Severn Trent Plc · LSE:SVT
Severn Trent — H1 2019/20 Earnings Presentation
42 slides from Severn Trent's earnings presentation, Nov 21, 2019
Slide 1: Half Year 2019/20 Results
HALF YEAR 2019/20 RESULTS 21 November 2019 1
Slide 2: Disclaimers
DISCLAIMERS 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 object
Slide 3: Liv Garfield, Chief Executive
LIV GARFIELD Chief Executive 3
Slide 4: Highlights
HIGHLIGHTS Finishing AMP6 in a strong position on key measures and capital schemes… Balanced performance with consistent improvement in Water Leakage Supply WQ complaints interruptions on track to hit target 25% reduction 40% improvement for 8th time in 9 years over AMP6 year-on-year Invested £374m
Slide 5: James Bowling, Chief Financial Officer
JAMES BOWLING Chief Financial Officer 5
Slide 6: H1 2019/20 Financial Highlights
H1 2019/20 FINANCIAL HIGHLIGHTS Group PBIT1 of £286m – laying the foundations for AMP7 with a good set of results H1 operating costs in line with expectations; Strong cost control 9% real term reduction in STW operating costs in AMP6 Effective interest rate 170 bps reduction in effective rate in AMP
Slide 7: Regulated Water and Waste Water: Revenue
REGULATED WATER AND WASTE WATER Revenue of £808m up 1.6%, as FY18 customer ODI rewards are deferred into AMP7 Lower net reward taken in 19/20 revenue following decision to defer £177m of AMP6 reward to AMP71 24.1 (10.8) 4.0 (4.8) £m 807.5 795.0 H1 2018/19 RPI + K Customer ODIs WRFIM2 WRFIM2 Other H1
Slide 8: Regulated Water and Waste Water: Underlying PBIT
REGULATED WATER AND WASTE WATER Underlying PBIT1 of £260m, with net tariff increases offset by infrastructure renewals Good cost control, absorbing Ongoing challenges with older above inflation annual pay Anticipated pass-through debt collection, improvement award of 3% cost increase plan underway f
Slide 9: Business Services
BUSINESS SERVICES Operating Services Property Development Turnover PBIT1 PBIT1 (excl. property) £112m £29.9m £23.7m Efficiency across key £6m of sales in H1, now +16% -20% +25% contracts increasing profit one third through our margin from 7% to over £100m commitment £37.3m 13% this year FY guidance
Slide 10: Financing Performance
FINANCING PERFORMANCE £93.1m £93.8m Net finance costs up marginally as impact of higher £93.8m average debt is offset by lower effective interest rate £18.0m £17.0m RPI rolled up 170 bps Reduction in effective interest rate1 in AMP6 Net pension £5.4m £6.9m finance cost 5.4% Effective interest rate P
Slide 11: A Sustainable Financing Strategy
A SUSTAINABLE FINANCING STRATEGY Linking our financing to delivery of our sustainable commitments De-risked and diversified portfolio… Business case proposal CPI now 31% of Assessment of eligibility for sustainable portfolio Gearing1 of index-linked 61.1% debt at £475m Formal assessment by the Susta
Slide 12: Group Cash Flow
GROUP CASH FLOW H1 2019/20: Cash from operations Capital expenditure Interest, dividends Net Debt1 £497m £374m & tax paid £5,957m up 1.5% up 10% £229m Wanlip sludge scheme • Our capital programme has ramped £769m £700m - (2016) £800m up significantly over AMP6 Melbourne high lift sump (2017) • Drivi
Slide 13: Pensions
PENSIONS Successful management in a challenging environment Strong asset performance, effective hedging strategy and sustainable cash contributions Consistently reducing deficit £712m over the last three years Settlement agreed with the Trustee for average contributions of £60m p.a. £575m £520m Futu
Slide 14: Group Summary
GROUP SUMMARY Good H1 PBIT1 £286.3m; EPS2 68.8p performance In line with expectations, full year guidance unchanged A successful STW operating costs down 9%3 AMP6 Effective interest rate down 170bps Strong AMP7 STW & HD gearing 61.1%4 platform Sustainable Finance Framework Groundwork in place for a
Slide 15: Liv Garfield, Chief Executive
LIV GARFIELD Chief Executive 15
