Preliminary
Announcement of Annual Results
22 May 2024
Results for the year to 31 March
2024
Sustaining sector-leading
operational and environmental performance
Long-term investment continues to deliver industry-leading
performance
·
|
Invested £1.2bn in FY24, a 63%
increase year-on-year, bringing the total invested this
AMP1 to over £3bn and putting us on the right run rate
for AMP8 capital delivery.
|
·
|
Highly confident we have achieved
4* EPA2 in 2023, an unprecedented fifth consecutive year
of achieving the highest environmental rating.
|
·
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Accelerating investment in 900
storm overflows this year alone, as we work to reduce average spill
rate to below 20 by 2025, and halve our rate by 2030.
|
·
|
Our share of RNAGS3 now
14%, and Get River Positive programme driving long-term improvement
in river quality; confident that we will be below 10% within the
year.
|
·
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Net ODI4 reward of £55m
this year (17/18 prices), and in total across AMP7 we expect to
earn sector-leading net ODI rewards of around £420m in nominal
prices.5
|
·
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Sustained investment and
continuous improvement culture driven best ever performance on
supply interruptions, blockages and low pressure.
|
·
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Achieved lowest ever leakage this
year, meaning we have now reduced leakage on our network by 10.8%
in AMP7, and remain on track for a 15% reduction by the end of the
AMP.
|
Strong operational and financial performance delivering
cumulative AMP7 RoRE6 of 8.1%
·
|
Strong adjusted EPS7
growth of 36% to 79.4p (basic EPS: 51.0p) after accounting for
additional 46.5m shares issued in October 2023, including
PBIT8 of £512m and net finance costs of £282m (down
22%).
|
·
|
Shadow regulated gearing9
of 59.7%, supporting future investment; reduces to 58.7% after
including the estimated impact of midnight adjustments earned to
date.
|
·
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Added £1bn to our nominal
RCV10 this year, with AMP7 nominal RCV expected to grow
by around 40% across five years.
|
·
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Record energy generation of 655GWh,
the equivalent of 60% of our energy consumption, following
acquisition of Andigestion.
|
·
|
Proposed final ordinary dividend per
share of 70.1p, in line with our policy and payable on 17 July
2024.
|
Important strategic decisions taken, setting us up for
long-term growth and success
·
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Ambitious PR2411 plan
which comprehensively addresses Ofwat's three key tests of
financeability, deliverability, and affordability.
|
·
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Successful £1bn equity raise,
enabling us to accelerate £450m of AMP8 investment into
AMP7.
|
·
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Progressed our AMP8 strategic
investments, with our ODI Centre of Excellence and Zero Spills Hub
enabling an early start on AMP8 ODIs, 'Plug and Play' capabilities
expanding to deliver AMP8 capital programme faster, first 20,000
customers migrated onto new customer platform, Kraken, and
insourced around 400 colleagues into our customer Waste Network
Team.
|
Liv Garfield, Chief Executive, Severn Trent Plc,
said:
"I'm proud of the performance our brilliant teams have
delivered this year, whether for our customers, the environment or
the wider region. We have achieved our best ever leakage
performance and we're very confident of keeping the highest 4*
status from the Environment Agency for an unprecedented fifth
consecutive year. We're also driving innovation across our sector,
with new technology at our Strongford treatment works eliminating
all of the site's carbon emissions.
"The extra £1bn we raised from our investors will help
us continue to transform the network, reducing spills, improving
river health and providing our customers with the best and most
reliable service. Following extensive work to test and trial
solutions, just last week we unveiled plans to deliver storm
overflow solutions across 900 locations in the Midlands this year,
and a dedicated 300-strong team are now installing c. 1,000 capital
schemes which, once finished, will see a reduction of 20% of spills
per year.
"We are planning record levels of investment in the coming
years, while also keeping bills the second lowest in the country.
Our customers and the communities in which they live are at the
heart of our business and we're doing more than ever to ensure we
have a positive economic, environmental and social impact across
our region."
Group Results
|
2024
|
2023
|
Group turnover
|
£2,338.2m
|
£2,165.1m
|
Group PBIT
|
£511.8m
|
£508.8m
|
Profit for the year
|
£140.2m
|
£132.2m
|
Adjusted profit for the
year12
|
£218.2m
|
£146.0m
|
Adjusted basic EPS
|
79.4p
|
58.2p
|
Basic EPS
|
51.0p
|
52.7p
|
Net ODI reward
|
£55m
|
£53m
|
Capital Investment
|
£1,199.7m
|
£
737.1m
|
Shadow regulated
gearing
|
59.7%
|
59.8%
|
Footnotes to page 1 of this RNS
1. 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.
2. EPA:
Environmental Performance Assessment ('EPA') is a calendar year
measure which is expected to be confirmed by the Environment Agency
('EA') in July 2024.
3. RNAGS:
The EA'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.
4. ODI:
Outcome Delivery Incentives (see glossary), quoted pre-tax and in
2017/18 prices unless otherwise stated. FY24 ODIs include in-year reward earnings of £35 million and
£20 million for work and milestones already delivered in relation
to end of AMP ODIs.
5.
Calculated based on prices in the year in which the ODIs earned
have been, or are expected to be, recognised in revenue.
6. RoRE:
Return on Regulatory Equity (see glossary).
7. EPS:
Earnings Per Share; Adjusted basic EPS is set out in note
10.
8. PBIT:
Profit Before Interest and Tax.
9. Shadow
regulated gearing is based on shadow RCV which includes our Green
Recovery programme. Regulated gearing on our FD RCV is
61.3%.
10. RCV: Regulatory
Capital Value (see glossary), £1 billion added to nominal RCV
includes estimated midnight adjustments accrued to date.
11. PR24: Price Review
2024 (see glossary).
12. Adjusted profit
for the year is set out in note 10.
Note: FY2024/25 technical guidance is included in the Chief
Financial Officer's section of this announcement.
Enquiries
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Investors & Analysts
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Rachel Martin
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Severn Trent Plc
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+44 (0) 782 462 4011
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Head of Investor Relations
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Andy Farrell
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Severn Trent Plc
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+44 (0) 798 939 0825
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Investor Relations Manager
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Media
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Andrew Grant
|
Teneo
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+44 (0) 207 353 4200
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Press Office
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Severn Trent Plc
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+44 (0) 247 771 5640
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Preliminary Results Presentation and
Webcast
A presentation of these results
hosted by Liv Garfield, CEO, and Helen Miles, CFO, will be
available on our website (www.severntrent.com) from 7.00am BST
today, 22 May 2024.
We will be hosting a live Q&A
session with Liv, Helen and our wider Executive Team at 8:30am BST
today via video call which you can register for through our
website.
Chief Executive's Review
This year, our industry has been
in the spotlight like never before. Our customers have greater
expectations than ever and we hold ourselves to ever higher
standards of operational and environmental performance, while at
the same time the changing climate heightens the challenge on our
operations. Our region had 35% more rainfall in 2023 than in the
previous year, and experienced ten named storms between September
and March, with close to 30% of rivers in our region reaching their
highest recorded levels this financial year.
Despite these conditions, we have
continued to deliver against our customer measures, including our
best ever performance on leakage, blockages, and supply
interruptions. We have delivered our largest ever capital
programme, with a record £1.2 billion invested this year to
continue improving performance levels. And we are also highly
confident we have achieved the highest possible four-star EPA
rating from the Environment Agency ('EA') for the fifth consecutive
year for 2023.
Storm overflows remain a priority
for our customers and wider stakeholders, and this year has
highlighted that we need to go further, move quicker, and find more
creative and innovative solutions to meet these expectations. This
year alone we will invest £450 million across 900 overflows -
around a third of our total - to bring our average number of spills
below 20 by 2025. We are committed to moving as quickly as
possible, going further than is required, to resolve the
issue.
Our total capital investment so
far in AMP7 is over £3 billion, adding important resilience to our
network and translating into continued success on ODIs; we expect
to earn net ODI rewards of around £420 million (nominal prices)
over the course of AMP7. And our sustained investment, including
our substantial Green Recovery programme, means our RCV is set to
grow in nominal terms by around 40% this AMP, before accounting for
£450 million of AMP8 transition expenditure.
As we look ahead to AMP8, we're
transforming our business to sustain this high performance in a
period of greater investment and growth. The five strategic
investment decisions we're making for AMP8, which we unveiled at
our last Capital Markets Day, are all progressing at
pace:
·
|
our Zero Spills Hub is now
operational, trialling innovations and creating bespoke plans for
each storm overflow as we aim to halve our usage of overflows by
2030;
|
·
|
we've insourced around 400
additional roles this year, giving greater control over performance
in our Waste Networks Team;
|
·
|
our ODI Centre of Excellence, a
newly-assembled team of analytical specialists working alongside
our operational teams, are focused on maintaining our
sector-leading record of outperformance into AMP8;
|
·
|
our 'Plug and Play' asset delivery
catalogue is expanding, and is set to revolutionise our capital
programme - saving time as we deliver our largest ever programme of
investment in AMP8; and
|
·
|
we have already successfully
migrated over 20,000 customers to Kraken, a world class Customer
Information System, which will enable us to unlock data from our
smart meters to drive performance on per capita consumption and
leakage, while transforming the billing service we give to our
customers.
|
Continued strength in water
This year we have built on our
success in our water business, with year-on-year improvements on a
large number of key measures. Targeted investment across a range of
capital schemes has led to our best ever year on persistent low
pressure, and our in-year performance for per capita consumption
was also our best ever. Meanwhile, Severn Trent delivered record
performance on supply interruptions this year, supported by our
expanded in-house Network Response Team proactively addressing
issues on our network to reduce disruptions, while Hafren Dyfrdwy
also achieved their best supply interruptions performance this
AMP.
The long-term investments we have
made over recent years have enabled us to push further on
operational performance. We completed around 50% more leakage jobs
on our water network this year compared to the first year of AMP7,
driving leakage to its lowest ever levels. AMP to date we have
reduced leakage by 10.8% and we have hit our leakage reduction
target for six consecutive years. We're targeting a 15% reduction
in leakage over the course of AMP7, and a 16% reduction in AMP8 -
among the most ambitious targets in the sector.
To continue our trajectory of
performance gains, we're embracing a smart network. We're expanding
our smart metering programme, rolling out over 400,000 smart meters
by the end of AMP7, and more than a million by the end of AMP8.
This will allow for more rapid identification of leaks, while also
linking into our new customer platform, Kraken, enabling customers
to better manage their consumption.
Furthermore, we're looking to
utilise fully this smart network to reduce household demand for
water. In partnership with Nectar, we have been awarded a grant
from the Ofwat Innovation Fund to utilise our smart meters to
unlock Nectar points for our customers. While reward schemes
typically incentivise additional consumption, our trial will
instead incentivise reduction - customers will earn Nectar points
for water efficient behaviour, as well as benefitting from lower
water and energy bills.
While we were green on the vast
majority of our water ODIs, we missed our target on CRI this year.
To improve performance, we're investing in new, innovative water
treatment technologies at key sites, including our biggest ever
ultraviolet disinfection scheme at Strensham.
Investing in wastewater operations for long-term
success
We continue to demonstrate
operational leadership in wastewater. Each year since 2019 we have
been awarded the highest possible four-star EPA rating by the EA
for our environmental performance, and are very confident that we
have once again achieved four-star performance for 2023. We also
experienced no serious pollution incidents in the year, defined by
the EA as any pollution event which could have a significant impact
on the environment.
Adopting the approach from our
water operations towards dry weather, we've developed 'storm
readiness' plans to anticipate issues before they arise and respond
more quickly when major storms create challenges for our network.
At the same time, our Get River Positive pledges are progressing
strongly, our share of RNAGS is now 14% and we're working hard to
get to under 10% this year.
We have achieved our best ever
performance on blockages, a key cause of sewer flooding. Despite
this strong performance, the increase in hydraulic flooding
year-on-year has contributed to us missing our external sewer
flooding target again this year. We are consistently the best
operator in the sector on external sewer flooding, but with
stretching targets well beyond performance levels any company has
ever achieved, we have incurred a significant ODI penalty on this
measure, which is included in our net ODI reward for the
year.
We have been hard at work
introducing interventions to limit spills on our storm overflows,
and our transition expenditure has enabled us to accelerate
investment across our 900 highest priority overflows to reduce our
average spill numbers to below 20 by 2025. This involves increasing
storage capacity for storm water at large and small treatment
works, adding nature-based treatment, and expanding our treatment
capacity, to improve these sites by the end of the year. By storing
more water, increasing our treatment capacity, and protecting our
network, we believe we can substantially reduce our usage of storm
overflows.
During the year, Severn Trent
Water Limited was fined £2 million for a pollution that occurred at
our wastewater treatment works at Barlaston in 2020. Our
operational failings at the site led to a risk of environmental
harm, which is unacceptable. We reported the event to the EA at the
first opportunity and worked transparently with the EA throughout
their investigation, delivering a number of improvements to prevent
issues of this kind occurring in the future.
Environmental leaders with ambitious future
plans
As the impacts of climate change
have become increasingly evident over recent years, our role as
stewards of our local environment has never been more important.
One year ago, we doubled our ambition of improving biodiversity on
5,000 hectares of land by 2025, and this year have now surpassed
that upgraded target, having now improved more than 11,000 hectares
of land. This means our work on biodiversity alone now accounts for
more than 2% of the government's 2042 Nature Recovery Network
target for the entire country.
We are progressing well on our
Triple Carbon Pledge that by 2030 we will achieve Net Zero carbon
emissions, 100% of our energy will come from renewable sources, and
our vehicle fleet will be 100% electric, subject to the
availability of specialist vehicles. This year, we incorporated
Light Commercial Vehicles into our fleet, meaning that around a
quarter of our fleet is now electric. And on scope three, 58% of
our supply chain by emissions have now committed to science-based
targets.
