Severn Trent Plc is expecting operating costs to rise year on year, according to its latest Interim Management Statement for the period 1 April to 15 July 2014 published today.

 The Board of Severn Trent Plc has confirmed that trading across the group has been in line with its expectations and prior guidance.  

However, while operating expenditure 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, costs are now expected to rise year on year due to the impact of inflation and increases in quasi taxes and power costs, partially offset by efficiency improvements.

In the regulated business, customer bills increased by less than inflation, with prices at Severn Trent Water increasing by 1.5% from 1 April 2014.

The Board said Severrn Trent has  made good progress in delivering its capital investment programme. Expectations for net capital expenditure remain in the range £510 million to £530 million, including an estimated £15 million related to private drains and sewers. The level of net infrastructure renewals expenditure included in the range is anticipated to be £125 million to £135 million.

Following its best ever environmental performance last year, Severn Trent Water has now been ranked as the industry leading company in 2013 by the Environment Agency's National Environmental Performance Assessment Process, and is the only company to achieve their highest four star rating.

During the period Severn Trent Water submitted its revised business plan for 2015-2020 to Ofwat.

The revised plan reflects guidance given by Ofwat in January 2014 on risk and reward and dialogue Severn Trent Water has had with Ofwat to address evidence requests highlighted in the risk based review published in April 2014.

Elements of the plan that have been changed since first submission in December 2013 are:

• Adoption of Ofwat's risk and reward guidance (overall weighted average cost of capital for the appointed business of 3.85%, real);
• PAYG (pay as you go) rate for the wholesale business of c.57% (from c.55% in the December plan);
• Outcome delivery incentives (ODIs) range in line with Ofwat's guidance;
• Total expenditure (totex) of £6.2 billion (vs. £6.1 billion in December plan);
• Legacy adjustments - the revised plan includes an additional £10 million shortfall to RCV to reflect serviceability performance that fell short of our targets;
• Customer bills will decrease in real terms by an average equivalent of 1.5% over the five year period (1.2% real decrease in December plan); average household bills remain frozen in year one.

The Board said Severn Trent Water will continue to have the lowest combined average bill in England and Wales for the 2015-2020 period. Ofwat will now review and assess the plan and a draft determination is expected on 29 August.

 In the Group’s non-regulated business, in Severn Trent Services  the Board expects to see further growth in Operating Services. In Products it expects  to see the benefits of the restructuring programme, which is currently being implemented and on track to deliver the benefits as expected.

Severn Trent Plc will announce its interim results for the period ending 30 September 2014 on 25 November 2014.

Warren Ruhomon from www.finspreads.com, which offers a type of trading that allows investors to speculate on the future price movement of thousands of financial markets, commented:

 “Severn Trent announced figures broadly in line with the market consensus. Importantly, it also said it was on track to deliver a 5.6% rise in dividends for the financial year, which will give a level of comfort to shareholders. Share prices have seen steady growth over the past few years and today’s announcement is unlikely to muddy the waters of this utility company.”