Severn Trent Plc Interim Management Statement for the period 1 October 2012 to 14 February 2013
Regulated business
Performance in our regulated business for the period since November 2012 has been largely as expected and outlook for the full year remains as previously indicated. Total revenue for the full year should be in line with current market expectations although consumption across our measured income base has continued to decline period on period, driven by lower commercial consumption.
Operating expenditure continues to be in line with management’s expectations for the year and on a like for like basis in line with the level of the Final Determination. Operating costs are expected to rise year on year, due to the impact of inflation, a full year of operating private drains and sewer assets, and increases in quasi taxes, offset by efficiency improvements.
We continue to forecast a bad debt level around 2.2% of turnover for the full year, although we continue to monitor future developments closely, especially unemployment levels and changes to the UK benefits system Expectations for net capital expenditure (UK GAAP after deducting grants and contributions)
will be towards the low end of the £555 million to £565 million range previously guided, including an estimated £10m related to private drains and sewers. The level of net infrastructure renewals expenditure included in this range is anticipated to be £140 million to £150 million.
Non-regulated business
As previously guided, on a like for like basis Severn Trent Services ongoing business (Water Purification and Operating Services) is expected to deliver mid single digit revenue growth for the full year, with PBIT impacted by investment in Operating Services and BALPURE®, which will offset the underlying growth in the business.
Group The group interest charge is now expected to be broadly flat year on year (vs. previous guidance of slightly lower), before adjustments related to pension accounting. The non-cash interest charge will be higher than previously forecast as RPI outturned higher than expected in December 2012, but remains lower year on year. This reduction in the non-cash charge will now be fully offset by a higher cash interest cost due to a higher level of net debt over the year and the cost of carry from the recent successful bond issue. In January the group raised £500m from a 13 year bond issue, at a coupon of 3.625%, which was five and a half times subscribed and is the largest sterling bond that Severn Trent has issued.
The expected effective current tax rate for the group for 2012/13 remains at 24% to 26%.
On 17 January 2013 Ofwat announced it had accepted binding commitments from Severn Trent Plc, offered to address concerns raised by Ofwat following a complaint under the Competition Act. As a result, the investigation has been closed without any findings being established in respect of the allegations made in the complaint.
On 8 February Severn Trent Plc announced the sale of Severn Trent Analytical Services (also known as Severn Trent Laboratories) to ALS Limited.
Severn Trent Plc will announce its Preliminary results for the period ending 31 March 2013 on 30 May 2013.
