TIDMSVT
RNS Number : 0639Z
Severn Trent PLC
19 May 2021
Preliminary Announcement of Annual Results
19 May 2021
Results for the year to 31 March 2021
Record reward for customer ODIs, and generating long-term RCV
growth through investment to support the Green Recovery
Strong operational performance resulting in best ever ODIs for
customers
-- Sector-leading delivery on customer ODIs(1) leading to c.80%
of measures in positive territory and a net outperformance reward
of GBP79 million across all operational areas
-- Strong year on water measures, with improvements in water
quality metrics, resulting in net positive financial reward
-- Best ever pollutions performance and consistent top performer
in waste, including strong performance on blockages and sewer
flooding
-- Focused on our customers with top five position for utilities
on UK Customer Satisfaction Index, and year-on-year progress in
customer complaints and experience measures
-- Fast start to AMP7(2) regulatory period seen through
accelerated capital programme, with more than GBP590 million
investment in year
Resilient financial performance in line with expectations
-- Group turnover(3) of GBP1,827 million, down 0.9%, with
c.GBP50 million net impact of lowe r consumption due to COVID-19
lockdowns, the regulatory model allows us to recover this later in
the AMP
-- Adjusted PBIT(4) o f GBP473 million, in line with
expectations, down 17.1% as a result of PR19 rebasing of tariffs,
the net impact of COVID-19 on consumption and additional investment
to drive our customer ODI performance. Reported PBIT of GBP471
million (2020: GBP568 million)
-- Strong household cash collection, up GBP61 million (5.2%)
year-on-year, helping reduce bad debt charge to 3.0% of household
revenue
-- Effective interest cost reduced 30 bps to 3.4%; RCF
refinanced through our Sustainable Finance Framework; sufficient
liquidity through to December 2022
-- Adjusted basic EPS(5) at 105.4 pence and basic EPS at 89.1 pence, in line with expectations
-- Proposed final dividend of 60.95 pence, bringing full year dividend to 101.58 pence
Supporting our environment, our communities, our colleagues
-- On track to deliver our Triple Carbon Pledge, with Scope 2
emissions already near zero and gross greenhouse gas emissions
reduced by more than 50% since last year(6)
-- GBP6.9 million awarded to charities and communities in our
region, including our response to COVID-19
-- Leader in diversity, strong positions in Hampton-Alexander
Review, Social Mobility Index, Equileap's 2021 Gender Equality
Global Report and Ranking, Tortoise Responsibility100 and Stonewall
Index
Creating jobs and helping the region bounce back through the
Green Recovery
-- Awarded GBP565 million (7) of new investment from Ofwat's
Green Recovery programme; increasing RCV real growth this AMP from
3.8% to 10.4%
-- Innovative environmental schemes will help create c.2,500
jobs, support customers and improve the environment
-- Projects include plans to promote wild swimming in two rivers
in our region, and using natural solutions to protect customers in
Mansfield from flooding
-- We have separately announced today our intention to conduct
an equity placing through the issue of new ordinary shares to raise
approximately GBP250 million of gross proceeds that will be used to
fund the Green Recovery projects
Liv Garfield, Chief Executive, said:
"The last year has thrown up multiple challenges for us but it's
clear everyone at Severn Trent has responded superbly to the new
normal we find ourselves in. Our industry-leading customer ODI
performance shows just how much we've been able to improve our
services, often while working in very difficult circumstances.
At the same time, we've increased the support we give to our
customers and the communities we serve, from schemes for the most
vulnerable to the extra funding we've made available to help
charities and not-for-profits get through the pandemic.
We took a very early decision to be at the forefront of efforts
to help our region bounce back. That is why it was such good news
that we'd been successful with our Green Economic Recovery
proposal, meaning we can invest even more in sustainable projects
and help create thousands of jobs. Add in our ambitious Kickstart
programme, the launch of the Great Big Nature Boost, and our
sustainability support for the Birmingham Commonwealth Games and
it's clear, both operationally and environmentally, that it's been
a strong year for Severn Trent."
Group results
2021 2020 Increase/ (decrease)
GBPm GBPm %
Group turnover 1,827.2 1,843.5 (0.9)
Adjusted Group PBIT(4) 472.8 570.3 (17.1)
Group PBIT 470.7 568.2 (17.2)
------------------------ -------- -------- ---------------------
pence/ pence/
share share
------------------------- ------ ------ -------
Adjusted basic EPS(5) 105.4 146.0 (27.8)
Basic earnings per share 89.1 66.7 33.6
Total ordinary dividends 101.58 100.08 1.5
------------------------- ------ ------ -------
Footnotes to pages 1 and 2 of this RNS
1. ODIs = Customer Outcome Delivery Incentives, quoted pre-tax
and in 2017/18 prices unless otherwise stated. Our ODI outturn and
percentage meeting or ahead of regulatory target (or within penalty
deadband for compliance measures) reflects our in-period
performance commitments - excluding per capita consumption (now an
end of period commitment). ODI values for C-MeX and D-MeX
(forecast) are calculated based on latest published industry data.
A definitive value will be published by Ofwat later in the
year.
2. Asset Management Plan (see glossary).
3. Shown after including diversions income of GBP17.5 million
and deferred income of GBP15.5 million, which were deducted from
operating costs and infrastructure renewals expenditure in previous
years.
4. Adjusted profit before interest and tax (PBIT) excludes
exceptional operating items and amortisation of acquired intangible
assets.
5. Adjusted basic EPS is set out in note 10.
6. On a Market-Based Method basis, as defined in the GHG Protocol Scope 2 Guidance.
7. Quoted in 2017/18 prices, equivalent to c.GBP624 million in nominal prices.
Note: FY2021/22 technical guidance is included in the Chief
Financial Officer's section of this announcement.
Enquiries
Investors & Analysts
Stuart Howell Severn Trent Plc +44 (0) 770 371 8361
Head of Investor Relations
Selina Soma Severn Trent Plc +44 (0) 797 693 8604
Investor Relations Manager
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, 19 May 2021.
We will be hosting a live Q&A session with Liv, James and
our wider Executive team at 8.00am BST today via video call.
Chief Executive's Review
For a lot of us this has been a year like no other, with
challenges but also opportunities for the business, which have
placed us firmly at the heart of the communities in which we live
and work.
Like many other companies, the pandemic has impacted our
financial performance, although our regulatory model will allow us
to recover much of the lost revenue in later years. But the last
year has also reinforced the performance culture we've built in
Severn Trent, leading to net customer ODI rewards of GBP79 million
- the highest seen in the water industry since ODIs were
introduced.
Our sector-leading performance is a result of our teams' hard
work in the most trying of circumstances. Whether working on the
streets, in our treatment works or at home in support of our
operational teams, we remained committed to doing the best job we
could for all our customers.
What's been particularly heartening is that, through
increasingly using data-led insight, we have improved resilience
and service for our customers across all our areas - waste, water,
environment and customers - with around 80% of our measures in
positive territory.
This success puts us in a great place for our ambitious Green
Economic Recovery proposals. Following Ofwat's announcement on 17
May, we've been awarded GBP565 million, which represents a
significant incremental investment opportunity over the next four
years and importantly will supplement the work we do now in our
communities, providing employment, resilience and improved natural
surroundings. It will create jobs on projects ranging from bathing
standard river quality to protecting Mansfield from flooding while
also providing long-term asset growth for Severn Trent.
We're proposing a final dividend of 60.95 pence bringing our
full year dividend to 101.58 pence, in line with our AMP7 policy.
As a company that hasn't required government support this year, and
knowing the importance many of our shareholders place on receiving
a dividend, we decided to continue with our stated policy.
Improvements in water tempered by challenges
Our overall water performance has improved markedly, with 85% of
ODIs in positive territory resulting in a GBP9 million net reward,
making this our best year to date. We continue to focus on those
measures which matter to our customers, including a strong year on
our Compliance Risk Index scores, a measure designed to show the
risk from treated water compliance failures, and a notable
reduction in water quality complaints performance, improving over
60% and 10% respectively.
We also saw how we can move from reward to penalty on some
measures through unexpected events. The various lockdowns saw an
increase in personal water consumption, and there were occasional
issues for customers due to unexpected events such as pipe
bursts.
In Hafren Dyfrdwy, we've seen a step change in service for our
customers in north and mid Wales, with the majority of our ODI
measures moving into reward, compared to less than half last year.
We've been at the forefront of supporting the lead-free Wales
ambition, exceeding our pipe replacement target by four times.
Working smarter in waste
Our performance on waste continues to be strong, as it has been
since the introduction of ODIs, and this year our strategy of
working smarter and then targeting problem areas and assets has
paid off.
While there has undoubtedly been a lockdown effect, with fewer
restaurants open for example, our own work in reducing blockages by
30% had a beneficial effect on public sewer flooding, which was
down 31%, and both have helped our pollutions figure, for which we
had our best ever year, beating our target by 20%.
To achieve that, we've not only targeted assets where there were
clearly improvements to be made, we've also made our network
smarter by fitting 1,500 sensors to our sewers. The insight we
gained into our network provided more resilience and is helping us
to spot and fix issues before they affect customers. We aim to roll
out 40,000 of the sensors by 2025 to give us a far better, smarter
view of what's happening in our sewer pipes.
Despite schools being closed or locked down to external
visitors, our Education team managed to beat its target to educate
the region's children through 750 online lessons on how to protect
our sewers, helping create a generation with a greater appreciation
about what to, and what not to flush down the toilet and pour down
the drain.
Environment - ambitious plans
We've had a fast start to our AMP7 environmental programme,
delivering twice over on our full AMP biodiversity target in the
first year and launching our Great Big Nature Boost, through which
we aim to plant 1.3 million trees, revive 12,000 acres, and restore
more than 2,000 kilometres of rivers throughout the region,
together with schemes helping the release of beavers into the wild
in Nottinghamshire and Derbyshire later this year.
We are on track with our Triple Carbon Pledge, and now only use
fully renewable-backed electricity from our energy suppliers. Our
electric vehicle (EV) fleet continues to increase in size, and
we're aiming to be all-electric by 2030. We've also offered our
employees access to an EV scheme to encourage them to reduce their
own impact. Our ongoing commitment to self-generate our own energy
from renewable sources continues to deliver, as we produced the
equivalent of 53% of the electricity we used during the year,
helping cut our emissions further. Finally, we submitted our
proposed Scope 1, 2 and 3 emissions targets to the Science Based
Targets Initiative, committing us to deliver significant reductions
in our greenhouse gas emissions by 2030 in line with our journey to
Net Zero, and we'll be putting our climate action plans to a
non-binding vote at our AGM later this year.
