Severn Trent PLC · LSE:SVT
Severn Trent — Investor Day (March 2015)
96 slides from Severn Trent's investor day presentation, Mar 17, 2015
Slide 1: Capital Markets Day
CAPITAL MARKETS DAY 17th March 2015
Slide 2: Cautionary statement regarding Forward Looking Statements
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 re
Slide 3: Introduction
INTRODUCTION By Liv Garfield, Chief Executive 2
Slide 4: Our new executive team structure
OUR NEW EXECUTIVE TEAM STRUCTURE Breathing more life into our investments, creating shareholder value and delivering a great service for our customers Key Changes Chief Executive Officer Liv Garfield • Merged our water and waste operations to unlock synergies. New leader starts 1st July Managing Dir
Slide 5: Topics for today
TOPICS FOR TODAY Plan for Vision Culture AMP6 4
Slide 6: Our vision for the sector
OUR VISION FOR THE SECTOR There will be winners and losers Standards rising at a much faster pace Greater competition Consolidation likely New markets opening Water sector is changing. Its future is exciting. Vision Culture Plan for AMP6 5
Slide 7: Our vision for Severn Trent: the next 5-10 years
OUR VISION FOR SEVERN TRENT: THE NEXT 5-10 YEARS Operational excellence Industry benchmark in customer service A company at the frontier of sector efficiency Winners in a world of incentivisation Successful in new competitive markets Standard setters in renewable energy Vision Culture Plan for AMP6
Slide 8: We are developing our strategic framework
WE ARE DEVELOPING OUR STRATEGIC FRAMEWORK Vision Culture Plan for AMP6 7
Slide 9: Drivers of our plan: customer focused organisations
DRIVERS OF OUR PLAN Our Beliefs: Customer focused organisations will ultimately be more successful Vision Culture Plan for AMP6 8
Slide 10: Drivers of our plan: improve what you do
DRIVERS OF OUR PLAN Our Beliefs: You can always find ways to improve what you do Vision Culture Plan for AMP6 9
Slide 11: Drivers of our plan: digitalise
DRIVERS OF OUR PLAN Our Beliefs: Our industry needs to digitalise to become more efficient Vision Culture Plan for AMP6 10
Slide 12: Drivers of our plan: we are in the right place
DRIVERS OF OUR PLAN Our Beliefs: We are in the right place Resilience & Affordability Sustainability Competition – Retail, Raw Water, Sludge Vision Culture Plan for AMP6 11
Slide 13: Drivers of our plan: the right team
DRIVERS OF OUR PLAN Our Beliefs: You need the right team to be successful Vision Culture Plan for AMP6 12
Slide 14: My key areas re-visited
MY KEY AREAS RE-VISITED… • People / talent development • Customers at the heart of what we do • Drive operational improvement • Regulatory relationship • Ready to deliver in AMP6 Create long term value for shareholders Vision Culture Plan for AMP6 13
Slide 15: And here's what I've done to address them
…AND HERE’S WHAT I’VE DONE TO ADDRESS THEM Identified and New De-layered the SIM focus recruited new organisation organisation refreshed talent structure Shadow Kick started About to launch reported ODIs a digital staff incentive for 6 months revolution structure Constructive Educated all our Accele
Slide 16: Creating awesome company events
CREATING AWESOME COMPANY EVENTS Vision Culture Plan for AMP6 15
Slide 17: AMP6 final determination
AMP6 FINAL DETERMINATION Key Messages: Strong RCV growth Largest ever investment Bills falling in real terms RCV expected to increase by programme Our customers will continue c. 8.6% in real terms, the £6.2bn in real terms, to have the lowest bills in third largest growth of the including £3.3bn of
Slide 18: New structure locks in £100m of AMP efficiencies
NEW STRUCTURE LOCKS IN £100M OF AMP EFFICIENCIES Organisation shape • 500 role reduction Previous organisation shape New organisation shape Exec Grade F • 80% of the savings from merger Grade E Exec of Water and Waste Grade D > Layer 2 Grade C Layer 3 • Net £100m after having invested Grade B Layer
Slide 19: RCV growth: AMP6 (real terms)
RCV GROWTH: AMP6 (REAL TERMS) Yorkshire 9.2% Wessex 8.7% Severn Trent 8.6% Thames 7.8% Anglian 7.0% Welsh 7.0% Southern 5.5% South West 2.3% United Utilities 1.8% Northumbrian 0.8% Vision Culture Plan for AMP6 18
Slide 20: Where can we outperform?
