Severn Trent Plc · LSE:SVT
Severn Trent — Investor Presentation (September 2013)
31 slides from Severn Trent's investor presentation, Sep 25, 2013
Slide 1: PR14 Update From Severn Trent
PR14 Update From Severn Trent Tony Wray – CEO Mike McKeon – CFO Dr Tony Ballance – Director of Strategy and Regulation 25th September 2013, 15:00 BST
Slide 2: Disclaimers
Disclaimers This presentation contains certain “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
Slide 3: Structure for this presentation
Structure for this presentation Affordability & Update Execution Investment Recap of February Affordability AMP5 delivery webcast PR14 Methodology Investment AMP6 delivery Your Water. Your Choices & AMP6 vs. AMP5 capital Customer Challenge Group programme Stakeholder Context Water Bill Timeline to F
Slide 4: Structure for this presentation
Structure for this presentation Affordability & Update Execution Investment Recap of February Affordability AMP5 delivery webcast PR14 Methodology Investment AMP6 delivery Your Water. Your Choices & AMP6 vs. AMP5 capital Customer Challenge Group programme Stakeholder Context Water Bill Timeline to F
Slide 5: Update: In February we talked about...
Update: In February we talked about... Update Afford’ & Inv’ Execution • First significant change since privatisation • But proposals are an evolution of the tried and tested PR14 will be different industry framework • No significant change to industry risk profile • Increased customer engagement •
Slide 6: Update: Since February
Update: Since February Update Afford’ & Inv’ Execution • PR14 Final Methodology • Your Water. Your Choices & Customer • Challenge Panel (Severn Trent Water Forum) • Engagement • Water Bill 6
Slide 7: Update: PR14 Methodology
Update: PR14 Methodology Update Afford’ & Inv’ Execution Wholesale Retail Total revenue Supportive of changes split by customer ? Require more information Non- = Same as PR09 Household Default tariff Non-Household Waste 2% 28% Water Water Household Average cost to 44% 44% 10% Household Price contr
Slide 8: Update: PR14 Methodology
Update: PR14 Methodology Update Afford’ & Inv’ Execution • No change to methodology Supportive of changes Cost of Debt • notional gearing ? Require more information 3.6% • single industry WACC = Same as PR09 Gearing Vanilla WACC • fixed cost of debt 57.5% 5.1% • (no indexation) WACC Cost of = Equi
Slide 9: Update: How rewards and penalties might work
Update: How rewards and penalties might work Update Afford’ & Inv’ Execution • 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 custome
Slide 10: Update: PR14 Methodology
Update: PR14 Methodology Update Afford’ & Inv’ Execution Business Plan Rating Outcome • Get the plan you submit • Good outcomes • Strong totex incentives • Meets statutory obligations • Early draft determination • Good quality engagement (April 14) Enhanced • Potential early final • Cost efficient •
Slide 11: Update: Your Water. Your Choices & Customer Challenge Group
Update: Your Water. Your Choices & Customer Challenge Group Update Afford’ & Inv’ Execution • Our plan is being developed based on extensive engagement with our customers, stakeholders and Severn Trent Water Forum (CCG): • 18 months of engagement in 3 phases • 25 Severn Trent Water Forum and sub-gro
Slide 12: Update: Your Water. Your Choices & Customer Challenge Group
Update: Your Water. Your Choices & Customer Challenge Group Update Afford’ & Inv’ Execution Next steps: • Severn Trent Water Forum to continue to challenge plan as we prepare for submission • Key areas of challenge to date have been level of ambition regarding: • environmental programme • leakage •
Slide 13: Update: Water Bill
Update: Water Bill Update Afford’ & Inv’ Execution Draft Bill (July 2012) Bill (June 2013) SVT view Full non-household competition by Same Supportive 2017 Broad wholesale competition Wholesale competition, but narrowed Supportive, but devil is in the detail in scope. Third parties not allowed to on
Slide 14: Structure for this presentation
Structure for this presentation Affordability & Update Execution Investment Recap of February Affordability AMP5 delivery webcast PR14 Methodology Investment AMP6 delivery Your Water. Your Choices & AMP6 vs. AMP5 capital Customer Challenge Panel programme Stakeholder Context Water Bill Timeline to F
Slide 15: Affordability & Investment: The challenge
Affordability & Investment: The challenge Update Afford’ & Inv’ Execution • Declining real incomes • High/deteriorating poverty rates are • Rising poverty rates • not specific to certain companies • Increasing bills Average Average poverty poverty rate rate Real average household disposable (% (%hou