Our customers
Our customers remain at the heart of our business, and we aim to
make their lives a little easier in everything we do. Our efforts
were reflected in a top five utility company position in the UKCSI,
reducing customer complaints, and a net positive reward position
for our combined C-MeX and D-MeX scores.
We've recognised just how difficult the pandemic has been for
many of our customers, which is why we launched our Back on Track
tariff to support those affected through the pandemic, as well as
promoting our pre-existing support schemes - WaterSure, the Big
Difference Scheme, and the Severn Trent Trust Fund. As a result,
we've more than doubled the number of customers we've helped to
more than 150,000 and increased the number of people signed up to
our Priority Services Register, to 107,000, meaning, on the rare
occasions we have an issue, we can target support to our most
vulnerable customers.
Our bills are among the lowest in the land and, in the case of
our Welsh business, Hafren Dyfrdwy, they were the lowest average
combined bills for the second year in a row. This affordability
meant that, despite the ongoing issues for many of our customers,
household cash collection for the Group improved 5.2% compared to
last year, which also had a positive effect on our bad debt
costs.
Investment increased
We've continued our accelerated capital programme by spending
over GBP590 million in the year, taking advantage of quieter
conditions to bring forward GBP90 million of activity. This has
given us a head start on our AMP7 investment, increasing our
capacity for future years, helping us outperform our operational
targets, and bringing forward carbon and cost benefits from our
bioresources business.
Even more excitingly, we were delighted to gain regulatory
approval for our innovative plans for six projects that will help
the Midlands bounce back after the pandemic by investing GBP565
million from the Green Recovery scheme, creating c.2,500 jobs, and
improving the environment in which we operate. We believe our
success in the scheme was down to our desire to put forward
projects that not only created jobs through new investment but that
were also truly innovative in the sector and that would leave a
lasting legacy for generations to come. All six projects have
something new and creative about them and it's truly inspiring to
be part of these initiatives, whether that's improving river
quality, turning Mansfield into a flood-resilient community by
installing a range of nature-based solutions such as drainage
ponds, or installing more than 150,000 smart water meters across
Coventry and Warwickshire to help customers manage their own
usage.
Our people
We believe investment in our own people is money well spent,
helping build and develop a skills base that will serve us for many
years to come. Our new GBP10 million Academy was opened earlier
this month, offering colleagues classroom training and experiential
learning. Even before its official opening, we've completed 7,000
days of training for 2,400 people over 1,600 in-house events.
At the half-year we spoke of our plans to offer 500 placements
under the Government's Kickstart scheme and I'm delighted that not
only have the first 170 or so started work with us, we've also been
able to offer permanent roles to some of them. Despite the
pandemic, we will provide a fantastic workplace and developmental
experience for all 500 by the end of the year. Looking forward,
we've made one of the largest commitments to the #10000BlackInterns
programme by committing to host 100 work placements across our
business next year.
As well as building skills internally, we continue to be an
employer of choice for new talent. A big part of that is our
commitment to diversity and social inclusion. It's the right thing
to do and we believe makes us a more attractive employer. While we
don't make our commitments to win awards, it's still heartening to
be recognised for the hard work we've carried out, which has led to
strong standing in the Hampton Alexander Review, Social Mobility
Index, Equileap Gender Equality Global Rankings, Tortoise
Responsibility100, and Stonewall Index.
Supporting our communities
Next year the Commonwealth Games is coming to our region and
we're delighted to be the official Nature & Carbon Neutral
Supporter of Birmingham 2022. We'll be supporting the organisers'
ambitions to create the first carbon-neutral games, and as part of
that, we'll be planting 2,022 acres of forest and creating 72
mini-forests, one for each of the competing nations, delivering a
lasting social and environmental legacy. The Games will give us the
chance to not only further our environmental goals but also to
engage our own people in a major international sporting event
taking place right in the heart of our region.
By awarding over GBP3 million to over 400 charities and
not-for-profits in our region we've helped make a real difference
to the communities in which we live and work, especially given the
challenges many such organisations have had this year in raising
funds. I've visited several groups supporting our customers through
the pandemic to see what a fantastic job they've been doing for the
past year.
We've also supported our SME suppliers by moving to immediate
payment through the pandemic, providing valuable extra cashflow
during a difficult time.
The placing
Our Directors believe the equity placing will position the
business to best deliver our Green Recovery growth plans and
improved financial performance in the future. That means we are
confident it will benefit all our stakeholders, from investors to
the communities we serve.
The placing has been structured as a non-pre-emptive offer to
maximise the efficiency of the process. However, we recognise the
importance of pre-emption rights to our smaller shareholders and to
that end we have made available a separate retail offer to give
retail investors the opportunity to participate in the equity
fundraising alongside the institutional placing.
Conclusion
Despite a tough year, we've made the most of achieving
fast-track status and have taken a number of great steps forward.
Our sector-leading ODI performance is proof of our commitment to
working smarter - whether by finding simple, cost-effective
solutions or by introducing industry-leading innovations - across
our key performance areas. We've supported our customers and our
communities during the pandemic and will continue to do so.
Combined with our environmental commitments, we believe we're
leaving a real lasting legacy for generations to come.
Chief Financial Officer's Review
At the end of a challenging year I'm pleased to report a
resilient financial performance in line with our expectations. A
summary for the year is set out below:
2021 2020 Change
---------------------------------------------
GBPm GBPm GBPm %
-------------- ------------------------- ------------------------- ---------------------- ---------------------
Turnover 1,827.2 1,843.5 (16.3) (0.9)
--------------- ------------------------- ------------------------- ---------------------- ---------------------
Adjusted PBIT 472.8 570.3 (97.5) (17.1)
Adjusting
items (2.1) (2.1) -- --
--------------- ------------------------- ------------------------- ---------------------- ---------------------
PBIT 470.7 568.2 (97.5) (17.2)
Net finance
costs (187.1) (188.4) 1.3 0.7
Gains/losses
on financial
instruments,
share of
results of
joint venture
and
impairment of
loans
receivable (16.4) (69.1) 52.7 76.3
--------------- ------------------------- ------------------------- ---------------------- ---------------------
Profit before
tax 267.2 310.7 (43.5) (14.0)
Tax (55.0) (151.9) 96.9 63.8
--------------- ------------------------- ------------------------- ---------------------- ---------------------
Profit for the
year 212.2 158.8 53.4 33.6
--------------- ------------------------- ------------------------- ---------------------- ---------------------
As expected, our turnover this year reflected the rebasing of
tariffs under the price review, and the significant impact of the
COVID-19 lockdowns. This time last year we guided to a GBP50
million to GBP85 million reduction in revenue, and we have seen the
impact at the low end of this range, as higher domestic usage
helped mitigate the significant decline in non-household
consumption. Under the regulatory model we will be able to recover
the shortfall in this year's allowed wholesale revenue in 2022/23.
This decline in revenue was offset on a reported basis by a GBP33
million reclassification of deferred income and diversions income
now released to revenue (previously credited to operating
costs).
Adjusted PBIT was down 17.1% to GBP472.8 million. In addition to
the impact of lower revenue, we spent more through our net labour,
hired and contracted and other cost lines to support our strong
customer ODI performance, and saw anticipated increases in power
and chemical costs and depreciation. Our bad debt costs were down
year-on-year, as strong household customer cash collections helped
reduce our underlying bad debt charge, only partly offset by the
additional provision we have made to account for forecasted
COVID-19 related rises in unemployment. Business Services PBIT was
also lower, in part due to lower energy prices and also the timing
of property transactions during an unsettled year.
Reported Group PBIT was down 17.2% to GBP470.7 million (2019/20:
GBP568.2 million).
We continue to benefit from both low inflation on our
index-linked debt and fixed debt issued at low interest rates in
recent years. Our effective interest cost was 30 bps lower at 3.4%
(2019/20: 3.7%) and our effective cash cost of interest was flat at
3.1% (2019/20: 3.1%).
We have recognised our GBP8.9 million share of Water Plus's loss
for this year and the GBP4.9 million of exceptional losses that
were disclosed but not recognised in the previous year. Last year
we recorded losses of GBP46.8 million in relation to Water Plus,
mainly arising from impairment losses due to the expected impacts
of COVID-19. After obtaining GBP70 million of external finance
during the year the business is now well placed to benefit from
increased economic activity after lockdown.
Our full effective tax rate was 20.6% and our adjusted effective
tax rate was 11.4%, up from 10.4% in 2019/20 largely due to lower
pension contributions in the year.
Reported Group profit after tax increased to GBP212.2 million
(2020: GBP158.8 million). Basic earnings per share increased to
89.1 pence, (2019/20: 66.7 pence) and adjusted basic earnings per
share were down 27.8% to 105.4 pence per share, in line with
expectations.
Operational cash flow was GBP860.3 million, a reduction of
GBP28.2 million as a result of lower PBIT partially offset by
higher depreciation and amortisation and improved cash collection
from household customers. Cash capex was GBP206.3 million lower
than the previous year, when we completed major end of AMP6
projects. Net cash outflow before changes in net debt was GBP170.2
million (2019/20: GBP348.2 million).
Our net debt was GBP6,443.8 million (2020: GBP6,231.5 million)
and regulated gearing was 64.5% (2020: 64.4%) reflecting strong
capital management despite the impact of low inflation on our RCV.
In April 2021 we renewed our GBP1.0 billion revolving credit
facility, extending its maturity to 2026. Our cash flow
requirements are now funded to December 2022.
Our RoRE for the year was 5.8%, 190 bps above the base return of
3.9%. This outperformance came from our customer ODIs, following
continued outperformance on our Waste measures and improvements in
Water, and financing, as the continued reduction in our effective
interest cost exceeded the drag of lower inflation in the year
compared to Ofwat's Final Determination assumption. This
outperformance was partly offset by higher totex reflecting early
investment to enhance our resilience and support ODI performance
and the COVID-19 related bad debt charge.
Changes to segmental presentation
Last year the Bioresources and Developer Services businesses
were managed by, and included in, Business Services. Both of these
businesses form part of the appointed businesses of Severn Trent
Water and Hafren Dyfrdwy, are included in the regulatory settlement
determined by Ofwat and are now managed by our Regulated Water and
Waste Water team. We have therefore amended our segmental
presentation to include Bioresources and Developer Services within
our Regulated Water and Waste Water business.
We have restated the prior year segmental analysis to present
both years on a consistent basis. Details of the adjustments made
are set out in note 2 to the financial statements.
