Severn Trent Plc, owners of Severn Trent Water, is anticipating annual benefits of around £20 million p.a. from FY 2015/16 onward as a result of its AMP6 reorganisation.

The comments come in Severn Trent Plc’s latest Trading Update for the period 1 October 2014 to 12 February 2015 published this morning.

In November 2014 the group announced proposals to create a new organisational structure to respond to the challenges of AMP 6. The programme is now nearing completion, which will give rise to an expected exceptional charge of £25 million - £30 million in the second half of the year. The update says the anticipated annual benefits of this reorganisation are anticipated to be circa. £20 million from FY 2015/16.

Operating expenditure in the regulated business continues to be in line with the Board's expectations for the year and, on a like for like basis, in line with the level of the Final Determination for AMP5. Operating costs are expected to rise year on year due to the impact of inflation and quasi taxes, partially offset by efficiency improvements.

Expectations for net capital expenditure remain at £530 million to £545 million, while the level of expected net infrastructure renewals expenditure included in capital investment remains at £130 million to £140 million. The Board expects bad debt level to remain unchanged at around 2.2% of turnover for the full year.

During the period Severn Trent Water accepted Ofwat’s AMP6 Final Determination  for the period 2015-2020, published on 12 December 2014.

In the non-regulated business, top line growth is expected to moderate in the second half, although the full year PBIT is still anticipated to be in line with expectations, the Trading Update says.

Under its current dividend policy for AMP5 of RPI+3% growth the total dividend for 2014/15 is expected to be 84.90 pence, representing growth of 5.6% year on year.

The group also announced its new dividend policy for the period 2015-2020. The 2015/16 dividend will be set at 80.66 pence, a reduction of 5% compared to the current year total dividend of 84.90 pence. The policy will then be to grow the dividend annually at no less than RPI until March 2020.

The Board of Severn Trent Plc confirmed that the group is on track to deliver in line with its expectations for the full year.

Severn Trent Plc will hold a capital markets day on 17 March to provide more detail on its business plan for the period 2015-2020. The company will announce its Preliminary Results for the financial year ending 31 March 2015 on 22 May 2015.

Commenting on the update, Fiona Cincotta, a senior market analyst at www.finspreads.com said:

 “All in all today’s announcement was relatively uninspiring and the markets reacted accordingly by taking 1.1% off the share price during the morning trading session. That said, Severn Trent shares have had a strong year rising over 17% - despite last month reporting a cut in its annual dividend by 5% after agreeing a deal with a regulator to raise prices less than inflation.”