Severn Trent Plc · LSE:SVT
Severn Trent — Investor Presentation (2020)
59 slides from Severn Trent's investor presentation, 2020
Slide 1: 1
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Slide 2: Index
INDEX Highlights Investment Fundamentals Financing ODIs and Totex Sustainability p.3-6 p.13-22 p.23-29 p.30-41 p.42-51 3. AMP6 Summary 14. Investment Fundamentals 24. Financing performance 31. Strong Water Performance 43. Our Social Purpose journey 4. AMP6 Summary 15. AMP6 RCV Growth 25. Financial R
Slide 3: AMP6 Summary: Colleagues and Investors
AMP6 SUMMARY Balancing the needs of key stakeholders across AMP6 Engagement in the top 5% of utilities globally COLLEAGUES 75,000 days of training delivered Recruited c.400 graduates and apprentices Sharing success with all-employee bonus scheme Top 3 company in Hampton-Alexander review an
Slide 4: AMP6 Summary: Customers and Communities
AMP6 SUMMARY Balancing the needs of key stakeholders across AMP6 Maintained lowest bills in England and Wales CUSTOMERS £3bn invested in assets for future generations Improved accessibility and digital experience Annually supported 50,000 customers with bills Improvements across range of s
Slide 5: 2019/20 Highlights
2019/20 HIGHLIGHTS Net customer ODIs of £36m1 taking AMP6 total to £174m A good end to AMP6 Delivering consistent improvements in Water operationally Anticipate 4* EPA status from the Environment Agency £800m of capital invested, taking AMP6 total to £3bn A substantial year of Birmingham Resilience
Slide 6: ESG
ESG In a year of important global, political, regulatory and company milestones, Severn Trent has maintained focus on supporting our customers and communities, demonstrating our commitment to our social purpose Our Values Our Framework Our Commitments We believe that if we are united by We’ll be rep
Slide 7: COVID-19
COVID19 7
Slide 8: Managing the Impact of COVID-19
MANAGING THE IMPACT OF COVID-19 Supporting people through the COVID-19 crisis Colleagues Customers Communities Pic Pic Committed to no redundancies or Helping customers struggling to pay with £1m emergency fund – £500k supporting furloughing from COVID-19 established WaterSure and Big c.200 or
Slide 9: Managing the Impact of COVID-19
MANAGING THE IMPACT OF COVID-19 Preparation, agility and culture enable delivery of essential services and AMP7 plans Delivering essential services Continued focus on AMP7 Quickly enabled well-practised incident management Well prepared through fast-track status and substantial investment in fin
Slide 10: COVID-19 Impact on PBIT
COVID-19 IMPACT ON PBIT Limited impact on 2019/20 PBIT; direct costs largely absorbed; bad debt provision increased No material step up in operating costs as a result of COVID-19 to date March/April cash receipts strong; low levels of direct debit cancellations Direct impact to bad debt of £2m; indi
Slide 11: Water Plus
WATER PLUS Improving performance in H2; overtaken by economic impact of COVID-19 Recovery plans drove Marked improvement in improved performance cash collections after a …but tail-off in receipts £14.3m seen post lockdown FY share of underlying trading loss in H2 challenging first half… (H1: £9.3m;
Slide 12: Wholesaler Regulatory Framework
WHOLESALER REGULATORY FRAMEWORK Effective regulatory framework mitigates NHH COVID-19 consumption risk over AMP7 Impact of lower volumes COVID-19 lockdown will significantly decrease business consumption with some offset in higher household demand We are anticipating c.£50m-£85m impact on 2020/21 re
Slide 13: Investment Fundamentals
INVESTMENT FUNDAMENTALS 13
Slide 14: Investment Fundamentals
INVESTMENT FUNDAMENTALS Slides Slides Stable earnings with strong cost control 35,36 Attractive inflation-linked dividend 18,19 Five year certainty of revenues – set to 2025 Growth of at least CPIH for the next five years Reduced opex by 7% in real terms since 2015 Total Shareholder Return o
Slide 15: AMP6 RCV Growth
AMP6 RCV GROWTH Cost efficiencies and targeted investment contributed to strong real RCV growth ~£2.6bn ~(£1.9bn) Efficient spending, with a 7% real reduction in STW operating costs across AMP6 ~£9.5bn ~£9.4bn Over £3bn capex invested, (£0.2bn) £0.1bn completing some of our largest ever schemes ~£1.
