Severn Trent agrees new business plan unlocking £3.3bn of investment

MIDLANDS utility Severn Trent has accepted the final proposals for its five-year business plan following deliberations from water industry watchdog Ofwat.

The Coventry-based group said the decision meant its customers would now have the lowest combined average bills in the UK until at least 2020.

It said Severn Trent Water bills would fall in real terms over the next five years, by which time they will be around £60 below the industry average. Next year average bills will fall to £329, from £333.

The company said it was also making provision to help four times as many customers who struggle to pay their bill over the next five years.

“We are committed to our largest five year investment programme ever, totalling £6.2bn in real terms, the majority of which will help to support the economy in the Midlands,” it said.

“This includes a capital investment programme of £3.3bn to improve service and quality for customers, which will help grow our RCV (Regulatory Capital Value) to c. £10bn by 2020. Although c. £30m of investment on improving water quality was not included in the Final Determination, we have nevertheless decided to keep it in our plan. We will fund this additional investment using savings achieved by operating our business more efficiently.”

The company said it was also committed to significantly improving customer service performance and this included fixing 100% of visible leaks within 24 hours and reducing interruptions to supply by more than 50%.

“The next five years will also see a greater focus on reducing flooding, employing innovative solutions to improve river quality such as catchment management and a wide ranging community educational programme to promote water conservation and reduce sewer blockages. We will also undertake one of our largest ever capital investment projects to improve the resilience of water supplies to our one million customers in Birmingham,” it said.

“The price review has been a challenging process and the Final Determination contains stretching objectives and requires significant improvements in operating efficiencies. However, the board believes it can meet the required operational and capital expenditure levels whilst delivering on its performance commitments. This belief is based on the process improvements made over the current regulatory period and plans already in place to deliver the efficiencies contained in the business plan for 2015-2020.”

In addition, the board has decided to move towards a net debt/RCV gearing ratio of around 62.5% which is in line with Ofwat’s notional assumption. As part of this move Severn Trent will commence a £100m share buy-back programme.

The firm has also announced its dividend policy for the period 2015-2020. The board has decided to set the 2015/16 dividend at 80.66p, a reduction of 5% compared to the current year total dividend of 84.90p.  

“Our policy will then be to grow the dividend annually at no less than RPI until March 2020. This replaces the current dividend policy of RPI+3% which runs until March 2015,” it said.
 
“The board believes that this financing plan and new dividend policy are commensurate with a sustainable investment grade credit rating.”  

The company has also confirmed the appointment of new CFO James Bowling. He will join the company on March 16 and following a handover period with Mike McKeon he will become an executive director of Severn Trent Plc and assume the role of Chief Financial Officer on April 1.

McKeon will step down from the board on the same date, but will remain with the business until May 2015 to assist Liv Garfield, Chief Executive, in the delivery of key strategic projects.

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