Regulated Water and Waste Water
2020 Change
2021 (restated)
GBPm GBPm GBPm %
Turnover 1,693.9 1,708.1 (14.2) (0.8)
------------------------------------- -------- ------------- ------- -------
Net labour costs (156.0) (151.8) (4.2) (2.8)
Net hired and contracted costs (187.5) (174.6) (12.9) (7.4)
Power (100.0) (94.2) (5.8) (6.2)
Raw materials and consumables (61.3) (54.9) (6.4) (11.7)
Bad debts (40.5) (42.5) 2.0 4.7
Other costs (181.5) (147.3) (34.2) (23.2)
(726.8) (665.3) (61.5) (9.2)
------------------------------------- -------- ------------- ------- -------
Infrastructure renewals expenditure (151.0) (149.6) (1.4) (0.9)
Depreciation (364.0) (352.8) (11.2) (3.2)
------------------------------------- -------- ------------- ------- -------
Adjusted PBIT 452.1 540.4 (88.3) (16.3)
------------------------------------- -------- ------------- ------- -------
Turnover for our Regulated Water and Waste Water business was
GBP1,693.9 million (2019/20: GBP1,708.1 million) and adjusted PBIT
was GBP452.1 million (2019/20: GBP540.4 million).
The key components of the GBP14.2 million decline in revenue
were:
-- A below-inflation annual increase in regulated revenue,
largely as a result of the price review rebasing of tariffs at the
start of AMP7 (GBP15 million)
-- An increase of GBP33 million from the reclassification of
deferred income releases and diversions income (previously credited
to operating costs and infrastructure renewals expenditure - see
note 1)
-- A net decrease of GBP50 million due to lower consumption by
commercial customers, partially offset by increases in domestic
usage during the national lockdowns and the dry summer period
-- Other net decreases as a result of legacy refunds to
non-household retailers and other adjustments (GBP12 million)
We carried forward ODI rewards from AMP6 of approximately GBP191
million in nominal prices. Our turnover in the year ended 31 March
2021 includes GBP38.2 million from these rewards.
Net labour costs of GBP156.0 million were up 2.8% compared to
the prior year. Gross employee costs increased due to the annual
pay award of 2.3% and insourcing of design activity in our Capital
Delivery team. This was partially offset by higher capitalisation
of employee costs, largely related to this insourcing activity.
Net hired and contracted costs were GBP12.9 million (7.4%)
higher. Investment in activities to reduce blockages and enhance
biodiversity and in new technology licences increased costs. We
also brought in additional temporary resources to respond to the
hot weather in early summer.
Power costs were up GBP5.8 million due to the expected rise in
pass-through costs and additional consumption to meet higher
household demand for water, with some offset from an increase in
self-generation and lower variable tariffs in the first half of the
year.
Raw materials and consumables increased by GBP6.4 million due to
chemical costs on new Water Framework Directive schemes, and
COVID-19 related consumables.
Household cash collection was 5.2% higher year-on-year - 3.5%
from higher tariffs and consumption and 1.5% from improved
targeting of older debt. As a result, the element of our bad debt
charge relating to historical collections reduced by GBP9.4 million
to GBP30.9 million. Despite this strong performance, and the range
of social tariffs we have made available for struggling customers,
our expectation is that the rise in unemployment forecast by the
Bank of England for next year will result in more customers falling
into arrears. In anticipation of this, and based on the forecast
available at the year end, we recorded an additional bad debt
charge this year of GBP9.6 million (2019/20: GBP2.2 million)
against amounts already billed but not yet collected at the year
end. Taken together, our bad debt charge as a percentage of
household revenue was 3.0% (2019/20: 3.2%).
Reported other costs rose by GBP34.2 million. Before the GBP15.5
million reclassification of deferred income releases to turnover,
other costs were up GBP18.7 million. This increase was primarily
due to:
-- A GBP6.0 million subscription cost for the new Ofwat
Innovation fund for AMP7, which is offset within our household
tariffs in turnover
-- Increased insurance charges of GBP3.9 million
-- A GBP3.6 million increase in Community Support during the pandemic, and
-- A number of smaller items including GBP2.2 million higher
business rates (due to inflationary increases this year and
significant rebates in the prior year).
Reported Infrastructure renewals expenditure was GBP1.4 million
higher in the year. Before the reclassification of GBP17.5 million
of diversions income to turnover, expenditure was GBP16.1 million
lower due to the completion of significant AMP6 projects last year,
including our Trunk Mains Renewal Programme.
Depreciation of GBP364.0 million was GBP11.2 million higher than
the prior year. Major AMP6 projects that were brought into service
and other additions increased the depreciable asset base by around
7%; the effect of this was partly offset by a GBP9.8 million
reduction in the depreciation charge following a review of useful
lives for significant mechanical and electrical assets.
Return on Regulated 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 2021 is
set out in the following table:
2020/21
%
----------------------------------- ---- -------- ---
Base return 3.9
Enhanced RoRE returns 0.3
ODI outperformance(1) 1.7
Totex performance (0.7)
Financing outperformance 0.6
Regulatory return for the year(2) 5.8
----------------------------------------- -------- ---
1. ODI performance includes PCC and forecast D-MeX outturn.
2. Calculated in accordance with Ofwat guidance set out in RAG 4.07.
We have delivered RoRE of 5.8% in the year, outperforming the
base return by 1.9% as a result of:
-- ODI performance of 1.7%, driven by continued strong
performance on waste measures, including blockages and sewer
flooding, and improvements in water measures, including water
quality, CRI and low pressure.
-- Our totex position of (0.7)% reflects early investment to
enhance our resilience and support ODI performance, as well as the
higher COVID-19 related bad debt charge.
-- Financing performance of 0.6%, from the continued reduction
in our effective interest rate, offset by the drag of lower
inflation in the year compared to Ofwat's FD assumption.
Business Services
2020
2021 (restated) Increase/(decrease)
GBPm GBPm GBPm %
------------------------------ ------ ------------- ---------- ----------
Turnover
Operating Services and Other 82.8 84.4 (1.6) (1.9)
Green Power 51.9 53.5 (1.6) (3.1)
134.7 137.9 (3.2) (2.3)
------------------------------ ------ ------------- ---------- ----------
Adjusted PBIT
Operating Services and Other 20.9 21.7 (0.8) (3.7)
Green Power 2.6 6.6 (4.0) (60.6)
Property Development 2.3 7.7 (5.4) (70.1)
25.8 36.0 (10.2) (28.3)
------------------------------ ------ ------------- ---------- ----------
Business Services turnover was GBP134.7 million (2019/20:
GBP137.9 million) and adjusted PBIT was GBP25.8 million (2019/20:
GBP36.0 million).
In our Operating Services business, turnover and adjusted PBIT
decreased by GBP1.6 million and GBP0.8 million respectively,
largely driven by lower volumes in the Property Searches business
during the national lockdown in the first half of the year.
In Green Power, turnover decreased by GBP1.6 million and
adjusted PBIT decreased by GBP4.0 million. Adjusted PBIT was
impacted by lower wholesale energy prices in the first half of the
year and the higher cost of purchasing alternative feedstocks to
compensate for less hospitality industry food waste during
lockdowns.
Profits from Property Development were GBP5.4 million lower as
there were no individually significant disposals in the current
year, as guided. We remain on track to deliver GBP100 million of
PBIT from property sales by 2027.
Corporate and other
Corporate costs were GBP5.9 million (2019/20: GBP8.6 million),
with the reduction largely due to releases of provisions relating
to prior year corporate transactions that are no longer required.
Our other businesses generated PBIT of GBP0.7 million (2019/20:
GBP3.0 million).
Exceptional items before tax
We recorded no exceptional operating costs (2019/20: nil).
In 2019/20 we recorded exceptional losses before tax of GBP51.7
million from the impact of COVID-19 on our joint venture Water
Plus, including GBP46.8 million from our share of its losses and an
exceptional impairment charge of GBP4.9 million on our loans due
from Water Plus. In view of the materiality of these impacts and
the unprecedented nature of the impact of COVID-19 on Water Plus we
considered these items to be exceptional.
Net finance costs
Net finance costs for the year were GBP1.3 million lower than
the prior year at GBP187.1 million. Average net debt increased to
GBP6,263.6 million (2019/20: GBP5,972.2 million) and our effective
cash cost of interest (excluding indexation adjustment on
index-linked debt and pensions-related charges) was 3.1% (2019/20:
3.1%). Interest cost on index-linked debt decreased by GBP14.8
million due to lower inflation, and as a result our effective
interest cost fell to 3.4% (2019/20: 3.7%).
Capitalised interest of GBP30.4 million was GBP13.8 million
lower year-on-year due to the lower level of capital activity
compared to last year.
Our earnings before interest, tax depreciation and amortisation
(EBITDA) interest cover was 4.7 times (2019/20: 5.3 times) and
adjusted PBIT interest cover was 2.6 times (2019/20: 3.2 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
GBP653 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 loss of GBP8.2 million (2019/20: loss
of GBP9.8 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
around 82% of our estimated wholesale energy usage for 2021/22.
Share of loss of joint venture
In common with other participants in the non-household retail
market, Water Plus has been significantly impacted by the COVID-19
outbreak, the resulting lockdowns and the effects on commercial
customers. Water Plus's revenue was around GBP150 million lower
than the previous year and in these difficult trading conditions it
incurred a loss after tax of GBP17.7 million. During the year Water
Plus obtained GBP70 million of external debt facilities and, since
the year end, along with our joint venture partner, we have each
converted GBP32.5 million of the revolving credit facilities
advanced to Water Plus to equity and consider this to form part of
our long-term investment in Water Plus at the year end. The
business is now well placed to benefit from the recovery as
economic activity increases after lockdown.
We have recognised our share of Water Plus's loss after tax for
the year (GBP8.9 million) and the GBP4.9 million of exceptional
losses not recognised in the prior year.
We have updated our assessment of expected credit losses on our
loans to Water Plus and reduced the provision recorded by GBP3.6
million.
Taxation
We are committed to paying the right amount of tax at the right
time. We pay a range of taxes, including business rates, employers'
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. Our corporation tax charge for the year
was higher than the statutory rate, reflecting non-deductible items
charged to our income statement such as depreciation charged on
assets which are not eligible for capital allowances and on which
no deferred tax is provided, partially offset by tax credits
arising from overpayments in the previous year. Cash tax payments
were reduced by the benefit of tax allowances on our capital
programme and contributions to our pension schemes.
