Severn Trent Annual Report 2015

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Severn Trent Plc
Annual Report and Accounts 2015

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Severn Trent Plc Annual Report and Accounts 2015

What we do
Severn Trent provides clean water and waste water
services in the UK and internationally through our
regulated and non-regulated businesses –
Severn Trent Water and Severn Trent Services.

Regulated – Severn Trent Water

Further details are
provided on page 18

Wholesale water
and waste operations

Retail services

About us
One of the largest of the 10 regulated
water and sewerage companies in
England and Wales. We provide high
quality services to more than 3.3 million
households and businesses in the
Midlands and mid-Wales.

Where we operate
Our region stretches across the heart of the UK,
from the Bristol Channel to the Humber, and from
mid-Wales to the East Midlands.

Key facts

Turnover

£1,581.2m

(2014: £1,544.8m)

(2014: £518.6m)
* Before interest, tax and

exceptional items.

Profit*

£539.0m
3.3m

Households and businesses serviced

Litres of drinking water supplied each day

1.8bn

Litres of waste water collected per day

1.4bn

Employees

5,181

(as at 31 March 2015)

Severn Trent Plc Annual Report and Accounts 2015

Non-regulated – Severn Trent Services

Further details are
provided on page 32

UK Operating Services

US Operating Services

Renewable Energy

Where we operate
Severn Trent Services includes our core non-regulated
businesses operating in the UK, Americas and Europe.

About us
UK Operating Services (incl. Italy and Ireland)
UK Operating Services provides contract services
to municipal and industrial clients and the UK
Ministry of Defence (MOD) for design, build and
operation of water and waste water treatment
facilities and networks. Retail services are also
provided to UK businesses.

US Operating Services
US Operating Services provides contract services
to community, municipal and industrial clients for
the operation and maintenance of water and waste
water treatment facilities and networks.

Key facts

Turnover

£216.3m

(2014: £210.2m**)

Profit*

as a discontinued operation.

* Before interest, tax and exceptional items.
** Restated to classify Water Purification

£9.7m (2014: £13.3m (restated))**
1,853

(as at 31 March 2015)

Employees

Renewable Energy
Severn Trent’s non-regulated business already
generates renewable energy from wind turbines,
hydro power and anaerobic digestion (AD) of crops.
We have now expanded into the food waste AD
market, and have plans to add solar technology as
our fifth source of energy generation.

Severn Trent Plc Annual Report and Accounts 2015

2015
HIGHLIGHTS

Group turnover

£1,801.3m

2014: £1,756.7m (restated)***

Group underlying profit before tax*

£300.4m

2014: £276.1m (restated)***

Group profit before tax

£148.2m

2014: £318.9m (restated)***

Dividend per share

84.90p

2014: 80.40p

Earnings per share**

107.2p

2014: 92.5p (restated)***

* Before tax, exceptional items and gains/losses

on financial instruments.

** Before deferred tax, exceptional items

and gains/losses on financial instruments.

*** Restated to classify Water Purification as a

discontinued operation.

• Good financial performance:

– Adjusted EPS up 15.9% year on year
– Underlying group PBIT £540.3 million, up 3.2%

year on year

– Reported group PBIT up 2.6% year on year

• Focus on operational improvement:

– Improved or stable performance on 12 out of 14 Ofwat KPIs

year on year

– Achieved target of 10% reduction in leakage over AMP5

• Invested a further £547.4 million to complete AMP5 programme

of £2.6 billion: RCV1 £7.7 billion at April 2015

• Customer bills remain the lowest in Britain at £329 for 2015/16
• Severn Trent Services re-focused – disposal of Water

Purification business (US$81.2 million)

• Industry leader in renewable energy – self generation equivalent

to 28% of Severn Trent Water’s energy needs

• Reported group PBT £148.2 million, reflecting fair value losses

on financial instruments
• Well positioned for AMP6:

– Largest investment programme ever – £3.32 billion

capital investment

– New organisational structure and management team
– £300 million of £372 million target efficiencies already

locked in

– Focused on outperformance
– 2015/16 dividend 80.66 pence, followed by annual growth of no

less than RPI until 2020

1 Regulatory Capital Value
2 At 2012/2013 prices

Cautionary statement
This document contains statements that are, or may be
deemed to be, ‘forward-looking statements’ with respect to
Severn Trent’s financial condition, results of operations and
business and certain of Severn Trent’s plans and objectives
with respect to these items.

Forward-looking statements are sometimes, but not always,
identified by their use of a date in the future or such words as
‘anticipates’, ‘aims’, ‘due’, ‘could’, ‘may’, ‘will’, ‘would’, ‘should’,
‘expects’, ‘believes’, ‘intends’, ‘plans’, ‘projects’, ‘potential’,
‘reasonably possible’, ‘targets’, ‘goal’ or ‘estimates’ and, in
each case, their negative or other variations or comparable
terminology. Any forward-looking statements in this document
are based on Severn Trent’s current expectations and, by
their very nature, forward-looking statements are inherently
unpredictable, speculative and involve risk and uncertainty
because they relate to events and depend on circumstances
that may or may not occur in the future.

Forward-looking statements are not guarantees of future
performance and no assurances can be given that the
forward-looking statements in this document will be realised.
There are a number of factors, many of which are beyond
Severn Trent’s control, that could cause actual results,
performance and developments to differ materially from those
expressed or implied by these forward-looking statements.

These factors include, but are not limited to, changes in the
economies and markets in which the group operates; changes
in the regulatory and competition frameworks in which the
group operates; the impact of legal or other proceedings
against or which affect the group; and changes in interest and
exchange rates.

All written or verbal forward-looking statements, made in
this document or made subsequently, which are attributable
to Severn Trent or any other member of the group or persons
acting on their behalf are expressly qualified in their entirety
by the factors referred to above. Subject to compliance with
applicable laws and regulations, Severn Trent does not intend
to update these forward-looking statements and does not
undertake any obligation to do so.

Nothing in this document should be regarded as a
profits forecast.

This document is not an offer to sell, exchange or transfer
any securities of Severn Trent Plc or any of its subsidiaries
and is not soliciting an offer to purchase, exchange or transfer
such securities in any jurisdiction. Securities may not be
offered, sold or transferred in the US absent registration or an
applicable exemption from the registration requirements of
the US Securities Act of 1933 (as amended).

Severn Trent Plc Annual Report and Accounts 2015

FUTURE
PROOF

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At Severn Trent our role is to serve our communities
and build a lasting water legacy.
Our challenge is to not only care for our water
system, but to build upon it, to meet the changing
needs of our community and environment.
To do this, we continually invest in renewing
and improving upon the legacy that we have, by
creating new ways to deliver fresh, clean water to
our customers’ taps, before returning it safely to
the environment.
We innovate so that we create a greener, cleaner
water future for us all. We are investing in new
technology to create energy from waste and flexible
water and waste water systems for communities and
businesses around the world.
We care for your water, so that you can have
peace of mind that it will always be there.

Contents

Strategic report
IFC 2015 Highlights
01 Future proof
02 Chairman’s statement
04 Chief Executive’s review
08 Our strategic framework
10 Our performance
14 Market and industry overview
18 Regulated – Severn Trent Water
32 Non-regulated –

Severn Trent Services

38 Risk Management
40 Principal risks
43 Financial review

Company ﬁnancial
statements
147 Company statement of
comprehensive income
148 Company balance sheet
149 Company statement of changes

in equity

150 Notes to the company ﬁnancial

statements

Other information
154 Five year summary
155 Information for shareholders

Governance
47 Chairman’s letter
48 Board of directors
50 Executive Committee
52 Governance report
61 Nominations Committee
63 Audit Committee
66 Corporate Responsibility

Committee

69 Remuneration Committee
86 Directors’ report
90 Directors’ responsibilities

statement

Group ﬁnancial statements
Independent auditor’s report to
92
the members of Severn Trent Plc
96 Consolidated income statement
97 Consolidated statement of
comprehensive income
98 Consolidated statement of

changes in equity

99 Consolidated balance sheet
100 Consolidated cash ﬂow

statement

101 Notes to the group ﬁnancial

statements

Severn Trent Plc Annual Report and Accounts 2015

Chairman’s statement

CONTINUED
DELIVERY

Andrew Duff, Chairman

This has been an important year for Severn
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our AMP5 investment period in our regulated
business and agreed a business plan with our
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At the same time, under the leadership of our
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we have taken great strides in transforming
our business to meet the challenges and
opportunities of our evolving water sector.

Continued delivery
Looking back, the ﬁnal year of AMP5 has again delivered
signiﬁcant value for our customers and our shareholders.

Total group revenue rose by 2.5% to £1,801.3 million,
while underlying group proﬁt before tax was 3.2% higher at
£540.3 million. This resulted in adjusted earnings per share
of 107.2 pence, up 15.9% from 92.5 pence.

For 2014/15, your board is proposing a final dividend of
50.94 pence to be paid on 24 July 2015. This will result in a total
dividend for the financial year of 84.90 pence, representing
growth of 5.6%. Since the start of AMP5, we’ve delivered a
total shareholder return of 125.4%, well ahead of the 42.4%
return from the FTSE 100.

For many people, being able to afford our services is key and so
we’re pleased to have had the lowest average combined water
and sewerage bills in Britain for the last six years, a position
which is set to continue at least to 2020. Our average bill in
2014/15 was £333, which is lower in real terms than at the start
of AMP5.

As well as good value, our customers have also beneﬁted
from an improved level of operational performance. Over the
last 12 months, we have further improved our ranking
and performance in Ofwat’s measure of customer service
performance, the Service Incentive Mechanism (SIM), and I
am conﬁdent that our rate of improvement will see us climb
further over the coming years. We have also produced very
good environmental performance with continuing strong
results in leakage and signiﬁcant reductions in the number
of pollution incidents.

These efforts are reflected in rising customer satisfaction
scores. This is an important indicator for us as we continue our
journey to put customers at the heart of everything we do.

Performance has improved over the last ﬁve years and I am
conﬁdent we will continue to deliver further improvements in
our operational and customer service performance into AMP6.

Severn Trent Plc Annual Report and Accounts 2015

Underlying group PBIT*

£540.3m

* Before exceptional items

Dividend

+5.6%

Dividend

84.90p

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The next ﬁve years
The last year has been necessarily dominated by our PR14
process, as we prepared and submitted our business plan for
the next five years, and accepted Ofwat’s Final Determination.
It has been the culmination of over 18 months of work, which has
benefited significantly from input from our customers and a wide
range of other important stakeholders. This engagement has
been an innovation in this price review and has helped us to better
evaluate risk, quality and cost through the eyes of our customers.

Throughout, we have had a constructive dialogue with Ofwat and
the outcome is a challenging settlement, but nonetheless a fair
deal for our customers. We are undertaking one of our largest
ever investment programmes with a total AMP6 expenditure of
£6.6 billion, most of which will directly beneﬁt our customers
and the Midlands’ economy. By 2020 the average annual Severn
Trent Water bill will be £60 below the industry average.

Severn Trent Water has always had a good record on social
tariffs for those customers who are struggling to pay. We plan
to do even more in AMP6, with up to four times more people
beneﬁting from our new special tariff scheme.

In accepting Ofwat’s Final Determination, we have also
committed to some stretching operational targets, through our
Outcome Delivery Incentives (ODIs), and achieving operational
efﬁciencies over the next ﬁve years. We also took the opportunity
to assess the implications for our capital structure and dividend
policy. After careful consideration, we decided to reduce the
dividend by 5% in the coming ﬁnancial year, with a policy of
growth in subsequent years by no less than the Retail Prices
Index (RPI) each year to 2020. We also announced that we would
commence a share repurchase programme of up to £110 million
of ordinary shares. This programme was considered a low
risk method of returning capital to shareholders, satisfying
future share awards and moving gearing in Severn Trent Water
towards the 62.5% net debt/Regulated Capital Value (RCV)
notional level used by Ofwat in the price review.

Severn Trent has one of the fastest growing RCVs in our sector
and we are conﬁdent that we can continue our track record
of delivering sustainable growth for our shareholders into
the longer term. Our focus on operational excellence, and
continuous innovation in the delivery of excellent customer
service, gives us conﬁdence that we can earn additional
rewards through our new ODIs.

Board changes
Delivering for the future depends on many things, but the most
important success factor is our people.

Leadership starts at the very top and at the beginning of the
year we appointed Liv Garﬁeld to be our Chief Executive to lead
the next stage of your company’s journey. Liv has identiﬁed that
the commitment and skills of our people will be critical.

With this in mind she has created space for our managers
to lead and empowered them to take accountability and
to innovate. Delivering operational improvement, steering
the price review process and at the same time building the
organisational structure and culture necessary for success
over the next ﬁve years has been quite an achievement in her
ﬁrst year.

During the year we also bade farewell to two board members
who have made an enormous contribution to the success
of Severn Trent in recent years, our Chief Financial Ofﬁcer,
Michael McKeon, and Richard Davey, who has served as Senior
Independent Director and Chairman of our Remuneration
Committee. I would like to place on record my personal thanks
and that of your board for their distinguished contribution and
service. At the same time, I’m delighted to welcome our new
Chief Financial Ofﬁcer, James Bowling.

Our changing sector
In transforming our business and preparing for a future in a
changing sector, we are indebted to our people.

It is they who identiﬁed the need for change and throughout the
changes we have made over the last year, they have unfailingly
accepted the need to transform our business. The board and
I are grateful to each and every one of them for all that they do
and for the commitment they have shown.

Our sector is quietly evolving and the future is a world of
increased competition and further opportunities in non-
regulated water markets. We believe that the renewable energy
market has growth potential for us and have made a signiﬁcant
ﬁnancial commitment to increase our own energy generation.
With our focus on operational excellence and our established
track record of environmental guardianship and technical
innovation, you can be conﬁdent that Severn Trent is well
positioned to beneﬁt from growth in these future markets.

As we conclude the ﬁnal year of AMP5, we can look back on
ﬁve years of continuous improvement. Looking forward to
AMP6, we believe we’ve put the foundations in place to deliver
continued long term sustainable growth for our shareholders
and real beneﬁts for our customers and the communities in
which they live and work.

Andrew Duff, Chairman

Severn Trent Plc Annual Report and Accounts 2015

Chief Executive’s review

CUSTOMER
CULTURE

Liv Garﬁeld, Chief Executive

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Severn Trent and I have enjoyed every minute of
the challenge of getting our business in the best
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We are now facing the future with conﬁdence, despite one of the
toughest price settlements in our history.

When I took up my role in 2014, I was clear that in order to
create the most trusted company in our sector we needed
to focus on transforming our culture, driving operational
excellence and putting customers at the heart of what we do.
It’s what successful businesses do, it’s what we all want and
it creates value for our customers and our shareholders.

The changes we have made over the last year have built those
foundations, and I have been out to meet everyone in our
business personally, to listen to their views and share our vision
of the kind of awesome company we want to create. It’s been a
huge journey condensed down into a single year, but I genuinely
believe that creating the right culture is how we’ll get the whole
organisation aligned as one and ready to deliver for the future.

Performance in 2014/15
Our performance over the last year has demonstrated
where we are strong and the areas where we need to
drive improvement.

Looking at our improvement areas ﬁrst, no one in our business
is in any doubt that water quality is a key focus area for us.
We’ve made progress in the year, but our performance hasn’t
been as good as we would like it to be. So we have put together
a seven point improvement plan and reprioritised £35 million
of investment to replace and refurbish water quality assets
nearing the end of their life, which will also provide a greater
degree of resilience in both our networks and to our water
treatment works. We will also put signiﬁcant focus on investing
in the professional expertise of our people and developing
our process analytics to improve the reliability and availability
of our assets.

Severn Trent Plc Annual Report and Accounts 2015

Lowest average combined bill 2014/15

£333

Leakage over AMP5

-10%

Efﬁciencies identiﬁed

£300m

The other area where we think we can do better is around 12
hour interruptions to water supply to our customers. We are
good at managing three hour interruptions, but we are not
as sharp as we could be on the bigger, more complex events.
We’ve done a lot of work over the last year to improve on that
and we will continue to invest and use better technology to help
our teams to improve our service for customers.

We have also improved our customer service performance.
During the year we created approximately 100 new frontline
roles and have focused on resolving customer issues faster.
Together with the lowest average bills in Britain, our customers
increasingly feel that they are receiving good value for money,
which is an encouraging sign that we are getting the balance
right; although, of course, there is much more for us to do.

On waste water services, we are very good at the majority of
measures, but if there’s one area where we can do a better job,
it’s around sewer blockages and we have set the bar very high
for the next few years.

All of this makes us conﬁdent that Severn Trent will be one of
the winners in the new world of ODIs from 1 April 2015, and in
areas where we aren’t currently doing as well as we would like,
we have an opportunity to improve and then earn rewards.

Aside from these matters, there are also many highlights from
the last year, where we are pleased with our performance.

Leakage performance has been very good over recent years
and we have hit our target of a 10% reduction over AMP5. We’ve
set ourselves tough targets and we’re challenging ourselves
to improve further. We remain conﬁdent about our continuing
performance where we are strong and on many of our waste
water measures we are already upper quartile in the industry.

We’ve been recognised by the Environment Agency as the
only 4* rated company in 2014 across the entire sector for
environmental performance. We’re also proud of our focus on
and commitment to catchment management and we are one
of the few companies to have put in serious investment in the
coming ﬁve year period.

A year of transformation
My fundamental belief is that successful organisations are
customer focused ones, so we are focusing on operational
excellence and embedding the customer in all that we do.

The strategy we have put in place over the last year is designed
to deliver an outstanding customer experience, the best value
service and environmental leadership. In doing so we will
create long term value for all our stakeholders, our customers,
our communities, our employees and our investors.

This is the bigger vision and the bigger context which is driving
our thinking as we look forward to the future.

We want to be in the best possible shape to deliver our
strategy so we made the decision over the year to create a
different organisational structure and put in place a new
management team. No one else in our sector has a structure
like this and we believe it will give us an edge in an increasingly
competitive world.

Together with the lowest
average bills in Britain, our
customers increasingly feel
that they are receiving good
value for money, which is an
encouraging sign that we are
getting the balance right.

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Severn Trent Plc Annual Report and Accounts 2015

Chief Executive’s review continued

We’ve chosen to bring together our water and waste water
businesses into one Wholesale Operations business. This
change will simplify our structure, speed up decision making
and make us more efﬁcient and agile as a business, enabling
us to drive the operational excellence and innovation we’re
looking for. Our new Managing Director for our Wholesale
Operations business is Emma FitzGerald who will, I am sure,
bring her experience, passion and drive to deliver a great
customer service through operational excellence.

The second structural change we’ve made is to create a Chief
Customer Ofﬁcer role, bringing together our IS function, our
contact centres and transformation teams. Our industry needs
to fully embrace digital technology to become more efﬁcient
and to deliver what our customers expect. Bringing everything
together in one place creates a sense of a joined up business
for our customers and allows us to fulﬁl our digital ambition.
Sarah Bentley, who has previously looked after digital for
Accenture, has joined as our new Chief Customer Ofﬁcer.

In Severn Trent Business Services we have reorganised and
brought together our non-regulated businesses, Operating
Services US, Operating Services UK, including non-
household retail and renewable energy, each with a very good
management team in place and a clear future. With the sale of
the Water Puriﬁcation business the management team will be
able to focus on creating value from these core businesses in
water and waste services and renewable energy. Our new non-
regulated businesses are led by Andy Smith who has extensive
experience in the water sector having been the Severn Trent
Water, Water Services Director for seven years.

The changes we’ve made will
create a more dynamic,
empowered culture, where the
customer is very much at
the heart of our business.

To ensure we have the very best engineering expertise, we
have created a Chief Engineering Ofﬁcer function, led by
Martin Kane. Martin’s team will give us assurance that we
are challenging ourselves to create the very best engineering
solutions. We’ve got one of the biggest investment programmes
we’ve ever had over the next ﬁve years and we need to ensure
we have the right assurance that we are choosing the most
cost-effective solutions. The Chief Engineering Ofﬁcer function
will also assist in bringing innovation to life within our business.

The ﬁnal structural change we made during the year was the
creation of a Chief Commercial Ofﬁcer function, led by Helen
Miles. We have a big agenda over the next ﬁve years and we
want to drive signiﬁcant efﬁciencies. We know what the drivers
are and we now have a plan in place to deliver them, which has
already identiﬁed over £200 million of AMP6 savings from the
supply chain.

In addition to these structural changes, our Chief Financial
Ofﬁcer, Michael McKeon, has decided after nine years with
Severn Trent to retire. I would like to sincerely thank Michael
for his help in my ﬁrst year in the role. He’s been a superstar.
I’m also delighted to have been joined by James Bowling as our
new Chief Financial Ofﬁcer, who I know will be excellent.

In transforming our business, we’ve also made difﬁcult but
important organisational changes, including signiﬁcant
reductions in our cost base and de-layering of management
levels. These changes were tough, but will deliver over
£100 million of savings for AMP6 whilst allowing more space
for our managers to lead.

So together with £200 million of supply chain and other
efﬁciencies that we have already identiﬁed, this now equates to
£300 million already locked in, as at the date of this report, for
the coming ﬁve year period, which is a signiﬁcant way towards
the £372 million target agreed in our Final Determination.

The changes we’ve made will also create a more dynamic,
empowered culture, where the customer is very much at the
heart of our business.

Our business plan for AMP6 promises better value, better
services and a cleaner environment. I believe that with the
changes that we have put in place we are well placed to deliver
our commitments.

Severn Trent Plc Annual Report and Accounts 2015

1. Water quality is a key focus area for

Severn Trent. £35 million of investment
has been reprioritised to replace and
refurbish water quality assets.

2. Severn Trent has been recognised by

the Environment Agency as the only 4*
rated company in 2014 across the entire
sector for environmental performance.

How we create sustainable growth

• Embed customers at the heart of all we do

• Drive operational excellence and continuous innovation

• Invest responsibly

• Change the market for the better

• Create an awesome place to work

Sustainable growth
Our strategy is to invest responsibly in sustainable
growth. In our UK regulated business, our £6.6 billion
AMP6 expenditure includes one of our biggest investment
programmes and gives us a fantastic opportunity to
outperform and grow our regulated asset base.

We also have an opportunity to earn additional rewards over the
ﬁve years by performing well on our ODIs. There are bound to
be good and bad years on various measures, but in aggregate
we are conﬁdent that we’re positioned to do well. As an industry
and as a company we have lobbied hard for incentives and
we’re looking forward to the challenge.

Severn Trent has always been known for environmental
leadership and we also see a positive future in green energy.
We have announced over £190 million of new investment
in renewable energy over the next ﬁve year period and in
particular in anaerobic digestion and solar technologies.

This will take our self-generation of renewable energy from
the equivalent of 28% of Severn Trent Water’s gross energy
consumption over 2014/15 to around 50% by 2020, providing
efﬁcient green energy and a long term hedge against volatile
energy prices. Severn Trent remains the sector leader in
this area.

Looking forward
I’m delighted to be part of Severn Trent and very excited about
how Severn Trent and our people can play a part in changing
our market for the better.

The future is a world where there will be more competition in
the water sector and we are already seeing the start of a gentle
disaggregation of the value chain. New markets are opening,
including the retail non-household market in 2017. We want
to be an active part of that, and we would also love to see a
competitive market for sludge trading and water trading, as we
believe they present opportunities for competition in the sector
and value for our customers.

We’ve put in place the building blocks to ensure that Severn
Trent is a leader in our sector: the lowest bills for customers;
strategically well positioned in sludge, retail competition and
water resources; a standard setter in renewables; and the right
people, leadership and organisational structure to deliver.

So this has been a year of transformation, but for us there is
always more to do, more efﬁciency to be found, more success
to be had. It’s the aggregation of small, marginal gains every
year that you should expect from us and that will translate into
long term shareholder value.

We’ve done some good work over the last 12 months and we
know where we need to improve. It’s the start of a brand new
regulatory period and we feel we’re building from a good place.

Liv Garﬁeld, Chief Executive

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WATCH NOW

Watch a video of Liv on our new online
Annual Report and Accounts.

www.severntrent.com/AR2015

Severn Trent Plc Annual Report and Accounts 2015

Our strategic framework

Severn Trent Plc Annual Report and Accounts 2015

Our purpose

Our vision

Our strategy

How we do it

Our market
segments

Our values

To serve our communities and
build a lasting water legacy.

By 2020 to be the
most trusted water company:

Severn Trent are transforming service today, driving
growth, and shaping our industry for tomorrow –
for the mutual beneﬁt of our customers,
communities and investors.

delivering an outstanding customer experience, the best value service
and environmental leadership.

Embed customers
at the heart of all we do
What we mean by this
We’ll improve the way in which
customers engage with us through
improved insight and understanding of
what’s important to them.

Drive operational excellence
and continuous innovation
What we mean by this
We’ll build a smart water and waste
water network, develop our business
intelligence and simplify our cross
business processes.

Wholesale operations
and engineering
What we mean by this
Regulated water and waste
water infrastructure and non
infrastructure assets.

Household customer
services
What we mean by this
Customer services for household
customers in the UK.

Invest responsibly
for sustainable growth
What we mean by this
We’ll develop an effective strategy
which optimises our regulated asset
base, whilst creating new growth
opportunities for the future.

Business retail and
operating services
What we mean by this
Customer and operating services for
our business customers in the UK
and overseas.

Change the market
for the better
What we mean by this
We’ll embrace market opening in the UK
and explore opportunities for growth in
new water markets worldwide.

Create an awesome
place to work
What we mean by this
We’ll create a culture of empowerment
and accountability with a focus on skills,
talent and career development.

