TIDMSVT
RNS Number : 6861M
Severn Trent PLC
25 May 2022
Preliminary Announcement of Annual Results
25 May 2022
Results for the year to 31 March 2022
Continuing to deliver a strong performance for all
stakeholders
Supporting our region and enhancing the environment
-- New affordability scheme worth GBP30 million to support an
additional 100,000 customers through a rising inflation
environment, taking the total number supported by 2025 to
315,000
-- Launched our Get River Positive pledges, setting the
benchmark for the industry, targeting a reduction in the average
number of storm overflow spills to 20 by 2025 and committing to
zero RNAGs(1) by 2030
-- Confident of achieving 4* Environmental Performance
Assessment (EPA)(2) status from the Environment Agency for a third
year running
-- Delivered over 90% of our 5,000 hectare biodiversity
commitment, five years ahead of plan, contributing 1% of UK's
Nature Recovery Network target
-- On track for Net Zero by 2030, with best-ever renewable
generation of 507 GWh(3) , increasing total self-generation by 6%
and recognised in the top 2% of global companies in the Carbon
Disclosure Project's climate change 'A list'
-- Levelling up across our region with 47% of this year's new
talent intake coming from social mobility cold spots and 40% of our
Kickstarters securing jobs or going back into further education
Best-ever operational performance with 88% of measures in
positive territory resulting in GBP79m ODI(4) rewards
-- Improved service for customers and developers, with both
measures of experience (C-MeX and D-MeX) in reward
-- Delivered AMP(5) to date reductions in water quality
complaints (20%), pollutions (30%) and blockages (33%)
-- Good progress on capital schemes with GBP604m invested this
year; AMP7 to date core capital spend 10% ahead of AMP6 and 100% of
AMP7 to date Water Industry National Environment Programme schemes
delivered
-- Fast start on Green Recovery: 27,000 smart meters installed,
construction underway in UK's first catchment-scale flood
resilience programme in Mansfield and grant scheme launched for
lead pipe replacement in Coventry
Strong financial performance, supporting growth in AMP7 and
beyond
-- RoRE(6) of 8.7% with our best-ever ODIs, totex control and financing outperformance
-- On track to deliver 10.8% real RCV(7) growth in AMP7 (28.6% nominal RCV growth)
-- Group turnover of GBP1,943 million, up 6.4% as non-household
consumption returns to pre-pandemic levels
-- Group adjusted PBIT(8) of GBP508 million and reported PBIT
GBP506 million, both up GBP36 million (7.5%), in line with
expectations
-- Robust balance sheet with pension deficit reduced to GBP128
million and Regulated gearing of 59.5%(9)
-- Consistently outperforming the cost of debt allowance,
reflecting active treasury management and just 27% of debt
index-linked
-- Property profits GBP13.2 million; GBP50 million since 2017,
half way to our ten-year target of GBP100 million by 2027
-- Adjusted basic EPS(10) of 96.9 pence. Basic loss per share of
35.2 pence after exceptional deferred tax charge equivalent to
119.6 pence per share
-- Proposed final dividend of 61.3 pence, in line with our
inflation-linked dividend policy and payable on 13 July 2022
Liv Garfield, Chief Executive, Severn Trent Plc, said:
"From the frontline to the boardroom, we are committed to making
a positive impact on our regions, its people and the environment. I
am proud of what we've achieved during the past year, creating new
jobs to boost the local economy, providing financial support to
community projects and planting 74 Tiny Forests to leave a carbon
neutral legacy for the Birmingham 2022 Commonwealth Games.
We've done this while delivering on our operational commitments;
over 88% of our regulatory measures have met or exceeded target.
We're playing our part in helping the UK become a sustainable, low
carbon economy, recording our best-ever year of renewable energy
generation.
In March we launched 'Get River Positive', a series of pledges
to improve our region's rivers. This is not just an ambition, it is
a firm commitment. We're investing GBP100m a year and an additional
GBP566 million on Green Recovery projects to deliver these
pledges.
As cost of living pressures continue, we're acting now to
support people struggling to pay their bills. Our customers have
the second lowest combined bill in the UK at around GBP1 per day
but we know that for some, paying their bill is a challenge. I'm
pleased to announce today that we will be helping a further 100,000
people to reduce their water bill by up to 90%, part of our plan to
help end water poverty(11) in our region."
Group results
Increase/ (decrease)
2022 2021 %
GBPm GBPm
Group turnover 1,943.3 1,827.2 6.4
Adjusted group PBIT 508.3 472.8 7.5
Group PBIT 506.2 470.7 7.5
pence/ pence/
share share
Adjusted basic EPS 96.9 105.4 (8.1)
Basic earnings per share (35.2) 89.1 (139.5)
Total ordinary dividends 102.14 101.58 0.6
Footnotes to page 1 of this RNS
1. The Environment Agency's analysis of Reasons for Not
Achieving Good Status (RNAGs) record the source, activity and
sector involved in causing waters to be at less than good
status.
2. Environmental Performance Assessment (EPA) status will be
confirmed by the Environment Agency (EA) in July.
3. Total self-generation of 550 GWh in 2021/22, of which 507 GWh is from renewable sources.
4. ODIs = Outcome Delivery Incentives, quoted pre-tax and in
2017/18 prices unless otherwise stated. Percent and number of
measures green are Severn Trent Water only.
5. AMP: Asset Management Plan (see glossary)
6. RoRE: Return on Regulatory Equity (see glossary)
7. RCV: Regulatory Capital Value (see glossary). RCV is measured
including the impact of Green Recovery and real options. Nominal
RCV is measured using the Office for Budget Responsibility's March
forecast.
8. Adjusted profit before interest and tax (PBIT) excludes
exceptional operating items and amortisation of acquired intangible
assets.
9. Regulated gearing is calculated as Severn Trent Water Group's
net debt divided by the RCV of the regulated businesses excluding
the impact of Green Recovery and real options.
10. Adjusted basic EPS is set out in note 10.
11. The Consumer Council for Water ('CCWater') considers
customers to be in 'Water Poverty' when they are spending more than
five percent of their income (after housing costs) on their water
bill.
Note: FY2022/23 technical guidance is included in the Chief
Financial Officer's section of this announcement.
Enquiries
Investors & Analysts
Rachel Martin Severn Trent Plc +44 (0) 782 462 4011
Head of Investor Relations
Media
Jonathan Sibun Tulchan Communications +44 (0) 207 353 4200
Press Office Severn Trent Plc +44 (0) 247 771 5640
Preliminary Results Presentation and Webcast
A presentation of these results hosted by Liv Garfield, CEO, and
James Bowling, CFO, will be available on our website
(severntrent.com) from 7.00am BST today, 25 May 2022.
We will be hosting a live Q&A session with Liv, James 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
As a socially purposeful company Severn Trent is committed to
delivering for all of our stakeholders, providing great water and
waste water services to our customers, contributing positively to
our region and delivering for our colleagues and shareholders. As
we emerge from the pandemic into an increasingly challenging
economic environment, we are working hard to deliver great
operational performance, while also continuing to invest for our
future and support those customers who are struggling
financially.
Our bills are the second lowest in England, but we know that
even GBP1 a day becomes a struggle for some of our customers,
especially with the current cost of living pressures. We are proud
to announce today that we will support an additional 100,000
customers by 2025, taking the total proportion of customers
supported to around six percent, in line with the number of
customers assessed as living in water poverty in our region.
Delivering strong operational performance and a substantial
investment programme is our clear priority and we were the only
company to be in the top three of both Ofwat's Monitoring Financial
Resilience Report and Service Delivery Report. This year 88% of
Severn Trent Water's performance targets are in positive territory,
up six percentage points year-on-year, resulting in GBP79 million
of ODI outperformance. I am very proud of our standout success in
delivering an AMP to date reduction in water quality complaints of
20%, a 30% reduction in pollutions, a 33% improvement in blockages
and transforming the biodiversity of over 4,600 hectares.
Whilst we continue to be recognised for our environmental
performance, confident of achieving 4* EPA status for a third year
in a row, we want to go further in improving the environment on
which we depend. We announced our bold Get River Positive pledges
in March, committing to reduce our average storm overflow spills to
20 per year by 2025 and causing no harm to rivers, assessed using
the Environment Agency's 'RNAG' measure, by 2030.
Keeping our people and communities safe is integral to
everything we do; we had no major safety incidents and no
fatalities in the last twelve months, with Lost Time Incident rate
('LTI') reducing by 13%. Our insourcing activity, including our
in-house design expertise, combined with the flexibility of our
expanded supply chain, provides resilience in our capital programme
with over 75% of the AMP7 waste treatment programme now designed.
Meanwhile, our best-ever energy self-generation provides protection
against the impact of soaring power costs, and our continuous drive
for efficiency has helped to offset inflationary pressures and give
us confidence in our five-year totex plan.
Our drive to deliver sustainable benefits for all stakeholders
is embedded in our culture and I am delighted to see this reflected
in another set of strong results, with in-year RoRE of 8.7%, more
than double the base return, and a forecast for AMP7 nominal RCV
growth of 28.6%.
Supporting our customers, colleagues and communities
Our purpose is taking care of one of life's essentials and we
are committed to making our service affordable for all our
customers. We already have the second lowest water bills in England
at GBP389 a year as well as providing an extensive range of schemes
for those that are struggling to pay their bills. We currently
support around 215,000 customers, well ahead of our 2025 target of
195,000.
Today we are launching a new affordability scheme, supported
through a package of financial support worth GBP30 million, which
will see the number of customers helped through our social tariff
increase by 100,000.
This will mean that around six percent of our customers will be
supported by a social tariff by the end of the AMP; taken together
with the other types of financial support we will be helping around
315,000 of our most financially vulnerable customers by 2025.
Our Severn Trent Community Fund offers incredible support to
charities and other organisations in our region, with a further
c.GBP2 million awarded to 73 unique projects this year by our
customer-led panel.
