Positive results cushion new Severn Trent boss

THE new chief executive of Midland utility Severn Trent has eased into her new job by inheriting a positive set of full year results.

Liv Garfield was recruited from BT Openreach earlier this year and at 38 is the youngest person ever to head a FTSE 100 company.

In her new company’s annual results statement she said that in her first eight weeks in post she had begun to explore the company from top to bottom.

“I have relished spending time out and about listening to the views of thousands of my colleagues. I have seen a great deal of teamwork, enthusiasm and commitment to serving our customers and to continually improving our performance. We know there is much more we need to do to improve our processes, speed up decision making and raise our standards,” she said.

“I look forward to continuing our discussions with Ofwat in the next few weeks and submitting a revised plan for 2015-2020 on June 27. I would like to thank all my colleagues for their hard work over the last 12 months. I am really looking forward to working with the great people in Severn Trent, as we continue to deliver for our customers and communities, shareholders, and the environment.”

The results show group turnover in the full year to March 31, 2014 was £1,856.7m (2013: £1,831.6m), an increase of 1.4% over last year.

Underlying group PBIT increased by 4.3% to £516.8m (2013: £495.4m), while underlying group profit before tax increased by 7.1% to £269.1m (2013: £251.3m). Group profit before tax was £282.7m (2013: £200.2m).

In December, Severn Trent Water submitted its business plan for 2015-2020 to industry watchdog Ofwat. Ofwat announced in March that the utility’s business plan had not been rated as pre-qualified for Enhanced status and on April 4 published further details on its assessment of the plans.

Severn Trent said in its results statement: “We have a number of challenges to address in our plan for 2015-2020. These include, legacy adjustments for AMP5 (Asset Management Plan), outcome delivery incentives (ODIs) and in particular one element of wholesale water costs, namely the Birmingham strategic resilience project, which accounts for £255m of total expenditure over the five years.”

It said that in order to ensure there was sufficient time and opportunity to fully engage with Ofwat, the company would submit its revised business plan to the regulator June 27.

“Once we have submitted our plan we will publish an announcement detailing the key components,” it said.

A draft determination from Ofwat is expected on August 29, followed by a final determination on December 12, 2014.

“Only after that date will we be able to decide and communicate our new dividend policy,” it added.

“We look forward to continuing our constructive and positive dialogue with Ofwat, our customer challenge group, the Severn Trent Water Forum, and other stakeholders over the coming weeks.”

In outlook, the company said prices at Severn Trent Water had risen by 1.5% in April 2014 and predicted consumption levels across its measured income base would be expected to be lower year on year.

It is maintaining bad debt level at around 2.2% of turnover and it said it would continue to monitor developments such as unemployment levels and changes to the UK benefits system closely.

“Operating costs are expected to rise year on year due to the impact of inflation, increases in quasi taxes and power costs, partially offset by efficiency improvements. Operating expenditure is expected to be in line, on a like for like basis, with the level of the AMP5 Final Determination,” it said.

“We estimate net capital expenditure to complete our AMP5 programme of £2.5bn will be in the range £510m to £530m, including an estimated £15m related to private drains and sewers The level of net infrastructure renewals expenditure included in this range is expected to be £125m to £135m.”