Severn Trent performing in line as it prepares for next regulatory period

Water and waste water company Severn Trent updated the market on its trading on Wednesday, saying it continued to expect that the group will deliver FY2018 trading performance in line with its expectations and guidance, which were previously disclosed at the half-year results in November.

The FTSE 100 firm also reaffirmed that at least £50m customer outcome delivery incentive (ODI) outperformance payments were expected to be earned during the year.

Looking at AMP6 - the regulatory period between 2015 and 2020 - Severn Trent said it was focussed on providing benefits to customers, communities, colleagues and investors, adding that it generated “sector-leading” outperformance payments on key customer ODIs, and was continuing to do well year-to-date.

“We have positive momentum on waste, particularly on internal and external sewer flooding, category 3 pollutions and serious pollution incidents,” the board said in its statement.

“We re-confirm that we will hit the AMP6 outperformance cap.”

On water, the company said it had more supply interruptions than normal in the last quarter, but was “encouraged” by the reduction in water quality complaints, which were down 12% year-on-year.

“We confirm that we expect to earn at least £50m customer ODI outperformance payments across waste and water this year.

“We continue to work hard on improving our service incentive mechanism (SIM) scores.

“We also note that we have one of the sector-leading scores in the Consumer Council for Water (CCW) independent annual survey on what our customers think.”

Severn Trent said it had also delivered material reductions in its cost of finance.

Since its HY17/18 results announcement, a £400m fixed-rate sterling bond with a coupon of 6% matured and was refinanced in part with a £250m five-year sterling bond with a coupon of 1.625%.

The company said it was continuing to explore varied sources of finance to help position it as an upper-quartile performer in the AMP7 regulatory period, which will run from 2020 to 2025..

Looking at AMP7, the regulator Ofwat announced its price review final methodology in December, providing what the company called “welcome clarity” on upcoming plans.

It said it expected a tough review, recently restructuring its wholesale business to improve operational effectiveness and its customers' experience.

Severn Trent added that it was “encouraged” by the enhanced incentive regime, creating strong outperformance opportunities.

“We are positioning ourselves for continued success in AMP7.”

To assist AMP7 planning, the company launched its largest ever customer engagement programme, including a community panel of 10,000 customers, a review of two million customer contacts and analysis of more than seven million social media conversations.

“This helps us understand the core service improvements and wider social and environmental initiatives our customers expect, thereby underpinning future growth in our regulatory capital value.

“We are conscious of Severn Trent's role in society through the impact on our community, the wider environment, and the importance of workplace diversity,” the board said of its social responsibility.

It said its work in the community delivered benefits through its “extensive” customer education and employee volunteering programmes.

It also claimed it was “keen” to play our part in supporting social mobility, adding that it operates a highly-rated apprentice programme.

“We have reported a gender pay gap of 2.4% and, while we have even further to go, we have made strong progress in supporting workplace diversity and gender pay equality.

“We have a strong record of environmental performance and through our renewable energy business we are on track to generate the equivalent of 50% of our energy needs by 2020.”