31 March 2021:
88%).
Dividends
The Board has declared an interim ordinary dividend of 40.86p
per share (2020/21: 40.63p per share), which will be paid on 7
January 2022 to shareholders on the register at 3 December
2021.
Principal risks and uncertainties
The Board considers the principal risks and uncertainties
affecting the business activities of the Group for the remainder of
the financial year to be those detailed below. Details of how the
Group mitigates and manages these risks are set out in the Annual
Report.
Cyber Security and Technology Resilience:
-- Cyber threats cause damage to key infrastructure assets,
interruptions to core systems or data loss resulting in a negative
impact on our reputation, operations, regulatory (including GDPR)
compliance or finances.
Service Failure and Asset Resilience:
-- We fail to provide a safe and secure supply of drinking water
to our customers and there is reduced public confidence in water
supply.
-- We fail to effectively transport and treat wastewater and
there is reduced public confidence in our wastewater system.
Financial Liabilities:
-- We fail to fund the Severn Trent defined benefit ('DB') pension scheme sustainably.
-- We are unable to secure sufficient liquidity to meet our funding requirements.
Capital Project Delivery and Scheme Resilience:
-- We fail to design or deliver to time and cost capital
projects that ensure the resilience of our operations and safety of
our assets.
Political, Legal and Regulatory:
-- Accelerating changes in the political, legal environment and
environmental obligations increase our risk of non-compliance.
Climate Change, Environment and Biodiversity:
-- Our climate change strategy does not enable us to respond to
the shifting natural climatic environment and maintain our
essential services.
-- We fail to positively influence natural capital in our region.
Health and Safety:
-- Due to the nature of our operations, we could endanger the
health and safety of our people, contractors and members of the
public.
COVID-19:
-- Whilst global pandemics have not previously been noted as a
principal risk, they do feature on our horizon scanning and many of
the associated risks are captured within our Enterprise Risk
Management framework. We have a well-rehearsed approach to incident
management and while COVID-19 presented many unique challenges, the
governance structure we implemented in response to the COVID-19
pandemic provided a stable foundation from which we could respond
to the changing situation.
-- COVID-19 assumptions are built into our budget and business
plan process. Our priority remains the health and safety of our
people and customers, and we are taking all possible actions to
support them whilst continuing to deliver our essential services.
The Board continues to receive regular updates on the Group's
COVID-19 response in order to assess, monitor and respond to the
evolving impact of COVID-19 on our operations and business,
including impacts for all of our stakeholders.
Technical Guidance 2021/22
Year-end guidance FY 21 Year-on- Movement
Year in guidance
from May
2021
Regulated Water and Waste Water
Turnover(1) GBP1.78 billion to GBP1.81 GBP1.69bn
billion. Includes c.GBP50
million of diversions income
related to HS2.
Operating costs Higher year-on-year, driven GBP878m
(incl. IRE) by a planned step-up in our
IRE programme and continued
upward sector-wide pressure
on energy and chemicals costs.
ODIs(2) Continued outperformance across GBP77m(3)
Water, Waste, Environment
and Customer measures delivering
a net reward of at least GBP75
million pre-tax (GBP56 million
post tax).
-------------------- -------------------------------------- ---------- --------- -------------
Business Services
Adjusted PBIT At least 20% growth for the GBP26m
full year, driven by strong
H1 property sales.
Group
Interest charge(4) Increase year-on-year due GBP187m
to higher forecast inflation
and average net debt. The
second half of this year is
expected to be c.20% higher
than the first half, based
on latest inflation forecast.
Adjusted effective current
tax rate of nil due to "super
Adjusted effective deduction" and other accelerated
current tax capital allowances on our
rate(5) large capital investment programme. 11.4%
Group capex GBP550 million to GBP650 million GBP593m
including Green Recovery.
Annual dividend growth of
CPIH. 2021/22 dividend 102.14
Dividend(6) pence. 101.58p
-------------------- -------------------------------------- ---------- --------- -------------
Footnotes to Technical Guidance
1. Includes presentation of deferred income and diversions
income released to turnover in the income statement.
2. Customer Outcome Delivery Incentives are quoted pre-tax in
2017/18 prices at the 25% rate expected to be in place when ODIs
are taken to revenue (FY21 quoted pre-tax in 2017/18 prices at 19%
rate).
3. FY21 outturn restated to align with Ofwat's Final
Determination of in-period ODIs for 2020/21.
4. Based on October Oxford Economics forecast of inflation.
5. Total effective tax rate is expected to be c.22%.
6. 2021/22 dividend growth is based on November 2020 CPIH of 0.55%.
Further Information
For further information, including the Group's half-year results
presentation, see the Severn Trent website ( www.severntrent.com
).
Investor Timetable
Ex-dividend date (Interim) 2 December 2021
Dividend record date (Interim) 3 December 2021
---------------------------------
DRIP election date (Interim) 14 December 2021
---------------------------------
Interim dividend payment 7 January 2022
date
---------------------------------
Q3 Trading Update 2 February 2022
---------------------------------
Financial Year End 31 March 2022
---------------------------------
Full Year Results Announcement 25 May 2022
2021/22
---------------------------------
AGM 7 July 2022
---------------------------------
For more information please visit:
https://www.severntrent.com/investors/financial-calendar-and-regulatory-news/financial-calendar/
Condensed consolidated income 2021 2020
statement
Six months ended 30 September 2021
--------- ------------------- -------- --------- ---------- --------
Adjusting
Adjusted Adjusting items(1) Total Adjusted items(1) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
Turnover 3,4 958.2 -- 958.2 887.6 -- 887.6
Other income 6.0 -- 6.0 -- -- --
--------- ------------------- -------- --------- ---------- --------
Operating costs before charge for
bad and doubtful debts (692.3) (1.0) (693.3) (637.8) (1.0) (638.8)
Charge for bad and doubtful debts (15.3) -- (15.3) (24.2) -- (24.2)
------------------------------------ ----- --------
Total operating costs (707.6) (1.0) (708.6) (662.0) (1.0) (663.0)
------------------------------------ -----
Profit before interest and tax 256.6 (1.0) 255.6 225.6 (1.0) 224.6
------------------------------------ -----
Finance income 27.3 -- 27.3 29.9 -- 29.9
Finance costs (148.1) -- (148.1) (121.0) -- (121.0)
------------------------------------ -----
Net finance costs (120.8) -- (120.8) (91.1) -- (91.1)
Net gains/(losses) on financial
instruments 5 13.9 -- 13.9 (7.0) -- (7.0)
Share of net loss of joint venture
accounted for using the equity
method 11 (1.8) -- (1.8) -- -- --
--------- ------------------- -------- --------- ---------- --------
Profit on ordinary activities
before taxation 147.9 (1.0) 146.9 127.5 (1.0) 126.5
Current tax 6 -- -- -- (11.0) -- (11.0)
Deferred tax 6 (32.7) (294.2) (326.9) (13.8) -- (13.8)
------------------------------------ ----- --------
Taxation on profit on ordinary
activities 6 (32.7) (294.2) (326.9) (24.8) -- (24.8)
-----
(Loss)/profit for the period 115.2 (295.2) (180.0) 102.7 (1.0) 101.7
------------------------------------ ----- --------- ------------------- -------- --------- ---------- --------
Earnings per share (pence)
Note 2021 2020
--------- ----- ------- -----
Basic 8 (73.0) 42.7
Diluted 8 (73.0) 42.5
--------- ----- ------- -----
(1) For definition of adjusting items see note 18.