WHERE CAN WE OUTPERFORM? Changing how we think about expenditure across our £5.6bn wholesale totex budget Totex Greater understanding of our assets A new framework to approach investment decisions Meaningful rewards resulting from excellent operational performance ODIs For example SIM +£7m / -£15m p
Slide 21: Agenda
AGENDA • Delighting customers, digital first • Operational excellence • Continuous improvement and innovation Break • Investing for sustainable growth in the regulated business • Changing the market for the better • Investing for sustainable growth in our non-regulated areas • Financing approach • C
Slide 22: Delighting customers, digital first
DELIGHTING CUSTOMERS, DIGITAL FIRST By Sarah Bentley, Chief Customer Officer 21
Slide 23: Chief Customer Officer remit
CHIEF CUSTOMER OFFICER REMIT Wholesale – Water and Waste Retail Network Control Household Non- Household 1000 Colleagues 3 UK contact Operations Support Service centres Customer Strategy & Experience Group Technology – IS 300 Colleagues, 4 data centres Group Transformation HR, Finance, General Couns
Slide 24: Delighting customers feels awesome & reduces costs
DELIGHTING CUSTOMERS FEELS AWESOME & REDUCES COSTS Actions taken in FY 14/15 include: Achievements in FY 14/15 include: • Real-time SMS text customer survey and call • 22% Reduction in unwanted contacts back • Daily performance meeting to focus on customer • 19% reduction in complaints feedback • Do
Slide 25: Delighting customers delivers ODI reward
DELIGHTING CUSTOMERS Building momentum for AMP6: DELIVERS ODI REWARD SIM Qualitative Performance (WASC & WOC ) Volumetric measure of customer contacts and SIM Quant. complaints Upper 25% 6th Quartile 16th 13th SIM ODI 21st +£7m 2011/12 2012/13 2013/14 2014/15 AMP6 to SIM Qual. SIM Qualitative Perfor
Slide 26: Customer choice is essential and affordable
CUSTOMER CHOICE IS ESSENTIAL AND AFFORDABLE Customer Service Level (Target 80/20) Fewer people on the right activity: • Removed 102 (20%) management and support roles • Investing in 92 (15%) additional customer facing roles • £1.8m annualised efficiency • 80% of calls answered in 20 seconds (custome
Slide 27: Creating compelling choices drives efficiency
CREATING COMPELLING CHOICES DRIVES EFFICIENCY Improving experience helps to change customer behaviour which reduces costs: • 502k (15%) customers receive electronic bills • 1.9m (55.6%) customers registered for Direct Debit • 580k (17%) customers registered for Web Self Serve Web Self Serve +26% Pos
Slide 28: Understanding customers drives financial benefits
UNDERSTANDING CUSTOMERS DRIVES FINANCIAL BENEFITS Through targeting specific customer groups we have delivered industry leading household collections: • 2.2% bad debt for FY 14/15 • £10m improved cash flow to date in main billing • New Social Tariff Scheme goes live 1 April 2015 • Helping at least 5
Slide 29: Understanding customers drives efficiency
UNDERSTANDING CUSTOMERS DRIVES EFFICIENCY Proactive customer contact reduces ‘unwanted’ contacts: • 1300 calls avoided in single incident • Contact & complaint reduction via: • Social media • SMS text alerts & survey feedback • Webchat 28
Slide 30: Digital first is easy for customers and cheaper for us
DIGITAL FIRST IS EASY In My StreetCUSTOMERS AND CHEAPER FOR US FOR Digital customer – keeping customers informed: Ongoing launches: • In my street • In my area • Track my job • SME switching 29
Slide 31: Digital first helps achieve ODIs and improves productivity
DIGITAL FIRST HELPS ACHIEVE ODIS AND IMPROVES PRODUCTIVITY Digital colleagues – driving efficiency & connectivity: • 2000 smart devices with field worker software rolling out by June • 9 productivity apps live today, 25 by July and a large pipeline sourced from colleagues: • Sludge tanker scheduling
Slide 32: Digital focus reduces incidents and optimises assets
DIGITAL FOCUS REDUCES INCIDENTS AND OPTIMISES ASSETS Digital enterprise – building a smarter network: • Investing in the ambition to digitalise operations • Remote monitoring and control of infrastructure • Inform and optimise asset planning and maintenance Building on experience: • 2 automated wate