Green energy
What we mean by this
Renewable energy generation including
gas to grid, food waste biodigestion,
wind and solar power.

New water markets
What we mean by this
Opportunities in sludge trading, water
trading and upstream competition.

We put our customers ﬁrst
What we mean by this
We’re here for our customers 24/7.
We want to create a relationship based
on empathy and respect.

We are passionate about
what we do
What we mean by this
We’re passionate about the work we do
and our expertise. We go the extra mile
for customers and team mates.

We act with integrity
What we mean by this
We strive to do the right thing by being
transparent and honest in all that we do.
We want to create a better future for all.

We protect our
environment
What we mean by this
We’re committed to a cleaner, greener
future, protecting and improving our
environment for generations to come.

We are inspired to create
an awesome company
What we mean by this
We’ll all work together to be creative and
to make special things happen.

Further details are provided on page 14

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Severn Trent Plc Annual Report and Accounts 2015

Our performance

2014/15 performance measurement – 2014/15 Key performance indicators

1. Embed customers at the heart of all we do
Basis Key performance indicators

MAT DWI reportable events (category 3, 4, 5)

MAT Service Incentive Mechanism Qualitative (SIM) score 1

ACT Service Incentive Mechanism Quantitative (SIM) score 2

MAT Water supply interruptions index per property mins 3

Sewerage serviceability (internal) 4

Water serviceability (internal) 4

ACT Security of Supply Index (SOSI) 5

KPI: 3

KPI: 4

KPI: 5

KPI: 6

KPI: 7

KPI: 8

KPI: 14

2. Drive operational excellence and continuous innovation
Basis Key performance indicators

MAT Pollution incidents (sewerage cat 1, 2 ,3) 6, 7

KPI: 12

ACT Sewerage treatment works – failing consent, limits % 8

KPI: 13

MAT Net energy use Gwh %

MLE Leakage levels ML/d

MAT

Waste water treatment performance
Severn Trent Services % 9

KPI: 15

KPI: 16

STS KPI: 1

3. Invest responsibly for sustainable growth
Basis Key performance indicators

ACT Capex £m (UK GAAP, net of grants and contributions) 10

KPI: 9

ACT Debtor days 11

ACT Opex £m

4. Create an awesome place to work
Basis Key performance indicators

MAT Lost time incidents per 100,000 hrs worked 12
Lost time incidents per 100,000 hrs worked 12
Severn Trent Business Services

MAT

QR Employee engagement % 13

QR Employee engagement % 14

KPI: 10

KPI: 11

KPI: 1

STS KPI: 2

KPI: 2

STS KPI: 3

2014/15

2013/14

2012/13

4.36

105

270

100

4.48

143

202

4.36

167

2014/15

2013/14

2012/13

368

0.14

634

441

7.4

449

0.71

691

441

5.6

376

0.85

690

441

10.8

2014/15

2013/14

2012/13

542.7

34.7

588.9

583.2

34.5

585.3

541.8

36.7

566.5

2014/15

2013/14

2012/13

0.21

0.30

0.21

0.27

0.21

0.30

Key

Executive director balanced

scorecard performance measure
see Remuneration Committee
report on pages 69 to 85

Black: Regulated business KPI
Purple: Non-regulated business KPI

Desired direction of KPI

MAT Moving Annual Total
QR
MLE Maximum Likelihood Estimate

Quarterly Review

ACT

Year End Actual

Notes
1. In 2014/15 Ofwat changed the methodology for this measure. It is not comparable with
2013/14 and 2012/13. On a comparative basis we moved from 13th in 2013/14 to 6th in
2014/15 out of 18 water companies.

2. Actual performance based wholly or partially on internal data.
3. Number of minutes lost due to supply interruptions for three hours or longer per

property served.

4. Ofwat serviceability score assesses how effectively we are maintaining our network

and assets against a range of measures. Assessed as either improving, stable,
marginal or deteriorating.

5. Score represents internal KPI. The measure is out of 100.
6. Total number of pollution incidents (category 1, 2, 3).
7. 2012/13 figures are not comparable. In 2013 the Environment Agency changed its

reporting methodology for small incidents. As a result of this reclassification we now
report more smaller incidents.

8. Measured on a calendar year basis.
9. Non-compliance with consent permits or formal client requirements during the

previous 12 months.

10. Investment excluding PDaS and IFRS adjustments.

11. Actual performance based on audited financial statements for the year ended

31 March 2015.

12. Actual performance across all employees and agency staff.
13. Performance based on annual survey of all employees.
14. Performance based on annual survey of all employees, including the Water

Purification Business.

KPI 3 Drinking Water Inspectorate – Reportable Events. This KPI measures the number

of significant events reported to the DWI.

KPI 7 Serviceability waste water. This KPI is an index based on pollutions and blockages
(both measures of how our below ground assets are performing) and sewage
treatment works non-compliance (above ground). The index reflects a 50:50
weighting for above and below ground assets.

KPI 8 Serviceability water. This index is based on mains bursts and supply interruptions

greater than 12 hours (both are measures of how our below ground assets are
performing) and Water Treatment Works (WTW) non-compliance (above ground).
The index reflects a 50:50 weighting for above and below ground assets.

KPI 14 Security of Supply Index (SOSI) is a measure of how resilient we are against periods

of drought. The index calculation is based upon the difference between the water
available to use and the volume of water we expect to put into our supply network in
order to meet demand.

Severn Trent Plc Annual Report and Accounts 2015

Future performance measurement – Our Outcome Delivery Incentives (ODIs)

1. Embed customers at the heart of all we do4

Internal sewer ﬂooding

Penalty/Reward
1,014

Rate of Penalty/Reward (per incident)
£42,000

Minutes without supply

Penalty
14.5

Reward
12

External sewer ﬂooding

Penalty
7,639

Reward
7,452

Rate of Penalty/Reward (per incident)
£19,800

Complaints about water quality

Penalty
11,900

Reward
9,992

Rate of Penalty/Reward (per minute)
£1.1 million

Rate of Penalty/Reward (per complaint)
£900

SIM – Customer experience

Reward and penalty mechanism to be decided by OFWAT July 2015

2. Drive operational excellence and continuous innovation4
Improvements to river water quality3

Number of pollution incidents

Penalty/Reward
233

Penalty
457

Reward
374

Rate of Penalty/Reward (per point)
£150,000

Rate of Penalty/Reward (per incident)
£53,900

Successful catchment management schemes

Leakage

Penalty/Reward
12

Cap
21

Penalty/Reward
444

Rate of Penalty/Reward (per scheme)
£1.03million

Asset Stewardship – Coliform failures

Penalty/Reward
7

Rate of Penalty/Reward (per failure)
£463,000

3. Invest responsibly for sustainable growth

Severn Trent Water
See note 1

Severn Trent Business Services
See note 1

Notes
1. Illustrative positioning only. Internal KPIs for 2015/16 to be reported.
2. 2014/15 figures for illustrative purposes.
3. Consolidation of two ODIs relating to river water quality.
4. The thresholds stated refer to the application of rewards and/or penalties.

Rate of Penalty/Reward (per megalitres per day)
£123,314

4. Create an awesome place to work
Lost time incidents per 100,000 hrs worked
Severn Trent Water

Severn Trent Business Services

See note 2

0.30

0.21

2013/14 0.21

2013/14 0.30

Employee engagement

Severn Trent Water

See note 2

Severn Trent Business Services
See note 2

2013/14 79

2013/14 75

For full list of all ODIs and the details of each see www.severntrent.com

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Severn Trent Plc Annual Report and Accounts 2015

CASE STUDY

Severn Trent Plc Annual Report and Accounts 2015

FUTURE
SMAR

TER

Producing local gas
from local waste!
By investing in an innovative process at
our Minworth sewage treatment works,
we’re unlocking even more of the hidden
power in sewage.

Minworth treats sewage from 2.5 million
people around Birmingham – that’s
nearly 350,000 litres every hour.
Valuable energy is locked away in this
sewage. We release it by feeding the
sludge from our treatment process into
our anaerobic digesters. These work like
giant cow’s intestines, generating gas as
they break the sludge down.

So far, we’ve used around 40% of this gas
to produce electricity. Now we can also
clean, pressurise and odorise the gas,
before we ‘inject’ it into the network
that supplies local homes. We’re the ﬁrst
UK water company to do this on such
a large scale, saving us £1.7 million every
year while beneﬁting both customers
and the environment.

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Severn Trent Plc Annual Report and Accounts 2015

Market and industry overview

FUTURE
SECTOR

The water and sewerage industry
The industry in England and Wales delivers services to homes
and businesses of over 50 million people.

There are 19 regional suppliers, who serve the majority of these
customers. 10 of the regional companies – including Severn
Trent Water – provide water and sewerage services. The other
nine provide water services only.

The UK water industry was privatised in 1989 and has made
signiﬁcant progress since, attracting more than £4 billion
of private investment every year to improve operational
performance and make customer service improvements. As a
result, drinking water quality in the UK is among the highest in
the world. The industry also makes a substantial contribution
to the economy, estimated at £15 billion a year for the UK as
a whole, and directly or indirectly supports the equivalent of
127,000 full-time jobs.

We expect the industry
landscape to continue to
evolve in the coming years.

Despite the sector’s progress since privatisation, it still faces
substantial challenges that must be tackled in the coming
years. These must be met whilst still keeping bills affordable
for customers, both now and in the future. In particular:

• Much of the sector’s infrastructure is ageing. For example,
approximately 20% of Severn Trent’s sewers and 10% of our
water mains are more than 100 years old, which means we
need to continue to reinvest in the renewal of our networks.
• We can expect to see more extreme weather. This means
we need to build resilience, so we can cope with increased
ﬂooding and periods of droughts.

• The UK’s population is growing, which is adding to the

pressure on water resources and our networks. Severn Trent
serves 3.1 million households, a total that’s increasing by
about 12,500 households each year. That’s the equivalent of
adding a city the size of Wolverhampton every seven years,
in our region alone. We need to make sure we have the
infrastructure in place to serve these people.

• Customers quite rightly expect better levels of service,
making it ever more challenging for all organisations to
meet their customers’ expectations. Water companies know
they’ve got to work harder at improving customer service.
• Our industry has to compete for global capital to invest for

the future. The sector must remain an attractive investment
opportunity. Otherwise the only way we’ll be able to attract
investment is by having to pay more for it, which will push up
customers’ bills.

Severn Trent has always contributed to the debate about our
industry’s future, including through our series of Changing
Course publications. We’ll continue to be an active participant in
these conversations, so we can help shape thinking about how
to best serve our customers in the future.

Severn Trent Plc Annual Report and Accounts 2015

1. Much of the sector’s infrastructure is

ageing. We need to continue to reinvest
in the renewal of our infrastructure and
networks for future generations.

2. The AMP6 business plans are designed

to deliver what customers say they
value the most. We conducted our
biggest ever customer consultation
for PR14.

Key features of the regulatory regime for AMP6 include:

• Greater ﬂexibility to spend money where it’s most needed.

In previous AMPs, spending was regulated between
capital expenditure (Capex) to meet long term investment
needs, and operating expenditure (Opex) to meet day-to-day
running costs. The ability to earn a return on Capex arguably
incentivised companies to seek Capex type solutions to
issues, even if Opex might be more efﬁcient. In AMP6
Ofwat has considered expenditure on a total expenditure
(Totex) basis, so we can choose the most cost-effective and
innovative solutions to meet our commitments.

• Aligning the interests of customers and investors. In AMP6,
company performance is measured against metrics called
Outcome Delivery Incentives (ODIs). While failure to achieve
targets can lead to penalties, as in previous AMPs, many
of these ODIs also include incentives for companies to
outperform. As the ODIs are based on what is important to
customers, outperformance means that both customers
and companies beneﬁt. Companies can also do better if they
deliver their investment programme for less than their plan,
sharing the savings with customers.

• A better environment. Several ODIs are designed to deliver
important environmental improvements, such as better
river quality, which focuses companies on achieving their
environmental commitments over the next ﬁve years.
• Reduced bills for customers. Customers must be willing

and able to pay for the costs of the programmes we’ll deliver
during AMP6. They’ll beneﬁt from rising standards and an
average reduction in bills of 5% across the industry, over the
ﬁve years. Companies will also be doing more to help people
who struggle to pay their bills, for example by enhancing
the social tariffs they offer.

To ensure we meet our commitments during AMP6, we’ve set
out our strategy which is detailed on pages 8 to 9. Our ODIs,
against which our performance will be measured, are
explained on page 11. The regulated performance review on
pages 20 to 29 talks about some of the speciﬁc initiatives we’ll
be undertaking as part of our plan.

How the industry is regulated
Severn Trent Water is a regulated business. We work within ﬁve
year regulatory planning cycles, known as Asset Management
Plan (AMP) periods. This ﬁnancial year was the last in AMP5,
with AMP6 starting on 1 April 2015.

The industry operates within the following policy and
regulatory framework:

• The European Union (EU) sets water, waste water and
environmental standards across member countries.
• Government sets the overall water and sewerage policy

framework. This is done by the Department for Environment,
Food and Rural Affairs (Defra) in England, and by the Welsh
Government in Wales.

• Ofwat is our economic regulator, which means that it sets

the prices we can charge our customers in each AMP period,
and ensures that we carry out our functions properly and are
appropriately ﬁnanced.

• The Drinking Water Inspectorate (DWI) is the drinking water
quality regulator and makes sure we comply with the water
quality regulations.

• The Environment Agency (EA) is the environmental regulator

in England. It controls water abstraction, river pollution
and ﬂooding.

• Natural Resources Wales is the environmental regulator in
Wales. It ensures that the country’s natural resources are
sustainably maintained, enhanced and used.

We also work with other agencies, including:

• The Consumer Council for Water (CCW), which represents

the industry’s customers; and

• Natural England, which protects and improves England’s

natural environment.

The regulatory regime for AMP6
During the year, Ofwat concluded its price review for AMP6,
which runs from 2015 to 2020. Most of the companies have
agreed business plans with Ofwat, setting out what they
commit to deliver during the period and the bills that customers
will pay.

The AMP6 business plans are designed to deliver what
customers say they value most, in terms of the service they
receive and the beneﬁts to the environment and society.
Across the industry, water companies engaged with more
than 250,000 customers – the largest ever consultation in the
utilities sector – to get a clear understanding of what they were
willing to pay for.

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Severn Trent Plc Annual Report and Accounts 2015

Market and industry overview continued

This will give business customers
increased choice and encourage
companies to provide a better
service to them.

An evolving industry
We expect the industry landscape to continue to evolve in the
coming years. In addition to the opening up of non-household
retail competition, as discussed under ‘The non-regulated
market’, there’s scope for more competition in the wholesale
business. For example, we believe customers would beneﬁt
from a greater role for water trading, which would allow
companies with surplus water to sell it to those with resource
constraints, saving the signiﬁcant capital investment required
for capital solutions such as desalination plants.

The regulatory regime also makes consolidation less difﬁcult
than before. This could encourage companies to take innovative
approaches to consolidation, for example by merging their
wholesale operations to deliver efﬁciencies, while demerging
their retail businesses.

The non-regulated market
Our non-regulated markets provide additional opportunities
for growth in the next few years. We are already active in the
UK operating services market providing waste water and water
treatment for clients. We also have a small presence in the
Scottish water retail market. Competition for non-household
retail in England will open up in April 2017 and we are preparing
for this. This will give business customers increased choice
and encourage companies to provide a better service to them.
We are positioning our business to succeed in this market and
working with the rest of the industry to support OpenWater.
OpenWater is the body charged by the government with
developing the market rules, framework and systems that will
be needed for effective non-household retail competition.

In the US operating services market, the large majority of
customers are municipalities which are looking to outsource
the management of their treatment facilities to companies such
as Severn Trent. There are signs that the market could create
new opportunities, as municipalities turn to the private sector
for expertise and funding in response to increasing demands
from customers and regulators. We are looking at how we can
take part in this market, as it develops.

The renewable energy market also has growth potential for
us. We see scope to increase our electricity generation from
sources such as food waste digestion and solar, allowing us
to sell any electricity not used by our regulated business to
National Grid. Similarly, we can sell surplus gas generated by
our waste treatment works to the grid.

Severn Trent Plc Annual Report and Accounts 2015

CASE STUDY

Working in partnership to
protect our watercourses.
Our customers’ top priority is having
a reliable supply of high quality water.
To achieve that at an affordable price,
we have to protect our watercourses
from pollution.

The traditional way to tackle raw
water pollution is to invest in new
treatment processes, which is often
expensive. However, by working in
partnership with landowners and
users, we’re stopping pollution at
source at a fraction of the cost.

For example, since September
2013 we’ve been working with
farmers in two catchment areas,
to reduce their use of pesticides
containing metaldehyde.

Treatment of this chemical with
conventional methods is difﬁcult.
We’ve therefore engaged with
farmers and encouraged them to
work together with us. By incentivising
them to use alternative treatments
and rewarding them for reducing
pollution, we’ve cut metaldehyde
levels in the two areas by up to 90%.
We’re now looking to expand this
approach during AMP6, with the aim
of having 12 successful catchment
management schemes by 2020.

FUTURE
SUSTAINABLE

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Severn Trent Plc Annual Report and Accounts 2015

Regulated

Our business model
– The role of Severn Trent Water Limited
Severn Trent Water Limited is a regulated business. We work
within ﬁve year planning cycles, with customer prices
set by our economic regulator, Ofwat. This allows us to fund
our investment programme and cover an efﬁcient level of
operating costs.

The company earns a return on its asset base. We can
generate additional returns if we outperform Ofwat’s
assumptions by becoming more efﬁcient in the delivery of our
capital programme, managing our operational costs more
effectively, and by ﬁnancing our business at a lower cost.

Our operating performance is assessed and benchmarked
against the sector by Ofwat. Over the period 2015 – 2020 there
will be scope to earn additional income, or incur penalties,
based on our performance (as discussed on page 11).

We are also subject to regulation by two quality regulators –
the Drinking Water Inspectorate and the Environment Agency.

Our prices and asset base are adjusted by RPI inﬂation each
year. In certain circumstances we can ask for prices to be
reviewed within the ﬁve year period due to costs associated
with ‘notiﬁed items’ or ‘relevant changes of circumstance’.
Customer bad debt and the adoption of private drains and
sewers (PDaS) are included in these categories for the
current ﬁve year period. Severn Trent has absorbed the costs
associated with PDaS and has not sought to review prices for
this reason during 2010–2015.

Waste water is treated
and returned to the environment
Waste water is carefully screened, ﬁltered
and treated in our 1,019 sewage treatment
works to meet stringent environmental
standards. We pay the Environment
Agency an annual consent fee
to return the treated water
to the water system.

Waste water
is collected
Our 92,000 km of sewers and
pumping stations collect waste
water from homes and businesses,
and surface water from outside
properties and drains.

Water is collected
(abstraction)
We pay the Environment Agency
for the water we collect from
reservoirs, rivers and underground
aquifers across our region.

CAPIT A L I N

S T M E N T
£547m

Networks invested
and maintained
As an investment led industry,
our capital programme this year
was £547 million, or around
£165 per connected property.

S T M ENT

C A P I T A L I N

Customers
enjoy our services

We bill 3.3 million businesses and
households a year. In return, we provide
a safe, reliable supply of water and the
collection of waste water 24 hours
a day, 365 days a year.

Water
is cleaned
Our 134 groundwater and
18 surface water treatment
works clean raw water to the
highest standards making
it safe to drink.

Clean water
is distributed
A 47,000 km network of pipes
and enclosed storage reservoirs
bring a continuous supply
of clean water right to our
customers’ taps.

Severn Trent Plc Annual Report and Accounts 2015

Life cycle of water

1. Water is
collected

2. Water is
cleaned

3. Clean water
is distributed

4. Customers enjoy
our services

5. Waste water
is collected

Regulatory framework

• Ofwat
• Natural England
• Natural Resources

• Ofwat
• Drinking Water
Inspectorate

Wales

• Environment

Agency

• Health and Safety

Executive

Risks

Failure of key assets
may result in damage
to property, injury
to people and/or
disruption to our
ability to supply our
customers.
Principal Risk Ref 6***
and 7***

• Health and Safety

Executive

Failure of key assets
or processes may
result in a decline
in water quality,
disruption in our
supply to customers
or failure to meet
regulatory targets.
Principal Risk Ref 6***
and 7***

The performance
of our distribution
network may fall
below the standards
expected by DWI
or Ofwat, resulting
in poor service to
our customers and
increased leakage
from our network.
Principal Risk Ref 7***

Hazardous processes
or chemicals may
result in people being
injured.
Principal Risk Ref 6***

Failure of one of our
key assets could
result in disruption to
supply to customers.
Principal Risk Ref 7***

6. Waste water is
treated and returned
to the environment

• Ofwat
• Natural England
• Natural Resources

• Environment

Agency

• Health and Safety

Executive

We may suffer
operational
failure in our waste
water operations
which results in
damage to the local
environment.
Principal Risk Ref 7***

Hazardous
processes may
result in people being
injured.
Principal Risk Ref 7***

• Ofwat
• Consumer Council

• Ofwat
• Environment

for Water

• Drinking Water
Inspectorate

Agency

Executive

• Health and Safety

Wales

Failure to improve
our customer service
and meet customer
expectations.
Principal Risk Ref 1*

Failure to deal with
customer waste
effectively may lead
to sewer ﬂooding.
Principal Risk Ref 7***

We may be unable to
respond effectively
to the opening up
of the business
retail market to
competition.
Principal Risk Ref 2*

Investment and maintenance

Networks invested and maintained
Our capital programme this year was £547 million, or around £165 per connected property, reﬂecting a decreased investment year on
year (2013–2014: £602 million) in our water and sewerage networks. This included ﬁnding and ﬁxing more leaks and reducing the number
of supply interruptions, improvements to our water and sewage treatment plants and upgrades to our sewer network to reduce incidents of
sewer ﬂooding. We fund this investment programme from the proﬁts we generate, and also by borrowing money from the capital markets.
Capital investment is added on to our asset base, called the Regulated Capital Value (RCV). Our asset base also rises in line with inﬂation
each year. The returns that we generate for shareholders on that asset base are set by our economic regulator, Ofwat, over ﬁve year planning
cycles. We can increase these returns by outperformance in future years through Outcome Delivery Incentives (ODIs).

Regulatory framework

• Ofwat
• Health and Safety Executive
• Environment Agency
• Drinking Water Inspectorate

* Principal Risk Ref 1 and 2 on page 40.

** Principal Risk Ref 3, 4, and 5 on page 41.

*** Principal Risk Ref 6, 7 and 8 on page 42.

Risks

We operate within a complex legal and regulatory environment
as a water and sewerage service provider in England and Wales.
As a result we face a number of risks including those associated with
possible non-compliance with our legal and regulatory framework,
and enforcement by our regulators (e.g. DWI, EA and Ofwat) and
failure to meet the terms of our regulatory contract as set out in our
agreed business plan for 2015–2020. We also face risks associated
with possible future changes in legislation which may result in our
business plans becoming unsustainable or uneconomic.

Principal Risk Ref 3, 4 and 6 **/***

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Severn Trent Plc Annual Report and Accounts 2015

Regulated business performance review

Our goal is to provide a reliable service that our customers,
communities and investors can trust. This will enable us
to generate long term sustainable growth, by delivering an
outstanding customer experience, the best value service and
environmental leadership.

In this section, we explain how our regulated business
performed during the last 12 months, as well as the
actions we’re taking to position us for success over the next
regulatory cycle.

Embedding customers at the heart of what we do
In recent years, we’ve worked hard to improve our service.
These efforts are reﬂected in rising customer satisfaction
scores. However, we recognise that we’ve got a lot further to go
and we intend to make signiﬁcant progress during AMP6.

For many people, being able to afford our services is key.
Household budgets remain under pressure. We’re therefore
pleased to have had the lowest average combined water and
sewerage bills in Britain for the last six years. Our average bill
in 2014/15 was £333, which is lower in real terms than at the
start of AMP5.

We’re conﬁdent that we’ll continue to have the lowest bills for
the next ﬁve years, with customers seeing further reductions
in real terms. At the same time, we’re introducing an enhanced
special tariff, which will offer customers discounts of up to 90%,
depending on their circumstances. We’ll continue our other
support for our customers, such as our WaterSure tariff for
those in ﬁnancial need, which caps bills for people who use a
lot of water because they are ill or have a large family. We’ll also
be introducing water health checks, to promote the support
available and make sure customers are on the right tariff.
Every year this will mean that help is available to around 50,000
customers who are struggling ﬁnancially. Our partnership
with Coventry Citizens’ Advice Bureau is an important part of
our approach.

Keeping bills affordable also means ensuring that everyone
who can pay does, so they don’t increase the burden on others.
This year, we’ve improved bad debt levels to around 2.0%.
This continues to be one of the best performances in the
industry. We’ve made more effective use of our contact centres,
making more calls to customers to engage with them and help
them to manage their liabilities.

Ofwat’s Service Incentive Mechanism (SIM) is an important
indicator of how good our customer service is. The SIM score
has two elements – qualitative and quantitative. During the year,
we improved both parts of our score.

The qualitative element captures our customers’ views of
our service. This year, our qualitative score, as an average
over the whole year, was 4.36. This is based on Ofwat’s new
methodology for 2014/15 and ranks us sixth among the
18 companies in our sector, up from thirteenth last year.
In the ﬁnal wave of results we came third – a great foundation
for continued improvement through AMP6. Over the last
12 months, we’ve introduced around 35 initiatives to deliver
a better customer experience.

Providing the service our
customers want means we
need the right resource,
so we’ve added approximately
100 front-line roles.

The quantitative metric reflects the number of customers who
have had to contact us. Our performance here improved by 26.6%.