Since 2020, all of our electricity
has either been self-generated or purchased from renewable sources.
This year saw our best ever self-generation output with combined
generation across our Bioresources and Green Power business of
655GWh, equivalent to 60% of our Group consumption. Following seven
months of ownership of Andigestion, we are confident that we will
outperform our base valuation and we have identified multiple
further opportunities within the business to increase generation
further. We have also completed extensive upgrades at our Anaerobic
Digestion site in Derby this year to enhance its generation
capacity.
Following a £40 million investment
that was supported by Ofwat's Innovation Fund new technology has
been installed at our facility at Strongford to eliminate all of
the site's carbon emissions. In the coming months we will be
hosting a summit to share the technologies and practices which have
reduced and removed process emissions from the site. Our Net Zero
Hub, based on the same site, will use this blueprint to apply low
emission interventions across our estate in AMP8, as we progress
towards operational Net Zero by 2030.
Capital programme scaled up to deliver efficient
growth
This year we invested a record
£1.2 billion upgrading our network and transforming our business
for the years ahead. The 63% year-on-year increase in capital spend
brings us in line with our capital investment requirements for the
start of AMP8, and reflects an expansion of our capital work to
meet AMP7 regulatory commitments alongside the planned step up of
our Green Recovery programme.
During the year we invested around
£129 million on significant upgrades across seven major treatment
works, increasing capacity, enhancing process efficiency, and
improving the quality of effluent by reducing phosphorus and
ammonia levels. In our waste network, we've completed a rising main
and town centre surface separation works as part of our flooding
alleviation project in Stroud, a £25 million upgrade to protect
homes and businesses from flooding while also preventing 30 storm
overflow spills per year.
Our Green Recovery programme, for
which we were awarded 71% of all the funding awarded to the
industry, continues at pace. We have deployed a series of
groundbreaking floating wetlands, which pre-treat raw water, ahead
of schedule, reducing our usage of chemicals while improving local
biodiversity. At our Bathing Rivers, our designs for innovative new
ozone treatment are progressing well, and we are on track to
deliver against our March 2025 target. And in Mansfield we have
facilitated c. 5,000 cubic metres of surface water storage through
our sustainable interventions as we create the first
catchment-scale flood-resilient community in the UK.
This record year of capital
investment brings us to over £3 billion cumulatively in AMP7,
contributing to expected nominal RCV growth of around 40% across
AMP7. With the sizeable step up in capital requirements next AMP,
we expect our RCV to double between 2020 and 2030 based on our
Business Plan, and we will deliver this growth more efficiently
than ever. Our strategic decision in AMP6 to insource our design
team has allowed us to drive far greater standardisation of
specialist equipment which historically has always required bespoke
solutions. The ongoing expansion of our 'Plug and Play' catalogue
focusing on our most common asset types, including chemical dosing
rigs and storage tanks, will allow for safer, faster, and easier
production and installation of our assets going forward.
We are accelerating £450 million
of investment from AMP8 into AMP7 to generate benefits for
customers sooner. That includes significant spend to reduce storm
overflow spills, deliver our WINEP commitments, and accelerate our
rollout of smart meters. A large part of the early design and
feasibility work on the transition spend has been completed this
year, enabling delivery in the final year of AMP7, further ensuring
a smooth capital glide path into a period of sustained higher
investment.
Embracing our responsibilities to the customers and
communities we serve
Our customers have been clear that
they want additional investment to support an enhanced service. But
while we are committed to investing at record levels, we want to
ensure that no one is unable to afford their bills. We are
currently supporting over 6% of customers through a range of
support measures, and in AMP8 we are doubling our affordability
support to £550 million over the course of the AMP, more than
enough to cover everyone in our region forecasted to be in water
poverty by 2030.
We're making great strides in the
ten-year Societal Strategy we announced in 2022, supporting 100,000
people out of poverty by helping to address its underlying causes.
Our 'Big Boost for Brum and Derby' career events targeting social
mobility cold spots were attended by over 1,600 participants,
providing unique opportunities to attend free employability
workshops and connect with some of the cities' biggest employers,
and we launched our new partnership with Trailblazers to support
prison leavers into work.
More broadly in our region, we
remain on track to give back £10 million to our communities in AMP7
through our Community Fund. Since 2020, we have made awards of more
than £8 million to support new projects by local charities and
community groups, in addition to the £1.6 million awarded in 2020
to help our communities deal with the impact of the pandemic. In
the last year our Community Fund has helped over 100 organisations,
supporting more than 300,000 people.
While we're investing in continued
service improvements, now and in the future, we also want to
deliver world class customer experience. We have seen promising
improvements to our Trust Pilot scores over recent months, and are
now rated as 'excellent' with a score of 4.7 out of five, but our
disappointing C-MeX score indicates we need to go further.
Migration of our customer platforms to Kraken is underway,
utilising smart technology to free up our agents' time to focus on
generating good customer outcomes, and we're encouraging a more
regional approach to customer service through the launch of our
internal County Cup, getting the full workforce involved in
improving the service our customers receive.
Fostering a culture to deliver the opportunities
ahead
As we approach AMP8, our
forecasted performance levels remain comparatively strong and the
move away from bespoke ODIs towards a more 'common' ODI regime in
AMP8, where we expect relative performance to be more important,
gives us confidence that we are well-positioned to outperform.
Based on Business Plan information submitted to our economic
regulator in October, our forecasted performance is around the
upper quartile level on 72% of ODI measures in 2030.
The culture and talent we have
cultivated is central to our ability to deliver these ambitious
service improvements. This year we've achieved Race Equality
Matters Bronze Trailblazer status and ranked eighth on the Social
Mobility Employer Index, and we are proud to have achieved a fifth
consecutive year of our best ever safety performance. 72% of our
employees now participate in our Sharesave scheme, with 25% of
participants saving the maximum £500 per month, with this alignment
of employee and company interests contributing to our best ever
employee engagement score of 8.6 out of ten, placing within the top
3% of utilities globally.
The investment we made to build a
dedicated training Academy continues to pay off, facilitating
talent progression and upskilling. Our Academy syllabus now
contains over 600 training interventions, including the launch this
year of our first water treatment apprenticeships, and at its first
Ofsted inspection we received a Good rating overall, with an
Outstanding rating for personal development.
This also allows us to prepare our
employees for the jobs of the future, nurturing an innovative
culture to deal with challenges creatively and effectively. To
support this, we have enabled everyone in our company to have safe
access to AI, giving them a helping hand to work more efficiently
and effectively.
Our whole company is prepared for
the journey ahead. The substantial investments we have made in
recent years put us in an excellent position to grow at scale while
maintaining operational leadership, and we've made the key
strategic decisions we needed to make to generate value in the
years to come.
Chief Financial Officer's Review
We have delivered robust financial
performance in the year, in line with expectations.
PBIT of
£511.8 million
(2022/23: £508.8 million) was in line with
the previous year, and with lower finance costs, due mainly to
lower inflation on index-linked debt, profit before tax was 19.9%
higher at £201.3 million.
A summary of our financial
performance for the year is set out below:
|
|
2024
|
2023
|
Change
|
|
|
£m
|
£m
|
£m
|
%
|
Turnover
|
|
2,338.2
|
2,165.1
|
173.1
|
8.0
|
PBIT
|
|
511.8
|
508.8
|
3.0
|
0.6
|
Net finance costs
|
|
(281.5)
|
(362.6)
|
81.1
|
22.4
|
Gains/losses on financial
instruments, share of results of joint venture and impairment of
loans receivable
|
|
(29.0)
|
21.7
|
(50.7)
|
(233.6)
|
Profit before tax
|
|
201.3
|
167.9
|
33.4
|
19.9
|
Tax
|
|
(61.1)
|
(35.7)
|
(25.4)
|
(71.1)
|
Profit for the year
|
|
140.2
|
132.2
|
8.0
|
6.1
|
Group turnover was £2,338.2 million
(2022/23: £2,165.1 million) up £173.1 million (8.0%), driven mainly
by higher revenues in our Regulated Water and Wastewater business
(up £156.6 million).
Group PBIT was broadly in line with
the previous year, up £3.0 million to £511.8 million. In Regulated
Water and Wastewater PBIT grew by £12.1 million, partially offset
by lower PBIT in Business Services. The segmental performance is
set out in more detail below.
Net finance costs were lower as
falling inflation in the period reduced the cost of our
index-linked debt. Our effective interest cost was 150 bps lower at
4.7% (2022/23: 6.2%); our effective cash cost of interest, (which
excludes the inflation uplift on index-linked debt) increased to
3.2% (2022/23: 3.0%).
The tax charge of £61.1
million reflects our
full (including current and deferred tax) effective tax rate this
year of 30.4% (2022/23: 21.3%). This is higher than the statutory
rate of tax of 25% (2022/23: 19%) due to true ups for prior year provisions, which increased the
effective rate by 3.7% and depreciation on non-qualifying assets
and other permanent differences which increased the effective rate
by 1.7%. During the year, full expensing of qualifying capital
expenditure replaced the super deduction, which in the previous two
years had given a 130% tax allowance. The significant allowances
derived from this resulted in our current tax charge, excluding
true ups for prior year provisions, of £0.5 million and our
adjusted effective tax rate of 0.2% (2022/23:
nil). As a result of the enhancements to the capital allowances
regime in recent years, the Group has losses carried forward of
£871 million that are available to set-off against future taxable
profits.
Group profit after tax was £140.2
million (2022/23: £132.2 million) and our
adjusted basic EPS was 79.4 pence (2022/23: 58.2 pence) reflecting
the increase in adjusted earnings partially offset by the increase
in the number of shares from the equity placing in October 2023.
Basic EPS was 51.0 pence (2022/23: 52.7 pence).
Our balance sheet remains
strong. At 31 March 2024 our adjusted net
debt was £7,187.9 million (2023: £7,123.9 million based on our
revised definition - see note 17). Our
shadow regulated gearing, taking into account our Green Recovery
programme, was 59.7% (2023: 59.8%) and our regulated gearing using
FD RCV was 61.3% (2023:
60.5%). This was higher due to investments
in relation to Green Recovery, transitional expenditure and other
items that will be reflected in the RCV as 'midnight adjustments'
at the end of the AMP.
Our net pension deficit on an IAS 19
basis is £213.0 million (2023: £279.4 million). The discount rate,
which is based on the yield observed on high quality corporate
bonds, increased by 10 basis points and inflation expectations over
the life of the liabilities decreased by 10 basis points which
combined, reduced the deficit by £53 million. We also paid
contributions of £68 million, in line with our funding plan.
This was partially offset by other actuarial adjustments of £37
million, service and administration costs of £5 million and £13
million from unwinding of the discount on the opening
deficit.
Operational cash flow was £760.8
million, (2022/23: £713.1 million). EBITDA increased by £14.0
million and pension contributions were £32.6 million lower as in
the previous year we paid two years' deficit reduction
contributions in the year. Cash capex was £1,146.2 million, up
£459.6 million due to the increasing capital programme including
transitional expenditure for AMP8. After the net receipt of £1
billion from the issue of shares, net cash inflow before changes in
adjusted net debt was £64.9 million (2022/23: outflow of £440.4
million).
Severn Trent Water's RoRE for the
year was 5.7%, 180 bps above the base return of 3.9% and bringing
our cumulative RoRE for the AMP to 8.1%. Outperformance came mainly
from our customer ODI rewards of £55 million, with 76% of our
measures in reward, and financing, reflecting our continued low
cash interest cost and the impact of higher inflation in the year
compared to Ofwat's assumption in the Final
Determination.
Although in the current year we
have continued to see an adverse impact from higher inflation on
our operating and finance costs, in the
longer term we expect to see the benefits through indexation of our
RCV, revenue growth and lower gearing, all of which underpin our
inflation-linked AMP7 dividend policy.
Our proposed final dividend of
70.10 pence (2022/23: 64.09 pence), is in line with our inflation-linked
dividend policy and payable on 17 July 2024.
Regulated Water and Wastewater
Turnover for our Regulated Water
and Wastewater business was £2,152.0 million (2022/23: £1,995.4
million) and PBIT was £479.6 million (2022/23: £467.5
million).
|
2024
|
2023
|
Change
|
|
£m
|
£m
|
£m
|
%
|
Turnover
|
2,152.0
|
1,995.4
|
156.6
|
7.8
|
Net labour costs
|
(200.9)
|
(158.2)
|
(42.7)
|
(27.0)
|
Net hired and contracted
costs
|
(251.8)
|
(217.2)
|
(34.6)
|
(15.9)
|
Power
|
(283.0)
|
(204.6)
|
(78.4)
|
(38.3)
|
Bad debts
|
(27.3)
|
(24.5)
|
(2.8)
|
(11.4)
|
Other costs
|
(291.9)
|
(284.6)
|
(7.3)
|
(2.6)
|
|
(1,054.9)
|
(889.1)
|
(165.8)
|
(18.6)
|
Infrastructure renewals
expenditure
|
(207.2)
|
(238.4)
|
31.2
|
13.1
|
Depreciation
|
(410.3)
|
(400.4)
|
(9.9)
|
(2.5)
|
PBIT
|
479.6
|
467.5
|
12.1
|
2.6
|
Turnover increased by £156.6
million with the main movements being:
·
|
An increase of £138.6 million from
the annual CPIH + K increase in prices;
|
·
|
A £91.7 million decrease
representing the recovery of higher revenue in 2021/22 under the
RFI mechanism where revenue recovered quicker than expected post
Covid;
|
·
|
£131.4 million increase for the in-AMP fast money allowance for the Green
Recovery programme and ODI reward recognised in revenue in
year;
|
·
|
£10.4 million reduction due to
lower NHH consumption and increased support given to customers as
part of the Big Difference Scheme, supporting customers struggling
to pay their bill; and
|
·
|
A net decrease of £11.3 million
due to lower gas and electricity export income in Bioresources as a
result of significantly lower export prices partly offset by higher
renewable energy incentive income and increased tankered trade and
domestic waste.
|
Net labour costs of £200.9 million were 27.0% higher year-on-year. Gross
employee costs increased by £80.3 million of which, £25.7 million
was driven by a pay increase of 7.5% and £16.7 million was due to
higher national insurance and employer pension contribution costs.
