Severn Trent PLC · LSE:SVT
Severn Trent — H1 2015/16 Earnings Presentation
45 slides from Severn Trent's earnings presentation, Nov 26, 2015
Slide 1: Interim Results
INTERIM RESULTS Six months ended 30 September 2015 26th November 2015
Slide 2: Liv Garfield, Chief Executive Officer
LIV GARFIELD Chief Executive Officer 2
Slide 3: Our Winning Formula
OUR WINNING FORMULA By 2020 to be the most trusted water company Delivering an outstanding customer experience, the best value service and environmental leadership Customers at the heart of our business Operational excellence Winners in a world of incentivisation A company at the frontier of sector
Slide 4: HY 15/16 Highlights
HY 15/16 HIGHLIGHTS Good start to the new regulatory period: Progress made on the 5 levers of outperformance ODIs Delivering for customers – expecting a £10m reward this year Totex Thinking smarter, delivering savings Efficiencies £372m locked in, up to a further £50m locked in by May Renewables 4
Slide 5: James Bowling, Chief Financial Officer
JAMES BOWLING Chief Financial Officer 5
Slide 6: H1 Highlights
H1 HIGHLIGHTS Turnover Underlying PBIT1 Effective finance £896.1m £281.0m cost -0.2% +2.6% 4.6% Underlying Interim dividend ODI performance basic EPS2 32.3 pence £10m 58.6 pence -5.0% +11.4% Good start to AMP6 1. Before exceptional items 2. Before exceptional items, net losses/gains on financial ins
Slide 7: Regulated Water & Waste Water
REGULATED WATER & WASTE WATER TURNOVER Turnover 1.5% lower2 due to £25m agreed lower prices for customers under AMP6 £754.4m Offset by new growth & tariff mix effects £m 793.0 (25.3) 9.5 781.0 (12.0) 5.0 (1.2) (14.6) 754.4 -1.5% 2014/15 Impact of Consumption New growth/ Other / 2015/16 Renewable
Slide 8: Improving Margin Performance in Regulated Water and Waste Water
IMPROVING MARGIN PERFORMANCE IN REGULATED WATER AND WASTE WATER PBIT Turnover down £12m driven by price reduction £270.2m More than offset by £20m of net cost reductions £m (0.9) 6.9 283.0 (6.5) 12.6 (6.3) 275.1 (12.0) 270.2 0.9 (0.8) 1.2 +2.9% 2014/15 Turnover Net labour Bad debt Power Infrastr
Slide 9: Business Services
BUSINESS SERVICES Turnover £m 200.3 337.3 +8.3% 113.2 23.8 104.5 2014/15 2015/16 Renewables NHH Retail1 2015/16 Old Basis Old Basis New Basis Profit 6.3 17.3 £m 6.1 +8.9% 4.5 4.9 2014/15 2015/16 Renewables NHH Retail 2015/16 Old Basis Old Basis New Basis 1. NHH Retail turnover comprises gross retail
Slide 10: Financing Outperformance on Track
FINANCING OUTPERFORMANCE ON TRACK Finance Cost Delivered in H1 119.1 £m 106.3 Effective interest cost: 4.6% – Down from 5.5% in 2014/15 Effective cash1 interest cost: 4.3% 98.1 Cash 93.6 interest – Down from 4.8% in 2014/15 Benefit from debt management 13.4 RPI rolled up 5.1 actions and lower
Slide 11: Delivering a Better Debt Structure for AMP6 and Beyond
DELIVERING A BETTER DEBT STRUCTURE FOR AMP6 AND BEYOND Gross Debt Profile Actions taken Total £4.7bn Indexed US private placement - £471m1 raised Linked – Competitive, floating rate pricing £1,267m – Range of “infill” tenors 11-15 years Liquidity of £1 billion in place for AMP6 Fixed – £100m of
Slide 12: Group Cash Flow