Condensed consolidated income statement
Six months ended 30 September 2021 2021 2020
Note GBPm GBPm
(Loss)/profit for the period (180.0) 101.7
------------------------------------------------------------------- ----- -------- --------
Other comprehensive income/(loss)
Items that will not be reclassified to the income statement:
Net actuarial gains/(losses) 12 46.2 (252.5)
Deferred tax on net actuarial gains/losses (11.7) 48.0
Deferred tax arising on rate change 8.3 --
42.8 (204.5)
------------------------------------------------------------------- ----- -------- --------
Items that may be reclassified to the income statement:
Gains on cash flow hedges 47.5 1.2
Deferred tax on gains on cash flow hedges (12.0) (0.2)
Amounts on cash flow hedges transferred to the income statement 5 3.3 4.1
Deferred tax on transfer to the income statement (0.9) (0.8)
37.9 4.3
------------------------------------------------------------------- ----- -------- --------
Other comprehensive income/(loss) for the period 80.7 (200.2)
------------------------------------------------------------------- ----- -------- --------
Total comprehensive loss for the period (99.3) (98.5)
------------------------------------------------------------------- ----- -------- --------
Condensed consolidated
statement of changes in equity
Six months ended 30 September
2021 Equity attributable to owners of the company
-----------------------------------------------------------------------------
Share capital Share premium Other reserves Retained earnings Total
Note GBPm GBPm GBPm GBPm GBPm
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
At 1 April 2020 236.5 137.0 67.9 802.3 1,243.7
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Profit for the period -- -- -- 101.7 101.7
Gains on cash flow hedges -- -- 1.2 -- 1.2
Deferred tax on gains on cash
flow hedges -- -- (0.2) -- (0.2)
Amounts on cash flow hedges
transferred to the income
statement 5 -- -- 4.1 -- 4.1
Deferred tax on transfer to the
income statement -- -- (0.8) -- (0.8)
Net actuarial losses 12 -- -- -- (252.5) (252.5)
Deferred tax on net actuarial
losses -- -- -- 48.0 48.0
Total comprehensive loss for
the period -- -- 4.3 (102.8) (98.5)
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Share options and LTIPs
- proceeds from shares issued 0.6 10.1 -- -- 10.7
- value of employees' services -- -- -- 4.5 4.5
Current tax on share based
payments -- -- -- 0.4 0.4
Deferred tax on share based
payments -- -- -- 0.6 0.6
Dividends paid 7 -- -- -- (143.1) (143.1)
At 30 September 2020 237.1 147.1 72.2 561.9 1,018.3
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
At 1 April 2021 237.2 148.1 101.7 651.7 1,138.7
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Loss for the period -- -- -- (180.0) (180.0)
Gains on cash flow hedges -- -- 47.5 -- 47.5
Deferred tax on gains on cash
flow hedges -- -- (12.0) -- (12.0)
Amounts on cash flow hedges
transferred to the income
statement 5 -- -- 3.3 -- 3.3
Deferred tax on transfer to the
income statement -- -- (0.9) -- (0.9)
Net actuarial gains 12 -- -- -- 46.2 46.2
Deferred tax on net actuarial
gains -- -- -- (11.7) (11.7)
Deferred tax arising from rate
change -- -- -- 8.3 8.3
Total comprehensive loss for
the period -- -- 37.9 (137.2) (99.3)
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Proceeds from equity placing 10.2 235.1 -- -- 245.3
Share options and LTIPs
- proceeds from shares issued 0.7 10.8 -- -- 11.5
- value of employees' services -- -- -- 4.8 4.8
Deferred tax on share based
payments -- -- -- 1.4 1.4
Dividends paid 7 -- -- -- (152.2) (152.2)
At 30 September 2021 248.1 394.0 139.6 368.5 1,150.2
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Condensed consolidated balance sheet
At 30 September 2021 30 September 31 March
2021 2021
Note GBPm GBPm
Non-current assets
Goodwill 91.4 91.4
Other intangible assets 175.6 164.0
Property, plant and equipment 9,959.4 9,875.2
Right-of-use assets 129.2 130.8
Investment in joint venture 11 16.9 -
Derivative financial instruments 39.8 37.1
Trade and other receivables 75.8 101.5
Retirement benefit surplus 12 18.2 17.1
-----
10,506.3 10,417.1
-------------------------------------- ----- --------------------- -----------------------
Current assets
Inventory 29.7 30.8
Trade and other receivables 551.0 515.2
Derivative financial instruments 42.0 3.8
Cash and cash equivalents 53.9 56.2
676.6 606.0
-------------------------------------- ----- --------------------- -----------------------
Current liabilities
Borrowings 9 (276.6) (503.1)
Trade and other payables (661.7) (557.1)
Current tax payable (0.2) (0.2)
Provisions for liabilities (19.8) (18.0)
(958.3) (1,078.4)
-------------------------------------- ----- --------------------- -----------------------
Net current liabilities (281.7) (472.4)
Non-current liabilities
Borrowings 9 (6,111.5) (6,112.8)
Derivative financial instruments (102.6) (126.9)
Trade and other payables (1,275.0) (1,250.3)
Deferred tax (1,247.5) (906.0)
Retirement benefit obligations 12 (309.7) (384.8)
Provisions for liabilities (28.1) (25.2)
(9,074.4) (8,806.0)
-------------------------------------- ----- --------------------- -----------------------
Net assets 1,150.2 1,138.7
-------------------------------------- ----- --------------------- -----------------------
Equity
Called up share capital 13 248.1 237.2
Share premium account 394.0 148.1
Other reserves 139.6 101.7
Retained earnings 368.5 651.7
Total equity 1,150.2 1,138.7
-------------------------------------- ----- --------------------- -----------------------
Condensed consolidated cash flow statement 2021 2020
Six months ended 30 September 2021
Note GBPm GBPm
------------------------------------------------ ----- -------- --------
Cash generated from operations 14 489.9 507.3
Tax paid 14 -- (4.9)
Net cash generated from operating activities 489.9 502.4
------------------------------------------------ ----- -------- --------
Cash flows from investing activities
Purchases of property, plant and equipment (250.2) (284.3)
Purchases of intangible assets (6.6) (15.6)
Proceeds on disposal of subsidiary undertaking -- 0.7
Proceeds on disposal of property, plant and
equipment 3.5 1.8
Net loans advanced to joint ventures -- (29.5)
Interest received 0.6 0.7
Net cash outflow from investing activities (252.7) (326.2)
------------------------------------------------ ----- -------- --------
Cash flow from financing activities
Interest paid (79.5) (76.2)
Interest element of lease payments (2.0) (0.2)
Dividends paid to shareholders of the parent (152.2) (143.1)
Repayments of borrowings (332.9) (286.2)
Principal elements of lease payments (2.6) (0.9)
New loans raised 57.8 293.8
Issues of shares net of costs 256.8 10.7
Proceeds from swap terminations 5.6 --
Net cash outflow from financing activities (249.0) (202.1)
------------------------------------------------ ----- -------- --------
Net movement in cash and cash equivalents (11.8) (25.9)
Net cash and cash equivalents at the beginning
of the period 44.0 48.6
Net cash and cash equivalents at end of the
period 32.2 22.7
------------------------------------------------ ----- -------- --------
Cash at bank and in hand 53.9 18.3
Bank overdrafts (21.7) --
Short term deposits -- 4.4
32.2 22.7
------------------------------------------------ ----- -------- --------
Notes to the condensed interim financial information
1. General information
The interim report has been prepared in accordance with the
recognition and measurement criteria of IFRS and the disclosure
requirements of the Listing Rules.