A planned increase in our headcount driven by the insourcing of our
reactive sewage services teams from Customer Solutions Plus earlier
this year, and additional resource to support the delivery of our
biggest ever capital programme, resulted in an increase of £27.7
million. This was partly offset by higher
capitalisation of employee costs as expected due to the significant
size of our capital programme.
Net hired and contracted costs
increased by £34.6 million (15.9%), £15.8 million of which is due to the planned step-up in
the Green Recovery programme. The remaining increase is driven by
higher spend on third party gangs to support with leakage and other
operational improvement activities and increases on building
maintenance contracts and third-party technology
contracts.
Power costs were £78.4
million or 38.3% higher,
mainly driven by the higher wholesale price of electricity on
imports, hedged over the course of 2022 which was affected by the
significant increase in wholesale market energy prices at that
time. Power consumption on our pumping stations was around £2
million higher due to the exceptionally wet weather. 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 £2.8
million and represented 1.5% of household revenue (2022/23: 1.7%)
reflecting the impact of higher revenue on our bad debt cost,
partly offset by improved collection performance in the latter part
of the year as pressure on household incomes started to
ease.
Other costs were up by
£7.3 million,
including higher costs of repairing third-party damage, increased
insurance costs and higher regulatory fees, partly offset by lower
chemical costs.
Infrastructure renewals
expenditure was £31.2 million lower compared to 2022/23. This was driven by less
reactive activity required as well as improved efficiency on mains
renewals, partly offset by additional activity on comm pipe
renewals. Our work mix switched towards more capital activity in
the year.
Depreciation of £410.3 million was £9.9
million higher due to completion of Strongford THP, Minworth CHP and
additional vehicle leases as we progress towards a 100% electric
fleet and vehicle purchases for the insourced reactive sewage
services teams.
Return on Regulatory Equity (RoRE)
RoRE is a key performance
indicator for the regulated business and reflects our combined
performance on totex, customer ODIs and financing compared to the
base return allowed in the Final Determination.
Severn Trent Water's RoRE for the
year ended 31 March 2024 and for the four years ended on that date
is set out in the following table:
|
|
2023/24
%
|
AMP7 to
date
%
|
|
Base return
|
|
3.9
|
3.9
|
|
Enhanced RoRE
reward1
|
|
‒
|
0.1
|
|
ODI
outperformance2
|
|
0.7
|
1.1
|
|
Wholesale totex
performance3
|
|
(3.8)
|
(0.8)
|
|
Retail cost performance
|
|
‒
|
(0.2)
|
|
Financing
outperformance
|
|
4.9
|
4.0
|
|
Return on Regulatory Equity4
|
|
5.7
|
8.1
|
|
1
|
Fast track reward taken over the
first three years of AMP7.
|
2
|
ODI performance includes PCC and
forecast C-MeX and D-MeX outturn. Includes in-period ODI
outperformance only.
|
3
|
Includes impact of land sales. All
calculated in accordance with Ofwat guidance set out in RAG 4.12,
which precludes adjustment for corporation tax.
|
4
|
Calculated in accordance with Ofwat
guidance set out in RAG 4.12, which excludes Ofwat's AMP7 tax
true-up mechanism.
|
We have delivered RoRE of 5.7% in
the year, outperforming the base return by 1.8% as a result
of:
·
|
ODI outperformance of 0.7%, driven
by strong performance across the majority of measures, with 76%
meeting or exceeding regulatory targets;
|
·
|
Financing outperformance of 4.9%,
driven by our AMP7 financing strategy of maintaining a low level of
index-linked debt and the tax benefit of 100% capital
allowances;
|
·
|
Partly offset by the impact of high
energy costs on our totex as previously guided.
|
Regulatory performance measures
In addition to RoRE we have
developed further performance measures to highlight aspects of
value created by the Group that are not reflected in our financial
performance indicators. These are set out below.
Economic Equity Value Added
This measure gives an indication of
the economic value generated by the Group over the AMP to date. The
RCV, which has no equivalent under IFRS reporting, is the most
significant component of this measure.
Each year Ofwat publishes the RCV
for each company which sets out the RCV from the Final
Determination, updated for inflation (the 'FD RCV'). This metric
does not include costs that we have incurred and that will be added
to the RCV as 'midnight adjustments' between the end of the current
AMP and the start of the next AMP. Our new RCV measure, which we
refer to as our Economic RCV, includes estimates of these items
along with the FD RCV for Severn Trent Water and Hafren Dyfrdwy
combined.
Our Economic Equity Value Added
metric measures the growth in our Economic RCV and our investment
in our non-regulated business net of changes in Group adjusted net
debt, pension liabilities and cash tax. We measure this over the
AMP period:
|
2023/24
|
AMP7
opening
|
Value
added
|
|
£m
|
£m
|
£m
|
Economic RCV
|
12,540
|
9,382
|
3,158
|
Revenue earned not billed
|
238
|
-
|
238
|
Regulated economic value
|
12,778
|
9,382
|
3,396
|
Other Group investments
|
|
|
68
|
Change in adjusted net debt,
pensions and tax
|
|
|
(963)
|
Retained Economic Equity Value
Added
|
|
|
2,501
|
Cashflows (from)/to equity
holders
|
|
|
(181)
|
Economic Equity Value Added AMP to
date
|
|
|
2,320
|
The components of the Economic RCV
are shown below:
|
2023/24
|
AMP7
opening
|
Value
added
|
|
£m
|
£m
|
£m
|
FD RCV
|
12,004
|
9,382
|
2,622
|
Green Recovery
|
329
|
-
|
329
|
Real Options
|
87
|
-
|
87
|
Transitional Expenditure
|
47
|
-
|
47
|
Other RCV adjustments
|
73
|
-
|
73
|
Economic RCV
|
12,540
|
9,382
|
3,158
|
|
|
|
| |
The Green Recovery RCV represents
our investment to date in the Green Recovery programme that will be
recovered in future AMP periods.
Real Options are commitments that
were agreed with Ofwat at PR19 to be adjusted to the RCV at the end
of the AMP contingent on the delivery of environmental benefits,
which are either delivered or on track.
Transitional Expenditure is
investment that we have brought forward into AMP7 from AMP8 under
Ofwat's transitional expenditure mechanism but will not be included
in the RCV until the start of AMP8.
Other RCV adjustments consists of
'true ups' that are made to the RCV at the end of the AMP under the
regulatory model, including the RCV element of totex performance
sharing. This adjustment is split between RCV and revenue in the
regulatory model and so part of the adjustment is included here,
and the remainder is included in revenue earned not billed
below.
The Green Recovery adjustment is
included in Ofwat's shadow RCV measure. If we had included all of
the adjustments in our Economic RCV metric, our shadow regulated
would have been 58.7%.
Regulatory Income
This measure reflects income that
will be recognised in IFRS financial statements in future years.
IFRS financial statements do not currently reflect rights that we
have earned in the period to bill additional revenue in future
periods.
In addition, the inflation accretion
on the principal amount of our index-linked debt is charged to
finance costs in our IFRS financial statements but the inflation
uplift on our RCV is not recognised under IFRS. Our regulatory
income metric includes the benefit of inflation on RCV and the cost
of inflation on index-linked debt for Severn Trent Water and Hafren
Dyfrdwy combined.
|
2023/24
|
2022/23
|
|
£m
|
£m
|
Adjusted IFRS earnings (see attached
financial statements note 10)
|
218
|
146
|
Change in year of revenue earned not
billed
|
76
|
(14)
|
RCV inflation
|
526
|
1,093
|
Total Regulatory Income
|
820
|
1,225
|
The movement in revenue earned not
billed in the year is set out below in its major
components:
|
Revenue
|
ODIs
|
Totex
|
True-ups
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
At 1 April 2023
|
13
|
159
|
38
|
(48)
|
162
|
Inflation
|
1
|
15
|
4
|
(4)
|
16
|
Earned in year
|
9
|
50
|
96
|
(18)
|
137
|
Billed in year
|
14
|
(91)
|
-
|
-
|
(77)
|
Change in the year
|
24
|
(26)
|
100
|
(22)
|
76
|
At 31 March 2024
|
37
|
133
|
138
|
(70)
|
238
|
Revenue - this is
an adjustment for the difference between revenue billed and the
amount allowed in the FD. These adjustments are generally billed
two years in arrears.
ODI rewards earned
in a given period can be recovered through revenue after two years
(or carried forward further at the Company's choice). This is shown
net of tax, in current prices.
Differences
between totex spent and the amount allowed are 'shared' with
customers in the following AMP. Part of this difference is
recovered through adjustments to revenue (included here) and the
remainder through adjustments to the RCV (included in Economic RCV
above).
True-ups - the
regulatory model includes a number of 'true ups' for differences
from original assumptions arising through the AMP and recovered
from customers in the next AMP. These true ups include tax, land
sales, cost of debt and the RPI-CPIH wedge in AMP7.
Business Services
|
2024
|
2023
|
Change
|
|
£m
|
£m
|
£m
|
%
|
Turnover
|
|
|
|
|
Operating Services and
other
|
104.3
|
98.5
|
5.8
|
5.9
|
Green Power
|
87.6
|
78.6
|
9.0
|
11.5
|
|
191.9
|
177.1
|
14.8
|
8.4
|
|
|
|
|
|
EBITDA
|
|
|
|
|
Operating Services and
other
|
25.6
|
28.1
|
(2.5)
|
(8.9)
|
Green Power
|
29.5
|
35.7
|
(6.2)
|
(17.4)
|
Property Development
|
4.1
|
2.0
|
2.1
|
105.0
|
|
59.2
|
65.8
|
(6.6)
|
(10.0)
|
Business Services turnover was
£191.9 million (up 8.4%) and underlying EBITDA was £59.2 million
(down 10.0%).
In our Operating Services and
Other businesses, turnover increased by £5.8 million due to
activity on the MoD and other Aqualytix contracts. EBITDA was £2.5
million lower as the increased revenue was offset by the impact of
the 7.5% pay increase and higher technology licence
costs.
In Green Power, turnover was £9.0
million higher year-on-year from increased generation, higher
renewable energy incentive income and gate fees. Generation
increased by 23 GWh from the Andigestion acquisition and 4 GWh due
to our Derby Food Waste Plant being commissioned in the second half
of the year.
Green Power EBITDA was £6.2
million lower compared to 2022/23 due to one-off Andigestion
acquisition costs of £3.7 million, a pay increase of 7.5% and
higher food waste and haulage costs.
EBITDA from Property Development
was £4.1 million, £2.1 million higher year-on-year. Despite some
delays in our 2023/24 plans, we remain on track to achieve
long-term plans to deliver £150 million profit by 2032.
Corporate and other
Corporate costs were £10.5 million
(2022/23: £8.7 million). The increase is
driven by higher legal costs related to the Leigh Day defence as
well as pay increase on corporate overheads. Our
other businesses generated PBIT of £1.1 million (2022/23: £0.7
million).
Net
finance costs
Net finance costs for the year were
£81.1 million (22.4%) lower than the prior year at £281.5 million.
Although average net debt was up 7.4% at £7,216.6 million (2022/23:
£6,720.6 million), lower inflation in the year reduced the cost of
our index-linked debt by £107.7 million. Our effective interest
cost was 4.7% (2022/23: 6.2%).
We raised around £1.5 billion of new
debt at competitive rates but higher than the embedded debt it
replaced and as a result our effective cash cost of interest
(excluding the RPI uplift on index-linked debt and pensions-related
charges) was higher at 3.2% (2022/23: 3.0%).
Capitalised interest of £69.6
million was £13.0 million higher year-on-year, due to increased
capital work in progress compared to the previous year, partially
offset by the lower effective interest cost.
Our earnings before interest, tax
depreciation and amortisation (EBITDA) interest cover was 3.5 times
(2022/23: 2.6 times) and PBIT interest cover was 1.9 times
(2022/23: 1.4 times). See note 17 for further details.
Gains/losses on financial instruments
We use financial derivatives
solely to hedge risks associated with our normal business
activities including:
·
|
Exchange rate exposure on foreign
currency borrowings;
|
·
|
Interest rate exposures on floating
rate borrowings;
|
·
|
Exposures to increases in
electricity prices; and
|
·
|
Changes in the regulatory model from
RPI to CPIH.
|
We hold interest rate swaps with a
net notional principal of £442.9 million floating to fixed, and
cross currency swaps with a sterling principal of £674.6 million,
which economically act to fix the sterling liability on certain
foreign currency borrowings.
We revalue the derivatives at each
balance sheet date and take the changes in value to the income
statement, unless the derivative is part of a cash flow
hedge.
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 year there was a loss of £9.0 million (2022/23:
gain of £35.7 million) in relation to these instruments.
Note 6 to the financial statements
gives an analysis of the amounts charged to the income statement in
relation to financial instruments.
As part of our power cost
management strategy, we have fixed the wholesale price for around
100% of our estimated net energy usage for 2024/25, and around 43%
for 2025/26, through physical hedges with suppliers and natural
hedges from the export of self-generated energy.