Slide 16: Reflecting on AMP6
REFLECTING ON AMP6 The lowest bills and most trusted water company in England1 Improving service for RoRE outperformance Investing for the Contributing to customers across all levers long term society Over AMP6 we expect at least2 Cumulative RoRE of Investing over Annually helping over 9.1% £6bn 50,
Slide 17: Strong Performance in Water
Water quality complaints: delivering a 25% reduction over the AMP 12% STRONG PERFORMANCE 6% IN WATER Well positioned on key measures as we head into AMP7 2016/17 2017/18 2018/19 2019/20 Actual Actual Actual Forecast Leakage: expect to hit target for 8 in 9 years to deliver 6% AMP Supply interruption
Slide 18: Spotlight: Supply Interruptions
SPOTLIGHT: SUPPLY INTERRUPTIONS Insourcing specialist teams driving a second consecutive 40% reduction Trunk Main Repair team Team of experts to reduce the • £1m invested in specialist tools and vehicles time and cost to fix complex • Repairing leaks before they interrupt supply and high-impact burs
Slide 19: Operational Excellence
OPERATIONAL EXCELLENCE A fast start to AMP6 on Waste Expect a strong finish on Water We earned our position as a leader on Waste early in We have taken some bold decisions to improve our the AMP through: Water performance in the second half of the AMP: Upfront investment on key measures Insourcing c
Slide 20: Environmental Leadership
ENVIRONMENTAL LEADERSHIP Investing to improve the environment we interact with every day Recycling water back into the environment in a healthier state than when we abstracted it: Water Framework Directive • Improved the quality of over 1,600km of rivers in our patch • Reducing chemical content and
Slide 21: Birmingham Resilience
BIRMINGHAM RESILIENCE Enhanced resilience for 1.2 million customers in Birmingham Our largest ever engineering project £300m 130Ml/d 26km New water investment new supply new pipe treatment works Enabling us to maintain the 119km gravity-fed Elan Valley Aqueduct The project required an extensive prog
Slide 22: Awesome Place to Work
AWESOME PLACE TO WORK Creating the right culture makes us successful now and in the future We care about our colleagues Our people are engaged • Nearly 2,000 people trained in mental health • Employee engagement score of 8.1 puts • Offering a 24/7 GP service to everyone us in the top 5% of global ut
Slide 23: AMP7 Building Blocks
AMP7 BUILDING BLOCKS Performance across AMP6 and fast-track preparation positions us well for AMP7… Strong operational improvement Supply chain appointed and across Water and Waste design team insourced UQ financing at 3.7%; launched Two thirds of £100m property Sustainable Finance Framework profit
Slide 24: Capital Markets Day 4 March 2020
CAPITAL MARKETS DAY Join us at Severn Trent Centre as we share our plans to create a sustainable future 4 MARCH 2020 24
Slide 25: Q&A
Q&A 25
Slide 26: Appendix
APPENDIX 26
Slide 27: FY20 Technical Guidance
FY20 TECHNICAL GUIDANCE Regulated Water and Waste Water FY18/19 Year-on-Year Turnover 1 £1.61 billion to £1.64 billion. £1.58bn ▲ Opex Higher year-on-year as continued upward sector-wide cost pressures from energy pass- £600m ▲ through costs, licences and materials offset ongoing efficiency programm
Slide 28: Underlying EBITDA
UNDERLYING EBITDA¹ SIX MONTHS ENDED 30 SEPTEMBER 2019 2018 2019 Variance Variance £m £m £m % 428.0 Regulated Water and Waste Water 424.5 (3.5) (0.8) 51.5 Business Services 48.3 (3.2) (6.2) (6.8) Corporate and other (3.6) 3.2 47.1 0.3 Eliminations (0.1) (0.4) (133.3) 473.0 Severn Trent Group 469.1 (3
Slide 29: Business Services Underlying EBITDA
BUSINESS SERVICES UNDERLYING EBITDA¹ SIX MONTHS ENDED 30 SEPTEMBER 2019 Non Regulated Regulated Total £m £m £m Operating Services – 4.7 4.7 Energy (1.1) 9.9 8.8 Bioresources 25.1 – 25.1 Property Development 3.2 3.0 6.2 Other 1.8 1.7 3.5 Underlying EBITDA 29.0 19.3 48.3 Depreciation (12.5) (5.7) (18.
