Severn Trent Water submits revised business plan

RNS Number : 7571K

Severn Trent PLC

27 June 2014

 



27 June 2014

Severn Trent Water submits revised business plan for the period 2015 - 2020

Severn Trent Plc confirms that its wholly owned subsidiary Severn Trent Water has submitted as planned its revised Final Business Plan (the "Plan") to the regulator Ofwat for the next five year regulatory period AMP6, which runs from April 2015 - March 2020.

Highlights

·    Average customer bills to decrease by a further 0.3% to 1.5% in real terms over the five year period - lowest combined average bill in England and Wales

·    Plan based on Ofwat's weighted average cost of capital guidance

·    Total expenditure of £6.2bn, including capex of £3.3bn

·    Nominal RCV expected to be c.£10.1bn by 2020

Commenting on the Plan, Liv Garfield, Chief Executive Severn Trent Plc, said:

"We have continued a constructive engagement with Ofwat and other stakeholders in the last few months to revise our Plan. We are focused on delivering what customers want and the environment needs, while keeping prices down. Customers will benefit from improved resilience and better services, with bill rises over 2015-2020 kept to an equivalent of 1.5% below inflation. Severn Trent already has the lowest combined average bill in England and Wales, currently £60 below the industry average, which will be frozen for next year. We have sought to strike the right balance between the service customers receive, the bills they pay, and returns to investors. We believe our Plan is fair and balanced whilst delivering better services, better value and a healthier environment."

The Plan reflects guidance given by Ofwat in January 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. These included the Birmingham resilience project, legacy adjustments and outcome delivery incentives (ODIs). We have submitted the required information in response to all the evidence requests made by Ofwat. We have also had a positive engagement with other stakeholders and support from the Water Forum, our customer challenge group.

The key elements of the plan that change since first submission in December 2013 are:

Customer Bills

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

Real change in average household bills

	2015/16	2016/17	2017/18	2018/19	2019/20
Annual change	-3.3%	-1.7%	0.0%	0.0%	1.2%
Cumulative change	-3.3%	-4.9%	-4.9%	-4.9%	-3.8%

Weighted Average Cost of Capital

Adoption of Ofwat's risk and reward guidance - weighted average cost of capital (WACC) for the wholesale business of 3.7%; retail margin of 1.0% for household and 2.5% for non-household; giving an overall WACC of 3.85% for the appointed business.

Outcome Delivery Incentives

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

Total Expenditure

Total expenditure (totex) of £6.2 billion (£6.1 billion in December plan), including £379 million related to the Birmingham strategic resilience scheme. We have revised the Birmingham resilience scheme to a total cost that is now £230 million lower than the December Plan, but it will now be completed in one 5 year regulatory period, rather than two, providing customers with earlier improvements. As we will be delivering the scheme more quickly, the total investment programme in AMP6 period at £3.3bn is now £125 million higher than the original plan. The PAYG (pay as you go) rate for the wholesale business has been adjusted to c.57% from c.55%. Water PAYG has been adjusted to 61% from 59% and Wastewater to 54% from 49%.

Regulatory Capital Value

RCV (Regulatory Capital Value) expected to be around £10.1 billion by 2020 (nominal). Nominal assumes inflation of 3.3% p.a.

Legacy Adjustments

Legacy adjustments - the Plan includes an additional £10m shortfall to RCV to reflect serviceability performance that fell short of our targets.

Return on Regulated Equity

The Plan gives a RoRE (return on regulated equity) range in the appointed business of between 1.1% to 9.6%.

Severn Trent Plc will be holding a webinar to discuss the revised Plan at 16:15 BST on Tuesday 1 July at www.severntrent.com

Key facts:

	December Plan (includes pension deficit recovery payments)	Revised Plan
Totex
Wholesale Water Totex	£2,805m	£2,930m
Wholesale Wastewater Totex	£2,656m	£2,658m
Total Wholesale Totex	£5,461m	£5,588m
Retail Totex	£606m	£604m
Totex - Retail and Wholesale Total	£6,067m	£6,192m
Wholesale WACC
Assumed RPI	3.3%	3.3%
Blended cost of debt	2.54%	2.75%
Cost of equity	6.7%	5.65%
Assumed gearing in plan	60%	62.5%
Vanilla WACC	4.20%	3.70%
Customer bills
Average (equivalent annual) change over AMP6	-1.2%	-1.5%

Enquiries:

Liv Garfield	Severn Trent Plc	0207 353 4200 (on the day)
Chief Executive		02477 715000
Tony Ballance	Severn Trent Plc	0207 353 4200 (on the day)
Strategy and Regulation Director		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

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).

 

END

 

 

MSCLLFSIRRIDFIS