Share of loss of joint venture
Water Plus incurred a loss after tax
of £8.1 million, mainly due to increased bad debt charges and
higher interest rates. Our share of Water Plus's result for the
year was a loss of £4.1 million (2022/23: £-).
Taxation
We are committed to paying the right
amount of tax at the right time, and were pleased to be awarded the
Fair Tax Mark for the fifth successive year. We pay a range of
taxes, including business rates, employer's national insurance and
environmental taxes such as the Climate Change Levy as well as the
corporation tax shown in our tax charge in the income
statement.
|
|
2024
|
2023
|
|
|
£m
|
£m
|
Tax
incurred:
|
|
|
|
Corporation tax
|
|
0.5
|
-
|
Business rates and property
taxes
|
|
90.4
|
84.4
|
Employer's National
Insurance
|
|
39.2
|
35.3
|
Environmental taxes
|
|
6.6
|
6.6
|
Other taxes
|
|
6.7
|
6.0
|
|
|
143.4
|
132.3
|
Further details on the taxes and
levies that we pay can be found in our report "Explaining our Tax
Contribution 2023/24", which will be made available at
www.severntrent.com/sustainability-strategy/reports-and-publications/tax/
when our Annual Report and Accounts is published
in June.
The corporation tax charge for the
year recorded in the income statement was £61.1 million (2022/23:
£35.7 million) and we received net corporation tax repayments of
£9.0 million in the year (2022/23: net payments of £4.0 million).
The difference between the tax charged and the tax paid is
summarised below:
|
|
2024
|
2023
|
|
|
£m
|
£m
|
Tax on profit on ordinary
activities
|
|
61.1
|
35.7
|
Tax effect of timing
differences
|
|
(53.2)
|
(28.3)
|
Impact of deferred tax at
25%
|
|
-
|
(7.7)
|
Overprovisions in previous
years
|
|
(7.4)
|
0.3
|
Corporation tax payable for the
year
|
|
0.5
|
-
|
Amount payable in the next
year
|
|
(0.5)
|
-
|
Net (receipts)/payments respect of
prior years
|
|
(9.0)
|
4.0
|
Net tax (received)/paid in the
year
|
|
(9.0)
|
4.0
|
No tax was paid relating to the year
as the allowances available from full expensing resulted in a loss
for tax purposes (2022/23: nil due to super deduction).
Note 7 in the financial statements
sets out the tax charges and credits in the year, which are
described below.
The current tax charge for the
year was £5.5 million, which arose from £0.5 million corporation
tax payable in respect of our Guernsey-based captive insurance
subsidiary and £5.0 million adjustments to tax provisions from
previous years (2022/23: £0.2 million). The deferred tax charge was
£55.6 million (2022/23: £35.5 million).
Our effective tax rate was 30.4%
(2022/23: 21.3%), which is higher than the UK rate of corporation
tax in both years (25% in 2023/24 and 19% in 2022/23), mainly due
to the true up of prior year provisions and permanent differences
arising from costs incurred that are not deductible for tax. In the
prior year, deferred tax on temporary differences arising during
the year charged at 25% was partially offset by the benefit of the
30% element of the super deduction in excess of the cost of the
assets.
Our adjusted effective current tax
rate was 0.2% (2022/23: nil) (see note 17).
UK tax rules specify the rate of
tax relief available on capital expenditure. Typically this is
greater in the early years than the rate of depreciation used to
write off the expenditure in our accounts. In the current year a
significant proportion of our capital expenditure qualified for
100% deduction for tax in the year of spend. In the previous year,
this was enhanced by the super deduction for certain capital
expenditure, which gave a 100% tax deduction in the year of spend
plus an additional allowance of 30%.
The impact of this timing
difference applied across our significant and recurring capital
programme tends to reduce our adjusted effective current tax rate
and corporation tax payments in the year. By the same token we make
a provision for the tax that we would pay in future periods if the
depreciation charge arising on expenditure for which tax relief has
already been received is not offset by further tax allowances in
those periods. However, the nature of our
business, including a significant rolling capital programme and the
long lives of our assets, means we do not expect these timing
differences to reverse for the foreseeable future, and they may
never do so. This is the most significant
component of our deferred tax position.
Our net deferred tax provision is
reduced by the benefit of taxable losses amounting to £871 million
that we have incurred as a result of the capital allowances claimed
under the super deduction and full expensing.
Profit for the year and earnings per share
Total profit for the year was
£140.2 million (2022/23: £132.2 million).
Basic earnings per share was 51.0
pence (2022/23: 52.7 pence), down due to the share issue in the
year. Adjusted basic earnings per share was 79.4 pence (2022/23:
58.2 pence) as the growth in adjusted earnings was greater than the
impact of the share issue. For further details see note
10.
Cash flow
|
|
2024
|
2023
|
|
|
£m
|
£m
|
Operational cashflow
|
|
760.8
|
713.1
|
Cash capex
|
|
(1,146.2)
|
(686.6)
|
Net interest paid
|
|
(210.3)
|
(203.5)
|
Purchase of subsidiaries net of
cash acquired
|
|
(41.5)
|
(0.4)
|
Net payments for swap
terminations
|
|
(4.4)
|
(11.2)
|
Net tax received/(paid)
|
|
9.0
|
(4.0)
|
Free cash flow
|
|
(632.6)
|
(192.6)
|
Dividends
|
|
(301.4)
|
(261.3)
|
Issue of shares
|
|
1,000.7
|
15.3
|
Purchase of own shares
|
|
(1.8)
|
(1.8)
|
Change in adjusted net debt from
cash flows
|
|
64.9
|
(440.4)
|
Non-cash movements
|
|
(128.9)
|
(212.1)
|
Change in adjusted net
debt
|
|
(64.0)
|
(652.5)
|
Opening adjusted net
debt
|
|
(7,123.9)
|
(6,471.4)
|
Closing adjusted net
debt
|
|
(7,187.9)
|
(7,123.9)
|
|
|
2024
|
2023
|
|
|
£m
|
£m
|
Bank loans
|
|
(783.5)
|
(713.0)
|
Other loans
|
|
(7,357.9)
|
(6,474.2)
|
Lease liabilities
|
|
(120.0)
|
(110.9)
|
Net cash and cash
equivalents
|
|
951.4
|
28.7
|
Fair value accounting
adjustments
|
|
29.8
|
47.9
|
Exchange on currency debt not
hedge accounted
|
|
19.7
|
22.3
|
Loans due from joint
ventures
|
|
72.6
|
75.3
|
Adjusted net debt
|
|
(7,187.9)
|
(7,123.9)
|
Operational cash flow was £760.8
million (2022/23: £713.1 million). The increase arose from higher
EBITDA and lower pension contributions.
Net cash capex increased to £1,146.2
million (2022/23: £686.6 million), reflecting progress against our
core capital programme, increased spend on Green Recovery and
transitional spend for AMP8.
Our net interest payments of £210.3
million (2022/23: £203.5 million) were in line with the previous
year as the impact of higher average adjusted net debt, with the
effective cash cost of interest (which excludes the non-cash
indexation charge on index-linked debt) broadly in line with the
previous year.
The benefits of the full expensing
capital allowances meant that we had no taxable profit in the year
and therefore paid no corporation tax but received repayment of the
amount recoverable at the previous year end. In the previous year
we paid net tax payments of £4.0 million related to prior
years.
We raised £986.4 million net
proceeds from the equity placing in October 2023 and received £14.3
million from the exercise of options under the employee Save As You
Earn share scheme. In the prior year we received £15.3
million from such option exercises. Our dividends paid increased in
line with our policy to increase by CPIH each year during
AMP7.
These cash flows, together with
accounting adjustments to the carrying value of debt, resulted in a
decrease in debt of £64.9 million (2022/23: increase of £440.4
million).
At 31 March 2024 we held £951.4
million (2023: £28.7 million) in net cash and cash equivalents.
Average debt maturity was around 14 years (2023: 14 years).
Including committed facilities, our cash flow requirements are
funded until February 2026.
Adjusted net debt at 31 March 2024
was £7,187.9 million (2023: £7,123.9 million). Regulated gearing (adjusted net debt of our regulated
businesses, expressed as a percentage of estimated RCV) was 61.3%
(2023: 60.5%). Shadow regulated gearing was 59.7% (2023:
59.8%).
The estimated fair value of debt at
31 March 2024 was £465.3 million lower than book value (2023:
£366.2 million lower). The change in the difference between book
and fair value is largely due to the impact of inflation
expectations on the fair value of our index-linked debt.
Our policy for the management of
interest rates is that at least 40% of our borrowings should be at
fixed interest rates, or hedged through the use of interest rate
swaps or forward rate agreements. At 31 March 2024 interest rates
for 67% (2023: 67%) of our gross debt of £8,213.7 million were
fixed; 6% were floating and 27% were index linked. We continue to
carefully monitor market conditions and our interest rate
exposure.
Our long-term credit ratings
are:
Long-term ratings
|
Severn Trent Plc
|
Severn Trent Water
|
Outlook
|
Moody's
|
Baa2
|
Baa1
|
Stable
|
Standard and Poor's
|
BBB
|
BBB+
|
Stable
|
Fitch
|
BBB
|
BBB+
|
Stable
|
We invest cash in deposits with
highly rated banks and liquidity funds. We regularly review the
list of counterparties and report this to the Treasury
Committee.
Pensions
We have three defined benefit
pensions arrangements, two from Severn Trent and one from Dee
Valley Water. The schemes are closed to future accrual.
The most recent formal actuarial
valuation for the Severn Trent Pension Scheme ('STPS'), which is by
far the largest of the schemes, was completed as at 31 March
2022. The future funding plan agreed with the Trustee was
unchanged from the 2019 valuation (save for inflationary uplifts
where applicable) and includes:
·
|
Deficit reduction payments to be
made each year until 31 March 2027, with a payment of £39.2 million
in the year ended 31 March 2024, increasing in line with CPI (based
on increases in the inflation measure covering the twelve-month
period to the previous November).
|
·
|
Payments under an asset-backed
funding arrangement of £8.2 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 payment of £20.0 million
in the year ended 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.
|
In June 2021 we executed a bulk
annuity buy-in for the Severn Trent Mirror Image Pension Scheme,
which represents around 4% of the Group's defined benefit
liabilities. Under the buy-in, the liabilities of this scheme will
be met by an insurance policy and as a result the Group's risk is
substantially reduced.
Hafren Dyfrdwy participates in the
Dee Valley Water Limited Section of the Water Companies Pension
Scheme ('DVWS'). DVWS funds are administered by trustees and held
separately from the assets of the Group. DVWS is closed to new
entrants. The most recent formal actuarial valuation of DVWS was
completed as at 31 March 2020 and no deficit reduction
contributions are required. In March 2023, the DVWS also entered
into a bulk annuity buy-in insurance policy that covers the
majority of the scheme obligations and in March 2024 the DVWS
closed to future accrual.
On an IAS 19 basis, the net position
(before deferred tax) of all of the Group's defined benefit pension
schemes was a deficit of £213.0 million (2023: £279.4 million) and
the funding level increased to 89% (31 March 2023: 86%).
The movements in the net deficit
during the year were:
|
Fair
value of scheme assets
|
Defined
benefit obligations
|
Net
deficit
|
|
£m
|
£m
|
£m
|
At start of the period
|
1,785.3
|
(2,064.7)
|
(279.4)
|
Amounts credited/(charged) to
income statement
|
78.3
|
(96.2)
|
(17.9)
|
Actuarial gains/(losses) taken to
reserves
|
(17.0)
|
33.4
|
16.4
|
Net contributions received and
benefits paid
|
(41.6)
|
109.5
|
67.9
|
At end of the period
|
1,805.0
|
(2,018.0)
|
(213.0)
|
The income statement
includes:
·
|
Current service costs of £0.1
million on the DVWS, which was open to further accrual during the
year but is now closed.
|
·
|
Scheme administration costs of £4.2
million; and
|
·
|
Interest on scheme liabilities and
expected return on the scheme assets - together a net cost of £13.4
million.
|
Higher interest rate expectations increased the discount rate,
which is derived from yields on high quality corporate bonds, by
10bps. Inflation expectations have decreased by around 10bps since
the previous year end. The impacts of these changes resulted in a
net decrease in the scheme liabilities of around £53
million.
Changes to demographic assumptions,
partly offset by an update to the most recent CMI data tables
reduced scheme liabilities by around £6 million.
The actual outturn in the year for
inflation and other assumptions was worse than the long-term
assumption and this increased scheme liabilities by £26
million.
Higher bond yields impacted the
value of scheme assets, which decreased in value by £17 million
more than the return included in the income statement in the
year.
Contributions paid to the STPS in
the year included:
·
|
The amounts due under the
asset-backed funding arrangements (£28.2 million); and
|
·
|
The deficit reduction payment of
£39.2 million.
|
There were also payments of benefits under the unfunded scheme
amounting to £0.5 million.
Dividends
In line with our policy for AMP7
to increase the dividend by at least CPIH each year,
the Board has proposed a final ordinary
dividend of 70.10 pence for 2023/24 (2022/23: 64.09 pence). This
gives a total ordinary dividend for the year of 116.84 pence
(2022/23: 106.82 pence).
The final ordinary dividend is
payable on 17 July 2024 to shareholders on the register at 31 May
2024.
