TIDMSVT
RNS Number : 1303H
Severn Trent PLC
22 November 2022
Half Yearly Financial Report
22 November 2022
Interim results for the six months to 30 September 2022
Investing in people, performance and environment for the
long-term
Robust financial performance, supported by strong cost
control
-- Guiding to double-digit real Return on Regulated Equity
('RoRE') for FY23, with ODIs(1) of at least GBP50 million, totex in
line with allowance, and strong financing outperformance.
-- First half Group PBIT(2) of GBP261.7 million up 2.4%
year-on-year, reflecting increase in Group turnover (GBP1,061.8
million, up GBP103.6 million) and strong cost control.
-- Increasing property PBIT guidance by a further GBP50 million,
with planned PBIT from sales of surplus land now GBP150 million
between 2017 and 2032.
-- Adjusted basic EPS(3) of 29.9 pence (2021/22: 54.0 pence)
reflecting PBIT growth offset by impact of inflation on
index-linked debt. Basic EPS of 31.4 pence (2021/22: loss of 73.0
pence).
-- 2022 pension valuation agreed, with contributions unchanged.
IAS19 deficit of GBP142.6 million.
-- Interim dividend of 42.73 pence, in line with AMP7(4) policy, to be paid on 11 January 2023.
Delivering on our environmental commitments through investment
and operational excellence
-- On track to deliver one of our largest ever investment
programmes, including our innovative Green Recovery schemes,
driving real RCV(5) growth of 10.8%.
-- Over 70% of our GBP2.9 billion core capital programme either
delivered or with prices locked in.
-- Nominal RCV growth now expected to be 36%, making this our highest growth AMP to date.
-- Strong operational performance with c.85% of Severn Trent
Water performance commitments on or ahead of target, despite one of
the driest summers since 1836.
-- On track to achieve 4* Environmental Performance Assessment
('EPA') status from the Environment Agency for a fourth consecutive
year, including our best-ever pollutions performance.
-- Fast start to our Get River Positive pledges: advisory panel
established including NGO representatives to help oversee progress;
our share of regional RNAGS(6) reduced from 24% to 17%; ahead on
our plan to reduce CSO activations to an average of 20 by 2025.
-- End of AMP ODIs on course to contribute a further GBP40-50 million in the final year of AMP7.
Supporting our customers, communities, and colleagues now and
into the future
-- New ten-year plan to help support 100,000 people out of
poverty by 2032, through delivering skills and employability
training in communities, a work experience programme and
partnership working.
-- Offering financial support to up to 315,000 customers,
including 90% discounts off their water bill.
-- Welcomed 742 young people so far this AMP through graduate, apprentice and intern schemes.
-- Colleague engagement at an all-time high, scoring in the top 5% of global utilities.
Liv Garfield, Chief Executive, Severn Trent Plc, said:
" T he first half of this year has shown the benefits of the
sustained investment we've made over many years in our people,
region and environment. We have delivered a robust financial
performance leaving us well positioned to support our customers,
invest for the long term, and support future growth.
As well as delivering on our operational and environmental
commitments, with around 85% of regulatory measures meeting or
exceeding targets, we're also committed to making a long-lasting
positive impact in the communities we serve. Today, we are proud to
launch a new ten-year strategy to address some of the underlying
causes of poverty in our region, helping people to secure
employment and supporting customers through current cost of living
pressures. This builds on the investment we're already making
through our GBP10 million Community Fund and the support we offer
to 315,000 customers through our affordability schemes, including
discounts of up to 90% off their water bills ."
Group results
2022 2021 Increase/ (decrease)
GBPm GBPm %
Group turnover 1,061.8 958.2 10.8
Group PBIT 261.7 255.6 2.4
pence/ pence/
share share
--------------------------- -------- -------- ---------------------
Adjusted basic EPS 29.90 54.00 (44.6)
Basic EPS 31.40 (73.00) 143.0
Interim dividend declared 42.73 40.86 4.6
---------------------------- -------- -------- ---------------------
Footnotes to page 1 of this RNS
1. ODIs: Outcome Delivery Incentives, quoted pre-tax and in
2017/18 prices unless otherwise stated.
2. PBIT: Profit Before Interest and Tax.
3. EPS: Earnings Per Share; Adjusted basic EPS is set out in note 8.
4. AMP: Asset Management Plan (see glossary); AMP7 refers to the
period 1 April 2020 to 31 March 2025.
5. RCV: Regulatory Capital Value (see glossary). RCV is measured
including the impact of Green Recovery and real options. Nominal
RCV assumes forecast CPIH of 8.2% for 2022/23, 2.4% for 2023/24,
and 1.9% for 2024/25 and forecast RPI of 12.5% for 2022/23, 3.4%
for 2023/24 and 3.0% for 2024/25 as per Oxford Economics October
2022 forecast.
6. The Environment Agency's analysis of Reasons for Not
Achieving Good Status (RNAGS) records the source, activity and
sector involved in causing waters to be at less than good
status.
Enquiries
Investors & Analysts
Rachel Martin Severn Trent Plc +44 (0) 782 462 4011
Head of Investor Relations
Dominique Mowle Severn Trent Plc +44 (0) 796 776 7079
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 Webcast
A presentation of these results hosted by Liv Garfield, CEO, and
James Bowling, CFO, will be available on our website
(severntrent.com) from 7.00am GMT today, 22 November 2022.
We will be hosting a live Q&A session with Liv, James and
our wider Executive team at 9:00am GMT today via video call which
you can register for through our website.
Chief Executive's Review
Our resilience as a business has really shone through over the
last six months, as we continue to deliver strong operational and
financial performance, against a challenging backdrop of
record-breaking weather, rising prices, and macroeconomic
uncertainty. This resilience provides a stable platform to do more
for the communities we serve and the environment we depend on, and
I'm incredibly proud of the work we're doing in both of these
spaces.
The summer of 2022 included some of the hottest and driest
months ever experienced in our region but we were able to minimise
disruption for our customers as we benefited from the time,
resource and totex we have invested in our water performance over
the past few years. We've continued to demonstrate operational
excellence, and we are on track to meet or exceed around 85% of our
performance commitments this year, supporting ODI guidance of at
least GBP50 million.
While we continue to meet the challenges of a fast-changing
environment, we are not complacent and the need for greater
investment across the sector is clear. We are on track to deliver
our GBP8 billion investment programme, with our fast start to the
AMP, insourcing of critical skills, and smart procurement helping
to mitigate global supply chain constraints.
Since launching our Get River Positive programme we have made a
fast start on all five of our pledges. Most significantly, we have
reduced our share of Reasons for Not Achieving Good Status
('RNAGS') from 24% to 17% over the last 18 months, progressing
towards our goal of zero by 2030. We are also on track to achieve
the highest possible 4* EPA status for the fourth year in a row,
despite tougher targets.
Recognising the pressure on our customers' cost of living, in
May we extended our affordability schemes to offer up to 315,000
customers help with their water bill. But we want to go further and
make a genuine positive change to the lives of the people we serve.
I am proud to launch today our new ten-year employability and
skills strategy, which aims to help 100,000 people out of poverty
by 2032.
At the halfway point of AMP7, I'm really pleased with the
progress we have made, whether improving service for our customers,
driving our investment programme forward, or delivering strong
returns for shareholders. As we look ahead to the rest of this AMP
and into the long-term, I am confident that we will continue to
perform for the benefit of all our stakeholders.
Investing and innovating for the long term
This AMP we will deliver one of our largest ever investment
programmes, including our GBP566 million Green Recovery programme
awarded just last year. We started the AMP strongly, benefiting
from our fast-track status, the insourcing of critical technical
skills to work alongside our business experts, and our decisions to
bolster supply chain capacity and drive forward with delivery plans
during the pandemic.
We are not immune to global pricing and supply chain pressures,
but are working hard to build on this fast start and adapt our
programme to deliver our commitments on time, and remain within our
totex allowance, protecting customers from future bill
increases.
We have now delivered or locked in prices on over 70% of our
core GBP2.9 billion AMP7 capital programme, achieved through:
-- Relentless focus on spending every pound of customers' money
wisely at every level of the organisation, from Exec-led steering
groups to company-wide innovation challenges.
-- Leveraging the benefit of our 200-person in-house design team
to scrutinise options and reconfigure schemes, coordinated by our
Chief Engineer function to deliver great value engineering
outcomes.
-- Locking in over GBP60 million of spend early through our
advanced procurement programme, securing prices, materials and
supplier capacity ahead of market challenges.
-- Welcoming an additional 50 suppliers into our programme,
working directly with smaller businesses and building long term
relationships.
-- Establishing a new delivery route through subcontractors to
deliver smaller projects, worth around GBP45 million, more
efficiently.