Slide 33: Summary
SUMMARY Customer Focus Delighting customers feels awesome, reduces cost and pays out (SIM) Reducing causes of contact and complaint is better for customers and Eliminating Failure reduces costs Offering #1 service on any contact channel while creating easy, useful Channel Choice & Shift and compelli
Slide 34: Operational excellence
OPERATIONAL EXCELLENCE By Liv Garfield, Chief Executive Officer 33
Slide 35: Our wholesale operations ambition
OUR WHOLESALE OPERATIONS AMBITION Stable and consistent asset performance Great performance on our ODIs Customer service leaders Frontier on efficiency Successfully delivered capital programme Great relationships with all our regulators Be proud to be the leading wholesale business in our sector 34
Slide 36: Our operations business
OUR OPERATIONS BUSINESS 4.3m Households served every day c.3,000 28% Renewable Employees energy generation 155 Water treatment works delivering 1.8bn litres of water a day c1,000 Waste treatment works putting 2.4bn litres of cleaned water back into the environment a day. 197 Reservoirs & 140,000km b
Slide 37: Delivering operational performance: what we need to improve
DELIVERING OPERATIONAL PERFORMANCE What we need to improve Water Quality is an area we are planning to make significant improvements at pace in AMP6 through: • Prioritising early AMP investment in “must-do” initiatives. • Focussing people & effort on rate making improvement activity and replicating
Slide 38: Delivering operational performance: what we are already good at
DELIVERING OPERATIONAL PERFORMANCE What we are already good at We’ve already invested lots of energy into leakage improvement and have seen great results in AMP5. • We’ll continue this through successfully embedding a new leakage process into our business to Water drive a 6% improvement. Delivering
Slide 39: Water quality improvement focus
WATER QUALITY IMPROVEMENT FOCUS Dedicated Robust programme assurance Culture and Find and fix Deploying Delivering formed and skills improvements Accelerated being quality customer strong programme with root cause investment implemented management focused leaders in under way analysis at sites plans
Slide 40: Water quality improvement focus
WATER QUALITY IMPROVEMENT FOCUS Removing ingress at groundwater treatment works: Bednall – Sealing cable gland Audit of hazards that may impact water quality through treatment failures or ingress Enables us to reduce total site risk Wallmyres – Drainage improvements Treatment experts, supported by A
Slide 41: ODIs are one of the key drivers
ODIS ARE ONE OF Our Top 10 ODIs THE KEY DRIVERS In AMP End of AMP We aim to outperform the Final Determination: Internal Sewer Flooding • +/- £42k per property • Top 10 ODIs make up majority of the total value Water Framework Directive • +/- 0.75m per point • +/- £20k per property • ODI values are b
Slide 42: Our push on ODIs has already begun
OUR PUSH ON ODIS HAS ALREADY BEGUN We have already: • Engaged our front line teams with ODI workshops to drive ownership and generate innovative solutions. • Established what the key activity levers to outperformance are. • Embedded performance reporting at all levels to make sure it is part of our
Slide 43: Improved productivity is essential to operational excellence
IMPROVED PRODUCTIVITY IS ESSENTIAL TO OPERATIONAL EXCELLENCE Right first time Reduced hand offs More proactive work • Improved field force • Simplifying processes and • Investing in telemetry and effectiveness through the use hand-offs to ensure a enhanced network control will of technology. 1st tim
Slide 44: Key messages for today
KEY MESSAGES FOR TODAY Hard organisational changes made up front (contributed £80m opex saving) New combined workforce makes us stronger and more focused Regulatory and customer relationships at the heart of what we do Organised, informed and ready to go after rewards Efficient execution to deliver
Slide 45: Continuous improvement and innovation