Principal risks and uncertainties
The Board has overall
responsibility for determining the nature and extent of the risks
in which Severn Trent participates and for ensuring that risks are
managed effectively across the Group. The Board considers the
principal risks and uncertainties affecting the Group's business
activities to be those detailed below:
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
wastewater 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 expectations through the level of
customer experience 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.
|
Security and Resilience:
·
|
Core operational capabilities are
compromised through physical, people or technological
threats.
|
Political, Legal and Regulatory:
·
|
Changing societal expectations,
resulting in stricter legal and environmental obligations,
commitments and/or enforcements, increase the reputational risk of
non-compliance.
|
Financial Liabilities:
·
|
We fail to fund our Severn Trent
defined benefit pension scheme sustainably.
|
·
|
We do not have access to funds to
meet ongoing commitments and finance the business
appropriately.
|
Strategy:
·
|
Unforeseen changes in the external
environment could impact our ability to achieve our ambitions
within the regulatory framework.
|
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.
|
·
|
Failure to act as a steward of
natural capital in our region providing social, environmental and
economic benefits.
|
People and Culture:
·
|
Our people and culture do not adapt
in response to a changing environment and take advantage of
technological advancements to deliver enhanced business
performance.
|
Technical Guidance 2024/25
Year-end guidance
|
FY24
|
Year-on-
Year
|
Regulated Water and Wastewater
|
Turnover1
|
Higher year-on-year including
inflation increase, partly offset by an expected reduction of
diversions income mainly relating to HS2.
|
£2.15bn
|
▲
|
Operating costs &
IRE2
|
Lower year-on-year, driven by a
reduction in energy cost and diversions expenditure mainly relating
to HS2, partly offset by an increase in growth-related opex
investment, and above inflation cost increases.
|
£1.3bn
|
▼
|
ODIs3
|
Net reward of over £100 million
(pre-customer sharing), which would result in a net reward of
around £60 million (post-customer sharing) dependent on the mix of
net rewards earned. Both include end-of-AMP ODI rewards.
|
£55m
|
▲
|
Business Services
|
EBITDA
|
Lower year-on-year due to the
impact of lower energy prices on Green Power revenue.
|
£59m
|
▼
|
Group
|
Interest
charge4
|
Broadly flat year-on-year with
higher cost of new debt offset by reducing inflation on
index-linked debt.
|
£282m
|
↔
|
Adjusted effective current tax
rate
|
Adjusted effective current tax
rate of nil due to "full expensing" and other accelerated capital
allowances on our substantial capital investment
programme.
|
0.2%
|
▼
|
Capital investment
|
Set to deliver our largest annual
investment programme investing between £1.3 billion-£1.5
billion.
|
£1.2bn
|
▲
|
Dividend5
|
2024/25 dividend of 121.71 pence,
in line with our policy of annual growth by CPIH.
|
116.84
|
▲
|
AMP7
Cumulative
ODIs6
|
Cumulative AMP7 ODI rewards of
around £320 million in 2017/18 prices and around £420 million in
nominal prices (post-customer sharing).
|
Totex
|
We expect totex to impact RoRE by
around 1%, reflecting 0.7% of energy costs, as previously guided,
and reinvestment of 0.3% of our RoRE outperformance to set us up
for success in AMP8 while delivering benefits for customers and the
environment.
|
RCV7
|
Expected 2024/25 RCV of £13.6
billion which is inclusive of transitional expenditure.
|
Footnotes to Technical Guidance
1. Including Green Recovery
allowance.
2. Including AMP8 preparation
expenditure, Transitional expenditure and Green Recovery related
opex.
3. Customer Outcome Delivery
Incentives are quoted pre-tax in 2017/18 prices. We assume a 25%
rate of corporation tax to be in place when ODIs are taken into
revenue. A net reward of £100 million (pre-sharing) would deliver a
net reward of £60 million +/-10% (post-sharing), dependent on the
mix of ODI net rewards earned.
4. Based on Oxford Economics April
inflation forecast. Index-linked debt comprising around a quarter
of our total debt.
5. 2024/25 dividend growth rate based
on November 2023 CPIH of 4.17%.
6. Based on inflation of the year in
which ODI rewards are taken into revenue, post-sharing and assuming
2023/24 ODI rewards are taken into revenue in 2025/26 and 2024/25
ODI rewards are taken into revenue in 2026/27. ODIs are quoted
gross of tax.
7. AMP7 nominal Regulatory Capital
Value ('RCV') is measured including expected additions from Green
Recovery, real options and transitional expenditure, as well as
other estimated midnight adjustments. Expected Nominal RCV at 1
April 2025 assumes forecasted CPIH of 2% for 2024/25 and RPI of
2.9% for 2024/25 as per Oxford Economics April 2024
forecast.
Further Information
For further information, including
the Group's full-year results presentation, see the Severn Trent
website (www.severntrent.com).
Investor
Timetable
Ex-dividend date
(Final)
|
30 May 2024
|
Dividend record date
(Final)
|
31 May 2024
|
DRIP election date
(Final)
|
26 June 2024
|
Q1 Trading Update
FY2024/25
|
11 July 2024
|
AGM
|
11 July 2024
|
Final dividend payment
date
|
17 July 2024
|
Interim results announcement
FY2024/25
|
20 November 2024
|
A Dividend Reinvestment Plan
('DRIP') is provided by Equiniti Financial Services Limited. The
DRIP enables the Company's shareholders to elect to have their cash
dividend payments used to purchase the Company's shares. More
information can be found at
www.shareview.co.uk/info/drip.
For
more information please visit:
https://www.severntrent.com/investors/financial-calendar-and-regulatory-news/
Consolidated income statement
For the year ended 31 March
2024
|
|
2024
|
2023
|
|
Note
|
£m
|
£m
|
Turnover
|
2,3
|
2,338.2
|
2,165.1
|
Operating costs before charge for
bad and doubtful debts
|
|
(1,799.1)
|
(1,631.8)
|
Charge for bad and doubtful
debts
|
|
(27.3)
|
(24.5)
|
Total operating costs
|
|
(1,826.4)
|
(1,656.3)
|
Profit before interest and tax
|
|
511.8
|
508.8
|
Finance income
|
4
|
123.1
|
84.1
|
Finance costs
|
5
|
(404.6)
|
(446.7)
|
Net finance costs
|
|
(281.5)
|
(362.6)
|
Increase in expected credit loss
on loan receivable
|
|
(2.5)
|
‒
|
Net (losses)/gains in financial
instruments
|
6
|
(22.4)
|
21.7
|
Share of net (loss)/gain of joint
ventures accounted for using the equity method
|
11
|
(4.1)
|
‒
|
Profit on ordinary activities before
taxation
|
|
201.3
|
167.9
|
Current tax
|
7
|
(5.5)
|
(0.2)
|
Deferred tax
|
7
|
(55.6)
|
(35.5)
|
Taxation on profit on ordinary
activities
|
7
|
(61.1)
|
(35.7)
|
Profit for the year
|
|
140.2
|
132.2
|
Earnings per share (pence)
|
Note
|
|
2024
|
2023
|
Basic
|
10
|
|
51.0
|
52.7
|
Diluted
|
10
|
|
50.9
|
52.5
|
Consolidated statement of comprehensive
income
For the year ended 31 March
2024
|
|
2024
|
2023
|
|
Note
|
£m
|
£m
|
Profit for the year
|
|
140.2
|
132.2
|
Other comprehensive income/(loss)
|
|
|
|
Items that will not be
reclassified to the income statement:
|
|
|
|
Net actuarial
gains/(losses)
|
12
|
16.4
|
(252.2)
|
Deferred tax on net actuarial
gains/losses
|
|
(4.2)
|
63.0
|
|
|
12.2
|
(189.2)
|
Items that may be reclassified to
the income statement:
|
|
|
|
Loss on cash flow
hedges
|
|
(6.1)
|
(2.5)
|
Deferred tax on losses on cash
flow hedges
|
|
1.5
|
0.6
|
Amounts on cash flow hedges
transferred to the income statement
|
6
|
18.2
|
4.9
|
Deferred tax on transfer to the
income statement
|
|
(4.6)
|
(1.1)
|
|
|
9.0
|
1.9
|
Other comprehensive income/(loss) for the
year
|
|
21.2
|
(187.3)
|
Total comprehensive income/(loss) for the
year
|
|
161.4
|
(55.1)
|
Consolidated statement of changes in equity
For the year ended 31 March
2024
|
|
Equity attributable to
owners of the company
|
|
|
Share
capital
|
Share
premium
|
Other
reserves
|
Retained
earnings
|
Total
|
|
Note
|
£m
|
£m
|
£m
|
£m
|
£m
|
At 1 April 2022
|
|
248.1
|
394.4
|
148.4
|
473.0
|
1,263.9
|
Profit for the year
|
|
‒
|
‒
|
‒
|
132.2
|
132.2
|
Net actuarial losses
|
12
|
‒
|
‒
|
‒
|
(252.2)
|
(252.2)
|
Deferred tax on net actuarial
losses
|
|
‒
|
‒
|
‒
|
63.0
|
63.0
|
Loss on cash flow
hedges
|
|
‒
|
‒
|
(2.5)
|
‒
|
(2.5)
|
Deferred tax on loss on cash flow
hedges
|
|
‒
|
‒
|
0.6
|
‒
|
0.6
|
Amounts on cash flow hedges
transferred to the income statement
|
6
|
‒
|
‒
|
4.9
|
‒
|
4.9
|
Deferred tax on transfer to the
income statement
|
|
‒
|
‒
|
(1.1)
|
‒
|
(1.1)
|
Total comprehensive
loss for the
year
|
|
‒
|
‒
|
1.9
|
(57.0)
|
(55.1)
|
Share options and LTIPs
|
|
|
|
|
|
|
- proceeds from shares
issued
|
|
1.0
|
14.3
|
‒
|
‒
|
15.3
|
- value of employees'
services
|
|
‒
|
‒
|
‒
|
9.5
|
9.5
|
- own shares purchased
|
|
‒
|
‒
|
‒
|
(1.8)
|
(1.8)
|
Deferred tax on share based
payments
|
|
‒
|
‒
|
‒
|
0.1
|
0.1
|
Dividends paid
|
9
|
‒
|
‒
|
‒
|
(261.3)
|
(261.3)
|
At 1 April 2023
|
|
249.1
|
408.7
|
150.3
|
162.5
|
970.6
|
Profit for the year
|
|
‒
|
‒
|
‒
|
140.2
|
140.2
|
Net actuarial gains
|
12
|
‒
|
‒
|
‒
|
16.4
|
16.4
|
Deferred tax on net actuarial
gains
|
|
‒
|
‒
|
‒
|
(4.2)
|
(4.2)
|
Loss on cash flow
hedges
|
|
‒
|
‒
|
(6.1)
|
‒
|
(6.1)
|
Deferred tax on
loss on cash flow
hedges
|
|
‒
|
‒
|
1.5
|
‒
|
1.5
|
Amounts on cash flow hedges
transferred to the income statement
|
6
|
‒
|
‒
|
18.2
|
‒
|
18.2
|
Deferred tax on transfer to the
income statement
|
|
‒
|
‒
|
(4.6)
|
‒
|
(4.6)
|
Total comprehensive income for the
year
|
|
‒
|
‒
|
9.0
|
152.4
|
161.4
|
Proceeds from equity
placing
|
|
45.5
|
940.9
|
‒
|
‒
|
986.4
|
Share options and LTIPs
|
|
|
|
|
|
|
- proceeds from shares
issued
|
|
0.8
|
13.5
|
‒
|
‒
|
14.3
|
- value of employees'
services
|
|
‒
|
‒
|
‒
|
10.3
|
10.3
|
- own shares purchased
|
|
‒
|
‒
|
‒
|
(1.8)
|
(1.8)
|
Deferred tax on share based
payments
|
|
‒
|
‒
|
‒
|
(5.8)
|
(5.8)
|
Reserves transfer
|
|
‒
|
‒
|
8.3
|
(8.3)
|
‒
|
Dividends paid
|
9
|
‒
|
‒
|
‒
|
(301.4)
|
(301.4)
|
At 31 March 2024
|
|
295.4
|
1,363.1
|
167.6
|
7.9
|
1,834.0
|
Consolidated balance sheet
At 31 March 2024
|
|
|
|
|
|
2024
|
2023
|
|
Note
|
£m
|
£m
|
Non-current assets
|
|
|
|
Goodwill
|
|
112.8
|
92.7
|
Other intangible assets
|
|
186.5
|
185.9
|
Property, plant and
equipment
|
|
11,766.9
|
10,716.9
|
Biological assets
|
|
5.7
|
‒
|
Right-of-use assets
|
|
143.0
|
129.3
|
Investment in joint
venture
|
11
|
12.4
|
16.5
|
Derivative financial
instruments
|
|
71.2
|
82.3
|
Trade and other
receivables
|
|
89.2
|
88.4
|
Retirement benefit
surplus
|
12
|
5.4
|
5.7
|
|
|
12,393.1
|
11,317.7
|
Current assets
|
|
|
|
Inventory
|
|
40.1
|
35.4
|
Trade and other
receivables
|
|
817.3
|
750.9
|
Current tax receivable
|
|
-
|
9.9
|
Derivative financial
instruments
|
|
‒
|
0.5
|
Cash and cash
equivalents
|
|
953.2
|
34.2
|
|
|
1,810.6
|
830.9
|
Current liabilities
|
|
|
|
Borrowings
|
|
(67.9)
|
(317.4)
|
Trade and other
payables
|
|
(724.7)
|
(720.4)
|
Provisions for
liabilities
|
|
(53.9)
|
(52.4)
|
Current tax payable
|
|
(0.9)
|
-
|
|
|
(847.4)
|
(1,090.2)
|
Net current assets/(liabilities)
|
|
963.2
|
(259.3)
|
Total assets less current liabilities
|
|
13,356.3
|
11,058.4
|
Non-current liabilities
|
|
|
|
Borrowings
|
|
(8,195.3)
|
(6,986.2)
|
Derivative financial
instruments
|
|
(26.0)
|
(11.3)
|
Trade and other
payables
|
|
(1,688.5)
|
(1,479.6)
|
Deferred tax
|
|
(1,364.5)
|
(1,293.5)
|
Retirement benefit
obligations
|
12
|
(218.4)
|
(285.1)
|
Provisions for
liabilities
|
|
(29.6)
|
(32.1)
|
|
|
(11,522.3)
|
(10,087.8)
|
Net assets
|
|
1,834.0
|
970.6
|
Equity
|
|
|
|
Called up share capital
|
|
295.4
|
249.1
|
Share premium account
|
|
1,363.1
|
408.7
|
Other reserves
|
|
167.6
|
150.3
|
Retained earnings
|
|
7.9
|
162.5
|
Total equity
|
|
1,834.0
|
970.6
|
Consolidated cash flow statement
For the year ended 31 March
2024
|
|
2024
|
2023
|
|
Note
|
£m
|
£m
|
Cash generated from
operations
|
13
|
804.3
|
753.3
|
Tax received
|
13
|
9.0
|
6.1
|
Tax paid
|
13
|
‒
|
(10.1)
|
Net cash generated from operating
activities
|
|
813.3
|
749.3
|
Cash flows from investing activities
|
|
|
|
Purchase of subsidiaries net of
cash acquired
|
|
(41.5)
|
(0.4)
|
Purchases of property, plant and
equipment
|
|
(1,169.7)
|
(699.7)
|
Purchases of intangible
assets
|
|
(30.0)
|
(40.0)
|
Proceeds on disposal of property,
plant and equipment
|
|
10.0
|
12.9
|
Net loans repaid by joint
venture
|
|
2.7
|
5.5
|
Interest received
|
|
37.0
|
5.5
|
Net cash outflow from investing
activities
|
|
(1,191.5)
|
(716.2)
|
Cash flows from financing activities
|
|
|
|
Interest paid
|
|
(243.6)
|
(205.3)
|
Interest element of lease
payments
|
|
(3.7)
|
(3.7)
|
Dividends paid to shareholders of
the parent
|
|
(301.4)
|
(261.3)
|
Repayments of
borrowings
|
|
(603.6)
|
(982.4)
|
Principal elements of lease
payments
|
|
(10.5)
|
(13.1)
|
New loans raised
|
|
1,469.2
|
1,351.4
|
Issues of shares net of
costs
|
|
1,000.7
|
15.3
|
Payments for swap
terminations
|
|
(4.4)
|
(11.2)
|
Purchase of own shares
|
|
(1.8)
|
(1.8)
|
Net cash inflow/(outflow) from
financing activities
|
|
1,300.9
|
(112.1)
|
Net movement in cash and cash
equivalents
|
|
922.7
|
(79.0)
|
Net cash and cash equivalents at
the beginning of the year
|
|
28.7
|
107.7
|
Net cash and cash equivalents at the end of the
year
|
|
951.4
|
28.7
|
Cash at bank and in
hand
|
|
44.1
|
34.2
|
Bank overdrafts
|
|
(1.8)
|
(5.5)
|
Short term deposits
|
|
909.1
|
‒
|
|
|
951.4
|
28.7
|
Notes to the financial
statements
1. General information
Basis of preparation
The financial statements have been
prepared in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006 and United Kingdom adopted International
Financial Reporting Standards ('IFRS').
