REG - Severn Trent PLC - PR24 Business Plan rated ‘Outstanding’

Severn TrentAnnouncement

11/07/2024 11:15

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RNS Number : 0612W  Severn Trent PLC  11 July 2024

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

PR24 Business Plan rated 'Outstanding'

We are delighted that our PR24 Business Plan, for the period 2025 to 2030, has
been recognised by Ofwat as 'Outstanding'.

This rating provides a number of important benefits:

 ·             A financial reward of £93 million;
 ·             Protection from any decline in the Weighted Average Cost of Capital ('WACC')
               between Draft Determination and Final Determination while still benefitting
               from any increases;
 ·             Protection from any reductions in base cost allowances between Draft
               Determination and Final Determination; and
 ·             Guaranteed 50-50 cost sharing on base expenditure, meaning that Severn Trent
               bears 50% of any overspends and benefits from 50% of any underspends.

 

It is pleasing that, in its assessment, Ofwat agreed that Severn Trent has set
an ambitious level of performance for the period ahead, as we work towards
delivering the best possible service for our customers. Our customers will
also benefit from an enhanced affordability package, which will enable us to
provide support to anyone who is struggling to pay their bill.

The level of investment set to be delivered in AMP8 is unprecedented, with a
£4.3 billion increase compared to AMP7. This is reflected in strong real RCV
growth of 24%, which compares to 27% in our submitted Plan. Including
investment accelerated into AMP7, real RCV growth is 28%, compared to 31% in
our Plan. Based on costs approved in our Draft Determination, this would take
our AMP8 closing RCV to £15.1 billion (2022/23 prices), compared to £15.7
billion in our submitted Plan.

We have a strong track record on delivering efficiently, and this is reflected
in our base cost allowance. With the exception of energy, for which Ofwat have
said they will introduce a true-up mechanism, and business rates, which will
be subject to enhanced 90:10 customer-sharing rate, Ofwat have estimated that
the base costs in our Draft Determination are roughly equal to those submitted
in our PR24 Business Plan.

All 13 of our enhancement business cases have been approved, with further
evidence requested on the costs associated with some of these projects,
totalling around £1.2 billion(1), the majority of which relates to WINEP
schemes and net zero. We are confident we have robust evidence to provide to
Ofwat on these schemes in the coming weeks. Further protection is also offered
through real price effect true ups on some cost elements.

We note the WACC has been set at 3.72% in the Draft Determination, reflecting
a Cost of Equity of 4.8% (up from 4.19% in PR19).

We are currently reviewing the documents in more detail and will be sharing
more information through a presentation which will be made available on
Tuesday, 23 July 2024. Later that same day we will be hosting live Q&A
sessions at 2.00pm and 10.00pm BST with members of our Executive Team, which
you will be able to register for through our website nearer to the time.

We will respond to Ofwat by 28 August 2024 and look forward to continued
constructive dialogue until the Final Determination on 19 December 2024.

 

Footnotes

1.     Enhancement cases

Amount stated is before frontier shift efficiency and real price effects, per
Ofwat's 'our approach' document, p16.

 

Enquiries

 Investors & Analysts
 Rachel Martin               Severn Trent Plc  +44 (0) 782 462 4011
 Head of Investor Relations

 Andy Farrell                Severn Trent Plc  +44 (0) 798 939 0825
 Investor Relations Manager

 Media
 Jonathan Sibun              Teneo             +44 (0) 207 353 4200
 Press Office                Severn Trent Plc  +44 (0) 247 771 5640

 

Cautionary statement regarding forward-looking statements

This document 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 document 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 document
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 written or verbal forward-looking statements, made in this document or
made subsequently, 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 document
will be realised. This statement extends to and includes the draft
determination for the PR24 Business Plan which remains subject to final
approval and publication of the final determination by Ofwat. This document
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 document should be regarded as a profits 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 document that such estimates are correct or complete.

 

This document is not an offer to sell, exchange or transfer any securities of
Severn Trent Plc or any of its subsidiaries and is not soliciting an offer to
purchase, exchange or transfer such 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).

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