The information for the year ended 31 March 2021 does not
constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006. A copy of the statutory accounts for that
year prepared under IFRS has been delivered to the Registrar of
Companies. The auditor's report on those accounts was unqualified,
did not draw attention to any matters by way of emphasis and did
not contain statements under section 498 (2) or (3) of the
Companies Act 2006.
a) Accounting policies
The interim financial information has been prepared on the going
concern basis using accounting policies consistent with United
Kingdom adopted International Accounting Standard 34 'Interim
Financial Reporting'. The same accounting policies, presentation
and methods of computation are followed in the interim financial
information as applied in the Group's annual financial statements
for the year ended 31 March 2021, and those which are expected to
be adopted for the Group's annual financial statements for the year
ending 31 March 2022, which will be prepared in accordance with
United Kingdom adopted International Financial Reporting
Standards.
b) Going concern
Including undrawn committed credit facilities of GBP950 million,
and based on its latest forecasts, the Group is fully funded for
its investment and cash flow needs for more than the next year.
After making enquiries the Directors have a reasonable expectation
that the Group has adequate resources to continue in operational
existence for the foreseeable future and hence the interim
financial information has been prepared on a going concern
basis.
c) Seasonality
Historically around half of the Group's PBIT has arisen in the
first half of the year.
d) Changes in accounting presentation
Income from diversions
Previously income from diversions was credited to infrastructure
maintenance expenditure within operating costs. Under the new
presentation, the amounts are recognised as turnover and in the six
months to 30 September 2021 amounted to GBP12.9 million (2020:
GBP5.0 million). This presentational change has been applied
beginning in the current accounting period, however as the impact
is not material to comparative prior periods they have not been
restated. This reclassification has no impact on profits or cash
flows recorded in the period or prior periods
2. Critical accounting judgments and key sources of estimation uncertainty
In the course of applying the Group's accounting policies, the
Group is required to make certain judgments, estimates and
assumptions that it believes are reasonable based on the
information available. Although these estimates are based on
management's best knowledge of the amount, event or actions, actual
results may ultimately differ from those estimates. Details of the
critical accounting judgments and key sources of estimation
uncertainty were set out in the Group's financial statements for
the year ended 31 March 2021. Changes to these judgments and
uncertainties are set out below.
a) Critical accounting judgments
There have been no changes to the critical accounting judgments
made at 31 March 2021. However a new critical accounting judgment
relating to the bulk annuity buy-in of one Group pension scheme has
arisen in the current period as set out below.
Accounting for the bulk annuity buy-in of the Severn Trent
Mirror Image Pension Scheme ('STMIPS')
On 29 June 2021, the Group completed the bulk annuity buy-in of
the STMIPS. Severn Trent Water Limited is the only employer in this
scheme. As a result of the buy-in, the Group has obtained the right
to reimbursement under an insurance policy of the benefits payable
to scheme members. Although substantially all of the risks relating
to this obligation are mitigated by the insurance policy, the legal
obligation to pay the member benefits as they fall due remains with
the Group. Therefore the Group concluded that this transaction did
not represent a settlement under IAS 19.
As such the GBP29.6 million difference between the premium paid
to secure the insurance policy and the accounting value of the
liabilities covered by the buy-in has been recognised within other
comprehensive income as part of the return on plan assets which
forms part of the overall actuarial gain.
2. Critical accounting judgments and key sources of estimation uncertainty (continued)
b) Sources of estimation uncertainty
There have been no significant changes to the estimates relating
to depreciation and carrying amounts of property, plant and
equipment, or to expected credit losses on trade receivables since
31 March 2021. An update regarding expected credit losses on trade
receivables is set out below.
Changes in estimates relating to retirement benefit obligations
are set out in note 12 to the condensed financial statements.
Expected credit losses on trade receivables
Expected credit losses on trade receivables are based on the
historical credit losses experienced over the last nine years and
reasonable forecasts of the future impact of external economic
factors on the Group's collection of trade receivables.
Although the Bank of England's most recent Monetary Policy
Report at the balance sheet date, for August 2021, forecasts a
lower peak level of unemployment than previous forecasts, we have
not changed our estimate from 31 March 2021 of the impact of future
economic factors on expected credit losses. This is in light of
emerging economic factors such as the reduction in Universal
Credit, rising National Insurance contributions and higher energy
bills which are expected to impact household disposable income and
therefore the expected credit losses on trade receivables.
3. 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 Group's Operating Services
businesses, the Green Power business, the Property Development
business and our other non-regulated businesses including affinity
products and searches.
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 basis
described above.
Results from interests in our joint venture are not included in
the segmental reports reviewed by STEC.
Goodwill is allocated and monitored at the segment level.
Transactions between reportable segments are included within
segmental results, assets and liabilities in accordance with
Group accounting policies. These are eliminated on
consolidation.
The measure of profit or loss that is reported to STEC for the
segments is adjusted PBIT. A segmental analysis of turnover and
adjusted PBIT is presented below.