2021 2020
GBPm GBPm
----------------------------------- ------ ------
Tax incurred:
Corporation tax 30.0 26.7
Business rates and property taxes 83.6 81.6
Employer's National Insurance 28.0 28.9
Environmental taxes 6.7 6.6
Other taxes 5.5 4.9
------------------------------------ ------ ------
153.8 148.7
----------------------------------- ------ ------
Further details on the taxes and levies that we pay can be found
in our report, "Explaining our Tax Contribution 2020/21", 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 GBP55.0 million (2019/20:
GBP59.2 million) and we made net corporation tax payments of
GBP23.2 million in the year (2019/20: GBP33.9 million). The
difference between the tax charged and the tax paid is summarised
below:
2021 2020
GBPm GBPm
----------------------------------------------------- -------------------- --------
Tax on profit on ordinary activities before
exceptional taxes 55.0 59.2
Tax on exceptional items -- 0.9
Exceptional deferred tax charge arising from
rate change -- 91.8
Tax effect of timing differences (28.2) (120.9)
Current tax credits recorded in Other Comprehensive
Income or equity (0.4) (9.5)
Overprovisions in previous years 3.6 5.2
Corporation tax payable for the year 30.0 26.7
Repayments received -- (0.4)
Payments relating to prior years -- 4.5
Overpayments in the year -- 3.1
Overpayments in prior years offset in the (6.8) --
current year
----------------------------------------------------- -------------------- --------
Net tax paid in the year 23.2 33.9
------------------------------------------------------ -------------------- --------
Net tax paid in the year of GBP23.2 million (2019/20: GBP33.9
million) includes GBP4.9 million paid to Water Plus for consortium
relief (2019/20: nil).
Note 8 in the financial statements sets out the tax charges and
credits in the year, which are described below.
The current tax charge for the year was GBP26.8 million
(2019/20: GBP31.0 million) and the deferred tax charge was GBP28.2
million (2019/20, before the exceptional deferred tax charge
arising from the change of rate: GBP29.1 million).
Our full effective tax rate this year was 20.6% (2019/20:
48.9%), which is higher than the UK rate of corporation tax (19%),
due to items of expenditure that are not deductible for tax
(2019/20: higher mainly due to the exceptional deferred tax
charge).
Our adjusted effective current tax rate was 11.4% (2019/20:
10.4%) (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. 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 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.
In March 2021 the UK Government announced its intention to
increase the rate of corporation tax to 25% with effect from 1
April 2023. If this rate had applied at the balance sheet date the
deferred tax liability would have been GBP286 million higher.
Profit for the year and earnings per share
Total profit for the year was GBP212.2 million (2019/20:
GBP158.8 million).
Basic earnings per share from continuing operations increased by
33.6% to 89.1 pence (2019/20: 66.7 pence). Adjusted basic earnings
per share was 105.4 pence (2019/20: 146.0 pence). For further
details see note 10.
Cash flow
2021 2020
GBPm GBPm
Operational cash flow 860.3 888.5
Cash capex (593.2) (799.5)
Net interest paid (186.2) (184.2)
Proceeds on sale of subsidiary 0.7 --
Net payments for swap terminations (0.2) (0.3)
Net tax paid (23.2) (33.9)
------------------------------------- ---------- ----------
Free cash flow 58.2 (129.4)
Dividends (240.2) (228.4)
Issue of shares 11.8 9.6
------------------------------------- ---------- ----------
Change in net debt from cash flows (170.2) (348.2)
Non-cash movements (42.1) (49.2)
------------------------------------- ---------- ----------
Change in net debt (212.3) (397.4)
Opening net debt (6,231.5) (5,834.1)
------------------------------------- ---------- ----------
Closing net debt (6,443.8) (6,231.5)
------------------------------------- ---------- ----------
2021 2020
GBPm GBPm
------------------------------- ---------- ----------
Bank loans (1,011.1) (1,251.9)
Other loans (5,471.3) (5,058.5)
Lease liabilities (121.3) (122.7)
Net cash and cash equivalents 44.0 48.6
Cross currency swaps 31.9 60.4
Loans due from joint venture 84.0 92.6
Net debt (6,443.8) (6,231.5)
-------------------------------- ---------- ----------
Operational cash flow was GBP860.3 million (2019/20: GBP888.5
million). The impact of lower PBIT was partially offset by higher
depreciation and amortisation and improved collection from
household customers.
Net cash capex of GBP593.2 million (2019/20: GBP799.5 million)
was above our expectation of GBP580 million as we made a fast start
to our AMP7 programme.
Our net interest payments of GBP186.2 million (2019/20: GBP184.2
million) were broadly in line with the previous year as the impact
of higher net debt was largely offset by lower finance costs. Our
net tax payments were GBP23.2 million, a decrease of GBP10.7
million, mainly due to quarterly instalment payments higher than
the corporation tax payable in the prior year.
We received GBP11.8 million (2019/20: GBP9.6 million) from the
exercise of options under the employee Save As You Earn share
scheme and 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 GBP212.3 million
in net debt (2019/20: GBP397.4 million).
On 31 March 2021 we held GBP44.0 million (2020: GBP48.6 million)
in net cash and cash equivalents. Average debt maturity was around
13 years (2020: 13 years). Including committed facilities, our cash
flow requirements are funded until December 2022.
Net debt at 31 March 2021 was GBP6,443.8 million (2020:
GBP6,231.5 million) and balance sheet gearing (net debt/net debt
plus equity) was 84.9% (2020: 83.2%). Severn Trent Water Group net
debt, expressed as a percentage of estimated RCV at 31 March 2021
was 64.5% (2020: 64.4%).
The estimated fair value of debt at 31 March 2021 was GBP1,449.5
million higher than book value (2020: GBP951.8 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.
In December 2020 we issued GBP100 million 35-year CPIH linked
debt at a premium of around GBP22 million. The notes carry a coupon
of 0.01%.
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 2021 interest rates for 67% (2020: 64%) of our gross
debt of GBP6,603.7 million were fixed; 8% were floating and 25%
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 Seven Trent Outlook
Plc Water
-------------------- ------------- ------------ --------
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 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 (GBP2.7 million in
2020/21).
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.
Hafren Dyfrdwy participates in the Dee Valley Water Limited
Section of the Water Companies Pension Scheme ("the Section"). The
Section funds are administered by trustees and are held separately
from the assets of the Group. The Section is closed to new
entrants. The most recent formal actuarial valuation of the Section
was completed as at 31 March 2020 and no deficit reduction
contributions to the Section 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
GBP367.7 million (2020: GBP234.0 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 reduced to 88% (31 March
2020: 91%).
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 year 2,414.1 (2,648.1) (234.0)
Amounts credited/(charged) to income
statement 53.4 (63.2) (9.8)
Actuarial gains/(losses) taken to reserves 212.7 (374.7) (162.0)
Net contributions received and benefits
paid (79.8) 117.9 38.1
At end of the year 2,600.4 (2,968.1) (367.7)
-------------------------------------------- ---------------------------- ---------------------------- ------------
The income statement includes:
-- Current service costs on the Dee Valley Water Scheme, which
remains open to further accrual but is closed to new members, and
past service costs relating to GMP equalisation. Together these
amounts were GBP0.5 million;
-- Scheme administration costs of around GBP3.9 million; and
-- Net interest on scheme liabilities and expected return on the
scheme assets - together a cost of GBP5.4 million.
At the previous year end there was a short-lived increase in
corporate bond spreads that increased the discount rate applied in
calculating the scheme liabilities. Corporate bond spreads were
around 100 bps lower at 31 March 2021 but the impact of this on the
discount rate applied was mitigated by a 50 bps increase in gilt
yields. The net reduction in the discount rate increased the scheme
liabilities by around GBP150 million.
Inflation expectations have increased by around 70 bps since the
previous year end and this increased scheme liabilities by around
GBP290 million.
Changes to demographic assumptions reduced scheme liabilities by
around GBP34 million. This included an update to the most recent
CMI data tables and also a weighting to allow for the high
mortality experienced in 2020.
The actual outturn in the year for inflation and other
assumptions was better than expected and this reduced scheme
liabilities by GBP31 million.
The scheme assets increased in value by around GBP213 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 GBP24.8 million;
-- A payment of GBP11.4 million that was deferred from the March
2020 deficit reduction payment to April 2020; and
-- A one-off supplementary payment of GBP1.3 million.
There were also normal contributions of GBP0.2 million to the
Dee Valley Water Scheme and payments of benefits under the unfunded
scheme amounting to GBP0.4 million.
Dividends
In line with our policy for AMP7 to increase the dividend by at
least CPIH each year, the Board has proposed a final ordinary
dividend of 60.95 pence per share for 2020/21 (2019/20: 60.05 pence
per share). This gives a total ordinary dividend for the year of
101.58 pence (2018/19: 100.08 pence).
The final ordinary dividend is payable on 16 July 2021 to
shareholders on the register at 28 May 2021.
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:
Cyber Security and Technology Resilience:
-- Cyber threats cause damage to key infrastructure assets,
interruptions to core systems or data loss resulting in a negative
impact on our reputation, operations, regulatory (including GDPR)
compliance or finances.
Service Failure and Asset Resilience:
-- Failure to provide a safe and secure supply of drinking water
to our customers and the potential for reduced public confidence in
water supply.
-- Failure to effectively transport and treat waste water and
the potential for reduced public confidence in our waste water
system.
Financial Liabilities:
-- Failure to fund the Severn Trent defined benefit ('DB') pension scheme sustainably.
-- We are unable to ensure sufficient liquidity to meet our funding requirements.
Capital Project Delivery and Scheme Resilience:
-- Failure to design or deliver to time and cost capital
projects that ensure the resilience of our operations and safety of
our assets.
Political, Legal and Regulatory:
-- Accelerating changes in the political, legal environment and
environmental obligations increases the risk of non-compliance.
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 positively influence natural capital in our region.
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.
COVID-19:
-- Whilst global pandemics have not previously been noted as a
principal risk, they do feature on our horizon scanning and many of
the associated risks are captured within our ERM framework. We have
a well-rehearsed approach to incident management and while COVID-19
presented many unique challenges, the governance structure we
implemented in response to the COVID-19 pandemic provided a stable
foundation from which we could respond to the changing
situation.
-- COVID-19 assumptions are built into our budget and business
plan process. Our priority remains the health and safety of our
people and customers, and we are taking all possible actions to
support them whilst continuing to deliver our essential services.
The Board continues to receive regular updates on the Group's
COVID-19 response in order to assess, monitor and respond to the
evolving impact of COVID-19 on our operations and business,
including impacts for all of our stakeholders.
Technical Guidance 2021/22
Year-end guidance FY 21 Year-on-
Year
Regulated Water and Waste Water
Turnover(1) GBP1.78 billion to GBP1.81 billion. GBP1.69bn
Includes c.GBP50 million of diversions
income related to HS2.