From a standing start just 18 months ago, our Green Recovery
team is making good progress against all projects. For example, a
pilot scheme of our catchment-scale flooding resilience project at
Mansfield is due to complete this month and we have now begun work
on the town centre. This scheme aims to store surface water in
natural infrastructure, protecting around 90,000 customers' homes
from flooding, and reducing the burden on our waste network.
We continue to drive innovation and in September we announced a
new global partnership with Aarhus Vand in Denmark and Melbourne
Water in Australia to support our journey to Net Zero by 2030. We
will be transforming one of our sewage treatment facilities into a
Net Zero hub, dedicated to researching and testing the latest
co-developed technologies and innovations.
Innovation has also enabled us to reduce our operational
footprint, freeing up land that we no longer need for new homes and
businesses in our region. In 2017 we announced a ten-year GBP100
million property PBIT target, and following our strong performance
to date, we are increasing our target to deliver a further GBP50
million between 2027 and 2032.
Water performance benefiting from multi-year investment
Despite challenging summer conditions, we continued our strong
performance in Water, minimising disruption to our customers with
no Temporary Use Bans and minimal supply interruptions. We expect
our performance on supply interruptions to be better year-on-year,
though still short of our stretching target.
Our strong performance over the summer benefited from a
multi-pronged approach:
1. Increasing resilience of water supplies
We have invested extensively in the resilience of our water
network in recent years, both in large-scale infrastructure
projects, such as the Birmingham Resilience Programme, and in
smaller, targeted interventions such as bringing more boreholes
into operation and recommissioning existing sites. Our work to
improve remote valve operations and gather more data has also given
us more flexibility in managing our network.
2. Minimising loss of water across our network
During extreme weather, ground movement increases the propensity
for pipes to burst and this will be reflected in our burst mains
performance commitment this year. However, we have improved our
average speed of response by 44% this AMP and expect this year to
be our best ever for this measure, minimising loss of water from
such events. This follows the installation of around 30,000
acoustic and transient pressure loggers in AMP6 and the insourcing
of our Network Response and Trunk Mains Teams who can reach and
repair bursts quickly. These actions form part of our plan to
reduce leakage by 15% by 2025.
3. Working with customers to reduce demand
Our long-term demand management plans include the installation
of 282,000 meters this AMP so far, and an increase in our customer
education campaigns. Over the course of the summer we launched a
region-wide TV and radio campaign, contacted millions of customers
highlighting water usage, and recruited 45 people to visit
customers and carry out water efficiency checks in priority
areas.
As well as delivering a strong in-year performance, our teams
have continued to work hard towards our end-of-AMP performance
commitments, for which we are expecting to earn an additional
GBP40-50 million in the final year of AMP7. One of our biggest
schemes, Farming for Water, aims to transform water quality in a
number of catchments by working with, and providing funding to, the
agriculture sector.
Creating a better environment through waste operational
excellence
We continue to be leaders in Waste and were proud to have our 4*
EPA status for 2021 confirmed earlier this year. We remain on track
to maintain our 4* status for 2022, which would make us the first
company to achieve the highest possible rating for four consecutive
years. This performance is delivered against targets which require
us to improve our performance every year.
We are also on course to deliver our best-ever pollutions
performance, with year-on-year improvements in the number of
serious pollutions. We have reduced asset failures through a
rigorous maintenance programme and improved event response times,
helped by the ongoing installation of 40,000 sewer sensors and the
establishment of our new in-house Waste Network Response Team,
inspired by learnings in our Water business.
Our blockages performance remains strong thanks to our continued
focus on data, sewer cleansing and customer education. We are on
track to reduce the number of internal sewer floodings year-on-year
and we are working hard to turn around our performance on external
sewer floodings, though will miss a stretching target that reflects
our historical sector-leading performance.
We recognise that there is more we can do as a sector to protect
rivers in England and Wales. In March we announced our five Get
River Positive pledges and have made a fast start on them. We have
submitted evidence to the Environment Agency for the next wave of
RNAGS attributed to our activities to be formally resolved, putting
us well on track to reduce harm from our operations to zero by
2030.
We are progressing well with our plans to reduce the average
number of Combined Sewer Overflow ('CSO') activations. We are on
track to deliver both a year-on-year reduction, and our target of
an average of 20 per year by 2025. Activities include development
of predictive tools, trialling cameras and completing installation
of Event Duration Monitors ahead of schedule. Our work positions us
well for AMP8 when this measure is set to become a new ODI, with
the expected benchmark set at an average of 20 activations for all
companies. Following one of the lowest levels of rainfall for 180
years our activation levels were particularly low for the first
half of the year.
We recognise that transparency on river quality is critical and
have therefore established a new Get River Positive Advisory Panel,
including representatives from wildlife and river trusts, the NFU,
and Swim England to help oversee our progress against each
commitment. We have also established a new Get River Positive
newsletter, available to all through our website.
Supporting our customers, communities, and colleagues
With households facing the most acute cost of living pressures
in decades and the Midlands home to a large number of high
deprivation postcodes in the UK, we are not just helping customers
that need financial support now, but want to help tackle the
underlying causes of poverty for the long term.
We've set up financial support for 315,000 of our most
vulnerable customers, with some of those reducing their water bill
by up to 90%. We've also changed the threshold for accessing the
support to make it available to even more customers.
We want to go further and intervene earlier to genuinely change
the life chances of people in our region. Today we are proud to
announce our new landmark scheme which aims to help 100,000 people
out of poverty by 2032 by supporting them into employment.
We'll do this by offering work experience placements for 300
young people by the end of summer 2023, increasing to 500 by 2030,
and delivering 10,000 hours of free employability training directly
in our communities, as well as creating 'pop-up' centres in the
community offering a range of support.
Right now, our annual engagement survey tells us that our
colleagues are the most engaged they have ever been, and we also
know they are motivated by this programme of work which will make a
positive impact in the communities that we serve and live in.
This ten-year plan is a huge undertaking and we are working with
like-minded organisations that share our values and social
objectives, starting with councils in trial areas to ensure we are
reaching the right people.
Chief Financial Officer's Review
We are pleased to have delivered financial performance in line
with expectations for the first half of the year, despite rising
input cost inflation and unprecedented energy prices. Our Regulated
Water and Waste Water business performed ahead of last year and
Business Services' PBIT was up 38.4% reflecting higher renewable
energy generation profits.
Pumping water and waste water treatment are energy intensive
activities and, in common with other large users of energy, we have
seen significant increases in energy prices. However, our
industry-leading position in energy generation from our
Bioresources and Green Power businesses has mitigated the impact on
our earnings and, after regulatory cost sharing, offset the
economic impact for shareholders.
We will see the benefits of higher inflation in future periods
in the form of higher regulatory revenues and RCV growth. However,
the in-year impact of inflation on (non-cash) index-linked debt
accretion has been the main driver of net finance costs rising by
GBP66.1 million over last year.
We have continued to raise new debt, GBP400 million in the
period, at rates below the iBoxx index and allowance for new debt.
Interest rates for 68% of our existing debt are fixed, and just 25%
are index-linked, mitigating the impact of rising interest rates
and higher inflation on our finance costs.
Our balance sheet remains strong with regulatory gearing of
58.1% at the half year, providing a robust platform to fund the
forecast 36% nominal RCV growth over this AMP, and significant
investment across future AMPs.
We have agreed the triennial valuation of our main defined
benefit pension scheme with the trustee, with deficit contributions
unchanged from the previous valuation. We have also agreed new
arrangements to refund contributions, should the scheme enter
surplus. Our net pension deficit at the half year was GBP142.6
million.
We are confident of delivering double digit RoRE this year,
driven by continued strong ODI performance, actively managed
financing and controlled totex.
A summary of our financial performance in the period is set out
below:
2022 2021 Change
------------------
GBPm GBPm GBPm %
Turnover 1,061.8 958.2 103.6 10.8
-------------------------------------------------------------------------- --------- --------- -------- --------
PBIT 261.7 255.6 6.1 2.4
Net finance costs (186.9) (120.8) (66.1) (54.7)
Gains/losses on financial instruments and share of results of joint
venture 29.9 12.1 17.8 147.1
-------------------------------------------------------------------------- --------- --------- -------- --------
Profit before tax 104.7 146.9 (42.2) (28.7)
Tax (25.9) (326.9) 301.0 92.1
Profit for the year 78.8 (180.0) 258.8 143.8
-------------------------------------------------------------------------- --------- --------- -------- --------
Group turnover was GBP1,061.8 million (2021/22: GBP958.2
million), up 10.8%.
Group PBIT was GBP261.7 million (2021/22: GBP255.6 million). In
Regulated Water and Waste Water increased revenue was partially
offset by higher power costs, as expected, and higher
infrastructure renewals expenditure as planned, including HS2
diversions activity.
