Severn Trent Plc · LSE:SVT
Severn Trent — FY2020 Earnings Presentation
46 slides from Severn Trent's earnings presentation, 2020
Slide 1: Wonderful on Tap
WONDERFUL ON TAP
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: 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 5: 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 6: 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 7: James Bowling, Chief Financial Officer
JAMES BOWLING Chief Financial Officer 7
Slide 8: 2019/20 Financial Highlights
2019/20 FINANCIAL HIGHLIGHTS Good results in line with expectations, strong financial resilience Underlying PBIT1 Underlying basic EPS2 Effective interest cost £570.3m 146.0p 3.7% -0.6% +0.1% down 20 bps, 170 bps in AMP6 Net customer ODI reward AMP6 cumulative RoRE3 Strong liquidity £36m 8.5% £755m
Slide 9: 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 10: Regulated Water and Waste Water
REGULATED WATER AND WASTE WATER Underlying PBIT down 2.9% reflecting higher bad debt and increased activity to close AMP6 RPI-linked increase offset by Prudent provisioning, reflecting: lower customer ODI reward, - Increased provisions on pre-AMP6 debt; with £78m deferred to - Direct £2m COVID-19 im
Slide 11: 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 12: Water Plus
WATER PLUS Improving performance in H2; overtaken by economic impact of COVID-19 Recovery plans drove Marked improvement in …but tail-off in receipts £14.3m improved performance cash collections after a seen post lockdown FY share of underlying trading loss in H2 challenging first half… (H1: £9.3m;
Slide 13: 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 14: 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 15: 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 16: Pensions
PENSIONS Deficit reduction strategy on track; AMP7 average contributions of £60m to continue 453 (62) Successful underlying Impact of temporary spike in credit spreads at year end, and lower long- management 391 (46) term RPI inflation forecast Effective hedging strategy - (119) Protection in place
Slide 17: 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 18: 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 19: 2020/21 Technical Guidance
2020/21 TECHNICAL GUIDANCE Year-on- Regulated Water and Waste Water Year 2019/20 Turnover £1.51 billion to £1.55 billion. Lower year-on-year as a result of: ▼ £1.62bn • £50 million to £85 million from the expected impact of COVID-19 (non-household consumption down, partly offset by increased househo
Slide 20: Financial Summary
FINANCIAL SUMMARY A good set of results rounding off a strong AMP6 Underlying PBIT Strong cost control, good non-regulated growth and £570m increased IRE investment for a good start to AMP7 Effective interest cost 20 bps reduction this year, 170 bps reduction in AMP6, 3.7% strong start point for AMP
Slide 21: Liv Garfield, Chief Executive
LIV GARFIELD Chief Executive 21
Slide 22: 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 23: 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 24: 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 25: 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 26: 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 27: 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 28: 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 29: 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 30: Embedding Sustainability
EMBEDDING SUSTAINABILITY Being a company you Taking care of the environment Helping people to thrive can trust 100% renewable energy – Embedding new Purpose 100% electric fleet by 20301 Working to end water poverty now achieved and Values Net zero carbon emissions Committed to Investing £10m in our
Slide 31: Summary
SUMMARY Strong final year and fast-track preparation means we are ready for AMP7 Operationally strong Capital investment • Balanced performance across • £800m invested in final year water and waste measures completes £3bn programme • £36m customer ODIs earned in final • On track for £430-£510m in FY
Slide 32: Appendix
APPENDIX 32
Slide 33: 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 34: Underlying EBITDA, Year Ended 31 March 2020
UNDERLYING EBITDA¹ YEAR ENDED 31 MARCH 2020 2019 2020 Variance Variance £m £m £m % 841.9 Regulated Water and Waste Water 838.5 (3.4) (0.4) 94.7 Business Services 102.9 8.2 8.7 (8.1) Corporate and other (5.5) 2.6 32.1 (9.7) Eliminations (0.8) 8.9 91.8 918.8 Severn Trent Group 935.1 16.3 1.8 1. Earnin
Slide 35: Business Services Underlying EBITDA
BUSINESS SERVICES UNDERLYING EBITDA¹ YEAR ENDED 31 MARCH 2020 Non Regulated Regulated Total £m £m £m Operating Services – 16.4 16.4 Green Power (0.3) 17.6 17.3 Bioresources 55.2 – 55.2 Property Development 4.6 3.1 7.7 Other 3.1 3.2 6.3 Underlying EBITDA 62.6 40.3 102.9 Depreciation (25.5) (11.3) (36
Slide 36: Depreciation, Year Ended 31 March 2020
DEPRECIATION¹ YEAR ENDED 31 MARCH 2020 2019 2020 Variance Variance £m £m £m % 315.0 Regulated Water and Waste Water 327.0 12.0 3.8 30.6 Business Services 38.0 7.4 24.2 0.1 Corporate and other 0.1 – – (0.5) Eliminations (0.3) 0.2 40.0 345.2 Severn Trent Group 364.8 19.6 5.7 1. Including amortisation
Slide 37: Power, Year Ended 31 March 2020
POWER YEAR ENDED 31 MARCH 2020 2020 2019 Segmental Self Segmental Self analysis generation Group analysis generation Group £m £m £m £m £m £m Turnover Business Services 96.3 (15.1) 81.2 72.6 (26.4) 46.2 Cost Regulated Water and Waste Water (105.8) 14.8 (91.0) (102.1) 17.2 (84.9) Business Services (3.