The preparation of financial statements in conformity with IFRS
requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amount of revenues and
expenses for the reporting period. Although these estimates are
based on management's best knowledge of the amount, event or
actions, actual results may ultimately differ from those
estimates.
Including undrawn committed credit
facilities, the Group is fully funded for its investment and cash
flow needs until 1 February 2026. 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 financial statements have been prepared on the
going concern basis.
The financial statements have been
prepared under the historical cost convention as modified by the
revaluation of certain financial assets and liabilities (including
derivative instruments) at fair value.
The financial information set out
in this announcement does not constitute the Company's statutory
accounts, within the meaning of section 430 of the Companies Act
2006, for the years ended 31 March 2024 or 2023, but is derived
from those accounts. While the financial information included
within this announcement has been prepared in accordance with the
recognition and measurement criteria of IFRS, it does not comply
with the disclosure requirements of IFRS. Statutory accounts for
2023 have been delivered to the Registrar of Companies and those
for 2024 will be delivered following the Company's annual general
meeting. The auditors have reported on those accounts; their
reports were unqualified and did not contain statements under
section 498(2) or (3) of the Companies Act 2006.
The auditors have consented to the
publication of the Preliminary Announcement as required by Listing
Rule 9.7a having completed their procedures under APB bulletin
2008/2.
2. Segmental analysis
a) Background
The Group is organised into two
main business segments:
Regulated Water and Wastewater
includes the activities of Severn Trent Water Limited, except
hydro-electric generation and property sales, 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 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.
b) Segmental
results
The following table shows the
segmental turnover and profit before interest and tax
('PBIT'):
|
2024
|
|
2023
|
|
Regulated Water and
Wastewater
|
Business
Services
|
|
Regulated Water and Wastewater
|
Business
Services
|
|
£m
|
£m
|
|
£m
|
£m
|
External turnover
|
2,151.5
|
186.8
|
|
1,995.0
|
170.1
|
Inter-segment turnover
|
0.5
|
5.1
|
|
0.4
|
7.0
|
Total turnover
|
2,152.0
|
191.9
|
|
1,995.4
|
177.1
|
PBIT
|
479.6
|
41.4
|
|
467.5
|
49.2
|
The reportable segments' turnover
is reconciled to Group turnover as follows:
|
|
|
|
2024
|
2023
|
|
|
|
|
£m
|
£m
|
Regulated Water and
Wastewater
|
|
|
|
2,152.0
|
1,995.4
|
Business Services
|
|
|
|
191.9
|
177.1
|
Corporate and other
|
|
|
|
1.3
|
1.1
|
Consolidation
adjustments
|
|
|
|
(7.0)
|
(8.5)
|
|
|
|
|
2,338.2
|
2,165.1
|
Segmental PBIT is reconciled to the
Group's profit before tax as follows:
|
|
|
|
2024
|
2023
|
|
£m
|
£m
|
Regulated Water and
Wastewater
|
479.6
|
467.5
|
Business Services
|
41.4
|
49.2
|
Corporate and other
|
(9.4)
|
(8.0)
|
Consolidation
adjustments
|
0.2
|
0.1
|
PBIT
|
511.8
|
508.8
|
Net finance costs
|
(281.5)
|
(362.6)
|
Increase in expected credit loss
on loan receivable
|
(2.5)
|
‒
|
Net (losses)/gains on financial
instruments
|
(22.4)
|
21.7
|
Share of net loss of joint
ventures accounted for using the equity method
|
(4.1)
|
‒
|
Profit on ordinary activities
before taxation
|
201.3
|
167.9
|
The Group's treasury and tax
affairs are managed centrally by the Group Treasury and Tax
departments. Finance costs are managed on a group basis and hence
interest income and costs are not reported at the segmental level.
Tax is not reported to STEC on a segmental basis. The Group's
interest in its joint venture is reported as a corporate
asset.
c) Segmental capital
employed
The following table shows the
segmental capital employed:
|
2024
|
|
2023
|
|
Regulated Water and
Wastewater
|
Business
Services
|
|
Regulated Water and Wastewater
|
Business
Services
|
|
£m
|
£m
|
|
£m
|
£m
|
Operating assets
|
12,601.0
|
381.9
|
|
11,498.4
|
349.5
|
Goodwill
|
63.5
|
50.6
|
|
63.5
|
30.5
|
Segment assets
|
12,664.5
|
432.5
|
|
11,561.9
|
380.0
|
Segment operating
liabilities
|
(2,641.2)
|
(49.2)
|
|
(2,507.4)
|
(33.3)
|
Segmental capital
employed
|
10,023.3
|
383.3
|
|
9,054.5
|
346.7
|
|
|
|
|
|
| |
Operating assets comprise other
intangible assets, property, plant and equipment, right-of-use
assets, biological assets, retirement benefit surpluses, inventory
and trade and other receivables.
Operating liabilities comprise
trade and other payables, retirement benefit obligations and
provisions.
3. Revenue from contracts with
customers
Revenue recognised from contracts
with customers is analysed by business segment below:
Year ended 31 March 2024
|
Regulated Water and Wastewater
|
Business
Services
|
Corporate
and
other
|
Consolidation adjustments
|
Group
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
Water and Wastewater
services
|
2,104.1
|
‒
|
‒
|
(0.5)
|
2,103.6
|
Operating services
|
‒
|
88.9
|
‒
|
‒
|
88.9
|
Renewable energy
|
42.4
|
87.6
|
‒
|
(5.1)
|
124.9
|
Other sales
|
5.5
|
15.4
|
1.3
|
(1.4)
|
20.8
|
|
2,152.0
|
191.9
|
1.3
|
(7.0)
|
2,338.2
|
Year ended 31 March 2023
|
Regulated Water and Wastewater
|
Business
Services
|
Corporate
and
other
|
Consolidation adjustments
|
Group
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
Water and Wastewater
services
|
1,932.9
|
‒
|
‒
|
(0.4)
|
1,932.5
|
Operating services
|
‒
|
84.7
|
‒
|
‒
|
84.7
|
Renewable energy
|
57.2
|
78.6
|
‒
|
(7.0)
|
128.8
|
Other sales
|
5.3
|
13.8
|
1.1
|
(1.1)
|
19.1
|
|
1,995.4
|
177.1
|
1.1
|
(8.5)
|
2,165.1
|
Revenue from water and wastewater
services provided to customers with meters is recognised when the
service is provided and is measured based on actual meter readings
and estimated consumption for the period between the last meter
reading and the year end. For customers who are not metered, the
performance obligation is to stand ready to provide water and
wastewater services throughout the period. Such customers are
charged on an annual basis, coterminous with the financial year and
revenue is recognised on a straight-line basis over the financial
year.
Payments received from customers
in advance of the service period represents a contract
liability. Changes in the Group's contract
liabilities from payments received in advance were as
follows:
|
2024
|
2023
|
|
£m
|
£m
|
Contract liability at 1
April
|
146.5
|
144.8
|
Revenue recognised
|
(1,521.7)
|
(1,394.9)
|
Cash received
|
1,524.2
|
1,396.6
|
Contract liability at 31
March
|
149.0
|
146.5
|
The Operating Services business
includes a material 25-year contract with multiple performance
obligations. Under this contract the Group bills the customer based
on an inflation-linked volumetric tariff. The performance
obligations are:
·
|
operating and maintaining the
customer's infrastructure assets;
|
·
|
upgrading the customer's
infrastructure assets;
|
·
|
administrating the services received
from statutory water and sewerage undertakers; and
|
·
|
administrating billing services of
the customer's commercial and Non Base Dependant
customers
|
Revenue is allocated to each
performance obligation based on the stand-alone selling price of
each performance obligation, which is based on the forecast costs
incurred and expected margin for each obligation. Changes to
projected margins are adjusted on a cumulative basis in the period
that they are identified.
Other than the provision of water
and wastewater services, there is no direct correlation between the
satisfaction of the performance obligations and the timing of
billing and customer payments. The estimated transaction price for
the contract is derived from estimates of the customer's
consumption at the contract tariff rate, adjusted for inflation.
This estimate is updated on an annual basis. The estimated transaction price has increased from 31 March
2023 as a result of increased inflation and consumption. At 31
March 2024 the aggregate amount of the estimated transaction price
allocated to performance obligations that were not satisfied was
£326.5 million (2023: £372.5 million). This amount is expected to
be recognised as revenue as follows:
|
2024
|
2023
|
|
£m
|
£m
|
In the next year
|
54.8
|
52.1
|
Between one and five
years
|
216.9
|
212.3
|
After more than five
years
|
54.8
|
108.1
|
|
326.5
|
372.5
|
The assumptions and other sources of
estimation uncertainty in relation to this contract do not present
a significant risk of a material adjustment to the carrying amounts
of assets and liabilities in the next financial year and are
therefore not included as a source of estimation
uncertainty.
Revenue recognised in excess of
amounts billed is recorded as a contract asset and amounts billed
in excess of revenue recognised is recorded as a contract
liability. Changes in contract assets in the year were as
follows:
|
2024
|
2023
|
|
£m
|
£m
|
Contract asset at 1
April
|
44.3
|
39.9
|
Amounts billed
|
(57.6)
|
(52.6)
|
Revenue recognised
|
60.4
|
57.0
|
Contract asset at 31
March
|
47.1
|
44.3
|
4. Finance income
|
|
2024
|
2023
|
|
|
£m
|
£m
|
Interest income earned on bank
deposits
|
|
38.8
|
3.3
|
Other financial income
|
|
1.8
|
2.2
|
Total interest
receivable
|
|
40.6
|
5.5
|
Interest income on defined benefit
scheme assets
|
|
82.5
|
78.6
|
|
|
123.1
|
84.1
|
5. Finance costs
|
|
2024
|
2023
|
|
|
£m
|
£m
|
Interest expense charged
on:
|
|
|
|
Bank loans and
overdrafts
|
|
35.3
|
30.9
|
Other loans
|
|
268.8
|
328.6
|
Lease liabilities
|
|
3.7
|
3.7
|
Total borrowing costs
|
|
307.8
|
363.2
|
Other financial
expenses
|
|
0.9
|
1.3
|
Interest cost on defined benefit
scheme liabilities
|
|
95.9
|
82.2
|
|
|
404.6
|
446.7
|
|
|
|
|
| |
6. Net (losses)/gains on financial
instruments
|
2024
|
2023
|
|
£m
|
£m
|
Loss on swaps used as hedging
instruments in fair value hedges
|
(15.5)
|
(1.3)
|
Gain/(loss) arising on debt in
fair value hedges
|
15.6
|
(0.3)
|
Exchange gain/(loss) on other
loans
|
2.8
|
(7.4)
|
Net loss on cash flow hedges
transferred from equity
|
(18.2)
|
(4.9)
|
Hedge ineffectiveness on cash flow
hedges
|
0.7
|
(1.3)
|
(Loss)/gain arising on swaps where
hedge accounting is not applied
|
(9.0)
|
35.7
|
Amortisation of fair value
adjustment on debt
|
1.2
|
1.2
|
|
(22.4)
|
21.7
|
7. Tax
|
2024
|
2023
|
|
£m
|
£m
|
Current tax
|
|
|
Current year at 25% (2023:
19%)
|
0.5
|
‒
|
Prior years
|
5.0
|
0.2
|
Total current tax charge
|
5.5
|
0.2
|
Deferred tax
|
|
|
Origination and reversal of
temporary differences:
|
|
|
Current year
|
53.2
|
36.0
|
Prior years
|
2.4
|
(0.5)
|
Total deferred tax charge
|
55.6
|
35.5
|
|
61.1
|
35.7
|
8. Acquisitions
On 1 September 2023, Severn Trent
Green Power Limited acquired 100% of the issued shares in
Andigestion Limited for a consideration of
£40.5 million. The acquisition is expected to increase the Group's
anaerobic digestion market share and reduce cost through economies
of scale.