Slide 16: Multi-AMP RCV Growth
MULTI-AMP RCV GROWTH A key driver of long-term value creation Population and household growth1 Environmental expenditure Greater Most likely 80.0x uncertainty Water Framework Directive £0.2 bn in AMP8 45.5x 48.3x (integrated river basin management) 33.0x Urban Waste Water Treatment Directive £1.0 bn
Slide 17: Shareholder Return
SHAREHOLDER RETURN AMP6 shareholder return Total shareholder return since privatisation* 2.3% Rebased share price 6.7% 4.4% 4.4% 1989 2020 FTSE 100 FTSE UTILITIES SVT *Rebased to 100 Dividend yield¹ Equity RCV Combined Severn Trent FTSE Utilities FTSE100 growth² return Since Privatisation 4038% 2796
Slide 18: Historic Dividends
HISTORIC DIVIDENDS Ordinary dividend CAGR of 4.4%2 Dividend per share, pence 227 Growth of at least CPIH 133 127 until 2025 Special dividend Share repurchase1 165 47 63 100 102 87 93 80 85 81 82 72 70 76 62 66 67 65 45 46 46 47 49 51 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11
Slide 19: AMP7 Dividend
AMP7 DIVIDEND Our AMP7 dividend building blocks 2019/20 dividend Non-regulated £100m Operating Green Power will transition into property profits Services providing growth over 10 years long term contracts opportunity AMP7 whole Outperformance AMP 7 Totex UQ Financing Customer ODIs efficiencies Growt
Slide 20: Return on Regulated Equity
RETURN ON REGULATED EQUITY Outperformance across all three levers delivering strong AMP6 RoRE 8.5% CUSTOMER ODIS AMP6 cumulative Sustained strong ODI performance, £174m net reward 0.9% 2019/20 RoRE: across the AMP including £36m delivered in 19/20 Out- 0.5% performance 1.0% 1.5% TOTEX -2.0% Focused
Slide 21: Business Services
BUSINESS SERVICES Turnover PBIT PBIT (excl. Property) £240.4m £64.9m £57.2m +20% +1% +29% £64.1m £64.9m Energy generation £7.7m A significant contributor to the early achievement of our £19.9m target for 100% energy from renewable sources. Generation Property increased 19% to 491 GWh, through Biores
Slide 22: Our Senior Team
OUR SENIOR TEAM Christine Hodgson Christine took on her role as Chair of the Board Severn Trent Executive Committee effective 1 April 2020. Sharmila Nebhrajani Sharmila has been appointed as Non-Executive Director effective from 1 May 2020. Sarah Bentley Liv Garfield James Bowling Helen Miles James
Slide 23: Drivers of RoRE: Financing
DRIVERS OF RORE Financing 23
Slide 24: Financing Performance
FINANCING PERFORMANCE Strong AMP6 performance through effective management of our debt £194.2m £188.4m Lower net finance costs as higher average debt is offset £188.4m by lower effective interest cost RPI rolled up £39.7m £34.0m 170 bps Reduction in effective interest cost1 in AMP6 £13.8m Net pensio
Slide 25: Financial Resilience
FINANCIAL RESILIENCE Strong fundamentals and effective treasury strategy providing resilience Gross debt £6,433m • Facilities of £1.1bn, with £0.8bn available at 31 Index-linked March 2020 64% CPI • Less than 2.5% (£150m) of debt maturing in the 24% RPI £475m next 12 months £1,044m 12% • Strong trac
Slide 26: Effective Interest Rates: A Sector Comparison
EFFECTIVE INTEREST RATES: A SECTOR COMPARISON Sector-leading improvement with 170bps reduction in our effective interest rate over 5 years 2015 2016 - 2018 Implementation of balanced and • Took advantage of attractive 6.0% floating strategy, refinancing £1bn conditions in the GBP bond market 5.5% -1
Slide 27: Debt Maturity
DEBT MATURITY Average debt maturity of 13 years, £3bn to raise in AMP7 700 AMP7 AMP8 and beyond 600 500 USPP RCF 400 Existing Debt £m 300 200 100 0 27
Slide 28: Sustainable Finance Framework
SUSTAINABLE FINANCE FRAMEWORK Connecting our financing with the delivery of our bold commitments to the environment and wider society Sources can include: We will report on the environmental and Committed Sustainable social impacts of the investments funded Facilities Bonds by our sustainable fundin
Slide 29: Pensions
PENSIONS Deficit reduction strategy on track, AMP7 contributions of £60m to continue IAS19 deficit also benefitting from Effective hedging strategy Asset outperformance higher credit spreads and lower £712m forecast for long-term inflation Protection in place Full year asset growth of from equity an
Slide 30: Drivers of RoRE: ODIs and Totex