Six months ended 30 September
2021 2020
-------------------------------------------- --------------------------------------------
Regulated Water and Regulated Water and
Waste Water Business Services Waste Water Business Services
GBPm GBPm GBPm GBPm
------------------------ ------------------------ ------------------ ------------------------ ------------------
External turnover 893.6 64.7 829.7 57.9
Inter-segment turnover 0.3 1.4 0.2 1.2
Total turnover 893.9 66.1 829.9 59.1
------------------------ ------------------------ ------------------ ------------------------ ------------------
Adjusted PBIT 242.4 17.4 219.6 8.2
Amortisation of
acquired intangible
assets -- (1.0) -- (1.0)
Profit before interest
and tax 242.4 16.4 219.6 7.2
------------------------ ------------------------ ------------------ ------------------------ ------------------
3. Segmental analysis (continued)
The reportable segments' turnover is reconciled to Group
turnover as follows:
Six months ended 30 September
2021 2020
GBPm GBPm
--------------------------------- ------ ------
Regulated Water and Waste Water 893.9 829.9
Business Services 66.1 59.1
Corporate and other 0.4 0.4
Consolidation adjustments (2.2) (1.8)
958.2 887.6
--------------------------------- ------ ------
Segmental adjusted PBIT is reconciled to the Group's profit
before tax as follows:
Six months ended 30 September
2021 2020
GBPm GBPm
-------------------------------------------------------------------------- -------- -------
Regulated Water and Waste Water 242.4 219.6
Business Services 17.4 8.2
Corporate and other (3.2) (2.2)
Adjusted PBIT 256.6 225.6
Amortisation of acquired intangible assets (in Business Services) (1.0) (1.0)
Net finance costs (120.8) (91.1)
Net gains/(losses) on financial instruments 13.9 (7.0)
Share of net loss of joint venture accounted for using the equity method (1.8) --
-------------------------------------------------------------------------- -------- -------
Profit on ordinary activities before taxation 146.9 126.5
-------------------------------------------------------------------------- -------- -------
The following table shows segmental capital employed:
30 September 2021 31 March 2021
---------------------------------------------- --------------------------------------
Regulated Water and Waste Regulated Water and Waste Business
Water Business Services Water Services
GBPm GBPm GBPm GBPm
---------------------------- -------------------------- ------------------ -------------------------- ----------
Operating assets 10,559.9 326.9 10,433.4 331.0
Goodwill 63.5 29.2 63.5 29.2
Investment in joint venture -- 16.9 -- --
---------------------------- -------------------------- ------------------ -------------------------- ----------
Segment assets 10,623.4 373.0 10,496.9 360.2
Segment operating
liabilities (2,240.0) (35.4) (2,174.4) (40.0)
---------------------------- -------------------------- ------------------ -------------------------- ----------
Capital employed 8,383.4 337.6 8,322.5 320.2
---------------------------- -------------------------- ------------------ -------------------------- ----------
Operating assets comprise other intangible assets, property,
plant and equipment, right-of-use assets, retirement benefit
surpluses, inventory and trade and other receivables.
Operating liabilities comprise trade and other payables,
retirement benefit obligations and provisions.
4. Revenue from contracts with customers
Revenue recognised from contracts with customers is analysed by
business segment below:
Six months ended 30 September 2021
Regulated Water and Waste Business Corporate
Water Services and other Consolidation adjustments Group
GBPm GBPm GBPm GBPm GBPm
---------------------------- --------------------------- ---------- ----------- -------------------------- ------
Water and waste water
services 872.5 -- -- -- 872.5
Operating services -- 33.0 -- -- 33.0
Renewable energy 18.4 26.2 -- (1.5) 43.1
Other sales 3.0 6.9 0.4 (0.7) 9.6
893.9 66.1 0.4 (2.2) 958.2
---------------------------- --------------------------- ---------- ----------- -------------------------- ------
Six months ended 30 September 2020
Regulated Water and Waste Business Corporate
Water Services and other Consolidation adjustments Group
GBPm GBPm GBPm GBPm GBPm
---------------------------- --------------------------- ---------- ----------- -------------------------- ------
Water and waste water
services 813.1 -- -- -- 813.1
Operating services -- 29.1 -- -- 29.1
Renewable energy 14.9 24.6 -- (1.2) 38.3
Other sales 1.9 5.4 0.4 (0.6) 7.1
829.9 59.1 0.4 (1.8) 887.6
---------------------------- --------------------------- ---------- ----------- -------------------------- ------
Previously, income from diversions, which was reimbursement of
costs incurred for diversions, was credited to operating costs.
Under the new presentation, the income from diversions is
recognised as turnover. In the six months ended 30 September 2021,
income from diversions amounted to GBP12.9 million (2020: GBP5.0
million). As the impact in the prior year is not considered
material to the amounts recorded in turnover or operating costs,
the prior year has not been restated. This reclassification has no
impact on profits or cash flows recorded in the year or prior
years.
5. Net gains/(losses) on financial instruments
Six months ended 30 September
2021 2020
GBPm GBPm
------ -------
Gain/(loss) on swaps used as hedging instruments in fair value hedges 1.6 (1.2)
Loss arising on debt in fair value hedges (0.9) (0.3)
Exchange (loss)/gain on other loans (3.3) 5.9
Loss on cash flow hedges transferred from equity (3.3) (4.1)
Hedge ineffectiveness on cash flow hedges (0.2) 2.2
Gain/(loss) arising on swaps where hedge accounting is not applied 19.5 (10.0)
Amortisation of fair value adjustment on debt 0.5 0.5
13.9 (7.0)
----------------------------------------------------------------------- ------ -------
6. Tax
Six months ended 30 September
2021 2020
GBPm GBPm
------ -----
Current tax
Current year at 0.0% (2020: 8.7%) - 11.0
Total current tax - 11.0
---------------------------------------------------- ------ -----
Deferred tax
Origination and reversal of temporary differences:
Current year 32.7 13.8
Exceptional charge on rate change 294.2 -
Total deferred tax 326.9 13.8
---------------------------------------------------- ------ -----
326.9 24.8
---------------------------------------------------- ------ -----
The tax charge in the income statement is calculated at a rate
of 22.3% excluding the exceptional charge on rate change (2020:
19.6%) representing the best estimate of the annual average
effective income tax rate expected for the full year applied to the
pre-tax income for the six month period.
The adjusted effective current tax rate was 0.0% (2020: 9.1%).
See note 18.
Current tax of nil (2020: credit of GBP0.4 million) and a
deferred tax charge of GBP14.9 million (2020: credit of GBP47.6
million) have been taken to reserves in the period.
Deferred tax is provided at the rate that is expected to apply
when the asset or liability is expected to be settled. On 3 March
2021, the UK Government announced an increase in the rate of
corporation tax from 19% to 25%, effective 1 April 2023. Deferred
tax assets and liabilities have therefore been remeasured at 31
March 2021 at the new rate of 25%. This resulted in an exceptional
deferred tax charge in the income statement of GBP294.2 million and
a credit to reserves amounting to GBP8.3 million.
Also announced in the UK Budget was the introduction of a
capital allowance 'super deduction' which gives an in-year capital
allowance of 130% on the cost of plant and machinery qualifying for
the relief and an acceleration of capital allowances on the cost of
assets qualifying for special rate allowances. The introduction of
these changes mean Severn Trent is expected to claim more capital
allowances in the current period and is not expecting to pay
corporation tax for the period.