That said, we know we can do even more to help the communities
we serve through our role as a large employer in the Midlands and
Wales, and this year we have:
-- Recruited 47% of this year's new talent intake from social mobility cold spots;
-- Welcomed 340 young people under the Government's Kickstart
scheme, of which 40% have secured jobs or gone back into education;
and
-- Made the largest pledge of any UK company and most offers to
date under the #10000BlackInterns programme.
We recently launched our 'Wonderfully You' Diversity and
Inclusion Plan and have introduced four Executive-led advisory
groups on Ethnicity, Disability, LGBTQ+ and Women in STEM and
Operations to help us reach our commitments. We were pleased to be
recognised in Stonewall's Top 50 Employers, and in the top five
companies on the Social Mobility Index.
We were also delighted to be awarded 'best employee experience'
by the Chartered Institute of Personnel and Development this year.
Our engagement scores remain well above the global benchmark and,
despite the volatile labour market, our overall time to hire and
attrition remain at pre-pandemic levels.
Delivering operational excellence every day
Despite the disruption of the pandemic, our teams have worked
hard to deliver impressive results once again. We're proud to have
88% of Severn Trent Water ODI measures in reward, once again
demonstrating the breadth of our operational leadership, and we are
determined to drive the change needed to hit the four targets that
we did not meet. Our performance resulted in a net reward of GBP79
million, taking the total amount earned so far this AMP to GBP156
million.
-- Water - the investments we made in AMP6, combined with a
relentless focus on performance is proving effective, with ten in
twelve of our water measures green this year.
o So far in AMP7, water quality complaints are down 20%,
resulting from increased flushing and calm network principles; a
44% reduction since a peak in 2016.
o We remain on track to reduce leakage by 15% by 2025 and 50% by
2045, helped by the installation of over 110,000 meters this
year.
o The number of days in which our customers experience
persistent low pressure is down 10% this year, through the
installation of localised pumping solutions.
o CRI (a measure of water quality) has improved from an average
in AMP6 of 7.7 to 2.0 in AMP7 to date, due to our source-to-tap
approach and early identification of risks through innovation such
as online flow cytometry.
-- Waste water - our waste operational performance remains
strong, with six in eight measures green as we use data analytics
to help us work smarter and target investment in the right
places.
o Blockages are down 33% in AMP7 following increased investment
in repairs and cleansing, more sewer sensors and customer
education.
o We have reduced the number of pollutions by 30% this AMP,
supported by increased condition-based monitoring of assets and our
new Waste Network Response Team.
o Internal and public sewer flooding are in reward, but we have
had a tough final quarter on external sewer floodings due to a
series of severe storms and slippage on key SLAs, which meant we
missed our target this year; we're confident our responsive
measures will turn our performance around.
-- Customer - we're making good progress with all nine of our
customer service measures green, as we use more data insights to
drive the right behaviours and processes.
o We are in positive territory on C-MeX having delivered
incremental improvements since AMP6; supported by new initiatives
to minimise disruption such as our virtual meter reading team,
which is resolving 80% of work without a field visit.
o Severn Trent Water and Hafren Dyfrdwy placed first and second
respectively on D-MeX, as our segmented customer offering drives
further increases in customer satisfaction scores.
Investing in our future
We remain on track to deliver both our AMP7 and Green Recovery
capital programmes, which will result in real RCV growth of 10.8%,
despite tough market conditions.
During the year we have commissioned some key projects such as
our first wetland at Cinderford in Gloucestershire, our thermal
hydrolysis plant at Finham in Coventry which is now exporting gas
to the grid, and we have had a fast start with over 10% more
projects on site compared to the same point in the last AMP.
We have benefitted from the flexibility of our insourced design
function and we have broadened our range of suppliers, providing
resilience to our supply chain and helping to mitigate cost
pressures.
We have already designed over 75% of our GBP900 million waste
treatment programme, and to protect programme delivery and limit
the impact of higher inflation we have procured key components in
advance for over 70% of our AMP7 Water Framework Directive
schemes.
Our Green Recovery projects are progressing at pace, with all of
our projects mobilised and key suppliers engaged. We have already
installed over 27,000 smart meters and started replacing lead
supply pipes in Coventry. We have a contractor working with us to
increase water supplies out of Church Wilne, which will include
developing new wetlands. We have also developed designs for our
sustainable flooding resilience plans in Mansfield using
sustainable urban drainage solutions ('SUDS') to manage surface
water run-off whilst enhancing the environment for residents.
Taking care of the environment
Our region's rivers have improved significantly in the past 32
years, during which time we have invested GBP12 billion in our
waste treatment and networks. Since the 1990s, we have reduced the
levels of phosphate and ammonia from our operations by 80% and 72%
respectively. We are consistently recognised as a top performer by
the Environment Agency's Environmental Performance Assessment,
having been awarded their highest 4* status for the last two years
and confident in achieving for a third year.
We continue to play an active role in improving the health of
our rivers and recognise that we can do more by taking a leading
role in the sector. We welcome DEFRA's consultation on
significantly tightening environmental targets and in March we
launched our five-step commitment to restore and revitalise our
region's rivers. Our pledges include:
-- Reducing the Reasons for Not Achieving Good Status ('RNAGs')
attributed to Severn Trent's operations from a baseline of 960 to
zero by 2030.
-- Reducing spills from storm overflows and sewage treatment
works to an average of 20 per year by 2025, which is more ambitious
than the Government's proposed target. We have already seen a
year-on-year reduction from an average of 27 spills to an average
of 25 spills, placing us on track to deliver our 2025
commitment.
-- 90% of our customers are within an hour's drive of a
designated bathing site. We have already started transforming the
quality of 50 kilometres of river through our Green Recovery
bathing river project.
Details of all our pledges and work completed to date can be
found at stwater.co.uk/get-river-positive/.
As an organisation we are committed to our river pledges; I have
personally met with all first line managers to ensure the whole
organisation is aligned on what we need to do, and a further 8% of
every employee's future bonus will be dedicated to their
achievement, on top of the 12% already linked to environmental
measures.
More broadly in our region, our Great Big Nature Boost has
improved the biodiversity of over 4,600 hectares of land in the
last two years, delivering over 90% of our 5,000 hectares by 2027
target which will represent 1% of the UK's 2042 Nature Recovery
Network target. We're bringing our supply chain with us too, with
all contracts now requiring a net 15% biodiversity gain for site
construction works that require ecological appraisal.
In partnership with the RSPB, Hafren Dyfrdwy has improved 340
hectares of land adjacent to Lake Vyrnwy through peatland
restoration - one of the most effective ways to sequester carbon
from the atmosphere, capturing up to 47 kilotonnes after 100
years.
We are making good progress towards our Net Zero by 2030 target,
helped by our highest ever self-generation with a further 6%
increase this year. We are improving the accuracy of our own
emissions data through drone and fixed monitoring, and trialling a
range of innovative solutions to identify the most effective ways
of reducing process emissions, with a dedicated process scientist
in each of our four regions focusing on asset optimisation trials.
We're also on track with our scope three emissions target of 70% of
suppliers having science based targets by 2026, with 38% already
committing to set targets by 2023.
Summary
It has been a year in which we have made significant steps in
improving our environment, expanded the support available to our
customers at a time they need it most, and delivered another year
of strong operational and financial performance and substantial
investment in our region.
Chief Financial Officer's Review
Our financial performance in the year reflects our robust
recovery from the impacts of COVID-19 in the previous year .
Non-household revenue returned to pre-pandemic levels and while
there was upward pressure particularly on power and chemical costs,
our PBIT and adjusted earnings per share grew in line with
expectations.
With rising inflation, partly driven by higher energy costs,
impacting our business and our customers, we face new challenges as
we move into the third year of the AMP. We are ready to face these,
having already invested in the capacity to generate over 50% of our
energy needs, and keeping in line with our totex allowance for the
first two years of the AMP. For our customers, we're expanding our
financial support to an additional 100,000 customers who struggle
to pay their bills through a GBP30 million package of help, enabled
by improved efficiencies in our retail operations, including better
management of void properties and more efficient use of our
existing assistance programmes, with the balance being contributed
by the Group.
We have a strong balance sheet, well positioned to deliver real
RCV growth over AMP7 of 10.8%, equivalent to 28.6%(1) nominal
growth. We successfully raised GBP245 million (net of issue costs)
in the first half of the year from an equity placing to fund our
Green Recovery programme and end the second half with regulated
gearing of 59.5% (down from 64.5%). Our net pension deficit is
GBP128 million (2021: GBP368 million), down more than GBP400
million since 2017, reflecting strong asset performance and an
effective investment hedging strategy.
Higher inflation has increased the cost of our index-linked
debt, but our cash interest cost (which excludes the non-cash
indexation adjustment) was 10 bps lower year-on-year, due to active
treasury management and our strategy to switch to a greater
weighting of fixed rate debt as we moved from AMP6 into AMP7. We
issued GBP500 million of new debt in the year, all at rates below
the iBoxx index.
Our ODI rewards of GBP79 million, tight control of totex and
financing outperformance of 300 bps, helped by higher inflation and
a relatively low level of index-linked debt, led to a strong annual
RoRE of 8.7%.
Our proposed dividend is in line with our policy for AMP7 to
grow the dividend in line with CPIH.
A summary of our financial performance for the year is set out
below:
2022 2021 Change
GBPm GBPm GBPm %
Turnover 1,943.3 1,827.2 116.1 6.4
Adjusted PBIT 508.3 472.8 35.5 7.5
Adjusting items (2.1) (2.1) -- --
PBIT 506.2 470.7 35.5 7.5
Net finance costs (269.4) (187.1) (82.3) (44.0)
Gains/(losses) on financial instruments, share of net loss of joint venture
and reduction
in expected credit loss on loan receivable 37.3 (16.4) 53.7 327.4
Profit before tax 274.1 267.2 6.9 2.6
Tax (361.3) (55.0) (306.3) (556.9)
(Loss)/profit for the year (87.2) 212.2 (299.4) (141.1)
Our turnover was at the top of our expected range as
non-household consumption returned to pre COVID-19 levels. We also
saw an increase in diversions income, due mainly to HS2, of GBP26
million. This revenue represents the recovery of costs incurred and
is entirely offset by a corresponding increase in infrastructure
renewals expenditure.