Net finance costs increased to GBP186.9 million (2021/22:
GBP120.8 million) as the impact of higher inflation in the period
increased our effective interest cost to 6.4% (2021/22: 4.2%) and
average net debt by 5% over the same period in the previous year.
Excluding the impact of inflation on our index-linked debt, our
effective cash cost of interest was 3.1% (2021/22: 3.1%).
Water Plus improved its operating performance and our share of
its profit in the period was GBP0.2 million (2021/22: loss of
GBP1.8 million).
Our effective tax rate was 24.7% (2021/22: 22.3% before the
exceptional deferred tax charge following the impact of the change
in the corporation tax rate). Our adjusted effective tax rate was
nil% (2021/22: nil%) as the benefit of 'Super Deductions' on our
significant capital programme expenditure and higher interest costs
reduced our profit chargeable to tax.
Basic earnings per share were 31.4 pence (2021/22: loss of 73.0
pence).
Our adjusted basic earnings per share fell to 29.9 pence
(2021/22: 54.0 pence) as a result of higher finance costs due to
the impact of inflation on our index-linked debt.
Our cash flows and liquidity remain strong. We have GBP1,200
million of committed facilities, and cash flow requirements are
funded to early 2024.
Capital investment, the new performance measure for our capital
programme, was GBP269.7 million (2021/22: GBP254.8 million).
Our net pension deficit at 30 September increased slightly to
GBP142.6 million. The rapid increase in gilt yields at the end of
September reduced the values of both the Schemes' assets and
obligations by almost GBP870 million, reflecting the effectiveness
of our hedging strategy in the period. The overall deficit
increased as inflation in the period was higher than the long-term
assumption and the effect of this exceeded the contributions paid
in the period. The overall funding level across all of our defined
benefit schemes was 93% (31 March 2022: 95%).
The Board continues to recognise the important role dividends
play in providing income for pensioners and other investors. Taking
into account the Group's prospects, financial position and the
interests of other stakeholders including customers, our pension
scheme members, colleagues and communities; the Board has declared
an interim dividend for the year ending 31 March 2023 of 42.73
pence, up 4.6% in line with our policy for AMP7 to increase the
dividend by CPIH.
Regulated Water and Waste Water
Six months ended 30 September
2022 2021 Increase/(decrease)
GBPm GBPm GBPm %
Turnover 984.9 893.9 91.0 10.2
------------------------------------- -------- -------- ---------- ----------
Net labour costs (78.7) (83.3) 4.6 5.5
Net hired and contracted costs (108.4) (91.9) (16.5) (18.0)
Power (95.7) (54.6) (41.1) (75.3)
Bad debts (13.7) (15.3) 1.6 10.5
Other costs (136.8) (126.9) (9.9) (7.8)
(433.3) (372.0) (61.3) (16.5)
------------------------------------- -------- -------- ---------- ----------
Infrastructure renewals expenditure (109.3) (86.6) (22.7) (26.2)
Depreciation (199.4) (192.9) (6.5) (3.4)
------------------------------------- -------- -------- ---------- ----------
PBIT 242.9 242.4 0.5 0.2
------------------------------------- -------- -------- ---------- ----------
Turnover for the Regulated Water and Waste Water segment was
GBP984.9 million (2021/22: GBP893.9 million) and PBIT was GBP242.9
million (2021/22 GBP242.4 million).
Turnover increased by GBP91.0 million with the main movements
being:
-- An increase of GBP38.8 million for the annual CPIH uplift in
tariffs, partially offset by reductions of GBP7.6 million from the
'K' factor for the year and GBP6.3 million phasing of anticipated
revenues from bringing formerly void properties into charge;
-- A GBP33.5 million increase representing the recovery, under
the RFI mechanism, of lower than allowed revenue in 2020/21;
-- GBP17.0 million for the in-AMP fast money allowance for the Green Recovery programme;
-- Lower consumption from commercial customers, which reduced
revenue by GBP4.1 million, and less revenue from the Voids and Gaps
Incentives Scheme (GBP2.0 million lower);
-- Lower revenues billed by other water companies on our behalf
and other small differences (GBP7.0 million);
-- GBP11.5 million additional generation revenue in our
Bioresources business due to higher energy prices; and
-- An increase of GBP17.1 million in diversions income largely
due to the guided increase in activity related to HS2. This
represents a recovery of costs incurred and is offset by an
increase in infrastructure renewals expenditure.
Net labour costs were GBP4.6 million (5.5%) lower
period-on-period. Gross employee costs increased following the
annual pay award of 2.3% and an increase in employee numbers due to
mobilisation of the Green Recovery programme. This was offset by
higher capitalisation of employee costs and a GBP6.6 million credit
related to a change in defined benefit scheme options developed
with the Trustee. The new bridging pension option allows members
who retire early to bridge the gap between their retirement date
and the date when a state pension becomes payable, by taking more
of their occupational pension up front, which has a positive effect
on expected pension liabilities.
Net hired and contracted costs increased by GBP16.5 million
(18.0%) due to an increase in logistics and tankering costs, and
technology contractor and vendor management costs.
Our economic energy hedge effectively limits the impact of
higher energy prices on shareholder returns. Power costs were
GBP41.1 million, or 75.3%, higher than the previous period, much
less than the average wholesale energy price increases of more than
121% year-on-year. These higher costs are partially offset by
self-generation in Bioresources and our Green Power business within
the wider Group.
Bad debt charges were GBP1.6 million lower than the previous
period and represent 1.9% of household revenue (2021/22 full year:
2.1%). Cash collection in the period from household customers has
held up well and we've set up financial support for 315,000 of our
most vulnerable customers. However, expected pressure on household
budgets from cost of living increases has led us to retain the
forward-looking provision of GBP8.5 million.
Other costs rose by GBP9.9 million, predominantly due to an
increase in energy intensive chemical costs during the period (up
GBP9.5 million), and higher Environment Agency abstraction charges
(up GBP1.9 million). These were partly offset by lower voids and
gaps incentive payments year-on-year.
Infrastructure maintenance expenditure was GBP22.7 million
higher in the period, mostly reflecting the diversions activity
related to HS2 referred to above, as well as a planned step up in
the core renewals programme.
Depreciation was GBP6.5 million higher period-on-period due to
Water Framework Directive (WFD) schemes and other key projects,
including advanced digestion and biogas-to-grid assets at Finham,
coming into service.
Business Services
Six months ended 30 September
2022 2021 Increase/(decrease)
GBPm GBPm GBPm %
------------------------------ ----- ----- ---------- ----------
Turnover
Operating Services and Other 44.7 39.9 4.8 12.0
Green Power 36.7 26.2 10.5 40.1
81.4 66.1 15.3 23.1
------------------------------ ----- ----- ---------- ----------
EBITDA
Operating Services and Other 12.2 8.8 3.4 38.6
Green Power 17.2 6.2 11.0 177.4
Property Development 1.3 8.9 (7.6) (85.4)
30.7 23.9 6.8 28.5
------------------------------ ----- ----- ---------- ----------
Business Services turnover was GBP81.4 million (up 23.1%) and
EBITDA was GBP30.7 million (up 28.5%). PBIT was GBP22.7 million (up
38.4%).
In our Operating Services and Other businesses, turnover and
EBITDA increased by GBP4.8 million and GBP3.4 million respectively
due to increased activity on the Coal Authority and MoD contracts,
and strong Water Hygiene sales growth. PBIT increased by GBP3.1
million.
In Green Power, turnover increased by GBP10.5 million and EBITDA
increased by GBP11.0 million. Significantly higher energy prices
over the last six months are the key driver of the year-on-year
increase and partially offset the increased power consumption costs
in RWWW, as part of our natural energy hedge within the Group. PBIT
increased by GBP10.8 million.
Profits from Property Development were GBP7.6 million lower as
there were no large sales in the period, as guided. We are pleased
to extend our property development PBIT target to GBP150 million
for the fifteen year period to 2032, having already generated
GBP50.9 million since 2017.
Corporate and other
Corporate overheads were marginally higher at GBP4.5 million
(2021/22: GBP3.7 million). Our other businesses generated PBIT of
GBP0.6 million (2021/22: GBP0.5 million).
Net finance costs
The Group's net finance costs for the six months were GBP186.9
million (2021/22: GBP120.8 million). Average net debt of GBP6,556.0
million was higher than the previous year (2021/22: GBP6,251.5
million) and inflation in the period increased the non-cash
interest accretion on index-linked debt by GBP71.0 million. As a
result, our effective interest cost for the period increased to
6.4% (2021/22: 4.2%). Our effective cash cost of interest (which
excludes inflation accretion on index-linked debt) was 3.1%
(2021/22: 3.1%). Interest capitalised of GBP23.5 million (2021/22:
GBP15.2 million) increased due to the higher effective rate and
higher capital work in progress during the period.
