Severn Trent refutes Panorama claims as “inaccurate, misleading and misrepresentative”

Severn Trent has been the subject of a BBC Panorama programme accusing it of unauthorised combined sewer overflows and inflating its utility balance sheet in order to pay dividends.

A forensic accountant commented on some of its intra-group activities, in particular the relationship between two subsidiaries, Draycote and Trimpley. The Trimpley investment was valued at £1.68bn in the regulated water company's 2023/24 accounts.

Panorama journalist Joe Crowley pointed out that Severn Trent Water's 2023/24 accounts, which include this investment, have “very healthy retained earnings of £1.84bn, but the accounts for the wider Severn Trent Group show retained earnings of just £7.9m.” He asserted that this “helps to support its bumper payouts to shareholders”.

However, in the group annual report, management stated that: “A key metric in measuring financial sustainability and capital efficiency for companies in the water sector is Regulatory Capital Value (RCV) gearing. The Group’s dividend policy is a key tool in achieving its capital management objectives. This policy is reviewed and updated in line with Severn Trent Water’s five year price control cycle and takes into account, inter alia, the planned investment programme, the appropriate gearing level.”

The Panorama journalist has failed to recognise that the payment of dividends for regulated water companies is predicted on debt/RCV and cash flow-related credit metrics. Severn Trent Water generated operating cashflow of £782.4m and paid out cash dividends of £300m which was actually £128m lower than in 2022/2023. Moreover, its group reserves were increased by the £1bn capital increase last September, and it has non-regulated earnings that also support its dividend.

Severn Trent said: “The allegations made by Panorama are completely inaccurate, misleading and misrepresentative of how we operate as a UK listed and highly regulated business.” In terms of its response to sewer spills alleviation, it said: “We are progressing faster than any other water company to reduce the number of spills from storm overflows, well ahead of regulatory targets.”

• Comment: It has been a year since Crowley's Panorama episode on Lake Windermere, which made a number of assertions that were refuted by United Utilities’ (UU) management. However the publicity cannot but have helped UU to secure a bespoke Outcome Delivery Incentive to improve 'Wonderful Windermere'. As UU said in its draft determination representation: “This performance commitment will incentivise [UU] to support the water quality, long-term resilience and heritage of Windermere, one of England’s most significant and iconic waterbodies, through the stewardship of catchment-wide solutions.”