We also capture customer satisfaction data by directly
surveying thousands of customers each month to get
feedback after contact. To broaden our understanding of our
performance, we’ve expanded these surveys to cover our
customer operations contact centre, as well as the billing
contact centre and we’ve seen our scores steadily increase.

Consistent with rising customer satisfaction, we’ve seen a 20%
reduction in complaints this year. An important contributor was
the new resolutions team, which looks at the underlying causes
of complaints and ensures we ﬁx them.

Severn Trent Plc Annual Report and Accounts 2015

1. We have achieved an underlying

improvement in interruptions to supply,
reducing the average number of
minutes that customers are without
supply from 16 minutes to 9 minutes
54 seconds.

2. We answer at least 80% of calls within

20 seconds.

Providing the best possible service to our customers means we
need the right level of resource, so we’ve added approximately
100 frontline roles. We’ve created a customer strategy and
experience department, bringing together the training, quality
and complaint handling functions from across our contact
centres. This gives us a more consistent approach to best
practice. In addition, we’ve reviewed the role of our frontline
managers, to help them to coach and develop our agents.

Another important focus this year has been reducing the work
in progress. The changes we’ve made are helping us to meet
the industry standard of answering at least 80% of calls within
20 seconds, which we didn’t always manage in the ﬁrst part
of the year. We’re also responding to customer emails more
quickly, cutting the time it takes us to answer from ﬁve days
to less than 12 hours.

Improving customer service means offering more ways to
interact with us, so customers can choose the channel that
suits them best. We want to be a ‘digitally savvy’ organisation, so
we’ve invested heavily in our capabilities this year. This includes
enhancing our web and mobile offerings, making them easier
and more attractive to use. As part of this, we’ve been trialling
web chat, which we plan to expand during the coming year.

Going forward, we’ll help our customers to adopt new
channels, by using analytics to gain insight into why they contact
us and how we can encourage them to self-serve. As part of
our digital strategy, we’ve also been investing in understanding
the key points when our customers contact us. By analysing
how best we can engage with them at each point, we’ll know
how to deliver the brilliant service they expect.

Enhancing intelligent use of customer data and the way we use
it will be an important part of our approach during AMP6. We’re
investing in a new customer relationship management system,
which will draw together customer information from across our
systems. This will help our agents to resolve more queries ﬁrst
time. Increasing our knowledge of each customer will also help
us to predict their likely needs, so we can offer them a more
relevant and personalised service.

Developing customers’ trust also means engaging with our
communities and being increasingly open and transparent to
deal with. We’re also using channels such as social media to
keep customers better informed about issues that may affect
their service, so they know when they are likely to be resolved
and any action they need to take. We are delighted that we
are already ranked in the top ten in the empathy index for UK
companies using Twitter.

Driving operational excellence and continuous improvement
Our overall operational performance continued to improve
during the year. We’ve developed a culture of delivering against
performance metrics and have achieved a stable or improved
performance in 12 of Ofwat’s 14 non ﬁnancial KPIs during the
last year.

The quality of our drinking water is high but our performance
is not as consistent as we would like. In 2014, our overall
compliance with the DWI’s quality standards was 99.96%.
However, we had 41 signiﬁcant events, according to
categorisations by the DWI, against a target of 15, while the
serviceability of our water non infrastructure assets (above
ground assets such as water production works) is rated as
deteriorating. To improve performance, we’ve undertaken a
signiﬁcant amount of work at our water treatment works and
boreholes, inspecting the sites and increasing our maintenance
and capital replacement. We also increased our programme of
water pipe cleaning, from around 1,000 km in a typical year to
around 1,500 km last year.

In relation to leakage we have achieved our regulatory
commitment for the fourth year running. Performance this
year beneﬁted from the continuation of our mains replacement
programme and our new way of working, which we call Valuing
Every Drop. This came from our Safer Better Faster approach
to continuous improvement, which we use to diagnose
issues, redesign our processes, train our people and equip
them differently.

Valuing Every Drop has signiﬁcantly reduced our time to
process and react to leaks. By the end of the year, we were
ﬁxing 38% of all leaks within 24 hours, up from around 25%
earlier in the year.

We have also achieved an underlying improvement in
interruptions to supply, reducing the average number of
minutes that customers are without supply from 16 minutes to
around 10 minutes. However, a single very large mains burst,
which affected 2,111 properties early in the year, meant that the
number of properties with a supply interruption longer than
12 hours was 3,365, compared with 2,699 in 2013/14. We’ve
continued to work to reduce the impact of interruptions, for
example by faster despatch of emergency tankers.

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Severn Trent Plc Annual Report and Accounts 2015

CASE STUDY

Severn Trent Plc Annual Report and Accounts 2015

FUTURE
RESILIE

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Securing Birmingham’s
water supply for the
next 100 years.
The Elan Valley Aqueduct has brought
water to Birmingham for more than a
century. Now we need to modernise
and refurbish it, so it can serve
our customers for at least the next
100 years.

The aqueduct carries water 74 miles
from Wales. It’s an amazing piece of
Victorian engineering but it wasn’t
designed with long term maintenance
in mind.

As it’s Birmingham’s main water
supply, we can only turn it off for short
periods, giving us a maximum of
three days at a time to work on it.

To give the aqueduct the attention
it needs, we’ll have to provide a
second major source of water for
Birmingham. That means investing
around £340 million in AMP6, so
we can take water from the River
Severn during its peak ﬂow in the
winter months and pump it 25km
to our treatment works at Frankley.
This complex project is our biggest
ever. It will allow us to rebuild entire
sections of the aqueduct, giving
it another century of life and a
secure water supply for the people
of Birmingham.

Severn Trent Plc Annual Report and Accounts 2015

Regulated business performance review continued

Although very rare, internal sewer ﬂooding is one of the worst
things that can happen to our customers, so we were pleased
to have further reduced the number of customers who suffered
repeated ﬂooding. In 2014/15 there were 198 incidents, down
from 204 in 2013/14. We’ve continued to invest in capital
solutions, enabling us to protect 192 properties from the risk
of repeated ﬂooding this year and a total of 746 over AMP5.

As our overall waste water infrastructure (below ground
assets) serviceability assessment by Ofwat remains
marginal, we’ve continued to focus on the areas that affect
this. We reduced the number of sewer blockages by 8.4%,
through initiatives such as First Time Resolution. Rather than
simply unblocking the sewer, we provide a more holistic
customer service by sending a sophisticated vehicle, capable of
diagnosing and removing the problem, surveying the sewer and
carrying out minor repairs. We’ve also trialled different ways of
engaging with customers, to raise awareness of the problems
caused by putting the wrong things down the sewer.

Pollution incidents happen when there are unplanned
discharges of water or sewage into the environment. In 2014
the Environment Agency assessed our overall environmental
performance as 4*, the highest score possible. We aim
to maintain this strong performance by further reducing
pollution incidents.

We had a record-breaking year for compliance at our waste
water treatment works, directly contributing to the health of
our rivers. Only one of our 704 consented sites failed to reach
its compliance limits, giving us 99.9% compliance, up from
99.29% in 2013/14. We’ve continued to invest to maintain this
strong performance.

Our pollution performance also beneﬁted from our Safer
Better Faster approach. During the year, we ran a series of 12
week improvement interventions. This included developing
and launching an e-learning package for everyone working on
our sewerage infrastructure, including our subcontractors.
This educates them on how to spot problems, react quickly
and better resolve customer issues.

HELPING OUR ENGINEERS TO WORK SMARTER

We’re equipping all our engineers with robust and
waterproof smartphones. The devices include satellite
navigation, connectivity through video calling and instant
messaging, and administrative functions such as
timesheets and expenses. Our engineers will soon be able
to access job and customer histories, so they can serve
our customers better and complete more jobs ﬁrst time.
By working smarter, we’ll enable our managers to spend
more time in the ﬁeld, while motivating and empowering
our workforce.

Adapting how we work
During the year, we took an important step in preparing
for AMP6, by bringing together our water and waste water
wholesale operations. Combining them enables us to take
advantage of cross skilling between water and waste, to reduce
our support and management costs, and to put more emphasis
on network control and asset management. This helps us to
better understand risks, target our investment more effectively
and drive improved performance for customers. Being efﬁcient
also requires us to adapt the way we work. For example, we’re
standardising our operating processes, while ensuring that we
can adapt them quickly in response to new ideas.

Technology has an important role as we look to improve our
performance during AMP6. We’ve started to rollout the next
generation of handheld smart devices to our work crews, to
give them better information about the sites they’re visiting and
the assets they’ll be working on, so they can resolve problems
more effectively. They can also update the data on our system,
to ensure it’s as accurate as possible.

Severn Trent Plc Annual Report and Accounts 2015

Renewable energy which is self
generated allows us to keep costs
down and bills low for customers.

We’re also developing apps to enhance what we call the
‘colleague journey’. This helps us to provide the information
our people need at each stage of responding to and completing
a job. They’ll be able to complete jobs faster and ﬁrst time,
improving life for our customers. As part of this, we’re asking
our people to tell us what apps they want, so they can do their
jobs better.

A new system we’ve introduced this year allows our customers
to give us immediate feedback on our work crew’s quality of
service and workmanship. This allows us to talk in real time
to work crews about where they’re doing well and how they
can improve, so we can shorten improvement timescales and
share best practice more quickly.

We’re continuing to invest in our telemetry system, so we can
get more information on the performance of our pipes and
treatment sites. By developing our analytics capability and
combining this data with other information, such as weather
patterns, we’ll be able to be more predictive about future
performance, so we can tackle problems before they affect
our customers.

Innovation has always been important for us. We’ve brought
together our water and waste research and development (R&D)
teams, to give us an integrated programme that supports our
Wholesale Operations business more efﬁciently. We’re now
reviewing our R&D plans and making sure we only focus on
projects that contribute to our customer commitments either in
the AMP6 plan or in the future.

Investing responsibly for sustainable growth
In 2014/15, we successfully completed our AMP5 investment
programme. Investment of £547.4 million during the year
brought the total for the last ﬁve years to £2.6 billion.
Our 2014/15 programme included:

• investment in mains replacement;
• improving the resilience of our water treatment works,

including our largest at Frankley, in Birmingham;
• further improvements at our waste water treatment

works, to ensure we continue to comply with
regulatory requirements;

• expenditure on sewer replacement and sewer ﬂooding

schemes; and

• continuing to grow our renewable energy assets within our
regulated business, by installing more combined heat and
power plants.

This year’s expenditure also included £60 million of investment
we brought forward from AMP6. We used this to improve our
sewer ﬂooding performance and to invest in mains resilience.
It also enabled us to accelerate some of our planned water
quality schemes for AMP6 by 18 months, by carrying out
feasibility studies and design work ahead of schedule.

Our investment programme for the next ﬁve years will total
£3.3 billion (based on 2012/13 prices) and will deliver further
beneﬁts for customers, in terms of service quality and value for
money, as well as improving the environment. We’ll spread this
investment across our asset base, to improve its serviceability,
reliability and resilience.

The largest single scheme in our plan, and the largest by any
company during AMP6, is the ﬁrst phase of the Birmingham
Resilience Scheme. A major source of Birmingham’s water
is the Elan Valley aqueduct, which is more than 100 years old.
Over the next ﬁve years, we’ll be constructing a scheme to
allow us to abstract water from the River Severn and treat it at
Frankley, providing a new supply for Birmingham.

AMP6 sees Ofwat’s KPIs replaced by ODIs, which allow
companies to earn more for outperformance or suffer penalties
for underperformance. The ODIs reﬂect our customers’
priorities and our focus on them will ensure we deliver better
value, better services and a healthier environment over the
next ﬁve years. Given our track record of delivering against
performance metrics we are conﬁdent that we’re well placed to
perform well against the ODIs and to succeed in AMP6.

Our AMP6 plan requires us to achieve £372 million of
efﬁciencies (at 2012/13 prices), which is a signiﬁcant challenge.
Excellent procurement will be an important component of
these savings and we’ve developed joint efﬁciency plans with
our One Supply Chain partners. This will help us to deliver
our capital programme more effectively, by standardising
the products we buy and by planning more carefully with
our suppliers, so we spend less time on-site and work more
efﬁciently while we’re there. We’re also looking at our second
level suppliers, so we can understand them better and work
more directly with them, where it adds value.

Before we commit to capital expenditure, we’re investigating
whether we could solve the problem by operating our existing
assets better or differently. We need to become ever more
efﬁcient and only build the assets we need to solve the
problems we’re facing, and get the best value. At the same
time, we’re developing methods to help us understand whether
Capex or Opex will enable us to deliver the best outcome – an
essential component of the new Totex regime in AMP6.

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Severn Trent Plc Annual Report and Accounts 2015

Regulated business performance review continued

In AMP6, we’ll invest in the next stage of enhancing our
treatment works. This includes £234 million to help us meet the
requirements of the Water Framework Directive; in what we
believe is the most ambitious programme in the sector, we’ll be
looking to make the biggest impact on as many watercourses
as possible.

Our catchment management approach allows us to work in
partnership with our stakeholders to protect our raw water
sources from pollution. For example, we’ve encouraged
farmers to produce ‘clean run-off’ from their land, as well
as removing metaldehyde from one of our catchments.
This approach is both better for the environment and for our
customers, as it reduces our need to spend money to clean
affected water. We’ve also agreed to host two partnerships,
covering the Tame, Anker and Mease rivers and the Lower
Trent and Erewash catchments. Working as a partnership with
other industries, regulators and NGOs allows us to have a more
positive impact than when we work on our own.

Treating water and sewage is energy intensive. The majority
of our carbon emissions come from pumping water around
our network and treating sewage at our works. This year
we reduced our emissions by 4% to 491 kilotonnes of CO2e.
We also met our 2009 commitment to have no net increase in
emissions, with an overall 12% reduction over the period since
this commitment. More information on our greenhouse gas
impact can be found in the Directors’ report on pages 87 and 88.

Renewable energy is an important part of our approach and a
number of our processes use by-products or essential features
of our water or sewage treatment. In 2014–2015, renewable
energy provided 28% of our regulated business’s energy needs.
We intend to increase this further over the next few years.
More on our renewable energy initiatives can be found in the
non-regulated performance review on page 35.

Our long term impact on the environment also depends on
our customers. With this in mind, we put considerable effort
into educating our current and future customers, so people
understand how to use water efﬁciently and what can be safely
disposed of in our sewers. As part of this, we run a schools
education programme, which teaches children each year
about the value of water. We’ve also continued our volunteering
programme. This engages our local communities in what
we do, whilst improving our people’s skills and building
working relationships.

The suppliers we work with also have an important part to play
in our sustainability efforts. While we’ve always taken care to
select suppliers with, for example, strong health and safety
records, we haven’t speciﬁcally focused on other aspects of
their sustainability performance. To address this, we have
a new programme to review our suppliers’ sustainability
credentials, so that we understand their performance in key
areas such as the environment and human rights.

Creating a great place to work
To achieve our objectives, we need Severn Trent to be
a great place to work, and for our people to be ﬂexible,
to embrace new ways of working and skills and to focus
on our customers’ needs.

This was a year of considerable change, as we positioned the
business to succeed during AMP6. We put our water and waste
water operations into one wholesale and engineering function.
We also created a Chief Customer Ofﬁcer role to bring our
customer and digital ambitions together. A key part of these
changes was to reduce the number of layers in our organisation
from nine to ﬁve. This gives our people more control over their
roles and empowers them to do more. Empowerment and
trust will be important themes for us going forward and we
have teams looking at how we can further embed them into
our culture.

The organisational change also reduced the number of roles
in our business by approximately 500. We consulted widely
with employees during the process and ran a comprehensive
outplacement programme, to support those of our people
whose roles were removed.

Despite the amount of change, we ran our annual employee
engagement survey during this period and achieved our
highest ever completion rate of 85%. The survey showed that
our people remain highly committed, with our engagement
index coming out at 79%, compared with 81% last year. This is
a very creditable performance in the circumstances. We are
determined to improve our scores next year.

Severn Trent Plc Annual Report and Accounts 2015

1. Turning Severn Trent into an awesome

company. Visible and accessible
leadership is key to building trust.

2. Protecting our people’s health

and wellbeing is one of our core
responsibilities. Our lost time injury rate
during the year was 0.21 per 100,000
hours worked. Our goal is zero.

TURNING SEVERN TRENT INTO AN
AWESOME COMPANY

With the challenges of AMP6 fast approaching, our CEO
Liv Garﬁeld met more than 5,000 employees on her
‘Awesome Company Tour’. Over more than 60 sessions,
she engaged our people in our journey to become an
awesome company. She set out how we’ll delight our
customers and give them the cleanest water, with brilliant
people who work safely and take a ‘digital ﬁrst’ approach.
The outcome will be ‘fab ﬁnancials’, which will fund our
plans and reward our investors.

Highlights from the survey included our employees’ strong
loyalty to Severn Trent, how much they enjoy their work and
their willingness to go the extra mile for customers. However,
our people would like more opportunities to share their views
before we make changes that affect their jobs and they want
more inspirational leadership from our senior team.

Our engagement survey highlights the importance of our senior
team being visible and accessible across the business, so we
are complementing what already happens with leadership led
sessions called ‘Friday Focus’ at our largest sites. This will
allow our people further opportunities to ask our leaders
questions about anything they want to complement their
day-to-day dealings with their team managers. In addition, our
CEO, Liv Garﬁeld, hosted more than 60 sessions during the
year, meeting more than 5,000 of our people. She used these
sessions to explain our performance challenges in AMP6 and
how we need to adapt to meet them. These sessions were
extremely well received by attendees and helped to align our
people on the areas of focus.

As the world becomes more complex, we need to have
more talented people in our organisation and provide
more opportunities for them to reach their potential.
Our apprenticeship programme brings in new talent each
year and we currently have 80 apprentices. We’ve adapted
the programme so that it now takes three years instead of
four, by changing the way we train our apprentices and their
college work, so they can reach the required technical level
faster. Our graduate programme is also going from strength
to strength. We took on 27 graduates in 2014–2015, our
largest intake for some years. As at May 2015, Severn Trent
Water Limited is one of thejobscrowd’s ‘Top 100 Companies
for Graduates to Work for in 2015–2016’ ranking at no.83.
Thejobscrowd is the only graduate employer ranking based
on realtime feedback and reviews from current graduates,
so reﬂects actual graduate/employee engagement and
experience. As the only water company represented in the
‘larger intake’ category, this is a great result for the ﬁrst year of
entering the survey.

The performance challenges we face in AMP6 are greater than
in AMP5, so we’ve redesigned our performance framework.
Our goal is to inspire everyone to achieve great performance,
with a clear plan of how they can develop the skills and
behaviours needed to achieve performance excellence.
Individuals will discuss and review their performance every
quarter to identify successes and areas where improvements
can be made. We’re aiming to create a culture that’s
performance led, and which encourages our people to achieve
their full potential.

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Severn Trent Plc Annual Report and Accounts 2015

Regulated business performance review continued

TRAINING THE ENGINEERS OF THE FUTURE

Severn Trent Water apprentice maintenance technician,
Hannah Black is one of 80 young people who has joined
us in operational apprentice roles. For Hannah it made
perfect sense to become an apprentice giving her an
opportunity to learn whilst she earned money to kick start
her career. New apprentices will also gain a brand new
‘Trailblazer’ qualiﬁcation, which we’ve designed with our
industry colleagues and the Sector Skills Council.

We also need leaders who can challenge and engage.
During the year, we completed our Leading for Performance
programme, which aims to make leaders conﬁdent in
driving high performance and creating an environment
of empowerment. In total, we’ve trained 400 managers.

With our greater focus on performance comes the
need to recognise and reward it. Our employee awards
scheme reinforces a culture of continuous improvement
and recognition, with more than 500 people nominated
this year. We also offer ﬂexible beneﬁts, which are very
popular. For example, employees can buy or sell holidays
to suit their needs. Most of our people are shareholders in
Severn Trent, meaning they beneﬁt directly from our good
performance. Nearly 48% of those eligible have joined our
Sharesave scheme.

Protecting our people’s health and wellbeing is one of our
core responsibilities. Our lost time injury rate was 0.21
per 100,000 hours worked, which is the same as last year.
Our performance remains industry leading but is not as good
as we hoped for, given our considerable focus on health and
safety. Minor accidents are a continued reminder of the need to
remain focused and the need to refresh our approach to health
and wellbeing. We continue to prioritise reductions in minor
accidents, such as slips, trips and falls, as well as safety in
our supply chain. In 2014/15 we ended the year with a RIDDOR
score of 0.12 on our major construction programme delivered
by our One Supply Chain team. This is 40% better than the
construction industry average and 25% better than the industry
benchmark programme of work (the London 2012 Olympics).
We’re also creating a stronger central health and safety
function, which will help to direct how our operational teams
should work and provide more assurance that they’re doing
the right things. We also address employees’ wellbeing, paying
attention to factors such as workplace stress and other mental
health issues.

Severn Trent Plc Annual Report and Accounts 2015

1. We sponsor the Big Bang Fair, which

provides 7–19 year olds with a fun and
educational experience to help inspire
them towards careers using their
science and maths subjects.

We’ve taken action to encourage diversity among job applicants,
for example by revamping our recruitment website to proﬁle a
broader range of employees and addressing the language we
use in our job descriptions. We’ve been successful in attracting
more female graduates, which will give us a greater female
talent pool for future senior management team appointments.
However, we have more work to do in attracting more female
apprentices for operational roles.

More information on our gender diversity can be found in
the Nominations Committee report on pages 61 and 62.
The Corporate Responsibility Committee report on pages 66 to
68 contains information on human rights issues for the group.

We take a long term view of our business, so we’re big
supporters of promoting science, technology, engineering and
maths in education. We encourage young people to study these
subjects, so they can become the engineers and technicians
of the future. For example, we support initiatives such as
Tomorrow’s Engineers and work with universities and technical
colleges to make their curriculums more relevant to industry.
We also support the Big Bang, a national programme to get
children interested in technology and science careers.

Outlook
During 2014/15, we’ve put in place the foundations for success
in AMP6. We have a plan that will deliver better value and
better services for customers and a healthier environment for
all. By achieving our plan, we’ll deliver long term sustainable
growth and real beneﬁts for our customers, communities
and investors.

We take a long term view
of our business, so we’re
big supporters of the science,
technology, engineering and
maths agenda in education.

We recognise that diversity and inclusion are important for
our success and have made them a business imperative over
the last 18 months. As a customer focused organisation, we
need our workforce to reﬂect the customers and communities
we serve, so we can understand and respond to their needs.
Our workforce remains slightly more diverse than the sector
average, with female employees making up 30.4% of the total,
compared with 26% across the industry. 7.8% of our employees
are black, Asian and minority ethnic (BAME), against an
industry average of 3.4%.

To help us make meaningful progress during AMP6, we have
prioritised three key areas:

• women in operational leadership positions;
• women and BAME people in engineering positions; and
• BAME people in technical operator positions.

We continue to take action to improve diversity, for example
by training managers in how to interview effectively and
fairly. More than 400 managers have been through this
training, which has a strong focus on unconscious bias in the
recruitment process. More than 130 leaders in our Wholesale
Operations business have attended awareness-raising
sessions, focusing on the beneﬁts of diverse teams and building
an inclusive environment.

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Severn Trent Plc Annual Report and Accounts 2015

CASE STUDY

Severn Trent Plc Annual Report and Accounts 2015

FUTURE
RENE

WABLE

By digesting this food waste, we’re
preventing around 8,000 tonnes of
carbon dioxide emissions each year.
That’s equivalent to taking 3,300
cars off the road. And we’re enabling
local businesses to save money and
meet their environmental goals.
The National Exhibition Centre is one
of the ﬁrst to send its food waste to
Coleshill. We’ll be taking around 120
tonnes of its waste each year, helping
to ensure it sends zero to landﬁll.

Using food waste
to power our processes.
At our Coleshill sewage treatment
works, we’re turning food waste into
enough electricity to make the site
self-sufﬁcient.

We’ve invested £13 million in an
anaerobic digestion plant, which uses
food waste from local businesses to
create methane gas. We then convert
this gas to green energy, sufﬁcient to
power over 4,000 homes or the whole
of the works and more. Nothing is
wasted, with plastic packaging going
for recycling and the leftover material
becoming fertiliser for local ﬁelds.

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Severn Trent Plc Annual Report and Accounts 2015

Non-regulated

Our business model

Our non-regulated business allows us to apply our water
and waste water services knowledge to create and deliver
services and products to UK and global municipal, industrial
and commercial customers.

We also provide renewable energy to the group and are
looking to identify new opportunities in energy generation.

Identify and develop
opportunities

Identify and develop opportunities
in non-regulated markets

Maximise
our return

Maximise our return on investment
through long term contracts and
service agreements and cross
dissemination of our products

Create products
and services

Create products and services
that help our clients manage
their water and energy needs

Build strong and
respected brands

Build strong and respected
brands that are customer focused
and recognised across
our sectors

Severn Trent Plc Annual Report and Accounts 2015

Role

Identify and develop
opportunities

Create products
and services

Build strong and
respected brands

Maximise
our return

Associated
risks

Our strategy is to continue
growing our Operating
Services business in the
US and Europe.
Water supply services
across the UK are
changing, with legislation
giving businesses a
choice from whom they
buy their water and
waste water services.
Operating Services
is pursuing this open
market movement,
helping businesses
achieve optimum
water and waste water
management through
enhanced services.

Severn Trent Operating
Services is the largest
private operator of
facilities operated in the
US, serving more than
321 facilities in 22 states.
These facilities regularly
win awards in areas
such as environmental
compliance, health and
safety and overall plant
performance.
With water services
licences for Scotland,
England and Wales, we
offer multi sited businesses
the beneﬁts and synergies
of a single supplier
approach.