The Group's EBITDA interest cover was 2.5 times (2021/22 3.9
times) and PBIT interest cover was 1.4 times (2021/22 2.2 times).
See note 18 for further details which includes reconciliations to
IFRS metrics.
Net gains 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 wholesale electricity price volatility; and
-- Changes in the regulatory model from RPI to CPIH.
The Group's derivative instruments include:
-- Interest rate swaps with a net notional principal of GBP648
million to balance our interest rate mix in line with our
strategy;
-- Cross currency swaps with a sterling principal of GBP141
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 GBP53.6 million (2021/22:
gain of GBP19.5 million) in relation to such instruments.
An analysis of the amounts charged to the income statement in
the period is presented in note 5 to the financial statements.
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 fourth 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 2021/22 Annual Report 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
2023.
The tax charge reported in the income statement is calculated at
a rate of 24.7% (2021/22: 22.3%, excluding the exceptional deferred
tax charge arising from the change in the corporation tax rate),
representing the best estimate of the annual average tax rate
expected for the full year, applied to the profit for the six month
period.
There was no current tax charge in this period or the prior
year. The deferred tax charge was GBP25.9 million (2021/22:
GBP326.9 million, including an exceptional deferred tax charge of
GBP294.2 million).
The tax allowances generated by our significant capital
programme, including the 'Super Deduction' and higher finance costs
reduced our adjusted effective current tax rate (in line with
guidance and with the prior year) to nil%.
Profit for the period and earnings per share
Reported profit for the period was GBP78.8 million (2021/22:
loss after the exceptional deferred tax charge described above of
GBP180.0 million).
Basic earnings per share were 31.4 pence (2021/22: loss of 73.0
pence). Adjusted basic earnings per share were 29.9 pence (2021/2:
54.0 pence).
Cash flow
Six months ended 30 September
2022 2021
GBPm GBPm
Operational cashflow * 494.1 474.6
Cash capex (280.3) (238.0)
Net interest paid (76.5) (80.9)
Net payments for swap terminations -- 5.6
Net tax paid (3.4) --
Free cash flow 133.9 161.3
Dividends (153.9) (152.2)
Issue of shares 14.4 256.8
Change in net debt from cash flows (5.6) 265.9
Non-cash movements (114.2) (54.3)
-------------------------------------
Change in net debt (119.8) 211.6
Opening net debt (6,507.8) (6,443.8)
Closing net debt (6,627.6) (6,232.2)
------------------------------------- ---------- ----------
* please see note 18 for alternative performance measures
Net debt comprises:
30 September 31 March 30 September
2022 2022 2021
GBPm GBPm GBPm
------------------------------- ------------- ---------- -------------
Cash and cash equivalents 366.0 107.7 32.2
Bank loans (989.6) (782.5) (928.0)
Other loans (6,006.4) (5,823.5) (5,316.0)
Lease liabilities (119.2) (117.4) (122.4)
Cross currency swaps 49.1 28.3 36.5
Loans due from joint ventures 72.5 79.6 65.5
------------------------------- ------------- ---------- -------------
Net debt (6,627.6) (6,507.8) (6,232.2)
------------------------------- ------------- ---------- -------------
At 30 September 2022 we held GBP366.0 million (31 March 2022:
GBP107.7 million) in net cash and cash equivalents. Our average
debt maturity is thirteen years. Including committed facilities, of
which GBP1,050 million was undrawn at the balance sheet date, the
Group's cash flow requirements are funded until early 2024.
We invest cash in deposits with highly rated banks and the Board
regularly reviews the list of counterparties.
Net debt at 30 September 2022 was GBP6,627.6 million (31 March
2022: GBP6,507.8 million). Balance sheet gearing (net debt/net debt
plus equity) at the half year was 84.6% (31 March 2022: 84.9%).
Regulated gearing (net debt of our regulated businesses expressed
as a percentage of estimated Regulatory Capital Value) is 58.1% as
at 30 September 2022 (31 March 2022: 59.5%).
The estimated fair value of debt at 30 September 2022 was
GBP610.1 million lower than book value (31 March 2022: GBP1,075.8
million higher).
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.
The 2022 actuarial valuation for the main Severn Trent Pension
Scheme (STPS) has been completed and agreed with the Trustee. The
future funding plan is unchanged from the 2019 valuation, and
includes:
-- Annual contributions will be paid each year until 31 March
2027. These will commence at GBP34.2 million, increased in line
with the annual increase in CPI to November 2022, for the year
ending 31 March 2023. Thereafter, future contributions will also
increase each year in line with CPI (based on increases in the
inflation measure covering the twelve-month period to the previous
November).
-- Payments under an asset-backed funding arrangement of GBP8.2
million per annum to 31 March 2032 which will only continue beyond
31 March 2025 if the Scheme's assets are less than the Scheme's
Technical Provisions; and
-- Inflation-linked payments of GBP15.0 million per annum (which
started on 1 March 2018) 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.
The Group's other two defined benefit schemes are in
surplus.
On an IAS 19 basis, the estimated combined net position (before
deferred tax) of all of the Group's defined benefit pension schemes
at 30 September 2022 was a deficit of GBP142.6 million. The
increase in gilt yields at the balance sheet date reduced the value
of defined benefit obligations but this was offset by a similar
decline in asset values. Inflation in the period higher than the
assumption for long-term inflation increased obligations, partially
offset by the employer's contribution of GBP34.7 million in the
period.
The net pension finance cost was GBP1.6 million and
administration costs were GBP2.8 million. These were offset by a
past service credit of GBP6.6 million following a change in the
STPS's rules to allow members to take a higher initial pension on
retirement in exchange for a lower pension from state pension
age.
The movements in the net deficit during the period were as
follows:
Fair value of scheme assets Defined benefit obligations Net deficit
GBPm GBPm GBPm
-------------------------------------------- ---------------------------- ---------------------------- ------------
At start of the period 2,659.4 (2,787.4) (128.0)
Amounts credited/(charged) to income
statement 35.9 (33.8) 2.1
Actuarial gains/(losses) taken to reserves (866.8) 815.4 (51.4)
Net contributions received and benefits
paid (32.0) 66.7 34.7
At end of the period 1,796.5 (1,939.1) (142.6)
-------------------------------------------- ---------------------------- ---------------------------- ------------
On an IAS 19 basis, the funding level is 93% (31 March 2022:
95%).
Dividends
The Board has declared an interim ordinary dividend of 42.73p
per share (2021/22: 40.86p per share), which will be paid on 11
January 2023 to shareholders on the register at 2 December
2022.
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.
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.
Infrastructure Failure and Asset Resilience
-- We do not provide a safe and secure supply of drinking water to our customers.
-- We do not transport and treat waste water effectively,
impacting our ability to return clean water to the environment.
Supply Chain and Capital Project Delivery
-- Key suppliers cannot meet contractual obligations causing
disruption to capital delivery (cost and quality) and/or critical
operational services.
Cyber Security and Technology Resilience
-- Our critical technology capabilities are not maintained due
to cyber threats or system failures, impacting the services we
deliver through our key infrastructure assets or core systems.
Political, Legal and Regulatory
-- Changing societal expectations, resulting in stricter legal
and environmental obligations, commitments and/or enforcements,
increase the risk of non-compliance.
-- Rapidly changing political, fiscal and monetary policy
directions increasing uncertainty in planning and forecasting
investment outcomes.
Financial Liabilities
-- We fail to fund our Severn Trent defined benefit pension scheme sustainably.
-- We are unable to ensure sufficient liquidity to meet our funding requirements.
Climate Change, Environment and Biodiversity
-- Severn Trent's climate change strategy does not enable us to
respond to the shifting natural climatic environment and maintain
our essential services.
-- We fail to influence positively natural capital in our region.
Technical Guidance 2022/23
Year-end guidance FY 22 Year-on- Movement in guidance from year
Year end
Regulated Water and Waste Water
Turnover(1) GBP1.97 billion to GBP2.02 GBP1.80bn
billion.
Includes c.GBP45 million(2) for
diversions income related to
HS2, which is broadly offset
in IRE.
Other operating Higher year-on-year, including GBP631m
costs GBP20 million increase in Green
Recovery related opex, higher
chemicals costs and other
increases
in line with inflation.
Infrastructure c.15% higher year-on-year, GBP198m
renewals expenditure mostly
('IRE') due to HS2(2) activity (which
is broadly offset in turnover),
together with an increase in
base spend in line with AMP7
plan.
ODIs(3) Continued outperformance on GBP77m
increasingly
stretching targets, delivering
a net reward of at least GBP50
million. End of AMP ODIs
expected
to contribute GBP40-50 million
in 2024/25.
