Severn Trent reports buoyant results and bumper capex

Severn Trent announced half year results on 20 November. Earnings before interest and tax rose to £297.8m by 16.7%, underpinning a dividend increase in line with its policy to 48.68p. Management said that one third of its dividend was supported by its non-regulated operations.

It has earned £420m of Outcome Delivery Incentive (ODI) performance over AMP7 and expects to deliver over £100m in net ODI rewards this year – in all equating to a 3.4% return over its allowed base returns, an 8% real return on regulated equity.

Severn Trent flagged that it was planning to deliver its largest ever capital investment in this year, forecasting that its capex would be at the upper end of its £1.3-£1.5bn guidance. Its intention was to accelerate £450m of investment, underpinned by its successful equity issuance last September.

Its net debt to regulatory capital value (RCV) ratio for the half year stood at 58.6%, taking into account end of period RCV adjustments, or 60% on a shadow basis. It has managed to maintain its 4* EPA rating for five successive years.

Management was confident that the evidence it had provided to Ofwat after the draft determination would allow more enhancement totex. Its base expenditure had been in line with Ofwat’s efficiency assumptions in the draft.

Severn Trent will present a first view of its final determination on 20th December.