TIDMSVT
RNS Number : 2055U
Severn Trent PLC
22 November 2023
Delivering now, very well placed for the future
Continuing to deliver a strong performance for all
stakeholders
-- Achieved highest 4* EPA(1) status from the Environment Agency for
a record fourth consecutive year, and on track for a fifth year
for 2023.
-- 80% of Severn Trent Water's performance commitments on or ahead
of target, including best ever performance on leakage and blockages,
and confident of delivering at least GBP50m in ODI(2) rewards this
year, which would bring us to a total of over GBP250m earned cumulatively
in AMP7(3) .
-- On track to outperform against end-of-AMP ODIs, with GBP40m-GBP50m
additional reward expected to be recognised on top of year five
ODI performance.
-- Largest ever year of capital investment, spending c. GBP1bn on
our network, which includes around GBP200m on our Green Recovery
programme; GBP477m capital investment in first six months, up 77%
on H1 of 2022/23.
-- Expanded our societal strategy to a third location, Coventry, as
part of our commitment to help support 100,000 people out of poverty
by 2032.
-- Highest ever engagement score with November 2023 results in the
top 3% of utilities globally.
Interim financial results in line with expectations
-- No changes to full year guidance; continue to expect adjusted EPS(4)
growth for the full year, after including the additional 46.5m
shares issued in October, with financing costs expected to be lower
in the next six months.
-- PBIT(5) marginally lower year on year primarily due to the expected
impact of higher energy and chemical prices, which were weighted
to the second half in the previous year.
-- Shadow RCV Gearing(6) is 60.6%, compared to 60.0% at 31 March 2023.
Group Results 30 September 30 September 2022
2023
Revenue GBP1,165.3m GBP1,061.8m
------------- ------------------
PBIT GBP255.1m GBP261.7m
------------- ------------------
EPS 20.5p 31.4p
------------- ------------------
Adjusted EPS 29.7p 29.9p
------------- ------------------
Interim dividend per ordinary share 46.74p 42.73p
------------- ------------------
Capital Investment GBP476.9m GBP269.7m
------------- ------------------
Ambitious plans for upcoming scale investment in our region
-- Raised GBP1bn new equity after the half year for the unprecedented
investment programme in AMP8, with PR24 plan including 31% real
RCV(7) growth.
-- Plans submitted to regulator include:
o GBP12.9bn totex, including GBP5bn of enhancement projects to
benefit customers and the environment;
o Investing in rivers, long-term water security and achieving Net
Zero by 2030; and
o Forecasting to be around Upper Quartile on 72% of ODIs, including
sector-leading ambitions on storm overflow spills and external
sewer flooding.
-- Deliverability underpinned by current capital run rate, early engagement
with the supply chain, with over GBP1bn already notionally allocated,
and new innovative approaches to deliver assets up to 30% faster.
-- Accelerating GBP400m of capital spend from AMP8 to deliver benefits
to customers and our environment sooner.
-- Expect to maintain second lowest bill in the sector by 2030 and
launching GBP550m affordability package to support 693,000 customers
with their bill; representing support for around one in six families
in our region.
Liv Garfield, Chief Executive, Severn Trent Plc, said:
"Our team has delivered for customers with a sector-leading
performance over the last six months, driven by a GBP500 million
investment in the Midlands. We're doing more than ever, whether
it's protecting the environment where we're on track to achieve the
highest 4* status from the Environment Agency for a record fifth
consecutive year, operationally - delivering our best ever
performance reducing leakage and blockages, and in our community
where 100,000 people are being supported out of poverty.
We're delivering for customers today, and also preparing for the
future. We have set out plans to invest GBP12.9bn from 2025, the
equivalent of GBP2,400 per household. These plans will bring huge
benefits to nature including healthier rivers, 7,000 jobs to our
region through new roles, insourcing and in the supply chain, as
well as a financial support package to help around one in six
families navigate cost-of-living pressures. We're hugely excited
about the economic, environmental and societal benefits this will
bring to the Midlands for decades to come."
Footnotes to page 1 of this RNS
1. EPA: Environmental Performance Assessment ('EPA') status is
assessed each calendar year.
2. ODIs: Outcome Delivery Incentives, quoted pre-tax and in 2017/18
prices unless otherwise stated.
3. AMP: Asset Management Plan (see glossary); AMP7 refers to the
period 1 April 2020 to 31 March 2025, and AMP8 refers to the
period 1 April 2025 to 31 March 2030.
EPS: Earnings Per Share; Adjusted basic EPS is set out in note
4. 8.
5. PBIT: Profit before interest and tax.
6. Refers to shadow regulatory gearing based on shadow RCV which
includes our Green Recovery programme. The comparative figure
for the period ended 30 September 2022 is 58.1%. Regulatory
gearing on our reported RCV is 61.8%.
7. RCV: Regulatory Capital Value (see glossary). 31% real RCV growth
includes GBP400m of transition expenditure relating to AMP8
but expected to be delivered in years 4 and 5 of AMP7.
Enquiries
Investors & Analysts
Rachel Martin Severn Trent Plc +44 (0) 782 462 4011
Head of Investor Relations
Andy Farrell Severn Trent Plc +44 (0) 798 939 0825
Investor Relations
Manager
Media
Jonathan Sibun Teneo +44 (0) 207 353 4200
Press Office Severn Trent Plc +44 (0) 247 771 5640
Interim Results Presentation and Q&A
A presentation of these results hosted by Liv Garfield, CEO, and
Helen Miles, CFO, will be available on our website
(severntrent.com) from 7.00am GMT today, 22 November 2023.
We will be hosting a live Q&A session with Liv, Helen 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
As we head into the final 18 months of this regulatory cycle,
we're fully focused on finishing AMP7 strongly and maintaining our
position as sector leaders. We have managed some extraordinary
pressures already in AMP7, including extreme weather, unprecedented
energy prices and broader macroeconomic uncertainty, while
maintaining a cumulative RoRE performance of 8.9% in the first
three years. We are well placed to exit the AMP strongly,
delivering our remaining commitments while preparing ourselves for
the biggest investment programme in our history.
We remain on track with 80% of our performance commitments so
far this year, and are showing year-on-year improvement on the
measures that matter most to our customers, including leakage,
serious pollution incidents, and water quality contacts. And on top
of that we're continuing to lead the sector on the environment,
whether that's our record on EPA 4* status, our focus on reducing
RNAGS, or our commitment to Biodiversity improvements, ensuring we
protect our region for the long term.
The business plan we submitted at the beginning of October for
the next regulatory period marks an evolution of the industry,
delivering a further step change in service for our customers and
our impact on the environment, and we're confident in the
robustness of our plan across the three areas most important to
Ofwat:
-- Financeability - we've moved early to ensure that our plan is financeable,
raising GBP1 billion of equity to help fund proposed real RCV growth
of 31% in Severn Trent and 35% in Hafren Dyfrdwy;
-- Deliverability - we've already ramped up our capital spend to deliver
this growth, for a smooth glide path into AMP8;
-- Affordability - while customers will be getting the best service
they've ever had, we're also going to give them more help than
ever before with an affordability package that is sufficient to
support every customer in water poverty in our region, so that
no one is left unable to pay their bills.
But we're not waiting for AMP8 to make a difference. We're
making the right investments now, with at least GBP400 million of
expenditure accelerated into AMP7 to get a head start on our
targets and enhance our current performance. That includes stepping
up investment into CSOs to get spill numbers down as soon as
possible, as well as transitioning over to Kraken - a global
leading Customer Relationship Management system which will support
our water resources plans and transform our customer service.
Six months into year four, I'm pleased with our performance
levels as we continue to improve service on the measures that
matter most to customers. We're committed to finishing this AMP
strongly, continuing to build our track record as a sector leader
on operational outperformance, and preparing for an exciting period
of growth for our company over the next AMP.
Demonstrating operational and environmental leadership
We currently have 80% of performance commitments on track, and
through delivering for our customers on these metrics we continue
to expect to unlock at least GBP50 million of ODI rewards this
year. At the same time, we're also focused on improving the
measures that are behind target, as well as exploring ways of
delivering even greater outperformance on the commitments that
we're performing well on. Forecasts included in our business plan
for the end of AMP8 put us around upper quartile on 72% of
measures.
In water, our investments are continuing to pay off, as we're on
track to deliver a seventh consecutive year of improvements in
Water Quality Contacts, as well as our best ever performance on
leakage and low pressure. We've also had our best six-month period
on supply interruptions, as we continue to work hard to reduce the
gap to our target.
In waste, we're maintaining our sector-leading position, we're
forecasting our best ever performance on blockages and are ahead of
target when it comes to reducing storm overflow spills. We've
insourced 368 colleagues into our Waste Networks team to give us
more agility to recover our external sewer flooding performance
over the next 18 months and protect our frontier position on the
measure as we enter AMP8, when the metric will be rebased around
industry performance.
