Severn Trent Plc · LSE:SVT
Severn Trent — Investor Presentation (December 2019)
42 slides from Severn Trent's investor presentation, December 2019
Slide 1: Investor Presentation
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Slide 2: Reflecting on AMP6
REFLECTING ON AMP6 The lowest bills and most trusted water company in England 1 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 3: 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 4: PR19
PR19 4
Slide 5: 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 We're well positioned to deliv
Slide 6: STW Final Determination: broadly value neutral versus Draft
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 7: 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 8: 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 the three companies to Base Enhancement options receive more base totex than requested Base Totex1 Enhancemen
Slide 9: Multi-AMP RCV Growth
MULTI-AMP RCV GROWTH A key driver of long-term value creation Population and household growth1 Replacement expenditure Environmental expenditure 3.0 1.2% Greater Most likely 80.0x uncertainty 2.5 1.0% Investment (£bn per AMP) 2.5 Water Framework Directive Renewal rate 2.0 0.8% £0.2 bn in AMP8 45.5x
Slide 10: Fast-Track Status
FAST-TRACK STATUS We have been using the time Fast-Track status gave us wisely We’ve educated our people on what We’re shadow reporting AMP7 We’ve launched our new Community Fund – the plan means for them performance commitments now open for applicants! We’ve appointed our supply chain partners 10
Slide 11: Drivers of RoRE: Financing
DRIVERS OF RORE Financing 11
Slide 12: 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 rate1 £17.0m RPI rolled up £18.0m 170 bps Reduction in effective interest rate in AMP6 Net pension £5.4m £6.9m finance cost 5.4% Effective interest rate P
Slide 13: 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 & 2017 6.0% Implementation of balanced and floating strategy, refinancing £1bn 5.5% -170bps1 committed facilities • Took advantage of attractive condit
Slide 14: Debt Maturity
DEBT MATURITY Average debt maturity of 14 years, £3bn to raise in AMP7 c.63% 700 AMP7 AMP8 and beyond Gearing average 2020-25 600 £1.2bn 500 New funding requirements 400 RCF Debt 300 £1.8bn 200 Required refinancing¹ 100 BBB+/Baa1 - Targeted minimum 2022 2027 2028 2033 2038 2043 2044 2049 2054 2059 2
Slide 15: Diverse and De-risked Portfolio
DIVERSE AND DE-RISKED PORTFOLIO Balanced strategy for fixed and floating debt Diverse sources of funding providing stability Fixed Committed Facilities Geographically diverse Including UK, US, Japan £1.1bn revolving credit and Europe 60% CPI facilities and bilaterals (all swapped to GBP) 25% Index R
Slide 16: 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: Environmental Committed Sustainable • 100% renewable generation Facilities Bonds • Carbon footprint • Leakage Private • Biodiversity enhancements
Slide 17: Drivers of RoRE: ODIs and Totex
DRIVERS OF RORE ODIs and TOTEX 17
Slide 18: Strong Performance in Water
Water quality complaints: delivering a 25% 12% reduction over the AMP STRONG PERFORMANCE 6% IN WATER Well positioned on key measures as we head into AMP7 2016/17 Actual 2017/18 Actual 2018/19 Actual 2019/20 Forecast Leakage: expect to hit target for 8 in 9 years to deliver 6% AMP Supply interruption
Slide 19: 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 20: 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 the We have taken some bold decisions to improve our AMP through: Water performance in the second half of the AMP: Upfront investment on key measures Insourcing c
Slide 21: 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 22: Maintaining Cost Control
MAINTAINING COST CONTROL STW Opex down 9% in real terms over AMP6; …helping us to deliver PBIT and EPS growth Broadly flat in nominal terms… 150 600 580 140 Nominal +0.8% £605m Real -9% £610m 130 560 540 Pence per share 120 520 FY 14/151 FY 18/191 £m 110 500 480 100 Strong cost control across the bu
Slide 23: Case Studies: Cost Control
CASE STUDIES: COST CONTROL Applying operational excellence to support functions HR: 28% reduction in cost base (£2.1m) Finance: 15% reduction in cost base (£2.4m) Cost drivers Cost drivers Cost to Cost to Cost to Cost to Cost to Cost to Hire Train Support Report Support Collect • Apply commercial ri
Slide 24: AMP6 Capital Expenditure
AMP6 CAPITAL EXPENDITURE Our capital programme has ramped up over the course WFD scheme – Granby (2018) of the AMP, with FY 18/19 being our biggest year of Melbourne high lift sump investment in a decade (2017) Newark (2019) Key programmes include: £769m £700m - • Newark – a £60m scheme £800m Wanlip
Slide 25: 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 26: 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 27: Long Term Sustainability
LONG TERM SUSTAINABILITY 27
Slide 28: 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 29: Making an Impact
MAKING AN IMPACT Going above and beyond to lead the way in sustainability Green Economy Planting 1.3m trees >50% of revenue from Technical Academy By 2025 to improve the environmental Investing £10m in skills environment solutions Sustainable Finance Social Purpose Refill Framework Embedded in our 2
Slide 30: 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 31: Investment Fundamentals
INVESTMENT FUNDAMENTALS 31
Slide 32: Investment Fundamentals
INVESTMENT FUNDAMENTALS Inflation-linked regulatory model offering attractive dividend yields Value accretion through asset base (RCV) growth from long-term investments in essential assets Attractive Long term, inflation sustainable linked yield growth Effective incentive mechanisms that reward stro
Slide 33: Shareholder Return
SHAREHOLDER RETURN AMP6 shareholder return Total shareholder return since 2.4% privatisation* Rebased share price 7.1% 4.7% 1989 2019 FTSE 100 FTSE UTILITIES SVT *Rebased to 100 Dividend yield¹ Equity RCV Combined Severn Trent FTSE Utilities FTSE100 growth² return Since Privatisation 3761% 2655% 828
Slide 34: Historic Dividends
HISTORIC DIVIDENDS Ordinary dividend CAGR of 4.4%2 Dividend per share, pence 227 133 127 Dividend promise of at Special dividend least RPI+4% growth to Share repurchase1 2020 165 47 63 93 100 80 85 81 82 87 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
Slide 35: 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 36: Return on Regulated Equity (RoRE)
RETURN ON REGULATED EQUITY (RORE) Strong RoRE, despite Customer ODI capping and totex reinvestment CUSTOMER ODIs RoRE(1) 6.3% 10.8% 11.1% 8.1% 9.1% Sustained strong 15/16 16/17 17/18 18/19 AMP6 Cumulative performance constrained 10.7% 9.7% by ODI cap, impacting year uncapped uncapped 4 RoRE. Benefit
Slide 37: 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 38: Our Senior Team
OUR SENIOR TEAM Severn Trent Chair Severn Trent Executive Committee Following his ninth year as Chair of Severn Trent, Andy Duff will be replaced by Christine Hodgson in April 2020 Christine Hodgson Appointment to the Board: January 2020 Liv Garfield Sarah Bentley Bob Stear Neil Morrison Helen Miles
Slide 39: Appendix
APPENDIX 39
Slide 40: Key: U.N. Sustainable Development Goals
KEY: U.N. SUSTAINABLE DEVELOPMENT GOALS Promoting mental health and well-being 3rd in UK for Social mobility schemes Increasing the skills of youth and adults Providing land and infrastructure for through internships and qualifications sustainable and resilient settlements Demonstrating leadership i
Slide 41: 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 42: 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 Abi Turner Head office Investor Relations Analyst abigail.turner@severntrent.co.uk Londo