Operating costs Higher year-on-year primarily driven GBP878m
(incl. IRE) by a planned step up in our IRE programme
and continued upward sector-wide pressure
on energy and chemicals costs.
ODIs(2) Continued outperformance across Water, GBP79m
Waste, Environmental and Customer measures
delivering a net reward of at least
GBP40 million.
----------------- ---------------------------------------------------- ---------- ---------
Business Services
Adjusted PBIT Double digit percentage growth, driven GBP26m
by increased property sales.
Group
Interest charge Increase year-on-year from higher forecast GBP187m
inflation and greater total net debt.
We expect the impact of the acceleration
of capital allowances and the "super
deduction" on our increased capital
programme to be greater than our taxable
Tax rate(3) profit before these items. 11.4%
Group capex GBP550 million to GBP650 million including GBP593m
Green Recovery.
Annual dividend growth of CPIH. 2021/22
Dividend(4) dividend 102.14p. 101.58p
----------------- ---------------------------------------------------- ---------- ---------
Footnotes to Technical Guidance
1. Includes new presentation of deferred income and diversions
income released to turnover in the income statement.
2. Outcome Delivery Incentives are quoted pre-tax in 2017/18
prices.
3. Total effective tax rate is expected to be c.19%.
4. 2021/22 dividend growth is based on November 2020 CPIH of
0.55%.
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) 27 May 2021
Dividend record date (Final) 28 May 2021
------------------
DRIP election date (Final) 25 June 2021
------------------
AGM 8 July 2021
------------------
Q1 Trading Update 15 July 2021
------------------
Final dividend payment date 16 July 2021
------------------
Capital Markets Day 24 September 2021
------------------
Half year results announcement 2021/22 23 November 2021
------------------
Ex-dividend date (Interim) 2 December 2021
------------------
Dividend record date (Interim) 3 December 2021
------------------
DRIP election date (Interim) 14 December 2021
------------------
Interim dividend payment date 7 January 2022
------------------
For more information please visit:
https://www.severntrent.com/investors/financial-calendar-and-regulatory-news/
Consolidated income statement
For the year ended 31 March 2021
2021 2020
------------------- ----------------- -------------------- ------------------- ------------------- --------------------
Adjusting Adjusting
Adjusted items Total Adjusted items Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
Turnover 2,3 1,827.2 -- 1,827.2 1,843.5 -- 1,843.5
Other income -- -- -- 6.9 -- 6.9
------------- ----- ------------------- ----------------- -------------------- ------------------- ------------------- --------------------
Operating
costs
before
charge for
bad and
doubtful
debts (1,314.4) (2.1) (1,316.5) (1,237.2) (2.1) (1,239.3)
Charge for
bad and
doubtful
debts (40.0) -- (40.0) (42.9) -- (42.9)
------------- ----- ------------------- ----------------- -------------------- ------------------- ------------------- --------------------
Total
operating
costs (1,354.4) (2.1) (1,356.5) (1,280.1) (2.1) (1,282.2)
------------- ----- ------------------- ----------------- -------------------- ------------------- ------------------- --------------------
Profit
before
interest
and tax 472.8 (2.1) 470.7 570.3 (2.1) 568.2
------------- ----- ------------------- ----------------- -------------------- ------------------- ------------------- --------------------
Finance
income 5 59.8 -- 59.8 59.9 -- 59.9
Finance
costs 6 (246.9) -- (246.9) (248.3) -- (248.3)
------------- ----- ------------------- ----------------- -------------------- ------------------- ------------------- --------------------
Net finance
costs (187.1) -- (187.1) (188.4) -- (188.4)
Gain/(loss)
on
impairment
of loans
receivable 3.6 -- 3.6 -- (4.9) (4.9)
Net losses
on
financial
instruments 7 (6.2) -- (6.2) (17.4) -- (17.4)
Share of net
loss of
joint
venture
accounted
for using
the equity
method 4 (8.9) (4.9) (13.8) -- (46.8) (46.8)
Profit on
ordinary
activities
before
taxation 274.2 (7.0) 267.2 364.5 (53.8) 310.7
------------- ----- ------------------- ----------------- -------------------- ------------------- ------------------- --------------------
Current tax 8 (26.8) -- (26.8) (30.1) (0.9) (31.0)
Deferred tax 8 (28.2) -- (28.2) (29.1) (91.8) (120.9)
------------- ----- ------------------- ----------------- -------------------- ------------------- ------------------- --------------------
Taxation on
profit on
ordinary
activities 8 (55.0) -- (55.0) (59.2) (92.7) (151.9)
----- ------------------- ----------------- -------------------- ------------------- ------------------- --------------------
Profit for
the year 219.2 (7.0) 212.2 305.3 (146.5) 158.8
------------- ----- ------------------- ----------------- -------------------- ------------------- ------------------- --------------------
Earnings per share (pence)
2021 2020
--------- ----- -----
Basic 89.1 66.7
Diluted 88.6 66.3
---------- ----- -----
Consolidated statement of comprehensive income
For the year ended 31 March 2021
2021 2020
Note GBPm GBPm
Profit for the year 212.2 158.8
---------------------------------------------------------- ----- -------- -------
Other comprehensive (loss)/income
Items that will not be reclassified to the income
statement:
Net actuarial (losses)/gains 12 (162.0) 187.4
Deferred tax on net actuarial losses/gains 30.8 (32.9)
Current tax on pension contributions in prior periods -- 9.5
Deferred tax on pension contributions in prior periods -- (9.5)
Deferred tax arising on rate change -- 2.7
(131.2) 157.2
---------------------------------------------------------- ----- -------- -------
Items that may be reclassified to the income statement:
Gains/(losses) on cash flow hedges 33.5 (38.9)
Deferred tax on gains/losses on cash flow hedges (6.3) 7.4
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)
33.8 (24.9)
---------------------------------------------------------- ----- -------- -------
Other comprehensive (loss)/income for the year (97.4) 132.3
---------------------------------------------------------- ----- -------- -------
Total comprehensive income for the year 114.8 291.1
---------------------------------------------------------- ----- -------- -------
Consolidated statement of changes in equity
For the year ended 31 March 2021
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 2019 235.9 128.0 92.8 705.8 1,162.5
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Profit for the year -- -- -- 158.8 158.8
Losses on cash flow hedges -- -- (38.9) -- (38.9)
Deferred tax on losses on cash
flow hedges -- -- 7.4 -- 7.4
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 gains 12 -- -- -- 187.4 187.4
Deferred tax on net actuarial
gains -- -- -- (32.9) (32.9)
Current tax on pension
contributions in prior periods -- -- -- 9.5 9.5
Deferred tax on pension
contributions in prior periods -- -- -- (9.5) (9.5)
Deferred tax on rate change -- -- -- 2.7 2.7
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Total comprehensive income for
the period -- -- (24.9) 316.0 291.1
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Share options and LTIPs
- proceeds from shares issued 0.6 9.0 -- -- 9.6
- value of employees' services -- -- -- 8.1 8.1
Deferred tax on share based
payments -- -- -- 0.8 0.8
Dividends paid 9 -- -- -- (228.4) (228.4)
At 31 March 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
gains -- -- -- 30.8 30.8
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Total comprehensive loss for
the period -- -- 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. 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
-------------------------------- ----- -------------- -------------- --------------- ------------------ --------
Consolidated balance sheet
At 31 March 2021
2021 2020
Note GBPm GBPm
Non-current assets
Goodwill 91.4 91.4
Other intangible assets 164.0 153.8
Property, plant and equipment 9,875.2 9,580.8
Right-of-use assets 130.8 128.8
Derivative financial instruments 37.1 65.5
Trade and other receivables 101.5 117.8
Retirement benefit surplus 12 17.1 21.3
-----
10,417.1 10,159.4
---------------------------------- ----- --------------------- -------------------------
Current assets
Inventory 30.8 29.2
Trade and other receivables 515.2 561.4
Current tax receivable -- 3.1
Derivative financial instruments 3.8 --
Cash and cash equivalents 56.2 48.6
606.0 642.3
---------------------------------- ----- --------------------- -------------------------
Current liabilities
Borrowings (503.1) (475.4)
Derivative financial instruments -- (4.4)
Trade and other payables (557.1) (573.6)
Current tax payable (0.2) --
Provisions for liabilities (18.0) (18.9)
(1,078.4) (1,072.3)
---------------------------------- ----- --------------------- -------------------------
Net current liabilities (472.4) (430.0)
Non-current liabilities
Borrowings (6,112.8) (5,957.7)
Derivative financial instruments (126.9) (159.2)
Trade and other payables (1,250.3) (1,187.3)
Deferred tax (906.0) (901.1)
Retirement benefit obligations 12 (384.8) (255.3)
Provisions for liabilities (25.2) (25.1)
(8,806.0) (8,485.7)
---------------------------------- ----- --------------------- -------------------------
Net assets 1,138.7 1,243.7
---------------------------------- ----- --------------------- -------------------------
Equity
Called up share capital 237.2 236.5
Share premium account 148.1 137.0
Other reserves 101.7 67.9
Retained earnings 651.7 802.3
Total equity 1,138.7 1,243.7
---------------------------------- ----- --------------------- -------------------------
Consolidated cash flow statement
For the year ended 31 March 2021
2021 2020
Note GBPm GBPm
-------------------------------------------------------------- ----- -------- --------
Cash generated from operations 13 901.7 928.1
Tax received 13 -- 0.4
Tax paid 13 (23.2) (34.3)
Net cash generated from operating activities 878.5 894.2
-------------------------------------------------------------- ----- -------- --------
Cash flows from investing activities
Purchases of property, plant and equipment (613.7) (777.2)
Purchases of intangible assets (22.2) (74.8)
Payments to acquire right-of-use assets (0.7) --
Proceeds on disposal of property, plant and equipment 2.0 12.9
Proceeds on disposal of subsidiaries net of cash disposed 0.7 --
Net loans (advanced to)/repaid by joint venture (1.0) 35.6
Interest received 3.7 2.0
Net cash outflow from investing activities (631.2) (801.5)
-------------------------------------------------------------- ----- -------- --------
Cash flow from financing activities
Interest paid (185.6) (181.9)
Interest element of lease payments (4.3) (4.3)
Dividends paid to shareholders of the parent (240.2) (228.4)
Repayments of borrowings (242.9) (3.0)
Principal elements of lease payments (5.6) (5.5)
New loans raised 415.1 330.1
Issues of shares 11.8 9.6
Payments for swap terminations (1.1) (16.8)
Proceeds from swap terminations 0.9 16.5
Net cash outflow from financing activities (251.9) (83.7)
-------------------------------------------------------------- ----- -------- --------
Net movement in cash and cash equivalents (4.6) 9.0
Net cash and cash equivalents at the beginning of the period 48.6 39.6
Net cash and cash equivalents at end of period 44.0 48.6
-------------------------------------------------------------- ----- -------- --------
Cash at bank and in hand 56.2 37.3
Short term deposits -- 11.3
Overdraft (12.2) --
44.0 48.6
-------------------------------------------------------------- ----- -------- --------
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 International Financial
Reporting Standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union. 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 December
2022. After making enquiries, including considering the potential
impacts of COVID-19 as described in this RNS, 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
2021 or 2020, 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 2020 have been
delivered to the Registrar of Companies and those for 2021 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.
b) Changes in accounting presentation
(i) Contract asset ageing
A prior period adjustment has been made to reflect a change in
presentation for the ageing of contract assets. The new
presentation allocates future cash receipts to contract assets on a
first-in-first-out basis. When assessing whether contract assets
were current or non-current assets, cash receipts were previously
allocated first to performance obligations satisfied in the year
and then to performance obligations satisfied in previous years. As
there is no contractual basis for the allocation of cash receipts
to performance obligations, the directors believe it is more
appropriate to allocate cash to performance obligations on a
first-in-first-out basis, i.e. matching the first cash receipts to
the first performance obligations satisfied.
