Severn Trent is reporting a strong first half with the publication of its interim financial results for the six months ended 30 September 2019 this morning.

Severn Trent said it was "operationally strong" and on track to hit its leakage target for the eighth time in nine years, deliver a second consecutive annual reduction in supply interruptions by at least 40% this year, and deliver a 25% reduction in water quality complaints over the current AMP6 period.

The utility is reporting continued high levels of investment, with capital expenditure of £374 million for the first half of the financial year 2019-20.

Severn Trent said its reinvestment of £100 million in totex outperformance is progressing well, funding a range of projects such as the insourcing of its Network Response team, and putting it “on the right glide path for a fast start in AMP7.” £40 million of this was allocated to asset health projects, targeted at reducing failure across its works.

Following the rapid integration of the food waste business acquired from Agrivert last year into Severn Trent’s Green Power business, the company is self-generating 51% of its own energy needs, supporting its Triple Carbon Pledge of 100% renewables and goal of net zero carbon by 2030.

In terms of financial results, group turnover increased by £28.5 million (3.2%) to £910.0 million. The company has also seen its pension deficit reduced by £62 million to £391 million, with future funding plans now agreed.

Severn Trent has proposed an interim dividend payment of 40.03p for shareholders in line with its policy for the remainder of AMP6 to increase the dividend by RPI plus 4%.

Commenting on operational performance, the water company said it is now delivering consistent improvements in key water measures, in particular:

• Leakage – a new operating model and the accelerated roll out of new technology last year gives confidence it can exceed this year's target to deliver a 6% reduction in leakage since the beginning of the AMP, the second largest reduction in the sector.
• Supply interruptions - a newly-created Trunk Main Repair team has helped reduce the time taken to fix complex and high impact bursts in a more cost efficient way, while insourcing the Network Response team has enabled us to get customers back on supply more quickly.
• Water Quality complaints – a continued programme of mains flushing, abrasive cleaning and catchment management continues to drive a steady decline, making this the fourth consecutive year of improvement

On waste, Severn Trent said it had delivered substantial improvements in its waste performance over the course of AMP6, including a 62% reduction in external sewer flooding, 38% reduction in internal sewer flooding, and an 11% reduction in Category 3 pollutions in the first four years of the AMP, generating sector leading waste customer ODIs of £190 million.

Under Severn Trent’s Environmental Programme, the firm has invested hundreds of millions of pounds in delivering a number of large environmental schemes over AMP6.

Key programmes include:

• Water Framework Directive - finding new ways to reduce the chemical content in waste water and use different abstraction methods to influence impact on natural river flows. The utility will improve over 1,600km of river quality this AMP and the programme will continue into AMP7, with £350 million of totex in its AMP7 business plan to improve 2,100km of river quality, and a 'real option', which provides a further £121 million of funding should additional programmes receive government approval.
• Sustainable Sewage Treatment - this delivers sustainable solutions to the pressures on the waste water system caused by population and industrial growth. Severn Trent has explored a number of pioneering solutions as part of this project, including the "BioMag" system which uses the addition of iron ore to allow existing assets to process more waste water and return a higher quality effluent to the watercourse.
• £300 million Birmingham Resilience Programme - the scheme will allow the company to better maintain the 119km gravity-fed Elan Valley Aqueduct into Frankley Water Treatment Works. The scheme is the biggest engineering project Severn Trent has ever embarked upon, involving almost 26km of new pipeline, a new water treatment plant and an increase in supply of 130Ml/d.

Severn Trent’s Chief Financial Officer said the company had delivered a good financial performance in the first six months of 2019/20. Underlying PBIT in the regulated water and waste water business was, as expected, lower than the first half of the previous year, after increased expenditure on infrastructure renewals to complete the AMP6 programme.

Key financial results for the six month period include:

• Group turnover from continuing operations was £910.0 million (2018/19: £881.5 million), an increase of 3.2%, due to tariff increases in regulated water and waste water revenue and growth in Business Services' external turnover.
• Underlying Group PBIT decreased by 4.3% to £286.3 million (2018/19: £299.1 million).
• Profits in the regulated water and waste water segment were down by 3.1% due to below inflationary revenue growth and higher infrastructure renewals expenditure.
• Severn Trent’s share of the loss from its joint venture Water Plus was £9.3 million (2018/19: loss of £0.9 million). The company said “market data issues in this and prior periods” had impacted Water Plus's ability to bill to and collect from its customers in “a timely and accurate way.” While work was well underway to resolve the issues, the business had taken “a prudent view of potentially irrecoverable revenue”, leading to the loss recorded in the first half of this financial year, Severn Trent explained.
• Net cash capital expenditure was £374.1 million (2018/19: £340.1 million).
• Turnover for the regulated water and waste water segment was £807.5 million (2018/19: £795.0 million) and underlying PBIT was £260.1 million (2018/19: £268.4 million). Commenting on the 1.6% increase in turnover, Severn Trent said higher tariffs, including the impact of the annual RPI increase on prices, had increased revenue by £24.1 million.
• Gross employee costs increased by 6.2% - attributed to the continuation of a strategy to bring more work in-house and the annual pay award, while net hired and contracted costs were flat year on year.
• Despite a 2% fall in consumption, power costs were £2.2 million higher than the previous period.
• Bad debt charges were £5.2 million higher period-on-period and represent 2.4% of household revenue, (2018/19 full year: 2.0%).
• Infrastructure maintenance expenditure was £10.7 million higher in the period, due to the completion of a number of AMP6 projects and a step up in the trunk mains renewal programme.
• Reported profit for the period from continuing operations was £146.7 million (2018/19: £165.1 million).

Commenting on the results, Liv Garfield, Chief Executive Severn Trent Plc, said:

"This has been another six month period where we have delivered for all of our stakeholders through strong performance, continued investment and environmental improvement, helping us to fulfil our goal of being the most trusted water company in England. Operationally we have made further progress over the last six months, with leakage, supply interruptions and water quality complaints all improving while delivering important environmental improvement schemes. We have continued to offer the lowest bills in the country while also investing for the long term, including in our biggest ever capital project, the £300 million Birmingham Resilience Programme, which is on track for completion by the end of the AMP.

At the same time, we have worked hard to be in the best possible shape for the next five years. Our job is to deliver for all of our stakeholders as we build a sustainable business that positively contributes to the society and environment we operate in and we are truly excited about delivering on the plans we've set out."