We're continuing to build our track record of leadership on
environmental measures, having been awarded 4* EPA status for a
record fourth consecutive year. As we enter the last few weeks of
the assessment period, we remain on track to maintain our 4* status
for a fifth consecutive year, including zero serious pollution
incidents, despite 60% more rain since April than the same period
last year.
Our Green Power business has continued to expand, with our
recent acquisition of Andigestion further increasing our energy
generation. Including our Bioresources business, so far this year
we've generated 299 GWh, which is the equivalent of 57% of our
ongoing energy needs. In October lightning struck one of our sites;
nobody was hurt as a result of the incident, operations have been
diverted without any disruption to performance, and the site is
expected to be back online by April.
Highest ever capital investment to enhance our network
We're on course for our largest year of capital investment,
spending around GBP1 billion to improve service for our customers,
enhance our network, and prepare for the scale of delivery needed
in AMP8.
We've completed 13 of this year's regulatory commitments early,
including a new drawdown facility at Draycote reservoir and four
storm capacity commitments, and are confident of delivering all 44
commitments for this year. We're also progressing with major works
at Hinckley and Hartshill to increase sewage treatment capacity in
an area of high population growth.
Work on our Green Recovery programme is progressing at pace.
We're already ahead of our plan on smart metering, and in the next
six months will accelerate the rollout to get ahead of our AMP8
targets. At Mansfield, 49 sites for our Sustainable Urban Drainage
Scheme are complete with a further 11 currently under construction,
as we work to reduce flood risk for 90,000 customers in the area.
And at Witches Oak, construction work to unlock 89Ml/d of
additional water supply is well progressed.
To further prepare ourselves for the next regulatory period of
substantially higher investment, we expect to be accelerating at
least GBP400 million of additional capital expenditure into the end
of AMP7, in order to get ahead of our AMP8 targets early, while
also stepping up delivery to create a smooth glide path into
AMP8.
Set up strongly for unprecedented AMP8 investment programme
Between our AMP7 capex programme, additional Green Recovery
spend, and accelerated transitional expenditure, we are uniquely
positioned to end AMP7 at the required capital run rate for
AMP8.
To help us deliver the programme even more efficiently, our
innovative new 'Plug and Play' platform will introduce greater
standardisation to traditionally bespoke design projects, allowing
us to deliver far more than we ever have before, and to do so
earlier to allow us to meet our targets quicker. And our in-house
design function uniquely enables us to fully utilise the
technology, giving us a competitive edge as we move into a period
of expansion.
Following on from the recent insource of 368 colleagues into our
Waste Networks team, we are exploring wider insourcing options to
give more direct influence over our operations, meaning faster
interventions on performance and greater agility to improve service
levels.
We're investing early to drive environmental benefits sooner.
That means bringing forward investments in WINEP, and moving
quickly to reduce our usage of storm overflows, accelerating
investment to bring down average spill volumes to a sector-leading
level of 14 spills by 2030. Long term we're adopting a 'zero
spills' mentality, and we already have a team of people established
at our Zero Spills Hub at Stoke Bardolph to foster innovation to
improve our performance.
We've developed a track record as the best-performing company on
ODIs, delivering high-quality service for customers, and we are
taking steps to maintain that position as ODIs become even more
valuable in AMP8. But we also recognise there's more we can do, and
our new ODI Centre of Excellence will help us to take an even more
data-led approach to driving performance improvements for our
customers and the environment.
And not only are we committing to these improvements to service,
but we're also keeping bills at an affordable level for our
customers. Our business plan proposes that bills will rise from
1.2% of disposable income to 1.3% over the course of AMP8, although
we are still projected to end AMP8 with the second lowest bill in
the sector. On top of that, we're expanding our affordability
offering, with a total package worth GBP550 million - enough to
support every customer in water poverty in our region - with
interventions ranging from bill support of up to 90%, payment
matching, payment breaks, debt advice, white goods, and more.
Overall we've submitted an ambitious plan which seeks to deliver
unprecedented levels of growth in a deliverable and financially
sustainable way, investing GBP2,400 per household to give customers
better service than ever before while supporting everyone who needs
help to pay their bills.
Supporting our people and our region
Our societal strategy continues to develop, as we seek to help
to support 100,000 people out of poverty by 2032. We're working
with 14 partner schools in our focus areas of East Birmingham,
Derby, and now Coventry, to offer free training sessions in these
social mobility cold spots, and we're pleased to be recognised once
again in the Social Mobility Index, where we've ranked in the top
ten employers for a fifth year in a row. We've met our annual
target of 300 work experience placements over the past 12 months,
in which time we've also exceeded our target of delivering 10,000
hours of skills and employability training to people looking for
work.
Working with the wider community, we've held 25 free
employability training and support sessions, and partnered with
other organisations to hold job fairs for people looking to get
into work, offering CV support, interview practice and
employability workshops.
As we head into the next regulatory period, our people and
culture will play a bigger role than ever before. We've invested in
skills to foster a strong talent pipeline, with over 70 internal
promotions to senior management level in the past two years, and
over 1,000 colleagues in total promoted or progressed to a broader
role in the business in the past year. And we've ensured engagement
scores remain high - our most recent Quest survey score of 8.6/10
is our best ever result, with every directorate scoring at least
8.5, and puts us in the top 3% of utilities globally.
Chief Financial Officer's Review
Our robust financial performance for the first half of the year
was in line with expectations. Our adjusted earnings in the first
half of the year were in line with the previous year and we expect
our PBIT to be more evenly spread than the prior year, as energy
costs increased significantly in the second half of last year.
Reductions in inflation rates during the year have reduced our
finance costs and we expect this impact to be greater in the second
half based on independent forecasts of inflation.
We have increased our capital programme and are on track to
deliver around GBP1 billion in this financial year, and this,
combined with our successful GBP1 billion equity raise completed in
October, establishes a solid platform for AMP8.
We expect to end AMP7 with nominal RCV growth of 43% (based on
independent inflation forecasts).
A summary of our financial performance in the period is set out
below:
2023 2022 Change
GBPm GBPm GBPm %
-------------------------------------------- ------------------- -------------- --------------- ---------------
Turnover 1,165.3 1,061.8 103.5 9.7
--------------------------------------------- ------------------- -------------- --------------- ---------------
PBIT 255.1 261.7 (6.6) (2.5)
Net finance costs (179.2) (186.9) 7.7 4.1
Losses/gains on financial instruments, share
of results of joint venture and impairment
of
loans receivable (5.2) 29.9 (35.1) (117.4)
--------------------------------------------- ------------------- -------------- --------------- ---------------
Profit before tax 70.7 104.7 (34.0) (32.5)
Tax (19.1) (25.9) 6.8 26.3
Profit for the period 51.6 78.8 (27.2) (34.5)
--------------------------------------------- ------------------- -------------- --------------- ---------------
Group turnover was GBP1,165.3 million (2022/23: GBP1,061.8
million), up GBP103.5 million (9.7%), driven by higher revenues in
our Regulated Water and Waste Water business (up GBP95.4
million).
Group PBIT was GBP255.1 million (2022/23: GBP261.7 million). In
our Regulated Water and Waste Water business PBIT was in line with
the previous year as increased operating costs from higher energy,
chemical and labour costs, and a greater level of investment
impacting infrastructure renewals expenditure and depreciation,
offset the increase in revenue. In Business Services EBITDA was
GBP6 million lower, impacted by one-off costs (GBP3.7 million) in
Green Power relating to the Andigestion acquisition, which will
increase our generating capacity by 45GWh per annum to around 60%
of our energy needs by the end of the financial year and higher
operating costs.
Our effective interest cost reduced to 5.6% (2022/23: 6.4%) due
to lower inflation uplift on index-linked debt, as expected, and
although average net debt increased by 10% compared to the same
period in the previous year, net finance costs decreased to
GBP179.2 million (2022/23: GBP186.9 million), down 4.1%. Our
effective cash cost of interest was 3.4% (2022/23: 3.1%) as we saw
the impact of higher interest rates on recent debt issues, although
still outperforming the iBoxx index over the AMP to date.
Our adjusted effective tax rate was nil% (2022/23: nil%) as the
benefit of full expensing for tax purposes of our significant
expenditure on qualifying plant and machinery reduced our profit
chargeable to tax. Our effective tax rate was 27.0% (2022/23:
24.7%). In the previous year the benefit of the 'super deduction'
more than offset the impact of expenditure not qualifying for a tax
deduction on the effective rate.
Group profit after tax was GBP51.6 million (2022/23: GBP78.8
million). Our adjusted basic earnings per share were 29.7 pence
(2022/23: 29.9 pence). Basic earnings per share were 20.5 pence
(2022/23: 31.4 pence).
Our balance sheet remains strong. At 30 September 2023 our net
debt was GBP7,520.4 million (31 March 2023: GBP7,160.5 million) and
our shadow RCV gearing was 60.6% (31 March 2023: 60.0%).