We continue to enter
new states in the US.
In February 2015 OSUS
was awarded a contract
in Quincy, in the mid west
region, replacing American
Water. 2014/15 also saw
the ﬁrst year of our largest
monetary contract to date
in Bridgeport, Connecticut,
while expanding our
presence in California
with the acquisition of 14
contracts from SouthWest
Water Company. In the UK
long term contracts with
the Ministry of Defence
(MoD) and First Milk
provide continuing stability.

Hazardous processes may
result in our people being
injured (Principal Risk Ref 7).
Failure of products or
treatment processes may
result in environmental
damage and regulatory
non-compliance (Principal
Risk Ref 6).
Regulatory or political
change may lead to
decreased demand for
our services.
We may be unable to take
advantage of the opening
up of the UK retail market
to competition (Principal
Risk Ref 2).

In 2014/15 we will supply
over 40,000 MWh of
electricity and heat to
our regulated business.
Our new food waste
AD business will
provide a service for the
recycling of industrial,
commercial, retail and
domestic food waste.

We are recognised as
being experienced in the
ﬁeld of AD. Our expertise
in this complex biological
process means that we
can be trusted to provide
an excellent service.

We have established
electricity and heat power
sale/purchase agreements
with our regulated
business. We will be
entering into long term
contracts with the wider
supply market to process
food waste.

Hazardous processes
may result in our people
being injured.
We may be exposed to
increased volatility in
energy prices.
Regulatory or political
change or local
opposition to our plans
may affect our ability
to generate sufﬁcient
renewable energy to
achieve our targets.

Severn Trent Operating Services

Operating Services
analyses markets and
works with customers
to identify opportunities
and markets where
our capabilities can be
applied for customers’
and shareholders’ beneﬁt.
In the UK we provide
design, build and contract
operations for water and
waste water treatment
facilities for a variety of
industrial segments and
supply retail water to
businesses throughout
the UK.

Renewable energy

Severn Trent generates
renewable energy from
anaerobic digestion
(AD), wind turbines and
some hydro. We are also
expanding into the food
waste market. Our new
facility at Coleshill, UK,
will convert up to 48,000
tonnes of food waste into
17,026 MWh of electricity
and approximately 30,000
tonnes of biofertiliser for
agriculture per year by
2016. We plan to investigate
the development of other
technologies including
photovoltaics (PV) and
biomass combustion.

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Severn Trent Plc Annual Report and Accounts 2015

Non-regulated business performance review

Following the sale of our Water Puriﬁcation business, we have
reorganised and brought together our remaining non-regulated
businesses – Operating Services US, Operating Services UK,
including non-household retail and renewable energy – into
a new Business Services division led by Andy Smith.

Severn Trent Services reported revenue rose by 2.9% to
£216.3 million, with reported PBIT down 27.1% to £9.7 million.
After adjusting for the impact of exchange rate movements,
revenue was 4.6% higher and PBIT decreased by 27.1%.

The business beneﬁted from a
number of actions we took to
position it for growth and
greater efficiency. We moved
from being an integrated
business to three separate
business units, each focused on
its own markets and customer
needs, and each under new
leadership teams.

Operating Services
Operating Services provides contracted operating services,
to manage and maintain water and waste water plants and
networks. It delivered revenue growth on the back of new
contract wins in the US and the UK. Revenue in 2014/15
was £216.3 million, up 4.6% after adjusting for the impact of
exchange rates.

In the US, we won a number of contracts in the Northeast
and Paciﬁc regions. We also beneﬁted from the ﬁrst full year
of our contract in Bridgeport, Connecticut. This contract,
which we won in 2013/14, is our largest in the US by monetary
value, with annual revenues of £13.8 million over 10 years.
We operate, maintain and manage two waste water treatment
facilities, 10 pumping stations and nearly 300 miles of sewers.
Our performance to date has been strong, which has helped us
to build an excellent relationship with the client. Most recently,
we have assisted with the development of a ﬁve year capital
plan, to address the challenges of ageing infrastructure.

In the UK, we continued to pick up selected new retail business
in Scotland, with contract wins in the healthcare, retail and
leisure sectors. Our approach here is disciplined, focusing on
winning proﬁtable work and using the opportunity to develop
our understanding of the market, ahead of the opening up of
non-household retail competition in England from April 2017.

We are actively preparing for the introduction of competition in
non-household retail in England. We now have new processes
which will equip us to deliver outstanding service to customers.

Our 25 year, £1 billion operation and maintenance contract with
the UK Ministry of Defence is now in its 10th year. We continue
to work with our customers to ﬁnd new ways to improve our
performance. During 2014/15, we also won a major contract
with the Coal Authority, to operate and maintain mine water
treatment plants across the UK for the next 10 years.

Severn Trent Plc Annual Report and Accounts 2015

1. During the year we won a major

contract with the Coal Authority to
operate and maintain mine water
treatment plants across the UK for
the next 10 years.

IMPROVING EFFICIENCY, COMPLIANCE
AND UNION RELATIONS

Our US Operating Services business has a 10 year
contract to help the city of Bridgeport, Connecticut,
meet the challenges of ageing plants, a struggling sewer
system and improvements to safety and compliance.
Since we started work in January 2014, we’ve built
productive relationships with all ﬁve labour unions, by
aligning our goals with theirs and the client’s. This has
helped us achieve outstanding regulatory compliance,
enabling the city to sell credits under the state’s Nitrogen
Credit Exchange Program.

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Renewable Energy
During the year, we continued to build our industry leading
position in renewable energy generation. We sell the energy we
create to power our regulated business’ operations, with the
surplus sold to National Grid.

Key developments during the year included opening our ‘gas to
grid’ plant at Minworth, Birmingham. This plant is the ﬁrst of its
kind in the water industry, and injects the gas generated from
the anaerobic digestion of sewage sludge into the national grid.
As well as being a source of revenue for us, this has important
environmental beneﬁts by enabling power stations to turn
the gas into electricity more efﬁciently than we could on-site.
Our ﬁrst food waste digestion plant, at Coleshill, Warwickshire,
began generating electricity in December 2014.

We will invest in solar energy, making use of surplus land on or
around operational sites.

Outlook
We believe Severn Trent Business Services has a number of
attractive growth opportunities and that we’ve positioned the
business to take advantage of them. In Operating Services, our
preparations for non-household retail competition in England
are going well, and we see potential in the US market, which is
showing signs of opening up, as described on page 16.

We’ll continue to invest in our renewables business, with the
aim of increasing our external sales and providing around 50%
of Severn Trent Water’s energy needs by 2020. We intend to
expand energy production from food waste, to upgrade our
sewage anaerobic digestion to the latest technology and to
add solar generation, with technological developments having
made this more economically attractive.

We believe Severn Trent
Business Services has a number
of attractive growth
opportunities and that we’ve
positioned the business
to take advantage of them.

Severn Trent Plc Annual Report and Accounts 2015

CASE STUDY

Taking the lead on
environmental performance.
Our customers and other
stakeholders value healthy rivers
and want us to continue improving
our local environment. That’s why
environmental performance is
central to our plans.

We’ve invested more and achieved
another record breaking year at
our waste water treatment works.
Of more than 700 sites, 99.9% met
their compliance limits.

We’ve also further reduced the
number of pollution incidents,
by improving the way we work
and launching new training for
our people and subcontractors.
Our environmental performance
over the last year places
us amongst the best in the
industry. We’ll continue to
work hard to improve our local
environment, with our plan for
AMP6 including no fewer than
12 performance commitments.

FUTURE
PROTEC

TING

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Severn Trent Plc Annual Report and Accounts 2015

Risk management

Our approach to risk
We have set ourselves some very challenging targets and
continually strive to improve our standards of service delivery
to customers and our overall performance. The group’s
risk management and internal control systems are vital to
the delivery of these targets and enable the identiﬁcation,
assessment and mitigation of risks inherent in our
business activities.

In our non-regulated businesses we take a more commercial
approach to our decisions around which risks are acceptable.
However, we recognise that we provide products and services
for clients who operate in regulated environments. As a result,
for risks that could impact on our clients’ services, we take
a similar approach to risk as in our own regulated business.
The risks inherent in our non-regulated business are illustrated
on page 32 ‘our non-regulated business model’.

Accountability for the effectiveness of the group’s Enterprise
Risk Management (ERM) policies sits with the board, with
oversight from the executive team, supported by operational
risk owners and the central ERM team who are responsible for
carrying out the ERM process.

Risk appetite
The board keeps under constant review the relationship
between our strategic ambitions and the management of
risk. In particular, this year the board focused carefully on the
ambition in our AMP6 programme and the risk to its delivery.

Risk owners throughout the business, with support and
challenge from the ERM team, identify and assess risks and
undertake risk improvement actions to move risks to their
target position. The ERM process starts from understanding
the objectives we have set ourselves, as shown below:

The ERM process

The ERM process establishes target risk positions for each of
our strategic risks. The board formally discuss the progress
towards this position and the mitigating actions being
undertaken every six months. Previously, the board has held
a series of risk appetite discussions focusing on eight key
strategic areas in the context of the below framework:

Strategic risk framework

Risk appetite
perspectives

Culture
and values

Customer
focus

Investor
conﬁdence

Regulatory
regime

The board
Sets strategy and determine
regulatory outcomes
Sets business plan objectives
Deﬁnes risk appetite

Risk focus
areas

ERM team
Monitors performance
Provides challenge and insight
Reports to the board
and Audit Committee

Operational teams
Identify and assess risks
Set risk target position
Identify risk improvement
actions

When considering how best to manage our risks, our approach
reﬂects the need to efﬁciently mitigate the inherent risks in our
business whilst seeking to improve our performance through
the targeted management of selected risks.

Within Severn Trent Water, our approach reﬂects our
status as a regulated utility providing essential services
and operating as part of the Critical National Infrastructure
for the UK. The nature of our Severn Trent Water business
is such that there are some signiﬁcant inherent risks, as
illustrated on page 18 ‘our regulated business model’. We aim
to have a strong control framework in place to enable us to
understand our risks and manage these risks both effectively
and efﬁciently.

Protecting health, wellbeing and safety

Financing the business

Ambition for growth

Future competitive position

Customer conﬁdence

Resilience of our networks

Relationships with regulators

Sustainability of the business

Our Enterprise Risk Management process
We use an established ERM process across the group to
assess and manage our most signiﬁcant risks, which are linked
to our corporate objectives. The ERM process covers all types
of risk including operational, ﬁnancial, legal and regulatory.
Our assessment of risk includes explicit consideration of the
possible impact of the risk on the reputation of the group as
a whole.

We analyse both the potential causes and impact of risk.
Using this process, we are able to consider the controls needed
to minimise the likelihood of risks occurring and those which
can help to maximise our resilience to risks. The understanding
which we are able to gain from our ERM process allows us to
put in place effective mitigation strategies. Resilience of our
services is vital and we regularly carry out exercises jointly
with other agencies such as local authorities, police and ﬁre
services to test this resilience.

Severn Trent Plc Annual Report and Accounts 2015

Across the group, we manage risks within the overall
governance framework which includes clear accountabilities,
delegated authority limits and reward policies. These are
designed to provide employees with a holistic view of effective
risk management. The key risks are reported to the Audit
Committee and discussed at the board every six months in the
form of risk maps. In addition, individual risks or speciﬁc risk
topics are also discussed by the board during the year.

An overview of accountability for our ERM process is illustrated
in the below chart:

Managing risk

The Board

Executive
Committee

Audit
Committee

An example of risk management in practice

We have a number of large assets which are particularly vital
to our ability to continue to supply high quality water to our
customers all of the time.
One of these is the Elan Valley Aqueduct, also known as
the EVA. This asset transfers water from reservoirs in the
Elan Valley to Birmingham’s Frankley Reservoir, carrying
drinking water to supply Birmingham. If the aqueduct were
to be damaged, for example by extreme weather or by third
parties, or if we experience major bursts on the aqueduct,
this could result in an unacceptable disruption to supply to
these customers. We have concluded that we are carrying
an unacceptable level of long term risk, particularly in terms
of loss of supply consequences in Birmingham. Our AMP6
investment plans are to provide a full alternative supply to
Birmingham which can be deployed in the event of a failure
of the EVA, and allow extended outage periods to undertake
major maintenance or replacement activities as required.
The Birmingham alternative supply scheme will construct a
new pumping station on the River Severn and an independent
pipeline to Frankley Water Treatment Works. The works
will be upgraded to treat river water and will have two fully
independent streams to provide resilience against major
failure at the works and protect supplies to Birmingham.

Operational
functions

Enterprise
Risk Management

Internal
Audit

Financial risks
Like all businesses, we need to plan future funding in line with
business needs. This is part of our normal business planning
process (see Principal risk 3). The board receive regular
updates relating to funding, solvency and liquidity matters.

Financial risks are discussed in detail on page 42.

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Severn Trent Plc Annual Report and Accounts 2015

Principal risks

The principal risks identiﬁed in our ERM process are set out below and are categorised across:
• customer
• legal and regulatory
For each risk we state what it means for us and what we are doing to manage it.

• operations, assets and people
• ﬁnancial risks

Principal risks

Ref What is the risk?

Which part of Severn

What does it mean for us?

What are we doing to manage the risk?

Trent is affected?

Severn Trent Water We are a regulated utility

We have made changes to our organisational

Customer perception

1 We may be unable to
improve and maintain
our levels of customer
service sufﬁciently
to deliver what our
customers tell us
they want.

providing essential services to
our customers. We recognise that
our customers increasingly expect
more from us, demanding higher
service levels. As other industries
improve their levels of service, the
bar is constantly being raised.

Failure to deliver the service
customers expect will lead to
customer dissatisfaction and we
may suffer ﬁnancial penalties
under Ofwat’s Service Incentive
Mechanism.

2 We may be unable to

Group-wide

Competition will give business

take full advantage of the
opportunities presented
by the opening up of the
business retail market
to competition.

customers increased choice and
will encourage companies to
provide a better service. If we fail
to keep pace with change or fail to
recognise the needs of our business
customers, we may lose customers
to our competitors. We may fail to
successfully grow our business by
being unable to develop sufﬁciently
attractive services to win new
customers.

design to embed customers at the heart of what
we do, creating a Chief Customer Ofﬁcer role and
bringing together our IS function, contact centres
and transformation teams.

Providing the high quality service that our
customers demand means we need the right
processes, systems and resources. As part
of becoming a digitally savvy organisation we
are investing in a new customer relationship
management system, which will draw together
customer information from across our systems
giving us greater insight into the needs of our
customers. We are also giving customers more
choice in the way that they interact with us by
introducing new contact channels such as web
chat and mobile.

We know that providing great customer service
needs the right resource so we have invested
heavily in training our staff and added an additional
100 frontline roles.

To help make sure we continuously improve we
are directly surveying thousands of customers
each month to get feedback on their experience of
contacting us enabling us to improve our service,
spot trends and react to our customers’ needs.

We are positioning our business to succeed in
this market and are actively preparing for the
introduction of competition in non-household
retail in England. As part of our preparations we
have changed our processes to equip us with
the technology to deliver outstanding service
to customers.

Our strategy reﬂects the needs of different
customer groups, both large and small users
and those users where water is critical to
their operations.

We are developing our service offering which
includes, for example, services to help customers
understand and reduce their water consumption.

We have recently restructured our business and
we believe that our new organisation is in good
shape to meet the needs of the changing market
place. We also have full representation on the
OpenWater project helping to deﬁne the market
rules, framework and systems for competition in
the industry.

We will be rolling out refresher training in
competition law to ensure that as we move into
the new environment we can also maintain
full compliance with the relevant legislation
and regulations.

Severn Trent Plc Annual Report and Accounts 2015

Principal risks

Ref What is the risk?

Which part of Severn

What does it mean for us?

What are we doing to manage the risk?

Legal and regulatory environment

Trent is affected?

3 We may be unable to
effectively anticipate
and/or inﬂuence future
developments in the
UK water industry
resulting in our business
plans becoming
unsustainable.

Severn Trent Water Severn Trent Water operates in
a highly regulated environment.
Whilst we are broadly content with
the direction of changes proposed
for our industry, there remains
a risk that future changes could
have a signiﬁcant impact on Severn
Trent Water.

Group-wide

The regulatory
landscape is complex
and subject to ongoing
change. There is a risk
that processes may fail
or that our processes
may not effectively keep
pace with changes in
legislation, leading to the
risk of non-compliance.

Operations, assets and people

5 We may experience loss

Group-wide

of data or interruptions
to our key business
system as a result of
cyber threats.

Our policies and processes must
reflect the current legal and
regulatory environment and all
relevant employees must be kept
aware of new requirements. Due
to the spread of our operations,
and changes in activity and
organisational structure, this is not
always straightforward. The group
as a whole may face censure for
non-compliance in an individual
group company or a specific region
in which we operate.

The risks arising from loss of one
or more of our major systems or
corruption of data held in those
systems could have far reaching
effects on our business. We have
recognised the increasing threats
posed by the possibility of cyber
attacks on our systems and data.
Whilst this threat can never be
eliminated and will continue to
evolve, we are focused on the need
to maintain effective mitigation.

Severn Trent has always contributed to the debate

about our industry’s future, including through
our series of Changing Course publications. We
will continue to be an active participant in these
conversations, so we can help shape thinking about
how to best serve our customers in the future.

We have contributed to the establishment
of OpenWater, the body which will oversee
competition in the non-household retail market.
We continue to liaise with Government, regulators
and other stakeholders to ensure we understand
the future direction of policy, its implications for our
business and are able to put forward our own case
for change in a constructive way.

We will continue to engage with our peers, Ofwat
and other regulators, UK Government departments
and other stakeholders, including the Welsh
Government, to influence the direction of regulatory
policy where possible.

We understand that the regulatory landscape is
changing and following on from the restructuring
of our organisation and in preparation for the
opening up of the retail market, we plan to refresh
our policy framework.

We plan to continue extensive training across
the group, particularly in relation to transactions
between group companies and competition law.

We recognise that the cyber threat to the business
is constantly evolving and one which we need to
monitor and act on in a timely manner.

Using guidance from the Government’s Centre for
Protection of Critical National Infrastructure we
have identiﬁed key areas where we can improve
our controls, focusing on training our people to be
more security aware and ensuring our processes
and technology are designed with security in mind.

We have improved the resilience of our systems
through implementation of disaster recovery
services and regularly test our ability to recover
from systems failure.

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Severn Trent Plc Annual Report and Accounts 2015

Principal risks continued

Principal risks

Ref What is the risk?

Which part of Severn

What does it mean for us?

What are we doing to manage the risk?

Trent is affected?
Operations, assets and people (continued)

Severn Trent Water

6 We may fail to meet
our regulatory
targets, including
targets from Ofwat in
relation to operational
performance of our
assets, resulting in
regulatory penalties.

If we are unable to meet operational
performance targets, we may be
subjected to signiﬁcant regulatory
penalties, either within the current
price review period, or applied to the
next price review.

Regulatory targets apply to all of
our water treatment, distribution,
sewerage and sewage treatment
assets. Measures are in place in
relation to water quality, continuous
supplies, sewer ﬂooding, sewer
collapses and pollution events.

Group-wide

Failure of certain key
assets or processes
may result in inability
to provide a continuous
supply of quality water
to large populations
within our area, or
cause damage to third
party property or injury
or ill health to our
people, contractors and
members of the general
public.

Some of our assets are critical
to the provision of water to large
populations for which we require
alternative means of supply.

Examples include failure of one of
our reservoirs or use of chemicals
in our treatment processes. These
assets are regularly inspected and
maintained and our assessment of
the overall condition of these assets
is good.

Another example is our IT and
telephony systems which are critical
to our operations and failure of these
systems, for example our remote
monitoring system, could have a
significant effect.

Our business plan for 2015–2020 includes
considerable investment in our assets to
improve the resilience of our networks, reduce
interruptions and improve the service that our
customers receive.

We recognise areas where our performance
is not as consistent as we would like and are
committed to improving these areas. We have
undertaken a signiﬁcant amount of work at our
water treatment works and boreholes, inspecting
the sites and increasing our maintenance and
capital replacement.

We remain committed to investing in continuous
improvement activities such as our Valuing Every
Drop programme which has signiﬁcantly reduced
our time to process and react to leaks.

We have also continued to work to reduce
the impact to our customers when things
unfortunately do go wrong, for example by faster
despatch of emergency tankers and providing our
staff with incident management training.

To improve our waste water performance we have
trialled different ways of engaging with customers
to raise awareness of the problems caused by
putting the wrong things down our sewers. We are
also investing in capital solutions to enable us to
protect properties at risk of sewer ﬂooding.

Our 2015–2020 business plan includes substantial
investment in some of our largest strategic
assets such as the Elan Valley and Derwent Valley
Aqueducts. We are also investing £340 million in
one of our largest ever capital schemes to improve
the resilience of our water supply to Birmingham.

These investments will improve the resilience
of our services and reduce the risk of injury as a
result of failure of one of our assets.

As well as investing in improvements we also have
assurance plans in place to monitor, inspect and
maintain our most critical assets.

We also have security measures in place and
contingency plans to maintain supplies in the event
of failure.

Financial risks

Changing demographics
and ﬂuctuations in the
investment market may
affect our ability to fund
pensions promises
sustainably.

Group-wide

We already provide signiﬁcant
funding. We may be called upon
to provide more money to reduce
deﬁcits in our pensions schemes.

We regularly revalue our schemes and monitor
our investment performance and will continue
to monitor the performance of our pensions
investments and to work closely with our third party
advisors to ensure that the schemes are managed
effectively.

Severn Trent Plc Annual Report and Accounts 2015

Financial review

Chief Financial Ofﬁcer’s review
The group has delivered a good ﬁnancial performance in
2014/15, underpinned by continuing improvements and growth
in our regulated business, and continued revenue growth in our
non-regulated Severn Trent Services business.

On 13 May 2015 we announced the sale of our Water
Puriﬁcation business to Industrie De Nora. The disposal follows
a successful turnaround of the business, and will enable our
reorganised Business Services division to focus on its core
strengths in water, waste, retail and renewables. The Water
Puriﬁcation business has been classiﬁed as a discontinued
operation, and our prior year results have been restated to
reﬂect this.

We made some important changes to our ﬁnancing structure
at the end of the year, to reduce short term ﬁnancing risk and
increase exposure to currently low ﬂoating interest rates.
These included replacing our revolving credit facility with a
new £900 million facility and negotiating and drawing down
on a new £530 million European Investment Bank (EIB)
facility. In addition, we cancelled some ﬂoating to ﬁxed interest
rate swaps and purchased €183 million of our ﬁxed rate
€700 million Eurobond loan, due for repayment in March 2016,
which resulted in a one time ﬁnancing charge of £6.6 million
in 2014/15. As a result, we have reduced the interest cost on
£415 million of debt and swaps from an average interest rate
of 5.1% to a ﬂoating rate, currently 1%. This has moved the
proportion of our debt that is at ﬂoating rates to 10%, in line with
our stated policy for AMP6 to increase the level of variable rate
debt. Further details are set out in the Treasury management
and liquidity section below.

A brief overview of our ﬁnancial performance for the year is
as follows:

Group turnover from continuing operations was £1,801.3 million
(2013/14: £1,756.7 million), an increase of 2.5%.

Underlying PBIT1 increased by 3.2% to £540.3 million
(2013/14: £523.8 million).

Net exceptional charges before tax totalled £18.7 million
(2013/14: £15.2 million).

Reported group PBIT1 was £521.6 million
(2013/14: £508.6 million).

Net ﬁnance costs were £240.0 million (2013/14: £247.9 million).

1. PBIT is proﬁt before interest and tax; underlying PBIT excludes exceptional items

as set out in note 8.

Regulated – Severn Trent Water
In Severn Trent Water, underlying PBIT increased by 3.9% to
£539.0 million (2013/14: £518.6 million).

Turnover increased by £36.4 million, or 2.4%, to £1,581.2 million
as a result of price increases of 1.5% (£23.0 million); higher
consumption from metered commercial customers
(£1.9 million); growth, net of meter optants (£1.0 million) and
other increases including tariff mix effects of £10.5 million.

Operating costs, excluding depreciation and infrastructure
maintenance expenditure, increased in line with expectations
by 3.1% to £619.1 million.

Employee costs
Hired and contracted
Costs capitalised
Raw materials and
consumables
Power
Bad debts
Rates and service charges
Other

2015
£m
248.4
163.8
(92.4)

47.4
63.9
28.4
113.2
46.4
619.1

2014
£m
242.0
154.1
(92.6)

42.5
65.3
31.3
112.3
45.4
600.3

Increase/(decrease)
%
2.6
6.3
0.2

£m
6.4
9.7
0.2

4.9
(1.4)
(2.9)
0.9
1.0
18.8

11.5
(2.1)
(9.3)
0.8
2.2
3.1

Employee costs were 2.6% higher, broadly in line with annual
pay inﬂation. The beneﬁts of the recent reorganisation, which
included a reduction of 500 roles, will be seen from 2015/16.
Hired and contracted costs were 6.3% higher as we invested
in key operational areas, such as sewer blockages and mains
cleaning, to make a fast start in AMP6. The beneﬁts of this
will ﬂow through to 2015/16. Raw materials and consumables
increased by £4.9 million due to inﬂation and additional
spending on water quality improvements.

Power costs decreased by £1.4 million. We continue to make
good progress on our renewable energy generation, and
generated the equivalent of 28% of gross consumption from
self-generation in the year, providing an effective hedge against
energy price volatility.

