Liv Garfield, chief executive of Severn Trent (SVT), describes its latest price settlement with regulator Ofwat as "one of the toughest in our history". Under the five-year regulatory cycle that started this year - Asset Management Programme 6 (AMP6) - the Midlands water company faces a lower return on capital. In response, the company announced in January that it would cut its annual dividend by 5 per cent to 80.66p for the current year.
The price settlement also laid out £372m in cost savings. The company began preparing for this last year and has already locked in £300m of its targeted efficiencies. Measures to take out middle management last year will cut £100m from the cost base, and 'supply-chain efficiencies' - such as a new single-supplier contract for waste water - should deliver a further £200m.
Management also streamlined the company's non-regulated activities last year. This involved selling the water purification business and bringing the remaining businesses under a new 'business services' umbrella.
Reported profits last year suffered as a result of unrealised losses on the company's swap portfolio. Strip these out and underlying pre-tax profit rose 9 per cent to £300m, giving EPS of 107p - better than analysts were expecting. Bloomberg consensus is currently for EPS of 83p this year, but this could rise.
SEVERN TRENT (SVT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 2,154p | MARKET VALUE: | £5.1bn | |
| TOUCH: | 2,153-2,156p | 12-MONTH HIGH: | 2,205p | LOW: 1,814p |
| DIVIDEND YIELD: | 3.9% | PE RATIO: | 43 | |
| NET ASSET VALUE: | 341p | NET DEBT: | £4.75bn | |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 1.71 | 253 | 115 | 65.09 |
| 2012 | 1.77 | 157 | 73 | 70.10 |
| 2013 | 1.83 | 200 | 91 | 75.85 |
| 2014 | 1.76 | 319 | 199 | 80.40 |
| 2015 | 1.80 | 148 | 48 | 84.90 |
| % change | +3 | -54 | -76 | +6 |
Ex-div: 18 Jun Payment: 24 Jul | ||||