Our net pension deficit at 30 September 2023 increased to
GBP329.9 million (31 March 2023: GBP279.4 million). The overall
funding level across all our defined benefit schemes was 82.7% (31
March 2023: 86.5%). Higher bond yields reduced the value of the
liabilities by around GBP189 million but this was broadly offset by
a reduction of GBP193 million in the Scheme's assets in line with
our hedging strategy. Inflation in the period, which was higher
than our long-term assumption, increased liabilities by around
GBP38 million. The net Scheme costs were approximately GBP9 million
in the period. We remain ahead of our journey plan agreed with the
Trustees at the 2019 funding valuation.
At 30 September 2023, we had GBP1,200 million of undrawn
committed facilities, and at 30 September 2023 our cash flow
requirements were funded to early 2025. Following our successful
equity placing, which raised GBP1 billion (gross) on 3 October
2023, our cash flow requirements are now funded to early 2026.
We ramped up our capital investment in the first half of the
year to GBP476.9 million (2022/23: GBP269.7 million) and we are on
track to exit AMP7 at the run rate required to deliver the
commitments in our AMP8 plan.
Following our assessment of eligible activities under the EU
taxonomy at the year end, we are today publishing our first EU
Taxonomy Disclosure in which we disclose that 62% of our capital
expenditure and 53% of our revenues and operating costs are from
activities aligned to the Taxonomy. We've identified areas where we
can strengthen our position against the framework, ensuring the
work we do brings maximum benefit to the environment.
The Group's AMP7 dividend policy is to increase the dividend in
line with November CPIH each year. In line with its usual practice,
the Board carefully considered the impact of the policy for all our
stakeholders in the light of the relatively high inflation in the
last year. 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 and 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 2024 of 46.74 pence (2022/23: 42.73 pence), in line with our
policy for AMP7.
Regulated Water and Waste Water
Six months ended 30 September
2023 2022 Change
----------------
GBPm GBPm GBPm %
Turnover 1,080.3 984.9 95.4 9.7
------------------------------------- -------- -------- ------- -------
Net labour costs (87.8) (78.7) (9.1) (11.6)
Net hired and contracted costs (123.9) (108.4) (15.5) (14.3)
Power (131.5) (95.7) (35.8) (37.4)
Bad debts (15.5) (13.7) (1.8) (13.1)
Other costs (152.4) (136.8) (15.6) (11.4)
(511.1) (433.3) (77.8) (18.0)
------------------------------------- -------- -------- ------- -------
Infrastructure renewals expenditure (119.0) (109.3) (9.7) (8.9)
Depreciation (207.6) (199.4) (8.2) (4.1)
------------------------------------- -------- -------- ------- -------
PBIT 242.6 242.9 (0.3) (0.1)
------------------------------------- -------- -------- ------- -------
Turnover for our Regulated Water and Waste Water business was
GBP1,080.3 million (2022/23: GBP984.9 million) and PBIT was
GBP242.6 million (2022/23: GBP242.9 million).
Turnover increased by GBP95.4 million with the main movements
being:
-- An increase of GBP72.1 million from the annual CPIH + K increase
in prices;
-- A GBP45.8 million decrease representing the movement from the prior
year in the adjustment for the RFI mechanism;
-- GBP65.5 million increase for the in-AMP fast money allowance for
the Green Recovery programme and ODI reward recognised in revenue
in year; and
-- A net increase of GBP3.6 million due to higher green energy incentive
income, tankered trade waste, IRE diversions income, partly offset
by lower energy export income in Bioresources.
Increased activity on our Green Recovery programme impacted
operating costs by around GBP9 million year on year which is
included in the analysis below.
Net labour costs of GBP87.8 million were 11.6% higher period on
period. Gross employee costs increased, driven by the annual pay
award and a planned increase in employee numbers to support
delivery of our capital programme and to drive operational
improvements, including the insourcing of 368 colleagues into Waste
Networks in September. This was partly offset by higher
capitalisation of employee costs as we progress to deliver our
biggest ever investment programme.
Net hired and contracted costs increased by GBP15.5 million
(14.3%) due to a planned step up in the supply pipe programme in
Green Recovery as well as increased ground maintenance and
technology contracts spend.
Power costs were GBP35.8 million or 37.4% higher period on
period, mainly driven by the higher wholesale weighted average
price of electricity on imports which was hedged over the course of
2022 and so was affected by the significant increase in wholesale
market energy prices at this time. Power consumption on our pumping
stations was higher due to the abnormally wet weather in the first
half of the year. Over the course of AMP7 we expect the higher
energy costs to impact average RoRE by around 0.7 percentage
points. Higher power prices are partially offset by self-generation
and incentive income in both our Bioresources and Green Power
businesses.
Bad debt charges increased by GBP1.8 million but remained
broadly flat as a proportion of household revenue at 2.0% (2022/23:
1.9%).
Other costs were up by GBP15.6 million, predominantly due to
higher chemical costs, Ofwat fees, insurance costs and business
rates following rate revaluation that took effect this year.
Infrastructure renewals expenditure was GBP9.7 million higher in
the period, reflecting the planned programme step up mainly driven
by mains renewal.
Depreciation of GBP207.6 million was GBP8.2 million higher
period-on-period due to completion of Strongford THP, as well as
various Water Framework Directive ('WFD') schemes such as Newport
and Ray Hall.
Business Services
Six months ended 30 September
2023 2022 Change
---------------
GBPm GBPm GBPm %
------------------------------ ----- ----- ------ -------
Turnover
Operating Services and other 51.4 44.7 6.7 15.0
Green Power 36.7 36.7 -- --
88.1 81.4 6.7 8.2
------------------------------ ----- ----- ------ -------
EBITDA
Operating Services and other 12.6 12.2 0.4 3.3
Green Power 10.7 17.2 (6.5) (37.8)
Property Development 1.4 1.3 0.1 7.7
------------------------------ ----- ----- ------ -------
24.7 30.7 (6.0) (19.5)
------------------------------ ----- ----- ------ -------
Business Services turnover was GBP88.1 million (up 8.2%) and
adjusted EBITDA was GBP24.7 million (down 19.5%).
In our Operating Services and Other businesses, turnover
increased by GBP6.7 million due to increased activity on the MoD
and other contracts, as well as increased revenue from our water
hygiene business, Aqualitix. EBITDA was GBP0.4 million higher
impacted by a higher proportion of lower margin MoD contract
revenue, inflation, and investment in insourcing activities.
In Green Power, turnover was in line with the prior year due to
higher green energy incentive income offset by the expected lower
energy prices on exports. Over the last two years Green Power
EBITDA has grown by 73% but reduced by GBP6.5 million in the period
due to the impact of GBP3.7 million of one-off acquisition costs
for the purchase of Andigestion which completed in September, the
annual pay increase and feedstock cost increases above inflation.
We expect Andigestion to increase our energy generation by around
45GWh annually and we do not expect a significant impact from the
incident at Cassington (see note 16).
Profits from Property Development were GBP1.4 million and
slightly higher compared to last year. We remain on track to
achieve our in-year guidance and long-term plans to deliver GBP150
million profit by 2032 having achieved c. GBP53 million since
2017.
Corporate and other
Corporate overheads were GBP4.4 million (2022/23: GBP4.5
million). The reduction is driven by lower professional fees. Our
other businesses generated PBIT of GBP0.4 million (2022/23: GBP0.6
million).
Net finance costs
The Group's net finance costs for the six-month period were
GBP179.2 million (2022/23: GBP186.9 million). Average net debt of
GBP7,235.5 million was higher than the previous year (2022/23:
GBP6,556.0 million) but lower inflation in the period reduced the
interest cost on index-linked debt by GBP25.1 million. As a result,
our effective interest cost for the period reduced to 5.6%
(2022/23: 6.4%). Our effective cash cost of interest (which
excludes the inflation uplift on index-linked debt) was 3.4%
(2022/23: 3.1%) due to higher interest rates on recent debt issues.
Interest capitalised of GBP31.1 million (2022/23: GBP23.5 million)
increased due to the higher capital work in progress during the
period.
The Group's EBITDA interest cover was 2.7 times (2022/23: 2.5
times) and PBIT interest cover was 1.5 times (2022/23: 1.4 times).
See note 19 for further details.
Net losses on financial instruments
The Group uses financial derivatives solely to hedge risks
associated with its normal business activities including:
-- Exchange rate exposure on borrowings denominated in foreign currencies;
-- Interest rate exposures on floating rate borrowings;
-- Exposures to increases in electricity prices; and
-- Changes in the regulatory model from RPI to CPIH.
The Group holds:
-- Interest rate swaps with a net notional principal of GBP445 million
to balance our interest rate mix in line with our strategy;
-- Cross currency swaps with a sterling principal of GBP246 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 GBP5.4 million (2022/23: gain
of GBP53.6 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.