CONTINUOUS IMPROVEMENT AND INNOVATION By Martin Kane, Chief Engineer My role: • Created to provide challenge and assurance • Educating the business in totex • Think about operational risk in a different way • Bringing innovation to life 44
Slide 46: A changing world we are well placed to deliver and succeed
A CHANGING WORLD WE ARE WELL PLACED TO DELIVER AND SUCCEED • Pre-AMP6, the sector had a bias towards capex; with the introduction of totex, we need to change how we think about expenditure • Our thinking on totex components is well advanced with a clear plan to deliver efficiencies • Major contribut
Slide 47: The growing Severn Trent asset base
THE GROWING SEVERN TRENT 3rd Largest RCV growth of the WASCs in AMP6 ASSET BASE Capital programme (£bn) RCV (£bn)* RCV growth* 4 10 30% 3 20% 2 3.31 5 27% 7.8 c.10 10% 21% 1 2.6 6.4 0 0 0% AMP5 AMP6 2009/10 2014/15 2019/20 AMP5 AMP6 112/13 Prices *Nominal assumes year end 2.0% RPI for 14/15 and an a
Slide 48: Capital investment in a totex world
CAPITAL INVESTMENT IN A TOTEX WORLD From a whole life cost (WLC) perspective: 47
Slide 49: Our largest scheme in decades: Birmingham Resilience
OUR LARGEST SCHEME IN 2 DECADES: BIRMINGHAM RESILIENCE • Significant addition to our RCV – c.£300 million • Final agreed scheme delivers required outcomes of a resilient second supply for Birmingham but sooner and for less; making better use of existing grid and resources • ODI risk substantially re
Slide 50: Bringing the opportunities to life: totex new world
BRINGING THE OPPORTUNITIES TO LIFE: TOTEX NEW WORLD Broseley sewage pumping station, Ironbridge: Need Problematic, life expired assets transferring waste water under River Severn. Initial Solution Initial Capex £5.5m, 15yr Totex £6.05m Revised Solution Revised Capex £2m, 15yr Totex £2.55m 49
Slide 51: Bringing the opportunities to life: totex new world
BRINGING THE OPPORTUNITIES TO LIFE: TOTEX NEW WORLD Thurlaston Brook (Soar catchment) The “OLD WORLD”: Outputs at each works • Objective – Improve water body quality • Proposal – treat at each site • Result – water body phosphate status ‘Good’ • Capital cost - £6,591k The “NEW WORLD”: Outcomes in th
Slide 52: R&D acceleration in AMP6
R&D ACCELERATION IN AMP6 In AMP6, our plan is to double our investment to £40m Sewer Flooding SIM • SewerBat pipe condition triage (2015) • Intelligent gel cleaning for discolouration (2016 • SMART sewers - sewer flood warning, level & full scale) flow (2015 trial) • Real time leakage assessment (Aq
Slide 53: Summary
SUMMARY Totex requires us to change our way of thinking about expenditure and Thinking Differently a framework has been developed setting out how we do this Asset Growth Strong growth (27%) forecast in our asset base over AMP6 Off to a good start on the EVA work and have strong assurance around EVA
Slide 54: Investing for sustainable growth in the regulated business
INVESTING FOR SUSTAINABLE GROWTH IN THE REGULATED BUSINESS By Helen Miles, Chief Commercial Officer 53
Slide 55: We are investing more in AMP6 so efficiency is even more important
WE ARE INVESTING MORE IN AMP6 SO EFFICIENCY IS EVEN Total Costs (£m) MORE IMPORTANT 6,159 Total AMP6 Supply Chain Efficiencies (£m) Total 5,436 350 300 2,824 Opex 250 2,865 200 3,334 150 238 Capex 2,571 100 50 AMP6 AMP5 49 - 5,000 0 Internal / External costs by AMP period AMP 6 AMP 6 62% 19% 19% Ope
Slide 56: £287m of supplier efficiencies are built into AMP6
£287M OF SUPPLIER EFFICIENCIES ARE BUILT INTO AMP6 Total efficiencies (£m) Efficiency drivers (£m) 16 10 Standard Products 49 18 62 Capital Improvement Leverage Scale Program Demand Management Capital Maintenance 59 Process Efficiency 63 175 Analyse Sourcing Options Opex 61 Managing Our Contacts 61
Slide 57: Deliver £175m from our capital improvement programme
DELIVER £175M FROM OUR CAPITAL IMPROVEMENT PROGRAMME EVOLVING THE WAY WE WORK Production Control Distribution Right Scoping £21m £46m Reorganisation £33m Standard Products End to End Process Strategic Programming £38m £26m £11m This strategic and collaborative programme is well underway with year 1
Slide 58: Leveraging scale