7. Dividends
Amounts recognised as distributions to owners of the Company in
the period:
Six months ended 30 September
2021 2020
---------------- ------ ---------------- ------
Pence per share GBPm Pence per share GBPm
-------------------------------------------------------- ---------------- ------ ---------------- ------
Final dividend for the year ended 31 March 2021 (2020) 60.95 152.2 60.05 143.1
-------------------------------------------------------- ---------------- ------ ---------------- ------
The proposed interim dividend of 40.86p per share (2020/21:
40.63p per share) was approved by the Board on 22 November 2021 and
has not been included as a liability at 30 September 2021.
8. 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.
The calculation of basic and diluted earnings per share is based
on the following data:
i) Earnings for the purpose of basic and diluted earnings per share
2021 2020
GBPm GBPm
(Loss)/profit for the period (180.0) 101.7
------------------------------- -------- ------
ii) Number of shares
Six months ended 30 September
2021 2020
m m
------------------------------------------------------------------------------------------ ------ ------
Weighted average number of ordinary shares for the purpose of basic earnings per share 246.5 238.1
Effect of dilutive potential ordinary shares:
- share options and LTIPs - 1.1
Weighted average number of ordinary shares for the purpose of diluted earnings per share 246.5 239.2
------------------------------------------------------------------------------------------- ------ ------
The share options and LTIPs are not treated as dilutive in the
period ended 30 September 2021 since their conversion to ordinary
shares would decrease the loss per share.
b) Adjusted earnings per share
Six months ended 30 September
2021 2020
pence pence
Adjusted basic earnings per share 54.4 51.3
Adjusted diluted earnings per share 54.1 51.1
-------------------------------------- ------ ------
Adjusted 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 2021 and 2020. The Directors consider that the adjusted
figures provide a useful additional indicator of performance. The
denominators used in the calculations of adjusted basic and diluted
earnings per share are the same as those used in the unadjusted
figures set out above except that the number of ordinary shares for
the purpose of adjusted diluted earnings per share for the period
ended 30 September 2021 is 247.7 million as this includes 1.2
million dilutive potential ordinary shares from share options and
LTIPs.
The adjustments to earnings are as follows:
Six months ended 30 September
2021 2020
GBPm GBPm
Earnings for the purpose of basic and diluted earnings per share (180.0) 101.7
Adjustments for:
- amortisation of acquired intangible assets 1.0 1.0
- net (gains)/losses on financial instruments (13.9) 7.0
- current tax on net gains/losses on financial instruments -- (1.3)
- deferred tax 326.9 13.8
----------------------------------------------------------------------------
Earnings for the purpose of adjusted basic and diluted earnings per share 134.0 122.2
---------------------------------------------------------------------------- -------- -------
9. Borrowings
30 September 31 March
2021 2021
GBPm GBPm
------------------- ------------- ---------
Bank loans 928.0 1,011.1
Other loans 5,316.0 5,471.3
Lease liabilities 122.4 121.3
Overdraft 21.7 12.2
Borrowings 6,388.1 6,615.9
------------------- ------------- ---------
The borrowings are repayable as follows:
30 September 31 March
2021 2021
GBPm GBPm
----------------------------------------- ------------- ---------
On demand or within one year - included
in current liabilities 276.6 503.1
Over one year - included in non-current
liabilities 6,111.5 6,112.8
6,388.1 6,615.9
----------------------------------------- ------------- ---------
10. Fair value of financial instruments
a) Fair value measurements
The valuation techniques that the Group applies in determining
the fair values of its financial instruments on a recurring basis
are described below. The techniques are classified under the
hierarchy defined in IFRS 13 which categorises valuation techniques
into Levels 1 - 3 based on the degree to which the fair value is
observable. The Group's valuation techniques are Level 2 unless
otherwise stated below:
30 September 2021 31 March 2021
GBPm GBPm Valuation techniques and key inputs
---------------------- ------------------- -------------- ---------------------------------------------------------
Cross currency swaps Discounted cash flow.
Assets 36.5 32.5 Future cash flows are estimated based on forward
interest rates from observable yield curves
at the period end and contract interest rates discounted
at a rate that reflects the credit
risk of counterparties. The currency cash flows are
translated at spot rate.
---------------------------------------------------------
Liabilities - (0.6)
---------------------- ------------------- -------------- ---------------------------------------------------------
Interest rate swaps Discounted cash flow.
Liabilities (79.3) (94.2) Future cash flows are estimated based on forward
interest rates from observable yield curves
at the period end and contract interest rates discounted
at a rate that reflects the credit
risk of counterparties.
---------------------- ------------------- -------------- ---------------------------------------------------------
Energy swaps Discounted cash flow.
Assets 45.3 8.4 Future cash flows are estimated based on forward
electricity prices from observable indices
at the period end and contract prices discounted at a
rate that reflects the credit risk of
counterparties.
Inflation swaps Discounted cash flow.
Liabilities (23.3) (32.1) Future cash flows on the RPI leg of the instrument are
estimated based on observable forward
inflation indices.
Future cash flows on the CPI leg of the instrument are
estimated based on the future expected
differential between RPI and CPI ('the wedge').
Both legs are discounted using observable swap rates at
the period end, at a rate that reflects
the credit risk of counterparties. This is considered to
be a Level 3 valuation technique.
---------------------- ------------------- -------------- ---------------------------------------------------------
10. Fair value of financial instruments (continued)
a) Fair value measurements (continued)
Changes in the carrying values of instruments that are measured
using a Level 3 technique were as follows:
Inflation swaps
GBPm
------------------------------------------- ----------------
At 1 April 2020 (27.7)
Losses recognised in the income statement (4.4)
At 31 March 2021 (32.1)
Gains recognised in the income statement 8.8
At 30 September 2021 (23.3)
------------------------------------------- ----------------
These Level 3 instruments are valued using unobservable inputs.
In valuing the inflation swaps, we have identified the unobservable
input as the CPI wedge. A change of 10bps in the CPI wedge would
result in a change in the carrying value of GBP6.7 million.
b) Comparison of fair value of financial instruments with their
carrying amounts
The Directors consider that the carrying amounts of all
financial instruments, except those disclosed in the table below,
approximate to their fair values. The carrying values and estimated
fair values of other financial instruments are set out below:
30 September 31 March
2021 2021
--------------- ----------- --------------- -----------
Carrying value Fair value Carrying value Fair value
GBPm GBPm GBPm GBPm
-------------------- --------------- ----------- --------------- -----------
Floating rate debt
Bank loans 802.7 808.9 888.8 890.4
Other loans 147.8 156.1 147.9 155.5
Bank overdraft 21.7 21.7 12.2 12.2
--------------------
972.2 986.7 1,048.9 1,058.1
-------------------- --------------- ----------- --------------- -----------
Fixed rate debt
Other loans 3,540.5 3,994.8 3,786.4 4,242.3
Lease liabilities 122.4 131.6 121.3 134.1
--------------------
3,662.9 4,126.4 3,907.7 4,376.4
-------------------- --------------- ----------- --------------- -----------
Index-linked debt
Bank loans 125.3 152.4 122.3 146.2
Other loans 1,627.7 2,720.1 1,537.0 2,490.1
--------------------
1,753.0 2,872.5 1,659.3 2,636.3
-------------------- --------------- ----------- --------------- -----------
6,388.1 7,985.6 6,615.9 8,070.8
-------------------- --------------- ----------- --------------- -----------
To reflect the underlying terms of the debt, within the
comparatives, GBP30.4 million carrying value of bank loans has been
reclassified from fixed rate to floating rate debt, and GBP35.2
million carrying value of other loans has been reclassified from
floating rate to fixed rate debt. The associated fair values have
also been restated in the comparatives, with a net GBP10.3 million
increase in the fair value of fixed rate debt, and a net GBP4.9
million decrease in the fair value of floating rate debt.