The Group has fixed around 98% of the estimated wholesale energy
usage for 2023/24 through a combination of forward price contracts
and financial derivatives.
Taxation
We are committed to paying the right amount of tax at the right
time, and were pleased to have our Fair Tax Mark accreditation
renewed for the fifth 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 2022/23 Annual Report and Accounts sets
out an analysis of the taxes incurred in that year and we will set
out this year's amounts in our Annual Report to be published in
June 2024.
The tax charge reported in the income statement is calculated at
a rate of 27.0% (2022/23: 24.7%), 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 for the period (2022/23: nil).
The deferred tax charge was GBP19.1 million (2022/23: GBP25.9
million).
The tax allowances generated by our significant capital
programme, reduced our adjusted effective current tax rate (in line
with guidance) to nil% (2022/23: nil%).
Profit for the period and earnings per share
Profit for the period was GBP51.6 million (2022/23: GBP78.8
million).
Basic earnings per share were 20.5 pence (2022/23: 31.4 pence).
Adjusted basic earnings per share were 29.7 pence (2022/23: 29.9
pence).
Cash flow
Six months ended 30 September
2023 2022
GBPm GBPm
Operational cashflow 482.3 494.1
Cash capex (477.0) (280.3)
Net interest paid (81.2) (76.5)
Purchase of subsidiaries net of cash acquired (38.5) --
Net tax paid -- (3.4)
------------------------------------------------ ---------- ----------
Free cash flow (114.4) 133.9
Dividends (161.6) (153.9)
Issue of shares 13.1 14.4
Purchase of own shares (1.6) --
-----------------------------------------------
Change in net debt from cash flows (264.5) (5.6)
Non-cash movements (95.4) (114.2)
Change in net debt (359.9) (119.8)
Opening net debt (7,160.5) (6,507.8)
------------------------------------------------ ---------- ----------
Closing net debt (7,520.4) (6,627.6)
------------------------------------------------ ---------- ----------
Net debt comprises:
30 September 31 March 30 September
2023 2023 2022
GBPm GBPm GBPm
------------------------------- ------------- ---------- -------------
Cash and cash equivalents 216.7 28.7 366.0
Bank loans (649.0) (713.0) (989.6)
Other loans (7,067.1) (6,474.2) (6,006.4)
Lease liabilities (114.4) (110.9) (119.2)
Cross currency swaps 19.3 33.6 49.1
Loans due from joint ventures 74.1 75.3 72.5
Net debt (7,520.4) (7,160.5) (6,627.6)
------------------------------- ------------- ---------- -------------
At 30 September 2023 we held GBP216.7 million (31 March 2023:
GBP28.7 million) in net cash and cash equivalents. Our weighted
average debt maturity is 14 years. Including committed facilities,
of which GBP1,200 million was undrawn at the balance sheet date,
the Group's cash flow requirements at 30 September 2023 were funded
until early 2025 and after our successful equity placing, which
raised proceeds of GBP1 billion on 3 October 2023, our cash flow
requirements are now funded to early 2026.
We invest cash in deposits with highly rated banks and AAA rated
money market funds. The Board regularly reviews the list of
counterparties.
Regulatory gearing (net debt of our regulated businesses,
expressed as a percentage of estimated RCV) at 30 September 2023
was 61.8% (31 March 2023: 60.7%). Shadow regulatory gearing was
60.6% (31 March 2023: 60.0%).
The estimated fair value of debt at 30 September 2023 was
GBP771.2 million lower than book value (31 March 2023: GBP366.2
million lower).
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 future funding plan for the main Severn Trent Pension Scheme
('STPS') includes:
-- Annual deficit reduction payments to be made until the year ending
31 March 2027, with a forecast(1) payment of c. GBP40 million in
the year ending 31 March 2024, increasing thereafter in line with
November CPI;
-- 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 under an asset-backed funding arrangement,
with a forecast(1) payment of c. GBP28 million in the year ending
31 March 2024, 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.
1. Index-linked payment forecasts based on the Oxford Economics
forecast CPI for the 12-month period to November 2023.
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 2023 was a deficit of GBP329.9 million. Calculation
of the pension deficit for accounting purposes uses corporate bond
yields as the basis for the discount rate of our long-term
liabilities, irrespective of the nature of the scheme's assets or
their expected returns.
The net finance cost was GBP6.6 million and administration costs
were GBP2.0 million.
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 1,785.3 (2,064.7) (279.4)
Amounts credited/(charged) to income
statement 39.4 (48.0) (8.6)
Actuarial (losses)/gains taken to reserves (192.8) 150.7 (42.1)
Net contributions received and benefits
paid (55.5) 55.7 0.2
At end of the period 1,576.4 (1,906.3) (329.9)
-------------------------------------------- ---------------------------- ---------------------------- ------------
On an IAS 19 basis, the funding level is 82.7% (31 March 2023:
86.5%).
Dividends
The Board has declared an interim ordinary dividend of 46.74
pence per share (2022/23: 42.73 pence per share), which will be
paid on 10 January 2024 to shareholders on the register at 1
December 2023.
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. These principal
risks are unchanged since our year end disclosures. 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.
Customer Service and Experience:
-- We do not meet the needs of our customers or anticipate changing
societal expectations through the level of customer service we
provide.
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.
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 2023/24
Outlook
Earnings: We anticipate adjusted earnings per share growth in
2023/24, after adjusting for the new share issue, as a result of a
reduction in interest charge. We expect a further step up in
2024/25, as lower energy costs and inflation-linked tariff
increases flow through to operational earnings.
Returns: We expect to deliver a strong average Return on
Regulatory Equity ('RoRE') for AMP7, driven by both operational and
financial outperformance. We are confident we can continue to
deliver sector-leading operational performance, including
end-of-AMP ODIs expected to contribute GBP40-50 million on top of
in-year net rewards for the last year of the AMP. Over the course
of AMP7 we expect higher energy costs to impact average RoRE by
around 0.7 percentage points(1), but this is expected to be offset
by higher Green Power income to give a broadly neutral impact on
earnings over time.
RCV(2): Group RCV expected to grow by 43% over AMP7, benefitting
from our large investment programme, and including recent inflation
forecasts. That equates to a nominal CAGR(3) of over 7% in
AMP7.
1. Based on performance to date, hedged position for 2023/24 and
latest energy forecasts for 2024/25.
2. RCV: Regulatory Capital Value. RCV is measured excluding transitional
spend. Nominal RCV assumes forecast CPIH of 3.8% for 2023/24,
and 1.8% for 2024/25 and forecast RPI of 5.5% for 2023/24 and
2.6% for 2024/25 as per Oxford Economics October 2023 forecast.
3. CAGR: Compound Annual Growth Rate.
Year-end guidance FY23 Year-on- Year Movement in guidance since
last update(5)
Regulated Water and Waste Water
Turnover GBP2.15 billion to GBP2.20 GBP2.00bn
billion
Other operating costs Higher year on year, GBP889m
reflecting an increase in
power costs, pay inflation
and a step up in
Green Recovery expenditure.
Infrastructure renewals Marginally higher year on GBP238m
expenditure ('IRE') year due to HS2 activity,
which is broadly offset in
turnover.
ODIs(1) Continued outperformance on GBP53m
increasingly stretching
targets, delivering a net
reward of at
least GBP50 million.
Business Services
EBITDA (excl. property) Lower year on year due to GBP64m
the impact of the lower
energy prices on revenue in
Severn Trent
Green Power.
Property profit GBP5 million to GBP10 GBP2m
million.
----------------------------- ----------------------------- ---------- -------------- ----------------------------
Group
Interest charge Lower year on year based on GBP363m
latest inflation(2) and
interest rate forecasts.
Nil due to accelerated
capital allowances on our
Adjusted effective current capital investment
tax rate(3) programme. 0.0%
Capital investment Continued step up in our GBP737m
investment programme
delivering capital
expenditure of around GBP1
billion.
2023/24 dividend of 116.84
pence, in line with our
policy of annual growth by
Dividend(4) CPIH. 106.82p
----------------------------- ----------------------------- ---------- -------------- ----------------------------
Footnotes to Technical Guidance
1. 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.
2. Based on Oxford Economics October inflation forecast.
3. Total effective tax rate is expected to be c.27%. This includes both current and deferred
tax charges.
4. 2023/24 dividend growth rate based on November 2022 CPIH of 9.38%.
5. Last trading update issued on 29 September 2023.
Further Information
For further information, including the Group's half-year results
presentation, see the Severn Trent website ( www.severntrent.com
).
