Severn Trent Regulatory News (SVT)

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

For immediate release

29 September 2023

Severn Trent proposes record levels of investment with transformational Business Plan

· Severn Trent plans £12.9 billion total expenditure across the next five-year regulatory period, driving 31% real RCV growth; record investment programme expected to create 7,000 jobs across the Midlands

· Sustainability-led plan includes significant progress on customer priorities, including 30% reduction in storm overflow spills, 30% reduction in pollutions and 16% reduction in leakage

· Affordability a key focus, with £550 million package to support 693,000 customers who might otherwise struggle to pay their bill

· Severn Trent today launches non-pre-emptive equity placing to raise £1 billion, supporting this investment, while maintaining strong financial resilience

Severn Trent Plc has today published a summary of the Business Plan for Severn Trent Water for the regulatory period beginning 1 April 2025 and ending 31 March 2030 ("AMP8"). The full Business Plan will be submitted to Ofwat on 2 October 2023 but a summary is published today alongside the announcement of a non-pre-emptive equity placing to raise approximately £1 billion.

The plan builds on Severn Trent's strong delivery track record and proposes the largest investment programme in the Company's history. It has been developed to deliver for customers, the environment, the region and shareholders and has been judged as acceptable by 76% of customers surveyed.

Record programme of investment in the environment and areas our customers care about

The plan includes £12.9 billion of total expenditure across our network, including £5.0 billion of investment focused on enhancing capacity and service beyond current levels, almost all of which is focused on the environment.

The scale of the plan means that for every household Severn Trent serves, we will invest £2,400 back into the region, delivering a further step-change in service for more than four million customers across the Midlands.

This will push the sector forward on the measures that our customers care about most, including a 16% reduction in leakage and a 30% reduction in spills from storm overflows, putting us firmly on track to deliver the Government's 2050 targets at least five years early. We will also build on our industry-leading environmental performance, as demonstrated by our 4* EPA status, by driving a further 30% reduction in pollutions.

We will invest £5 billion in a range of exciting projects, including:

· £3 billion in transforming the natural environment through our WINEP ('Water Industry National Environmental Programme'), delivering a range of sustainable outcomes, including addressing 99% of the reasons attributed to our operations for rivers not being in good ecological status;

· £0.7 billion in securing new water resources, adding over 200 million litres of water per day, helping to protect customers supplies now and provide resilience for the long term; and

· £0.4 billion in playing our part in the decarbonisation journey, eliminating 240,000 tonnes of CO2e and delivering operational Net Zero by 2030.

The plan is expected to create up to 7,000 jobs directly in the business and our supply chain and will also enable thousands of new work experience placements, apprenticeships and internships. 

We are consistently named in the top category for financial resilience by Ofwat and this remains a clear priority for us. So today we are launching a non-pre-emptive equity placing to raise approximately £1 billion to ensure we can deliver this scale investment programme responsibly, with average gearing of 65% over the regulatory period, as we target maintaining current credit ratings of BBB+/Baa1 for Severn Trent Water.

Supporting our customers and delivering an affordable plan

The plan has been developed to balance the need for scale investment and sector-leading ambition whilst committing to keep bills affordable. Extensive customer research has shown that 76% of customers support our business plan, including the proposed investment in secure water supplies, the improvements to rivers and the cost of the bill over the five-year period.

Under the plan and calculated at 2022/23 prices, the average annual household bill will be £518 by 2029/30 (2024/25: £379), an average monthly increase of £2.32 over the five-year period. At the 2030 levels, the bill is forecast to account for 1.3% of the disposal income of a median household in the Severn Trent region, against a figure of 1.2% today.

Severn Trent recognises that while this increase is spread over a long period, today's announcement comes at a difficult time for some customers. That is why we have included a £550 million financial support package as a core part of the plan. This will help 693,000 customers pay their bill each year by 2030, the equivalent of one in seven customers across the region who will not have to pay a full water and wastewater bill. The number of our customers expected to benefit from financial support exceeds those forecast to be in water poverty by 2030.

Liv Garfield, CEO at Severn Trent, said of the investment plan: "By 2030 we will have transformed our network to provide our customers with the very best service. At the heart of this ambition is a commitment to a sustainable future - from healthier rivers, to providing thousands of jobs, fewer leaks and a water supply ready for the impacts of climate change and population growth. At the same time, our £550 million affordability scheme aims to ensure no customer in our region needs to worry about affording their water bill. 

