Earnings and profit swell as Severn Trent continues to outperform

At its full-year results presentation, Severn Trent announced new earnings guidance of adjusted earnings per share (EPS) doubling between 2025 and 2028. This adds to its existing guidance of £300m of regulatory outperformance for AMP8, including £25m of Outcome Delivery Incentive (ODI) rewards for the current year. The company confirmed that its earnings will benefit from regulated revenue growth, ODI outperformance, continued cost management, and financing efficiencies. Growth will be weighted towards 2025/26, reflecting bill profile.

The company reported profit before interest and tax of £590.2m for 2024/25 — up 15.3%, driven by allowed price increases and a positive energy price effect of £91m, compared with a group revenue increase of only 3.8%.

Adjusted basic EPS was up 32.7p to 112.1p — an increase of 41.2%. The board declared a full-year dividend per ordinary share of 121.71p (+4.2%) in line with its inflation-indexed policy.

Severn Trent delivered £1.7bn of capital investment, up 40% year-on-year. This included acceleration of more than £450m of AMP8 investment, including improvements to storm overflows. Its regulatory asset base grew to £13.7bn — a 46% increase over the past five years. Regulated gearing stood at 62.7% on 31 March. £150m of new debt was issued during the year.

Over AMP7, Severn Trent has delivered 3% of return on regulatory equity (RORE) financing outperformance, compared with 0.3% over years one to four for its peers. It achieved, in total, a 9.1% RORE over the AMP compared to a negative return of -1.6% relative to the base return for the sector average.

Severn Trent generated £434m of operational performance rewards across the five-year regulatory period (£150m in 2024/2025), ahead of its guidance and significantly more than any other water company. Operationally it met or exceeded its targets on 83% of performance commitments and achieved 'industry-leading' four-star environmental performance from the Environment Agency for a record five consecutive years. It is confident of achieving a sixth year for 2024.

The company was asked about its approach to senior executive remuneration given the Water (Special Measures) Act 2025 is now law. Management confirmed that the timing of regulatory guidance will allow the board to take the legislation into consideration.

There were several questions about the key issues likely to arise from the Cunliffe report, in particular regional oversight and Ofwat’s use of the notional capital structure. Severn Trent also confirmed that it had no concerns about its water availability after the period of dry weather.