GROUP CASH FLOW MOVEMENT IN NET DEBT Solid cashflows from operations - up year on year, despite £115.4m turnover reduction £m 495.5 (190.2) 305.3 (70.4) 47.1 (7.9) (121.2) (66.8) 7.0 93.1 22.3 115.4 Cash from Operating Sale of Dividends Other Non-cash operations cash flow WP Movements movements Ne
Slide 13: Creating Value, Measuring Success
CREATING VALUE MEASURING SUCCESS PBIT • Improving margin performance • £372m of efficiencies locked in Totex • Further opportunities • £10m rewards expected in 2015/16 ODIs • Good start, more to play for • Capital programme off to a good start RCV Growth • Fastest growing RCV of listed WASCs for AMP
Slide 14: Track Record of Delivering Returns for Shareholders
TRACK RECORD OF DELIVERING 2000/01 – 2015/16 RETURNS FOR SHAREHOLDERS 226.5 140 133.1 126.9 Share buyback* 120 Special dividend 100 63.0 46.2 165.0 Dividend (p) 80 60 40 80.4 84.9 80.7 72.3 70.1 75.9 61.5 65.6 67.3 65.1 45.0 45.9 45.9 47.0 48.5 51.1 20 0 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/
Slide 15: FY 2015/16 Technical Guidance
FY 2015/16 TECHNICAL GUIDANCE Regulated Water and Waste Water Y-on-Y Turnover £1.49bn to £1.51bn (new reporting basis) ▼ Wholesale totex1 £1.03bn to £1.06bn ↔ RCV 34.7% of 15/16 wholesale totex will be capitalised onto the RCV ▲ Opex (IFRS) Lower Opex - benefits of tighter cost control and organisat
Slide 16: Liv Garfield, Chief Executive Officer
LIV GARFIELD Chief Executive Officer 16
Slide 17: Our Winning Formula
OUR WINNING FORMULA By 2020 to be the most trusted water company Delivering an outstanding customer experience, the best value service and environmental leadership Customers at the heart of our business Operational excellence Winners in a world of incentivisation A company at the frontier of sector
Slide 18: A Customer Focused Business
A CUSTOMER FOCUSED BUSINESS Digital colleagues and customers Focus on issue resolution Complaints Escalated Complaints -35% -41% 2014/15 2015/16 2014/15 2015/16 Apr - Oct Apr - Oct 18
Slide 19: Operational Performance: Significant Progress in Last 18 Months
OPERATIONAL PERFORMANCE: SIGNIFICANT PROGRESS IN LAST 18 MONTHS Improved year on year performance on 83% of our operational measures, including: Internal Sewer Flooding (Apr-Oct) External Sewer Flooding (Apr-Oct) -35% -24% Against a background of 711 460 5,145 3,905 reduced customer bills: 2014 2015
Slide 20: Underlying Serviceability Measures Improving
UNDERLYING SERVICEABILITY MEASURES IMPROVING Serviceability Focus: WATER QUALITY Applying project-type discipline to 14 initiatives Progress so far: Governance uniting all key parties to drive them Coliform Detections (no. of sites) Cleanest Water dashboard – weekly review by STEC (Jan-Oct)
Slide 21: Translating into ODI Rewards
TRANSLATING INTO ODI REWARDS Performance to end October Category 3 Pollutions Water quality complaints Internal sewer flooding In AMP Supply interruptions Leakage External sewer flooding Coliform detections SIM End of AMP 21
Slide 22: ODI Spotlight: Supply Interruptions
ODI SPOTLIGHT: SUPPLY INTERRUPTIONS YTD Performance: Our July initiative: 400 Striving to add zero minutes 300 onto our supply interruptions Seconds 200 100 Driving belief in our ability to deliver 0 Apr May Jun Jul Aug Sep Oct 2015/16 2014/15 How we’re achieving outperformance: Cross-regional and
Slide 23: Embedding Totex Thinking