STW RoRE(4) Higher year-on-year, expecting 8.8%(5) -
a double-digit outturn.
Business Services
EBITDA (excl. Higher year-on-year driven by GBP40m
property) increased revenue in Severn
Trent
Green Power.
Property profit On track to deliver GBP100 GBP13m
million
profit over ten years to 2027,
then a further GBP50 million
to be delivered by 2032.
2022/23 profits around 50% lower
year-on-year due to timing of
sales.
----------------------- --------------------------------- ---------- --------- ---------------------------------
Group
Group net power Group net power costs expected -
costs to be c.GBP50 million higher
year-on-year, with RWWW power
costs up c.GBP100m; offset by
higher revenue of c.GBP25m in
each of Bioresources and Green
Power.
Interest charge c.40%-45% higher year-on-year GBP269m
based on latest inflation(4)
and interest rate forecasts.
Adjusted effective current tax
rate of nil due to "super
deduction"
Adjusted effective and other accelerated capital
current tax allowances on our substantial
rate(6) capital investment programme. 0.6%
Capital investment(7) GBP575 million to GBP675 million GBP604m
including Green Recovery, with
the majority of spend in the
second half of the year.
2022/23 dividend of 106.82
pence,
in line with our policy of
annual
Dividend(8) growth by CPIH. 102.14p
----------------------- --------------------------------- ---------- --------- ---------------------------------
Footnotes to Technical Guidance
1. Includes presentation of deferred income and diversions
income released to turnover in the income statement.
2. For 2021/22, diversions income and costs related to HS2 were GBP27 million.
3. Customer Outcome Delivery Incentives are quoted pre-tax in
2017/18 prices. We assume a 25% rate of corporation tax to be in
place when ODIs are taken into revenue.
4. Based on Oxford Economics October inflation forecast.
Index-linked debt comprising c.25% of our total debt.
5. 2021/22 reported performance in line with Severn Trent Water Annual Performance Report 2022.
6. Total effective tax rate is expected to be c.25%. This
includes both current and deferred tax charges.
7. Guidance now set on an accruals basis; previously we have
used a cash figure. 2021/22 cash capex was GBP594m. A full
reconciliation on both the old and new basis can be found in our
alternative performance measures in note 18 of our results
announcement.
8. 2022/23 dividend growth rate based on November 2021 CPIH of 4.6%.
Further Information
For further information, including the Group's interim results
presentation, see the Severn Trent website ( www.severntrent.com
).
Investor Timetable
Ex-dividend date (Interim) 01 December 2022
Dividend record date (Interim) 02 December 2022
---------------------------------
DRIP election date (Interim) 16 December 2022
---------------------------------
Interim dividend payment date 11 January 2023
---------------------------------
Q3 Trading Update 08 February 2023
---------------------------------
Financial Year End 31 March 2023
---------------------------------
Full Year Results Announcement 24 May 2023
2022/23
---------------------------------
AGM 06 July 2023
---------------------------------
For more information please visit:
https://www.severntrent.com/investors/financial-calendar-and-regulatory-news/financial-calendar/
Condensed consolidated income statement
Six months ended 30 September 2022
2022 2021
Note GBPm GBPm
Turnover 3,4 1,061.8 958.2
Other income 0.5 6.0
Operating costs before charge for bad and doubtful debts (786.9) (693.3)
Charge for bad and doubtful debts (13.7) (15.3)
------------------------------------------------------------------------------------ ----- --------- ---------
Total operating costs (800.6) (708.6)
------------------------------------------------------------------------------------ ----- ---------
Profit before interest and tax 261.7 255.6
------------------------------------------------------------------------------------ ----- --------- ---------
Finance income 40.4 27.3
Finance costs (227.3) (148.1)
------------------------------------------------------------------------------------ ----- --------- ---------
Net finance costs (186.9) (120.8)
Net gains on financial instruments 5 29.7 13.9
Share of net profit/(loss) of joint ventures accounted for using the equity method 11 0.2 (1.8)
Profit on ordinary activities before taxation 104.7 146.9
Current tax 6 - -
Deferred tax 6 (25.9) (326.9)
Taxation on profit on ordinary activities 6 (25.9) (326.9)
----- --------- ---------
Profit/(loss) for the period 78.8 (180.0)
------------------------------------------------------------------------------------ ----- --------- ---------
Earnings/(loss) per share (pence)
Note 2022 2021
--------- ----- ----- -------
Basic 8 31.4 (73.0)
Diluted 8 31.3 (73.0)
--------- ----- ----- -------
Condensed consolidated statement of comprehensive income
Six months ended 30 September 2022
2022 2021
Note GBPm GBPm
Profit/(loss) for the year 78.8 (180.0)
------------------------------------------------------------------- ----- ------- --------
Other comprehensive (loss)/income
Items that will not be reclassified to the income statement:
Net actuarial (losses)/gains 12 (51.4) 46.2
Deferred tax on net actuarial gains/losses 12.8 (11.7)
Deferred tax arising on rate change -- 8.3
(38.6) 42.8
------------------------------------------------------------------- ----- ------- --------
Items that may be reclassified to the income statement:
Gains on cash flow hedges 59.0 47.5
Deferred tax on gains on cash flow hedges (14.7) (12.0)
Amounts on cash flow hedges transferred to the income statement 5 2.9 3.3
Deferred tax on transfer to the income statement (0.8) (0.9)
46.4 37.9
------------------------------------------------------------------- ----- ------- --------
Other comprehensive income for the year 7.8 80.7
------------------------------------------------------------------- ----- ------- --------
Total comprehensive income/(loss) for the year 86.6 (99.3)
------------------------------------------------------------------- ----- ------- --------
Condensed consolidated statement of changes in equity
Six months ended 30 September 2022
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 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
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
At 1 April 2022 248.1 394.4 148.4 473.0 1,263.9
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Profit for the period -- -- -- 78.8 78.8
Gains on cash flow hedges -- -- 59.0 -- 59.0
Deferred tax on gains on cash
flow hedges -- -- (14.7) -- (14.7)
Amounts on cash flow hedges
transferred to the income
statement 5 -- -- 2.9 -- 2.9
Deferred tax on transfer to the
income statement -- -- (0.8) -- (0.8)
Net actuarial losses 12 -- -- -- (51.4) (51.4)
Deferred tax on net actuarial
losses -- -- -- 12.8 12.8
Total comprehensive income for
the period -- -- 46.4 40.2 86.6
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Share options and LTIPs
- proceeds from shares issued 0.9 13.5 -- -- 14.4
- value of employees' services -- -- -- 4.6 4.6
Deferred tax on share based
payments -- -- -- (6.5) (6.5)
Dividends paid 7 -- -- -- (153.9) (153.9)
At 30 September 2022 249.0 407.9 194.8 357.4 1,209.1
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Condensed consolidated balance sheet
At 30 September 2022
30 September 31 March
2022 2022
Note GBPm GBPm
Non-current assets
Goodwill 91.4 91.4
Other intangible assets 176.2 179.6
Property, plant and equipment 10,369.8 10,208.4
Right-of-use assets 129.1 129.9
Investment in joint venture 11 16.7 16.5
Derivative financial instruments 110.4 31.2
Trade and other receivables 78.1 92.1
Retirement benefit surplus 12 13.0 17.5
-----
10,984.7 10,766.6
--------------------------------------- ----- ------------- -----------
Current assets
Inventory 33.7 32.0
Trade and other receivables 649.8 606.4
Current tax receivable 9.6 6.2
Derivative financial instruments 26.5 27.6
Cash and cash equivalents 378.0 115.4
1,097.6 787.6
--------------------------------------- ----- ------------- -----------
Current liabilities
Borrowings 9 (624.8) (365.2)
Derivative financial instruments (0.1) --
Trade and other payables (761.8) (655.5)
Provisions for liabilities (34.1) (38.4)
(1,420.8) (1,059.1)
--------------------------------------- ----- ------------- -----------
Net current liabilities (323.2) (271.5)
--------------------------------------- ----- ------------- -----------
Total assets less current liabilities 10,661.5 10,495.1
Non-current liabilities
Borrowings 9 (6,502.4) (6,365.9)
Derivative financial instruments (4.7) (43.3)
Trade and other payables (1,406.0) (1,334.0)
Deferred tax (1,355.4) (1,320.6)
Retirement benefit obligations 12 (155.6) (145.5)
Provisions for liabilities (28.3) (21.9)
(9,452.4) (9,231.2)
--------------------------------------- ----- ------------- -----------
Net assets 1,209.1 1,263.9
--------------------------------------- ----- ------------- -----------
Equity
Called up share capital 13 249.0 248.1
Share premium account 407.9 394.4
Other reserves 194.8 148.4
Retained earnings 357.4 473.0
Total equity 1,209.1 1,263.9
--------------------------------------- ----- ------------- -----------
Condensed consolidated cash flow statement
Six months ended 30 September 2022
2022 2021
Note GBPm GBPm
-------------------------------------------------------------- ----- -------- --------
Cash generated from operations 14 508.3 489.9
Tax received 14 6.1 --
Tax paid 14 (9.5) --
Net cash generated from operating activities 504.9 489.9
-------------------------------------------------------------- ----- -------- --------
Cash flows from investing activities
Purchases of property, plant and equipment (291.6) (250.2)
Purchases of intangible assets (4.6) (6.6)
Proceeds on disposal of property, plant and equipment 1.7 3.5
Net loans repaid by joint venture 8.0 --
Interest received 1.4 0.6
Net cash outflow from investing activities (285.1) (252.7)
-------------------------------------------------------------- ----- -------- --------
Cash flow from financing activities
Interest paid (76.5) (79.5)
Interest element of lease payments (1.4) (2.0)
Dividends paid to shareholders of the parent (153.9) (152.2)
Repayments of borrowings (101.1) (332.9)
Principal elements of lease payments (2.8) (2.6)
New loans raised 359.8 57.8
Issues of shares net of costs 14.4 256.8
Proceeds from swap terminations -- 5.6
Net cash inflow/(outflow) from financing activities 38.5 (249.0)
-------------------------------------------------------------- ----- -------- --------
Net movement in cash and cash equivalents 258.3 (11.8)
Net cash and cash equivalents at the beginning of the period 107.7 44.0
Net cash and cash equivalents at end of the period 366.0 32.2
-------------------------------------------------------------- ----- -------- --------
Cash at bank and in hand 78.0 53.9
Bank overdrafts (12.0) (21.7)
Short term deposits 300.0 --
366.0 32.2
-------------------------------------------------------------- ----- -------- --------
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 2022 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 2022.
