Severn Trent Water has posted its best-ever operational performance for the second year of AMP8 and is continuing to deliver a strong performance for all its stakeholders, according to the preliminary announcement of its annual results for year to 31 March 2022 published this morning.

The water company has delivered its best-ever operational performance with 88% of measures in positive territory - Severn Trent said it is determined to drive the change needed to hit the four targets that it did not meet.

Its performance resulted in a net Outcome Delivery Incentive reward of £79 million, taking the total amount earned so far during AMP7 to £156 million.

Severn Trent has also this morning announced a new affordability scheme worth £30 million to support an additional 100,000 customers through a rising inflation environment, taking the total number supported by 2025 to 315,000.

Fast start to AMP8 with over 10% more projects on site compared to same point in AMP6 

According to the announcement, the utility has had a fast start to AMP8 with over 10% more projects on site compared to the same point in the last AMP.

During the year the utility has commissioned some key projects, including its first wetland at Cinderford in Gloucestershire, a thermal hydrolysis plant at Finham in Coventry which is now exporting gas to the grid.

Severn Trent said it has benefitted from the flexibility of its insourced design function and has broadened the range of its suppliers, providing resilience to the supply chain and helping to mitigate cost pressures. The company has already designed over 75% of its £900 million waste treatment programme. To protect programme delivery and limit the impact of higher inflation, it has also procured key components in advance for over 70% of its AMP7 Water Framework Directive schemes.

Other achievements during the year include:

• Launched its Get River Positive pledges, setting the benchmark for the industry, targeting a reduction in the average number of storm overflow spills to 20 by 2025 and committing to zero by 2030
• Confident of achieving 4* Environmental Performance Assessment (EPA)2 status from the Environment Agency for a third year running
• Delivered over 90% of its 5,000 hectare biodiversity commitment, five years ahead of plan, contributing 1% of UK’s Nature Recovery Network target
• On track for Net Zero by 2030, with best-ever renewable generation of 507 GWh3, increasing total self-generation by 6% and recognised in the top 2% of global companies in the Carbon Disclosure Project’s climate change ‘A list’
• Improved service for customers and developers, with both measures of experience (C-MeX and D-MeX) in reward
• Good progress on capital schemes with £604 million invested this year; AMP7 to date core capital spend 10% ahead of AMP6 and 100% of AMP7 to date Water Industry National Environment Programme schemes delivered
• Remains on track to reduce leakage by 15% by 2025 and 50% by 2045, helped by the installation of over 110,000 meters this year.
• Fast start on Green Recovery: 27,000 smart meters installed, construction underway in UK’s first catchment-scale flood resilience programme in Mansfield and grant scheme launched for lead pipe replacement in Coventry
• CRI (a measure of water quality) has improved from an average in AMP6 of 7.7 to 2.0 in AMP7 to date, due to source-to-tap approach and early identification of risks through innovation such as online flow cytometry.
• Blockages down 33% in AMP7 following increased investment in repairs and cleansing, more sewer sensors and customer education.
• Reduced the number of pollutions by 30% this AMP, supported by increased condition-based monitoring of assets and its new Waste Network Response Team

Energy costs and Net Zero

Power costs were £14.1 million (14.1%) higher than the previous period, much less than the average market wholesale energy price increase of more than 250% year-on-year. The announcement says the Group benefited from self-generation in Bioresources and internal hedges between the regulated business (a net consumer of energy) and the non-regulated business (a net generator). The Group has a natural economic hedge against higher energy prices, with Bioresources and Severn Trent Green Power generating the equivalent of around half of Group consumption.

Commenting on Net Zero, Severn Trent said it was making good progress towards its Net Zero by 2030 target, helped by its highest ever self-generation with a further 6% increase this year. The company is improving the accuracy of its own emissions data through drone and fixed monitoring, and trialling a range of innovative solutions to identify the most effective ways of reducing process emissions, with a dedicated process scientist in each of its four regions focusing on asset optimisation trials. The utility is also on track with a scope three emissions target of 70% of suppliers having science based targets by 2026, with 38% already committing to set targets by 2023.

The Group has reported a strong financial performance, supporting growth in AMP7 and beyond - Group turnover of £1,943 million was up 6.4% as non-household consumption returned to pre-pandemic levels. Severn Trent said it remains on track to deliver both its AMP7 and Green Recovery capital programmes, which will result in real RCV growth of 10.8%, despite tough market conditions.

Severn Trent has a proposed final dividend of 61.3 pence, in line with its inflation-linked dividend policy and payable on 13 July 2022

Commenting in the announcement, Chief Financial Officer James Bowling said:

“Our financial performance in the year reflects our robust recovery from the impacts of COVID-19 in the previous year. Non-household revenue returned to pre-pandemic levels and while there was upward pressure particularly on power and chemical costs, our PBIT and adjusted earnings per share grew in line with expectations.”

“With rising inflation, partly driven by higher energy costs, impacting our business and our customers, we face new challenges as we move into the third year of the AMP. We are ready to face these, having already invested in the capacity to generate over 50% of our energy needs, and keeping in line with our totex allowance for the first two years of the AMP.”

Liv Garfield, Chief Executive, Severn Trent Plc, said:

“From the frontline to the boardroom, we are committed to making a positive impact on our regions, its people and the environment. I am proud of what we’ve achieved during the past year, creating new jobs to boost the local economy, providing financial support to community projects and planting 74 Tiny Forests to leave a carbon neutral legacy for the Birmingham 2022 Commonwealth Games.

“We’ve done this while delivering on our operational commitments; over 88% of our regulatory measures have met or exceeded target. We’re playing our part in helping the UK become a sustainable, low carbon economy, recording our best-ever year of renewable energy generation.

In March we launched ‘Get River Positive’, a series of pledges to improve our region’s rivers. This is not just an ambition, it is a firm commitment. We’re investing £100 million a year and an additional £566 million on Green Recovery projects to deliver these pledges.

“As cost of living pressures continue, we’re acting now to support people struggling to pay their bills. Our customers have the second lowest combined bill in the UK at around £1 per day but we know that for some, paying their bill is a challenge. I’m pleased to announce today that we will be helping a further 100,000 people to reduce their water bill by up to 90%, part of our plan to help end water poverty11 in our region.”