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:
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A financial reward of £93
million;
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Protection from any decline in the
Weighted Average Cost of Capital ('WACC') between Draft
Determination and Final Determination while still benefitting from
any increases;
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Protection from any reductions in
base cost allowances between Draft Determination and Final
Determination; and
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Guaranteed 50-50 cost sharing on
base expenditure, meaning that Severn Trent bears 50% of any
overspends and benefits from 50% of any underspends.
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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
billion1, 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
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Rachel Martin
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Severn Trent Plc
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+44 (0) 782 462 4011
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Head of Investor Relations
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Andy Farrell
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Severn Trent Plc
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+44 (0) 798 939 0825
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Investor Relations Manager
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Media
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Jonathan Sibun
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Teneo
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+44 (0) 207 353 4200
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Press Office
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Severn Trent Plc
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+44 (0) 247 771 5640
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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).