LEVERAGING SCALE Rationalising suppliers will deliver significant savings Batching projects means better pricing, back office efficiency and optimised resources Supplier Numbers AMP5 AMP6 • Suppliers reduced by 1600 1490 5% in 18 months 1415 1400 4,500 120 large • Long tail to deal with small 1200 b
Slide 59: Leveraging scale
LEVERAGING SCALE Considering the similar tasks undertaken, Breaking down regional silos to reduce overheads consolidation of Water and Waste gives us opportunity to share best practice and review common activities Waste Water Customer Contact Scheduling Inspection Repair & Maintenance
Slide 60: Managing demand helps us manage our costs
MANAGING DEMAND HELPS US MANAGE OUR COSTS Visibility of Spend • Use of historic data to improve forecasting • Visibility of spend to monitor in-life contract opportunities • Analysing capital spend enables us to compare contractors and projects to drive efficiency Collaborative Planning • Consolidat
Slide 61: Standard products and innovation
STANDARD PRODUCTS AND INNOVATION Opportunity for standardisation of products. £500m spend, we believe ~12% opportunity e.g. aeration sections UV disinfection reactors >50% saving Innovative fleet solutions saving 30% Pumps • Replacing 7.5t vans with 3.5t vans • 7,500 to be replaced, saving > 15% • R
Slide 62: In-life management is an opportunity
IN AN OUTCOME DRIVEN WORLD IN-LIFE MANAGEMENT IS AN OPPORTUNITY Managing supplier performance consistently Implementing a framework which has a number of Targeted cost assurance and audit activity components Focus on key suppliers KPIs with incentives that count Improved contracts Link to ODI perfor
Slide 63: Embedding commerciality in the organisation
EMBEDDING COMMERCIALITY IN THE ORGANISATION • Culture change is key • Running a programme of training for all business leaders • Fact based decisions • Effective feedback mechanism from front line • Balance between good partner and being robust A combination of robust plan with opportunities to do m
Slide 64: Summary
SUMMARY Efficiency savings of £287m and we are confident of Delivering the plan outperforming against this Further opportunities Number of opportunities identified with plans in progress Positive start Activity to date has already locked in £100m savings Embedding commerciality Culture change is key
Slide 65: Changing the market for the better
CHANGING THE MARKET FOR THE BETTER By Dr. Tony Ballance, Director, Strategy and Regulation 64
Slide 66: Engaging in the debate
ENGAGING IN THE THE DEBATE We have a history of engaging in the debate on regulatory reform – changing the market for the better - for the long term benefit of our customers and investors: Through our Changing Course series of publications April 2010 June 2011 Sept 2012 Sept 2013 May 2015 What needs
Slide 67: A number of things came to fruition at PR14
A NUMBER OF THINGS CAME TO FRUITION AT PR14 In areas where we had been seeking to develop: Examples include: Outcome: • ODIs and totex incentives • We are well placed to outperform on totex and perform well against the ODIs • Greater competition • Our plans for competing in the retail space are well
Slide 68: PR14 marks a significant change in the regulatory regime
PR14 MARKS A SIGNIFICANT CHANGE IN THE REGULATORY REGIME With ODIs and totex being the most significant changes: Totex Treatment Regulatory Treatment 59% 41% Accounting Treatment 41% 12% 47% Opex Added to RCV and repaid over 20+ years IRE Immediately Repaid through customer bills (PAYG) Capex • Tote
Slide 69: We are looking to maximise the levers for outperformance
WE ARE LOOKING TO MAXIMISE THE LEVERS FOR OUTPERFORMANCE New framework creates potential for outperformance across multiple levers, with totex remaining the biggest driver: RoRE ranges 68
Slide 70: We continue to be active in the regulatory debate
WE CONTINUE TO BE ACTIVE IN THE REGULATORY DEBATE Collaborating constructively on Water 2020, and developing thought Ofwat leadership pieces on critical regulatory framework topics Working closely with other companies on thought leadership issues Companies Recent report with Wessex Water and South W