Adjusted PBIT was up 7.5% to GBP508.3 million. The increase in
regulated revenue was partially offset by increases in operating
costs, particularly energy and chemicals, but helped by a very
strong performance in our Business Services division.
Reported Group PBIT was up 7.5% to GBP506.2 million (2020/21:
GBP470.7 million).
Our net finance costs rose as higher inflation in the period
increased the cost of our index-linked debt. Our effective interest
cost was 130 bps higher at 4.7% (2020/21: 3.4%) but our effective
cash cost of interest, (which excludes the inflation uplift on
index-linked debt) was 10 bps lower at 3.0% (2020/21: 3.1%).
Our full effective tax rate excluding the exceptional deferred
tax charge this year was 24.4% (2020/21: 20.6%) and our adjusted
effective current tax rate was 0.6%, down from 11.4% in 2020/21. In
his 2021 Budget, the Chancellor introduced the 'super deduction' of
130% capital allowances. As expected, the benefit of this reduced
our current tax payable in the year to nil.
An increase in the corporation tax rate to 25% from FY24 was
also announced and this r esulted in an exceptional deferred tax
charge to the income statement of GBP294.4 million from
recalculating our opening deferred tax balances at the new rate,
which is included in our reported tax charge of GBP361.3 million.
Deferred tax is an accounting adjustment that reflects differences
in timing between when profits are recorded in financial statements
and when they are subject to tax. Because of the nature of our
business, including our significant rolling capital programme and
the long lives of our assets, these timing differences will not
reverse for the foreseeable future, and may never do so.
As a result of the exceptional deferred tax charge there was a
reported Group loss after tax of GBP87.2 million (2020/21: profit
of GBP212.2 million), and a basic loss per share of 35.2 pence,
(2020/21: earnings of 89.1 pence). Adjusted basic earnings per
share (which excludes the exceptional deferred tax charge) was 96.9
pence per share (2020/21: 105.4 pence).
Operational cash flow was GBP848.9 million, (2020/21: GBP860.3
million). EBITDA increased by GBP57.3 million but our pension
contributions were GBP23.8 million higher and there was a reduction
in working capital of GBP60.9 million in the previous year that
increased operating cash flow. Cash capex was GBP594.3 million, in
line with the prior year. Net cash outflow before changes in net
debt was GBP76.7 million (2020/21: GBP170.2 million).
Our net debt was GBP6,507.8 million (2021: GBP6,443.8 million)
and regulated gearing was 59.5% (2021: 64.5%) reflecting strong
capital management, the benefit of our recent equity placement and
higher inflation on our RCV. Our cash flow requirements are now
funded to February 2024.
Severn Trent Water's RoRE for the year was 8.7%, 480 bps above
the base return of 3.9%. Outperformance came mainly from our
customer ODIs, with 88% 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 seen the adverse impact of
higher inflation on our operating and finance costs, i n the longer
term we expect to see the benefits of higher inflation through
indexation of our RCV, revenue growth and lower gearing, all of
which underpin our inflation-linked dividend policy for AMP7.
(1) Nominal RCV is measured using the Office for Budget
Responsibility's March forecast.
Regulated Water and Waste Water
2022 2021 Change
GBPm GBPm GBPm %
Turnover 1,804.4 1,693.9 110.5 6.5
Net labour costs (165.3) (156.0) (9.3) (6.0)
Net hired and contracted costs (190.0) (187.5) (2.5) (1.3)
Power (114.1) (100.0) (14.1) (14.1)
Bad debts (24.8) (40.5) 15.7 38.8
Other costs (250.7) (242.8) (7.9) (3.3)
(744.9) (726.8) (18.1) (2.5)
Infrastructure renewals expenditure (198.2) (151.0) (47.2) (31.3)
Depreciation and amortisation (385.0) (364.0) (21.0) (5.8)
Adjusted PBIT 476.3 452.1 24.2 5.4
Turnover for our Regulated Water and Waste Water business was
GBP1,804.4 million (2021/22: GBP1,693.9 million) and adjusted PBIT
was GBP476.3 million (2021/22: GBP452.1 million).
Turnover increased by GBP110.5 million with the main movements
being:
-- A GBP62.0 million net increase from higher non-household
consumption and lower household consumption, returning to more
normal patterns following the easing of COVID-19 restrictions
earlier in the year;
-- An increase of GBP25.9 million in diversions income largely
due to the increased activity related to HS2; an offset is seen in
higher infrastructure renewals (see below);
-- An increase of GBP4.7 million in non-household revenue due to
additional properties successfully being brought into charge under
the Voids and Gaps Incentive Scheme; an offset is seen in higher
operating costs (see below);
-- An increase of GBP12.1 million in renewable energy income in our Bioresources business; and
-- Other net increases of GBP5.8 million, including higher
miscellaneous sales and the adjustment for inflation in the
year.
Net labour costs of GBP165.3 million were 6.0% higher
year-on-year. Gross employee costs increased due to the annual pay
award of 2.3% and an increase in FTE due to insourcing activity and
mobilisation of the Green Recovery programme. This was partially
offset by higher capitalisation of employee costs, largely related
to insourcing activity.
Net hired and contracted costs increased by GBP2.5 million
(1.3%). A n increase in biodiversity and catchment spend, along
with additional cloud storage costs and increased debt management
activity were partly offset by the reduction from insourcing
activity
Power costs were GBP14.1 million (14.1%) higher than the
previous period, much less than the average market wholesale energy
price increase of more than 250% year-on-year. We benefited from
self-generation in Bioresources and internal hedges between our
regulated business (a net consumer of energy) and our non-regulated
business (a net generator).
Bad debt charges reduced by GBP15.7 million and represented 2.1%
of household revenue. The outlook for unemployment has improved,
and we have not seen a deterioration in our collection performance.
However, pressure on household budgets from increasing energy
bills, other cost of living inflation and higher national insurance
has led us to retain most (GBP8.5 million) of the forward-looking
provision taken since the start of the pandemic at the balance
sheet date.
Other costs increased by GBP7.9 million. Higher chemical and
fuel costs during the period resulted in an increase of GBP2.9
million and the higher voids / gaps incentive payments referred to
above increased costs by GBP2.2 million. The remaining increase
came from a resumption of employee training and a prior year rates
refund.
Infrastructure renewals expenditure was GBP 47.2 million higher
in the period, reflecting the planned step up in the programme and
diversions activity related to HS2 referred to above.
Depreciation and amortisation of GBP385.0 million was GBP21.0
million higher year-on-year in line with the growing asset
base.
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 against the base return allowed in the Final
Determination.
Severn Trent Water's RoRE for the year ended 31 March 2022 and
for the two years ended on that date is set out in the following
table:
2021/22 AMP7 to date
% %
Base return 3.9 3.9
Enhanced RoRE reward(1) 0.3 0.3
ODI outperformance(2) 1.6 1.6
Wholesale totex performance 0.0 0.0
Retail cost performance (0.1) (0.3)
Financing outperformance(3) 3.0 1.7
Regulatory return for the year(4) 8.7 7.2
1 Fast track reward taken over the first two years of AMP7.
2 ODI performance includes Per Capita Consumption ('PCC') and forecast C-MeX and D-MeX outturn.
3 Includes 1.0% for the variance on tax from the benefit of
super deduction capital allowances and a prior year tax credit.
4 Calculated in accordance with Ofwat guidance set out in RAG
4.10, which excludes Ofwat's AMP7 tax true-up mechanism.
We have delivered RoRE of 8.7% in the year, outperforming the
base return by 480 bps as a result of:
-- ODI performance of 1.6%, driven by strong performance across
the majority of measures, with 88% meeting or exceeding regulatory
targets;
-- Our neutral totex position, reflecting good cost control and
efficient spend over the year; and
-- Financing performance of 3.0%, driven by our AMP7 financing
strategy of maintaining a low level of index-linked debt and the
tax benefit of super deduction capital allowances.
Business Services
2022 2021 Increase/(decrease)
GBPm GBPm GBPm %
Turnover
Operating Services and Other 88.1 82.8 5.3 6.4
Green Power 55.5 51.9 3.6 6.9
143.6 134.7 8.9 6.6
Adjusted PBIT
Operating Services and Other 19.7 20.9 (1.2) (5.7)
Green Power 5.6 2.6 3.0 115.4
Property Development 13.2 2.3 10.9 473.9
38.5 25.8 12.7 49.2
Business Services turnover was GBP143.6 million (up 6.6%) and
adjusted PBIT was GBP38.5 million (up 49.2%).
In our Operating Services business, turnover was up GBP5.3
million due to increased activity on the MoD contract. Adjusted
PBIT was GBP1.2 million lower mainly due to legal costs related to
the industry-wide property searches claims (see note 15 for further
details).
In Green Power, turnover increased by GBP3.6 million and
adjusted PBIT increased by GBP3.0 million. Higher energy prices and
incentive income from increased gas generation were partially
offset by lower gate fee income, as domestic waste volumes received
under local authority contracts were higher in the previous year
due to lockdown whereas volumes of commercial food waste improved
this year. Intra-group energy price hedges, which benefited the
regulated business, limited the increase in Green Power's revenue
that would have been achieved if all energy had been sold at
prevailing wholesale market rates.
Profits from Property Development were GBP10.9 million higher
than the prior year, when there were no large disposals. We remain
on track for our target of GBP100 million PBIT from Property
Development over the ten years to 2027, having now generated
c.GBP50 million since setting the target in 2017.
Corporate and other
Corporate costs were GBP8.2 million (2020/21: GBP5.9 million).
The increase is largely due to releases in the prior year of
provisions that were no longer required. Our other businesses
generated PBIT of GBP1.3 million (2020/21: GBP0.7 million).