The table below shows the effect of the change in accounting
policy for the balance sheet position at 31 March 2020:
Balance sheet extract
As previously reported Restatement Restated
GBPm GBPm GBPm
----------------------------------------- ----------------------- ------------ ---------
Current trade and other receivables 525.5 35.9 561.4
Non-current trade and other receivables 153.7 (35.9) 117.8
----------------------------------------- ----------------------- ------------ ---------
(ii) Segmental presentation
A change in segmental presentation is set out in note 2. This
has resulted in a change to the analysis of revenue by segment,
which is shown in note 3.
(iii) Deferred income and income from diversions
Previously deferred income released to the income statement, and
income from diversions, were credited to operating costs. Under the
new presentation, the deferred income and income from diversions
are recognised as turnover. In the year ended 31 March 2021 the
release of deferred income amounted to GBP15.5 million (2020:
GBP15.4 million) and income from diversions amounted to GBP17.5
million (2020: GBP6.8 million). This presentational change has been
applied beginning in the year, however as the impact in the prior
year is not considered material to the amounts recorded in turnover
or operating costs, prior years have not been restated. This
reclassification has no impact on profits or cash flows recorded in
the year or prior years.
c) Change in accounting estimate - Useful economic lives
In the current financial year the Group has applied a change in
the estimate of useful lives applicable to certain mechanical and
engineering assets, included within the fixed plant and equipment
asset category. The average estimated useful lives across GBP825.0
million net book value of assets at 31 March 2021 has been
increased from 20 years to 22 years. The average estimated
remaining useful lives across these assets has been increased from
14 years to 16 years. The change is required following updated
engineering data, and has resulted in a GBP9.8 million decrease in
the depreciation expense in the current year. The impact over the
next four years is expected to be a GBP7.8 million decrease in
depreciation expense per year.
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, its retail
services to domestic customers, 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.
In 2019/20 the Bioresources and Developer Services businesses
were managed by, and included in, Business Services. These
activities are now managed by Regulated Water and Waste Water and
we have amended our segmental presentation to reflect the new
structure. We have provided a reconciliation of the prior year
segmental information from the old basis to the new basis
below.
The tables below show the changes from the old to the new
segmentation for turnover and PBIT for the year ended 31 March
2020:
Regulated Water and Regulated Water and Waste
Waste Water (old basis) Bioresources Developer Services Water (new basis)
GBPm GBPm GBPm GBPm
--------------------------- ------------------------- ------------- ------------------- --------------------------
Turnover 1,620.7 87.3 0.1 1,708.1
--------------------------- ------------------------- ------------- ------------------- --------------------------
Profit before interest and
tax 511.5 29.3 (0.4) 540.4
--------------------------- ------------------------- ------------- ------------------- --------------------------
Business Services Business Services
(old basis) Bioresources Developer Services (new basis)
GBPm GBPm GBPm GBPm
------------------------------------------ ------------------ ------------- ------------------- ------------------
External turnover 222.8 (87.3) (0.1) 135.4
Inter-segment turnover 17.6 (15.1) -- 2.5
Total turnover 240.4 (102.4) (0.1) 137.9
------------------------------------------
Adjusted PBIT 64.9 (29.3) 0.4 36.0
Amortisation of acquired intangible
assets (2.1) -- -- (2.1)
------------------------------------------ ------------------ ------------- ------------------- ------------------
Profit before interest and tax 62.8 (29.3) 0.4 33.9
------------------------------------------ ------------------ ------------- ------------------- ------------------
The tables below show the changes from the old to the new
segmentation for capital employed at 31 March 2020:
Regulated Water Regulated Water
and Waste Water Consolidation and Waste Water
(old basis) Bioresources Developer Services adjustments (new basis)
GBPm GBPm GBPm GBPm GBPm
-------------------- ------------------ ------------- ------------------- ------------------- -------------------
Operating assets 9,883.0 293.6 12.7 (12.1) 10,177.2
Goodwill 63.5 -- -- -- 63.5
Segment assets 9,946.5 293.6 12.7 (12.1) 10,240.7
Segment operating
liabilities (1,991.8) (12.5) (4.0) 17.6 (1,990.7)
Capital employed 7,954.7 281.1 8.7 5.5 8,250.0
-------------------- ------------------ ------------- ------------------- ------------------- -------------------
Business services Consolidation Business Services
(old basis) Bioresources Developer Services adjustments (new basis)
GBPm GBPm GBPm GBPm GBPm
-------------------- ------------------ ------------- ------------------- -------------------- ------------------
Operating assets 626.3 (293.6) (12.7) 12.1 332.1
Goodwill 29.2 -- -- -- 29.2
Segment assets 655.5 (293.6) (12.7) 12.1 361.3
Segment operating
liabilities (42.4) 12.5 4.0 (17.6) (43.5)
Capital employed 613.1 (281.1) (8.7) (5.5) 317.8
-------------------- ------------------ ------------- ------------------- -------------------- ------------------
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 venture 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:
2020
2021 (restated)
------------------------------------------- -------------------------------------------
Regulated Water and Regulated Water and
Waste Water Business Services Waste Water Business Services
GBPm GBPm GBPm GBPm
----------------------- ----------------------- ------------------ --- ----------------------- ------------------
External turnover 1,693.9 132.9 1,708.1 135.4
Inter-segment turnover -- 1.8 -- 2.5
Total turnover 1,693.9 134.7 1,708.1 137.9
----------------------- ----------------------- ------------------ --- ----------------------- ------------------
Adjusted PBIT 452.1 25.8 540.4 36.0
Amortisation of
acquired intangible
assets -- (2.1) -- (2.1)
Profit before interest
and tax 452.1 23.7 540.4 33.9
----------------------- ----------------------- ------------------ --- ----------------------- ------------------
The reportable segments' turnover is reconciled to Group
turnover as follows:
2020
2021 (restated)
GBPm GBPm
--------------------------------- ---- ---- ---- -------- -------------
Regulated Water and Waste Water 1,693.9 1,708.1
Business Services 134.7 137.9
Corporate and other 0.9 0.7
Consolidation adjustments (2.3) (3.2)
1,827.2 1,843.5
------------------------------------------------ -------- -------------
Segmental adjusted PBIT is reconciled to the Group's profit
before tax as follows:
2020
2021 (restated)
GBPm GBPm
-------------------------------------------------------------------------- -------- -------------
Regulated Water and Waste Water 452.1 540.4
Business Services 25.8 36.0
Corporate and other (5.1) (5.6)
Consolidation adjustments -- (0.5)
Adjusted PBIT 472.8 570.3
Amortisation of acquired intangible assets (in Business Services) (2.1) (2.1)
Net finance costs (187.1) (188.4)
Gain/(loss) on impairment of loans receivable 3.6 (4.9)
Net losses on financial instruments (6.2) (17.4)
Share of net loss of joint venture accounted for using the equity method (13.8) (46.8)
Profit on ordinary activities before taxation 267.2 310.7
-------------------------------------------------------------------------- -------- -------------
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.
c) Segmental capital employed
The following table shows the segmental capital employed:
2020
2021 (restated)
------------------------------------------ -------------------------------------------
Regulated Water and Regulated Water and
Waste Water Business Services Waste Water Business Services
GBPm GBPm GBPm GBPm
------------------------ ---------------------- ------------------ --- ----------------------- ------------------
Operating assets 10,4 33.4 331.0 10,177.2 332.1
Goodwill 63.5 29.2 63.5 29.2
Segment assets 10,4 96.9 360.2 10,240.7 361.3
Segment operating
liabilities (2,1 74.4) (40.0) (1,990.7) (43.5)
Capital employed 8,322.5 320.2 8,250.0 317.8
------------------------ ---------------------- ------------------ --- ----------------------- ------------------
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 2021
Regulated Water and Corporate Consolidation
Waste Water Business Services and other 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
------------------------ ----------------------- ------------------ ----------- ------------------------ --------
Year ended 31 March 2020
Regulated Water and Corporate Consolidation
Waste Water Business Services and other adjustments Group
GBPm GBPm GBPm GBPm GBPm
------------------------ ----------------------- ------------------ ----------- ------------------------ --------
Water and waste water
services 1,673.5 -- -- -- 1,673.5
Operating services -- 70.7 -- -- 70.7
Renewable energy 30.2 53.5 -- (2.5) 81.2
Other sales 4.4 13.7 0.7 (0.7) 18.1
1,708.1 137.9 0.7 (3.2) 1,843.5
------------------------ ----------------------- ------------------ ----------- ------------------------ --------
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 2021, the aggregate amount
of the estimated transaction price allocated to performance
obligations that were not satisfied was GBP416.1 million (2020:
GBP459.3 million). This amount is expected to be recognised as
revenue as follows:
2021 2020
GBPm GBPm
---------------------------- ------ ------
In the next year 46.2 43.6
Between one and five years 184.4 177.6
After more than five years 185.5 238.1
---------------------------- ------ ------
416.1 459.3
---------------------------- ------ ------
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:
2021 2020
GBPm GBPm
---------------------------- ------- -------
Contract asset at 1 April 36.6 35.1
Amounts billed (49.0) (47.6)
Revenue recognised 50.6 49.1
---------------------------- ------- -------
Contract asset at 31 March 38.2 36.6
---------------------------- ------- -------
No revenue recognised in the year was included as a contract
liability at the beginning of the year (2020: nil). No revenue
recognised in the year is from performance obligations satisfied in
previous periods (2020: nil).