Bad debt charges improved to 2.0% of turnover (UK GAAP),
down from 2.2% in 2013/14 as we saw the beneﬁt of improved
collection of older household debt and a range of social tariffs
which help customers pay their bills.

Depreciation increased by £2.7 million, due to the growing
asset base. Infrastructure maintenance expenditure declined
£5.5 million due to operational efficiencies and programme
phasing as we closed out AMP5.

We completed our planned capital programme for AMP5,
investing £547.4 million (UK GAAP, net of grants and
contributions) during the year. Included in this total was net
infrastructure maintenance expenditure of £134.8 million,
which is charged to the income statement under IFRS.

Non-regulated – Severn Trent Services

Turnover
Services as reported
Impact of exchange rate
ﬂuctuations
Like for like
Underlying PBIT
Services as reported
Like for like

2015

£m

2014
Restated
£m

Increase/
(decrease)
%

216.3

210.2

2.9%

–
216.3

(3.5)
206.7

4.6%

9.7
9.7

13.3
13.3

(27.1%)
(27.1%)

The results above exclude the Water Puriﬁcation business,
which has been classiﬁed as a discontinued operation.

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Severn Trent Plc Annual Report and Accounts 2015

Financial review continued

In Severn Trent Services we saw good growth in turnover,
up 4.6% on a constant currency basis to £216.3 million.

Underlying PBIT was down £3.6 million to just under
£10 million. This was due to business development investment
in US concessions and a number of one off favourable items in
the prior year.

Corporate and other
Corporate overheads totalled £13.2 million (2013/14: £13.6 million).
Our other businesses generated a net profit of £1.1 million
(2013/14: £2.5 million).

Exceptional items before tax
Net exceptional operating costs totalled £18.7 million
(2013/14: £15.2 million) and included:

• In our regulated business:

– £28.3 million of restructuring costs to transform the

business for AMP6, reducing the cost base and de-layering
the management levels; offset by

– £7.7 million of proﬁt on disposal of property.

• In our non-regulated business:

– £4.4 million of restructuring costs to prepare the business
for retail competition in AMP6 and to reduce the cost base;
offset by

– the release of a £6.3 million provision previously made

against accounts receivable in Italy.

Net ﬁnance costs
The group’s net ﬁnance costs were £240.0 million, down from
£247.9 million in the prior year. The beneﬁts of lower interest
rates (in particular on our RPI linked debt) were partially offset
by higher levels of net debt.

In addition, in March 2015 the group reduced 2015/16 ﬁnancing
risk by purchasing approximately 26% of the €700.0 million,
ﬁxed rate Eurobond which is due for repayment in March 2016.
This led to a charge of £6.6 million in ﬁnance costs.

Proﬁt before tax
Underlying group proﬁt before tax increased by 8.8% to
£300.4 million (2013/14: £276.1 million). Group proﬁt before tax
was £148.2 million (2013/14: £318.9 million).

Taxation
The total tax charge for the year was £32.7 million (2013/14:
credit of £152.9 million).

The current year tax charge for 2014/15 was £37.8 million
(2013/14: £55.8 million before exceptional tax). The deferred tax
credit was £5.1 million (2013/14: charge of £21.5 million before
exceptional tax).

In the prior year there was an exceptional current tax credit
of £59.2 million and an exceptional deferred tax credit of
£171.0 million.

See note 13 for further detail.

The underlying effective rate of current tax on continuing
operations, excluding prior year credits, exceptional tax credits
and tax on exceptional items and ﬁnancial instruments,
calculated on proﬁt from continuing operations before tax,
exceptional items and gains/(losses) on ﬁnancial instruments
was 17.6% (2013/14: 17.3%).

We expect the effective rate of current tax, as deﬁned above,
for 2015/16 to be in the range of 17% to 19%.

Reported group proﬁt for the period and earnings per share
After a proﬁt of £4.7 million (2013/14: loss of £36.9 million) from
discontinued operations, reported group proﬁt for the period
was £120.2 million (2013/14: £434.9 million). The decrease was
a result of a fair value loss on ﬁnancial instruments, largely
due to lower expectations for future interest rates, and an
exceptional tax credit in the prior year which arose from an
agreement with HMRC on a long standing discussion regarding
overpayments of tax in prior periods.

Adjusted basic earnings per share (from continuing operations,
before exceptional items, gains/(losses) on financial instruments,
current tax on gains/(losses) on financial instruments and
deferred tax) was 107.2 pence (2013/14: 92.5 pence) (see note 15).
The main drivers of the increase were an increase in underlying
PBIT, as described above, a lower interest charge due to lower
RPI year on year, and a lower current tax charge arising from
adjustments of prior year computations.

Basic earnings per share were 49.9 pence (2013/14: 182.1 pence).

Group cash ﬂow

Cash generated from operations
Net capital expenditure
Net interest paid
Payment to close out interest rate swaps
Tax (paid)/received
Other cash ﬂows
Free cash ﬂow
Acquisitions and disposals
Dividends
Net issue of shares
Change in net debt from cash ﬂows
Non cash movements
Change in net debt
Net debt 1 April
Net debt at 31 March
Net debt comprises:
Cash and cash equivalents
Bank loans
Other loans
Finance leases
Cross currency swaps hedging debt

2015
£m
760.1
(416.1)
(218.2)
(139.2)
(28.6)
(1.4)
(43.4)
–
(196.9)
(16.7)
(257.0)
(48.1)
(305.1)
(4,447.5)
(4,752.6)

176.7
(1,279.2)
(3,467.5)
(180.0)
(2.6)
(4,752.6)

2014
£m
730.2
(463.9)
(204.5)
–
27.2
(0.6)
88.4
(11.4)
(185.3)
2.3
(106.0)
(44.2)
(150.2)
(4,297.3)
(4,447.5)

123.2
(594.9)
(3,826.0)
(201.2)
51.4
(4,447.5)

Severn Trent Plc Annual Report and Accounts 2015

Tax paid was £28.6 million (2013/14: received £27.2 million).
The group has obtained agreement with HMRC to offset
quarterly tax payments for the current year against a refund of
overpayment of tax in prior periods, as outlined in the prior year
results announcement.

Net debt at 31 March 2015 was £4,752.6 million
(2013/14: £4,447.5 million). Balance sheet gearing (net debt/net
debt plus equity) at the year end was 85.2% (2013/14: 80.3%).
Net debt, expressed as a percentage of RCV at 31 March 2015
of £7,740 million was 61.4% (2013/14: 58.4%). The group’s
net interest charge, excluding gains/(losses) on ﬁnancial
instruments and net ﬁnance costs from pensions, was
covered 3.5 times (2013/14: 3.3 times) by proﬁt before interest,
tax, depreciation and exceptional items, and 2.3 times
(2013/14: 2.1 times) by underlying PBIT.

The fair value of net debt at 31 March 2015 is estimated to
be £5,645.4 million (2013/14: £4,799.7 million) compared to
the book value of £4,752.6 million (2013/14: £4,447.5 million).
The difference between the book value and fair value of debt
arises from ﬁxed rate and index linked debt where the interest
rate on the debt is higher than prevailing market rates at the
year end.

Treasury policy and operations
Our treasury affairs are managed centrally and in accordance
with our Treasury Procedures Manual and Policy Statement.
The treasury operation’s role is to manage liquidity, funding,
investment and our ﬁnancial risk, including risk from
volatility in interest and (to a lesser extent) currency rates and
counterparty credit risk. The board determines matters of
treasury policy and its approval is required for certain treasury
transactions. The board has established a Treasury Committee
to monitor treasury activities and to facilitate timely responses
to changes in market conditions when necessary.

Our strategy is to access a broad range of sources of ﬁnance to
obtain both the quantum required and lowest cost compatible
with the need for continued availability. Our principal operating
subsidiary, Severn Trent Water, is a long term business
characterised by multi year investment programmes.
Our strategic funding objectives reﬂect this and the liquidity
position and availability of committed funding are essential to
meeting our objectives and obligations. We therefore aim for a
balance of long term funding or commitment of funds across
a range of funding sources at the best possible economic cost.
The group also seeks to maintain an investment grade credit
rating and a ﬂexible and sustainable balance sheet structure.

We use ﬁnancial derivatives solely to manage risks associated
with our normal business activities. We do not hold or issue
derivative ﬁnancial instruments for ﬁnancial trading.

Except for debt raised in foreign currency, which is fully hedged,
our business does not involve signiﬁcant exposure to foreign
exchange transactions. We have investments in various assets
denominated in foreign currencies, principally the US dollar
and the euro. Our current policy is to hedge an element of
the currency translation risk associated with certain foreign
currency denominated assets.

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The group issues notes in foreign currency under its European
Medium Term Note (EMTN) programme and uses cross
currency swaps to convert the proceeds to sterling. The effect
of these swaps is that interest and principal payments on
the borrowings are denominated in sterling and hence the
currency risk is eliminated. The foreign currency notes and
the cross currency swaps are recorded in the balance sheet
at their fair values and the changes in fair values are taken
to gains/(losses) on ﬁnancial instruments in the income
statement. Since the terms of the swaps closely match those
of the underlying notes, such changes tend to be broadly equal
and opposite.

Treasury management and liquidity
In February and March 2015, the group took a number of
ﬁnancing steps in readiness for AMP6, aimed at reducing short
term reﬁnancing risk and increasing exposure to currently low
ﬂoating interest rates. These steps included:

• Entering into a new £530.0 million, ﬂoating rate, nine year
facility with the EIB. At 31 March 2015, £200 million of the
facility had been drawn, with the balance drawn down in
April 2015.

• On 31 March 2015 the group purchased €182.6 million

of its €700 million Eurobond which is due for repayment
in March 2016. On the same date the equivalent amount
of the corresponding swap, paying ﬁxed rate 6.325%,
was cancelled.

• In March 2015 the group cancelled ﬂoating to ﬁxed interest
rate swaps with a notional principal amount of £275 million,
for a cash payment of £139.2 million. The average ﬁxed rate
interest on the swaps was 5.2%. The cash payment was
charged against the fair value liability on the balance sheet,
and £11 million that had been recognised in reserves was
recycled through the income statement.

• On 19 March 2015 the group amended and extended the

revolving credit facility which was due to mature in October
2018. The new £900 million facility has a period of ﬁve
years, with two one year extension options exercisable with
lender consent. At 31 March 2015 £485 million of the facility
was drawn.

The group continues to ensure it has adequate liquidity to
support business requirements and provide headroom for
downside risk. At 31 March 2015 the group had £176.7 million
(2013/14: £123.2 million) in cash and cash equivalents and
committed undrawn facilities amounting to £745.0 million
(2013/14: £500 million).

The group is funded for its projected investment and cash ﬂow
needs up to at least July 2016.

Cash is invested in deposits with ﬁnancial institutions beneﬁting
from high credit ratings and the list of counterparties is
reviewed regularly.

The group’s policy for the management of interest rate risk
requires that not less than 45% of the group’s borrowings
should be at ﬁxed interest rates, or hedged through the
use of interest rate swaps or forward rate agreements.
Going forward, the group intends to manage its existing debt
portfolio and future debt issuance to increase the proportion of
debt which is at ﬂoating rates. At 31 March 2015, interest rates
for 67% (2013/14: 77%) of the group’s net debt of £4,752.6 million
were at ﬁxed rates of interest.

Severn Trent Plc Annual Report and Accounts 2015

Financial review continued

The group uses ﬁnancial derivatives solely to hedge risks
associated with its normal business activities including:

• Exchange rate exposure on borrowings denominated in

foreign currencies;

• Interest rate exposures on ﬂoating rate borrowings; and
• Exposures to increases in electricity prices.

Accounting rules require that these derivatives are revalued
at each balance sheet date and, unless the criteria for cash
ﬂow hedge accounting are met, the changes in value are taken
to the income statement. If the risk that is being hedged does
not impact the income statement in the same period, then an
accounting mismatch arises from the hedging activities and
there is a net charge or credit to the income statement.

Derivatives are typically held to their full term and mismatches
will net out over the life of the instrument. The changes in
value that are recorded during the lives of the derivatives,
unless crystallised, do not represent cash ﬂows. Therefore the
group presents adjusted earnings ﬁgures that exclude these
non-cash items. In exceptional circumstances the group
may terminate swap contracts before their maturity date.
The payments or receipts arising from the cancellations are
charged or credited against the liability or asset on the balance
sheet, and amounts previously recognised in reserves are
recycled through the income statement.

The group holds interest rate swaps with a net notional
principal of £583.7 million and cross currency swaps with a
net notional principal of £396.6 million, which economically
act to hedge the interest rate risk on ﬂoating rate debt or the
exchange rate risk on certain foreign currency borrowings.
However, the swaps do not meet the hedge accounting rules
of IAS 39 and therefore the changes in fair value are taken
to gains/(losses) on ﬁnancial instruments in the income
statement. During the year there was a charge of £183.4 million
in relation to these instruments.

Pensions
The group operates two deﬁned beneﬁt pension schemes for
its UK employees, of which the Severn Trent Pension Scheme
(STPS) is by far the largest. The most recent formal triennial
actuarial valuations and funding agreements were carried
out as at 31 March 2013 for both schemes. As a result, deﬁcit
reduction contributions of £40 million in 2013/14, £35 million
in 2014/15, £15 million in 2015/16 and £12 million per annum in
subsequent years to 2024/25 were agreed. Further payments
of £8 million per annum through an asset backed funding
arrangement will also continue to 31 March 2032.

As previously announced, the deﬁned beneﬁt schemes closed
to future accrual on 31 March 2015. On 1 April 2015, members
of the deﬁned beneﬁt schemes were transferred to the deﬁned
contribution Severn Trent Group Personal Pension scheme,
which was opened on 1 April 2012.

The key actuarial assumptions for the deﬁned beneﬁt schemes
have been updated for these accounts. On an IAS 19 basis,
the estimated net position of the schemes was a deﬁcit of
£468.9 million as at 31 March 2015. This compares to a deﬁcit of
£348.3 million as at 31 March 2014. The movements in the net
deﬁcit can be summarised as follows:

Present value at 1 April 2014
Change in actuarial assumptions
Asset outperformance
Contributions in excess of income statement charge
Present value at 31 March 2015

£m
(348.3)
(336.8)
193.4
22.8
(468.9)

Accounting policies and presentation of the
ﬁnancial statements
Our consolidated ﬁnancial statements are prepared in
accordance with International Financial Reporting Standards
that have been endorsed by the European Union.

An analysis of the amounts charged to the income statement in
the period is presented in note 12 to the ﬁnancial statements.

The Strategic Report, as set out from the inside front cover
through to page 46, has been approved by the board.

The group manages its electricity costs through a combination
of self generation, forward price contracts and ﬁnancial
derivatives. The group has ﬁxed around 100% of the wholesale
energy cost for the ﬁrst two years of AMP6 and around 50% of
the energy cost for the third year of AMP6.

The group’s long term credit ratings are:

Long term ratings
Moody’s
Standard and Poor’s

Severn Trent Plc
Baa1
BBB-

Severn Trent Water
A3
BBB+

The outlook is stable for Standard and Poor’s, negative for Moody’s.

By order of the board

Bronagh Kennedy
Group General Counsel and Company Secretary

21 May 2015

Severn Trent Plc Annual Report and Accounts 2015

Chairman’s letter

Andrew Duff

UK Corporate Governance
Code Compliance Statement

The version of the Corporate Governance Code
applicable to the current reporting period is
the September 2012 UK Corporate Governance
Code (Governance Code). The Governance Code
is available on the Financial Reporting Council’s
website (www.frc.org.uk).
For the whole of the ﬁnancial year ended
31 March 2015, Severn Trent was compliant with
the Governance Code, except that the adequacy
of arrangements in relation to the company’s
whistleblowing procedures falls within the remit of
the Corporate Responsibility (CR) Committee, rather
than the Audit Committee. The CR Committee’s
remit is to deal with any allegations from employees
relating to any breaches under Severn Trent’s Code
of Conduct. The Audit Committee reviews reports
of matters arising in respect of ﬁnancial or internal
control matters from the company’s whistleblowing
procedures and the company’s procedures for
preventing and detecting fraud and bribery,
and receives reports on non-compliance.
The board considers that these arrangements
are appropriate.

Dear shareholder
I am pleased to introduce the Governance Report for 2015 on behalf of your
board. My role, together with the board, is to ensure that Severn Trent operates
to the highest standards of corporate governance to effectively and efﬁciently
deliver the group’s strategic objectives and to meet its obligations to the
company’s stakeholders. Ultimately, good governance requires that the board
has access to timely, relevant and robust information, so it can run the business
effectively and promote the long term success of the company in the best
interest of all stakeholders.

The Annual Report remains the principal means of reporting to our
shareholders on the board’s governance policies and therefore I welcome this
opportunity to set out how the main and supporting principles of good corporate
governance, as set out in the UK Corporate Governance Code (Governance
Code), have been applied in practice.

During the year the Severn Trent Charter of Expectations was introduced to
ensure best practice corporate governance throughout the business in line
with the group’s culture, values and behaviour. In turn, we have also overseen
a review of our Code of Conduct, ‘Doing the right thing – the Severn Trent
way’, across our businesses and reviewed our supporting group policies and
our behaviours model. Further details of these can be found on our website
(www.severntrent.com).

This report marks the end of the ﬁrst year of Liv Garﬁeld as Chief Executive
Ofﬁcer. The board has continued to support her approach to the business with
key strategic changes to both the board and Executive Committee taking place
in the past 12 months, which are outlined in this report.

The planned retirement from the board of two long serving directors during the
year gave us the opportunity to think carefully about the composition and size of
our board going forward. We decided that a smaller board would enable us to be
more nimble in a changing, more competitive regulatory environment. We have
therefore reduced the board from eleven directors to eight.

Richard Davey stepped down as a non-executive director, having served nine
years and was succeeded by Martin Lamb as Senior Independent Director and
by Philip Remnant as Chairman of the Remuneration Committee. After almost
ten years in post, Michael McKeon retired as Chief Financial Ofﬁcer and was
succeeded by James Bowling.

Dr Tony Ballance, Martin Kane and Andy Smith retired from the board, but have
remained key members of the Executive Committee.

The board would like to thank Richard, Michael, Tony, Martin and Andy for their
commitment, service and contribution over many years.

I ﬁrmly believe that we will continue to deliver value and achieve sustainable
growth for our company through the successful mix of good governance, a clear
strategy with a supporting business plan, effective risk management and a
strong organisational structure in place to execute it.

Andrew Duff
Chairman

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Severn Trent Plc Annual Report and Accounts 2015

Board of directors

STRONG
LEADERSHIP

Committee membership key
(cid:81) Audit Committee
(cid:86) Corporate Responsibility Committee
(cid:89) Executive Committee
(cid:79) Nominations Committee
(cid:43) Remuneration Committee
(cid:120) Treasury Committee

1. Martin Lamb BSc MBA (55) (cid:79) (cid:43) (cid:81)
Senior Independent Non-executive Director
Appointed to the board on 29 February 2008
Martin brings extensive experience to the board of managing and
developing large engineering businesses in all parts of the world.
His strong engineering expertise, commercial acumen, experience
of managing complex projects, and familiarity with current market
pressures leave him well placed to add value to the Severn Trent
business. In May 2014, Martin left the board of IMI plc having
served as Chief Executive for 13 years and after 33 years with
the company. On 1 March 2014, Martin was appointed Chairman
of Evoqua Water Technologies and on 14 January 2015, he was
appointed non-executive director of Mercia Technologies Plc.
On 24 April 2015, Martin was appointed Chairman of Rotork Plc.
Previously Martin was a non-executive director of Spectris Plc.
External appointments
–Chairman of Rotork Plc
–Chairman of Evoqua Water Technologies LLC
–Non-executive director of Mercia Technologies Plc
–Member of the Advisory Board of AEA Investors Management

(UK) Limited

2. John Coghlan BCom, ACA (57) (cid:79) (cid:81) (cid:120)
Independent Non-executive director
Appointed to the board on 23 May 2014
Chairman of the Treasury Committee
John is a chartered accountant and is a valuable addition to the
board’s existing skill set. He became Chairman of the Audit
Committee following the AGM on 16 July 2014 and Chairman of
the Treasury Committee in April 2015. John brings to the board
extensive ﬁnancial expertise. Currently John is also Chairman
of Inchcape Shipping Services and a non-executive director and
Chairman of the Remuneration Committee of Lavendon Group
plc. Previously, he was a director of Exel Plc for 11 years to 2006,
where he was Deputy Chief Executive and Group Finance Director.
Since 2006, John has been a non-executive director of various
publicly-quoted and private equity-owned companies.
External appointments
–Chairman of Inchcape Shipping Services
–Non-executive director and Chairman of the Remuneration

Committee of Lavendon Group plc

–Chairman of Freight Transport Association Ireland Limited

3. James Bowling BA, ACA (46) (cid:120) (cid:89)
Chief Financial Ofﬁcer
Appointed to the board on 1 April 2015
James is a chartered accountant, having started his career with
Touche Ross and brings signiﬁcant ﬁnancial management, M&A
and business transformation expertise to the board. Prior to
joining Severn Trent, James was interim Chief Financial Ofﬁcer of
Shire plc, where he had been since 2005, ﬁrst as Head of Group
Reporting and from 2008 as Group Financial Controller. Prior to
joining Shire, James spent nine years at Ford Motor Company in
various ﬁnance roles of increasing responsibility.

4. Andrew Duff BSc FEI (56) (cid:86) (cid:79) (cid:43)
Non-executive Chairman
Appointed to the board on 10 May 2010 and Chairman on
20 July 2010
Chairman of the Nominations Committee
Andrew’s extensive experience of international and regulated
business, strategic management and customer service in high
proﬁle, dynamic environments has equipped him well for the
role of Chairman of the group. Andrew spent 16 years at BP in
marketing, strategy and oil trading. He joined National Power in
1998 and the board of Innogy plc upon its demerger from National
Power in 2000. He played a leading role in its restructuring and
transformation through the opening of competition in energy
markets culminating in its subsequent sale to RWE in 2003.
He became CEO of the successor Company, RWE npower, and
a member of the RWE Group Executive Committee. He was
a non-executive director of Wolseley Plc from July 2004 until
November 2013. Andrew was appointed non-executive Deputy
Chairman of Elementis plc on 1 April 2014 and became
non-executive Chairman of Elementis plc on 24 April 2014.
External appointments
–Non-executive Chairman and Chairman of the Nomination

Committee of Elementis plc

–Member of the CBI President’s Committee
–Trustee of Macmillan Cancer Support and Earth Trust
–Fellow of the Energy Institute

Severn Trent Plc Annual Report and Accounts 2015

5. Olivia Garﬁeld BA (Hons) (39) (cid:86) (cid:89)
Chief Executive Ofﬁcer
Appointed to the board on 11 April 2014
Olivia (Liv) brings to the board a wealth of experience managing
customer service delivery and complex infrastructure and
organisations in a regulated environment. Before joining Severn
Trent, she was Chief Executive Ofﬁcer of Openreach, part of the
BT Group, where she spearheaded and oversaw the commercial
rollout of ﬁbre broadband to two-thirds of the country. She joined
BT in 2002 and held the pivotal roles of Group Director of
Strategy and Regulation, Managing Director Commercial and
Brands, Global Services and UK Customer Services Director.
From 1998 to 2002, Liv worked for Accenture as a consultant
in the Communications and High Tech Market Unit, designing
and implementing business change solutions across a number
of industry sectors. On 28 February 2015, Liv retired from the
board of Tesco Plc as non-executive director. In October 2014,
Liv stepped down as a member of the Nominations Committee
of Severn Trent.