Net finance costs
Net finance costs for the year were GBP82.3 million higher than
the prior year at GBP269.4 million. Average net debt was broadly
flat at GBP6,292.2 million (2020/21: GBP6,263.6 million) but higher
inflation in the year increased the cost on our index-linked debt
by GBP87.3 million. Our effective interest cost was 4.7% (2020/21:
3.4%).
We issued GBP500 million of new debt at rates consistently below
the iBoxx index and as a result our effective cash cost of interest
(excluding the inflation uplift on index-linked debt and
pensions-related charges) was lower at 3.0% (2020/21: 3.1%).
Capitalised interest of GBP34.5 million was GBP4.1 million
higher year-on-year, due to the higher effective interest cost
compared to last year.
Our earnings before interest, tax depreciation and amortisation
(EBITDA) interest cover was 3.5 times (2020/21: 4.7 times) and
adjusted PBIT interest cover was 1.9 times (2020/21: 2.6 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
GBP650 million floating to fixed, and cross currency swaps with a
sterling principal of GBP141 million, which economically act to
hedge exchange rate risk 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 that is 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 gain of GBP51.5 million (2020/21: loss
of GBP8.2 million) in relation to these instruments.
Note 7 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 90% of our estimated wholesale energy
import for 2022/23 through physical hedges with suppliers,
financial hedges with bank counterparties and natural hedges from
export of self-generated energy.
Share of loss of joint venture
We have seen the expected improvement in Water Plus's
performance during the year following the recovery in economic
activity in the UK and the re-financing carried out last year.
Our share of Water Plus's loss after tax for the year was GBP2.2
million (2020/21: GBP8.9 million excluding GBP4.9 million of
exceptional losses).
Taxation
We are committed to paying the right amount of tax at the right
time. 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. In his 2021 Budget, the Chancellor
introduced the 'super deduction' of 130% capital allowances. As
expected, the benefit of this reduced our current tax payable in
the year to nil.
2022 2021
GBPm GBPm
Tax incurred:
Corporation tax 1.2 30.0
Business rates and property taxes 83.4 83.6
Employer's National Insurance 30.5 28.0
Environmental taxes 6.1 6.7
Other taxes 5.9 5.5
127.1 153.8
Further details on the taxes and levies that we pay can be found
in our report, "Explaining our Tax Contribution 2021/22", 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, before exceptional taxes, was GBP66.9 million (2020/21:
GBP55.0 million) and we made net corporation tax payments of GBP1.2
million in the year (2020/21: GBP23.2 million). The difference
between the tax charged and the tax paid is summarised below:
2022 2021
GBPm GBPm
Tax on profit on ordinary activities before exceptional taxes 66.9 55.0
Tax effect of timing differences (71.7) (28.2)
Current tax credits recorded in Other Comprehensive Income or equity - (0.4)
Overprovisions in previous years 4.8 3.6
Corporation tax payable for the year - 30.0
Overpayments in prior years offset in the current year 1.2 (6.8)
Net tax paid in the year 1.2 23.2
Net tax paid in the year of GBP1.2 million relates to amounts
paid to Water Plus for consortium relief (2020/21: GBP4.9 million
paid to Water Plus).
Note 8 in the financial statements sets out the tax charges and
credits in the year, which are described below.
The current tax credit for the year was GBP4.8 million (2020/21:
charge of GBP26.8 million) and the deferred tax charge (before the
exceptional charge arising from the change of rate) was GBP71.7
million ( 2020/21 : GBP28.2 million).
Our effective tax rate excluding the exceptional deferred tax
charge this year was 24.4% (2020/21: 20.6%), which is higher than
the UK rate of corporation tax (19%), mainly due to deferred tax on
temporary differences arising during the year charged at 25%,
partly offset by the permanent difference that arises from the
additional 30% deduction included in the super deduction (2020/21:
higher due to items of expenditure that are not deductible for
tax).
Our adjusted effective current tax rate was 0.6% (2020/21:
11.4%) (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. And in the current year, this has been enhanced by the
super deduction for certain for certain capital expenditure, which
gives 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
will pay in future periods, when the tax relief on the capital
expenditure has already been received and we receive no allowance
for the depreciation charge arising on that expenditure. This is
the most significant component of our deferred tax position.
Result for the year and earnings per share
Total loss for the year was GBP 87.2 million (2020/21 profit:
GBP 212.2 million).
The basic loss per share was 35.2 pence (2020/21: earnings of
89.1 pence). Adjusted basic earnings per share was 96.9 pence
(2020/21: 105.4 pence). For further details see note 10.
Cash flow
2022 2021
GBPm GBPm
Operational cashflow 848.9 860.3
Cash capex (594.3) (593.2)
Net interest paid (185.0) (186.2)
Proceeds on sale of subsidiary -- 0.7
Net cash flows from swap terminations 5.6 (0.2)
Net tax paid (1.2) (23.2)
Free cash flow 74.0 58.2
Dividends (254.5) (240.2)
Issue of shares 257.2 11.8
Change in net debt from cash flows 76.7 (170.2)
Non-cash movements (140.7) (42.1)
Change in net debt (64.0) (212.3)
Opening net debt (6,443.8) (6,231.5)
Closing net debt (6,507.8) (6,443.8)
2022 2021
GBPm GBPm
Bank loans (782.5) (1,011.1)
Other loans (5,823.5) (5,471.3)
Lease liabilities (117.4) (121.3)
Net cash and cash equivalents 107.7 44.0
Cross currency swaps 28.3 31.9
Loans due from joint venture 79.6 84.0
Net debt (6,507.8) (6,443.8)
Operational cash flow was GBP848.9 million (2020/21: GBP860.3
million). Increased PBIT and higher depreciation and amortisation
were more than offset by increased pension contributions and a
large decrease in working capital in the prior year.
Net cash capex of GBP594.3 million (2020/21: GBP593.2 million)
was within our expected range.
Our net interest payments of GBP185.0 million (2020/21: GBP186.2
million) were broadly in line with the previous year as the impact
of higher net debt was largely offset by the lower effective cash
cost of interest, and the majority of the increase in interest
costs was due to non-cash indexation. Our net tax payments were
GBP1.2 million, a decrease of GBP22.0 million, mainly due to the
impact of the super deduction which resulted in an overall loss
position for tax.
Our equity placing in May 2021 raised net proceeds of GBP245.3
million and we received GBP11.9 million (2020/21: GBP11.8 million)
from the exercise of options under the employee Save As You Earn
share scheme. Our dividends paid increased in line with our
policy.
These cash flows, together with accounting adjustments to the
carrying value of debt, resulted in an increase of GBP64.0 million
in net debt (2020/21: GBP212.3 million).
At 31 March 2022 we held GBP107.7 million (2021: GBP44.0
million) in net cash and cash equivalents. Average debt maturity
was around 13 years (2021: 13 years). Including committed
facilities, our cash flow requirements are funded until February
2024.
Net debt at 31 March 2022 was GBP6,507.8 million (2021:
GBP6,443.8 million) and balance sheet gearing (net debt/net debt
plus equity) was 83.7% (2021: 85.0%). Regulated gearing (net debt
of our regulated businesses, expressed as a percentage of estimated
RCV) was 59.5% at 31 March 2022 (2021: 64.5%).
The estimated fair value of debt at 31 March 2022 was GBP1,075.8
million higher than book value (2021: GBP1,454.9 million higher).
The increase in the difference to book value is largely due to the
impact of higher 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 2022 interest rates for 69% (2021: 67%) of our gross
debt of GBP6,731.1 million were fixed; 4% 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 Seven Trent Water Outlook
Moody's Baa2 Baa1 Stable
Standard and Poor's 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 Severn Trent
schemes ('the Schemes') are closed to future accrual.
The most recent formal actuarial valuations for the Schemes were
completed as at 31 March 2019. The agreement reached with the
Trustee for the STPS, which is by far the largest of the schemes,
included:
-- Inflation-linked payments of GBP15.0 million per annum
through an asset-backed funding arrangement, 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;
-- Payments under another asset-backed funding arrangement of
GBP8.2 million per annum to 31 March 2032; and
-- Annual deficit reduction payments of GBP32.4 million,
increasing in line with inflation through to 31 March 2027.
In addition to these payments, the Company will directly pay the
annual PPF levy incurred by the STPS (GBP1.0 million in
2021/22).
The Schemes have entered into additional hedging arrangements to
reduce the impact of fluctuations in interest rates and inflation
on the Schemes' liabilities without adversely impacting the
expected return from the Schemes' assets.
In June 2021 we executed a bulk annuity buy-in for the MIPS,
which represents around 4% of the Group's defined benefit
liabilities. Under the buy-in, the liabilities of this scheme are
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 are 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.
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
GBP128.0 million (2021: GBP367.7 million). To calculate the pension
deficit for accounting purposes, we are required to use corporate
bond yields as the basis for the discount rate of our long-term
liabilities, irrespective of the nature of the scheme's assets or
their expected returns.
On an IAS 19 basis, the funding level increased to 95% (31 March
2021: 88%).
The movements in the net deficit during the year were:
Fair value of scheme assets Defined benefit obligations Net deficit
GBPm GBPm GBPm
At start of the period 2,600.4 (2,968.1) (367.7)
Amounts credited/(charged) to income statement 49.0 (59.7) (10.7)
Actuarial gains taken to reserves 68.9 119.6 188.5
Net contributions received and benefits paid (58.9) 120.8 61.9
At end of the period 2,659.4 (2,787.4) (128.0)
The income statement includes:
-- Current service costs of GBP0.2 million on the DVWS, which
remains open to further accrual but is closed to new members.
-- Scheme administration costs of GBP3.8 million; and
-- Net interest on scheme liabilities and expected return on the
scheme assets - together a cost of GBP6.7 million.
