Severn Trent is forecasting totex savings across AMP6 of £670 million, equating to £260 million outperformance, around half of which it plans to reinvest in areas including improving water quality, enhancing security and assisting vulnerable customers, according to its preliminary annual results published today.

Severn Trent customers have the lowest combined average bills in the UK at £329 per annum, which are flat year-on-year. Commenting on its Service Incentive Mechanism (SIM) score which measures customer service, the company said it was continuing to improve but had more work to do to improve performance from its current mid-table position.

In terms of operational excellence, Severn Trent said it remained the sector leader in waste water efficiency and delivered good performance on key metrics e.g. internal sewer flooding down 31%. It also saw a 21% reduction in the number of category 3 pollution incidents and an 80% reduction in the number of serious pollution incidents. However, “on the downside there were some high profile events which left customers unable to access their water. We are learning from these to continually improve our processes and systems.”

On Outcome Delivery Incentives (ODIs), Severn Trent has reported a net real reward of £23.2 million (at 2012/13 prices) in the first year of the AMP. The utility said it has also incentivised its workforce and key contractors through an ODI-linked employee bonus scheme and performance-based incentive contracts. Looking ahead, ODI targets for the rest of the AMP continue to get tougher -  the company is targeting £15 million of net ODI rewards for 2016/17 (at 12/13 prices).

In terms of sector efficiency, the water company has set itself clear efficiency targets to maintain the number one position in waste water and ensure that it ends AMP6 towards the upper quartile of peer companies in water.

Severn Trent is forecasting totex savings across AMP6 of £670 million, equating to £260million outperformance. The utility has decided to reinvest around half (or £120 million) of the forecast £260m of totex outperformance into areas including  improving water quality, enhancing security and assisting vulnerable customers.

Severn Trent’s  largest capital programme, the Birmingham Resilience scheme, is progressing well and remains on track for on-time delivery to budget. The firm invited tenders for two elements of the scheme: the first, for the river inlet pumping station and new cross-country water main, has now been awarded, with the second, the new treatment processes at Frankley Water Treatment Works, expected to be awarded in July 2016.

Renewable energy generation increased by 17%

Severn Trent said its renewable energy programme remains core to its strategy - all programmes are targeted with delivering double-digit post-tax rates of return on investment. Energy is the company’s second largest direct cost – however, power costs decreased by £2.1 million mainly due to the benefit of a full year of biogas to grid generation.

The utility has previously announced that it plans to invest up to £190 million in renewables across AMP6. This year it has increased renewable energy generation by 17% (44GWh) meaning it now generates  energy equivalent to 33% of its own energy needs. Severn Trent said it remains on track for its 50% target by 2020.

Commenting on the arrival of non-household retail competition in 2017, Severn Trent said:

“Our new ‘Water Plus’ joint venture (JV) with United Utilities will combine the complementary skills of both companies, including sales, customer service, business strategy and credit management, to deliver an attractive proposition for large and small business customers across England and Scotland”.

On 3 May 2016 the Competition and Markets Authority announced clearance of the proposal to form the Water Plus joint venture with United Utilities PLC.

Liv Garfield, Chief Executive Severn Trent Plc, said:

“Putting our customers at the heart of our business has led to a promising start to the current regulatory period.

"We continue to drive down costs and have the lowest combined bills in Britain, with our customers paying on average less than a pound a day for their water and waste water services. Further efficiencies are also allowing us to invest even more for the long-term benefit of our customers and shareholders."

"Our performance continues to improve with customer complaints down 28% year-on-year. We still lead the sector on waste water and have made strong progress in areas such as internal sewer flooding that is down 31%. These achievements are a credit to the hard work of my colleagues, who are truly embracing our customer-focused culture."

"There remains more to do to ensure that we are consistently achieving a great customer service every day, and I am confident that we have the momentum and plans in place to achieve this.”