Investor Timetable
Ex-dividend date (Interim) 30 November 2023
Dividend record date (Interim) 01 December 2023
----------------------------------
DRIP election date (Interim) 15 December 2023
----------------------------------
Interim dividend payment date 10 January 2024
----------------------------------
Q3 Trading Update 14 February 2024
----------------------------------
Financial Year End 31 March 2024
----------------------------------
Full Year Results Announcement 22 May 2024
2023/24
----------------------------------
AGM 11 July 2024
----------------------------------
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 2023 2023 2022
Note GBPm GBPm
Turnover 3,4 1,165.3 1,061.8
Other income -- 0.5
Operating costs before charge for bad and doubtful debts (894.6) (786.9)
Charge for bad and doubtful debts (15.6) (13.7)
---------------------------------------------------------------------- ----- --------------------- ----------------
Total operating costs (910.2) (800.6)
----------------------------------------------------------------------
Profit before interest and tax 255.1 261.7
---------------------------------------------------------------------- ----- --------------------- ----------------
Finance income 50.1 40.4
Finance costs (229.3) (227.3)
Net finance costs (179.2) (186.9)
Net (losses)/gains on financial instruments 5 (4.1) 29.7
Share of net (loss)/gain of joint ventures accounted for using the
equity method 11 (1.1) 0.2
Profit on ordinary activities before taxation 70.7 104.7
Current tax 6 -- --
Deferred tax 6 (19.1) (25.9)
Taxation on profit on ordinary activities 6 (19.1) (25.9)
----- --------------------- ----------------
Profit for the period 51.6 78.8
---------------------------------------------------------------------- ----- --------------------- ----------------
Earnings per share (pence)
Note 2023 2022
Basic 8 20.5 31.4
Diluted 8 20.4 31.3
--------- ----- ------------------- --------------
Condensed consolidated statement of comprehensive income
Six months ended 30 September 2023 2023 2022
Note GBPm GBPm
Profit for the period 51.6 78.8
------------------------------------------------------------------- ----- ------- -------
Other comprehensive (loss)/income
Items that will not be reclassified to the income statement:
Net actuarial losses 12 (42.1) (51.4)
Deferred tax on net actuarial losses 10.5 12.8
(31.6) (38.6)
------------------------------------------------------------------- ----- ------- -------
Items that may be reclassified to the income statement:
Gains on cash flow hedges 14.4 59.0
Deferred tax on gains on cash flow hedges (3.6) (14.7)
Amounts on cash flow hedges transferred to the income statement 5 10.7 2.9
Deferred tax on transfer to the income statement (2.6) (0.8)
18.9 46.4
------------------------------------------------------------------- ----- ------- -------
Other comprehensive (loss)/income for the period (12.7) 7.8
------------------------------------------------------------------- ----- ------- -------
Total comprehensive income for the period 38.9 86.6
------------------------------------------------------------------- ----- ------- -------
Condensed consolidated statement of changes in equity
Six months ended 30 September 2023
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 2022 248.1 394.4 148.4 473.0 1,263.9
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Profit for the period -- -- -- 78.8 78.8
Net actuarial losses 12 -- -- -- (51.4) (51.4)
Deferred tax on net actuarial
losses -- -- -- 12.8 12.8
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)
Total comprehensive income for
the year -- -- 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
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
At 1 April 2023 249.1 408.7 150.3 162.5 970.6
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Profit for the period -- -- -- 51.6 51.6
Net actuarial losses 12 -- -- -- (42.1) (42.1)
Deferred tax on net actuarial
losses -- -- -- 10.5 10.5
Gains on cash flow hedges -- -- 14.4 -- 14.4
Deferred tax on gains on cash
flow hedges -- -- (3.6) -- (3.6)
Amounts on cash flow hedges
transferred to the income
statement 5 -- -- 10.7 -- 10.7
Deferred tax on transfer to the
income statement -- -- (2.6) -- (2.6)
Total comprehensive income for
the year -- -- 18.9 20.0 38.9
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Share options and LTIPs
- proceeds from shares issued 0.7 12.4 -- -- 13.1
- value of employees' services -- -- -- 5.0 5.0
- own shares purchased -- -- -- (1.6) (1.6)
Deferred tax on share based
payments -- -- -- (3.1) (3.1)
Reserves transfer -- -- 8.3 (8.3) --
Dividends paid 7 -- -- -- (161.6) (161.6)
At 30 September 2023 249.8 421.1 177.5 12.9 861.3
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Condensed consolidated balance sheet
At 30 September 2023
30 September 31 March
2023 2023
Note GBPm GBPm
Non-current assets
Goodwill 109.7 92.7
Other intangible assets 197.5 185.9
Property, plant and equipment 11,104.1 10,716.9
Right-of-use assets 131.2 129.3
Derivative financial instruments 10 98.4 82.3
Investment in joint venture 11 15.4 16.5
Trade and other receivables 82.3 88.4
Retirement benefit surplus 12 5.5 5.7
-----
11,744.1 11,317.7
--------------------------------------- ----- --------------------- ---------------------
Current assets
Inventory 38.7 35.4
Trade and other receivables 850.4 750.9
Current tax receivable 9.9 9.9
Derivative financial instruments 10 -- 0.5
Cash and cash equivalents 216.7 34.2
1,115.7 830.9
--------------------------------------- ----- --------------------- ---------------------
Current liabilities
Borrowings 9 (362.3) (317.4)
Derivative financial instruments 10 (1.0) --
Trade and other payables (867.7) (720.4)
Provisions for liabilities (42.3) (52.4)
(1,273.3) (1,090.2)
--------------------------------------- ----- --------------------- ---------------------
Net current liabilities (157.6) (259.3)
--------------------------------------- ----- --------------------- ---------------------
Total assets less current liabilities 11,586.5 11,058.4
Non-current liabilities
Borrowings 9 (7,468.2) (6,986.2)
Derivative financial instruments 10 (11.5) (11.3)
Trade and other payables (1,557.0) (1,479.6)
Deferred tax (1,313.5) (1,293.5)
Retirement benefit obligations 12 (335.4) (285.1)
Provisions for liabilities (39.6) (32.1)
(10,725.2) (10,087.8)
--------------------------------------- ----- --------------------- ---------------------
Net assets 861.3 970.6
--------------------------------------- ----- --------------------- ---------------------
Equity
Share capital 14 249.8 249.1
Share premium 421.1 408.7
Other reserves 177.5 150.3
Retained earnings 12.9 162.5
Total equity 861.3 970.6
--------------------------------------- ----- --------------------- ---------------------
Condensed consolidated cash flow statement
Six months ended 30 September 2023
2023 2022
Note GBPm GBPm
-------------------------------------------------------------- ----- -------- --------
Cash generated from operations 15 506.9 508.3
Tax received 15 -- 6.1
Tax paid 15 -- (9.5)
Net cash generated from operating activities 506.9 504.9
-------------------------------------------------------------- ----- -------- --------
Cash flows from investing activities
Purchase of subsidiaries net of cash acquired (38.5) --
Purchases of property, plant and equipment (488.2) (291.6)
Purchases of intangible assets (23.6) (4.6)
Proceeds on disposal of property, plant and equipment 10.2 1.7
Net loans repaid by joint ventures 1.5 8.0
Interest received 4.3 1.4
Net cash outflow from investing activities (534.3) (285.1)
-------------------------------------------------------------- ----- -------- --------
Cash flow from financing activities
Interest paid (83.8) (76.5)
Interest element of lease payments (1.7) (1.4)
Dividends paid to shareholders of the parent (161.6) (153.9)
Repayments of borrowings (302.9) (101.1)
Principal elements of lease payments (0.7) (2.8)
New loans raised 754.6 359.8
Issues of shares net of costs 13.1 14.4
Purchase of own shares (1.6) --
Net cash inflow from financing activities 215.4 38.5
-------------------------------------------------------------- ----- -------- --------
Net movement in cash and cash equivalents 188.0 258.3
Net cash and cash equivalents at the beginning of the period 28.7 107.7
Net cash and cash equivalents at the end of period 216.7 366.0
-------------------------------------------------------------- ----- -------- --------
Cash at bank and in hand 20.6 78.0
Bank overdrafts -- (12.0)
Short term deposits 196.1 300.0
216.7 366.0
-------------------------------------------------------------- ----- -------- --------
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 2023 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 2023.
b) Going concern
Including undrawn committed credit facilities of GBP1,200
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 2023. 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 2023.
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, retirement benefit obligations or to expected credit
losses on trade receivables since 31 March 2023.
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 including Severn Trent Water's
hydro-electric generation, 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 profit before interest and
tax is presented below.