Higher interest rate expectations increased the discount rate,
which is derived from yields on high quality corporate bonds, by 80
bps. Inflation expectations have also increased by around 40 bps
since the previous year end. The impacts of these changes are
offsetting and resulted in a net decrease in the scheme liabilities
of around GBP193 million.
Changes to demographic assumptions reduced scheme liabilities by
around GBP6 million. This included an update to the most recent CMI
data tables and also a weighting to allow for the high mortality
experienced in 2021.
The actual outturn in the year for inflation and other
assumptions was worse than expected and this increased scheme
liabilities by GBP79 million.
The scheme assets increased in value by around GBP69 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 (GBP25.6 million); and
-- A deficit reduction payment of GBP35.6 million that was
deferred from March 2021 to April 2021.
There were also normal contributions of GBP0.2 million to the
DVWS and payments of benefits under the unfunded scheme amounting
to GBP0.5 million.
In April 2022 the deferred deficit reduction payment originally
scheduled for March 2022 of GBP32.4 million was paid.
Dividends
In line with our policy for AMP7 to increase the dividend by at
least CPIH each year, t he Board has proposed a final ordinary
dividend of 61.28 pence per share for 2021/22 (2020/21: 60.95 pence
per share). This gives a total ordinary dividend for the year of
102.14 pence (2020/21: 101.58 pence).
The final ordinary dividend is payable on 13 July 2022 to
shareholders on the register at 6 June 2022.
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 waste water effectively,
impacting our ability to return clean water to the environment.
Supply Chain and Capital Project Delivery
-- Key suppliers cannot meet contractual obligations causing
disruption to capital delivery (cost and quality) and/or critical
operational services.
Cyber Security and Technology Resilience
-- Our critical technology capabilities are not maintained due
to cyber threats or system failures, impacting the services we
deliver through our key infrastructure assets or core systems.
Political, Legal and Regulatory:
-- Changing societal expectations, resulting in stricter legal
and environmental obligations, commitments and/or enforcements,
increase the risk of non-compliance.
Financial Liabilities:
-- We fail to fund our Severn Trent defined benefit pension scheme sustainably.
-- We are unable to ensure sufficient liquidity to meet our funding requirements.
Climate Change, Environment and Biodiversity:
-- Severn Trent's climate change strategy does not enable us to
respond to the shifting natural climatic environment and maintain
our essential services.
-- We fail to influence positively natural capital in our region.
Technical Guidance 2022/23
Year-end guidance 2021/22 Year-on-
Year
Regulated Water and Waste Water
Turnover(1) GBP1.97 billion to GBP2.02 billion. GBP1.80bn
Includes c.GBP60 million(2) for diversions
income related to HS2, which is broadly
offset in IRE.
Power costs The Group has a natural economic hedge GBP114m
against higher energy prices, with
Bioresources and Severn Trent Green
Power generating the equivalent of
around half of Group consumption. Reported
RWWW power costs are expected to be
c.GBP50 million higher year-on-year,
with further wholesale price pressure
broadly offset by higher revenue in
Bioresources and Green Power.
Other operating Higher year-on-year, including GBP20 GBP631m
costs million increase in Green Recovery
related opex, higher chemicals costs
and other increases in line with inflation.
Infrastructure c.20% higher year-on-year, including GBP198m
renewals expenditure an increase in HS2(2) activity (which
('IRE') is broadly offset in turnover), together
with an increase in base spend in line
with AMP7 plan.
ODIs(3) Continued outperformance on increasingly GBP79m
stretching targets, delivering a net
reward of at least GBP50 million.
Business Services
EBITDA (excl. Higher year-on-year driven by increased GBP40m
property) revenue in Severn Trent Green Power.
Property profit On track to deliver GBP100 million GBP13m
profit over ten years to 2027. 2022/23
profits around 50% lower year-on-year
due to timing of sales.
Group
Interest charge c.20% higher year-on-year based on GBP269m
latest inflation(4) and interest rate
forecasts.
Adjusted effective current tax of around
Adjusted effective zero due to "super deduction" and other
current tax accelerated capital allowances on our
rate(5) substantial capital investment programme. 0.6%
Capital investment(6) GBP575 million to GBP675 million including GBP604m
Green Recovery, with the majority of
spend in the second half of the year.
2022/23 dividend of 106.82 pence, in
line with our policy of annual growth
Dividend(7) by CPIH. 102.14p
Footnotes to Technical Guidance
1 Includes presentation of deferred income and diversions income
released to turnover in the income statement.
2 For 2021/22, diversions income and costs related to HS2 were GBP27 million respectively.
3 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.
4 Based on Oxford Economics inflation forecast, with
index-linked debt comprising c.27% of our total debt.
5 Total effective tax rate is expected to be c.23%. This
includes both current and deferred tax charges.
6 Guidance now set on an accruals basis; previously we have used
a cash figure. 2021/22 cash capex was GBP594m. A full
reconciliation on both the old and new basis can be found in our
alternative performance measures in note 17 of our results
announcement.
7 2022/23 dividend growth rate based on November 2021 CPIH of 4.6%.
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) 01 June 2022
Dividend record date (Final) 06 June 2022
DRIP election date (Final) 22 June 2022
AGM 7 July 2022
Final dividend payment date 13 July 2022
Q1 Trading Update 14 July 2022
Interim results announcement 2022/23 24 November 2022
Ex-dividend date (Interim) 1 December 2022
Dividend record date (Interim) 2 December 2022
DRIP election date (Interim) 16 December 2022
Interim dividend payment date 11 January 2023
For more information please visit:
https://www.severntrent.com/investors/financial-calendar-and-regulatory-news/
Consolidated income statement
For the year ended 31 March 2022
2022 2021
Adjusting
Adjusted Adjusting items Total Adjusted items Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
Turnover 2,3 1,943.3 -- 1,943.3 1,827.2 -- 1,827.2
Other income 5.3 -- 5.3 -- -- --
Operating costs before charge for bad
and doubtful debts (1,415.7) (2.1) (1,417.8) (1,314.4) (2.1) (1,316.5)
Charge for bad and doubtful debts (24.6) -- (24.6) (40.0) -- (40.0)
Total operating costs (1,440.3) (2.1) (1,442.4) (1,354.4) (2.1) (1,356.5)
Profit before interest and tax 508.3 (2.1) 506.2 472.8 (2.1) 470.7
Finance income 54.7 -- 54.7 59.8 -- 59.8
Finance costs (324.1) -- (324.1) (246.9) -- (246.9)
Net finance costs (269.4) -- (269.4) (187.1) -- (187.1)
Reduction in expected credit loss on
loan receivable 0.2 -- 0.2 3.6 -- 3.6
Net gains/(losses) on financial
instruments 7 39.3 -- 39.3 (6.2) -- (6.2)
Share of net loss of joint venture
accounted for using the equity method 11 (2.2) -- (2.2) (8.9) (4.9) (13.8)
Profit on ordinary activities before
taxation 276.2 (2.1) 274.1 274.2 (7.0) 267.2
Current tax 8 4.8 -- 4.8 (26.8) -- (26.8)
Deferred tax 8 (71.7) (294.4) (366.1) (28.2) -- (28.2)
Taxation on profit on ordinary
activities 8 (66.9) (294.4) (361.3) (55.0) -- (55.0)
(Loss)/profit for the year 209.3 (296.5) (87.2) 219.2 (7.0) 212.2
Earnings per share (pence)
Note 2022 2021
Basic 10 (35.2) 89.1
Diluted 10 (35.2) 88.6
Consolidated statement of comprehensive income
For the year ended 31 March 2022
2022 2021
Note GBPm GBPm
(Loss)/profit for the year (87.2) 212.2
Other comprehensive income/(loss)
Items that will not be reclassified to the income statement:
Net actuarial gains/(losses) 12 188.5 (162.0)
Deferred tax on net actuarial gains/losses (47.1) 30.8
Deferred tax arising on rate change 8.4 --
149.8 (131.2)
Items that may be reclassified to the income statement:
Gains on cash flow hedges 54.6 33.5
Deferred tax on gains on cash flow hedges (13.0) (6.3)
Amounts on cash flow hedges transferred to the income statement 7 6.8 8.2
Deferred tax on transfer to the income statement (1.7) (1.6)
46.7 33.8
Other comprehensive income/(loss) for the year 196.5 (97.4)
Total comprehensive income for the year 109.3 114.8
Consolidated statement of changes in equity
For the year ended 31 March 2022
Equity attributable to owners of the company
Share capital Share premium Other reserves Retained earnings Total
Note GBPm GBPm GBPm GBPm GBPm
At 1 April 2020 236.5 137.0 67.9 802.3 1,243.7
Profit for the year -- -- -- 212.2 212.2
Gains on cash flow hedges -- -- 33.5 -- 33.5
Deferred tax on gains on cash flow
hedges -- -- (6.3) -- (6.3)
Amounts on cash flow hedges
transferred to the income statement 7 -- -- 8.2 -- 8.2
Deferred tax on transfer to the income
statement -- -- (1.6) -- (1.6)
Net actuarial losses 12 -- -- -- (162.0) (162.0)
Deferred tax on net actuarial losses -- -- -- 30.8 30.8
Total comprehensive income for the
year -- -- 33.8 81.0 114.8
Share options and LTIPs
- proceeds from shares issued 0.7 11.1 -- -- 11.8
- value of employees' services -- -- -- 7.8 7.8
Current tax on share based payments -- -- -- 0.4 0.4
Deferred tax on share based payments -- -- -- 0.4 0.4
