Final Determination acceptance and dividend policy

RNS Number : 3141D

Severn Trent PLC

28 January 2015

 



28 January 2015                          

Severn Trent Plc - acceptance of final determination for Severn Trent Water and new dividend policy

Severn Trent Plc today announces that Severn Trent Water has accepted the Final Determination for the period 2015-2020 published by Ofwat on 12 December 2014.

This means that our customers will continue to have the lowest combined average bills in the land until at least 2020. Severn Trent Water bills will fall in real terms over the next five years, by which time they will be around £60 below the industry average. Next year average bills will fall to £329, from £333. We are proud that Severn Trent customers have already had six consecutive years of the lowest average combined bills and best value in Britain. We are also making provision to help four times as many customers who struggle to pay their bill over the next five years.

We are committed to our largest five year investment programme ever, totaling £6.2 billion* in real terms, the majority of which will help to support the economy in the Midlands. This includes a capital investment programme of £3.3 billion* to improve service and quality for customers, which will help grow our RCV¹ (Regulatory Capital Value) to c. £10 billion by 2020. Although c. £30 million of investment on improving water quality was not included in the Final Determination, we have nevertheless decided to keep it in our plan. We will fund this additional investment using savings achieved by operating our business more efficiently. We are also committed to significantly improving customer service performance through our suite of ODIs (Outcome Delivery Incentives). These include fixing 100% of visible leaks within 24 hours and reducing interruptions to supply by more than 50%.

The next five years will also see a greater focus on reducing flooding, employing innovative solutions to improve river quality such as catchment management and a wide ranging community educational programme to promote water conservation and reduce sewer blockages. We will also undertake one of our largest ever capital investment projects to improve the resilience of water supplies to our one million customers in Birmingham.

The price review has been a challenging process and the Final Determination contains stretching objectives and requires significant improvements in operating efficiencies. However, the Board believes it can meet the required operational and capital expenditure levels whilst delivering on its performance commitments. This belief is based on the process improvements made over the current regulatory period and plans already in place to deliver the efficiencies contained in the business plan for 2015-2020.

In order to deliver our plan and reflecting the lower cost of capital allowed by Ofwat, Severn Trent has reviewed its financing plan and dividend policy.

Going forward, the Company intends to manage its existing debt portfolio and future debt issuance to increase the proportion of debt which is at floating rates. In addition, the Board has decided to move towards a net debt/RCV gearing ratio of around 62.5% which is in line with Ofwat's notional assumption. As part of this move Severn Trent will commence a £100 million share buy back programme.

Severn Trent is also announcing today its dividend policy for the period 2015-2020. The Board has decided to set the 2015/16 dividend at 80.66p, a reduction of 5% compared to the current year total dividend of 84.90p.  Our policy will then be to grow the dividend annually at no less than RPI until March 2020. This replaces the current dividend policy of RPI+3% which runs until March 2015.

The Board believes that this financing plan and new dividend policy are commensurate with a sustainable investment grade credit rating.

* 2012/13 prices

1.     Nominal, assumes year end 2.0% RPI for 14/15 and an average of 3.3% year end RPI for 2015-2020

Liv Garfield, Chief Executive Severn Trent Plc, said:

"At Severn Trent we always seek to strike the right balance between the service customers receive, the bills they pay, and returns to investors and we believe our plan for the next five years achieves that balance, delivering better services, better value and a healthier environment. The price review has been a challenging process but has led to a great outcome for customers. We were pleased that our business plan achieved a high approval rating of 88% from customers.

We know there is more we need to do to improve our processes and raise our standards, and I'm looking forward to working with the great people in Severn Trent and building on improvements made over the current regulatory period, as we continue to deliver for our customers and communities, shareholders and the environment."

There will be a conference call to discuss this announcement at 10:00 GMT today, Wednesday 28 January 2015. This can be accessed via the Severn Trent website (www.severntrent.com) or by dialling:

UK: freephone	0800 279 4977
USA: national freephone:	1877 280 2342

Conference Code: 5603989

Severn Trent Plc will publish its usual trading update for the period 1October 2014 to 12 February 2015 on 13 February. The company will also be holding a capital markets day on 17 March to provide more detail on its business plan for the period 2015-2020.

Enquiries:

Liv Garfield	Severn Trent Plc	0207 353 4200 (on the day)
Chief Executive		02477 715000
Mike McKeon	Severn Trent Plc	0207 353 4200 (on the day)
Finance Director		02477 715000
Rob Salmon	Severn Trent Plc	0207 353 4200 (on the day)
Head of Communications		02477 715000
John Crosse	Severn Trent Plc	0207 353 4200 (on the day)
Head of Investor Relations		02477 715000
Katharine Wynne / Martha Walsh	Tulchan Communications	0207 353 4200

Cautionary statement regarding Forward Looking Statements

This document contains statements that are, or may be deemed to be, 'forward-looking statements' with respect to Severn Trent's financial condition, results of operations and business and certain of Severn Trent's plans and objectives with respect to these items.

Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as 'anticipates', 'aims', 'due', 'could', 'may', 'will', 'would', 'should', 'expects', 'believes', 'intends', 'plans', 'projects', 'potential', 'reasonably possible', 'targets', 'goal' or 'estimates' and, in each case, their negative or other variations or comparable terminology. Any forward-looking statements in this document are based on Severn Trent's current expectations and, by their very nature, forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future.

Forward-looking statements are not guarantees of future performance and no assurances can be given that the forward-looking statements in this document will be realised. There are a number of factors, many of which are beyond Severn Trent's control, that could cause actual results, performance and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to: the Principal Risks disclosed in our Annual Report as at May 2013 (which have not been updated since); changes in the economies and markets in which the group operates; changes in the regulatory and competition frameworks in which the group operates; the impact of legal or other proceedings against or which affect the group; and changes in interest and exchange rates.

All written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to Severn Trent or any other member of the group or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. Subject to compliance with applicable laws and regulations, Severn Trent does not intend to update these forward-looking statements and does not undertake any obligation to do so,

Nothing in this document should be regarded as a profits forecast.

This document is not an offer to sell, exchange or transfer any securities of Severn Trent Plc or any of its subsidiaries and is not soliciting an offer to purchase, exchange or transfer such securities in any jurisdiction. Securities may not be offered, sold or transferred in the United States absent registration or an applicable exemption from the registration requirements of the US Securities Act of 1933 (as amended).

 

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