Details of the purchase
consideration, the net assets acquired, and goodwill are as
follows:
|
|
|
£m
|
Purchase consideration
|
|
Cash paid
|
40.5
|
The assets and liabilities
recognised as a result of the acquisition are as
follows:
|
£m
|
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 £17.0 million has been
capitalised attributable to the anticipated future opportunities
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 values ascribed to the
assets and liabilities acquired are provisional and will be
finalised by 1 September 2024.
Andigestion Limited contributed
revenues of £9.8 million and net profits of £2.6 million to the
Group for the period from 1 September 2023 to 31 March 2024. These
amounts have been calculated using the subsidiary's results and
adjusting them for the additional depreciation and amortisation
that has been charged assuming the fair value adjustments to
property, plant and equipment and intangible assets had applied
from 1 September 2023, together with consequential tax
effects.
If the acquisition had occurred on
1 April 2023, the contributed revenues and net profits for the year
ended 31 March 2024 would have been £15.6 million and £4.2 million
respectively.
On 7 March 2024, Severn Trent
Services Operations UK Limited acquired 100% of the issued share
capital of Lakeside Water and Building
Services Ltd for a total cash consideration
of £5.7 million. The goodwill valuation of £3.1m was based on
management's best estimates of the fair values of the assets and
liabilities acquired, which was estimated at £2.6m, including £2.7
million of cash and cash equivalents.
9. Dividends
Amounts recognised as
distributions to owners of the Company in the year:
|
|
2024
|
|
|
2023
|
|
Pence per
share
|
£m
|
|
Pence
per share
|
£m
|
Final dividend for the year ended
31 March 2023 (2022)
|
64.09
|
161.6
|
|
61.28
|
153.9
|
Interim dividend for the year
ended 31 March 2024 (2023)
|
46.74
|
139.8
|
|
42.73
|
107.4
|
Total dividends paid
|
110.83
|
301.4
|
|
104.01
|
261.3
|
|
|
|
|
|
|
Proposed final dividend for the year ended 31 March
2024
|
70.10
|
209.7
|
|
|
|
|
|
|
|
|
| |
The proposed final dividend is
subject to approval by shareholders at the Annual General Meeting
and has not been included as a liability in these financial
statements.
10. 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 year, excluding treasury shares and 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. Potential ordinary shares are
not treated as dilutive if their conversion does not decrease
earnings per share or increase loss per share.
Basic and diluted earnings per
share is calculated on the basis of profit attributable to the
owners of the Company.
The calculation of basic and
diluted earnings per share is based on the following:
i) Earnings
for the purpose of basic and diluted earnings per
share
|
|
2024
|
2023
|
|
|
£m
|
£m
|
Profit for the year
|
|
140.2
|
132.2
|
ii) Number of
shares
|
|
2024
|
2023
|
|
|
m
|
m
|
Weighted average number of
ordinary shares for the purpose of basic earnings per
share
|
|
274.9
|
250.8
|
Effect of dilutive potential
ordinary shares:
|
|
|
|
- share options and
LTIPs
|
|
0.8
|
1.1
|
Weighted average number of
ordinary shares for the purpose of diluted earnings per
share
|
|
275.7
|
251.9
|
b) Adjusted earnings per
share
|
|
2024
|
2023
|
|
|
pence
|
pence
|
Adjusted basic earnings per
share
|
|
79.4
|
58.2
|
Adjusted diluted earnings per
share
|
|
79.1
|
58.0
|
Adjusted earnings per share figures
are presented for continuing operations. These exclude the effects
of net gains/losses on financial instruments, current tax on net
gains/losses on financial instruments, and deferred tax in both
2024 and 2023. 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 that
are made in calculating adjusted earnings per share are as
follows:
|
|
2024
|
2023
|
|
|
£m
|
£m
|
Earnings for the purpose of basic
and diluted earnings per share
|
|
140.2
|
132.2
|
Adjustments for:
|
|
|
|
- net losses/(gains) on financial
instruments
|
|
22.4
|
(21.7)
|
- deferred tax
|
|
55.6
|
35.5
|
Adjusted earnings for the purpose
of adjusted basic and diluted earnings per share
|
|
218.2
|
146.0
|
There was no current tax charge on
financial instruments in the current year (2023: nil)
11. Investment in joint venture
Our principal joint venture
undertaking at 31 March 2024 is Water Plus Group Limited, which is
the largest business retailer in the non-household retail water
market in England and Scotland.
Movements in the investment were as
follows:
|
2024
|
2023
|
|
£m
|
£m
|
Carrying value of joint venture
investment at 1 April
|
16.5
|
16.5
|
Group's share of result after tax
and comprehensive loss
|
(4.1)
|
-
|
Carrying value of joint venture
investment at 31 March
|
12.4
|
16.5
|
During the current year, the Group
has recognised its share of Water Plus's losses of £8.1 million
against the value of the investment (2023: broke even).
12. Retirement benefit schemes
The Group operates a number of
defined benefit pension schemes. The Severn Trent Pension Scheme
('STPS') and the Severn Trent Mirror Image Pension Scheme
('STMIPS') closed to future accrual on 31 March 2015, while the Dee
Valley Water Limited Section of the Water Companies Pension Scheme
('DVWS'), which is a sectionalised scheme, closed to future accrual
on 31 March 2024.
In July 2021, the STMIPS Trustees
completed the purchase of a bulk annuity contract with JUST, an
insurance company, to secure the benefits of all members of the
MIPS. 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 as at 31 March 2024 have been
updated to reflect market conditions prevailing at the balance
sheet date as follows:
|
|
2024
|
2023
|
|
|
%
|
%
|
Price inflation - RPI
|
|
3.2
|
3.3
|
Price inflation - CPI
|
|
Pre 2030:
2.2
Post 2030:
3.1
|
Pre
2030: 2.3
Post 2030: 3.2
|
Discount rate
|
|
4.9
|
4.8
|
Pension increases in
payment
|
|
3.2
|
3.3
|
Pension increases in
deferment
|
|
3.2
|
3.3
|
Remaining life expectancy for
members currently aged 60 (years)
|
|
|
- men
|
25.8
|
25.8
|
- women
|
28.5
|
28.6
|
Remaining life expectancy at age 60
for members currently aged 40
|
|
|
- men
|
27.0
|
26.9
|
- women
|
29.7
|
29.8
|
|
|
|
| |
The calculation of the scheme
obligations is sensitive to the actuarial assumptions and in
particular to the assumptions relating to the discount rate, price
inflation (capped, where relevant) and mortality. The following
table summarises the estimated impact on the Group's obligations
from changes to key actuarial assumptions whilst holding all other
assumptions constant.
Assumption
|
Change in assumption
|
Impact on scheme
liabilities
|
Discount rate
|
Increase/decrease by 0.1%
pa
|
Decrease/increase by £24
million
|
Price inflation
|
Increase/decrease by 0.1%
pa
|
Increase/decrease by £20
million
|
Mortality
|
Increase in life expectancy by 1
year
|
Increase by £72 million
|
In reality inter-relationships
exist between the assumptions, particularly between the discount
rate and price inflation. The above analysis does not take into
account the effect of these inter-relationships. Also, in practice
any movement in obligations arising from assumption changes are
likely to be accompanied by movements in asset values - and so the
impact on the accounting deficit may be lower than the impact on
the obligations shown above.
The defined benefit assets have
been updated to reflect their market value as at 31 March 2024.
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; interest cost is recognised in net
finance costs.
Movements in the net deficit
recognised in the balance sheet were as follows:
|
Fair value
of plan assets
|
Defined
benefit
obligations
|
Net deficit
|
|
£m
|
£m
|
£m
|
At 31 March 2023
|
1,785.3
|
(2,064.7)
|
(279.4)
|
Current service cost
|
-
|
(0.1)
|
(0.1)
|
Past service cost
|
-
|
(0.2)
|
(0.2)
|
Scheme administration
costs
|
(4.2)
|
-
|
(4.2)
|
Interest income/(cost)
|
82.5
|
(95.9)
|
(13.4)
|
Return on plan assets
|
(17.0)
|
-
|
(17.0)
|
Actuarial losses recognised in the
statement of comprehensive income
|
-
|
33.4
|
33.4
|
Contributions from the sponsoring
companies
|
67.9
|
-
|
67.9
|
Employees' contributions and
benefits paid
|
(109.5)
|
109.5
|
-
|
At 31 March 2024
|
1,805.0
|
(2,018.0)
|
(213.0)
|
The net deficit is presented on
the balance sheet as follows:
|
2024
|
2023
|
|
£m
|
£m
|
Retirement benefit
surplus
|
5.4
|
5.7
|
Retirement benefit
obligations
|
(218.4)
|
(285.1)
|
|
(213.0)
|
(279.4)
|
13. Cash flow
a) Reconciliation of
operating profit to operating cash flows
|
|
2024
|
2023
|
|
|
£m
|
£m
|
Profit before interest and tax
|
|
511.8
|
508.8
|
Depreciation of property, plant
and equipment
|
|
388.7
|
379.7
|
Depreciation of right-of-use
assets
|
|
5.2
|
3.9
|
Amortisation of intangible
assets
|
|
34.4
|
33.7
|
Pension service
cost/(credit)
|
|
0.3
|
(8.2)
|
Defined benefit pension scheme
administration costs
|
|
4.2
|
4.3
|
Defined benefit pension scheme
contributions
|
|
(67.9)
|
(100.5)
|
Fair value uplift on forestry
assets
|
|
(5.3)
|
‒
|
Share based payment
charge
|
|
10.3
|
9.5
|
Profit on sale of property, plant
and equipment and intangible assets
|
|
(3.5)
|
(2.2)
|
Release from deferred
credits
|
|
(16.9)
|
(16.4)
|
Contributions and grants
received
|
|
43.5
|
40.2
|
Provisions charged to the income
statement
|
|
17.4
|
7.1
|
Utilisation of provisions for
liabilities
|
|
(39.2)
|
(17.3)
|
Operating cash flows before movements in working
capital
|
|
883.0
|
842.6
|
Increase in inventory
|
|
(4.9)
|
(3.4)
|
Increase in amounts
receivable
|
|
(183.5)
|
(146.2)
|
Increase in amounts
payable
|
|
109.7
|
60.3
|
Cash generated from operations
|
|
804.3
|
753.3
|
Tax received
|
|
9.0
|
6.1
|
Tax paid
|
|
‒
|
(10.1)
|
Net cash generated from operating
activities
|
|
813.3
|
749.3
|
b) Non-cash
transactions
Non-cash additions to right-of-use
assets during the year were £17.2 million (2023: £3.0 million).
Assets transferred from developers at no cost were recognised at
their fair value of £146.0 million (2023: £105.0 million) and
provisions of £20.7 million (2023: £34.2 million) for works in
response to legally enforceable undertakings to regulators were
recognised as additions to property, plant and equipment. Under the
LTIP, 195,325 (2023: 226,429) shares were issued to employees for
no cash consideration.
c) Reconciliation of movement
in cash and cash equivalents to movement in adjusted net
debt
|
Net cash and cash
equivalents
£m
|
Bank loans
£m
|
Other
loans
£m
|
Lease
liabilities
£m
|
Fair value accounting
adjustments
£m
|
Exchange on currency debt
not hedge accounted £m
|
Loans due from joint
venture
£m
|
Adjusted net
debt
£m
|
At 1 April 2023
|
28.7
|
(713.0)
|
(6,474.2)
|
(110.9)
|
47.9
|
22.3
|
75.3
|
(7,123.9)
|
Cash flow
|
922.7
|
(63.5)
|
(802.1)
|
10.5
|
‒
|
‒
|
(2.7)
|
64.9
|
Fair value adjustments
|
‒
|
‒
|
18.1
|
‒
|
(18.1)
|
‒
|
‒
|
‒
|
Inflation uplift on index-linked
debt
|
‒
|
(5.8)
|
(102.9)
|
‒
|
‒
|
‒
|
‒
|
(108.7)
|
Foreign exchange
|
‒
|
‒
|
2.8
|
‒
|
‒
|
(2.8)
|
‒
|
‒
|
Other non-cash
movements
|
‒
|
(1.2)
|
0.4
|
(19.6)
|
‒
|
0.2
|
‒
|
(20.2)
|
At 31 March 2024
|
951.4
|
(783.5)
|
(7,357.9)
|
(120.0)
|
29.8
|
19.7
|
72.6
|
(7,187.9)
|
14. Post balance sheet events
Dividends
Following the year end the Board of
Directors has proposed a final dividend of 70.10 pence per
share.
