Interim Management Statement

RNS Number : 4163M

Severn Trent PLC

16 July 2014

 



16 July 2014

Severn Trent Plc Interim Management Statement

for the period 1 April to 15 July 2014

The Board of Severn Trent Plc confirms that trading across the group has been in line with its expectations and prior guidance.   

Regulated business

Customer bills increased by less than inflation, with prices at Severn Trent Water increasing by 1.5% from 1 April 2014, reflecting November RPI of 2.6% and a k-factor of minus 1.1%. For the full year we still expect consumption across our measured income base to be lower year on year.

We have continued to manage our bad debt effectively, with our forecasted bad debt level maintained at around 2.2% of turnover for the full year, and we continue to monitor developments such as unemployment levels and changes to the UK benefits system closely.

Operating expenditure continues to be in line with the Board's expectations for the year and, on a like for like basis, in line with the level of the Final Determination. Operating costs are expected to rise year on year due to the impact of inflation and increases in quasi taxes and power costs, partially offset by efficiency improvements.

We have made good progress in delivering our capital investment programme. Expectations for net capital expenditure (UK GAAP after deducting grants and contributions) remain in the range £510 million to £530 million, including an estimated £15 million related to private drains and sewers. The level of net infrastructure renewals expenditure included in this range is anticipated to be £125 million to £135 million.

Following our best ever environmental performance last year, Severn Trent Water has now been ranked as the industry leading company in 2013 by the Environment Agency's National Environmental Performance Assessment Process, and is the only company to achieve their highest four star rating.

PR14

During the period Severn Trent Water submitted its revised business plan for 2015-2020 to Ofwat. The revised plan reflects guidance given by Ofwat in January 2014 on risk and reward, and the constructive dialogue Severn Trent Water has had with Ofwat to address evidence requests highlighted in the risk based review published in April 2014. As announced on June 27, elements of the plan that change since first submission in December 2013 are:

·    Adoption of Ofwat's risk and reward guidance (overall weighted average cost of capital for the appointed business of 3.85%, real);

·    PAYG (pay as you go) rate for the wholesale business of c.57% (from c.55% in the December plan);

·    Outcome delivery incentives (ODIs) range in line with Ofwat's guidance;

·    Total expenditure (totex) of £6.2 billion (vs. £6.1 billion in December plan)¹;

·    Legacy adjustments - the revised plan includes an additional £10 million shortfall to RCV to reflect serviceability performance that fell short of our targets;

·    Customer bills will decrease in real terms by an average equivalent of 1.5% over the five year period (1.2% real decrease in December plan); average household bills remain frozen in year one.

1.     2012/13 prices

Severn Trent Water will continue to have the lowest combined average bill in England and Wales for the 2015-2020 period. Severn Trent Water believes the revised Plan is fair, financeable, and balances the interests of all stakeholders between value for money, delivering better outcomes and returns for investors. Ofwat will now carefully review and assess the plan and a draft determination is expected on 29 August.

Non-regulated business

In Severn Trent Services we expect to see further growth in Operating Services. In Products we expect to see the benefits of the restructuring programme, which is currently being implemented and on track to deliver the benefits as expected.

Group

The group interest charge is expected to be higher year on year due to higher net debt.

The effective current tax rate for the group for 2014/15 is expected to be between 20% and 22%.

Under our dividend policy of RPI+3% growth the dividend for 2014/15 is set to be 84.90 pence, representing growth of 5.6% year on year.

Severn Trent Plc will announce its interim results for the period ending 30 September 2014 on 25 November 2014.

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
David Shriver / 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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