Severn Trent ups incentives guidance after 'great' first half

Severn Trent lifted its forecast for regulatory incentives after a strong first half of the year, where a solid increase in sales and good growth in underlying earnings prompted the water and waste supplier to hike the dividend 6.2%.

On the back of strong operational improvements during the six months to 30 September, chief executive Liv Garfield was confident enough to increase the full year guidance for customer 'outcome delivery incentives' to "at least £50m" from the £23m previously given.

The ODIs forecast was lifted due to improvements such as a 38% reduction in internal sewer floodings and a 50% reduction in external floodings, while in water there was a 12% improvement in water quality complaints.

Garfield also said the group expects to hit its expect to hit it 'waste cap' for the full AMP6 regulatory period, where customer ODI outperformance payments are capped at £190m.

In light of "expected higher inflation next year", the company has asked regulator Ofwat to allow it to defer £27m of the £38m customer ODIs we earned in 2016/17 into later years.

"That means we can limit the customer ODI component in next year's bills to less than a penny a day, helping keep our bills as low as possible."

Revenue increased 3.7% to £850.4m, with reported profit before interest and tax (PBIT) down 0.2% to £296.1m, or up 4.4% on an underlying basis to £287.8m.

Underlying earning per share grew 7.7% tp 65.9p, while reported basic EPS from continuing operations declined 20.2% to 62.6p.

As well as lifting the dividend 6.2% to 34.63p, as expected according to the upgraded dividend policy from earlier this year, Garfield announced further cash-boosting measures.

"In maximising value from our assets for the longer term, we today announce plans to sell land made available through operational efficiency. This strategy will create benefits for our customers, communities and investors," she said.

Sales of surplus land, which Garfield framed as "helping the housing shortage and benefitting customers", will reap PBIT of £5-15m a year and PBIT of around £100m over the next 10 years. This follows the June disposal of the US business, realising a gain of £16.1m and the sale and of the Italian business in the previous year.