We've listened hard to our customers - not only will we make sure we keep building on our sector-leading track record, but we will also work to make our region proud of their water company. This investment will contribute to our positive economic, environmental and social impact in the communities we serve for decades to come.''

Performance on track, setting us up for a successful AMP8

Overall, we have made a good start to the financial year and operationally we continue to deliver a strong service for our customers, remaining on track to deliver at least £50 million in Customer ODIs this year. We are also progressing well against our end-of-AMP ODIs which are expected to deliver £40-£50 million on top of in-year net rewards for the last year of AMP7.

Inflation forecasts have increased since our full year results presentation on 24 May 2023 which will benefit both RCV and returns, though the expected reduction in finance costs will be less than previously guided as a result.

As we continue to step up our capital programme ahead of our substantial investment plan for AMP8, we now expect capital investment to outturn towards the top end of our guidance range, at around £1 billion, keeping us on track to exit AMP7 on the right run rate.

Further information

An investor summary of the Business Plan, together with key data tables and a pre-recorded presentation by Liv Garfield, CEO, and Helen Miles, CFO, can be found on the Severn Trent website: www.severntrent.com/investors

On 12 October 2023 we will bring our plan to life at our Capital Markets Day in Coventry City Centre. If you would like to attend please email investorrelations@severntrent.co.uk

The person responsible for making this announcement on behalf of the Company is Hannah Woodall-Pagan, Group Company Secretary

This announcement should be read in its entirety. In particular, you should read and understand the information provided in the "Important Notices" section of this announcement.

Enquiries

Media enquiries:

Jonathan Sibun, Teneo +44 (0)20 7353 4200

Press Office, Severn Trent Plc +44 (0)24 7771 5640

Important notices

This announcement does not constitute or form part of, and should not be construed as, any offer, invitation or recommendation to purchase, sell or subscribe for any securities in any jurisdiction. Securities may not be offered, sold or transferred in the United States absent registration or an applicable exemption from the registration requirements of the US Securities Act of 1933 (as amended) (the "Securities Act"). The securities of the Company have not been and will not be registered under the Securities Act. This announcement does not purport to contain all of the information that may be required to evaluate any investment in Severn Trent Plc or any of its securities and should not be relied upon to form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever.

The information and opinions contained in this announcement are provided as at the date of this announcement, have not been independently verified and are subject to change without notice.

This announcement contains statements that are, or may be deemed to be, 'forward-looking statements' with respect to Severn Trent's financial condition, results of operations and business and certain of Severn Trent's plans and objectives with respect to these items.

Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as 'anticipates', 'aims', 'due', 'could', 'may', 'will', 'would', 'should', 'expects', 'believes', 'intends', 'plans', 'projects', 'potential', 'reasonably possible', 'targets', 'goal', 'estimates' or words with a similar meaning, and, in each case, their negative or other variations or comparable terminology. Any forward-looking statements in this announcement are based on Severn Trent's current expectations and, by their very nature, forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future.

Forward-looking statements are not guarantees of future performance and no assurances can be given that the forward-looking statements in this announcement will be realised. There are a number of factors, many of which are beyond Severn Trent's control that could cause actual results, performance and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to: the Principal Risks disclosed in our latest Annual Report and Accounts (which have not been updated since the date of its publication); changes in the economies and markets in which the group operates; changes in the regulatory and competition frameworks in which the group operates; the impact of legal or other proceedings against or which affect the group; and changes in interest and exchange rates.

All forward-looking statements made in this announcement which are attributable to Severn Trent or any other member of the group or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. The final PR24 Business Plan is subject to approval by Ofwat and there can be no assurance that the PR24 Business Plan will be approved, in whole or in part, and, as a result, no assurances can be given that the forward-looking statements in this announcement will be realised. This announcement speaks as at the date of publication. Save as required by applicable laws and regulations, Severn Trent does not intend to update any forward-looking statements and does not undertake any obligation to do so. Past performance of securities of Severn Trent Plc cannot be relied upon as a guide to the future performance of securities of Severn Trent Plc. Nothing in this announcement should be regarded as a profit forecast.

Certain information contained herein is based on management estimates and Severn Trent's own internal research. Management estimates have been made in good faith and represent the current beliefs of applicable members of Severn Trent's management. While those management members believe that such estimates and research are reasonable and reliable, they, and their underlying methodology and assumptions, have not been verified by any independent source for accuracy or completeness and are subject to change without notice, and, by their nature, estimates may not be correct or complete. Accordingly, no representation or warranty (express or implied) is given to any recipient of this announcement that such estimates are correct or complete.