Severn Trent has reported a record £79 million outperformance reward across all operational areas in its preliminary announcement of annual results this morning.

The water company said that strong operational performance had resulted in the best ever Outcome Delivery Incentives (ODIs) for customers leading to c.80% of measures in positive territory.

Severn Trent has also had a fast start to AMP7 via its accelerated capital programme, with more than £590 million investment in the year, taking advantage of quieter conditions to bring forward £90 million of activity. The announcement says:

“This has given us a head start on our AMP7 investment, increasing our capacity for future years, helping us outperform our operational targets, and bringing forward carbon and cost benefits from our bioresources business.”

Severn Trent is also reporting:

• Strong year on water measures, with improvements in water quality metrics, resulting in net positive financial reward
• Best ever pollutions performance and consistent top performer in waste, including strong performance on blockages and sewer flooding
• Focused on customers with top five position for utilities on UK Customer Satisfaction Index, and year-on-year progress in customer complaints and experience measures
• Resilient financial performance in line with expectations
• The utility said a resilient financial performance was in line with expectations – highlights include:
• Group turnover of £1,827 million, down 0.9%, with c.£50 million net impact of lower consumption due to COVID-19 lockdowns
• Adjusted PBIT of £473 million, in line with expectations, down 17.1% as a result of PR19 rebasing of tariffs, the net impact of COVID-19 on consumption and additional investment to drive customer ODI performance. Reported PBIT of £471 million (2020: £568 million)
• Strong household cash collection, up £61 million (5.2%) year-on-year, helping reduce bad debt charge to 3.0% of household revenue
• Proposed final dividend of 60.95 pence, bringing full year dividend to 101.58 pence
• Separate announcement today of intention to conduct an equity placing through the issue of new ordinary shares to raise approximately £250 million of gross proceeds that will be used to fund the Green Recovery projects

Water Plus joint venture “significantly impacted by” COVID-19 outbreak

Commenting on its Water Plus joint venture in the retail water sector, Severn Trent said that in common with other participants in the non-household retail market, Water Plus had been significantly impacted by the COVID-19 outbreak, the resulting lockdowns and the effects on commercial customers.

The utility has recognised its £8.9 million share of Water Plus's loss for this year and the £4.9 million of exceptional losses that were disclosed but not recognised in the previous year. Last year it also recorded losses of £46.8 million in relation to, mainly arising from impairment losses due to the expected impacts of COVID-19.

Water Plus's revenue was around £150 million lower than the previous year and in these difficult trading conditions it incurred a loss after tax of £17.7 million. During the year Water Plus obtained £70 million of external debt facilities - since the year end, Severn Trent and its joint venture partner have each converted £32.5 million of the revolving credit facilities advanced to Water Plus to equity.

Severn Trent said “we consider this to form part of our long-term investment in Water Plus at the year end….After obtaining £70 million of external finance during the year the business is now well placed to benefit from increased economic activity after lockdown.”

Operational highlights include strong performance on waste and fast start to AMP7 environmental programme

Operational highlights include a continuing strong performance on waste - work in reducing blockages by 30% had a beneficial effect on public sewer flooding, which was down 31%. This in turn helped to contribute to the company’s best ever year for pollutions figure - beating its target by 20%.

To achieve this, in addition to targeting assets where there were clearly improvements to be made, Severn Trent has also made its network smarter by fitting 1,500 sensors to sewers. The company commented:

“The insight we gained into our network provided more resilience and is helping us to spot and fix issues before they affect customers. We aim to roll out 40,000 of the sensors by 2025 to give us a far better, smarter view of what's happening in our sewer pipes.”

Severn Trent has also had a fast start to its AMP7 environmental programme, delivering twice over on its full AMP biodiversity target in the first year and launching its Great Big Nature Boost, through which it is aiming to plant 1.3 million trees, revive 12,000 acres, and restore more than 2,000 kilometres of rivers throughout the region, together with schemes helping the release of beavers into the wild in Nottinghamshire and Derbyshire later this year.

On energy, the announcement says the utility is on track with its Triple Carbon Pledge, and now only uses fully renewable-backed electricity from our energy suppliers. Its electric vehicle (EV) fleet is continuing to increase in size, with the aim to be all-electric by 2030. Employees have also been offered access to an EV scheme to encourage them to reduce their own impact.

Severn Trent’s ongoing commitment to self-generate its own energy from renewable sources is continuing to deliver, produced the equivalent of 53% of the electricity it used during the year.

The water company has also submitted its proposed Scope 1, 2 and 3 emissions targets to the Science Based Targets Initiative, committing it to deliver significant reductions in greenhouse gas emissions by 2030 in line with the journey to Net Zero.

Severn Trent will be putting its climate action plans to a non-binding vote at its AGM later this year.

Liv Garfield: "the last year has thrown up multiple challenges"

Commenting on the preliminary results, Liv Garfield, Chief Executive, said:

"The last year has thrown up multiple challenges for us but it's clear everyone at Severn Trent has responded superbly to the new normal we find ourselves in. Our industry-leading customer ODI performance shows just how much we've been able to improve our services, often while working in very difficult circumstances.

“At the same time, we've increased the support we give to our customers and the communities we serve, from schemes for the most vulnerable to the extra funding we've made available to help charities and not-for-profits get through the pandemic.

“We took a very early decision to be at the forefront of efforts to help our region bounce back. That is why it was such good news that we'd been successful with our Green Economic Recovery proposal, meaning we can invest even more in sustainable projects and help create thousands of jobs. Add in our ambitious Kickstart programme, the launch of the Great Big Nature Boost, and our sustainability support for the Birmingham Commonwealth Games and it's clear, both operationally and environmentally, that it's been a strong year for Severn Trent."

Severn Trent is proposing a final dividend of 60.95 pence bringing its full year dividend to 101.58 pence, in line with its AMP7 policy.