b) Going concern
Including undrawn committed credit facilities of GBP1,050
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.
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 2022. 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 2022.
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 2022.
Changes in estimates relating to retirement benefit obligations
are set out in note 12 to the condensed consolidated financial
statements.
Notes to the condensed interim financial information
(continued)
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.
A segmental analysis of turnover and PBIT is presented
below.
Six months ended 30 September
2022 2021
------------------------------------------- --------------------------------------------
Regulated Water and Regulated Water and
Waste Water Business Services Waste Water Business Services
GBPm GBPm GBPm GBPm
------------------------- ----------------------- ------------------ ------------------------ ------------------
External turnover 984.9 77.1 893.6 64.7
Inter-segment turnover -- 4.3 0.3 1.4
Total turnover 984.9 81.4 893.9 66.1
------------------------- ----------------------- ------------------ ------------------------ ------------------
Profit before interest
and tax 242.9 22.7 242.4 16.4
------------------------- ----------------------- ------------------ ------------------------ ------------------
The reportable segments' turnover is reconciled to Group
turnover as follows:
Six months ended 30 September
2022 2021
GBPm GBPm
--------------------------------- -------- ------
Regulated Water and Waste Water 984.9 893.9
Business Services 81.4 66.1
Corporate and other 0.5 0.4
Consolidation adjustments (5.0) (2.2)
1,061.8 958.2
--------------------------------- -------- ------
Notes to the condensed interim financial information
(continued)
3. Segmental analysis (continued)
Segmental PBIT is reconciled to the Group's profit before tax as
follows:
Six months ended 30 September
2022 2021
GBPm GBPm
------------------------------------------------------------------------------------ -------- --------
Regulated Water and Waste Water 242.9 242.4
Business Services 22.7 16.4
Corporate and other (3.9) (3.2)
Profit before interest and tax 261.7 255.6
Net finance costs (186.9) (120.8)
Net gains on financial instruments 29.7 13.9
Share of net profit/(loss) of joint ventures accounted for using the equity method 0.2 (1.8)
Profit on ordinary activities before taxation 104.7 146.9
------------------------------------------------------------------------------------ -------- --------
The following table shows segmental capital employed:
30 September 2022 31 March 2022
------------------------------------------- --------------------------------------------
Regulated Water and Regulated Water and
Waste Water Business Services Waste Water Business Services
GBPm GBPm GBPm GBPm
------------------------- ----------------------- ------------------ ------------------------ ------------------
Operating assets 11,026.4 337.0 10,869.7 337.4
Goodwill 63.5 29.2 63.5 29.2
Segment assets 11,089.9 366.2 10,933.2 366.6
Segment operating
liabilities (2,351.6) (33.3) (2,158.8) (29.6)
------------------------- ----------------------- ------------------ ------------------------ ------------------
Capital employed 8,738.3 332.9 8,774.4 337.0
------------------------- ----------------------- ------------------ ------------------------ ------------------
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.
Notes to the condensed interim financial information
(continued)
4. Revenue from contracts with customers
Revenue recognised from contracts with customers is analysed by
business segment below:
Six months ended 30 September 2022
Regulated Water and Corporate Consolidation
Waste Water Business Services and other adjustments Group
GBPm GBPm GBPm GBPm GBPm
------------------------ ----------------------- ------------------ ----------- ------------------------ --------
Water and waste water
services 958.7 -- -- -- 958.7
Operating services -- 37.4 -- -- 37.4
Renewable energy 23.8 36.7 -- (4.5) 56.0
Other sales 2.4 7.3 0.5 (0.5) 9.7
984.9 81.4 0.5 (5.0) 1,061.8
------------------------ ----------------------- ------------------ ----------- ------------------------ --------
Six months ended 30 September 2021
Regulated Water and Corporate Consolidation
Waste Water Business Services and other adjustments Group
GBPm GBPm GBPm GBPm GBPm
------------------------- ------------------------ ------------------ ----------- ------------------------ ------
Water and waste water
services 878.6 -- -- -- 878.6
Operating services -- 33.0 -- -- 33.0
Renewable energy 12.3 26.2 -- (1.5) 37.0
Other sales 3.0 6.9 0.4 (0.7) 9.6
893.9 66.1 0.4 (2.2) 958.2
------------------------- ------------------------ ------------------ ----------- ------------------------ ------
5. Net gains on financial instruments
Six months ended 30 September
2022 2021
GBPm GBPm
------- ------
Gain on swaps used as hedging instruments in fair value hedges 5.8 1.6
Loss arising on debt in fair value hedges (4.3) (0.9)
Exchange loss on other loans (20.2) (3.3)
Net loss on cash flow hedges transferred from equity (2.9) (3.3)
Hedge ineffectiveness on cash flow hedges (2.9) (0.2)
Gain arising on swaps where hedge accounting is not applied 53.6 19.5
Amortisation of fair value adjustment on debt 0.6 0.5
29.7 13.9
---------------------------------------------------------------- ------- ------
Notes to the condensed interim financial information
(continued)
6. Tax
Six months ended 30 September
2022 2021
GBPm GBPm
----- ------
Current tax
Current year at 19% (2021: 19%) -- --
Total current tax -- --
---------------------------------------------------- ----- ------
Deferred tax
Origination and reversal of temporary differences:
Current year 25.9 32.7
Exceptional charge on rate change -- 294.2
Total deferred tax 25.9 326.9
---------------------------------------------------- ----- ------
25.9 326.9
---------------------------------------------------- ----- ------
The tax charge in the income statement is calculated at a rate
of 24.7% (2021: 22.3%, excluding the exceptional charge on rate
change) 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 nil% (2021: nil%).
See note 18.
Current tax of nil (2021: nil) and a deferred tax charge of
GBP9.2 million (2021: GBP14.9 million) have been taken to reserves
in the period.
Deferred tax is provided at 25%, the rate that is expected to
apply when the asset or liability is expected to be settled.
7. Dividends
Amounts recognised as distributions to owners of the Company in
the period:
Six months ended 30 September
2022 2021
---------------- ------ ---------------- ------
Pence per share GBPm Pence per share GBPm
-------------------------------------------------------- ---------------- ------ ---------------- ------
Final dividend for the year ended 31 March 2022 (2021) 61.28 153.9 60.95 152.2
-------------------------------------------------------- ---------------- ------ ---------------- ------
The proposed interim dividend of 42.73p per share (2021/22:
40.86p per share) was approved by the Board on 21 November 2022 and
has not been included as a liability at 30 September 2022.
