Severn Trent Plc · LSE:SVT
Severn Trent — Corporate Update (December 2013)
28 slides from Severn Trent's corporate update, Dec 3, 2013
Slide 1: PR14 Update From Severn Trent: Business Plan Submission
PR14 Update From Severn Trent Business Plan Submission Tony Wray – CEO Mike McKeon – CFO Dr Tony Ballance – Director of Strategy and Regulation 3rd December 2013, 12:30 GMT
Slide 2: Disclaimers
Disclaimers This presentation 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 sta
Slide 3: Our plan delivers
Our plan delivers • Value for money ‒ Increased investment programme ‒ Bills frozen in first year of AMP6; below inflation increases thereafter • Fair and balanced ‒ Balances the interests of all our stakeholders • Robust and reliable ‒ Largest customer research and engagement exercise Severn Trent
Slide 4: Context
Context • Customers want better value, better services and a healthier environment • Increasing environmental standards • Population growth • Climate change • Affordability • Service improvements • Changing financial markets Our plan delivers against this 4
Slide 5: Engagement
Engagement • Started in December 2011 • Over 15,000 customers • 160 stakeholders ‒ representing business, households, environment and local government • Severn Trent Water Forum • Let’s talk water ‒ www.stwater.co.uk/letstalkwater December 2011 April 2012 Customers April 2013 Customers December 2013
Slide 6: What The Water Forum said
What The Water Forum said “…there is a clear line of sight between what customers wanted to see and what is being proposed in the plan. It is because, and only because, the company has significantly shifted to meet our demands for the lowest possible bills, together with the necessary investment, th
Slide 7: Overview of our Plan
Overview of our Plan • Bills • Totex (opex + capex) • Outcomes • Financing and WACC* • Incentives • RCV *Weighted average cost of capital 7
Slide 8: Customer Bills
Customer Bills £ Average prices in England & 400 Wales in nominal terms STW prices in nominal terms 370 340 310 STW prices in real terms (2012/13) 280 250 8
Slide 9: Totex – 5 year period
Totex – 5 year period AMP5 (£m) AMP6 (£m) Change Change £m % Capital investment 2,565 3,175 610 24% Operational expenditure 2,854 2,845 -9 0% Total expenditure (totex) 5,419 6,020 601 11% • Opex flat; capex +£610 million • We are within the efficient cost corridor • PAYG rate c.55% • Change in cost
Slide 10: Outcomes and KPI targets
Outcomes and KPI targets 5 year average Leakage1 Water supply interruptions2 507 462 434 35 26 11 2005-10 2010-15 2015-20 2005-10 2010-15 2015-20 Carbon footprint3 Internal sewer flooding4 504 464 1,216 1,080 1,069 2010-15 2015-20 2005-10 2010-15 2015-20 1. Ml/d 2. Minutes per customer 3. ktCO2e 10
Slide 11: Wholesale WACC
Wholesale WACC Weighted average cost of capital Real PR14 PR09 Assumed RPI 3.3% 2.5% Blended cost of debt 2.54% 3.6% Cost of equity 6.7% 7.1% Gearing 60% 57.5% Vanilla WACC 4.2% 5.1% Post–tax WACC 3.9% @ 20% tax 4.5% @ 28% tax 11
Slide 12: Wholesale cost of capital (pre tax - 'real')
Wholesale cost of capital (pre tax - ‘real’) AMP5 vs. AMP6 Cost of Cost of Debt Debt 3.6% 2.54% Gearing* Weighted Gearing* Weighted Average Cost of Average Cost of 57.5% Capital 5.1% 60% Capital 4.2% Cost of Cost of Equity Equity 7.1% 6.7% AMP 5 AMP 6 Risk free rate = 2.0% Risk free rate = 2.0% Equi
Slide 13: Retail
Retail • Margin for household retail 0.7% ‒ Bottom up analysis ‒ Inflation and bad debt risk • Margin for business retail 3.0% ‒ Benchmark analysis ‒ Comparable to Scotland, taking into account different payment terms in England • Equivalent of +0.1% on WACC 13
Slide 14: Financing