EMBEDDING TOTEX THINKING You can always find ways to improve what you do Peckforton 27” Main Asset Management Taking a risk based approach to Network modelling identified low identify highest priority risks, cost solution with no impact on focusing on ODI impact network performance Embedding totex
Slide 24: Birmingham Resilience: On Track to Deliver
BIRMINGHAM RESILIENCE: ON TRACK TO DELIVER Land purchases now complete Formal planning agreements in place Abstraction licence ‘pre-application’ approved by the EA Stakeholder engagement programme off to positive start 24
Slide 25: Locking in Efficiencies
LOCKING IN EFFICIENCIES All £372m1 now locked in £100m £72m £200m Supplier Contract Efficiencies • Sewerage commercial model £117m • Chemical contracts Focused on Capital Programme Efficiencies outperformance • Working with our One Supply Chain - Up to £50m more to £155m partners to deliver capex ef
Slide 26: Going Beyond £372m Efficiencies
GOING BEYOND £372m EFFICIENCIES Already frontier efficiency for Waste Water Striving for upper quartile performance on Water How we will get there: Digitalisation of our networks Driving proactive asset management Supply chain activity Utilising new technology 26
Slide 27: Leaders in Renewables
LEADERS IN RENEWABLES 32% DOUBLE DIGIT IRR of energy needs today1 £190m on all investments Potential for 50% investment outperformance with new technology of energy needs by 20202 New sites over AMP6 Wind turbines Solar Sewage sludge THP Crop & food waste AD 2 sites 40 sites 2 sites 4 sites Target g
Slide 28: Strong Start to AMP6
STRONG START TO AMP6 Customers at the heart of what we do ODIs delivering; for customers and shareholders Totex thinking embedded Going beyond £372m efficiencies Opportunity through renewable energy Engaged in the debate More to do – focused on delivery 28
Slide 29: Disclaimers
Cautionary statement regarding forward-looking statements DISCLAIMERS 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 object
Slide 30: Appendix
APPENDIX 30
Slide 31: Defining RoRE
DEFINING RoRE Regulatory adjustments Performance variance: 1 TOTEX PAT ODIs2 RoRE Financing (1 – Actual RCV Gearing) 1. As per the Final Determination 2. Includes SIM 31
Slide 32: Group Earnings
GROUP EARNINGS PERIOD ENDED 30 SEPTEMBER 2015 2014/15 2015/16 Variance Variance £m £m £m % 107.5 Profit for the period attributable to owners of the company 143.7 36.2 33.7% (0.5) Adjusted for discontinued operations 0.6 1.1 220.0% 107.0 Profit for the period from continuing operations attributable
Slide 33: Group Balance Sheet
GROUP BALANCE SHEET 31 March AT 30 30SEPTEMBER 2015 September Movement in 2015 2015 the period £m £m £m 7,520.0 Property, plant and equipment 7,581.6 61.6 81.0 Intangible assets 80.8 (0.2) 4.7 Other non-current assets 4.8 0.1 (1,310.8) Working capital, provisions and pensions (1,277.8) 33.0 6,294.9
Slide 34: Movement on Shareholders' Equity
MOVEMENT ON SHAREHOLDERS’ EQUITY PERIOD ENDED 30 SEPTEMBER 2015 £m At 1 April 2015 823.3 Total comprehensive income for the period 217.9 Dividends paid to shareholders of Severn Trent Plc (121.2) Share based payments charge (after tax) 2.0 Shares issued 7.0 At 30 September 2015 929.0 34
Slide 35: Gearing