Dividends paid 9 -- -- -- (240.2) (240.2)
At 31 March 2021 237.2 148.1 101.7 651.7 1,138.7
Loss for the year -- -- -- (87.2) (87.2)
Gains on cash flow hedges -- -- 54.6 -- 54.6
Deferred tax on gains on cash flow
hedges -- -- (13.0) -- (13.0)
Amounts on cash flow hedges
transferred to the income statement 7 -- -- 6.8 -- 6.8
Deferred tax on transfer to the income
statement -- -- (1.7) -- (1.7)
Net actuarial gains 12 -- -- -- 188.5 188.5
Deferred tax on net actuarial gains -- -- -- (47.1) (47.1)
Deferred tax arising from rate change -- -- -- 8.4 8.4
Total comprehensive income for the
year -- -- 46.7 62.6 109.3
Proceeds from equity placing 10.2 235.1 -- -- 245.3
Share options and LTIPs
- proceeds from shares issued 0.7 11.2 -- -- 11.9
- value of employees' services -- -- -- 8.3 8.3
Deferred tax on share based payments -- -- -- 4.9 4.9
Dividends paid 9 -- -- -- (254.5) (254.5)
At 31 March 2022 248.1 394.4 148.4 473.0 1,263.9
Consolidated balance sheet
At 31 March 2022
2022 2021
Note GBPm GBPm
Non-current assets
Goodwill 91.4 91.4
Other intangible assets 179.6 164.0
Property, plant and equipment 10,208.4 9,875.2
Right-of-use assets 129.9 130.8
Investment in joint venture 11 16.5 -
Derivative financial instruments 31.2 37.1
Trade and other receivables 92.1 101.5
Retirement benefit surplus 12 17.5 17.1
10,766.6 10,417.1
Current assets
Inventory 32.0 30.8
Trade and other receivables 606.4 515.2
Current tax receivable 6.2 -
Derivative financial instruments 27.6 3.8
Cash and cash equivalents 115.4 56.2
787.6 606.0
Current liabilities
Borrowings (365.2) (503.1)
Trade and other payables (655.5) (557.1)
Current tax payable - (0.2)
Provisions for liabilities (38.4) (18.0)
(1,059.1) (1,078.4)
Net current liabilities (271.5) (472.4)
Total assets less current liabilities 10,495.1 9,944.7
Non-current liabilities
Borrowings (6,365.9) (6,112.8)
Derivative financial instruments (43.3) (126.9)
Trade and other payables (1,334.0) (1,250.3)
Deferred tax (1,320.6) (906.0)
Retirement benefit obligations 12 (145.5) (384.8)
Provisions for liabilities (21.9) (25.2)
(9,231.2) (8,806.0)
Net assets 1,263.9 1,138.7
Equity
Called up share capital 248.1 237.2
Share premium account 394.4 148.1
Other reserves 148.4 101.7
Retained earnings 473.0 651.7
Total equity 1,263.9 1,138.7
Consolidated cash flow statement
For the year ended 31 March 2022
2022 2021
Note GBPm GBPm
Cash generated from operations 13 891.7 901.7
Tax paid 13 (1.2) (23.2)
Net cash generated from operating activities 890.5 878.5
Cash flows from investing activities
Purchases of property, plant and equipment (610.3) (613.7)
Purchases of intangible assets (36.3) (22.2)
Payments to acquire right-of-use assets -- (0.7)
Proceeds on disposal of property, plant and equipment 9.5 2.0
Proceeds on disposal of subsidiary net of cash disposed -- 0.7
Net loans advanced to joint venture (13.0) (1.0)
Interest received 1.9 3.7
Net cash outflow from investing activities (648.2) (631.2)
Cash flow from financing activities
Interest paid (182.9) (185.6)
Interest element of lease payments (4.0) (4.3)
Dividends paid to shareholders of the parent (254.5) (240.2)
Repayments of borrowings (488.9) (242.9)
Principal elements of lease payments (12.1) (5.6)
New loans raised 501.0 415.1
Issues of shares 257.2 11.8
Payments for swap terminations -- (1.1)
Proceeds from swap terminations 5.6 0.9
Net cash outflow from financing activities (178.6) (251.9)
Net movement in cash and cash equivalents 63.7 (4.6)
Net cash and cash equivalents at the beginning of the year 44.0 48.6
Net cash and cash equivalents at end of the year 107.7 44.0
Cash at bank and in hand 40.4 56.2
Bank overdrafts (7.7) (12.2)
Short term deposits 75.0 --
107.7 44.0
Notes to the financial statements
1. General information
a) 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 February
2024. 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
2022 or 2021, 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 2021 have been
delivered to the Registrar of Companies and those for 2022 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 Waste Water includes the wholesale water and
waste water activities of Severn Trent Water Limited, except
property sales, and Hafren Dyfrdwy Cyfyngedig.
Business Services includes the Group's Operating Services
businesses, the Green Power business, the Property Development
business and our other non-regulated businesses including affinity
products and searches.
The Severn Trent Executive Committee ('STEC') is considered to
be the Group's chief operating decision maker. The reports provided
to STEC include segmental information prepared on the basis
described above.
Results from interests in joint ventures are not included in the
segmental reports reviewed by STEC.
The measure of profit or loss that is reported to STEC for the
segments is adjusted PBIT. A segmental analysis of turnover and
adjusted PBIT is presented below.
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 PBIT:
2022 2021
Regulated Water and Regulated Water and Waste
Waste Water Business Services Water Business Services
GBPm GBPm GBPm GBPm
External turnover 1,804.4 139.4 1,693.9 132.9
Inter-segment turnover -- 4.2 -- 1.8
Total turnover 1,804.4 143.6 1,693.9 134.7
Adjusted PBIT 476.3 38.5 452.1 25.8
Amortisation of acquired
intangible assets -- (2.1) -- (2.1)
Profit before interest
and tax 476.3 36.4 452.1 23.7
The reportable segments' turnover is reconciled to Group
turnover as follows:
2022 2021
GBPm GBPm
Regulated Water and Waste Water 1,804.4 1,693.9
Business Services 143.6 134.7
Corporate and other 1.1 0.9
Consolidation adjustments (5.8) (2.3)
1,943.3 1,827.2
Segmental adjusted PBIT is reconciled to the Group's profit
before tax as follows:
2022 2021
GBPm GBPm
Regulated Water and Waste Water 476.3 452.1
Business Services 38.5 25.8
Corporate and other (6.9) (5.1)
Consolidation adjustments 0.4 --
Adjusted PBIT 508.3 472.8
Amortisation of acquired intangible assets (Business Services) (2.1) (2.1)
Net finance costs (269.4) (187.1)
Reduction in expected credit loss on loan receivable 0.2 3.6
Net gains/(losses) on financial instruments 39.3 (6.2)
Share of net loss of joint venture accounted for using the equity method (2.2) (13.8)
Profit on ordinary activities before taxation 274.1 267.2
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:
2022 2021
Regulated Water and Regulated Water and
Waste Water Business Services Waste Water Business Services
GBPm GBPm GBPm GBPm
Operating assets 10,869.7 337.4 10,433.4 331.0
Goodwill 63.5 29.2 63.5 29.2
Segment assets 10,933.2 366.6 10,496.9 360.2
Segment operating
liabilities (2,158.8) (29.6) (2,174.4) (40.0)
Capital employed 8,774.4 337.0 8,322.5 320.2
Operating assets comprise other intangible assets, property,
plant and equipment, right-of-use assets, retirement benefit
surpluses, inventory and trade and other receivables.
Operating liabilities comprise trade and other payables,
retirement benefit obligations and provisions.
3. Revenue from contracts with customers
Revenue recognised from contracts with customers is analysed by
business segment below:
Year ended 31 March 2022
Regulated Water and Corporate
Waste Water Business Services and other Consolidation adjustments Group
GBPm GBPm GBPm GBPm GBPm
Water and waste water
services 1,755.9 -- -- -- 1,755.9
Operating services -- 74.4 -- -- 74.4
Renewable energy 44.4 55.5 -- (4.2) 95.7
Other sales 4.1 13.7 1.1 (1.6) 17.3
1,804.4 143.6 1.1 (5.8) 1,943.3
Year ended 31 March 2021
Regulated Water and Corporate
Waste Water Business Services and other Consolidation adjustments Group
GBPm GBPm GBPm GBPm GBPm
Water and waste water
services 1,664.8 -- -- -- 1,664.8
Operating services -- 70.3 -- -- 70.3
Renewable energy 27.4 51.9 -- (1.8) 77.5
Other sales 1.7 12.5 0.9 (0.5) 14.6
1,693.9 134.7 0.9 (2.3) 1,827.2
Revenue from water and waste water 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 waste water
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.
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; u pgrading 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 waste water 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. At 31 March 2022 the aggregate amount
of the estimated transaction price allocated to performance
obligations that were not satisfied was GBP396.3 million (2021:
GBP416.1 million). This amount is expected to be recognised as
revenue as follows:
2022 2021
GBPm GBPm
In the next year 49.0 46.2
Between one and five years 197.4 184.4
After more than five years 149.9 185.5
396.3 416.1
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:
2022 2021
GBPm GBPm
Contract asset at 1 April 38.2 36.6
Amounts billed (49.9) (49.0)
Revenue recognised 51.6 50.6
Contract asset at 31 March 39.9 38.2
No contract liabilities arose from the Group's Operating
Services contract with the MoD.
4. Exceptional items before tax
The Group classifies items of income or expenditure as
exceptional if, individually or in aggregate if of a similar type,
they should, in the opinion of the Directors be disclosed by virtue
of their size or nature for the financial statements to give a true
and fair view. In this context, materiality is assessed at the
segment level. Items classified as exceptional in the current year
or prior year are as follows:
2022 2021
GBPm GBPm
Share of net losses of joint venture -- (4.9)
In the previous year the Group recognised GBP4.9 million of
previously unrecognised losses as an exceptional item.