Notes to the condensed interim financial information
(continued)
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
2022 2021
GBPm GBPm
Profit/(loss) for the period 78.8 (180.0)
------------------------------- ----- --------
ii) Number of shares
Six months ended 30 September
2022 2021
m m
------------------------------------------------------------------------------------------ ------ ------
Weighted average number of ordinary shares for the purpose of basic earnings per share 250.6 246.5
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 251.7 246.5
------------------------------------------------------------------------------------------- ------ ------
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
2022 2021
pence pence
Adjusted basic earnings per share 29.9 54.0
Adjusted diluted earnings per share 29.8 53.7
-------------------------------------- ------ ------
Adjusted earnings per share figures are presented for continuing
operations. These exclude the effects of exceptional items, net
gains/losses on financial instruments and deferred tax in both 2022
and 2021. 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
2022 2021
GBPm GBPm
-------
Earnings for the purpose of basic and diluted earnings per share 78.8 (180.0)
Adjustments for:
- net gains on financial instruments (29.7) (13.9)
- deferred tax 25.9 326.9
----------------------------------------------------------------------------
Earnings for the purpose of adjusted basic and diluted earnings per share 75.0 133.0
---------------------------------------------------------------------------- ------- --------
Notes to the condensed interim financial information
(continued)
9. Borrowings
30 September 31 March
2022 2022
GBPm GBPm
------------------- ------------- ---------
Bank overdraft 12.0 7.7
Bank loans 989.6 782.5
Other loans 6,006.4 5,823.5
Lease liabilities 119.2 117.4
Borrowings 7,127.2 6,731.1
------------------- ------------- ---------
The borrowings are repayable as follows:
30 September 31 March
2022 2022
GBPm GBPm
---------------------------------------------------------------- ------------- ---------
On demand or within one year - included in current liabilities 624.8 365.2
Over one year - included in non-current liabilities 6,502.4 6,365.9
7,127.2 6,731.1
---------------------------------------------------------------- ------------- ---------
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 31
September March
2022 2022
GBPm GBPm Valuation techniques and key inputs
------------- ---------- -------- ---------------------------------------------------------------------------------------------
Cross Discounted cash flow.
currency
swaps
Assets 49.1 28.3 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.
---------------------------------------------------------------------------------------------
Interest Discounted cash flow.
rate swaps
Assets 57.5 2.9 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.
Liabilities (4.8) (39.6)
------------- ---------- -------- ---------------------------------------------------------------------------------------------
Energy swaps Discounted cash flow.
Assets 26.5 27.6 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 Discounted cash flow.
swaps
Asset 3.8 - Future cash flows on the RPI leg of the instrument are estimated based on observable forward
Liabilities - (3.7) 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.
------------- ---------- -------- ---------------------------------------------------------------------------------------------
Notes to the condensed interim financial information
(continued)
10. Fair value of financial instruments (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 2021 (32.1)
Gains recognised in the income statement 28.4
At 31 March 2022 (3.7)
Gains recognised in the income statement 7.5
At 30 September 2022 3.8
------------------------------------------ ----------------
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 GBP5.5 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
2022 2022
--------------- ----------- --------------- -----------
Carrying value Fair value Carrying value Fair value
GBPm GBPm GBPm GBPm
-------------------- --------------- ----------- --------------- -----------
Floating rate debt
Bank loans 850.5 832.9 652.6 652.6
Other loans 147.8 159.6 147.8 161.4
Bank overdraft 12.0 12.0 7.7 7.7
--------------------
1,010.3 1,004.5 808.1 821.7
-------------------- --------------- ----------- --------------- -----------
Fixed rate debt
Other loans 4,169.1 3,704.1 3,984.3 4,253.0
Lease liabilities 119.2 98.1 117.4 126.6
--------------------
4,288.3 3,802.2 4,101.7 4,379.6
-------------------- --------------- ----------- --------------- -----------
Index-linked debt
Bank loans 139.1 127.9 129.9 149.5
Other loans 1,689.5 1,582.5 1,691.4 2,456.1
--------------------
1,828.6 1,710.4 1,821.3 2,605.6
-------------------- --------------- ----------- --------------- -----------
7,127.2 6,517.1 6,731.1 7,806.9
-------------------- --------------- ----------- --------------- -----------
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.
Notes to the condensed interim financial information
(continued)
11. Interests in joint ventures
Our joint venture undertaking, Water Plus, is the largest
business retailer in the non-household retail water market in
England and Scotland.
During the current period, the Group has recognised its share of
Water Plus's profits of GBP0.2 million against the value of the
investment.
Movements in the investment in joint venture balances during the
period were:
Investment in joint venture
GBPm
--------------------------------- ----------------------------
At 1 April 2022 16.5
Share of profits for the period 0.2
At 30 September 2022 16.7
--------------------------------- ----------------------------
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
2022 2022
% %
-------------------------------- ------------- ---------
Price inflation - RPI 3.7 3.6
Price inflation - CPI
Pre 2030 2.7 2.6
Post 2030 3.6 3.5
Discount rate 5.5 2.8
Pension increases in payment 3.7 3.6
Pension increases in deferment 3.7 3.6
--------------------------------- ------------- ---------
The defined benefit scheme assets have been updated to reflect
their market value at 30 September 2022. 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.
Notes to the condensed interim financial information
(continued)
12. Retirement benefit schemes (continued)
The scheme assets at the balance sheet date were:
31 March
30 September 2022 2022
STPS, STMIPS, and DVWS GBPm GBPm
-------------------------------------------- ------------------ ---------
Fair value of scheme assets
Equities 277.8 478.1
Annuity policies 80.0 104.6
Corporate bonds 691.4 953.0
Liability-driven investment funds ('LDI's) 107.2 642.4
Property 296.6 296.8
Buy and maintain credit 18.2 22.5
High-yield bonds - 25.8
Cash 325.3 136.2
-------------------------------------------- ------------------ ---------
1,796.5 2,659.4
-------------------------------------------- ------------------ ---------
Most of the assets have quoted prices in active markets, but
there are equities, corporate bonds and LDI investments which are
unquoted amounting to GBP254.3 million (31 March 2022: GBP496.0
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 2022 2,659.4 (2,787.4) (128.0)
Current service cost - (0.1) (0.1)
Past service credit - 6.6 6.6
Scheme administration costs (2.8) - (2.8)
Interest income/(cost) 38.7 (40.3) (1.6)
Actuarial gains/(losses) (866.8) 815.4 (51.4)
Employer contributions 34.7 - 34.7
Employees' contributions and benefits paid (66.7) 66.7 -
-------------------------------------------- ---------------- ------------- ------------
At 30 September 2022 1,796.5 (1,939.1) (142.6)
-------------------------------------------- ---------------- ------------- ------------
The net deficit is presented on the balance sheet as
follows:
30 September 31 March
2022 2022
GBPm GBPm
-------------------------------- ------------- ---------
Retirement benefit surplus 13.0 17.5
Retirement benefit obligations (155.6) (145.5)
-------------------------------- ------------- ---------
(142.6) (128.0)
-------------------------------- ------------- ---------
Notes to the condensed interim financial information
(continued)
13. Share capital
At 30 September 2022 the issued and fully paid share capital was
254.4 million shares of 97(17) /(19) p amounting to GBP249.0
million (31 March 2022: 253.4 million shares of 97(17) /(19) p
amounting to GBP248.1 million).
During the period the Company issued 1.0 million (2021/22: 0.7
million) shares as a result of the exercise of employee share
options. At 30 September 2022 the Company held 2.9 million (31
March 2022: 3.1 million) treasury shares.
14. Cash flow
a) Reconciliation of operating profit to operating cash
flows
Six months ended 30 September
2022 2021
GBPm GBPm
Profit before interest and tax 261.7 255.6
Depreciation of property, plant and equipment 189.5 180.7
Depreciation of right-of-use assets 1.3 1.3
Amortisation of intangible assets 16.2 17.6
Amortisation of acquired intangible assets 1.0 1.0
Impairment of property, plant and equipment -- 1.7
Pension service (credit)/cost (6.5) 0.1
Defined benefit pension scheme administration costs 2.8 2.1
Defined benefit pension scheme contributions (34.7) (35.6)
Share based payment charge 4.6 4.8
Profit on sale of property, plant and equipment and intangible assets (1.4) (1.3)
Deferred income movement (8.0) (8.0)
Contributions received 14.2 15.3
Provisions charged to the income statement 7.1 3.2
Utilisation of provisions for liabilities (4.2) (2.6)
Operating cash flows before movements in working capital 443.6 435.9
(Increase)/decrease in inventory (1.7) 1.1
Increase in amounts receivable (37.1) (28.6)
Increase in amounts payable 103.5 81.5
Cash generated from operations 508.3 489.9
Tax received 6.1 --
Tax paid (9.5) --
Net cash generated from operating activities 504.9 489.9
------------------------------------------------------------------------ ------- -------
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
2022 107.7 (782.5) (5,823.5) (117.4) 28.3 79.6 (6,507.8)
---------------
Cash flow 258.3 (197.8) (60.9) 2.8 -- (8.0) (5.6)
Fair value
adjustments -- -- (3.6) -- -- -- (3.6)
Inflation
uplift on
index-linked
debt -- (8.9) (98.5) -- -- -- (107.4)
Foreign
exchange -- -- (20.2) -- -- -- (20.2)
Other non-cash
movements -- (0.4) 0.3 (4.6) 20.8 0.9 17.0
At 30
September
2022 366.0 (989.6) (6,006.4) (119.2) 49.1 72.5 (6,627.6)
--------------- -------------- ----------- ------------ -------------- -------------- -------------- ----------
Notes to the condensed interim financial information
(continued)
15. Post balance sheet events
There have been no significant post balance sheet events.