The above classification does not take into account the impact
of interest rate swaps or cross currency swaps.
Fixed rate loans are valued using market prices for similar
instruments, which is a Level 2 valuation technique.
Index-linked loans are rarely traded and therefore quoted prices
are not considered to be a reliable indicator of fair value.
Therefore, these loans are valued using discounted cash flow models
with discount rates derived from observed market prices for a
sample of bonds, which is a Level 2 valuation technique.
Fair values of the other debt instruments are also calculated
using discounted cash flow models with discount rates derived from
observed market prices, which is a Level 2 valuation technique.
11. Investment in joint venture
Our joint venture undertaking, Water Plus, is the largest
retailer in the non-household retail water market in England.
At the previous year end (31 March 2021) the GBP32.5 million
facility advanced to Water Plus was presented within non-current
loans receivable, and formed part of the Group's net investment in
Water Plus. A total of GBP13.8 million had been written off against
the carrying value of the non-current loan receivable at that
date.
On 23 April 2021, the Group extinguished the GBP32.5 million
facility, and subscribed for GBP32.5 million of equity shares in
Water Plus Group Limited at par. The carrying value of the loan
receivable was reclassified to investment in joint venture. During
the current period, the Group has recognised its share of Water
Plus's losses of GBP1.8 million against the value of the
investment.
Movements in the loan receivable and investment in joint venture
balances during the period were:
Loan
receivable Investment in joint venture
GBPm GBPm
--------------------------------------------- ------------ ----------------------------
At 1 April 2021 18.7 -
Reclassification on subscription for equity (18.7) 18.7
Share of losses for the period - (1.8)
At 30 September 2021 - 16.9
--------------------------------------------- ------------ ----------------------------
12. 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 Group participates in the Dee
Valley Water plc Section of the Water Companies Pension Scheme,
which is a defined benefit sectionalised scheme (the 'DVWS'). The
most recent completed formal triennial actuarial valuations and
funding agreements were carried out as at 31 March 2019 for the
Severn Trent schemes and 31 March 2020 for DVWS.
On 29 June 2021, the Group completed the bulk annuity buy-in of
the Severn Trent Mirror Image Pension Scheme ('STMIPS'). Severn
Trent Water Limited is the only employer in this scheme. As a
result of the buy-in, whilst the legal obligation to pay the
employee benefits directly as they fall due remains with the Group,
the right to reimbursement of such amounts to the Group has been
obtained under the insurance policy.
The assumptions used in calculating the defined benefit
obligations have been updated to reflect market conditions
prevailing at the balance sheet date as follows:
30 September 31 March
2021 2021
% %
-------------------------------- ------------- ---------
Price inflation - RPI 3.4 3.2
Price inflation - CPI 2.6 2.4
Discount rate 2.0 2.0
Pension increases in payment 3.4 3.2
Pension increases in deferment 3.4 3.2
--------------------------------- ------------- ---------
The defined benefit scheme assets have been updated to reflect
their market value at 30 September 2021. 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.
12. Retirement benefit schemes (continued)
The scheme assets at the balance sheet date were:
30 September 31 March
2021 2021
STPS, STMIPS, and DVWS GBPm GBPm
-------------------------------------------- ------------- ---------
Fair value of scheme assets
Equities 555.1 493.3
Annuity policies 111.3 -
Corporate bonds 1,020.9 1,047.5
Liability-driven investment funds ('LDI's) 688.9 629.9
Property 273.0 255.1
High-yield bonds 27.9 28.4
Cash 63.9 146.2
-------------------------------------------- ------------- ---------
2,741.0 2,600.4
-------------------------------------------- ------------- ---------
Most of the assets have quoted prices in active markets, but
there are equities, corporate bonds and LDI investments which are
unquoted amounting to GBP607.2 million (31 March 2021: GBP544.6
million).
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 1 April 2021 2,600.4 (2,968.1) (367.7)
Current service cost - (0.1) (0.1)
Scheme administration costs (2.1) - (2.1)
Interest income/(cost) 26.6 (30.0) (3.4)
Actuarial gains/(losses) 140.5 (94.3) 46.2
Employer contributions 35.6 - 35.6
Employees' contributions and benefits paid (60.0) 60.0 -
-------------------------------------------- ---------------- ------------- ------------
At 30 September 2021 2,741.0 (3,032.5) (291.5)
-------------------------------------------- ---------------- ------------- ------------
The net deficit is presented on the balance sheet as
follows:
30 September 31 March
2021 2021
GBPm GBPm
-------------------------------- ------------- ---------
Retirement benefit surplus 18.2 17.1
Retirement benefit obligations (309.7) (384.8)
-------------------------------- ------------- ---------
(291.5) (367.7)
-------------------------------- ------------- ---------
13. Share capital
At 30 September 2021 the issued and fully paid share capital was
253.4 million shares of 97(17) /(19) p amounting to GBP248.1
million (31 March 2021: 242.3 million shares of 97(17) /(19) p
amounting to GBP237.2 million).
On 25 May 2021 the Company issued 10,420,000 ordinary shares of
97(17) /(19) p 97 at 2,400p per share, raising GBP245.3 million net
of issue costs. Share capital increased by GBP10.2 million and
share premium by GBP235.1 million.
During the period the Company issued 0.7 million (2020/21: 0.7
million) shares as a result of the exercise of employee share
options. At 30 September 2021 the Company held 3.1 million (31
March 2021: 3.4 million) treasury shares.