Slide 71: We engage constructively with policy makers
WE ENGAGE CONSTRUCTIVELY WITH POLICY MAKERS Understanding Party policy positions General Election Engaging closely with all Parties to ensure full and mutual understanding of the issues Silk Commission proposals for devolving water policy Wales Engaging constructively in process in the interests of
Slide 72: The future debate is about vertical separation
THE FUTURE DEBATE IS ABOUT VERTICAL SEPARATION Jonson Cox made reference to this in his recent speech at the Policy Exchange: • Greater clarity, definition and pricing of services provided between parts of the value chain • RCV allocation will be considered - but is likely to be undertaken to better
Slide 73: There are opportunities in the non-regulated space
THERE ARE OPPORTUNITIES IN THE NON-REGULATED SPACE We firmly believe that the emerging framework creates growth opportunities: Water resources both through physical water transfers and interconnectors but also abstraction rights and trading Green energy with sludge processing and disposal opportunit
Slide 74: Investing for sustainable growth in our non-regulated areas
INVESTING FOR SUSTAINABLE GROWTH IN OUR NON- REGULATED AREAS By Andy Smith, Managing Director Business Services 73
Slide 75: Business Services; focused 'non-regulated' businesses
BUSINESS SERVICES; FOCUSED ‘NON-REGULATED’ BUSINESSES Business Services Operating Services UK, Operating Services USA Water Purification Renewable Energy Ireland and Italy Water and sewage Water and sewage Water disinfection and Generation and supply of treatment services treatment services filtrati
Slide 76: Key messages
KEY MESSAGES • ‘Services’ past performance has been mixed - we’ve reorganised and improved talent • Benefit from group capabilities - knowledge, technology, procurement, central functions • Competition set to increase in UK - strength in ‘non-regulated’ businesses positions us well • Opportunities t
Slide 77: Operating Services UK, Ireland & Italy
OPERATING SERVICES UK, IRELAND & ITALY Combines deregulated treatment businesses with UK ‘business’ retail: Core business - £42m pa contract with MOD covering 1,300 UK sites We are winning new business • 10 year £40m O&M contract with The Coal Authority for UK mine water treatment • Fast growth in w
Slide 78: UK 'business' retail preparing for 2017
UK ‘BUSINESS’ RETAIL PREPARING FOR 2017 Total retail market c.£3.1bn STS Tender Win Rates Scotland • STW ‘in-area’ share c.12% 70% 60% We will serve both SME and ‘corporate’ segments 50% 40% Testing and learning through focused selective 30% participation in Scotland 20% • Winning 1 in 3 tenders we
Slide 79: Operating Services USA operates across 23 states
OPERATING SERVICES USA OPERATES ACROSS 23 STATES STW OSUS Water Treated Waste Water Water Treatment Waste Water Residents & business (MLD) Treated (MLD) works # Treatment works # Served (m) 1800 189 741 1500 8 126 779 756 4 241 78
Slide 80: Growth opportunities in US market
GROWTH OPPORTUNITIES IN US MARKET The US Market is huge ($50bn) and has 5th largest player in the US market only partially privatised ($2bn) 2 Billion 13% 26% Veolia 10% United Water (Suez) Private CH2M Hill OMI Public American Water 12% Severn Trent Others 23% 48 Billion 16% • c. $1bn new revenues
Slide 81: Water purification leveraging sector knowledge
WATER PURIFICATION LEVERAGING SECTOR KNOWLEDGE 3 Key Markets Across 3 Regions 3 Technologies Energy 22% 49% of Revenue Electrochlorination Offshore Onshore APAC 43% EMEA Americas 35% Municipal 17% 49% of Revenue Filtration APAC Disinfection 49% Electrochlorination EMEA 34% Americas Marine 5% 2% of R
Slide 82: We are investing £190m in renewable energy
WE ARE INVESTING £190M IN RENEWABLE ENERGY • Investing £190m in renewable energy in the Midlands over the next 5 years • Dedicated management team focused on renewables • Investment principally in two technologies - anaerobic digestion and solar • Takes our self generation from 28% to around 50% by
