Severn Trent is planning to invest an extra £100 million to improve its water business performance in preparation for AMP7, according the preliminary announcement of its annual results published this morning.

The utility is reinvesting an additional £100 million from forecast AMP6 totex efficiencies which have increased from £770 million to £870 million. The investment is in addition to the £120 million previously announced. Taking account the water company’s £220 million total reinvestment plans, net totex outperformance versus the AMP6 Final Determination is expected to be £240 million, half of which will be shared with customers through lower bills in AMP7.

A strong set of group financial results saw group turnover rise to £1,694 million, an increase of £56 million (3.4%) and group underlying profit (before interest and tax) of £541 million, up £21 million (4.0%). A proposed final dividend of 51.92 pence will take the 2017/18 dividend to 86.55 pence in total. In its first full year in the group, Dee Valley Water contributed £27.9 million to turnover and £5.9 million to underlying PBIT in the year.

Water business is “less strong” than Waste business

Severn Trent said that while the efficiency and performance of its waste business is widely recognised, its water business is less strong.

Following a small number of major bursts in its region and the impact of the harsh conditions in March 2018, Severn Trent missed its challenging leakage performance target for the year.

Describing the year as “challenging”, Severn Trent said:

“Having beaten our targets for this performance measure for the last two years, this is hugely disappointing and we have rightly incurred a significant net underperformance penalty of £29 million on our Water ODIs.”

The investments will include increased monitoring and logging of the network to help identify current issues, the targeting of underperforming assets to improve non-infrastructure asset health and investment in advanced analytics, helping predict and prevent future failures. The company is using detector robots for use in its water network based on technology first developed in North America. The innovative solution uses small touch sensors to spot the nature and exact location of leaks, rather than current visual and acoustic techniques.

The company said that customer focus, significant investment and operational delivery were driving its strong performance - sewer flooding is down 34%, water quality complaints down 12% and serious pollution incidents down 71%. Severn Trent ‘s customers also pay the lowest combined bills in Britain: less than £1 per day at £348.

On track to self-generate 50% of energy needs by 2020

Severn Trent is pursuing further investment in its renewable energy programme - in-house renewables generation now meets 38% of its energy needs and is on-track to reach its 50% self-generation target by 2020,

The company has a second food waste anaerobic digestion site near Stourbridge in the West Midlands to generate gas which is directly injected into the national grid. Construction of a third food waste site in Derby is well advanced, as are two additional thermal hydrolysis plants in its burgeoning Bioresources business.

Severn Trent said it had made “excellent progress” in establishing the separate Bioresources business unit, which is ready to drive value in the new market. The utility has taken early action to streamline logistics and optimise its treatment strategy to focus on advanced treatment techniques. Severn Trent has created six regional treatment hubs, which are ready to trade with other companies. The process identified several less efficient sites for closure, which has resulted in £21 million of exceptional charges in 2017/18.

Liv Garfield: proud of overall service we deliver but know there are areas to improve

Commenting on the results, Liv Garfield, Chief Executive, Severn Trent Plc, said:

“I’m pleased that keeping customers at the heart of our business and investing for the long term has continued to drive positive results. We’ve had another very strong year on customer ODIs, which we know are the metrics our customers care about most. This, allied with a strong set of financial results, and a backdrop of the lowest average combined bill in the land demonstrates our ability to deliver for our stakeholders in a balanced and sustainable way.

“We anticipate receiving the top 4* rating from the Environment Agency for the second time in three years, which acknowledges the hard work and importance we place on protecting the environment. We are proud of the overall service we deliver for our customers but we know there are areas to improve. Our customers rightly expect excellence every day and that’s what we will continue striving to achieve.

As such I’m pleased to announce plans to invest a further £100 million of totex efficiencies across our core assets and network for the benefit of our customers. This, coupled with our extensive customer engagement programme and performance track record, gives us confidence in our PR19 plan and optimism for the challenges of AMP7.”