Slide 16: Affordability & Investment: Starting point for Bills
Affordability & Investment: Starting point for Bills Update Afford’ & Inv’ Execution • Our consultation has set out: • The potential overall bill • Options with bill impacts and the impact on service for each of the main areas of choice • We have sought views through the published consultation and c
Slide 17: Affordability & Investment: Customer choices
Affordability & Investment: Customer choices Update Afford’ & Inv’ Execution • We have consulted on whether these Options are the right measures, and given 1. Higher bill options for these measures • For example, on sewer flooding: 2. Lower bill 17
Slide 18: Affordability & Investment: Severn Trent vs. Peers
Affordability & Investment: Severn Trent vs. Peers Update Afford’ & Inv’ Execution 700 2020 Bills (real) and % Change from 2015 600 -4% Average household bill (£, 13-14 prices) -1% £500 0% £478 3% 500 0% £449 11% £445 £443 4% £420 0% 0% £370 400 £365 £330 300 2005/06 2009/10 2014/15 200 2019/20 100
Slide 19: Affordability & Investment: AMP6 Capex Envelope
Affordability & Investment: AMP6 Capex Envelope Update Afford’ & Inv’ Execution Within Your Water. Your Choices we included a range of investment options with a potential capex envelope: £4.1 bn high option £2.6 bn low option Our final capex spend will be announced in our final submission to Ofwat i
Slide 20: Affordability & Investment: An overview of the emerging plan
Affordability & Investment: An overview of the emerging plan Update Afford’ & Inv’ Execution Your expectation Our objective AMP5 Capex Spend AMP6 Capex Spend (12/13 prices): (12/13 prices): Quality water We provide water that is good to drink £0.3Bn £0.3Bn Service you can rely We will ensure water i
Slide 21: Affordability & Investment: Timeline to FD
Affordability & Investment: Timeline to FD Update Afford’ & Inv’ Execution 2011 2012 2013 2014 2015 JAS OND JFM AMJ JAS OND JFM A M J J A S O N D J F M A M J J A S O N D J F M SVT Plan 1. Shaping the 2. Shaping 3. Balancing 4. Assessment and 5. Final (5 Phases) consultation the plan the plan Challen
Slide 22: Structure for this presentation
Structure for this presentation Affordability & Update Execution Investment Recap of February Affordability AMP5 delivery webcast PR14 Methodology Investment AMP6 delivery Your Water. Your Choices & AMP6 vs. AMP5 capital Customer Challenge Group programme Stakeholder Context Water Bill Timeline to F
Slide 23: Execution: Delivering Efficiency in AMP5
Execution: Delivering Efficiency in AMP5 Update Afford’ & Inv’ Execution • Adopted an expert client model in AMP5 establishing ‘One Supply Chain’ organisation AMP6 early start and renewables • Focus on collaboration and culture of mutual benefit • Reduced number of contractors from 22 in AMP4 to 7,
Slide 24: Execution: Delivering Efficiency in AMP6
Execution: Delivering Efficiency in AMP6 Update Afford’ & Inv’ Execution • The move to Totex is in line with Severn Trent’s whole life cost approach • Contractors have helped build plan • benefitting from 5+5 year agreements put in place at start of AMP5 • committed programme of work well in advance
Slide 25: Stakeholder context: Latest views
Stakeholder context: Latest views Update Afford’ & Inv’ Execution • Affordability is a key concern • Government • Customers • Ofwat • Sustained investment levels • Government • Environment Agency • Ofwat recognise importance • Non household retail competition • Government support • Customer support
Slide 26: Summary
Summary Methodology broadly in line with expectations Making good progress with engagement and plan Affordable outcomes for customers with a Capex programme between £3.0 bn and £3.3 bn Stakeholder views incorporated in plan Delivering in AMP5 and well placed to deliver in AMP6 Will update you again
Slide 27: Our Next Publication: Early November
Our Next Publication: Early November 27
Slide 28: Q&A
SEVERN TRENT Q&A
Slide 29: 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 30: Appendix - Publications
Appendix - Publications Regulatory compliance – a proportionate and Water for Life targeted approach: A consultation Publisher: Government/Defra Publisher: Ofwat Web Hyperlink Web Hyperlink Future price limits – a consultation on the Changing Course – Delivering a sustainable future framework for th
Slide 31: SEVERN TRENT
SEVERN TRENT
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