Financing • £2.6 billion funding requirement • £1.3 billion of existing debt matures during AMP6 ‒ 30% of current debt portfolio • Already re-financed £700 million in AMP5, below rates allowed in PR09 • Investment grade credit rating 14
Slide 15: Incentives
Incentives £m Drinking water complaints -4 4 Pollution incidents -6 6 Leakage -14 8 Supply interruptions -35 15 WFD improvements -20 20 Internal sewer flooding -42 24 External sewer flooding -23 23 Outcome incentives – max range -144 98 Outcome incentives – likely range -42 42 SIM -54 27 15
Slide 16: Regulatory Capital Value (RCV)
Regulatory Capital Value (RCV) RCV growth AMP6 c. £10,300 £m £7,956 8,000 £7,658 £7,364 £7,364 £7,089 £7,089 £6,814 7,000 £6,418 £6,814 £6,418 6,000 +21.1% Equity Debt 5,000 4,000 3,000 +14.3% 2,000 1,000 0 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2019/20 Based on year end RPI forecast of 3.0
Slide 17: Next steps
Next steps • Ofwat to publish plan ratings on 4 April 2014 (Enhanced; Standard; Resubmit) • Draft determination ‒ 30 April 2014 for Enhanced plans ‒ August for Standard and Resubmission plans • May – November 2014 – Totex Menu Choices (business plan rating dependant) • January 2015 – Final Determina
Slide 18: Our plan delivers
Our plan delivers • Value for money ‒ Increased investment, price changes equivalent to an average of 1.2% below inflation over AMP6 • Fair and balanced ‒ Plan driven by and for our customers ‒ Offers balance between value for money, financeability and attractive growth for investors • Robust and re
Slide 19: Q&A
SEVERN TRENT Q&A
Slide 20: Contact details
Contact details John Crosse, Head of Investor Relations M: +44 (0) 7775 226260 e:mail: john.crosse@severntrent.co.uk Chris Johnson, IR Manager M: +44 (0) 7834 419715 e:mail: chris.johnson@severntrent.co.uk Severn Trent Plc Useful Links PO Box 5309 Coventry. CV3 9FH Ofwat United Kingdom www.ofwat.gov
Slide 21: Appendix
SEVERN TRENT Appendix
Slide 22: Key Publications
Key Publications Changing Course – Delivering a sustainable future Changing Course – Through water trading for the water industry in England and Wales Publisher: Severn Trent Publisher: Severn Trent Web Hyperlink Web Hyperlink Changing Course – Through sustainable financing Changing Course – Through
Slide 23: Totex – capex breakdown
Totex – capex breakdown AMP5 (£m) AMP6 (£m) Change Change £m % Capital investment Maintaining existing services to customers Above ground assets 1,169 1,263 93 8% Below ground assets 648 660 12 2% Sub-total 1,817 1,923 106 6% Improving services to customers Environmental improvements 187 329 142 76%
Slide 24: Totex PAYG rate
Totex PAYG rate 2015-2020 “Slow money” RCV expenditure “Fast money” Recovered on “pay as you go” basis “IRE like” Return on PAYG Tax Depreciation RCV Allowed revenue • PAYG = IRE + opex • PAYG rate c. 55% 24
Slide 25: Leakage: how rewards and penalties will work
How rewards and penalties will work Leakage example • Rewards and penalty rates based on customer willingness to pay • Based on performance to 2018/19 • Limit put on rewards to ensure Leakage (Ml/d) Indexed to 100 that the overall package does not go beyond limits of customer acceptability • Higher
Slide 26: Efficiency
Efficiency AMP6 4.4% 7.0% AMP5 2.6% 4.4% Opex Capex We have set challenging efficiency targets, reducing total costs in AMP6 by £370 million. 26
Slide 27: RCV: transition from AMP5 to AMP6
RCV Transition from AMP5 to AMP6 • All capex now added to RCV • Only RCV adjustments expected are: ‒ 2009/10 logging ‒ Capex true up ‒ Land sales • RCV adjustments in total not expected to be significant 27
Slide 28: Severn Trent
SEVERN TRENT