Severn Trent Water PR24 Final Determination

Severn Trent Water PR24 Final Determination

We welcome today's publication of the PR24 Final Determination, outlining our regulatory settlement for the period 2025 to 2030. We are pleased to have seen movement on the five key topics we represented on in August, following constructive collaboration with Ofwat in recent months.

Overall, Ofwat has approved £14.9 billion of totex for Severn Trent in AMP8, an increase of £3.1 billion from the Draft Determination and around twice as much as was approved in PR19. This means that we expect to generate real RCV growth¹ of 45% across the AMP, which would take our AMP8 closing RCV to around £17.2 billion in 2022/23 prices. In nominal prices² this is equivalent to 64% growth to £21.6 billion closing RCV.

Building on our strong operational and environmental track record, this scale investment will allow us to deliver significant progress in areas our customers care about most, including:

-     Delivering the industry's fastest and most ambitious spills reduction programme, as we aim to halve spills by 2030 and strive towards global best practice;

-     Accelerating the improvement of river health, accounting for just 2% of RNAGS³ by 2030;

-     Delivering a further 16% reduction in leakage and replacing around 1,400km of water mains;

-     Protecting 3% of England's nature recovery network through our work on biodiversity;

-     Supporting growth in the region through investment in 70 waste treatment works; and

-     Achieving operational Net Zero by 2030.

The work we have done in AMP7 puts us in a strong position to deliver this step change in investment while maintaining the second lowest bill in England and supporting around 1 in 6 customers with their bills through a £575 million affordability package.

Following Ofwat's determination, and updated to reflect recent market data, the allowed cost of capital is up 31 basis points to 4.03%, including a cost of debt of 3.15% and cost of equity of 5.1%, before taking account of Severn Trent Water's additional 30bps reward for achieving Outstanding for our PR24 Business Plan.

Our teams are busy working through the detail, and we will host a short presentation at 8:00GMT on Friday, 20 December 2024, outlining our initial analysis followed by Q&A with members of our executive team. Investors and analysts can register for live attendance via our website (www.severntrent.com), and a recording of the session will be uploaded to our website shortly afterwards.

We will carefully consider the Final Determination in full over the coming weeks and provide a further market update early in 2025.

We look forward to sharing more at our Capital Markets Day in Coventry on 5 March 2025.

Footnotes

1.    RCV: Regulatory Capital Value (RCV) is used to measure the capital base of a company when setting price limits. The RCV increases each year by a proportion of totex that is set at each price review and by an adjustment for inflation. The RCV is reduced each year through the run-off mechanism (which is similar to depreciation of fixed assets). The run-off amount is recovered through revenue in the year. RCV Growth figures are stated inclusive of AMP8 transition spend, which has been accelerated into AMP7 and will be included in the AMP7 closing RCV. Excluding transition spend, real RCV growth is 40% in AMP8.

2.     Using Oxford Economics December inflation forecast.

3.     RNAGS: The Environment Agency's analysis of Reasons for Not Achieving Good Status (RNAGS) records the source, activity and sector involved in causing waters to be at less than 'good' status.

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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 determination may be subject to further clarification or verification by Severn Trent or 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 profit forecast.

Certain information contained herein is based on management estimates, interpretation 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, interpretation 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).