Six months ended 30 September
2023 2022
------------------------------------------- --------------------------------------------
Regulated Water and Regulated Water and
Waste Water Business Services Waste Water Business Services
GBPm GBPm GBPm GBPm
------------------------- ----------------------- ------------------ ------------------------ ------------------
External turnover 1,080.3 85.2 984.9 77.1
Inter-segment turnover -- 2.9 -- 4.3
Total turnover 1,080.3 88.1 984.9 81.4
------------------------- ----------------------- ------------------ ------------------------ ------------------
Profit before interest
and tax 242.6 16.6 242.9 22.7
------------------------- ----------------------- ------------------ ------------------------ ------------------
The reportable segments' turnover is reconciled to Group
turnover as follows:
Six months ended 30 September
2023 2022
GBPm GBPm
--------------------------------- -------- --------
Regulated Water and Waste Water 1,080.3 984.9
Business Services 88.1 81.4
Corporate and other 0.5 0.5
Consolidation adjustments (3.6) (5.0)
1,165.3 1,061.8
--------------------------------- -------- --------
3. Segmental analysis (continued)
Segmental PBIT is reconciled to the Group's profit before tax as
follows:
Six months ended 30 September
2023 2022
GBPm GBPm
---------------------------------------------------------------------------------- -------- --------
Regulated Water and Waste Water 242.6 242.9
Business Services 16.6 22.7
Corporate and other (4.0) (3.9)
Consolidation adjustments (0.1) --
Profit before interest and tax 255.1 261.7
Net finance costs (179.2) (186.9)
Net (losses)/gains on financial instruments (4.1) 29.7
Share of net (loss)/gain of joint ventures accounted for using the equity method (1.1) 0.2
Profit on ordinary activities before taxation 70.7 104.7
---------------------------------------------------------------------------------- -------- --------
The following table shows segmental capital employed:
30 September 2023 31 March 2023
------------------------------------------- --------------------------------------------
Regulated Water and Regulated Water and
Waste Water Business Services Waste Water Business Services
GBPm GBPm GBPm GBPm
------------------------- ----------------------- ------------------ ------------------------ ------------------
Operating assets 11,972.2 352.7 11,498.4 349.5
Goodwill 63.5 47.5 63.5 30.5
Segment assets 12,035.7 400.2 11,561.9 380.0
Segment operating
liabilities (2,769.4) (37.0) (2,507.4) (33.3)
Segmental capital
employed 9,266.3 363.2 9,054.5 346.7
------------------------- ----------------------- ------------------ ------------------------ ------------------
Operating assets comprise other intangible assets, property,
plant and equipment, right-of-use assets, retirement benefit
surpluses, inventory and trade and other receivables.
Operating liabilities comprise trade and other payables,
retirement benefit obligations and provisions.
4. Revenue from contracts with customers
Revenue recognised from contracts with customers is analysed by
business segment below:
Six months ended 30 September 2023
Regulated Water and Corporate Consolidation
Waste Water Business Services and other adjustments Group
GBPm GBPm GBPm GBPm GBPm
------------------------ ----------------------- ------------------ ----------- ------------------------ --------
Water and waste water
services 1,053.4 -- -- (0.2) 1,053.2
Operating services -- 44.1 -- -- 44.1
Renewable energy 24.1 36.7 -- (2.9) 57.9
Other sales 2.8 7.3 0.5 (0.5) 10.1
1,080.3 88.1 0.5 (3.6) 1,165.3
------------------------ ----------------------- ------------------ ----------- ------------------------ --------
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
------------------------ ----------------------- ------------------ ----------- ------------------------ --------
5. Net (losses)/gains on financial instruments
Six months ended 30 September
2023 2022
GBPm GBPm
------- -------
(Loss)/gain on swaps used as hedging instruments in fair value hedges (8.5) 5.8
Gain/(loss) arising on debt in fair value hedges 10.5 (4.3)
Exchange loss on other loans (1.4) (20.2)
Net loss on cash flow hedges transferred from equity (10.7) (2.9)
Hedge ineffectiveness on cash flow hedges -- (2.9)
Gain arising on swaps where hedge accounting is not applied 5.4 53.6
Amortisation of fair value adjustment on debt 0.6 0.6
(4.1) 29.7
----------------------------------------------------------------------- ------- -------
6. Tax
Six months ended 30 September
2023 2022
GBPm GBPm
----- -----
Current tax
Current year at 25% (2022: 19%) -- --
Total current tax -- --
---------------------------------------------------- ----- -----
Deferred tax
Origination and reversal of temporary differences:
Current year 19.1 25.9
Total deferred tax 19.1 25.9
---------------------------------------------------- ----- -----
19.1 25.9
---------------------------------------------------- ----- -----
The tax charge in the income statement is calculated at a rate
of 27.0% (2022: 24.7%) 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% (2022: nil%).
See note 19.
Current tax of nil (2022: nil) and a net deferred tax credit of
GBP1.2 million (2022: charge of GBP9.2 million) has 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.
On 20 June 2023, Finance (No.2) Act 2023 was substantively
enacted in the UK, introducing a global minimum effective tax rate
of 15%. The legislation implements a domestic top-up tax and a
multinational top-up tax, effective for accounting periods starting
on or after 31 December 2023. The Group has applied the exception
under IAS 12 to recognising and disclosing information about
deferred tax assets and liabilities related to top-up income
taxes.
7. Dividends
Amounts recognised as distributions to owners of the Company in
the period:
Six months ended 30 September
2023 2022
---------------- ------ ---------------- ------
Pence per share GBPm Pence per share GBPm
-------------------------------------------------------- ---------------- ------ ---------------- ------
Final dividend for the year ended 31 March 2023 (2022) 64.09 161.6 61.28 153.9
-------------------------------------------------------- ---------------- ------ ---------------- ------
The proposed interim dividend of 46.74p per share (2022: 42.73p
per share) was approved by the Board on 21 November 2023 and has
not been included as a liability at 30 September 2023.
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
2023 2022
GBPm GBPm
Profit for the period 51.6 78.8
------------------------ ----- -----
ii) Number of shares
Six months ended 30 September
2023 2022
m m
------------------------------------------------------------------------------------------ ------ ------
Weighted average number of ordinary shares for the purpose of basic earnings per share 251.8 250.6
Effect of dilutive potential ordinary shares:
- share options and LTIPs 0.7 1.1
Weighted average number of ordinary shares for the purpose of diluted earnings per share 252.5 251.7
------------------------------------------------------------------------------------------- ------ ------
b) Adjusted earnings per share
Six months ended 30 September
2023 2022
pence pence
Adjusted basic earnings per share 29.7 29.9
Adjusted diluted earnings per share 29.6 29.8
-------------------------------------- ------ ------
Adjusted earnings per share figures are presented for continuing
operations. These exclude the effects of net gains/losses on
financial instruments and deferred tax in both 2023 and 2022. 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.
The adjustments to earnings are as follows:
Six months ended 30 September
2023 2022
GBPm GBPm
-----
Earnings for the purpose of basic and diluted earnings per share 51.6 78.8
Adjustments for:
- net losses/(gains) on financial instruments 4.1 (29.7)
- deferred tax 19.1 25.9
----------------------------------------------------------------------------
Earnings for the purpose of adjusted basic and diluted earnings per share 74.8 75.0
---------------------------------------------------------------------------- ----- -------
9. Borrowings
30 September 31 March
2023 2023
GBPm GBPm
------------------- ------------- ---------
Bank overdraft -- 5.5
Bank loans 649.0 713.0
Other loans 7,067.1 6,474.2
Lease liabilities 114.4 110.9
Borrowings 7,830.5 7,303.6
------------------- ------------- ---------
The borrowings are repayable as follows:
30 September 31 March
2023 2023
GBPm GBPm
---------------------------------------------------------------- ------------- ---------
On demand or within one year - included in current liabilities 362.3 317.4
Over one year - included in non-current liabilities 7,468.2 6,986.2
7,830.5 7,303.6
---------------------------------------------------------------- ------------- ---------
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
2023 2023
GBPm GBPm Valuation techniques and key inputs
-------------- ---------- -------- ---------------------------------------------------------------------------------------------
Cross Discounted cash flow.
currency
swaps
Assets 27.1 34.5 Future cash flows are estimated based on forward interest rates from observable yield curves
at the period end and contract interest rates discounted at a rate that reflects the credit
risk of counterparties. The currency cash flows are translated at spot rate.
---------------------------------------------------------------------------------------------
Liabilities (7.8) (0.9)
-------------- ---------- -------- ---------------------------------------------------------------------------------------------
Interest rate Discounted cash flow.
swaps
Assets 57.5 40.5 Future cash flows are estimated based on forward interest rates from observable yield curves
at the period end and contract interest rates discounted at a rate that reflects the credit
risk of counterparties.
Liabilities (3.6) (10.4)
-------------- ---------- -------- ---------------------------------------------------------------------------------------------
Energy swaps Discounted cash flow.
Assets - 0.5 Future cash flows are estimated based on forward electricity prices from observable indices
Liabilities (1.1) - at the period end and contract prices discounted at a rate that reflects the credit risk of
counterparties.
Inflation Discounted cash flow.
swaps
Asset 13.8 7.3 Future cash flows on the RPI leg of the instrument are estimated based on observable forward
inflation indices.
Future cash flows on the CPI leg of the instrument are estimated based on the future
expected
differential between RPI and CPI ('the wedge').