GEARING AT 30 SEPTEMBER 2015 31 March 30 September1 2015 Net debt/RCV 2015 61% Severn Trent Group 60% 61% Severn Trent Water 61% 1. Estimated RCV at 30 September 2015. 35
Slide 36: Wholesale Totex Reconciliation
WHOLESALE TOTEX RECONCILIATION PERIOD ENDED 30 SEPTEMBER 2015 Opex Capex Totex £m £m £m STW Opex per income statement 292.5 - 292.5 STW Capex per cash flow statement - 180.8 180.8 Infrastructure maintenance expenditure - 52.0 52.0 ROC income deducted from Totex (7.4) - (7.4) Proceeds on sale of fixe
Slide 37: Severn Trent Services Performance
SEVERN TRENT SERVICES PERFORMANCE PERIOD ENDED 30 SEPTEMBER 2015 Turnover Underlying PBIT 1 2014/15 2015/16 Change 2014/15 2015/16 Change £m £m % £m £m % 104.5 113.2 8.3 As reported 4.5 4.9 8.9 4.6 - Exchange rate impacts (0.1) - 109.1 113.2 3.8 Like for like 2 4.4 4.9 11.4 1. Before exceptional ite
Slide 38: Net Finance Costs
NET FINANCE COSTS PERIOD ENDED 30 SEPTEMBER 2015 Income Gross statement Capitalised interest charge interest incurred 2015/16 2015/16 2015/16 £m £m £m “Cash” interest (including accruals) 93.6 7.5 101.1 Net pension finance cost 7.6 - 7.6 RPI interest 5.1 0.4 5.5 106.3 7.9 114.2 38
Slide 39: Improving Maturity Profile
IMPROVING MATURITY PROFILE 600 500 400 300 200 100 0 2016 2021 2026 2031 2036 2041 2046 2051 2056 2061 2066 1 Debt maturing in March 2016 Maturing debt New US Private Placement issue 1. Funds to be received in March 2016 39
Slide 40: Net Debt
NET DEBT AT 30 SEPTEMBER 2015 30 September 31 March 30 September 2014 2015 2015 £m £m £m Cash and cash equivalents (154.1) (176.7) (57.2) Bank overdrafts 0.6 - 2.6 Bank loans 595.8 1,279.2 1,125.1 Other loans 3,786.1 3,467.5 3,432.2 Finance leases 180.7 180.0 142.6 Cross currency swaps (26.3) 2.6 (8
Slide 41: Fair Value of Net Debt
FAIR VALUE OF NET DEBT AT 30 SEPTEMBER 2015 30 September 31 March 30 September 2014 2015 2015 £m £m £m Bank loans 613 1,298 1,136 Other loans 4,289 4,331 3,914 Finance leases 175 191 148 5,077 5,820 5,198 Net cash and cash equivalents (154) (177) (55) Cross currency swaps (26) 3 (8) Fair value of ne
Slide 42: Analysis of Borrowings, Net Debt and Swaps
ANALYSIS OF BORROWINGS, NET DEBT AND SWAPS At 30 September AT 30 SEPTEMBER 2015 2015 5,135 150 4,702 (2) (8) (55) 4,637 419 4,283 Borrowings Exchange Cross currency Net cash Net debt per Net debt at IR swaps adjustment swaps balance sheet fair value GBP Debt Currency debt at historical rate 42
Slide 43: Credit Ratings
CREDIT RATINGS Severn Trent Water Severn Trent Plc Moody’s A3 Baa1 Standard & Poor’s BBB+ BBB- Moody’s – outlook is negative Standard & Poor’s – outlook is stable 43
Slide 44: Severn Trent Water - RCV
SEVERN TRENT WATER - RCV 2015/16 Opening RCV £7,683m £m 2015/16 2016/17 2017/18 2018/19 2019/20 Per Determination1 7,336 7,490 7,684 7,866 7,948 Projected Outturn (OBR RPI assumptions2) 7,855 8,220 8,695 9,177 9,560 1. 2012/13 prices 2. Based on Office of Budget Responsibility RPI assumptions (2.7%
Slide 45: Company Vision, Purpose and Values
COMPANY VISION, PURPOSE AND VALUES WHAT WE STAND FOR Our Vision: By 2020 to be the most trusted water company: delivering an outstanding customer experience, the best value service and environmental leadership Our Purpose: To serve our communities and build a lasting water legacy Our Strategy: Sever