6. Dr Angela Strank BSc PhD (62) (cid:86) (cid:79) (cid:43)
Independent Non-executive director
Appointed to the board on 24 January 2014
Angela brings a wealth of strategic, technical and commercial
experience to the board. Angela is Head of Technology,
Downstream at BP Group, effective 1 June 2015. She is also BP’s
Chief Scientist. She has held various other senior leadership roles
at BP since joining in 1982, most recently including Vice President
and Head of the Chief Executive’s Ofﬁce. In 2010 Angela was the
winner of the UK First Woman’s Award in Science and Technology
in recognition of pioneering UK women in business and industry.
Her track record and experience in strategy, operations,
technology and transformational change are a complementary
addition to the board’s skill set.
External appointments
–Board of Governors of the University of Manchester
–University College London, Energy Institute
–International Advisory Board

7. The Hon. Philip Remnant CBE ACA MA (60) (cid:81) (cid:79) (cid:43) (cid:120)
Independent Non-executive director
Appointed to the board on 31 March 2014
Chairman of the Remuneration Committee
Philip is a senior investment banker and brings substantial
advisory and regulatory experience to the board. A chartered
accountant, he is Senior Independent Director of Prudential Plc,
Deputy Chairman of the Takeover Panel, Senior Independent
Director of UK Financial Investments Limited and Chairman
of City of London Investment Trust plc. Previously, Philip was
Vice Chairman of Credit Suisse First Boston Europe and Head
of the UK Investment Banking Department. Philip was Director
General of the Takeover Panel for two years between 2001 and
2003, and again in 2010. Previously he served on the board of
Northern Rock plc and from 2007 to 2012 was Chairman of the
Shareholder Executive.
External appointments
–Senior Independent Director and member of the Audit,

Nominations and Remuneration Committees of Prudential Plc

–Deputy Chairman of the Takeover Panel
–Non-executive director of UK Financial Investments Limited
–Non-executive Chairman of City of London Investment Trust plc
–Governor of Goodenough College
–Trustee of St Paul’s Cathedral Foundation

8. Gordon Fryett (61) (cid:86) (cid:79)
Independent Non-executive director
Appointed to the board on 1 July 2009
Chairman of the Corporate Responsibility Committee
Gordon has extensive experience working in and with international
businesses, managing signiﬁcant capital expenditure. His in-
depth retail expertise at both executive and operational level
in a customer facing, highly competitive environment enables
him to bring substantial experience and expertise to the board
and the Corporate Responsibility Committee. Gordon held
the position of Group Property Director at Tesco Plc until his
retirement in November 2013. He previously held a number of
senior roles within the Tesco Group, including Operations Director,
International Support Director and CEO Republic of Ireland.
External appointments
–Alumnus of INSEAD
–Non-executive director of W & J Linney Limited

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Severn Trent Plc Annual Report and Accounts 2015

Executive Committee

The Chief Executive Ofﬁcer during the year under review
was Liv Garﬁeld who succeeded Tony Wray on 11 April 2014.
Michael McKeon stepped down as Chief Financial Ofﬁcer of Severn
Trent Plc on 1 April 2015 and was replaced by James Bowling
with effect from the same date. Michael has committed to provide
support to the company until the end of May 2015 to assist James
and Liv in the implementation of strategic projects.
Members of the Executive Committee oversee the development
and execution of the Severn Trent strategy and have accountability
for achieving business results. They are delegated responsibility
to sit on steering groups that oversee the delivery of our strategy
and business management. During the year, steering groups were
set up to oversee areas such as the submission of our PR14 plan
to Ofwat, Digital Strategy, Customer Experience Programme and
the integrated delivery of our year end results and Ofwat Annual
Regulatory Returns.
During the year, to ensure we are best placed to deliver for
our customers, shareholders and our people through our ﬁve
year business plan, we announced a number of changes to the
composition of the Executive Committee. The new executive team
will allow us to ensure we continue to put the customer at the
heart of what we do, investing responsibly for sustainable growth,
whilst driving operational excellence and continuous innovation.
As a result of these changes, a new Wholesale Operations
function, combining the formerly separate water and waste teams
has been established and, as announced on 13 April 2015, will be
led by Emma FitzGerald.
A new Chief Engineering function has been established, led by
Martin Kane, previously CEO of Severn Trent Services. The new
team encompasses engineering design standards, quality
assurance, R&D and innovation for the group and all health and
safety aspects of operations.
In addition, two new Executive Committee roles have been
established. The first is that of the Chief Customer Officer, which
incorporates Customer Care, Transformation and Information
Services, ensuring we deliver even better customer service whilst
bringing our digital strategy to life. Sarah Bentley has joined us from
Accenture, where she held the position of Managing Director of
their digital business. Sarah brings a wealth of experience of digital
transformation and extensive contact centre experience as CEO of
Datapoint and Senior Vice President of eLoyalty.

Finally, Helen Miles has been appointed as Group Commercial
Director and holds responsibility for Procurement, Transport,
Supply Chain and Contract Management. Helen was previously
CFO of UK HomeServe and CFO of Openreach. We are excited
about the energy, intellect, drive and commercial intuition that
Helen brings to the new team.
A new Business Services team is led by Andy Smith, who will
manage the non-regulated parts of our business and growth in a
competitive world. These changes build on strong foundations and
will enable the business to become more operationally effective,
more competitive in non-regulated retail markets, more customer
focused, deliver further shareholder value and deliver a great
service for our customers.
The terms of reference of the Executive Committee are available on
the company’s website (www.severntrent.com) or from the Company
Secretary. The details of the roles is detailed within the Charter of
Expectations which is also available on the company’s website.

1. Dr Tony Ballance BSc (Hons) MA (Econ) PhD (50)
Director, Strategy and Regulation
Tony’s extensive experience in utility policy and regulation leaves
him ideally placed to lead the company’s strategic and regulatory
work. Prior to joining Severn Trent he held the posts of Chief
Economist for Ofwat, director of London Economics and director
of Stone and Webster Consultants.
External appointments
–Member of Water UK Council

2. Sarah Bentley BSc (Hons) (43)
Chief Customer Ofﬁcer
Sarah joined Severn Trent in December 2014 as the Chief Customer
Officer, responsible for Household Customers, Group IS and Group
Transformation. She previously worked for Accenture as Managing
Director of their £3 billion global digital business focused on Digital
Marketing, Mobility and Analytics for customers, employees and
the enterprise. Prior to Accenture, Sarah was CEO of Datapoint,
an Alchemy backed company delivering CRM services, and
Senior Vice President of eLoyalty, a global CRM and Marketing
consultancy. She was SVP of the European Business, led the sales
and operations activity in North America and ran eLoyalty Ventures
L.L.C. working in Silicon Valley, Austin and New York.

Severn Trent Plc Annual Report and Accounts 2015

10.

3. Emma FitzGerald MA, DPhil Oxon, MBA (48)
Managing Director Wholesale Operations
We are delighted that Emma will be joining Severn Trent on 1 July
2015. Emma is currently CEO of Gas Distribution at National Grid
where she has been accountable for providing affordable energy,
safely and reliably to 11 million customers through 132,000 km of
gas distribution pipelines, leading 9000 employees and contractors.
She is also a Non-executive Director of Alent Plc. Prior to joining
National Grid, she pursued a 20 year career with Royal Dutch
Shell where she held a variety of technical, strategic and general
management positions based in Asia and Europe including Vice
President Global Retail Network and Managing Director of Shell
China/Hong Kong Lubricants based in Beijing.
External appointments
–Non-executive director of Alent plc
–Trustee, Windsor Leadership
–Member of International Leadership Advisory Panel,

Prime Ministers ofﬁce, Singapore Government

4. Evelyn Dickey BSc (Hons) (52)
Director of Human Resources
Evelyn joined Severn Trent in November 2006. Evelyn has
extensive HR experience leading design and delivery of major
change programmes, business restructuring, employee relations,
resourcing, executive remuneration, organisational capability
and performance management initiatives. Before joining Severn
Trent, Evelyn worked in HR consultancy and as HR Director (HR
Operations) for Boots the Chemists.
External appointments
–Non-executive director of Nuclear Decommissioning Authority

5. Olivia Garﬁeld BA (Hons) (39)
Chief Executive
Please see full biography on page 49.

6. Martin Kane BSc CEng CEnv MICE MIWEM FIW (62)
Martin joined Severn Trent Water in 1975 and has held various
senior roles giving him an extensive and unique understanding of
the design, construction and operation of water and waste water
treatment plants, water distribution networks and sewerage
systems. Martin was Director of Customer Relations, Severn
Trent Water, from May 2006 until January 2012, when he was
appointed Chief Executive Officer of Severn Trent Services.

In July 2014, Martin was appointed Chief Engineer of Severn Trent
Plc, covering engineering design standards, quality assurance,
R&D and innovation for the group and all health and safety aspects
of operations.
External appointments
–Member of the boards of Utilities and Service Industries Training

Limited and National Association of Water Companies (US)
–Trustee of International Society for Trenchless Technology

7. Bronagh Kennedy BA (Hons) (51)
Group General Counsel and Company Secretary
Bronagh joined Severn Trent in June 2011. Bronagh is a solicitor
and was previously Group Company Secretary and General
Counsel at Mitchells & Butlers, where she worked for 15 years.
Prior to that, she was a Senior Associate at Allen & Overy. She is
a member of the GC100 Group.

8. James Bowling BA, ACA (46)
Chief Financial Ofﬁcer
Please see full biography on page 48.

9. Helen Miles CIMA (44)
Group Commercial Director
Helen joined Severn Trent in November 2014 and brings with her a
breadth of experience having worked within regulated businesses
and sectors across telecoms, leisure and banking. As a member
of the UK senior management team, Helen was instrumental
in delivering HomeServe’s future growth plans and ensuring a
sustainable, customer focused business. Helen was previously
Chief Financial Ofﬁcer for Openreach, part of BT Group plc.
Prior to BT Group, Helen worked for Bass Taverns, Barclays Bank,
Compass Group and HSBC.

10. Andy Smith BTech (Hons) (54)
Managing Director, Business Services
Andy brings a broad range of executive and operational expertise
gained from diverse sectors to the Executive Committee. Andy has
signiﬁcant experience having worked in the UK and overseas with
global businesses such as BP, Mars and Pepsi, in engineering and
operational management roles. Previously he was a member of
the board at Boots Group Plc.
External appointments
–Non-executive director of Diploma Plc

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Governance report

Group Authorisation Arrangements

The Group Authorisation Arrangements (GAA) are
the framework through which the Severn Trent Plc
board authorises the right people, at the right level,
to take important decisions as we manage legal,
ﬁnancial and administrative issues throughout
the group. The GAA are designed to facilitate good
control, efﬁcient decision-making and demonstrable
compliance. These arrangements are reviewed
annually, with the last review undertaken in
March 2015.

The ﬂow of authority is from the Severn Trent Plc
board to the Chief Executive and the Severn Trent
Executive Committee. In respect of certain issues,
the delegated authority is subject to an obligation
to work with specialist business services areas
(such as Tax, Treasury, Group Finance and Company
Secretariat), which provide additional expertise and
a group-wide perspective.

Governance of subsidiaries

The membership of the board of the listed
company, Severn Trent Plc, is the same as that of its
regulated subsidiary, Severn Trent Water Limited.
This structure was implemented in 2007 to ensure
that the highest standards of corporate governance
were applied at the regulated subsidiary level and
to promulgate greater visibility and supervision
of Severn Trent Water Limited by the Plc board.
Severn Trent Water Limited will therefore be
voluntarily complying with the 2012 UK Corporate
Governance Code (the Governance Code) to ensure
these high standards also apply to it.

The two companies operate as distinct legal entities.
The boards comply with the Severn Trent Plc Board
Governance document and the Severn Trent Water
Limited Matters Reserved to the board. They are
assisted through the management of separate
agendas, meetings and minutes by the Company
Secretariat and advised in their meetings by the
Company Secretary where appropriate.

Subsidiary company boards are required to be
managed scrupulously with respect to legal, ﬁscal
and administrative matters. In particular, the
relationships between Severn Trent Water Limited
and our other businesses such as Severn Trent
Business Services are monitored and controlled to
ensure that our obligations under competition law
and regulatory requirements are complied with in
respect of all transactions between them, or with
third parties.

This Corporate Governance report describes the manner in which the company
has applied the principles set out in the Governance Code during the year.
The Governance Code sets out ﬁve key principles: Leadership, Effectiveness,
Accountability, Remuneration and Relations with shareholders. This report
demonstrates how the company has applied best practice corporate governance
in these key areas.

Leadership
Charter of Expectations
During the year the Severn Trent Charter of Expectations has been adopted to
promote and implement best practice corporate governance. The Charter sets
out the role proﬁles and expectations of all key positions on the group’s boards
(together referred to as the ‘board’), and board committees, and also reﬂects
the board’s responsibility for setting the tone for the group’s culture, values
and behaviour.

It is envisaged that having such expectations clearly documented will assist in
the assessment of the effectiveness of the board and its committees, and that of
individual directors.

The Charter of Expectations is published and available on our website
(www.severntrent.com) so that there is complete transparency of the standards
we set ourselves for all of our stakeholders.

The performance of the board and board committees and of each director will
be measured against these expectations.

Board membership
2014/15 saw a number of changes to the board’s composition due to carefully
managed succession planning and evaluation of its required skills and
capabilities. As a consequence, it was announced that the board would be
reduced from eleven to eight directors, with effect from 23 January 2015.

Richard Davey stepped down as non-executive director, having served nine
years and was succeeded as Senior Independent Director by Martin Lamb
who has been on the board for six years and by The Hon. Philip Remnant as
Chairman of the Remuneration Committee. Michael McKeon ceased to be a
director and Chief Financial Ofﬁcer on 1 April 2015 having served almost ten
years. Michael was succeeded by James Bowling effective the same date.

Dr. Tony Ballance, Martin Kane and Andy Smith retired from the board, but
remained members of the Severn Trent Executive Committee and retained their
executive responsibilities in their areas of remit.

The board would like to thank Richard, Michael, Tony, Martin and Andy for
their service.

These changes will support the effectiveness of the board with an appropriate
balance of innovation, experience, independence and challenge to ensure
effective decision making.

Photographs of the members of the board, together with their biographies and a
description of the complementary skills and diverse experience that they bring
to bear, can be found on pages 48 and 49.

In accordance with the Governance Code, all the directors will retire at this
year’s Annual General Meeting (AGM) and submit themselves for election or
re-election by the shareholders.

Details of our policy on diversity in the boardroom are provided in the
Nominations Committee report on pages 61 and 62.

Severn Trent Plc Annual Report and Accounts 2015

Reporting obligations

As a public listed company, the company is required
to comply with a range of reporting obligations set
out by law and regulation.

The company recognises the importance of
effective communication as a key part of building
shareholder value and that, to prosper and achieve
growth, it must earn the trust of security holders,
employees, customers, suppliers, communities,
regulators and other stakeholders, by being open in
its communications and consistently delivering on
its commitments.

The company announces its results on a half yearly
basis and also provides quarterly trading updates to
the market.

The Chief Executive has established a Disclosure
Committee, chaired by the Chief Financial Ofﬁcer,
to oversee the company’s compliance with
its disclosure obligations and to consider the
materiality, accuracy, reliability and timeliness of
information disclosed. The committee also oversees
the delivery of an integrated plan incorporating all
elements of the year end reporting process, namely
the group’s preliminary results announcement
and Report and Accounts, the company’s AGM,
the statutory and regulatory accounts of Severn
Trent Water Limited, the Annual Regulatory
Compliance Statement and the Annual Regulatory
Performance Report.

Role of the Chairman
The role of Andrew Duff, your Chairman, is to lead a unitary board, facilitating the
contribution of its members at its meetings, and to be responsible for ensuring
that the management and processes of the board are maintained in line with the
Code of Conduct and the Charter of Expectations.

Agendas for board meetings are agreed by the Chairman in consultation
with the Chief Executive, the Chief Financial Ofﬁcer and Company Secretary,
although any director may request that an item be added to the agenda. The
Chairman demonstrates effective and ethical leadership for the company,
and has authority to act and speak for the board between its meetings, including
engaging with the Chief Executive, and providing support and advice where
appropriate. He reports to the board and committee Chairmen on decisions
and actions taken between meetings of the board and ensures effective
working relations with open lines of communication with other group executive
committee members. He also meets with the non-executive directors without
the executive directors present, to consider the performance of the executive
directors, to maintain the necessary depth and breadth of knowledge and skills
to ensure the effectiveness of the board as a team.

The Chairman maintains effective communication with shareholders and other
stakeholders by meeting with them in person to ensure the board maintains an
understanding of the views of major investors and other key stakeholders, whilst
promoting highest standards of corporate governance.

Senior Independent Non-executive Director
Martin Lamb replaced Richard Davey as your Senior Independent Non-
executive Director with effect from 23 January 2015. Martin is a member of
the Audit, Remuneration and Nominations Committees. The board has agreed
that Martin will act as Chairman of the board in the event that the Chairman
is unable to do so for any reason. The Senior Independent Director supports
the Chairman in the delivery of his objectives and ensures that the views of all
major shareholders and stakeholders are conveyed to the directors, to help
develop an understanding of any key issues and concerns. He is available to
all shareholders should they have any concerns, if the normal channels of
Chairman, Chief Executive or Chief Financial Ofﬁcer have failed to resolve them
or for which such contact is inappropriate.

The Senior Independent Director meets with non-executive directors, without
the Chairman present, at least annually, and taking into account the views of the
executive directors, leads the non-executive directors in the ongoing monitoring
and evaluation of the performance of the Chairman, including communicating
the results of such.

Together with the Nominations Committee, he takes responsibility for ensuring
that an orderly succession planning process is in place, in relation to both the
role of the Chairman and the board in general.

Non-executive directors
Your non-executive directors are appointed to the board to contribute their
independent external expertise and experience in areas of importance to the
group. Their competencies include corporate ﬁnance, including mergers and
acquisitions, general ﬁnance, corporate strategy, customer care, property,
environmental and technology matters, engineering, regulation, general
management, transformational change, science, regulatory compliance and
supply chain management. They also provide independent challenge and
rigour to the board’s deliberations and are encouraged to make independent
assessments of the group’s competencies. The non-executive directors, led by
the Senior Independent Non-executive Director, meet without the Chairman at
least once a year for them to appraise the Chairman’s performance and they
have other meetings during the year without executive directors present.

As part of the board effectiveness review, the board has reviewed the status
of the non-executive directors and considers them all to be independent in
character and judgement as deﬁned by the Governance Code.

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Governance report continued

Formal schedule of matters
reserved for the board

The processes in place regarding the board’s
tasks and activities and the matters speciﬁcally
reserved for the board’s decision making, the
role of and the authority delegated to the Chief
Executive, the accountability of the Chief Executive
for that authority, and guidance on managing the
relationship between the board and the Chief
Executive are documented. In addition to these
processes, we have adopted the Severn Trent
Charter of Expectations to ensure best practice
corporate governance throughout the business.

These processes are reviewed annually.

The board has reserved the following for its
own consideration:

• Strategy and Management
• Structure and Capital
• Financial Reporting and Controls
• Internal Controls
• Contracts and Policies
• Board Membership and other appointments,

including the appointment of the Chief Executive,
directors and the Company Secretary

• Remuneration
• Delegation of Authority including the Group

Authorisation Arrangements (GAA) which sets
out the group’s delegated approval limits
• The approval or adoption of documents,

including the Annual Report and Accounts,
required to be made by the board by the
company’s GAA, constitutional documents,
statute or external regulation

Chief Executive
Responsibility has been delegated to the Chief Executive to develop and
implement the group’s strategy and overall commercial objectives. The
non-executive directors, led by the Chairman, appraise the Chief Executive’s
performance annually. Liv Garﬁeld is empowered to take all decisions and
actions that further the company’s strategy and policies and which in her
judgement are reasonable, having regard to the limits which apply to her role as
Chief Executive, as set out in the company’s Group Authorisation Arrangements
(GAA). She will ensure a continual dialogue with the Chairman on the strategic
issues facing the group including forthcoming complex, contentious or sensitive
issues which may affect the group, of which the Chairman might not be aware.
The Chief Executive is required to promote and conduct the affairs of the group
with the highest standards of integrity, probity and corporate governance.

Executive directors
The executive directors support the Chief Executive in effectively leading Severn
Trent towards the achievement of its strategic objectives and implement the
strategy decisions taken by the board. They are committed to doing this in a
responsible way which takes account of commitment to our Code of Conduct,
the long term sustainable and responsible stewardship of the business and
the delivery of an outstanding customer experience, the best value service and
environmental leadership. This year saw our number of executive directors
reduce from ﬁve to two, with Tony Ballance, Martin Kane and Andy Smith
stepping down, allowing for a slimmer board structure.

Role of the Company Secretary
All directors have access to the advice and services of the Company Secretary,
Bronagh Kennedy, and the Company Secretariat team. Bronagh is responsible
for ensuring that the board operates in accordance with the governance
framework it has adopted and that there is an effective ﬂow of information
to the board and its committees and between senior management and the
non-executive directors.

The appointment and resignation of the Company Secretary is a matter for
consideration by the board as a whole.

Independent advice
Directors have access to independent professional advice at the company’s
expense on any matter relating to their responsibilities.

Terms and conditions of appointment
The terms and conditions of appointment of the directors are available for
inspection by any person at the company’s registered ofﬁce during normal
business hours. They will also be made available before and during the AGM.

Effectiveness
Board meetings
There are regularly scheduled meetings of the board and of its permanent
committees throughout the year and any additional meetings and ad hoc
committee meetings are convened as and when required.

Papers, including minutes of board and Executive Committees held since the
previous board meeting and performance reports, are circulated approximately
a week in advance of each meeting.

There is a documented procedure in place which allows directors to take
independent professional advice in the course of their duties and all directors
have access to the advice and services of the Company Secretary. If a director
has a concern over any unresolved matter he or she may require the Company
Secretary to minute that concern.

Severn Trent Plc Annual Report and Accounts 2015

During the year, seven board meetings were held,
with the attendance ﬁgures of these meetings
detailed below.

Director

Meetings attended

Andrew Duff
Tony Ballance
John Coghlan*
Richard Davey
Gordon Fryett
Liv Garﬁeld
Martin Kane
Martin Lamb
Michael McKeon
Baroness Noakes**
Andy Smith
Dr Angela Strank

7/7
6/6
7/7
6/6
7/7
7/7
6/6
7/7
7/7
6/7
6/6
7/7

* John Coghlan was appointed at the May 2014

board meeting.

** Apologies were given by Baroness Noakes at the
July board meeting. Baroness Noakes retired
following the July 2014 meeting.

The above ﬁgures take into account board changes
detailed in this Annual Report and Accounts.

Board activities by % 2014/15

Finance
Strategy
Governance
Performance
Other

13.2%
44%
13%
21%
8.8%

Board committee meetings 2014/15
There were three committee meetings of
the board convened throughout the year to
consider such matters as Severn Trent Plc’s
preliminary and interim results and interim
management statements.

The chart opposite shows how the board has spent its time at scheduled board
meetings. The board’s agenda is normally structured as follows:

• Standing Items – regular reports from the Chief Executive and Chief Financial

Ofﬁcer on the operational and ﬁnancial performance of the business,
regulatory matters and external affairs and from the Company Secretary on
governance issues.

• Non Standing Items – Strategic Discussion Topics and ad hoc matters

requiring approval, discussion or noting by the board.

The board monitors the performance of Severn Trent Water Limited and
Severn Trent Business Services at every meeting and receives monthly
updates on performance against the KPIs and ODIs stated on pages 10 and 11
of the Strategic report. The board also regularly discusses reports on capital
efﬁciency. The board monitors governance matters and developments in best
practice through the Governance report provided by the Company Secretary, a
standing item on the board agenda. The board also formally reviews compliance
with the Governance Code on an annual basis and reviews conﬂicts and other
arising disclosure requirements bi-annually.

As part of its annual work plan, the board reviewed and approved all ﬁnancial
results announcements, the Annual Report and Accounts, the PR14 Five Year
Plan and dividend payments and all changes to the composition of the board and
its committees.

Board Strategy Day and Preparation for PR14
In addition to formal meetings, the board attended a full day strategy session in
November 2014, where the board and Executive Committee together considered
the areas of future value creation across the Severn Trent group. Key areas
of discussions included the delivery model for AMP6, developments following
recent legislative changes in the Water Act 2014 and how the company should
respond, innovation and external matters impacting the company and its
strategic options for future growth.

Board committees
The four permanent committees of the board assist in the execution of its
responsibilities and the board has delegated some of its responsibilities to those
board committees. The committees assist the board by fulﬁlling their roles and
responsibilities, focusing on their speciﬁc activities, reporting to the board on
decisions and actions taken, and making any necessary recommendations in
line with their terms of reference. The effectiveness of each of the committees
has been reviewed during the year as part of the externally facilitated board
review. The terms of reference of each committee have also been updated to
take account of best practice as part of their annual review.

The terms of reference of the Audit, Remuneration and Nominations
Committees comply with the provisions of the Governance Code, except
as reported on page 47, and are available for inspection, together with the
terms of reference of the Corporate Responsibility Committee, on our
website (www.severntrent.com) or may be obtained on request from the
Company Secretary.

Reports from the Chairs of these committees are set out on pages 61 to 65
and 69 to 85 of this report.

Treasury Committee
In March 2015 the board approved the establishment of a new permanent
committee of the board, the Treasury Committee, to provide oversight of
treasury activities in implementing the policies and the funding and treasury risk
management plan approved by the board, including inter alia: the measurement
and management of interest rate, funding, counterparty credit, liquidity and
operational risks; funding proposals; relationship with rating agencies; debt
investor relations; bank relationship management and treasury internal controls.
The committee will review and approve the Group Treasury Policy Statements, at
least annually, and present an annual report to the board in relation to its activities.

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Severn Trent Plc Annual Report and Accounts 2015

Governance report continued

Training and development
Induction
On joining the board, a director’s induction needs are evaluated and then they
are provided with a comprehensive and personalised induction pack which
includes information on our business, key operations and processes, how we
are regulated, how we are shaping future regulation, strategic plans, ﬁnancial
reports, business plans and information on our governance framework and
directors’ roles and responsibilities and legal and regulatory duties.

Meetings are arranged with members of the executive management team and
with external advisors who provide support to the relevant board committees on
which the directors may serve. Visits to operational and ofﬁce sites across the
group and management presentations are also arranged for directors joining
the board and subsequently throughout the year.

These arrangements have been followed for the induction of James Bowling,
prior to him joining the board on 1 April 2015, and John Coghlan following his
appointment to the board on 23 May 2014.

Directors’ resource library
An online directors’ resource library and Continuing Professional Development
(CPD) repository has been created for use by the directors, which is subject
to periodic reviews and updates where appropriate. The library includes a
Corporate Governance Manual, a Results Centre and Investor Relations section,
Strategy Day materials and details of board training sessions. It also includes
a further reading section which contains regular updates and guidance on
changes to legislation and best practice.

Continuing Professional Development
All directors receive updates throughout the year on matters such as changes
to best practice governance guidelines. The directors also have access to
professional development provided by external bodies and our advisors.
CPD requirements were considered, through individual review meetings between
the Chairman and each director, as part of the board effectiveness review in
2014/15 and remain an integral part of the development of our directors.

Board Effectiveness Review
The effectiveness of the board is reviewed annually and an independent
externally facilitated review of the effectiveness of the board is conducted every
three years. The board therefore conducted an externally facilitated board
effectiveness evaluation this year, the last having taken place in November 2011.

In September 2014 a range of potential providers were identiﬁed and it was
agreed that the evaluation exercise should be facilitated by Manchester Square
Partners (MSP). MSP has no other connection with the company.