Both legs are discounted using observable swap rates at the period end, at a rate that
reflects
the credit risk of counterparties. This is considered to be a Level 3 valuation technique.
-------------- ---------- -------- ---------------------------------------------------------------------------------------------
Changes in the carrying values of instruments that are measured
using a Level 3 technique were as follows:
Inflation swaps
GBPm
------------------------------------------ ----------------
At 1 April 2022 (3.7)
Gains recognised in the income statement 11.0
At 31 March 2023 7.3
Gains recognised in the income statement 6.5
------------------------------------------ ----------------
At 30 September 2023 13.8
------------------------------------------ ----------------
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 GBP3.8 million.
10. Fair value of financial instruments (continued)
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 2023 31 March 2023
--------------- ------------------- --------------- --------------
Carrying value Fair value Carrying value Fair value
GBPm GBPm GBPm GBPm
-------------------- --------------- ------------------- --------------- --------------
Floating rate debt
Bank loans 499.5 499.5 569.0 551.0
Other loans 201.5 211.5 146.8 157.9
Overdraft - - 5.5 5.5
701.0 711.0 721.3 714.4
-------------------- --------------- ------------------- --------------- --------------
Fixed rate debt
Other loans 4,907.0 4,439.9 4,441.3 4,177.0
Lease liabilities 114.4 114.4 110.9 110.9
--------------------
5,021.4 4,554.3 4,552.2 4,287.9
-------------------- --------------- ------------------- --------------- --------------
Index-linked debt
Bank loans 149.5 136.3 144.0 137.1
Other loans 1,958.6 1,657.7 1,886.1 1,798.0
--------------------
2,108.1 1,794.0 2,030.1 1,935.1
-------------------- --------------- ------------------- --------------- --------------
7,830.5 7,059.3 7,303.6 6,937.4
-------------------- --------------- ------------------- --------------- --------------
The above classification does not take into account the impact
of interest rate swaps or cross currency swaps.
Fixed rate loans are valued using market prices for similar
instruments, which is a Level 2 valuation technique.
Index-linked loans are rarely traded and therefore quoted prices
are not considered to be a reliable indicator of fair value.
Therefore, these loans are valued using discounted cash flow models
with discount rates derived from observed market prices for a
sample of bonds, which is a Level 2 valuation technique.
Fair values of the other debt instruments are also calculated
using discounted cash flow models with discount rates derived from
observed market prices, which is a Level 2 valuation technique.
11. Interests in joint ventures
Our joint venture undertaking, Water Plus, is the largest
business retailer in the non-household retail water market in
England.
During the current period, the Group has recognised its share of
Water Plus's losses of GBP1.1 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 2023 16.5
Share of loss for the period (1.1)
At 30 September 2023 15.4
------------------------------ ----------------------------
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 2022 for the
Severn Trent schemes and 31 March 2020 for DVWS.
In June 2021, the Severn Trent Mirror Image Pension Scheme
('STMIPS') Trustees completed the purchase of a bulk annuity
contract with JUST, an insurance company, to secure the benefits of
all members of the STMIPS. The Trustees continue to pay benefits to
members as before the transaction, but these cashflows are now
matched exactly by income from JUST. In March 2023, the DVWS also
entered into a bulk annuity buy-in investment policy with JUST that
covers the majority of the scheme obligations.
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
2023 2023
% %
-------------------------------- ------------- ---------
Price inflation - RPI 3.3 3.3
Price inflation - CPI
Pre 2030 2.3 2.3
Post 2030 3.2 3.2
Discount rate 5.6 4.8
Pension increases in payment 3.3 3.3
Pension increases in deferment 3.3 3.3
--------------------------------- ------------- ---------
The defined benefit scheme assets have been updated to reflect
their market value at 30 September 2023. 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.
The scheme assets at the balance sheet date were:
30 September 31 March
2023 2023
STPS, STMIPS, and DVWS GBPm GBPm
-------------------------------------------- ------------- ---------
Fair value of scheme assets
Equities 14.4 188.4
Annuity policies 114.4 122.2
Corporate bonds 256.9 237.0
Liability-driven investment funds ('LDI's) 776.0 259.2
Property 227.1 239.6
Buy and maintain credit 148.6 -
Cash 38.5 741.2
Other 0.5 (2.3)
-------------------------------------------- ------------- ---------
1,576.4 1,785.3
-------------------------------------------- ------------- ---------
There are equities, LDI investments and other assets which are
unquoted amounting to GBP1,039.0 million (31 March 2023: GBP419.0
million). The remaining assets have quoted prices in active
markets.
12. Retirement benefit schemes (continued)
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 2023 1,785.3 (2,064.7) (279.4)
Scheme administration costs (2.0) - (2.0)
Interest income/(cost) 41.4 (48.0) (6.6)
Actuarial (losses)/gains (192.8) 150.7 (42.1)
Employer contributions 0.2 - 0.2
Employees' contributions and benefits paid (55.7) 55.7 -
-------------------------------------------- ---------------- ------------- ------------
At 30 September 2023 1,576.4 (1,906.3) (329.9)
-------------------------------------------- ---------------- ------------- ------------
The net deficit is presented on the balance sheet as
follows:
30 September 31 March
2023 2023
GBPm GBPm
-------------------------------- ------------- ---------
Retirement benefit surplus 5.5 5.7
Retirement benefit obligations (335.4) (285.1)
-------------------------------- ------------- ---------
(329.9) (279.4)
-------------------------------- ------------- ---------
13. Acquisitions
On 1 September 2023, Severn Trent Green Power Limited acquired
100% of the issued shares in Andigestion Limited for a
consideration of GBP40.5 million. The acquisition is expected to
increase the Group's market share and reduce cost through economies
of scale.
Details of the purchase consideration, the net assets acquired
and goodwill are as follows:
GBPm
------------------------ -----
Purchase consideration
Cash paid 40.5
------------------------ -----
The assets and liabilities recognised as a result of the
acquisition are as follows:
GBPm
---------------------------------- ------
Cash and cash equivalents 2.0
Property, plant and equipment 16.0
Trade and other receivables 3.7
Trade and other payables (1.1)
Deferred tax (2.1)
Other intangible assets 5.0
---------------------------------- ------
Net identifiable assets acquired 23.5
Add: goodwill 17.0
---------------------------------- ------
40.5
---------------------------------- ------
Goodwill of GBP17.0 million has been capitalised attributable to
the anticipated future opportunities and outperformance arising as
a result of the acquisition. It has been allocated to the Business
Services segment. None of the goodwill is expected to be deductible
for tax purposes.
The fair value of the acquired intangible assets of GBP5.0
million and fair value uplift on property, plant and equipment of
GBP3.2 million are provisional, pending receipt of the final
valuations for those assets. Deferred tax of GBP2.1 million has
been provided in relation to these fair value adjustments.
Acquisition-related costs of GBP3.7 million are recognised as an
expense in the income statement.
14. Share capital
At 30 September 2023 the issued and fully paid share capital was
255.2 million shares of 97(17) /(19) p amounting to GBP249.8
million (31 March 2023: 254.4 million shares of 97(17) /(19) p
amounting to GBP249.1 million).
During the period the Company issued 0.8 million (2022/23: 1.0
million) shares as a result of the exercise of employee share
options. At 30 September 2023 the Company held 2.6 million (31
March 2023: 2.9 million) treasury shares.
15. Cash flow
a) Reconciliation of operating profit to operating cash
flows
Six months ended 30 September
2023 2022
GBPm GBPm
Profit before interest and tax 255.1 261.7
Depreciation of property, plant and equipment 197.5 189.5
Depreciation of right-of-use assets 1.4 1.3
Amortisation of intangible assets 17.0 17.2
Pension service cost -- (6.5)
Defined benefit pension scheme administration costs 2.0 2.8
Defined benefit pension scheme contributions (0.2) (34.7)
Share based payment charge 5.0 4.6
Profit on sale of property, plant and equipment and intangible assets (1.3) (1.4)
Deferred income movement (8.4) (8.0)
Contributions received 24.6 14.2
Provisions charged to the income statement 16.5 7.1
Utilisation of provisions for liabilities (17.0) (4.2)
Operating cash flows before movements in working capital 492.2 443.6
Increase in inventory (3.3) (1.7)
Increase in amounts receivable (86.7) (37.1)
Increase in amounts payable 104.7 103.5
Cash generated from operations 506.9 508.3
Tax received -- 6.1
Tax paid -- (9.5)
Net cash generated from operating activities 506.9 504.9
------------------------------------------------------------------------ ------- -------
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
2023 28.7 (713.0) (6,474.2) (110.9) 33.6 75.3 (7,160.5)
---------------
Cash flow 188.0 70.8 (522.5) 0.7 -- (1.5) (264.5)
Fair value
adjustments -- -- 11.2 -- -- -- 11.2
Inflation
uplift on
index-linked
debt -- (5.1) (79.2) -- -- -- (84.3)
Foreign
exchange -- -- (1.4) -- -- -- (1.4)
Other non-cash
movements -- (1.7) (1.0) (4.2) (14.3) 0.3 (20.9)
At 30
September
2023 216.7 (649.0) (7,067.1) (114.4) 19.3 74.1 (7,520.4)
--------------- -------------- ----------- ------------ -------------- -------------- -------------- ----------
16. Post balance sheet events
Cassington Lightning Strike
On 2 October 2023, lightning struck a biogas tank at the Group's
Green Power site at Cassington Oxfordshire, resulting in a fire. No
individuals were harmed, and the Group is fully insured for damage
and lost income, with a policy excess of GBP0.1 million.