Slide 30: Depreciation
DEPRECIATION¹ SIX MONTHS ENDED 30 SEPTEMBER 2019 2018 2019 Variance Variance £m £m £m % 159.6 Regulated Water and Waste Water 164.4 4.8 3.0 14.4 Business Services 18.4 4.0 27.8 – Corporate and other – – – (0.1) Eliminations – 0.1 100.0 173.9 Severn Trent Group 182.8 8.9 5.1 1. Including amortisation
Slide 31: Power
POWER SIX MONTHS ENDED 30 SEPTEMBER 2019 2018 2019 Segmental Self Segmental Self analysis generation Group analysis generation Group £m £m £m £m £m £m Turnover 31.0 (8.6) 22.4 Business Services 45.7 (8.2) 37.5 Cost (49.2) 8.2 (41.0) Regulated Water and Waste Water (51.4) 8.1 (43.3) (3.0) 0.4 (2.6) B
Slide 32: Net Finance Costs
NET FINANCE COSTS SIX MONTHS ENDED 30 SEPTEMBER 2019 2018 2019 Income Gross Income Gross statement Capitalise interest statement Capitalised interest charge d interest incurred charge interest incurred £m £m £m £m £m £m 68.2 15.7 83.9 Cash interest (including accruals) 71.4 21.1 92.5 6.9 – 6.9 Net p
Slide 33: Underlying Earnings Per Share
UNDERLYING EARNINGS PER SHARE SIX MONTHS ENDED 30 SEPTEMBER 2019 2018 2019 Variance Variance £m £m £m % 299.1 Underlying profit before interest and tax 286.3 (12.8) (4.3) (93.1) Net finance costs (93.8) (0.7) (0.8) 206.0 Underlying profit before tax 192.5 (13.5) (6.6) (25.0) Tax at the underlying ef
Slide 34: Group Balance Sheet
GROUP BALANCE SHEET AT 30 SEPTEMBER 2019 31 March 2019 30 September 2019 Variance Variance £m £m £m % 9,300.7 Property, plant and equipment, right-of-use assets, intangible assets and goodwill 9,590.7 290.0 3.1 37.0 Investments in joint ventures 27.7 (9.3) (25.1) 109.7 Working capital 46.1 (63.6) (5
Slide 35: Pension Movements
PENSION MOVEMENTS AT 30 SEPTEMBER 2019 31 March 31 March 31 March 30 September 20171 2018 2019 2019 Total £m £m £m £m £m Opening net pension deficit (711.7) (574.6) (519.8) (452.9) Cash contributions 33.2 35.3 35.0 0.3 103.8 Return on plan assets 65.4 60.7 156.9 341.9 624.9 Changes in discount rate
Slide 36: Capital Expenditure (Net Cash)
CAPITAL EXPENDITURE (NET CASH)¹ SIX MONTHS ENDED 30 SEPTEMBER 2019 2018 2019 Variance Variance £m £m £m % 333.1 Regulated Water and Waste Water 369.2 36.1 10.8 4.2 Business Services 4.7 0.5 11.9 2.8 Corporate and other 0.2 (2.6) (92.9) 340.1 Severn Trent Group 374.1 34.0 10.0 1. Including purchases
Slide 37: Net Debt
NET DEBT AT 30 SEPTEMBER 2019 31 March 2019 30 September 2019 Variance Variance £m £m £m % (1,120.1) Bank loans (1,196.6) (76.5) (6.8) (4,820.5) Other loans (4,842.7) (22.2) (0.5) (112.2) Finances leases/lease liabilities (128.7) (16.5) (14.7) 39.6 Net cash and cash equivalents 23.3 (16.3) (41.2) 37
Slide 38: Fair Value of Debt
FAIR VALUE OF DEBT AT 30 SEPTEMBER 2019 31 March 2019 30 September 2019 Variance Variance £m £m £m % (1,004.2) Floating rate debt (1,087.4) (83.2) (8.3) (3,969.9) Fixed rate debt (4,154.7) (184.8) (4.7) (2,298.3) Index-linked debt (2,566.0) (267.7) (11.6) (7,272.4) (7,808.1) (535.7) (7.4) 39.6 Net c
Slide 39: Analysis of Borrowings & Net Debt
ANALYSIS OF BORROWINGS & NET DEBT AT 30 SEPTEMBER 2019 TO UPDATE 39
Slide 40: Net Debt & Cash Flow
NET DEBT & CASH FLOW AT 30 SEPTEMBER 2019 95.5 23.6 5,956.8 5,834.1 (496.5) 133.1 374.1 (7.1) Opening net debt Cash generated from Net issue of shares Net capital Dividends paid Net Interest and tax Non-cash movements Closing net debt operations expenditure paid 40
Slide 41: Debt Maturity
DEBT MATURITY AS AT 30 SEPTEMBER 2019 41
Slide 42: Gearing and Credit Ratings
GEARING AND CREDIT RATINGS AS AT 30 SEPTEMBER 2019 30 September 2018 31 March 2019 Net debt/RCV1 30 September 2019 59.6% 63.0% Severn Trent Group2 63.1% 59.0% 62.3% Severn Trent Water Group3 61.1% 31 March 2019 30 September 2019 Severn Trent Water Severn Trent Plc Severn Trent Water Severn Trent Plc