Slide 83: We are investing £190m in renewable energy
WE ARE INVESTING £190M IN RENEWABLE ENERGY • STW uses c. 900,000 MWh of electricity (equivalent to around 200,000 average households) • Renewables today meets c.28% of STW’s needs (next best WASC 19% in 2013-14) SVT electricity sources: STW Electricity use now and in the future 2% Pumping & Sewage 2
Slide 84: Expansion of solar and anaerobic digestion
EXPANSION OF SOLAR AND ANAEROBIC DIGESTION • c. 14% generation from solar PV by 2020 • Leaders in use of anaerobic digestion and investing further: - Investing over five years to generate c. 20% more from sewage sludge - First food-waste plant up and running – evaluating up to three more • Future de
Slide 85: Business Services positioned for growth in non-regulated areas
BUSINESS SERVICES POSITIONED FOR GROWTH IN NON-REGULATED AREAS Customer focused strategies in place to compete effectively as Ready for competition deregulation grows in the UK Leveraging group Group capabilities and investment in technology and talent mean we capabilities are well positioned for th
Slide 86: Financing approach
FINANCING APPROACH By Mike McKeon, Chief Financial Officer 85
Slide 87: Topics covered
TOPICS COVERED Recap from 28 January Financing approach and opportunity Shareholder distributions What we’ve said today 86
Slide 88: To recap from 28 January
TO RECAP FROM 28 JANUARY… Final Determination • Allowed returns lower – on equity (5.65% AMP6 vs. 7.1% AMP5) and debt (2.6% AMP6 vs. 3.6% AMP5 - real) • Notional gearing raised again – we are undergeared • Allowed cost of new debt – 2% real reflecting shorter term market range Shareholder distributi
Slide 89: Interest rates
INTEREST RATES Forward Curve – 6m LIBOR • Ofwat assumes interest rates @ 2% real 5 4 • Short term floating rates are c.1% below fixed Interest Rate (%) 3 rates 2 • Opportunity, but a balance of risk and reward 1 • Objective: circa 20% of new borrowing at Feb-15 Jun-14 Dec-13 floating 0 • Can switch
Slide 90: Refinancing and new finance an opportunity
REFINANCING AND NEW FINANCE Debt maturity profile AN OPPORTUNITY At 30 September 2014 700 €700m Eurobond 2016, coupon 6.325% 600 £400m 2018, coupon 6.0% • 28% (c.£1.4bn) of existing Severn Trent 500 debt to be refinanced in AMP6 400 300 • Total funding requirements of around 200 £2.5bn 100 0 2015 20
Slide 91: Shareholder distributions
SHAREHOLDER DISTRIBUTIONS Dividends 10 year distributions history 250 Ordinary Dividend • Severn Trent a sustainable yield with inflation Dividend (pence per share) 200 linked growth Special Dividend 150 • Dividends earned in year linked to inflation Proposed 100 Dividend 2015 • Occasional sharing o
Slide 92: What we've said today
WHAT WE’VE SAID TODAY Changing how we think about expenditure across our £5.6bn wholesale totex budget Totex Greater understanding of our assets A new framework to approach investment decisions Meaningful rewards resulting from excellent operational performance ODIs For example SIM +£7m / -£15m p.a
Slide 93: In summary
IN SUMMARY Sector fundamentals remain - low risk, inflation linked returns on growing asset base Pragmatic and sustainable financing, investment grade credit rating We remain a rare asset driving future value through efficient investment in long term infrastructure RCV growth of c.27% (nominal) in A
Slide 94: Closing remarks
CLOSING REMARKS By Liv Garfield, Chief Executive 93
Slide 95: Severn Trent Plc: an attractive proposition
SEVERN TRENT PLC AN ATTRACTIVE PROPOSITION Prepared for Colleague Strong RCV AMP6 – Embedded KPI education – growth simplified our culture totex & ODIs organisation £100m buyback Great executive Refinancing and inflation team opportunity linked dividend Flexible balance Well placed for Experience in
Slide 96: Key messages for today
KEY MESSAGES FOR TODAY There will be winners and losers in AMP6 New organisation structure for a new world Five areas for possible outperformance Early signs of success in delivering the plan We look to influence the debate on future regulatory change Business Services a positive contributor; e.g. r