14. Cash flow
a) Reconciliation of operating profit to operating cash
flows
Six months ended 30 September
2021 2020
GBPm GBPm
Profit before interest and tax 255.6 224.6
Depreciation of property, plant and equipment 180.7 178.3
Depreciation of right-of-use assets 1.3 1.2
Amortisation of intangible assets 17.6 16.1
Amortisation of acquired intangible assets 1.0 1.0
Impairment of property, plant and equipment 1.7 --
Pension service cost 0.1 0.1
Defined benefit pension scheme administration costs 2.1 1.2
Defined benefit pension scheme contributions (35.6) (11.7)
Share based payment charge 4.8 4.5
Profit on sale of property, plant and equipment and intangible assets (1.3) (1.4)
Profit on disposal of subsidiary undertaking -- (0.2)
Deferred income movement (8.0) (7.8)
Contributions and grants received 15.3 14.6
Provisions charged to the income statement 3.2 1.6
Utilisation of provisions for liabilities (2.6) (4.0)
Operating cash flows before movements in working capital 435.9 418.1
Decrease in inventory 1.1 0.8
(Increase)/decrease in amounts receivable (28.6) 44.2
Increase in amounts payable 81.5 44.2
Cash generated from operations 489.9 507.3
Tax paid -- (4.9)
Net cash generated from operating activities 489.9 502.4
------------------------------------------------------------------------ ------- -------
b) Reconciliation of movements in net debt
Net cash and Cross Loans due
cash Lease currency from joint
equivalents Bank loans Other loans liabilities swaps venture Net debt
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------------- ----------- ------------ -------------- -------------- -------------- ----------
At 1 April
2021 44.0 (1,011.1) (5,471.3) (121.3) 31.9 84.0 (6,443.8)
--------------- -------------- ----------- ------------ -------------- -------------- -------------- ----------
Cash flow (11.8) 82.9 192.2 2.6 -- -- 265.9
Inflation
uplift on
index-linked
debt -- (2.7) (33.7) -- -- -- (36.4)
Foreign
exchange -- -- (3.3) -- -- -- (3.3)
Other non-cash
movements -- 2.9 0.1 (3.7) 4.6 (18.5) (14.6)
At 30
September
2021 32.2 (928.0) (5,316.0) (122.4) 36.5 65.5 (6,232.2)
--------------- -------------- ----------- ------------ -------------- -------------- -------------- ----------
15. Post balance sheet events
On 29 October the Group completed the issue of a new GBP50
million note facility, maturing in October 2030.
On 18 November, Defra, Ofwat and the Environment Agency
announced an industry-wide investigation into sewage treatment
works. It is not yet clear what the scope or likely outcome of this
investigation will be as it is in its very early stages .
16. Contingent liabilities
Details of the Group's contingent liabilities were disclosed in
the financial statements for the year ended 31 March 2021 which
were approved on 19 May 2021. There have been no significant
developments relating to the contingent liabilities disclosed in
those financial statements. An update regarding the matter
disclosed in the financial statements for the year ended 31 March
2021 is provided below.
Claims under the Environmental Information Regulations 2004
regarding property searches
The stage 1 trial on the legal issues relating to claims under
the Environmental Information Regulation 2004 is not now expected
to be held before late 2022.
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.
Six months ended 30 September
2021 2020
GBPm GBPm
--------------------- ------ ------
Sale of services 130.3 104.2
Net interest income 1.2 1.2
---------------------- ------ ------
Outstanding balances between the Group and the joint venture
were as follows:
30 September 31 March
2021 2021
GBPm GBPm
------------------------------------- ------------- ---------
Amounts due to related parties (4.6) (2.4)
Loans receivable from joint venture 65.5 84.0
-------------------------------------- ------------- ---------
60.9 81.6
------------------------------------- ------------- ---------
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
12.
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) Adjusted PBIT
Adjusted profit before interest and tax ('PBIT') 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. The calculation of this APM is shown on
the face of the income statement and in note 3 for reportable
segments.
b) Adjusted earnings per share
Adjusted earnings per share figures 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, deferred tax and exceptional
current tax. The Directors consider that the adjusted figures
provide a useful additional indicator of performance and remove
non-performance related distortions. See note 8.
c) Net debt
Net debt comprises borrowings including remeasurements for
changes in fair value of amounts in fair value hedging
relationships, cross currency swaps that are used to fix the
sterling liability of foreign currency borrowings (whether hedge
accounted or not), net cash and cash equivalents, and loans to our
joint venture. See note 14.
18. Alternative performance measures (continued)
d) Effective interest cost
The effective interest cost is calculated as net finance costs,
excluding net finance costs from pensions, plus capitalised finance
costs divided by the monthly average net debt during the
period.
(net finance costs - net finance costs from pensions +
capitalised finance costs)
(monthly average net debt)
2021 2020
GBPm GBPm
-------- --------
Net finance costs 120.8 91.1
Net finance costs from pensions (3.4) (2.6)
Capitalised finance costs 15.2 14.9
132.6 103.4
--------------------------------- -------- --------
Annualised 265.2 206.8
--------------------------------- -------- --------
Average net debt 6,251.5 6,236.1
Effective interest cost* 4.2% 3.3%
--------------------------------- -------- --------
* the rate is the annualised equivalent interest rate based on
that calculated for the six-month period
This APM is used to show the average interest rate that is
attributable to the net debt of the business .
e) Effective cash cost of interest
The effective cash cost of interest is calculated on the same
basis as the effective interest cost except that it excludes
finance costs that are not paid in cash but are accreted to the
carrying value of the debt (principally inflation adjustments on
index-linked debt).
(net finance costs - net finance costs from pensions - inflation
adjustments + capitalised finance costs)
(monthly average net debt)
2021 2020
GBPm GBPm
---------------------------------- -------- --------
Net finance costs 120.8 91.1
Net finance costs from pensions (3.4) (2.6)
Indexation adjustments (36.4) (5.3)
Capitalised finance costs 15.2 14.9
----------------------------------
96.2 98.1
---------------------------------- -------- --------
Annualised 192.4 196.2
---------------------------------- -------- --------
Average net debt 6,251.5 6,236.1
---------------------------------- -------- --------
Effective cash cost of interest* 3.1% 3.1%
---------------------------------- -------- --------
* the rate is the annualised equivalent interest rate based on
that calculated for the six-month period
This APM is used to show the average finance cost that is paid
in cash.
18. Alternative performance measures (continued)
f) Adjusted PBIT interest cover
The ratio of adjusted PBIT (see (a) above) to net finance costs
excluding finance costs from pensions.
adjusted PBIT
(net finance costs - net finance costs from pensions)
2021 2020
GBPm GBPm
------ ------
Adjusted PBIT 256.6 225.6
------------------------------------------------------------- ------ ------
Net finance costs 120.8 91.1
Net finance costs from pensions (3.4) (2.6)
Net finance costs excluding net finance costs from pensions 117.4 88.5
------------------------------------------------------------- ------ ------
Ratio Ratio
Adjusted PBIT interest cover ratio 2.2 2.5
------------------------------------------------------------- ------ ------
This APM is used to show how the adjusted PBIT of the business
covers the financing costs associated only with net debt on a
consistent basis.
g) EBITDA and EBITDA interest cover
The ratio of profit before interest, tax, exceptional items,
depreciation and amortisation to net finance costs excluding net
finance costs from pensions.