DRIVERS OF RORE ODIs and TOTEX 30
Slide 31: Strong Water Performance
STRONG WATER Water quality complaints PERFORMANCE AMP6: -28% 14,461 -12% Targeted reinvestment, innovative technology and -6% refreshed strategies driving continuous improvement 12,687 11,923 -14% -5% 10,305 9,800 On the right trajectory to meet year one targets 16/17 17/18 18/19 19/20 20/21 Target
Slide 32: Confident in Leakage Ambition
CONFIDENT IN LEAKAGE AMBITION Consistent improvements give confidence in AMP7 and longer term targets Leakage reductions: New geographical ownership model enhances Delivered Plan Ambition Empowering local knowledge and accountability 8% 15% 50% our people Volunteers from across the business are in A
Slide 33: A Tough Year but Strong AMP in Waste
Target (revised) Target (FD) A TOUGH YEAR BUT External sewer flooding STRONG AMP IN WASTE AMP6: -48% 9896 7,163 in waste customer 5,801 £226m 3,763 3,795 5,152 3,633 ODIs over AMP6 14/15 15/16 16/17 17/18 18/19 19/20 20/21 Internal sewer flooding Pollutions (Category 3) AMP6: -20% AMP6: -21% 1168 90
Slide 34: Investing in the Environment
INVESTING IN THE ENVIRONMENT Caring for the environment delivers multiple benefits Reducing costs Rewards for environmental improvement Making a positive impact Improving water quality upstream Over AMP6 we have delivered: reduces cost of treatment Water Framework Biodiversity Directive £0.9m 1,600k
Slide 35: Maintaining Cost Control
MAINTAINING COST CONTROL We have tightly controlled costs over AMP6… …helping us to deliver PBIT and EPS growth 150 600 140 580 Severn Trent Water CAGR of 1.1% 560 130 operating costs over 540 Pence per share 120 520 AMP6: Reduced by 7.2% in real terms £m 110 500 100 480 460 90 440 Strong cost contr
Slide 36: Case Study: Cost Control
CASE STUDY: COST CONTROL Applying operational excellence to support functions Support Functions: 23% real reduction in cost base (£7.1m) since FY18 Financial Strategy & Chief General HR Services Regulation Engineer Counsel • Enhancing our in-house capabilities and reducing use of third party supplie
Slide 37: AMP6 Programme: Complete
AMP6 PROGRAMME: COMPLETE Substantial investment in final year completes ambitious AMP6 programme Birmingham Mains Renewal £800m Resilience 900km of network 2019/20 Capex Second source of renewed water to Birmingham Newark Ambergate Reservoir £3bn protecting increasing capacity AMP6 Capex customer ho
Slide 38: AMP6 Capital Profile
AMP6 CAPITAL PROFILE WFD scheme – Granby (2018) Our capital programme has Melbourne high lift sump ramped up over the course (2017) Newark (2019) of the AMP, with FY 19/20 being our biggest year of investment in over a decade £800m £769m Wanlip sludge scheme (2016) Similarly we expect a step £591m d
Slide 39: AMP7 Programme: On Track
AMP7 PROGRAMME: ON TRACK We are on track: • 80% of year one programme spend contracted • Manageable impact from COVID-19 – safeguards in place Capital expenditure of £430m to £510m in year one Generating more energy with new THPs AMP7 will operate differently with a broader range of suppliers and in
Slide 40: Our AMP7 Capital Delivery Strategy
OUR AMP7 CAPITAL DELIVERY STRATEGY A refreshed contracting model An in-house design function We have appointed 20 supply chain partners instead We have brought an experienced team of design of the six tier one partners we used in AMP6 engineers in house Direct access to a much broader range of skill
Slide 41: Innovation
INNOVATION Innovation plays a key role in our AMP7 plans and sustainability ambitions Circular Economy We opened our £5m Research Recovery and Innovation centre in 2019 Recovering ammonia and exploring opportunities in hydrogen production, liquid ammonia and fertiliser Water Quality Ground breaking
Slide 42: Long Term Sustainability
LONG TERM SUSTAINABILITY 42
Slide 43: Our Social Purpose Journey
OUR SOCIAL PURPOSE JOURNEY Unconscious ‘natural’ Natural purpose meets Creating a conscious purpose Taking others with us purpose customer intent We provide an essential resource for life. Customer research broadened our thinking We continue to work with others as our Recognised as a pathfinder comp
Slide 44: Sustainability Framework