5. Finance income
2022 2021
GBPm GBPm
Interest income earned on bank deposits 0.1 0.1
Other financial income 1.8 2.4
Total interest receivable 1.9 2.5
Interest income on defined benefit scheme assets 52.8 57.3
54.7 59.8
6. Finance costs
2022 2021
GBPm GBPm
Interest expense charged on:
Bank loans and overdrafts 14.7 11.4
Other loans 243.5 166.1
Lease liabilities 4.0 4.3
Total borrowing costs 262.2 181.8
Other financial expenses 2.4 2.4
Interest cost on defined benefit scheme liabilities 59.5 62.7
324.1 246.9
7. Net gains/(losses) on financial instruments
2022 2021
GBPm GBPm
Loss on swaps used as hedging instruments in fair value hedges (1.0) (8.1)
Gain arising on debt in fair value hedges 1.6 4.2
Exchange (loss)/gain on other loans (6.6) 14.8
Net loss on cash flow hedges transferred from equity (6.8) (8.2)
Hedge ineffectiveness on cash flow hedges (0.6) (2.0)
Gain/(loss) arising on swaps where hedge accounting is not applied 51.5 (8.2)
Amortisation of fair value adjustment on debt 1.2 1.2
Gain on swap termination -- 0.1
39.3 (6.2)
8. Tax
2022 2021
GBPm GBPm
Current tax
Current year at 19% (2021: 19%) -- 30.4
Prior years (4.8) (3.6)
Total current tax (credit)/charge (4.8) 26.8
Deferred tax
Origination and reversal of temporary differences:
Current year 66.7 23.7
Prior years 5.0 4.5
Exceptional charge on rate change 294.4 --
Total deferred tax charge 366.1 28.2
361.3 55.0
9. Dividends
Amounts recognised as distributions to owners of the Company in
the year:
2022 2021
Pence per share GBPm Pence per share GBPm
Final dividend for the year ended 31 March 2021 (2020) 60.95 152.2 60.05 143.1
Interim dividend for the year ended 31 March 2022 (2021) 40.86 102.3 40.63 97.1
Total dividends paid 101.81 254.5 100.68 240.2
Proposed final dividend for the year ended 31 March 2022 61.28 155.3
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 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
2022 2021
GBPm GBPm
(Loss)/profit for the period (87.2) 212.2
ii) Number of shares
2022 2021
m m
Weighted average number of ordinary shares for the purpose of basic earnings per share 247.9 238.1
Effect of dilutive potential ordinary shares:
- share options and LTIPs - 1.3
Weighted average number of ordinary shares for the purpose of diluted earnings per share 247.9 239.4
Unvested share options and LTIPs have not been treated as
dilutive potential ordinary shares in 2022 because their conversion
would decrease the loss per share.
b) Adjusted earnings per share
2022 2021
pence pence
Adjusted basic earnings per share 96.9 105.4
Adjusted diluted earnings per share 96.4 104.8
Adjusted earnings per share figures exclude the effects of
exceptional items, current tax related to exceptional items,
amortisation of acquired intangible assets, gains/losses on
financial instruments, current tax related to gains/losses on
financial instruments and deferred tax. 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, except that the share options
and LTIPs are treated as dilutive potential ordinary shares because
their conversion would decrease adjusted earnings per share. This
increases the weighted average number of shares for the purpose of
calculating adjusted diluted earnings per share by 1.4 million to
249.3 million shares.
The adjustments to earnings that are made in calculating
adjusted earnings per share are as follows:
2022 2021
GBPm GBPm
Earnings for the purpose of basic and diluted earnings per share (87.2) 212.2
Adjustments for:
- exceptional items before tax -- 4.9
- amortisation of acquired intangible assets 2.1 2.1
- net (gains)/losses on financial instruments (39.3) 6.2
- current tax on net gains/losses on financial instruments (1.4) (2.6)
- deferred tax 366.1 28.2
Earnings for the purpose of adjusted basic and diluted earnings per share 240.3 251.0
11. Interest in joint venture
Our principal joint venture undertaking at 31 March 2022 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:
2022 2021
GBPm GBPm
Carrying value of joint venture investment at 1 April - -
Reclassification on subscription for equity 18.7 -
RCF reclassified as additional long-term investment - 32.5
Group's unrecognised losses after tax from prior year - (4.9)
Group's share of loss after tax and comprehensive loss (2.2) (8.9)
As at 31 March 16.5 18.7
Amount included in long-term loans and receivables - (18.7)
Carrying value of joint venture investment at 31 March 16.5 -
On 23 April 2021, the Group extinguished the GBP32.5 million
Revolving Credit Facility ('RCF') previously extended to Water
Plus, and replaced this with a subscription for GBP32.5 million of
equity shares in Water Plus Group Limited at par. The carrying
value of the loan receivable was reclassified to investment in
joint venture. In the prior year, the classification of the loan to
Water Plus as a non-current loan receivable which formed part of
the Group's net investment in Water Plus was disclosed as a
critical accounting judgement. Following the subscription for
equity shares, this is no longer considered a key judgment for the
Group.
During the current year, the Group has recognised its share of
Water Plus's losses of GBP2.2 million against the value of the
investment.
The Group has no accumulated unrecognised losses in Water Plus
at 31 March 2022 (2021: GBPnil).
We have also recorded a GBP0.2 million gain on the impairment of
our loans receivable from Water Plus (2021: gain of GBP3.6
million), after reassessing our lifetime expected credit losses on
the loans
12. Retirement benefit schemes
The Group operates three defined benefit schemes in the UK, two
from Severn Trent and one from Dee Valley Water. The Severn Trent
schemes are closed to future accrual. The Group also has an
unfunded obligation to provide benefits to certain former employees
whose earnings were in excess of the pensions cap that operated
when the benefits were accrued. The most recent actuarial
valuations of the Severn Trent schemes were at 31 March 2019. The
Group participates in the Dee Valley Water plc Section of the Water
Companies Pension Scheme, which is a defined benefit sectionalised
scheme. The most recent actuarial valuation of this scheme was at
31 March 2020.
The next scheduled formal actuarial valuation of the STPS and
STMIPS defined benefit pension schemes are being carried out as at
31 March 2022. These will be completed during the financial year
ending 31 March 2023.
On 29 June 2021, the Group completed the bulk annuity buy-in of
the Severn Trent Mirror Image Pension Scheme ('STMIPS'). As a
result of the buy-in, whilst the legal obligation to pay the
employee benefits directly as they fall due remains with the Group,
the right to reimbursement of such amounts to the Group has been
obtained under the insurance policy.
The assumptions used in calculating the defined benefit
obligations as at 31 March 2022 have been updated to reflect market
conditions prevailing at the balance sheet date as follows:
2022 2021
% %
Price inflation - RPI 3.6 3.2
Pre 2030: 2.6
Price inflation - CPI Post 2030: 3.5 2.4
Discount rate 2.8 2.0
Pension increases in payment 3.6 3.2
Pension increases in deferment 3.6 3.2
Remaining life expectancy for members currently aged 65 (years)
- men 21.8 21.8
- women 23.7 23.6
Remaining life expectancy for members currently aged 45 upon retirement at 65 (years)
- men 22.7 22.7
- women 24.8 24.8
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 GBP42/GBP43 million
Price inflation Increase/decrease by 0.1% pa Increase/decrease by GBP36/GBP35 million
Mortality Increase in life expectancy by 1 year Increase by GBP112 million
In reality, interrelationships exist between the assumptions,
particularly between the discount rate and price inflation. The
above analysis does not take into account the effect of these
interrelationships. Also, in practice any movements 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 2022. 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:
Defined
Fair value benefit
of plan assets obligations Net deficit
GBPm GBPm GBPm
At 31 March 2021 2,600.4 (2,968.1) (367.7)
Current service cost - (0.2) (0.2)
Scheme administration costs (3.8) - (3.8)
Interest income/(cost) 52.8 (59.5) (6.7)
Return on plan assets 68.9 - 68.9
Actuarial losses recognised in the statement of comprehensive income - 119.6 119.6
Contributions from the sponsoring companies 61.9 - 61.9
Employees' contributions and benefits paid (120.8) 120.8 -
At 31 March 2022 2,659.4 (2,787.4) (128.0)
The net deficit is presented on the balance sheet as
follows:
2022 2021
GBPm GBPm
Retirement benefit surplus 17.5 17.1
Retirement benefit obligations (145.5) (384.8)
(128.0) (367.7)
13. Cash flow
a) Reconciliation of operating profit to operating cash flows
2022 2021
GBPm GBPm
Profit before interest and tax 506.2 470.7
Depreciation of property, plant and equipment 361.5 342.0
Depreciation of right-of-use assets 3.8 3.6
Amortisation of intangible assets 34.2 32.1
Amortisation of acquired intangible assets 2.1 2.1
Pension service cost 0.2 0.5
Defined benefit pension scheme administration costs 3.8 3.9
Defined benefit pension scheme contributions (61.9) (38.1)
Share based payment charge 8.3 7.8
Profit on sale of property, plant and equipment and intangible assets (5.4) (2.2)
Profit on disposal of subsidiary undertaking -- (0.2)
Release from deferred credits (17.5) (15.5)
Contributions and grants received 42.8 41.4
Provisions charged to the income statement 14.8 4.9
Utilisation of provisions for liabilities (12.3) (12.2)
Operating cash flows before movements in working capital 880.6 840.8
Increase in inventory (1.2) (1.6)
(Increase)/decrease in amounts receivable (87.6) 51.6
Decrease in amounts payable 99.9 10.9
Cash generated from operations 891.7 901.7
Tax paid (1.2) (23.2)
Net cash generated from operating activities 890.5 878.5
b) Non-cash transactions
Non-cash additions to right-of-use assets during the year were
GBP4.2 million (2021: GBP4.9 million). Assets transferred from
developers at no cost were recognised at their fair value of
GBP69.0 million (2021: GBP44.9 million).
c) Reconciliation of movements in net debt
Net cash and
cash Lease Cross currency Loans due from
equivalents Bank loans Other loans liabilities swaps joint venture Net debt
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2021 44.0 (1,011.1) (5,471.3) (121.3) 31.9 84.0 (6,443.8)
Cash flow 63.7 238.5 (250.6) 12.1 -- 13.0 76.7
Fair value
adjustments -- -- 2.9 -- -- -- 2.9
Inflation
uplift on
index-linked
debt -- (6.9) (99.6) -- -- -- (106.5)
Foreign
exchange -- -- (6.6) -- -- -- (6.6)
Other non-cash
movements -- (3.0) 1.7 (8.2) (3.6) (17.4) (30.5)
At 31 March
2022 107.7 (782.5) (5,823.5) (117.4) 28.3 79.6 (6,507.8)
14. Post balance sheet events
Refinancing
On 4 April 2022 the Group elected to extend GBP916.7 million of
the available commitments under the revolving credit facility
('RCF') for a further year until April 2027.