Equity Placement
On 3 October 2023, the Group raised gross proceeds of GBP1,000
million through an issue of an additional 46,511,628 shares at a
price of GBP21.50 per share.
17. Contingent liabilities
Details of the Group's contingent liabilities were disclosed in
the financial statements for the year ended 31 March 2023 which
were approved on 24 May 2023. There have been no significant
developments relating to the contingent liabilities disclosed in
those financial statements other than what is set out below.
Leigh Day Claim
Letters Before Action were received by Severn Trent Water
Limited (STW) and Severn Trent on 9 August 2023 in respect of
potential collective proceedings to be brought against STW (and
Severn Trent Plc as the ultimate parent company of STW) before the
Competition Appeal Tribunal. We are informed that the Proposed
Class Representative is intending to bring a claim for at least
GBP160 million on behalf of a class comprising certain consumers of
STW (on an opt-out basis) who have allegedly been overcharged for
water and sewerage services as a result of an alleged abuse of a
dominant position. Proceedings have not yet been served. We do not
consider there to be any substance to the threatened claim and no
basis has been provided for the amount of the claim. Accordingly,
we intend to resist robustly the claim if and when it is
served.
18. 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
2023 2022
GBPm GBPm
--------------------- ------ ------
Sale of services 138.9 126.9
Net interest income 2.8 1.7
---------------------- ------ ------
Outstanding balances between the Group and the joint venture
were as follows:
30 September 31 March
2023 2023
GBPm GBPm
------------------------------------------------------ ----------------- ---------
Trade and other receivables due from related parties 0.4 0.2
Loans receivable from joint venture 74.1 75.3
------------------------------------------------------- ----------------- ---------
74.5 75.5
------------------------------------------------------ ----------------- ---------
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.
19. 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 net
gains/losses on financial instruments, current tax on net
gains/losses on financial instruments and deferred tax. The
Directors consider that the adjusted figures provide a useful
additional indicator of performance and remove non-performance
related distortions. S ee 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 15.
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.
2023 2022
GBPm GBPm
-------- --------
Net finance costs 179.2 186.9
Net finance costs from pensions (6.6) (1.6)
Capitalised finance costs 31.1 23.5
203.7 208.8
--------------------------------- -------- --------
Annualised* 407.4 417.6
--------------------------------- -------- --------
Average net debt 7,235.5 6,556.0
Effective interest cost 5.6% 6.4%
--------------------------------- -------- --------
* 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.
19. Alternative performance measures (continued)
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).
GBPm GBPm
--------------------------------- -------- --------
Net finance costs 179.2 186.9
Net finance costs from pensions (6.6) (1.6)
Indexation adjustments (82.3) (107.4)
Capitalised finance costs 31.1 23.5
---------------------------------
121.4 101.4
--------------------------------- -------- --------
Annualised* 242.8 202.8
--------------------------------- -------- --------
Average net debt 7,235.5 6,556.0
--------------------------------- -------- --------
Effective cash cost of interest 3.4% 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.
e) PBIT interest cover
The ratio of PBIT to net finance costs excluding finance costs
from pensions.
2023 2022
GBPm GBPm
------ ------
PBIT 255.1 261.7
------------------------------------------------------------- ------ ------
Net finance costs 179.2 186.9
Net finance costs from pensions (6.6) (1.6)
Net finance costs excluding net finance costs from pensions 172.6 185.3
------------------------------------------------------------- ------ ------
Ratio Ratio
PBIT interest cover ratio 1.5 1.4
------------------------------------------------------------- ------ ------
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.
19. Alternative performance measures (continued)
f) EBITDA and EBITDA interest cover
The ratio of profit before interest, tax, depreciation and
amortisation to net finance costs excluding net finance costs from
pensions.
2023 2022
GBPm GBPm
------ ------
PBIT 255.1 261.7
--------------------------------------------------------- ------ ------
Depreciation (including right-of-use assets) 198.9 190.8
Amortisation 17.0 17.2
EBITDA 471.0 469.7
--------------------------------------------------------- ------ ------
Net finance costs 179.2 186.9
Net finance costs from pensions (6.6) (1.6)
--------------------------------------------------------- ------ ------
Net finance costs excluding finance costs from pensions 172.6 185.3
--------------------------------------------------------- ------ ------
Ratio Ratio
EBITDA interest cover ratio 2.7 2.5
--------------------------------------------------------- ------ ------
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.
g) Adjusted effective current tax rate
The current tax charge for the year, excluding prior year
charges and current tax on financial instruments, divided by profit
before tax, net gains/losses on financial instruments and share of
net profit/loss of our joint venture accounted for using the equity
method.
2023 2022
Current tax thereon Current tax thereon
GBPm GBPm GBPm GBPm
----------------------------------------------- ----- -------------------- ------- --------------------
Profit on ordinary activities before taxation 70.7 - 104.7 -
----------------------------------------------- ----- -------------------- ------- --------------------
Adjustments
Share of net loss/(gain) of joint venture 1.1 - (0.2) -
Net losses/(gains) on financial instruments 4.1 - (29.7) -
75.9 - 74.8 -
----------------------------------------------- ----- -------------------- ------- --------------------
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.
19. Alternative performance measures (continued)
h) Operational cashflow
Cash generated from operations less contributions and grants
received.
2023 2022
GBPm GBPm
----------------------------------- ------- -------
Cash generated from operations 506.9 508.3
Contributions and grants received (24.6) (14.2)
----------------------------------- ------- -------
Operational cashflow 482.3 494.1
----------------------------------- ------- -------
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.
2023 2022
GBPm GBPm
------------------------------------------------------- ------- -------
Purchase of property, plant and equipment 488.2 291.6
Purchase of intangible assets 23.6 4.6
Contributions and grants received (24.6) (14.2)
Proceeds on disposal of property, plant and equipment (10.2) (1.7)
Cash capex 477.0 280.3
------------------------------------------------------- ------- -------
This APM is used to show the cash impact of the Group's capital
programmes.
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.
2023 2022
GBPm GBPm
-------------------------------------------- ------- -------
Additions to property, plant and equipment 577.6 360.4
Additions to intangible assets 23.6 4.6
Contributions and grants received (24.6) (14.2)
Assets contributed at no cost (68.6) (57.6)
Capitalised finance costs (31.1) (23.5)
-------------------------------------------- ------- -------
Capital Investment 476.9 269.7
-------------------------------------------- ------- -------
k) Shadow Regulatory Gearing
The ratio of regulatory net debt and shadow regulatory capital
value (RCV).
September March
2023 2023
GBPm GBPm
--------------------------- ---------- --------
Regulatory net debt 7,242.9 6,915.6
--------------------------- ---------- --------
Shadow RCV 11,955 11,532
--------------------------- ---------- --------
Shadow regulatory gearing 60.6% 60.0%
--------------------------- ---------- --------
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 2023.
Christine Hodgson Helen Miles
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 2023 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
19.
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 2023 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.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
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 group 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
ISRE (UK) 2410. 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 2023
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.
CSO (Combined Sewer Overflows)
CSOs 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.
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.
PR24
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. PR24 (Price Review 2024) sets wholesale price
controls for water and sewerage companies for 2025 to 2030.
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
Regulatory gearing is calculated as net debt divided by the
RCV.
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').
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).
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. The final PR24 Business Plan is subject to
approval by Ofwat and there can be no assurance that the PR24
Business Plan will be approved, in whole or in part, and, as a
result, 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 profit
forecast.
Certain information contained herein is based on management
estimates and Severn Trent's own internal research. Management
estimates have been made in good faith and represent the current
beliefs of applicable members of Severn Trent's management. While
those management members believe that such estimates and research
are reasonable and reliable, they, and their underlying methodology
and assumptions, have not been verified by any independent source
for accuracy or completeness and are subject to change without
notice, and, by their nature, estimates may not be correct or
complete. Accordingly, no representation or warranty (express or
implied) is given to any recipient of this document that such
estimates are correct or complete.
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
London Stock Exchange. RNS is approved by the Financial Conduct
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of this information may apply. For further information, please
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END
IR DGBDBXUDDGXB
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