15. Contingent liabilities
a) Bonds and
guarantees
Group undertakings have entered
into bonds and guarantees in the normal course of business. No
liability (2023: nil) is expected to arise in respect of either
bonds or guarantees.
b) Claims under
the Environmental Information Regulations 2004 regarding property
searches
Since 2016, the Group has received
letters of claim from a number of groups of personal search
companies (PSCs) which allege that the information held by Severn
Trent Water Limited (STW) used to produce the CON29DW residential
and also the commercial water and drainage search reports sold by
Severn Trent Property Solutions Limited (STPS), is disclosable
under the Environmental Information Regulations. In April 2020, a
group of over 100 PSCs commenced litigation against all water and
sewerage undertakers in England and Wales, including STW and STPS.
The claimants are seeking damages, on the basis that STW and STPS
charged for information which should have been made available
either free, or for a limited charge, under the Environmental
Information Regulations. STW and STPS are defending this claim.
This is an industry-wide issue and the litigation is in
progress. A timetable for the claim has been set by the court. A
stage 1 trial on the EIR legal issues only (not the other issues or
amount of damages) concluded in December 2023, with a judgment
expected within the next few months.
c)
Ongoing combined sewer overflow
investigations
Ofwat and the Environment Agency
are each conducting their own investigations into the wastewater
industry, to investigate compliance with the conditions of
environmental permits. Ofwat has launched specific enforcement
investigations against six sewerage companies, but Severn Trent is
not included in those cases. The Environment Agency's investigation
of all English sewerage companies is continuing and it is not yet
clear what the outcome of those investigations will be. We have
responded quickly and comprehensively to all questions from the
regulators and have had open conversations with them on the issues
under investigation.
d)
Leigh Day Claim
The Group has received a claim for
£239 million excluding interest on behalf of a class comprising
certain consumers of STW (on an opt-out basis) who have allegedly
been overcharged for sewerage services as a result of an alleged
abuse of a dominant position. This is an industry-wide issue and
five other defendants have had similar claims made against them.
The certification hearing is timetabled to take place in September
2024. We consider this claim to be speculative and we reject the
alleged basis of the sums claimed. Accordingly, we shall continue
to robustly defend the claim in its entirety.
16. 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 which are included in these financial statements are disclosed
below.
|
|
2024
|
2023
|
|
|
£m
|
£m
|
Sale of services
|
|
264.7
|
259.5
|
Net interest income
|
|
5.3
|
3.9
|
|
|
270.0
|
263.4
|
Outstanding balances between the
Group and the joint venture as at 31 March were as
follows:
|
|
2024
|
2023
|
|
|
£m
|
£m
|
Amounts due to related
parties
|
|
(2.3)
|
‒
|
Trade and other receivables due
from related parties
|
|
‒
|
0.2
|
Loans receivable from joint
ventures
|
|
72.6
|
75.3
|
|
|
70.3
|
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.
Remuneration of key management personnel
Key management personnel comprise
the members of STEC during the year, and non-executive directors of
the Company.
The remuneration of the directors
is included within the amounts disclosed below.
|
2024
|
2023
|
|
£m
|
£m
|
Short term employee
benefits
|
5.4
|
4.6
|
Short term non-executive director
benefits
|
0.8
|
0.9
|
Share based payments
|
5.0
|
5.4
|
|
11.2
|
10.9
|
17. Alternative performance measures (APMs)
Financial measures or metrics used
in this report that are not defined by IFRS are alternative
performance measures ('APM's). 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 APMs, these might not be directly comparable
with other companies' APMs. These measures are not intended to be a
substitute for, or superior to, IFRS measurements.
a) Exceptional
items
Exceptional items are income or
expenditure which individually or, in aggregate if of a similar
type, should, in the opinion of the Directors, be disclosed by
virtue of their size or nature if the financial statements are to
give a true and fair view. In this context, materiality is assessed
at the segment level. There were no exceptional items in the years
ended 31 March 2024 and 2023.
b) 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. See note 10.
c) Adjusted net
debt
Adjusted net debt comprises
borrowings excluding fair value accounting adjustments on debt, net
cash and cash equivalents, and loans to joint ventures. Foreign
currency borrowings that are hedged by cross currency swaps are
included at the notional principal of the sterling payable leg of
the swap. See note 13.
In the prior year, a different
measure of net debt was used that included remeasurements for
changes in fair value of financial liabilities in fair value
hedging relationships, cross currency swaps that were used to fix
the sterling liability of foreign currency borrowings (whether
hedge accounted or not), net cash and cash equivalents, and loans
to joint ventures. However, the definition has been revised so as
to better reflect interest bearing liabilities less assets, a
measure of adjusted net debt that more closely reflects the Group's
sterling amounts required to settle the obligations. For clarity,
we refer to our new measure as adjusted net debt.
d) Effective interest
cost
The effective interest cost is
calculated as net finance costs, excluding net finance costs from
pensions, plus capitalised finance costs divided by the monthly
average net debt during the year.
|
2024
|
2023
|
|
£m
|
£m
|
Net finance costs
|
281.5
|
362.6
|
Net finance costs from
pensions
|
(13.4)
|
(3.6)
|
Capitalised finance
costs
|
69.6
|
56.6
|
|
337.7
|
415.5
|
Average net debt
|
7,216.6
|
6,720.6
|
|
|
|
Effective interest cost
|
4.7%
|
6.2%
|
This APM is used as it shows the
average interest rate that is attributable to the net debt of the
business.
e) Effective cash cost of
interest
The effective cash cost of
interest is calculated on the same basis as the effective interest
cost except that it excludes finance costs that are not paid in
cash but are accreted to the carrying value of the debt
(principally indexation adjustments on index-linked
debt).
|
2024
|
2023
|
|
£m
|
£m
|
Net finance costs
|
281.5
|
362.6
|
Net finance costs from
pensions
|
(13.4)
|
(3.6)
|
Indexation adjustments
|
(108.0)
|
(215.7)
|
Capitalised finance
costs
|
69.6
|
56.6
|
|
229.7
|
199.9
|
Average net debt
|
7,216.6
|
6,720.6
|
|
|
|
Effective cash cost of
interest
|
3.2%
|
3.0%
|
This is used as it shows the
average finance cost that is paid in cash.
f) PBIT interest
cover
The ratio of PBIT to net finance
costs excluding net finance costs from pensions.
|
2024
|
2023
|
|
£m
|
£m
|
PBIT
|
511.8
|
508.8
|
Net finance costs
|
281.5
|
362.6
|
Net finance costs from
pensions
|
(13.4)
|
(3.6)
|
Net finance costs excluding net
finance costs from pensions
|
268.1
|
359.0
|
|
|
|
|
Ratio
|
Ratio
|
PBIT interest cover
ratio
|
1.9
|
1.4
|
This is used to show how the PBIT
of the business covers the financing costs associated only with net
debt on a consistent basis.
g) EBITDA and EBITDA
interest cover
The ratio of profit before
interest, tax, depreciation and amortisation to net finance costs
excluding net finance costs from pensions.
|
2024
|
2023
|
|
£m
|
£m
|
PBIT
|
511.8
|
508.8
|
Depreciation (including
right-of-use assets)
|
393.9
|
383.6
|
Amortisation
|
34.4
|
33.7
|
EBITDA
|
940.1
|
926.1
|
|
|
|
Net finance costs
|
281.5
|
362.6
|
Net finance costs from
pensions
|
(13.4)
|
(3.6)
|
Net finance costs excluding
finance costs from pensions
|
268.1
|
359.0
|
|
Ratio
|
Ratio
|
EBITDA interest cover
ratio
|
3.5
|
2.6
|
This is used to show how the EBITDA
of the business covers the financing costs associated only with net
debt on a consistent basis.
h) 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 losses/gains on
financial instruments and share of net loss of joint ventures
accounted for using the equity method.
|
|
2024
|
|
2023
|
|
|
Current
tax
thereon
|
|
Current
tax thereon
|
|
£m
|
£m
|
£m
|
£m
|
Profit before tax
|
201.3
|
(0.5)
|
167.9
|
-
|
Adjustments
|
|
|
|
|
Share of net loss/(profit) of
joint venture
|
4.1
|
-
|
-
|
-
|
Net losses/(gains) on financial
instruments
|
22.4
|
-
|
(21.7)
|
-
|
|
227.8
|
(0.5)
|
146.2
|
-
|
Adjusted effective current tax
rate
|
|
0.2%
|
|
0.0%
|
This APM is used to remove
distortions in the tax charge and create a metric broadly
consistent with the calculation of adjusted earnings per share in
note 10. Share of net loss of joint ventures is excluded from the
calculation because the loss is included after tax and so the tax
on joint venture profits is not included in the current tax
charge.
i) Operational
cash flow
Cash generated from operations
less contributions and grants received.
|
2024
|
2023
|
|
£m
|
£m
|
Cash generated from
operations
|
804.3
|
753.3
|
Contributions and grants
received
|
(43.5)
|
(40.2)
|
Operational cashflow
|
760.8
|
713.1
|
This APM is used to show
operational cash excluding the effect of contributions and grants
received as part of capital programmes.
j) Cash
capex
Cash paid to acquire property,
plant and equipment and intangible fixed assets less contributions
and grants received and proceeds on disposal of property, plant and
equipment and intangible fixed assets.
|
2024
|
2023
|
|
£m
|
£m
|
Purchase of property, plant and
equipment
|
1,169.7
|
699.7
|
Purchase of intangible
assets
|
30.0
|
40.0
|
Contributions and grants
received
|
(43.5)
|
(40.2)
|
Proceeds on disposal of property,
plant and equipment
|
(10.0)
|
(12.9)
|
Cash capex
|
1,146.2
|
686.6
|
This APM is used to show the cash
impact of the Group's capital programmes.
k) 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.
|
2024
|
2023
|
|
£m
|
£m
|
Additions to property, plant and
equipment
|
1,428.8
|
898.9
|
Additions to intangible
assets
|
30.0
|
40.0
|
Contributions and grants
received
|
(43.5)
|
(40.2)
|
Assets contributed at no
cost
|
(146.0)
|
(105.0)
|
Capitalised finance
costs
|
(69.6)
|
(56.6)
|
Capital investment
|
1,199.7
|
737.1
|
Includes £20.7 million (2023: £34.2
million) of provisions for future capital expenditure arising from
regulatory obligations (See note 13).
Glossary
Asset Management Plan (AMP)
Price limit periods are sometimes
known as AMP (Asset Management Plan) periods. The current period is
known as AMP7 (2020-2025) because it is the seventh cycle since the
water industry was privatised in 1989.
C-MeX (Customer Measure of Experience)
C-Mex is the incentive mechanism
for companies to improve the experience of residential customers.
C-MeX comprises two surveys - the customer service survey of
residential customers who have recently contacted their water
company and the customer experience survey of randomly selected
members of the public in relation to their experience of their
water company.
D-MeX (Developer Services Measure of
Experience)
D-Mex is the incentive mechanism
for companies to improve the experience of developer services
customers. D-MeX comprises a qualitative element which is a survey
of developer services customers who have recently completed a
transaction with their water company and a quantitative element
which measures performance against a set of Water UK developer
services level of service metrics.
EPA
Environmental Performance
Assessment - a calendar year measure which is expected to be
confirmed by the Environment Agency ('EA') in July 2024.
Fast money
The regulatory model includes two mechanisms for
recovering costs; either directly through amounts billed to
customers, or indirectly by adding to the RCV and thereby
increasing the return in future years. Amounts recovered directly
through bills to customers are known as fast money.
Final Determination (FD)
The outcome of the price review
process that sets price, investment and services packages that
customers receive.
Notional net debt
For each price review Ofwat sets a
nominal capital structure for companies in determining prices
limits. This includes a notional (assumed) regulated gearing level.
Notional net debt is the RCV multiplied by the notional regulated
gearing level.
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.
Midnight adjustments
At the end of each AMP period
Ofwat adjusts the value of the RCV for certain differences that
accumulate during the AMP and are included in the opening value of
the RCV for the next AMP. Because these adjustments represent the
difference between the closing RCV of the old AMP and the opening
RCAV of the new AMP they are referred to as midnight
adjustments.
PCC
Per Capita Consumption is the
annual average amount of water per person used by household
customers.
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) will set 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 RCV increases each year by a proportion of totex that
is set at each price review and by an adjustment for inflation. The
RCV is reduced each year through the run-off mechanism (which is
similar to depreciation of fixed assets). The run-off amount is
recovered through revenue in the year.
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').
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.
RNAGS
The EA'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.
Totex
Totex (shortened form of total
expenditure) includes operating expenditure (opex), infrastructure
renewals expenditure (IRE) and capital expenditure
(capex).
WINEP
The Water Industry National
Environment Programme sets out the programme of work for water
companies in England to avoid deterioration in and improve the
environment that is associated with the Environment Agency's
jurisdiction.
Cautionary statement regarding forward-looking
statements
This document contains statements
that are, or may be deemed to be, 'forward-looking statements' with
respect to Severn Trent's financial condition, results of
operations and business and certain of Severn Trent's plans and
objectives with respect to these items.
Forward-looking statements are
sometimes, but not always, identified by their use of a date in the
future or such words as 'anticipates', 'aims', 'due', 'could',
'may', 'will', 'would', 'should', 'expects', 'believes', 'intends',
'plans', 'projects', 'potential', 'reasonably possible', 'targets',
'goal', '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).