MSP provided a questionnaire to explore the board’s approach to:-

• Strategy
• Challenges and risks
• Values and culture
• Role of the board, board dynamics and engagement
• Structure of the board, its composition and succession planning
• Governance and leadership

This was supplemented by a review of historic board papers and individual
face-to-face interviews with all board directors, the former Senior Independent
Director, Richard Davey and the Company Secretary.

The Chairman also discussed the contribution of directors with each of them
in person and the Senior Independent Director conducted an evaluation of the
Chairman with the assistance of the non-executive directors.

The subsequent report prepared by MSP was discussed by the Nominations
Committee in its consideration of the re-election of directors and it was also the
subject of a presentation to the board.

Severn Trent Plc Annual Report and Accounts 2015

Code of Conduct principles

The report concluded that:-

Working relationships:
• Keeping everyone healthy and safe
• Supporting employees’ rights and diversity
Personal and business integrity
• Maintaining ethical and honest behaviour
• Staying free from bribery and corruption
• Keeping our communications open

and responsible

• Delivering excellent customer service
Our place in the world
• Working within the community
• Protecting our environment
• Standing up for what’s right
• In all our hands
‘Doing the right thing – the Severn Trent way’ details
the principles we work by. You can view our Code of
Conduct by visiting:
http://www.severntrent.com/about-us/corporate-
governance/code-of-conduct

• There was a strong level of consistency on the key purpose, role and focus
areas for the board, which was hard working, fully committed and engaged.

• There was a real openness and quality of debate at board meetings.
• Board structures and processes were efficient, effective and thorough.

Committees were well chaired, operating well and had good linkage to the board.

Areas for further focus were:-

• Allocation of agenda time to agreed key strategic priorities.
• Mentoring, talent management and succession planning below Executive

Committee level.

• Enhance KPIs to reﬂect risks and operational performance against new AMP6

Regulatory Requirements.

Accountability
Code of Conduct: ‘Doing the right thing – The Severn Trent way’
Every day Severn Trent employees have to make choices about what they
do and how they do it. Most of the time it is clear what the right thing to do is,
whether it is about doing what is safe, doing the right thing for customers, doing
what is right ethically, and indeed what is right legally.

However, sometimes it is not so clear. ‘Doing the right thing – The Severn
Trent way’ details the principles we work by. This is our Code of Conduct and
explains who we are, what we stand for and how we work. It also tells our
customers, investors and business partners that they can trust and rely on us.
These principles apply to everyone in Severn Trent’s businesses, no matter
where in the world they are based or what they do. They provide a common
and consistent framework for responsible business practices and set out the
standards we need to follow in our day-to-day activities.

During the year we have continued to roll out the Code of Conduct across the
group to make sure that everyone in the business understands what it is all
about and upholds our ethical standards. All employees are provided with a copy
in their local language as part of their induction. Training sessions are made
available and all teams have been encouraged to discuss it through regular
communication exercises.

We have also continued to roll out our Code of Conduct into our supply chain, as
explained in the Corporate Responsibility report on pages 66 to 68.

Policies
The Code of Conduct is supported by our group policies and our
behaviours model. Further details of these can be found on our website
(www.severntrent.com). During the year, we have completed the annual review
of the policies and our behaviours model to ensure they are ﬁt for purpose.

Independence
The board considers each of the non-executive directors, seeking re-election at
the forthcoming Annual General Meeting (AGM), to be independent in character
and judgement.

Interests
No director had a material interest at any time during the year in any contract of
signiﬁcance with the company or any of its subsidiary undertakings.

Conﬂicts of interest
The board has a full documented process in place to authorise situational
conﬂicts in accordance with the provisions of the Companies Act 2006 and under
the Company’s Articles of Association. An annual review of conﬂicts is carried
out with a simultaneous review of the Severn Trent Gifts and Hospitality Register,
and is incorporated into the year end process of verifying directors’ interests.
Half yearly reports are also made to the board of all directors’ conﬂicts and
directors are reminded of their obligations to disclose any potential conﬂicts.

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Severn Trent Plc Annual Report and Accounts 2015

Governance report continued

At the beginning of every board meeting there is a standing agenda item to
consider and discuss whether any potential conﬂict exists. If it does then the
relevant director does not attend the meeting when that item is discussed.

During the 2014/15 ﬁnancial year, the Nominations Committee discussed the
proposed management of the situational conﬂict created by Martin Lamb’s
Chairmanship of Evoqua Water Technologies. Given the beneﬁts of Martin
Lamb’s valuable contribution to the board as a recently retired Chief Executive
and the relative insigniﬁcance of the Business Services Water Puriﬁcation
business (‘WP’) in the context of the group as a whole, the committee considered
that it could recommend authorisation of the conﬂict and the proposed means of
management by the board, provided such was made transparent and kept under
regular review to ensure that the board’s effectiveness was not compromised.
The management of the conﬂict through redaction of papers and his absence
from discussions on WP speciﬁc matters was also adopted by the Audit
Committee in relation to his membership of such, in March 2015.

With the disposal of the Water Puriﬁcation business, which was announced on
13 May 2015, this will no longer be necessary.

Relations with shareholders
Retail shareholder engagement strategy
The board has an active shareholder engagement strategy, the main elements
of which are set out below.

The Annual Report and Accounts is the principal means of communicating
with shareholders. The group has adopted e-communications as an alternative
method of sending company information. In March 2015 shareholders were re-
consulted as to their preferred method of receiving company communications.
Following the consultation 54,417 shareholders (88%) receive conﬁrmation
that the Annual Report is available to view online, whilst 7,494 (21%) continue to
receive a hard copy.

Our website (www.severntrent.com) contains an archive of annual reports
together with other information relevant to investors. This includes
comprehensive share price information, ﬁnancial results, company news and
ﬁnancial calendars. The company offers a Dividend Reinvestment Plan (DRIP).
Details of the DRIP are available on our website and the website of Equiniti,
our registrar.

Institutional shareholders and analysts
The board recognises the importance of representing and promoting the interests
of its shareholders and that it is accountable to shareholders for the performance
and activities of the company and various mechanisms have been put in place to
ensure it remains in touch with key activities and developments, including:

• Monthly update of the key shareholder engagement activities carried out by

the Executive Committee and the Investor Relations team;

• A monthly report, provided by Makinson Cowell, of our shareholder register,

outlining the signiﬁcant buyers and sellers of Severn Trent shares; and
• Regular summaries of sector research notes, allowing shareholders to

understand the key opinions being communicated to investors by analysts.

Presentations are made to shareholders and analysts following the release
of the interim and year end results. The Chief Executive and Chief Financial
Ofﬁcer regularly meet shareholders during the year. The Chairman and
Martin Lamb, the Senior Independent Non-executive Director, have also
met with shareholders separately from executive directors in March 2015.
All major shareholders were offered a meeting and those who requested
one were accommodated. The Chairman and Martin Lamb were available to
meet shareholders at their request throughout the year. The board receives
written feedback from Makinson Cowell following meetings with institutional
shareholders and monitors shareholder activity on a quarterly basis at
its meetings.

Severn Trent Plc Annual Report and Accounts 2015

The culture of the
organisation is one
that is willing to listen
and to engage – they
are available if you
need them.

Feedback from an institutional investor

Communication with institutional shareholders and the market
We are committed to serving the needs of our institutional investors and have
an extensive programme of events designed to give them access to key senior
management and our Investor Relations team. The following table summarises
some of the main events of our engagement programme during 2014/15.
The events were usually attended by the Chief Executive, the Chief Financial
Ofﬁcer and the Investor Relations team and comprised roadshows in the
regions where our key investors are situated, such as the UK, Europe and
North America, as well as various conferences to meet with a wide range of
institutional investors. In addition to these events, the Chief Executive, the Chief
Financial Ofﬁcer and the Investor Relations team also attended numerous ad
hoc meetings with key investors over the course of the year.

Events in 2014/15
May/June
June
June
June
June
July
July
September
September
September
November
February
March
March

London Roadshow
Bank of America Merrill Lynch Utilities Conference
Brean Capital Global Resources and Infrastructure Conference
Germany/Switzerland Roadshow
North American Roadshow
Private Client Roadshow – London
Edinburgh Roadshow
Morgan Stanley Power & Utility Summit
Private Client Roadshow – London
Credit Suisse UK Utility Reverse Roadshow
London Roadshow
Dividend Roadshow
North American Roadshow
Capital Markets Day

Our conversations with investors during 2014/15 have inevitably focused largely
on Ofwat’s PR14 review process and the associated implications of such for
Severn Trent. Key concerns for investors included the changes to the weighted
average cost of capital, the introduction of Totex and ODIs, opportunities around
our capital structure and discussions with Ofwat regarding our proposed
investment in the Elan Valley Aqueduct. Other key areas of interest for
investors have been the Water Bill and the upcoming changes to the regulatory
framework, including water trading and the potential for future mergers, as well
as the appointment of the new Chief Executive, Liv Garﬁeld, and her plans for
the business.

During the year, the Investor Relations section of the Severn Trent Plc website
was updated. The aim of this was to improve navigation around the different
areas, make it more intuitive and easier for investors to ﬁnd the information they
were looking for, as well as providing additional content.

Capital Markets Day
A key event in our timetable this year was our Capital Markets Day, held
on 17 March 2015. This followed the receipt of our Final Determination on
12 December 2014, which set out Severn Trent Water Limited’s allowed returns,
expenditure and performance commitments for the next ﬁve year period from
2015–2020 (AMP 6) and the subsequent announcement of our dividend policy.
The purpose of the day was to set out our strategy for the next ﬁve years and
outline the plans being put in place to enable us to meet the requirements
set out in our Final Determination. On the day, 70 of our key investors and
analysts travelled to Severn Trent Centre in Coventry. The day’s agenda
included presentations from key management personnel, covering ﬁnancials,
operational performance, regulatory reform and our customer focus, as well
as demonstrations of some of the key initiatives being implemented, such as
the roll out of new digital devices to employees in the ﬁeld. The day concluded
with site tours of two strategically important sites, Minworth Sewage Treatment
Works and our recently opened food waste digestion plant in Coleshill.

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Severn Trent Plc Annual Report and Accounts 2015

Governance report continued

Members of the Water Forum

Members of the Water Forum comprise those
with a statutory remit or key interest in the
water industry.
The Water Forum is made up of nine organisations
who represent our customers or have a stake in
what we do. Membership is currently under review.

Organisation
CBI West Midlands
Natural England
National Farmers Union
Citizens Advice Bureau – Coventry
East Midlands Councils
Environment Agency
Drinking Water Inspectorate
Scottish and Southern Energy
Consumer Council for Water

VIEW ONLINE

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and Accounts
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We’re always looking to make life easier.
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you read the information that matters to you,
wherever you may be, whether on the move
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use too, which is kinder to the environment.
We hope you like it.

www.severntrent.com/AR2015

Customer engagement
As PR14 reached its concluding stages this year, we continued to engage
with the Severn Trent Water Forum. The Forum is a multistakeholder group,
independently chaired by Professor Bernard Crump of Consumer Council for
Water, established to challenge the development of Severn Trent Water Limited’s
business plan for 2015–2020 to ensure that it takes into account our customers’
priorities. Members of the Forum comprise those with a statutory remit or key
interest in the water industry. The Forum is made up of nine organisations who
represent our customers or have a stake in what we do.

The Forum met six times over the course of the year and discussed a range of
issues including: our proposals to improve the resilience of water supplies to
Birmingham; the development of an expanded range of support for customers who
are struggling to pay; and our proposals to improve river water quality in our region.

The Forum submitted two reports to Ofwat during the year setting out its
independent views of these and other issues. Both reports are available at
severntrent.com/waterforum.

Following Severn Trent Water Limited’s acceptance on 28 January 2015 of the
Ofwat Final Determination, the role and membership of the Forum during AMP6
is under review.

Voice of the Customer programme
We take seriously the voice of every individual customer. We have launched a
new SMS text survey so that all customers that contact us are sent a survey
by text for them to rate how we performed. This may relate to a call to our
contact centre or an incident in the ﬁeld. By listening to what our customers
say about the service we provide, we are able to give real time insights to our
agents in the contact centre and also to our colleagues in the ﬁeld. We then call
back every customer who scores us 1, 2 or 3 out of 5 for our service (1 being
low, 5 being high). By doing this we can seek to understand the reason for the
score, the situation that the customer is experiencing and resolve it for them.
Our resolutions team who conduct these calls also look at the root cause and
make sustainable changes to our business.

Looking ahead to 2015/16
Looking forward to 2015/16, we expect to see our extensive programme of investor
events continuing. The early part of the year will be dominated by the start of the
new regulatory period, with investors keen to understand how well our plans
and strategy are being implemented as well as how well we are performing
under the revised regulatory regime. The departure of our former Chief Financial
Officer, Michael McKeon, and the appointment of James Bowling on 1 April 2015
to replace him, will also be of key interest to our investors. Our programme of
roadshows is expected to be maintained, and we intend to continue to visit our key
investors in Europe and North America, as well as those in the UK.

Annual General Meeting
The Annual General Meeting (AGM) of the company will be held at the
International Convention Centre, Broad Street, Birmingham B1 2EA at 11am on
Wednesday 15 July 2015.

Presentations are made on the group’s activities and performance during
the year prior to the formal business of the meeting. The Chairs of the Audit,
Corporate Responsibility, Remuneration and Nominations Committees, together
with all other directors, attend the AGM.

The AGM gives shareholders an opportunity to feed back to the company on
performance, management and the way we work in a very direct fashion,
through the questions they ask. Shareholders often also meet informally with
directors and senior management before and after the meeting.

The board encourages shareholders to attend the company’s AGM and to
exercise their right to vote. The notice of meeting and related papers are sent to
shareholders at least 20 working days before the meeting. Separate resolutions
are proposed on each substantially separate issue. The poll results from the
2015 AGM will be made available on our website after the meeting.

Severn Trent Plc Annual Report and Accounts 2015

Nominations Committee

Andrew Duff

Andrew Duff
Chairman of the
Nominations Committee

This report provides details of the role of
the Nominations Committee and the work
it has undertaken during the year. The main
purpose of the committee is to assist the
board by keeping the composition of the
board under proactive review and conducting
a rigorous and transparent process when
making or renewing appointments of
directors to the board. It also advises the
board on issues of directors’ conﬂicts of
interest and independence matters that
may arise. The full terms of reference for
the committee can be found on our website
(www.severntrent.com) and are also
available from the Company Secretary.

Succession planning

When considering new appointments to the board,
the committee oversees the preparation of a role
speciﬁcation that is provided to an independent
recruitment organisation retained to conduct a
global search. In addition to the speciﬁc skills,
knowledge and experience deemed necessary, the
speciﬁcation contains criteria such as:
• a proven track record of creating

shareholder value;

• unquestioned integrity and a diversity of

psychological mindset;

• a commitment to the highest standards

of governance;

• having the required time available to devote

to the job;

• a strategic mindset, an awareness of market
leadership and outstanding monitoring skills;

• a preparedness to question, challenge and

openly assess; and

• an independent point of view.

The committee keeps under review the balance of skills on the board and the
knowledge, experience, length of service and performance of the directors.
It also reviews their external interests with a view to identifying any actual,
perceived or potential conﬂicts of interest, including the time available to commit
to their duties to the company. The results of these reviews are important when
the board considers succession planning, the effectiveness of the board and its
committees and the election and reappointment of directors. Members of the
committee take no part in any discussions concerning their own circumstances.

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The members of the committee in 2014/15 were the non-executive directors
of the board. Liv Garﬁeld stepped down as a member as of October 2014, and
Richard Davey retired as director as at 23 January 2015.

In accordance with the Governance Code, the succession planning and searches
in respect of the appointments of Liv Garﬁeld, effective 11 April 2014, and John
Coghlan, effective 23 May 2014, during the year under review, were disclosed in
the Nominations Committee Report in the Annual Report and Accounts for 2014.

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The committee initiated a process to search for a new Chief Financial Ofﬁcer
following Michael McKeon’s indication to the board of his desire to retire.
Russell Reynolds was appointed as an advisor and was provided with a role
speciﬁcation and a detailed brief of the desired candidate proﬁle. The committee
considered a list of potential candidates and those shortlisted were interviewed
by members of the board. Michael McKeon took no part in any meetings relating
to his succession.

Following this process, the board accepted the committee’s recommendation
that James Bowling join the board as Chief Financial Ofﬁcer with effect from
1 April 2015.

In accordance with the requirements of the Governance Code, all members of
the board will seek election or re-election at the AGM on 15 July 2015. In April
2015, the committee formally reviewed the performance, contribution and
commitment of each of the directors retiring at this year’s AGM and seeking
reappointment, and supported and recommended their reappointment to the
board. The committee conﬁrmed that each director continues to perform well,
on both an individual and collective basis, making a valuable contribution to the
board’s deliberations and demonstrating commitment to the long term interests
of the company.

The committee also supported and recommended the election of the newly
appointed directors, as detailed on page 50. The appointment of these new
executive and non-executive directors brings a wealth of new skills and
experience to the board and beneﬁts from a signiﬁcant investment of the
committee in planning and executing the succession process.

Diversity
Further to the publication of the Davies Report, ‘Women on Boards’, in February
2011 and its third annual progress report in March 2014, boards of FTSE 350
companies have been encouraged to promote greater female representation
on corporate boards. Guidance from the Financial Reporting Council has also
highlighted the importance of greater diversity of psychological proﬁle around
the board table. Severn Trent has recently developed a Board Diversity Policy
and recognises the importance of diversity in its broadest sense throughout
its organisation, including that of the board. 25% of the board are now women,
including the Chief Executive. Even more importantly, over 50% of the Executive
Committee are now women. However, Severn Trent is committed to increasing
diversity at all levels of the company in all respects and not just gender.

As stated above, the Nominations Committee reviews the board effectiveness
and composition each year and, in particular, considers the balance of skills,
experience and independence of the board. It also considers the beneﬁts of all
aspects of diversity, but without compromise as to the calibre of directors, when
identifying candidates for appointment.

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Severn Trent Plc Annual Report and Accounts 2015

Nominations Committee continued

The selection of female candidates to join the board, will therefore be made
based on merit and the individual’s ability to contribute to the effectiveness
of the board, which in turn will be dependent on the pool of female
candidates available.

Severn Trent is seeking to build a diverse pool of future leaders and details of
diversity initiatives being undertaken are set out in the Corporate Responsibility
Committee report on page 67.

As and when board appointment opportunities arise, we make full use of the
procedures recommended by the Davies Report and by the Governance Code to
support this aspiration. All board appointments have been and will continue to
be based on merit and must be in the interests of all stakeholders.

A breakdown by gender of the number of persons who were directors of the
company, senior managers and other employees as at 31 March 2015 is set
out opposite.

As at 31 March 2015, we had 2 female members on our board of 8 (representing
25%) and 5 female members out of 9 on the Executive Committee (representing
50%). As at the date of this report, there are 2 female members on our board of 8
(representing 25%) and 5 female members out of 9 on the Executive Committee
(representing 55%).

Andrew Duff
Chairman of the Nominations Committee

During the year the committee considered:

• Succession planning for the board

and board committees
• The board’s diversity policy
• Talent management
• Effectiveness of the board committees
• Re-election of directors for the AGM

Attendance at scheduled
committee meetings:

During the year, there were three scheduled meetings
of the Nominations Committee. The attendance
ﬁgures for these meetings are detailed below.

Director

Andrew Duff
John Coghlan *
Richard Davey **
Gordon Fryett
Liv Garﬁeld ***
Martin Lamb
Philip Remnant
Dr Angela Strank

Meetings attended

3/3
3/3
2/3
3/3
2/2
3/3
3/3
3/3

John Coghlan was appointed as a member of the
Nominations Committee in May 2014.

Richard Davey retired as a director on
23 January 2015.

*** Liv Garﬁeld stepped down as a member of the
Nominations Committee in October 2014.

Baroness Noakes was unable to attend the meeting in
July and sent her apologies. Subsequently, Baroness
Noakes retired as a member of the Committee in
July 2014.

Gender diversity as at 31 March 2015

Board

Executive Committee

Senior management

Total workforce

2,109

5,289

Male

Female

Severn Trent Plc Annual Report and Accounts 2015

Audit Committee

John Coghlan

John Coghlan
Chairman of the Audit Committee

The committee assists the board in
discharging its responsibilities for the
integrity of the company’s ﬁnancial
statements, the assessment of the
effectiveness of the systems of internal
controls and monitoring the effectiveness
and objectivity of the internal and external
auditors. It also oversees the assurance
of regulatory returns made by Severn
Trent Water Limited to Ofwat. The role
and the responsibilities of the committee
are set out in written terms of reference.
These can be found on our website
(www.severntrent.com) and are also
available from the Company Secretary.

This report provides details of the role of the Audit Committee and the work it
has undertaken during the year.

Composition of the Committee
The members of the committee during the year were John Coghlan as
Chairman, Richard Davey and Philip Remnant, whose experience and
backgrounds are set out on pages 48 and 49. Richard Davey stepped down on
23 January 2015 and Martin Lamb became a member on 23 January 2015.

The board is satisﬁed that all the committee members have recent and relevant
ﬁnancial experience and that all members of the committee remain independent.

Activities of the Committee
The members of the committee receive updates on ﬁnancial reporting and
the group’s regulatory framework in various forms throughout the year.
The Chairman, Chief Executive, Chief Financial Ofﬁcer, Director of Internal
Audit, Group Financial Controller and the external auditors normally attend, by
invitation, all meetings of the committee. Other members of senior management
are also invited to attend as appropriate. The committee regularly holds private
discussions with both the internal and external auditors.

In performing its duties, the committee has access to the services of the
director of Internal Audit, the Company Secretary and, if required, external
professional advisors.

Key areas of focus in 2014/15
The committee reports to the subsequent meeting of the board on the
committee’s work. It met four times in 2014/15 and its work focused on the
following key areas:

• ﬁnancial statements and accounting policies;
• risk management and internal controls;
• oversight of internal and external audit;
• regulatory reporting obligations of our subsidiary Severn Trent Water Limited;

and

• scrutinising the assurance process underpinning the PR14 submission.

The committee’s performance was included in the review of the Board
Committee’s effectiveness referred to on page 56.

Financial statements and accounting policies
The committee looked carefully at those aspects of the ﬁnancial statements
which required signiﬁcant accounting judgements or where there was
estimation uncertainty. These areas are explained in note 4 of the ﬁnancial
statements on page 106. The committee receives detailed reports from both the
Chief Financial Ofﬁcer and the external auditors on these areas and on any other
matters which they believe should be drawn to the attention of the committee.
The committee also reviews the draft of the external auditors’ report on the
ﬁnancial statements, with particular reference to those matters reported as
carrying risks of material misstatement. The committee discusses the range of
possible treatments both with management and with the external auditors and
satisﬁes itself that the judgements made by management are robust and should
be supported. The following areas were the most important ones for 2014/15:

• restructuring costs relating to the business as a whole;
• the outcome of the triennial valuation of the pension scheme, the deﬁcit
calculation and the consistent application of appropriate assumptions;
• the amount of the provisions held for tax liabilities and the calculation
of current and deferred tax beneﬁts in relation to changes in industrial
buildings allowances;

• the proposed disclosure of material items of income or expenditure which met

the criteria for classiﬁcation as exceptional items; and

• the implications of and the proposed response to the new Financial Reporting
Council reporting requirements on going concern and viability statements.

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Severn Trent Plc Annual Report and Accounts 2015

Audit Committee continued

Internal controls

Committee receives regular
reports from Internal Audit and reviews
management letters received from the
external auditor

Identiﬁes principal risks and
related controls

Provides guidance to risk owners
on the board’s tolerance
for different types of risk

Reviews the procedures, systems
and controls designed to prevent
and detect fraud and bribery

Reviews the group’s approach to cyber
security and IT continuity

The committee reviewed and challenged the evidence and assumptions
underpinning the current use of the going concern assumption in preparing the
accounts and in making the statement made in the Directors’ report that the
company is a going concern.

The committee reviewed the draft results announcements for interim and full
year results and the proposed presentations to analysts and paid particular
attention to the tone of the announcements and presentations to consider their
consistency with the ﬁnancial statements.

In reviewing the ﬁnancial statements, the committee receives input from the
Disclosure Committee, which is chaired by the Chief Financial Ofﬁcer.

The Audit Committee reviewed the outcome of the process (established in 2014)
to conﬁrm that the report and accounts are ‘fair, balanced and understandable’.
As last year, the Disclosure Committee undertook a detailed review of the
Annual Report and Accounts prior to making a recommendation that the board
could make the fair, balanced and understandable statements contained in the
Directors’ responsibility statement on page 90. Deloitte LLP (Deloitte) reported
to the committee on its review of the half-year interim results and on its audit of
the year end ﬁnancial statements.

Internal controls
The committee receives regular reports from Internal Audit in respect of its
work on the internal control framework and reviews management letters
received from the external auditors.

The committee reviewed the processes for and outputs from our Enterprise Risk
Management process, through which the principal risks and related controls are
identified. The committee discussed the approach to documenting the board’s
risk appetite and providing guidance to risk owners on the board’s tolerance for
different types of risk. In addition, it monitored the ongoing development of our
compliance and assurance processes in respect of the key risks.

The committee reviews the procedures, systems and controls designed to
prevent and detect fraud and bribery and receives a log of incidents of fraud or
bribery every six months, which includes the actions taken to investigate and
respond to the incidents. There were no material incidents during the year.

The committee also reviewed the group’s approach to cyber security and
IT continuity.

Further details of our internal control framework can be found in the Directors’
report on page 88.