16. Contingent liabilities
Details of the Group's contingent liabilities were disclosed in
the financial statements for the year ended 31 March 2022 which
were approved on 24 May 2022. There have been no significant
developments relating to the contingent liabilities disclosed in
those financial statements other than what is set out 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 until autumn 2023.
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
2022 2021
GBPm GBPm
--------------------- ------ ------
Sale of services 126.9 130.3
Net interest income 1.7 1.2
---------------------- ------ ------
Outstanding balances between the Group and the joint venture
were as follows:
30 September 31 March
2022 2022
GBPm GBPm
------------------------------------------------------ ------------- ---------
Amounts due to related parties - (0.2)
Trade and other receivables due from related parties 0.2 -
Loans receivable from joint venture 72.5 79.6
------------------------------------------------------- ------------- ---------
72.7 79.4
------------------------------------------------------ ------------- ---------
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 earnings per share
Adjusted earnings per share figures 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, exceptional current tax and deferred tax.
The Directors consider that the adjusted figures provide a useful
additional indicator of performance and remove non-performance
related distortions. See note 8.
b) 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.
Notes to the condensed interim financial information
(continued)
18. Alternative performance measures (continued)
c) 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)
2022 2021
GBPm GBPm
-------- --------
Net finance costs 186.9 120.8
Net finance costs from pensions (1.6) (3.4)
Capitalised finance costs 23.5 15.2
208.8 132.6
--------------------------------- -------- --------
Annualised 417.6 265.2
--------------------------------- -------- --------
Average net debt 6,556.0 6,251.5
Effective interest cost* 6.4% 4.2%
--------------------------------- -------- --------
* 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 .
d) 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)
2022 2021
GBPm GBPm
---------------------------------- -------- --------
Net finance costs 186.9 120.8
Net finance costs from pensions (1.6) (3.4)
Indexation adjustments (107.4) (36.4)
Capitalised finance costs 23.5 15.2
----------------------------------
101.4 96.2
---------------------------------- -------- --------
Annualised 202.8 192.4
---------------------------------- -------- --------
Average net debt 6,556.0 6,251.5
---------------------------------- -------- --------
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.
Notes to the condensed interim financial information
(continued)
18. Alternative performance measures (continued)
e) PBIT interest cover
The ratio of PBIT to net finance costs excluding finance costs
from pensions.
PBIT
(net finance costs - net finance costs from pensions)
2022 2021
GBPm GBPm
------ ------
PBIT 261.7 255.6
------------------------------------------------------------- ------ ------
Net finance costs 186.9 120.8
Net finance costs from pensions (1.6) (3.4)
Net finance costs excluding net finance costs from pensions 185.3 117.4
------------------------------------------------------------- ------ ------
Ratio Ratio
PBIT interest cover ratio 1.4 2.2
------------------------------------------------------------- ------ ------
This APM is used to show how the PBIT of the business covers the
financing costs associated only with net debt on a consistent
basis.
f) 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.
(PBIT + depreciation + amortisation)
(net finance costs - net finance costs from pensions)
2022 2021
GBPm GBPm
--------------------------------------------------------- ------ ------
PBIT 261.7 255.6
Depreciation (including right-of-use assets) 190.8 182.0
Amortisation 17.2 18.6
EBITDA 469.7 456.2
--------------------------------------------------------- ------ ------
Net finance costs 186.9 120.8
Net finance costs from pensions (1.6) (3.4)
Net finance costs excluding finance costs from pensions 185.3 117.4
--------------------------------------------------------- ------ ------
Ratio Ratio
--------------------------------------------------------- ------ ------
EBITDA interest cover ratio 2.5 3.9
--------------------------------------------------------- ------ ------
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.
Notes to the condensed interim financial information
(continued)
18. Alternative performance measures (continued)
g) Adjusted effective current tax rate
The current tax charge for the year, excluding prior year
charges, exceptional current tax and current tax on exceptional
items and on financial instruments, divided by profit before tax,
exceptional items, net gains/losses on financial instruments, and
share of net profit/loss of our joint venture accounted for using
the equity method.
(current period current tax charge in the income statement - tax
on exceptional items - tax on net gains/losses on financial
instruments)
(PBT - share of net profit/loss of JV - exceptional items - net
gains/losses on financial instruments)
2022 2021
Current tax thereon Current tax thereon
GBPm GBPm GBPm GBPm
--------------------------------------------- ------- -------------------- ------- --------------------
Profit before tax 104.7 - 146.9 -
--------------------------------------------- ------- -------------------- ------- --------------------
Adjustments
Share of net (profit)/loss of joint venture (0.2) - 1.8 -
Net (gains)/losses on financial instruments (29.7) - (13.9) -
74.8 - 134.8 -
--------------------------------------------- ------- -------------------- ------- --------------------
Adjusted effective current tax rate 0.0% 0.0%
--------------------------------------------- ------- -------------------- ------- --------------------
This APM is used to remove distortions in the tax charge and
create a metric consistent with the calculation of adjusted
earnings per share in note 8. Share of net profit/loss of joint
venture is excluded from the calculation because the profit/loss is
included after tax and so the tax on joint venture profit/loss is
not included in the current tax charge.
h) Operational cashflow
Cash generated from operations less contributions and grants
received.
2022 2021
GBPm GBPm
----------------------------------- ------- -------
Cash generated from operations 508.3 489.9
Contributions and grants received (14.2) (15.3)
----------------------------------- ------- -------
Operational cashflow 494.1 474.6
----------------------------------- ------- -------
This APM is used to show operational cash excluding the effect
of contributions and grants received as part of capital
programmes.
i) 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.
2022 2021
GBPm GBPm
------------------------------------------------------- ------- -------
Purchase of property, plant and equipment 291.6 250.2
Purchase of intangible assets 4.6 6.6
Contributions received (14.2) (15.3)
Proceeds on disposal of property, plant and equipment (1.7) (3.5)
Cash capex 280.3 238.0
------------------------------------------------------- ------- -------
This APM is used to show the cash impact of the Group's capital
programmes.
Notes to the condensed interim financial information
(continued)
18. Alternative performance measures (continued)
j) Capital Investment
Additions to property, plant and equipment and intangible fixed
assets less contributions and grants received, assets contributed
at no cost and capitalised finance costs.
2022 2021
GBPm GBPm
-------------------------------------------- ------- -------
Additions to property, plant and equipment 360.4 290.8
Additions to intangible assets 4.6 30.2
Contributions and grants received (14.2) (15.3)
Assets contributed at no cost (57.6) (35.7)
Capitalised finance costs (23.5) (15.2)
-------------------------------------------- ------- -------
Capital Investment 269.7 254.8
-------------------------------------------- ------- -------
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 21 November 2022.
Christine Hodgson James Bowling
Chair Chief Financial Officer
Independent review report to Severn Trent Plc
Conclusion
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 2022 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.
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 2022 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.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 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 (ISRE (UK) 2410). 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.
As disclosed in note 1, the annual financial statements of the
group are 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".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410; however future events or conditions
may cause the entity to cease to continue as a going concern.
Directors' responsibilities
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.
In preparing the half-yearly financial report, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the company a conclusion on the
condensed set of financial statements in the half-yearly financial
report. Our Conclusion, including our Conclusion Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
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
21 November 2022
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.
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.
CSO (Combined Sewer Overflows)
CSO's are overflow valves developed to reduce the risk of sewage
backing up in combined rainwater and waste water sewers during
heavy rainfall.
Customer ODI (Outcome Delivery Incentive)
A framework made up of outcomes, measures, targets and
incentives which provides companies with rewards for achieving
stretching performance targets and compensates customers if
performance is below performance targets. This was first introduced
at the 2014 price review (PR14) by the regulator, Ofwat.
Final Determination (FD)
The outcome of the price review process that sets price,
investment and services packages that customers receive.
Ofwat
The water industry's economic regulator in England &
Wales.
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.
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.
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.
RNAGS (Reasons for Not Achieving Good Status)
The Environment Agency's analysis of Reasons for Not Achieving
Good Status (RNAGS) records the source, activity and sector
involved in causing waters to be at less than good status.
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).
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').
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
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