On 9 May 2022 the Group completed the refinancing of an existing
GBP100.0 million bank loan maturing in August 2023 with a new
GBP150.0 million bank loan maturing in May 2030.
Defined benefit pension scheme
At 31 March 2022, the Group's net defined benefit pension scheme
deficit was GBP128.0 million. On 6 April 2022, the Group made a
further scheduled contribution of GBP32.4 million to the
scheme.
Dividends
On 24 May the Board of Directors approved a final dividend of
61.28 pence per share. Further details of this are shown in note
9.
15. Contingent liabilities
a) Bonds and guarantees
Group undertakings have entered into bonds and guarantees in the
normal course of business. No liability (2021: 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
recently been set by the court leading up to a stage 1 trial on the
EIR legal issues only (not the other issues or amount of damages)
which could be held in late 2022.
c) Ongoing combined sewer overflow investigations
Ofwat and the Environment Agency have each issued their own
investigations into the waste water industry to investigate
compliance with the conditions of environmental permits. We were
able to respond quickly and comprehensively and have had open
conversations since. It is not yet clear what the scope or likely
outcome of this investigation will be as it is in its early
stages.
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 are disclosed below.
2022 2021
GBPm GBPm
Sale of services 259.8 216.1
Net interest income 2.5 2.3
262.3 218.4
Outstanding balances between the Group and the joint venture as
at 31 March were as follows:
2022 2021
GBPm GBPm
Amounts due to related parties (0.2) (2.4)
Loans receivable from joint venture 79.6 84.0
79.4 81.6
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 prior year
comparative has been restated to include the remuneration of the
non-executive directors of the Company.
The remuneration of the directors is included within the amounts
disclosed below.
2022 2021
(restated)
GBPm GBPm
Short term employee benefits 5.7 7.3
Short term non-executive director benefits 0.7 0.7
Share based payments 6.6 4.9
13.0 12.9
17. Alternative performance measures (APMs)
Financial measures or metrics used in this report that are not
defined by IFRS are alternative performance measures. The Group
uses such measures for performance analysis because they provide
additional useful information on the performance and position of
the Group. Since the Group defines its own alternative performance
measures, these might not be directly comparable to other
companies' alternative performance measures. 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.
b) Adjusted PBIT
Adjusted profit before interest and tax is profit before
interest and tax excluding exceptional items as recorded in the
income statement and amortisation of intangible assets recognised
on acquisition of subsidiaries. This provides a consistent measure
of operating performance excluding distortions caused by these
items and reflecting the operational performance of the acquired
subsidiaries. The calculation of this APM is shown on the face of
the income statement and in note 2 for reportable segments.
c) Adjusted earnings per share
Adjusted earnings per share figures are presented for continuing
operations. These exclude the effects of exceptional items,
amortisation of intangible assets recognised on acquisition of
subsidiaries, net losses/gains on financial instruments, current
tax on exceptional items and on net losses/gains on financial
instruments, exceptional current tax 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.
d) Net debt
Net debt comprises borrowings including remeasurements for
changes in fair value of amounts in fair value hedging
relationships, cross currency swaps that are used to fix the
sterling liability of foreign currency borrowings (whether hedge
accounted or not), net cash and cash equivalents, and loans to
joint ventures. See note 13.
e) 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.
2022 2021
GBPm GBPm
Net finance costs 269.4 187.1
Net finance costs from pensions (6.7) (5.4)
Capitalised finance costs 34.5 30.4
297.2 212.1
Average net debt 6,292.2 6,263.6
Effective interest cost 4.7% 3.4%
This APM is used as it shows the average finance cost for the
net debt of the business.
f) Effective cash cost of interest
The effective cash cost of interest is calculated on the same
basis as the effective interest cost except that it excludes
finance costs that are not paid in cash but are accreted to the
carrying value of the debt (principally inflation adjustments on
index-linked debt).
2022 2021
GBPm GBPm
Net finance costs 269.4 187.1
Net finance costs from pensions (6.7) (5.4)
Indexation adjustments (106.5) (19.2)
Capitalised finance costs 34.5 30.4
190.7 192.9
Average net debt 6,292.2 6,263.6
Effective cash cost of interest 3.0% 3.1%
This is used as it shows the average finance cost that is paid
in cash.
g) Adjusted PBIT interest cover
The ratio of adjusted PBIT (see (b) above) to net finance costs
excluding net finance costs from pensions.
2022 2021
GBPm GBPm
Adjusted PBIT 508.3 472.8
Net finance costs 269.4 187.1
Net finance costs from pensions (6.7) (5.4)
Net finance costs excluding net finance costs from pensions 262.7 181.7
Adjusted PBIT interest cover ratio 1.9 2.6
This is used to show how the adjusted PBIT of the business
covers the financing costs associated only with net debt on a
consistent basis.
h) EBITDA and EBITDA interest cover
The ratio of adjusted profit before interest, tax, exceptional
items, depreciation and amortisation to net finance costs excluding
net finance costs from pensions.
2022 2021
GBPm GBPm
Adjusted PBIT 508.3 472.8
Adjusted depreciation (including right-of-use assets) 365.3 345.6
Adjusted amortisation 34.2 32.1
EBITDA 907.8 850.5
Net finance costs 269.4 187.1
Net finance costs from pensions (6.7) (5.4)
Net finance costs excluding finance costs from pensions 262.7 181.7
EBITDA interest cover ratio 3.5 4.7
This is used to show how the EBITDA of the business covers the
financing costs associated only with net debt on a consistent
basis.
i) Adjusted effective current tax rate
The current tax charge for the year, excluding prior year
charges, exceptional current tax, and current tax on exceptional
items and on financial instruments, divided by profit before tax,
net losses/gains on financial instruments, exceptional items,
amortisation of intangible assets recognised on acquisition of
subsidiaries and share of net loss of joint ventures accounted for
using the equity method.
2022 2021
Current tax thereon Current tax thereon
GBPm GBPm GBPm GBPm
Profit before tax 274.1 -- 267.2 (30.4)
Adjustments
Share of net loss of joint venture 2.2 -- 13.8 --
Amortisation of acquired intangible assets 2.1 -- 2.1 --
Net (gains)/losses on financial instruments (39.3) (1.4) 6.2 (2.6)
239.1 (1.4) 289.3 (33.0)
Adjusted effective current tax rate 0.6% 11.4%
This APM is used to be remove distortions in the tax charge and
create a metric 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.
j) Operational cash flow
Cash generated from operations less contributions and grants
received.
2022 2021
GBPm GBPm
Cash generated from operations 891.7 901.7
Contributions and grants received (42.8) (41.4)
Operational cashflow 848.9 860.3
This APM is used to show operational cash excluding the effect
of contributions and grants received as part of capital
programmes.
k) 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.
2022 2021
GBPm GBPm
Purchase of property, plant and equipment 610.3 613.7
Purchase of intangible assets 36.3 22.2
Payments to acquire right-of-use assets - 0.7
Contributions and grants received (42.8) (41.4)
Proceeds on disposal of property, plant and equipment (9.5) (2.0)
Cash capex 594.3 593.2
This APM is used to show the cash impact of the Group's capital
programmes.
l) 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.
2022 2021
GBPm GBPm
Additions to property, plant and equipment 714.3 659.4
Additions to intangible assets 36.3 22.2
Contributions and grants received (42.8) (41.4)
Assets contributed at no cost (69.0) (44.9)
Capitalised finance costs (34.5) (30.4)
Capital investment 604.3 564.9
Glossary
Asset Management Plan (AMP)
Price limit periods are sometimes known as AMP (Asset Management
Plan) periods. The period from 1 April 2020 to 31 March 2025 is
known as AMP7 because it is the seventh cycle since the water
industry was privatised in 1989.
C-MeX and D-MeX (Customer Measure of Experience and Developer
Measure of Experience)
C-MeX and D-MeX are financial and reputational incentive
mechanisms designed to provide customers in the water sector with
excellent levels of service. In effect from 1 April 2020, they
replaced the service incentive mechanism (SIM) which had been in
place since 2010.
Customer ODI (Outcome Delivery Incentive)
A framework made up of outcomes, measures, targets and
incentives which provides companies with rewards for achieving
stretching performance targets and compensates customers if
performance is below performance targets. This was first introduced
at the 2014 price review (PR14) by the regulator, Ofwat.
Final Determination (FD)
The outcome of the price review process that sets price,
investment and services packages that customers receive.
Ofwat
The water industry's economic regulator in England &
Wales.
PR19
The price review (PR) is a financial review process led by Ofwat
where wholesale price controls for water and sewage companies are
set every five years. PR19 (Price Review 2019) set wholesale price
controls for water and sewerage companies for 2020 to 2025.
Price limits
The price limits are set to enable water companies to deliver
the services required of them over the AMP period. These include
allowing for capital maintenance of assets, ensuring security of
supply and meeting drinking water and environmental quality
requirements.
Regulatory Capital Value (RCV)
The regulatory capital value is used to measure the capital base
of a company when setting price limits. The regulatory capital
value represents the initial market value of a company, including
debt, plus new capital expenditure.
RoRE
Return on Regulatory Equity (RoRE) measures the returns (after
tax and interest) that companies have earned by reference to the
notional regulated equity, where regulated equity is calculated
from the RCV and notional net debt.
Totex
Totex (shortened form of total expenditure) includes operating
expenditure (opex), infrastructure renewals expenditure (IRE) and
capital expenditure (capex).
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').
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 and uncertainties detailed in this document; 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. 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 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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END
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