(adjusted PBIT + depreciation + amortisation)
(net finance costs - net finance costs from pensions)
2021 2020
GBPm GBPm
------------------------------------------------------------------------------------------------------ ------ ------
Adjusted PBIT 256.6 225.6
Depreciation (including right-of-use assets) 182.0 179.5
Amortisation (excluding amortisation of intangible assets recognised on acquisition of subsidiaries) 17.6 16.1
EBITDA 456.2 421.2
------------------------------------------------------------------------------------------------------ ------ ------
Net finance costs 120.8 91.1
Net finance costs from pensions (3.4) (2.6)
Net finance costs excluding finance costs from pensions 117.4 88.5
------------------------------------------------------------------------------------------------------ ------ ------
Ratio Ratio
EBITDA interest cover ratio 3.9 4.8
------------------------------------------------------------------------------------------------------ ------ ------
This APM is used to show how the EBITDA of the business covers
the financing costs associated only with net debt on a consistent
basis.
18. Alternative performance measures (continued)
h) Adjusted effective current tax rate
The current tax charge for the period, excluding prior year
charges, exceptional current tax and current tax on exceptional
items and on financial instruments, divided by profit before tax,
exceptional items, share of net loss of joint venture, amortisation
of acquired intangible assets accounted for using the equity method
and net gains/losses on financial instruments.
(current period current tax charge in the income statement - tax
on exceptional items - tax on net gains/losses on financial
instruments - tax on amortisation of acquired intangible
assets)
(PBT - exceptional items - share of net loss of JV -
amortisation of acquired intangible assets - net gains/losses on
financial instruments)
2021 2020
Current tax thereon Current tax thereon
GBPm GBPm GBPm GBPm
--------------------------------------------- ------- -------------------- ------ --------------------
Profit before tax 146.9 - 126.5 (11.0)
--------------------------------------------- ------- -------------------- ------ --------------------
Adjustments
Share of net loss of joint venture 1.8 - - -
Amortisation of acquired intangible assets 1.0 - 1.0 -
Net (gains)/losses on financial instruments (13.9) - 7.0 (1.3)
135.8 - 134.5 (12.3)
--------------------------------------------- ------- -------------------- ------ --------------------
Adjusted effective current tax rate 0.0% 9.1%
--------------------------------------------- ------- -------------------- ------ --------------------
This APM is used to remove distortions in the tax charge and to
create a metric consistent with the calculation of adjusted
earnings per share in note 8. Share of net loss of joint venture is
excluded from the calculation because the loss is included after
tax and so the tax on joint venture loss is not included in the
current tax charge.
i) Operational cashflow
Cash generated from operations less contributions and grants
received.
2021 2020
GBPm GBPm
----------------------------------- ------- -------
Cash generated from operations 489.9 507.3
Contributions and grants received (15.3) (14.6)
----------------------------------- ------- -------
Operational cashflow 474.6 492.7
----------------------------------- ------- -------
This APM is used to show operational cash excluding the effect
of contributions and grants received as part of capital
programmes.
j) Cash capex
Cash paid to acquire property, plant and equipment and
intangible fixed assets less contributions and grants received and
proceeds on disposal of property, plant and equipment and
intangible fixed assets.
2021 2020
GBPm GBPm
------------------------------------------------------- ------- -------
Purchase of property, plant and equipment 250.2 284.3
Purchase of intangible assets 6.6 15.6
Contributions and grants received (15.3) (14.6)
Proceeds on disposal of property, plant and equipment (3.5) (1.8)
Cash capex 238.0 283.5
------------------------------------------------------- ------- -------
This APM is used to show the cash impact of the Group's capital
programmes.
Responsibility statement
We confirm to the best of our knowledge:
(a) the condensed set of financial statements has been prepared
in accordance with IAS 34 "Interim Financial Reporting"; and
(b) the interim management report includes a fair review of the
information required by Disclosure and Transparency Rules 4.2.7R
and 4.2.8R of the United Kingdom Financial Conduct Authority.
Signed on behalf of the Board who approved the half yearly
financial report on 22 November 2021.
Christine Hodgson James Bowling
Chair Chief Financial Officer
Independent review report to Severn Trent Plc
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2021 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated statement of
changes in equity, the condensed consolidated balance sheet, the
condensed consolidated cash flow statement and related notes 1 to
18. We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group will be prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2021 is not prepared, in all material respects, in
accordance with United Kingdom adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
22 November 2021
Glossary
Asset Management Plan (AMP)
Price limit periods are sometimes known as AMP (Asset Management
Plan) periods. The current period is known as AMP7 (2020-2025)
because it is the seventh cycle since the water industry was
privatised in 1989.
C-MeX (Customer Measure of Experience)
C-Mex is the incentive mechanism for companies to improve the
experience of residential customers. C-MeX comprises two surveys -
the customer service survey of residential customers who have
recently contacted their water company and the customer experience
survey of random members of the public in relation to their
experience of their water company.
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.
D-MeX (Developer Services Measure of Experience)
D-Mex is the incentive mechanism for companies to improve the
experience of developer services customers. D-MeX comprises a
qualitative element which is a survey of developer services
customers who have recently completed a transaction with their
water company and a quantitative element which measures performance
against a set of Water UK developer services level of service
metrics.
Final Determination (FD)
The outcome of the price review process that sets price,
investment and services packages that customers receive.
Notional Net Debt
For each price review Ofwat sets a nominal capital structure for
companies in determining prices limits. This includes a notional
(assumed) regulatory gearing level. Notional net debt is the RCV
multiplied by the notional regulatory gearing level.
Ofwat
The water industry's economic regulator in England &
Wales.
PR19
The price review (PR) is a financial review process led by Ofwat
where wholesale price controls for water and sewerage companies are
set every five years. PR19 (Price Review 2019) set wholesale price
controls for water and sewerage companies for 2020 to 2025.
Price limits
The price limits are set to enable water companies to deliver
the services required of them over the AMP period. These include
allowing for capital maintenance of assets, ensuring security of
supply and meeting drinking water and environmental quality
requirements.
RFI (Revenue Forecasting Incentive)
A mechanism to reduce the impact of deviations on customer bills
arising from revenue forecasting deviations by
adjusting companies' allowed revenues for each year to take
account of differences between actual and projected revenues, and
incentivising companies to avoid revenue forecasting errors through
applying a penalty to variations that fall outside a set
uncertainty band (or 'revenue flexibility threshold').
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.
Regulatory Gearing
Regulating gearing is calculated as net debt divided by the
RCV.
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.
Totex
Totex (shortened form of total expenditure) includes operating
expenditure (opex), infrastructure renewals expenditure (IRE) and
capital expenditure (capex).
WINEP (Water Industry National Environment Programme)
Developed through extensive engagement with water companies and
led by the Environment Agency and Natural England, WINEP sets out
the actions that water companies will need to complete to meet our
environmental obligations.
Cautionary statement
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
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END
IR BCBDBIBDDGBD
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