Slide 38: Net Finance Costs
NET FINANCE COSTS YEAR ENDED 31 MARCH 2020 2019 2020 Income Income statement Capitalised Gross interest statement Capitalised Gross interest charge interest incurred charge interest incurred £m £m £m £m £m £m 140.7 33.2 173.9 Cash interest (including accruals) 143.3 44.2 187.5 13.8 – 13.8 Net pensio
Slide 39: Underlying Earnings per Share
UNDERLYING EARNINGS PER SHARE YEAR ENDED 31 MARCH 2020 2019 2020 Variance Variance £m £m £m % 573.6 Underlying profit before interest and tax 570.3 (3.3) (0.6) (194.2) Net finance costs (188.4) 5.8 3.0 379.4 Underlying profit before tax 381.9 2.5 0.7 (43.8) Tax at the underlying effective rate of 10
Slide 40: Group Balance Sheet at 31 March 2020
GROUP BALANCE SHEET AT 31 MARCH 2020 2019 2020 Variance Variance £m £m £m % 9,300.7 Property, plant and equipment, right-of-use assets, intangible assets and goodwill 9,954.8 654.1 7.0 37.0 Investments in joint ventures – (37.0) (100.0) 109.7 Working capital 43.2 (66.5) (60.6) (1,093.0) Deferred inc
Slide 41: Capital Expenditure (Net Cash)
CAPITAL EXPENDITURE (NET CASH)¹ YEAR ENDED 31 MARCH 2020 2019 2020 Variance Variance £m £m £m % 757.7 Regulated Water and Waste Water 790.0 32.3 4.3 12.6 Business Services 9.4 (3.2) (25.4) 0.9 Corporate and other 0.1 (0.8) (88.9) (1.9) Eliminations – 1.9 100.0 769.3 Severn Trent Group 799.5 30.2 3.9
Slide 42: Net Debt at 31 March 2020
NET DEBT AT 31 MARCH 2020 2019 2020 Variance Variance £m £m £m % (1,120.1) Bank loans (1,251.9) (131.8) (11.8) (4,820.5) Other loans (5,058.5) (238.0) (4.9) (112.2) Finances leases/lease liabilities (122.7) (10.5) (9.4) 39.6 Net cash and cash equivalents 48.6 9.0 22.7 37.1 Cross currency swaps 60.4
Slide 43: Fair Value of Debt at 31 March 2020
FAIR VALUE OF DEBT AT 31 MARCH 2020 2019 2020 Variance Variance £m £m £m % (1,004.2) Floating rate debt (1,128.0) (123.8) (12.3) (3,969.9) Fixed rate debt (4,214.7) (244.8) (6.2) (2,298.3) Index-linked debt (2,042.2) 256.1 11.1 (7,272.4) (7,384.9) (112.5) (1.5) 39.6 Net cash and cash equivalents 48.
Slide 44: Analysis of Borrowings & Net Debt
ANALYSIS OF BORROWINGS & NET DEBT AT 31 MARCH 2020 522.9 7,183.3 437.0 6,433.1 (92.6) (48.6) (60.4) 6,231.5 (8.1) Borrowings Loans receivable Net cash and cash Cross currency Net debt per Floating debt fair Fixed debt fair Index-linked debt Fair value of net from joint equivalents swaps balance shee
Slide 45: Debt Maturity as at 31 March 2020
£m 0 100 200 300 400 500 600 700 2021 2022 2023 2024 AMP7 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 AMP8 and beyond 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052 2053 2054 2055 2056 2057 2058 2059 2060 2061 RCF 2062 USPP 2063 2064 2065 Existing Deb
Slide 46: Gearing and Credit Ratings
GEARING AND CREDIT RATINGS AS AT 31 MARCH 2020 2019 Net debt/RCV1 2020 63.0% Severn Trent Group2 64.9% 62.3% Severn Trent Water Group3 64.4% 2019 2020 Severn Trent Water Severn Trent Plc Severn Trent Water Severn Trent Plc Outlook A3 Baa1 Moody's Baa1 Baa2 Stable BBB+ BBB Standard and Poor's BBB+ BB