Rachel Martin, Head of Investor Relations
Thank you for taking an interest in the Severn Trent investor proposition.
As one of only three listed water stocks in the UK, we offer a valuable combination of reliable earnings, long term asset growth and an inflation-linked dividend. We have a high degree of certainty over a five year period, with revenue now set for 2020 to 2025, though with increasing levels of incentivisation, which we have historically benefited from.
We also have a small but growing non-regulated business, primarily focused on renewable energy, long term operating contracts, and property development.
But above all else, we are a company with social purpose at its heart, committed to delivering better outcomes, not just for investors, but for our customers, colleagues, communities and the environment.
We believe the combination of all of these elements together with a well-respected management team provides a compelling investment proposition.
You’ll find more information on our investor proposition below, but if you want to know more, please don’t hesitate to get in touch.
Stable earnings with strong cost control
Because of the unique way the water industry is regulated, we have a high degree of certainty over our income.
Continued ability to generate revenue
We have greater certainty than most businesses in our foresight of future income streams because our revenue is defined by a well-established regulatory model.
This stable revenue stream combined with our excellent track record of keeping costs down makes us a trustworthy investment.
Good regulatory foresight and reliable forecasting
We have good regulatory foresight, with a five year view driven by a trusted regulatory model, alongside a track record of delivering to expectation.
An attractive, inflation-linked dividend providing long term clarity
Our dividends are predictable, with a policy set out in advance. This makes us ideal for long-term investment that can provide a reliable income for the future.
We’re a stable, long-standing, well-established organisation, delivering steady, inflation-linked dividends that enable our investors to plan reliably.
We have announced an AMP7 dividend policy of growth of at least CPIH
CPIH is an additional measure of the Consumer Price index which includes owner occupiers' housing costs.
- Based on £111m share buyback dividend by 237m shares (average number over buyback period)
A growing non-regulated business
The Severn Trent Group has a growing non-regulated business, primarily focused on three key areas.
Severn Trent Green Power produces over 150 GWh of renewable energy a year, focusing primarily on food waste using the same anaerobic digestion processes as our industry-leading regulated Bioresources business.
Our food waste business expanded substantially with the acquisition of five food waste plants from Agrivert, and we expect it to keep growing as our society becomes increasingly conscious of waste and the government seeks to make kerbside collection of food waste mandatory.
Other sources of energy include solar and wind farms, which utilise excess land within our region.
Severn Trent Services consists of several long term contracts to operate and maintain water and waste water services for operations which fall outside of the regulatory regime.
The largest of these is a 25 year contract with the Ministry of Defence to operate and maintain a third of their sites across the UK.
Technological advancement means that our core Severn Trent Water business now requires a much smaller footprint to operate, freeing up excess land.
Our property development team purchase this land from Severn Trent Water, carry out any remediation work in order to achieve planning permission, and sell the land to developers.
Our ambition is to generate £100 million of profit before interest and taxes from property sales in the ten years to 2027. We are now almost half way towards achieving this goal.
Long-term sustainable growth
We originally expected 3.8% Regulatory Capital Value (RCV) growth across our next five-year Asset Management Plan 7 (AMP7) as per our Final Determination. However, following our £565m Green Recovery Investment award, we see an additional 6.6% RCV growth and therefore 10.4% RCV growth across the AMP. Beyond AMP7, we expect further growth to RCV driven by population increases, asset replacement and environmental improvement.
The Green Recovery scheme was introduced by the government to support economic recovery and environmental sustainability following the pandemic. This will allow us to innovate within new solutions for our sector and help us build resilience for the future. The scheme will support our ambitions to Net Zero and create over 2,500 jobs whilst creating long term additional RCV growth.
Our Green Recovery projects:
- Creating the first catchment-scale flood-resilient community by rolling out a range of nature-based solutions to reduce the risk of flooding in the Mansfield area
- Delivering 35 additional phosphate removal projects and introducing additional monitoring and investigative measures at 150 sewer overflows
- Transforming 49km of rivers and sharing lessons throughout the UK to trial the creation of the UK’s first two bathing quality rivers in Rivers Leam and Teme
- Decarbonising our water resource supplies and providing an extra 95 Ml/d peak of new water with a net-zero carbon impact
- Replacing old, leaking lead customer-owned water supply pipes in our region, enabling withdrawal of chemical treatment to set the path for the long-term solution to reducing chemical dosing
- Installing 157,000 household smart water meters across Coventry and surrounding areas in Warwickshire. Trialling smart meter usage that will help us reduce peak demand usage
Population and household growth
Our region features the largest population and household growth forecast outside of London, with over 750,000 more people and 430,000 more households by 2040.
We expect to see significant additional funding in future AMPs for mains renewal and sewer refurbishment.
From AMP8 onwards, we expect to invest even further in resilience to meet the climate change challenge.
Environmental expenditure could increase, with funding for Water Framework Directive schemes in AMP 8 potentially enhanced by funding during AMP 8 to AMP 10 if the UK Government strengthens the Urban Waste Water Treatment Directive.
There's also potential for further investment should the UK Government raise standards on hazardous substances, micro-plastics and anti-microbial resistance.
A high quality stock with strong sustainability credentials
We’re a high-performing company with a market-leading track record on our Outcome Delivery Incentives, and upper quartile Return on Regulated Equity.
We outperformed the sector in AMP6 with a total ODI reward of £174 million for the 5-year period. In the first year of AMP7 we continued to outperform with £77 million in ODI rewards, the highest the sector has seen before.
We take great pride in the fact that Ofwat, our industry regulator, gave us fast-track status at our latest price review - showing their confidence that our business plan will deliver for customers.
Our customer challenge group praised our understanding of customer needs, saying, “We are confident that the company has a deep understanding of customer priorities. Most critically, we can see a clear connection between those priorities and the company’s business plan”.
Meanwhile Ofwat said of our Price Review that we “demonstrate real ambition in creating the culture and capability for innovation”.
Our long-term business model requires sustainable thinking to ensure we can continue to deliver for all our stakeholders, now and in the future. We’re convinced that businesses that serve society today will be best placed to thrive in the future.
We are determined to seize the opportunity to have a positive impact on the customers we serve, the region we operate in and our colleagues around us.
We care for our environment
Our local environment
As part of our ongoing commitment to sustain and develop our local ecosystems for future generations, we will:
We are building resilience into our ecosystems to reduce future flooding, improve water quality, and help build a legacy that secures a sustainable future for our businesses and communities.
We even have Outcome Delivery Incentives attached to our biodiversity pledges, tying financial rewards and penalties to our delivery of these commitments.
Our global environment
We shape, and are shaped by, our environment. Take a closer look at the role we play in caring for our planet and the rich biodiversity on it.
We’re passionate about protecting the environment and have launched a triple carbon pledge to ensure we look after the environment we operate in.
By 2030 we will achieve net zero carbon emissions across the business, generate 100% of our power from renewable resources and switch our fleet to electric vehicles wherever possible.
We’ve already made great progress towards these goals.
We care for our people
Looking after one of life’s essentials means we need to ensure that we care for the drinking water we provide, the waste water we treat and the people and places we serve.
We act responsibly
Investing from the United States of America
If you're based in the USA you can invest in Severn Trent through our American Depositary Receipt programme, which is operated by Bank of New York Mellon.
We want to keep our investors updated with what’s happening in the Severn Trent world, from the big headlines to the smaller stories that give you a broader insight into our business.
View and download PDF versions of our investor summaries of our PR19 Business Plan, and Ofwat's decision to Fast Track our plan for Severn Trent.