Severn Trent financial results on track despite rising costs

Severn Trent expects its costs to rise year on year but will still deliver full year results in line with shareholder expectations, the company said on Friday.

In its latest trading update the water company said its operating costs are expected to rise year on year “due to the impact of inflation and quasi taxes”.

But Severn Trent said these costs will be partially offset by efficiency improvements, and the company will remain on track to deliver on its 2014 full results.

For the latest financial year the dividend policy for the company is set at 84.90 pence, representing growth of 5.6 per cent year on year.

But from the period 2015-2020 the company will implement its new dividend policy following its acceptance of Ofwat’s final price control determinations for the period.

The company is set to slash its dividend following Ofwat’s AMP6 determination which will see customer bills fall in real terms over the next five years, with bills next year dropping to an average £329, from £333.

The company confirmed on Friday that the 2015/16 dividend will be set at 80.66 pence, a reduction of 5 per cent 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 company anticipates its operating expenditure will be in line with expectations and the level set in Ofwat’s AMP5 determinations.

In addition net capital expenditure will remain steady at £530 million to £545 million and the level of expected net infrastructure renewals expenditure included in capital investment is set to remain at between £130 million to £140 million, the company said.

An ongoing restructure, announced in November 2014, is nearing completion and will give rise to an expected exceptional charge of £25 million – £30 million in the second half of the year. The anticipated annual benefits of this reorganisation are anticipated to be in the region of £20 million from 2015/16.