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
are as follows:
2021 2020
GBPm GBPm
---------------------------------------------------- ------ -------
Loss on impairment of loans due from joint venture
(see note 11) -- (4.9)
Share of net losses of joint venture (see note
11) (4.9) (46.8)
(4.9) (51.7)
---------------------------------------------------- ------ -------
5. Finance income
2021 2020
GBPm GBPm
Interest income earned on bank deposits 0.1 0.4
Other financial income 2.4 1.3
--------------------------------------------------- ----- -----
Total interest receivable 2.5 1.7
Interest income on defined benefit scheme assets 57.3 58.2
59.8 59.9
-------------------------------------------------- ----- -----
6. Finance costs
2021 2020
GBPm GBPm
Interest expense charged on:
Bank loans and overdrafts 11.4 21.6
Other loans 166.1 150.5
Lease liabilities 4.3 4.3
Total borrowing costs 181.8 176.4
Other financial expenses 2.4 2.6
Interest cost on defined benefit scheme liabilities 62.7 69.3
------------------------------------------------------ ------ ------
246.9 248.3
----------------------------------------------------- ------ ------
7. Net losses on financial instruments
2021 2020
GBPm GBPm
------ -------
(Loss)/gain on swaps used as hedging instruments in fair value hedges (8.1) 5.1
Gain/(loss) arising on debt in fair value hedges 4.2 (1.6)
Exchange gain/(loss) on other loans 14.8 (6.7)
Loss on cash flow hedges transferred from equity (8.2) (8.2)
Hedge ineffectiveness on cash flow hedges (2.0) 2.7
Loss arising on swaps where hedge accounting is not applied (8.2) (9.8)
Amortisation of fair value adjustment on debt 1.2 1.1
Gain on swap termination 0.1 --
----------------------------------------------------------------------- ------ -------
(6.2) (17.4)
----------------------------------------------------------------------- ------ -------
8. Tax
2021 2020
GBPm GBPm
------ ------
Current tax
Current year at 19% (2020: 19%) 30.4 36.2
Prior years (3.6) (5.2)
Total current tax 26.8 31.0
---------------------------------------------------- ------ ------
Deferred tax
Origination and reversal of temporary differences:
Current year 23.7 29.8
Prior years 4.5 (0.7)
Exceptional charge on rate change -- 91.8
Total deferred tax 28.2 120.9
---------------------------------------------------- ------ ------
55.0 151.9
---------------------------------------------------- ------ ------
9. Dividends
Amounts recognised as distributions to owners of the Company in
the year:
2021 2020
---------------- ------ ------------------------
Pence per share GBPm Pence per share GBPm
---------------------------------------------------------- ---------------- ------ -------------------- ------
Final dividend for the year ended 31 March 2020 (2019) 60.05 143.1 56.02 133.1
Interim dividend for the year ended 31 March 2021 (2020) 40.63 97.1 40.03 95.3
---------------------------------------------------------- ---------------- ------ -------------------- ------
Total dividends paid 100.68 240.2 96.05 228.4
---------------------------------------------------------- ---------------- ------ -------------------- ------
Proposed final dividend for the year ended 31 March 2021 60.95 147.6
---------------------------------------------------------- ---------------- ------ ------------------------
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.
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
2021 2020
GBPm GBPm
Profit for the year 212.2 158.8
---------------------- ------ ------
(ii) Number of shares
2021 2020
m m
---------------------------------------------------- ------ ------
Weighted average number of ordinary shares for the
purpose of basic earnings per share 238.1 238.0
Effect of dilutive potential ordinary shares:
- share options and LTIPs 1.3 1.4
Weighted average number of ordinary shares for the
purpose of diluted earnings per share 239.4 239.4
----------------------------------------------------- ------ ------
b) Adjusted earnings per share
2021 2020
pence pence
Adjusted basic earnings per share 105.4 146.0
Adjusted diluted earnings per share 104.8 145.1
-------------------------------------- ------ ------
Adjusted earnings per share figures are presented for continuing
operations. These exclude the effects of exceptional items, net
gains/losses on financial instruments, current tax on exceptional
items and on net losses/gains on financial instruments and deferred
tax in both 2021 and 2020. The Directors consider that the adjusted
figures provide a useful additional indicator of performance. The
denominators used in the calculations of adjusted basic and diluted
earnings per share are the same as those used in the unadjusted
figures set out above.
The adjustments to earnings are as follows:
2021 2020
GBPm GBPm
Earnings for the purpose of basic and diluted earnings
per share 212.2 158.8
Adjustments for:
- exceptional items before tax 4.9 51.7
- current tax on exceptional items -- (0.9)
- amortisation of acquired intangible assets 2.1 2.1
- net losses on financial instruments 6.2 17.4
- current tax on net losses on financial instruments (2.6) (2.6)
- deferred tax 28.2 120.9
--------------------------------------------------------------- ------ ------
Earnings for the purpose of adjusted basic and diluted
earnings per share 251.0 347.4
--------------------------------------------------------------- ------ ------
11. Interest in joint venture
Our principal joint venture undertaking at 31 March 2021 is
Water Plus Group Limited, which is the largest business retailer in
the non-household retail water market in England and Scotland.
Movements in our position on the investment were as follows:
2021 2020
GBPm GBPm
------------------------------------------------------------ ------- -------
Carrying value of joint venture investment at 1 April - 37.0
Zero coupon loan note classified as part of net investment - 9.8
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 (8.9) (46.8)
------------------------------------------------------------ ------- -------
At 31 March 18.7 -
------------------------------------------------------------ ------- -------
Amount included in long-term loans and receivables (18.7) -
------------------------------------------------------------ ------- -------
Carrying value of joint venture investment at 31 March - -
------------------------------------------------------------ ------- -------
In common with other non-household retailers, Water Plus has
been significantly impacted by the COVID-19 pandemic. The resulting
lockdown significantly reduced business customers' water
consumption, and Water Plus's revenues and profits after tax. Water
Plus also expects to see increases in business customer failures as
a result of lower economic activity in the past year.
At the previous year end (31 March 2020) we wrote down our
investment in Water Plus to nil. Given that the Group's intention
at 31 March 2021 was to extinguish the existing GBP32.5 million
Revolving Credit Facility ('RCF') extended to Water Plus and
replace it with a long-term capital investment, this amount has
been classified as part of the Group's net investment in Water
Plus.
A total loss of GBP13.8 million (2020: loss of GBP46.8 million)
has been recorded in the current period in the income statement,
consisting of GBP4.9 million unrecognised losses from the prior
period recorded as an exceptional item, and the Group's share of
Water Plus's losses after tax for the year ended 31 March 2021 of
GBP8.9 million recorded in adjusted results.
The Group has no accumulated unrecognised losses in Water Plus
at 31 March 2021 (2020: GBP4.9 million).
We have also recorded a GBP3.6 million gain on the impairment of
our loans due from Water Plus (2020: exceptional loss of GBP4.9
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 assumptions used in calculating the defined benefit
obligations as at 31 March 2021 have been updated to reflect market
conditions prevailing at the balance sheet date as follows:
2021 2020
% %
--------------------------------------------------------------------------------------- ----- -----
Price inflation - RPI 3.2 2.5
Price inflation - CPI 2.4 1.7
Discount rate 2.0 2.4
Pension increases in payment 3.2 2.5
Pension increases in deferment 3.2 2.5
---------------------------------------------------------------------------------------- ----- -----
Remaining life expectancy for members currently aged 65 (years)
- men 21.8 22.2
- women 23.6 23.9
Remaining life expectancy for members currently aged 45 upon retirement at 65 (years)
- men 22.7 23.1
- women 24.8 25.1
---------------------------------------------------------------------------------------- ----- -----
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 Decrease/increase by GBP48/GBP50
0.1% pa million
Price inflation Increase/decrease by Increase/decrease by GBP42/GBP41
0.1% pa million
Mortality Increase/decrease in Increase/decrease by GBP125
life expectancy by 1 million
year
---------------- ---------------------- ---------------------------------
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 movement in obligations
arising from assumption changes are likely to be accompanied by
movements in asset values - and so the impact on the accounting
deficit may be lower than the impact on the obligations shown
above.
The defined benefit assets have been updated to reflect their
market value as at 31 March 2021. 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 2020 2,414.1 (2,648.1) (234.0)
Current service cost - (0.2) (0.2)
Past service cost - (0.3) (0.3)
Scheme administration costs (3.9) - (3.9)
Interest income/(cost) 57.3 (62.7) (5.4)
Return on plan assets 212.7 - 212.7
Actuarial losses recognised in the statement of comprehensive income - (374.7) (374.7)
Contributions from the sponsoring companies 38.1 - 38.1
Employees' contributions and benefits paid (117.9) 117.9 -
---------------------------------------------------------------------- ---------------- ------------- ------------
At 31 March 2021 2,600.4 (2,968.1) (367.7)
---------------------------------------------------------------------- ---------------- ------------- ------------
The net deficit is presented on the balance sheet as
follows:
2021 2020
GBPm GBPm
-------------------------------- -------- --------
Retirement benefit surplus 17.1 21.3
Retirement benefit obligations (384.8) (255.3)
-------------------------------- -------- --------
(367.7) (234.0)
-------------------------------- -------- --------
13. Cash flow
a) Reconciliation of operating profit to operating cash
flows
2021 2020
GBPm GBPm
Profit before interest and tax 470.7 568.2
Depreciation of property, plant and equipment 342.0 327.4
Depreciation of right-of-use assets 3.6 6.6
Amortisation of intangible assets 32.1 30.8
Amortisation of acquired intangible assets 2.1 2.1
Impairment of property, plant and equipment -- 0.5
Pension service cost 0.5 0.2
Defined benefit pension scheme administration costs 3.9 3.4
Defined benefit pension scheme contributions (38.1) (46.2)
Share based payment charge 7.8 8.1
(Gain)/loss on sale of property, plant and equipment and intangible assets (2.2) 1.2
Profit on disposal of subsidiary undertaking (0.2) --
Release from deferred credits (15.5) (15.4)
Contributions and grants received 41.4 39.6
Provisions charged to the income statement 4.9 3.3
Utilisation of provisions for liabilities (12.2) (13.1)
Operating cash flows before movements in working capital 840.8 916.7
Increase in inventory (1.6) (8.4)
Decrease/(increase) in amounts receivable 51.6 (12.8)
Increase in amounts payable 10.9 32.6
Cash generated from operations 901.7 928.1
Tax received -- 0.4
Tax paid (23.2) (34.3)
----------------------------------------------------------------------------- ------- -------
Net cash generated from operating activities 878.5 894.2
----------------------------------------------------------------------------- ------- -------
b) Non-cash transactions
Non-cash additions to right-of-use assets during the year were
GBP4.9 million (2020: GBP0.3 million). Assets transferred from
developers at no cost were recognised at their fair value of
GBP44.9 million (2020: GBP71.1 million).