SUSTAINABILITY FRAMEWORK Our sustainability framework draws together our environmental, social and governance (ESG) ambitions. While those ambitions will be delivered as part of our business plan, fully embedded in the way we work, this framework helps us to articulate how we deliver our purpose. Th
Slide 45: Sustainable Development Goals
SUSTAINABLE DEVELOPMENT GOALS We have outlined our most significant contributions to the 17 goals through our core businesses and the way we run our company Core Business Impact Significant Impact Moderate Impact Ensure availability and Build resilient infrastructure, promote Ensure inclusive and eq
Slide 46: Reporting/Indices
REPORTING/INDICES Severn Trent has been recognised across multiple indices for our commitments to sustainability FTSE4Good Sustainalytics MSCI We have been a constituent of In January 2020 we received a In October 2019, MSCI rated us the FTSE4Good index since 2006 risk rating score of 18.6, which BB
Slide 47: Making an Impact
MAKING AN IMPACT Going above and beyond to lead the way in sustainability Over the next five years, we will be investing £1.2 billion in our sustainability ambitions, from climate and biodiversity to supporting the customers who need us most. 2,100 5,000 500,000 Enhance the biodiversity of Educating
Slide 48: Community Fund
COMMUNITY FUND The Community Fund issued its first payments to local causes, while also paying over £500k from our £1 million Covid-19 emergency fund to around 200 organisations Here and Now, Chester “Here and Now Chester Ltd is a local Social Enterprise set up to alleviate social HELPING THE isolat
Slide 49: Climate Change
CLIMATE CHANGE Triple Carbon Pledge Task Force on Climate- Science-Based Targets related Financial Disclosures (‘TCFD’) Net Zero Carbon by 2030 Our Aim Driven by real reductions in scope 1, 2 In March 2020, we were the first Water Global ambition and 3 emissions measured by Science- company in the U
Slide 50: Biodiversity
BIODIVERSITY Severn Trent is contributing to the essential role that nature plays in maintaining healthy ecosystems Our ambition Our partners Changing how we manage our own land Improve the biodiversity of 5,000 Working with our partners to improve For every £1 Severn Trent spends hectares across ou
Slide 51: Awesome Place to Work
AWESOME PLACE TO WORK Continued focus on culture underpins strong start to AMP7 2,166 trained in Second lowest Accredited Caring for our Caring for our Caring for our mental health number of LTIs Living Wage Colleagues Colleagues Colleagues awareness in a decade employer campaign Top 3 Compliant wit
Slide 52: PR19
PR19 52
Slide 53: STW Final Determination
STW Final Determination We have accepted our Final Determination for the next five years We have a suite of stretching but achievable customer ODIs following limited intervention or fast-track status reflects a plan that benefits all stakeholders, and our commitment to Were well positioned to delive
Slide 54: STW Final Determination
STW FINAL DETERMINATION Our Final Determination is broadly value neutral versus our April Draft Determination Value changes Value £m Impact Other changes from DD to FD WACC reduced by 38bps £180m Revenue Changes to totex and RCV run-off mean real RCV growth up to 3.8% Efficiency frontier reduced to
Slide 55: STW Customer ODIs
STW CUSTOMER ODIS We have a broad suite of customer ODIs, with positive changes to our risk profile Improvements to FD 41 ODI P10/P90 ranges Customer ODIs 1.90% Measured consistently and with 1.70% 3 targets based on sector upper DD FD comparative quartile -2.83% Measured consistently but with -3.90
Slide 56: STW Investment and RCV Growth
STW INVESTMENT AND RCV GROWTH STW AMP7 totex allowance in line with our original business plan – driving 3.8% real RCV growth STW Gross Totex: £6,797m 5736 907 154 Real STW and HD are two of only three companies to Base Enhancement options receive more base totex than requested Base Totex1 Enhanceme
Slide 57: Appendix
APPENDIX 57
Slide 58: 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 59: Contact Details
CONTACT DETAILS Richard Eadie Head of Investor Relations richard.eadie@severntrent.co.uk +44 (0) 7889 806578 Rachel Martin Investor Relations Manager rachel.martin@severntrent.co.uk +44 (0) 7824 624 011 Coventry Head office Abi Turner Investor Relations Analyst abigail.turner@severntrent.co.uk Londo