c) Reconciliation of movements in net debt
Net cash and Cross Loans due
cash Lease currency from joint
equivalents Bank loans Other loans liabilities swaps venture Net debt
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------------- ----------- ------------ -------------- -------------- -------------- ----------
At 1 April
2020 48.6 (1,251.9) (5,058.5) (122.7) 60.4 92.6 (6,231.5)
Cash flow (4.6) 243.3 (415.5) 5.6 -- 1.0 (170.2)
Fair value
adjustments -- -- 5.4 -- -- -- 5.4
Inflation
uplift on
index-linked
debt -- (1.0) (18.2) -- -- -- (19.2)
Foreign
exchange -- -- 14.8 -- -- -- 14.8
Other non-cash
movements -- (1.5) 0.7 (4.2) (28.5) (9.6) (43.1)
At 31 March
2021 44.0 (1,011.1) (5,471.3) (121.3) 31.9 84.0 (6,443.8)
--------------- -------------- ----------- ------------ -------------- -------------- -------------- ----------
14. Post balance sheet events
Water Plus equity investment
On 23 April the Group extinguished the GBP32.5 million RCF
previously extended to Water Plus, and subscribed for GBP32.5
million of equity shares. This confirms the Group's documented
intention at 31 March 2021 to replace the RCF with a long-term
capital investment.
Refinancing
On 22 April the Group completed the refinancing of Severn Trent
Water's GBP900 million revolving credit facility ('RCF') and GBP75
million of bilateral loan arrangements, with a GBP1.0 billion RCF.
The new syndicated RCF provides equal financing from twelve banks,
and extends the maturity date to April 2026 (plus two one year
extension options).
Dividends
On 18 May the Board of Directors approved a final dividend of
60.95 pence per share. Further details of this are shown in note
9.
15. Contingent liabilities
Bonds and guarantees
Group undertakings have entered into bonds and guarantees in the
normal course of business. No liability (2020: nil) is expected to
arise in respect of either bonds or guarantees.
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 2021 or early 2022.
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.
2021 2020
GBPm GBPm
--------------------- ------ ------
Sale of services 216.1 306.6
Net interest income 2.3 3.2
---------------------- ------ ------
218.4 309.8
--------------------- ------ ------
Outstanding balances between the Group and the joint venture as
at 31 March were as follows:
2021 2020
GBPm GBPm
--------------------------------------- ------ ------
Amounts due (to)/from related parties (2.4) 12.1
Loans due from joint venture 84.0 92.6
---------------------------------------- ------ ------
81.6 104.7
--------------------------------------- ------ ------
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.
17. Alternative performance measures
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 ('APMs'). These
measures are not intended to be a substitute for, or superior to,
IFRS measurements.
a) Exceptional items
Exceptional items are income or expenditure which individually
or, in aggregate if of a similar type, should, in the opinion of
the directors, be disclosed by virtue of their size or nature if
the financial statements are to give a true and fair view. In this
context, materiality is assessed at the segment level.
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 u figures provide a useful additional
indicator of performance and remove non-performance related
distortions. S ee 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 venture. See note 13c.
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.
(net finance costs - net finance costs from pensions +
capitalised finance costs)
(monthly average net debt)
2021 2020
GBPm GBPm
-------- --------
Net finance costs 187.1 188.4
Net finance costs from pensions (5.4) (11.1)
Capitalised finance costs 30.4 44.2
212.1 221.5
--------------------------------- -------- --------
Average net debt 6,263.6 5,972.2
Effective interest cost 3.4% 3.7%
--------------------------------- -------- --------
This APM is used as it shows the average interest rate that is
attributable to 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 RPI adjustments on
index-linked debt).
(net finance costs - net finance costs from pensions - RPI
interest + capitalised finance costs)
(monthly average net debt)
2021 2020
GBPm GBPm
--------------------------------- -------- --------
Net finance costs 187.1 188.4
Net finance costs from pensions (5.4) (11.1)
Indexation adjustments (19.2) (34.0)
Capitalised finance costs 30.4 44.2
---------------------------------
192.9 187.5
--------------------------------- -------- --------
Average net debt 6,263.6 5,972.2
--------------------------------- -------- --------
Effective cash cost of interest 3.1% 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.
Adjusted PBIT
(net finance costs - net finance costs from pensions)
2021 2020
GBPm GBPm
------ -------
Adjusted PBIT 472.8 570.3
----------------------------------------------- ------ -------
Net finance costs 187.1 188.4
Net finance costs from pensions (5.4) (11.1)
Net finance costs excluding net finance costs
from pensions 181.7 177.3
----------------------------------------------- ------ -------
ratio ratio
Adjusted PBIT interest cover ratio 2.6 3.2
----------------------------------------------- ------ -------
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 profit from continuing operations before interest,
tax, exceptional items, depreciation and amortisation to net
finance costs excluding net finance costs from pensions.
(adjusted PBIT + depreciation + amortisation)
(net finance costs - net finance costs from pensions)
2021 2020
GBPm GBPm
---------------------------------------------------- ------ -------
Adjusted PBIT 472.8 570.3
Depreciation (including right-of-use assets) 345.6 334.0
Amortisation (excluding amortisation of intangible
assets recognised on acquisition of subsidiaries) 32.1 30.8
EBITDA 850.5 935.1
---------------------------------------------------- ------ -------
Net finance costs 187.1 188.4
Net finance costs from pensions (5.4) (11.1)
Net finance costs excluding finance costs from
pensions 181.7 177.3
---------------------------------------------------- ------ -------
ratio ratio
EBITDA interest cover ratio 4.7 5.3
---------------------------------------------------- ------ -------
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 on continuing operations,
excluding prior year charges, exceptional current tax, and current
tax on exceptional items and on financial instruments, divided by
profit from continuing operations 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 venture accounted for using the equity
method.
( Current year current tax charge in the income statement - tax
on exceptional items - tax on financial instruments - tax on
amortisation of acquired intangible assets)
(PBT - share of net loss of JVs - exceptional items - net
losses/gains on financial instruments - amortisation of
acquired intangible assets)
2021 2020
Current Current
tax thereon tax thereon
GBPm GBPm GBPm GBPm
------------------------------------- ------------- ------------- ------ -------------
Profit before tax 267.2 (30.4) 310.7 (36.2)
------------------------------------- ------------- ------------- ------ -------------
Adjustments
Share of net loss of joint venture 13.8 -- 46.8 --
Amortisation of acquired intangible
assets 2.1 -- 2.1 --
Exceptional items -- -- 4.9 (0.9)
Net losses on financial instruments 6.2 (2.6) 17.4 (2.6)
289.3 (33.0) 381.9 (39.7)
------------------------------------- ------------- ------------- ------ -------------
Adjusted effective current tax rate 11.4% 10.4%
------------------------------------- ------------- ------------- ------ -------------
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 venture
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.
2021 2020
GBPm GBPm
----------------------------------- -------- -------
Cash generated from operations 901.7 928.1
Contributions and grants received (41.4) (39.6)
Operational cashflow 860.3 888.5
----------------------------------- -------- -------
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.
2021 2020
GBPm GBPm
------------------------------------------------------- ------- -------
Purchase of property, plant and equipment 613.7 777.2
Purchase of intangible assets 22.2 74.8
Payments to acquire right-of-use assets 0.7 --
Contributions and grants received (41.4) (39.6)
Proceeds on disposal of property, plant and equipment (2.0) (12.9)
Cash capex 593.2 799.5
------------------------------------------------------- ------- -------
This APM is used to show the cash impact of the Group's capital
programmes.
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 (Customer Measure of Experience)
The Customer Measure of Experience (C-MeX) replaced the SIM as
the incentive for companies to improve the experience of
residential customers from 1 April 2020 onwards.
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.
Revenue Forecasting Incentive (RFI)
A mechanism to reduce the impact of deviations on customer bills
arising from revenue forecasting deviations by
adjusting companies' allowed revenues for each year to take
account of differences between actual and projected revenues, and
incentivising companies to avoid revenue forecasting errors through
applying a penalty to variations that fall outside a set
uncertainty band (or 'revenue flexibility threshold').
RoRE
Return on Regulated Equity (RoRE) measures the returns (after
tax and interest) that companies have earned by reference to the
notional regulated equity, where regulated equity is calculated
from the RCV and notional net debt.
Totex
Totex (shortened form of total expenditure) includes operating
expenditure (opex), infrastructure renewals expenditure (IRE) and
capital expenditure (capex).
Cautionary statement regarding forward-looking statements
This document contains statements that are, or may be deemed to
be, 'forward-looking statements' with respect to Severn Trent's
financial condition, results of operations and business and certain
of Severn Trent's plans and objectives with respect to these
items.
Forward-looking statements are sometimes, but not always,
identified by their use of a date in the future or such words as
'anticipates', 'aims', 'due', 'could', 'may', 'will', 'would',
'should', 'expects', 'believes', 'intends', 'plans', 'projects',
'potential', 'reasonably possible', 'targets', 'goal', 'estimates'
or words with a similar meaning, and, in each case, their negative
or other variations or comparable terminology. Any forward-looking
statements in this document are based on Severn Trent's current
expectations and, by their very nature, forward-looking statements
are inherently unpredictable, speculative and involve risk and
uncertainty because they relate to events and depend on
circumstances that may or may not occur in the future.
Forward-looking statements are not guarantees of future
performance and no assurances can be given that the forward-looking
statements in this document will be realised. There are a number of
factors, many of which are beyond Severn Trent's control, that
could cause actual results, performance and developments to differ
materially from those expressed or implied by these forward-looking
statements. These factors include, but are not limited to: the
Principal Risks disclosed in our latest Annual Report and Accounts
(which have not been updated since the date of its publication);
changes in the economies and markets in which the Group operates;
changes in the regulatory and competition frameworks in which the
Group operates; the impact of legal or other proceedings against or
which affect the Group; and changes in interest and exchange
rates.
All written or verbal forward-looking statements, made in this
document or made subsequently, which are attributable to Severn
Trent or any other member of the Group or persons acting on their
behalf are expressly qualified in their entirety by the factors
referred to above. 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).
This information is provided by RNS, the news service of the
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END
FR SFLEFAEFSELI
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