Internal Audit
The Head of Internal Audit and his team report on a day-to-day basis to the
executive team on the effectiveness of the group’s systems of internal controls
and the adequacy of these systems to manage business risk and to safeguard
the group’s assets and resources. This work is summarised and reported to
the committee on a regular basis and is a key element of the assurance that the
committee receives on the risks and controls in the group. The Head of Internal
Audit is free to raise any issues with the committee or its Chairman at any time
during the year.

The effectiveness of the Internal Audit function, the audit plan and budget are
reviewed at least annually by the committee.

Policy on the provision of non-audit services
The company has approved a formal policy on the provision of non-audit
services aimed at safeguarding and supporting the independence and objectivity
of the external auditors.

The policy sets out the approach to be taken by the group when using the services
of the external auditors, including requiring that certain services provided by the
external auditors are pre-approved by the committee or its Chairman.

Severn Trent Plc Annual Report and Accounts 2015

Internal Audit

The Head of Internal Audit and his
team report on a day-to-day basis
to the executive team

This work is summarised and reported to
the committee on a regular basis

It deﬁnes the non-audit services that may be provided by the external auditors
and separately sets out those non-audit services which are prohibited, since the
independence of the external auditors could be threatened.

Non-audit services where the external auditors may be used include: audit-
related services required by statute or regulation, tax compliance, due diligence
on acquisitions and disposals, services related to fraud, Corporate Responsibility
report reviews and regulatory support.

The approval of the committee or its Chairman is always required if a non-audit
service provided by the auditors is expected to cost more than £100,000 or if non-
audit fees for the year would exceed the amount of the audit fee.

External auditors
Deloitte audits all signiﬁcant subsidiaries of the group. Annually, the committee
reviews the external auditors’ audit plan and reviews and assesses information
provided by them conﬁrming their independence and objectivity within the
context of applicable regulatory requirements and professional standards.
The committee also reviews their effectiveness, which involves: assessment
of the auditors by the committee and key executives; and conﬁrmation that the
auditors meet minimum standards of qualiﬁcation, independence, expertise,
effectiveness and communication. These assessments are carried out prior
to the committee recommending to the board that the external auditors be
proposed for reappointment at the AGM.

The Head of Internal Audit can raise any
issues with the committee or its Chairman
at any time during the year

Deloitte were appointed auditors of the company in 2005, pursuant to a
competitive tender process and since 2005 the company has annually
considered the need to re-tender the external audit service.

Attendance at scheduled
Committee meetings:

During the year, there were 4 scheduled
meetings of the Audit Committee.
The attendance ﬁgures are detailed below
for these meetings.

Director
Philip Remnant
Baroness Noakes *
John Coghlan **
Martin Lamb ***
Richard Davey ****

Meetings attended
4/4
1/1
3/3
1/1
3/3

* Baroness Noakes retired as a member of the Audit

Committee in July 2014.

** John Coghlan was appointed as a member of the

Audit Committee in May 2014.

*** Martin Lamb was appointed as a member of the

Audit Committee on 28 January 2015.

**** Richard Davey retired as a member of the Audit

Committee on 23 January 2015.

The company is committed to complying with the provisions in the Governance
Code in respect to audit tendering along with the UK Competition and Markets
Authority Order and the European Union rules on audit tenders. As a result, the
committee will formally tender the external audit service during the 2015/16
ﬁnancial year. There are no contractual obligations to restrict the committee’s
choice of external auditors.

The Audit Partner, currently Carl Hughes, is required to rotate after a maximum
of ﬁve years, 2014/15 being his last ﬁnancial year. The Audit Partner rotating in
for the 2015/16 ﬁnancial year is Kari Hale.

Details of the amounts paid to Deloitte for audit and non-audit services are
provided in note 7 to the accounts on page 111.

Severn Trent Water Limited
The regulated activities carried out by Severn Trent Water Limited also
require two annual reporting submissions to Ofwat which are reviewed by the
committee: an annual submission on Severn Trent Water Limited’s regulatory
performance and obligations known as the Annual Regulatory Performance
Report, together with the Annual Regulatory Compliance Statement; and a
statement that underpins the customer charges made by Severn Trent Water
Limited, known as the Principal Statement.

In March 2015 the committee reviewed the process, timeline and assurance
framework in place for the production and submission of the Annual Regulatory
Compliance Statement and the 2015/16 Principal Statement to Ofwat.

Deloitte makes reports to Ofwat in respect of Severn Trent Water Limited’s
regulatory accounts. The Annual Regulatory Performance Report, which
provides an overall picture of company performance, covers many aspects
which are not ﬁnancial and Severn Trent Water Limited appoints engineering
consultants, Atkins, to report and provide assurance on those aspects.
The committee receives reports from Atkins on their work as part of its review
of the Annual Regulatory Returns.

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Severn Trent Plc Annual Report and Accounts 2015

Corporate Responsibility Committee

Gordon Fryett

Gordon Fryett
Chairman of the Corporate
Responsibility Committee

The committee provides guidance and
direction to the company’s Corporate
Responsibility programme, reviews
the group’s key non ﬁnancial risks and
opportunities and monitors progress.
The committee reviews annually the
adequacy of the company’s formal
whistleblowing policy and procedures
which deal with allegations from
employees relating to breaches of the
Code of Conduct and reviews at each of its
meetings the whistleblowing incident log.
The terms of reference for the
committee can be found on our website
(www.severntrent.com) and are also
available from the Company Secretary.

This report provides details of the role of the Corporate Responsibility (CR)
Committee and the work it has undertaken during the year.

The members of the committee are Gordon Fryett (Chairman), Andrew Duff,
Liv Garﬁeld and Dr Angela Strank.

Our CR framework
Our Code of Conduct, ‘Doing the right thing – The Severn Trent way’, provides
the structure and a common CR framework for both our businesses – regulated
and non-regulated. The nine principles of our Code of Conduct are:

1. Keeping everyone healthy and safe

2. Supporting employees’ rights and diversity

3. Maintaining ethical and honest behaviour

4. Staying free from bribery and corruption

5. Keeping our communications open and responsible

6. Delivering excellent customer service

7. Working within the community

8. Protecting our environment

9. Standing up for what’s right

To monitor performance, both Severn Trent Water and Severn Trent Business
Services have an effective performance management system in place through
core business Key Performance Indicators (KPIs) (see page 10 of the Strategic
report for further details). These are overseen by the relevant management
teams and the board. Many of the business KPIs relate directly to our CR
focus areas and therefore contribute signiﬁcantly to our CR performance
and are linked to our reward arrangements. We report internally on our CR
performance through senior management and the committee. Externally, we
report through a number of channels, including our website and our Annual
Report and Accounts.

Key areas of focus 2014/15
The committee provides board oversight of our CR framework, including
the strategy and performance related to health, safety, environment and
the community as well as employee and supply chain matters. CR KPIs
and whistleblowing allegations are reviewed at every meeting. Key areas of
discussion and review during 2014/15 are set out below:

• the committee reviewed two papers outlining future societal, economic and
environmental issues, and agreed to review the forward agendas for the
committee to ensure that emerging risks were considered in more detail;

• a new approach to CR for Severn Trent was approved, comprising compliance

in relation to the performance of core essential activity, and excellence in
two identiﬁed areas of ambition for the company – making our region’s rivers
healthier and improving water efﬁciency, each having measurable targets.
The new framework for our CR was launched in April 2015;

• the committee received an update on initiatives to promote diversity at

Severn Trent. It was noted that Severn Trent compared relatively well against
industry benchmarks and that further initiatives were under way to ensure the
progression of females through management positions;

• the committee received two reports from Internal Audit with respect to their

ﬁndings on Health, Safety and Environment. The committee noted that a good
framework was in place for occupational health and managing contractors;
and

• the committee discussed updates on working in the community protecting our
environment, water quality, employee satisfaction in Severn Trent Business
Services and managing our supply chain responsibly.

Severn Trent Plc Annual Report and Accounts 2015

Attendance at scheduled committee meetings:

During the year there were 4 scheduled meetings
of the Corporate Responsibility Committee.
The attendance ﬁgures are detailed below for
these meetings.

Director
Gordon Fryett
Andrew Duff
Liv Garﬁeld
Dr Angela Strank

Meetings attended
4/4
4/4
4/4
4/4

CR activities
We are committed to CR and see it as an integral part of our business.

Human rights
We have a responsibility to understand our potential impacts on human rights
and to mitigate or eliminate these impacts. We are committed to operating in
accordance with the United Nations Global Compact Principles and our Code of
Conduct supports this commitment. Whilst not having a speciﬁc human rights
policy, we have group policies on Human Resources, Anti Bribery and Anti
Fraud, Whistleblowing and Procurement. These policies are in turn supported
by a broader range of policies within Severn Trent Water Limited and Severn
Trent Business Services to support key human rights.

Freedom of association and collective bargaining
We recognise the right of all employees to freedom of association and collective
bargaining. We seek to promote cooperation between employees, our
management team and recognised trade unions. We believe this fosters a joint
understanding of business needs and helps to deliver common solutions aimed
at making our business successful.

Internationally, Severn Trent Business Services operates a small number of
sales and marketing ofﬁces where union membership is not available due to
national law. It is important that these employees and those who do not wish to
join a union are not at a disadvantage.

All Severn Trent employees are encouraged to raise concerns at work through
their line manager, however, we recognise that employees may feel inhibited
in certain circumstances. In this case, employees are encouraged to use our
conﬁdential and independent whistleblowing helpline, operated by Safecall,
an independent company which specialises in handling concerns at work.
The service is available internationally and Safecall provides a translation
service, allowing any employee, wherever they are in the world, to access it.

Equality
Severn Trent believes that a diverse and inclusive culture is a key factor
in being a successful business. We do not tolerate discrimination under
any circumstances and believe in treating everyone equally with fairness,
encouragement and respect. Our Code of Conduct and our group Human
Resources Policy govern all aspects of employee rights and diversity.
Underpinning these are individual business level policies which deﬁne our
approach to a diverse and inclusive environment.

Diversity
To ensure our workforce reﬂects the diversity of the customers and
communities we serve, we have put considerable focus on monitoring our
performance against a range of diversity measures and benchmarks. We drive
actions out of the analysis of the data and have built a plan to enable us to
become a more diverse and inclusive workplace. Our diversity and inclusion
plan is supported by our ﬂexible working policies which promote part time
working, job shares, ﬂexible hours and core working hours, with our technology
enabling working from home when necessary.

We have also undertaken training with employees involved in recruitment
to ensure that we do not have an unconscious bias within the attraction and
selection programme. Throughout 2014/15, we have also focused on increasing
diversity in our applicants with a primary focus on our entry level schemes for
apprenticeships and graduates. We have looked at the communications we use
to attract new applicants and how we can reach a broader and more diverse
range in our community.

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Severn Trent Plc Annual Report and Accounts 2015

Corporate Responsibility Committee continued

We continue to take part in diversity initiatives such as the 30% Club and Project
28-40, so we can contribute to the debate and beneﬁt from others’ experience,
and received a rating of Silver this year in the Business in the Community gender
and race benchmark survey (improving from Bronze last year).

Our gender diversity metrics as at 31 March 2015 are set out in the Nominations
Committee report on page 62.

Prevention of child labour and forced labour
We will not condone the use of child labour and forced labour under any
circumstances. The highest risk for Severn Trent is through our supply chain,
therefore we work with our suppliers to ensure they operate to the same
standards we set ourselves.

Our Code of Conduct has been built into the procurement tender process as
part of the pre-qualiﬁcation questionnaire template in Severn Trent Water.
During 2014/15, 169 new suppliers have been required to conﬁrm adherence to
our Code of Conduct. In addition, 20 retrospective assurance checks on existing
suppliers have been carried out.

Prevention of bribery and corruption
Our group-wide Anti Bribery and Anti Fraud Policy prohibits bribery and
corruption in all our business dealings, regardless of the country or culture
within which we work. Employees identiﬁed as high risk through a risk review
for Severn Trent Water Limited and all employees of Severn Trent Business
Services are required to undertake an online training module and examination
to ensure awareness of and compliance with this policy. The Audit Committee
carries out an annual review of our systems and controls to detect and prevent
bribery and corruption.

Severn Trent Plc Annual Report and Accounts 2015

Remuneration Committee

Philip Remnant

Philip Remnant
Chairman of the Remuneration Committee
The committee determines, on behalf
of the board, the company’s policy on
the remuneration of executive directors,
other members of the Executive
Committee and the Chairman of the
board. The Committee determines
the total remuneration packages and
contractual terms and conditions for
these individuals. The policy framework
for remunerating all senior executive
managers is consistent with the approach
taken for executive directors.

Dear shareholder
Welcome to my ﬁrst Remuneration Committee report. I am delighted to report
that in 2014/15 we again delivered on our commitments with signiﬁcant value
for our shareholders and our customers; improved operational performance,
the lowest combined water and sewerage bills in the land and higher returns
through the growing dividend. This performance has been reﬂected in the
payments under our incentive plans.

Remuneration for the year under review
The annual bonus payments to executive directors for the ﬁnancial year to
31 March 2015 were between 46.4% and 75.3% of base salary, reﬂecting
a good year of operational performance with particularly strong improved
performance on our quality of interaction with our customers and our impact on
the environment.

During the year, awards under the Share Matching Plan (SMP) vested at 66.2%
of the maximum based on total shareholder return performance over the three
years to 19 May 2014. The Long Term Incentive Plan (LTIP) awards based on
RoRCV performance over the three years to 31 March 2015 will vest in full.
There is a detailed breakdown of the targets set and the payments under the
annual bonus, SMP and LTIP on pages 79 and 80.

Key policy developments for 2015/16
No changes are proposed to the overall structure or quantum of the
remuneration arrangements. However, the Remuneration Committee has had
to review the performance measures used in the annual bonus and LTIP to
reﬂect the new regulatory framework under AMP6 (which spans the ﬁve year
period from 1 April 2015 to 31 March 2020). The committee has consulted with
the company’s major shareholders and institutional investor bodies prior to
making these changes.

Annual bonuses for 2014/15 were based on performance against the Severn
Trent Water balanced scorecard, business unit objectives and personal
performance. The scorecard Key Performance Indicators (KPIs) no longer
reﬂect the main indicators of performance as we move into AMP6, especially
with the introduction of Outcome Delivery Incentives (ODIs). ODIs are
quantiﬁable, transparent operational targets set for us by and monitored by
Ofwat covering aspects such as water quality, leakage, asset stewardship,
supply, ﬂooding, customer experience and environmental performance.
Severn Trent Water is rewarded by Ofwat if it exceeds the ODI targets and
suffers ﬁnancial penalties for missing them. Bonuses for the Chief Executive and
Chief Financial Ofﬁcer for 2015/16 onwards will be based 50% on proﬁt before
interest and tax (PBIT) of Severn Trent Water, 40% on business unit performance
(including performance against ODIs, performance of Severn Trent Services and
health and safety performance) and 10% on personal performance. PBIT has
been chosen as a measure as it is an indicator of overall ﬁnancial performance
and reﬂects efﬁciencies, revenue and other key levers in the business plan.
We believe that the new structure for the bonus provides a stronger link
between our ﬁnancial and operational performance and the rewards earned
by executives.

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Severn Trent Plc Annual Report and Accounts 2015

Remuneration Committee continued

Since 2011, awards under the LTIP have been subject to a performance condition
which measured Severn Trent Water Limited’s Return on Regulatory Capital
Value (RoRCV) relative to the Final Determination set by Ofwat. RoRCV was
considered a key ﬁnancial measure of performance under the AMP5
framework. Under AMP6 and the new regulatory incentive structures for water
companies, Return on Regulatory Equity (RORE) has replaced RoRCV as Ofwat’s
key ﬁnancial metric and is a key measure for investors in the new regulatory
environment. RORE is calculated as proﬁt after tax (plus net incentives earned
in the year) divided by the average equity element of our regulatory capital
value and measures how efﬁciently we can deliver returns to shareholders.
Unlike RoRCV, RORE is aligned with the key drivers of performance in AMP6 and
reﬂects how well we perform against our operational and capital expenditure
targets, our ﬁnancing performance and achievement against the ODI
framework. To align the incentive structure with the new reporting framework,
LTIP awards from 2015 onwards will be based on RORE outperformance
relative to Ofwat’s Final Determination. The performance targets for the awards
to be granted in 2015 require average RORE over the three year performance
period to equal the Final Determination (5.65%) for 25% of the award to vest,
increasing on a straight line basis to 100% vesting for outperforming the Final
Determination by 1.29 times (7.29%). The committee considers the targets
to be demanding and the stretch target requires the company signiﬁcantly
to outperform the Final Determination, delivering substantial returns
to shareholders.

Finance Director changes
During the course of the year, the committee considered the retirement of
the current Chief Financial Ofﬁcer, Michael McKeon, and the recruitment
arrangements for his successor, James Bowling as Chief Financial Ofﬁcer.
Full details of their respective leaving and joining arrangements are set out in
the Annual Report on remuneration on page 85.

Structure of the report
The changes to the performance measures used in the annual bonus and LTIP
require us to resubmit our Policy Report for shareholder approval. The Policy
Report reﬂects the remuneration policy approved by shareholders last year,
updated to reﬂect the new board structure and the proposed changes to the
performance measures noted above. The Policy Report will be subject to a
binding vote at the forthcoming AGM and, once approved, it is intended that
the policy will apply until the 2018 AGM (when it will be subject to reapproval
by shareholders as required under the regulations). This letter and the Annual
Report on remuneration will be subject to an advisory vote at the AGM.

I hope that you are supportive of our proposals and will approve both resolutions
at the AGM.

Philip Remnant
Chairman of the Remuneration Committee

Severn Trent Plc Annual Report and Accounts 2015

Policy report
This section of the Remuneration Committee Report, setting
out the new remuneration policy for the directors of Severn
Trent Plc, is subject to approval by shareholders at the AGM on
15 July 2015 and will take effect, subject to approval, from this
date. Once approved by shareholders, this policy will replace
the current policy which was approved by shareholders at the
2014 AGM. In most respects the new policy is similar to the
existing policy, albeit updated to reﬂect the new board structure
and the change in performance metrics for the annual bonus
and long term incentive awards (which require shareholder
approval). There are no other substantial changes to our policy.

Setting the remuneration policy
The committee sets the remuneration policy for executive
directors and other senior executive managers, taking into
account the company’s strategic objectives over the short and
long term and the external market.

The committee addresses the need to balance risk and reward.
The committee monitors the variable pay arrangements to
take account of risk levels, ensuring an emphasis on long term
and sustainable performance. The committee believes that
the incentive schemes are appropriately managed and that
the choice of performance measures and targets does not
encourage undue risk taking by the executives so that the long
term performance of the business is not compromised by the
pursuit of short term value. The schemes incorporate a range
of internal and external performance metrics, measuring
both operational and ﬁnancial performance over differing
and overlapping performance periods, providing a rounded
assessment of overall company performance.

Remuneration policy for the executive directors

Linkage to all employee pay
The committee reviews changes in remuneration
arrangements in the workforce generally. It ensures that
executive director salary increases are normally aligned to
the increases for the rest of the workforce. Furthermore,
the annual bonus operates on a broadly similar basis with
the bonus schemes operated throughout Severn Trent
Water Limited and all UK employees may participate in the
HMRC tax-advantaged Save As You Earn (SAYE) scheme.
The company has not directly consulted with employees on
the topic of executive remuneration; however, the committee
does consider the general base salary increase, remuneration
arrangements and employment conditions for the broader
employee group when determining the remuneration policy for
executive directors.

Shareholder views
The committee engages proactively with the company’s
major shareholders and takes their views into account.
The committee reviews any feedback received from
shareholders as a result of the AGM process and throughout
the rest of the year, and takes into consideration the latest
views of investor bodies and their representatives, including
the Investment Association, the National Association of
Pension Funds and proxy advice agencies such as Institutional
Shareholder Services. When any signiﬁcant changes are made
to the remuneration policy, the Remuneration Committee
Chairman discusses these with major shareholders in advance
and may offer meetings for more detailed discussion.

The following table sets out a summary of each element of the executive directors’ remuneration packages.

Element
Salary

Purpose and link to strategy
To recruit and reward executives
of a suitable calibre for the role
and duties required.

Operation (including performance metrics)
Base salaries for individual directors are
reviewed annually by the committee and
normally take effect from 1 July.

Maximum opportunity
Details of the current salary levels for
the directors are set out in the Annual
Report on remuneration on page 76.

Any increase to directors’ salaries will
generally be no higher than the average
increase for the UK workforce. However,
a higher increase may be proposed in
the event of a role change or promotion,
or in other exceptional circumstances.

Salaries are set with reference to
individual performance, experience
and contribution, together with
developments in the relevant
employment market (having regard
to similar roles in publicly quoted
companies of a comparable size
(currently FTSE 51–150) and practice
in other water companies), company
performance, affordability and internal
relativities.

The company, where appropriate,
may set base salary levels below the
market reference salary at the time
of appointment, with the intention of
bringing the base salary levels in line
with the market as the individual gains
the relevant experience.

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Severn Trent Plc Annual Report and Accounts 2015

Remuneration Committee continued

Element
Beneﬁts

Purpose and link to strategy
To provide competitive
beneﬁts in the market to
enable the recruitment and
retention of directors.

Operation (including performance metrics)
A car allowance, family level private
medical insurance, life assurance,
personal accident insurance, health
screening, an incapacity beneﬁts
scheme and other incidental beneﬁts
and expenses. Relocation, disturbance
and expatriate allowances and tax
equalisation may be paid as appropriate.
Directors will be reimbursed for any
reasonable business expenses incurred
in the course of their duties, including
the tax payable thereon.

A deﬁned contribution scheme and/or
cash supplement in lieu of pension.

Pension

Annual bonus

To provide a pension comparable
with similar companies in the
market to enable the recruitment
and retention of directors.

To encourage improved ﬁnancial
and operational performance and
align the interests of directors with
shareholders through the partial
deferral of payment in shares.

Bonuses are based on ﬁnancial,
operational and personal performance.
No more than 20% of the bonus will
relate to personal contribution for any
executive.

50% of the bonus is paid in cash and 50%
in shares which vest after three years
(with the value of any dividends to be
rolled up and paid on vesting).

A clawback mechanism applies to allow
the recoupment within three years of
the payment of the cash bonus or the
grant of deferred shares in the event
of ﬁnancial misstatement, error in the
calculation or gross misconduct.

Awards are granted annually and are
subject to a three year performance
condition which requires the company’s
return on regulatory equity (RORE) to
outperform the target set out in Ofwat’s
Final Determination. A sliding scale of
targets is set. Different targets and/
or performance measures may be
set for future LTIP awards to reﬂect
the business strategy and regulatory
framework operating at that time.

The value of dividends paid on the shares
comprising the award will be rolled up
and paid on vesting.

The award may be structured as a
conditional share award (awards
may also be settled in cash in certain
circumstances).

A clawback mechanism applies to allow
the recoupment of vested incentive
awards within three years of vesting
in the event of ﬁnancial misstatement,
an error in calculating the level of
vesting, gross negligence, fraud or
gross misconduct.

The executive directors are able to
participate in HMRC tax advantaged
all employee share plans on the same
terms as other eligible employees.

LTIP

To encourage strong and
sustained improvements in
ﬁnancial performance, in line with
the company’s strategy and long
term shareholder returns.

All Employee
Share Plans

To encourage widespread
employee share ownership to
enable employees to share in the
success of the business, and to
align their interests with those of
shareholders.

Maximum opportunity
The value of beneﬁts is based on the
cost to the company and there is no
pre-determined maximum limit.
The range and value of the beneﬁts
offered is reviewed periodically.

Company contribution to a pension
scheme and/or cash allowance up to a
maximum of 25% of salary.

Maximum annual bonus of 120% of base
salary (target annual bonus of 60% of
base salary).

Maximum limit is 150% of base salary
(with 200% being used in exceptional
circumstances). The grant level for
2015/16 is 125% for the Chief Executive
and 80% of base salary for other
executive directors.

Up to 25% of an award may vest for
threshold performance.

The maximum limits under the plans are
as set by HMRC.

Severn Trent Plc Annual Report and Accounts 2015

Further details on the variable pay policy
Annual bonus
The performance measures and targets for the annual bonus
are selected annually to align with the business strategy and
the key drivers of performance set for us under the regulatory
framework. The annual weighting of the bonus between the
various metrics and personal contribution may vary depending
on the key priorities of the business for the year ahead.
Robust and demanding targets are set taking into account the
operating environment and priorities, market expectations
and the business plan for the year ahead. Further details
on the performance measures and weightings to be used
for the forthcoming year are set out in the Annual Report on
Remuneration on page 85.

Long-term incentives (LTIP)
For LTIP awards granted in 2015, RORE will be used to assess
performance. Using RORE to assess long term performance
reﬂects the focus of Ofwat in AMP6 and is consistent with
our aim to deliver efﬁcient returns to shareholders. RORE is
calculated as proﬁt after tax (plus incentives earned in the
year) divided by the average equity proportion of our regulatory
capital value and it is veriﬁed and published as part of the
Annual Regulatory Performance Report. The committee
believes that the use of RORE provides a strong alignment
between the long term ﬁnancial and operational performance
of the group and the reward delivered to management.

LTIP awards granted in 2013 and 2014 are subject to a
performance condition relating to return on regulatory capital
value (RoRCV). RoRCV is calculated as current cost operating
proﬁt less tax paid divided by our average regulatory capital
value. Details of the performance targets applying to the
2013 and 2014 awards are set out in the Annual Report on
Remuneration on page 82.

The committee reserves the discretionary power to adjust
the formulaic outturn of the LTIP performance conditions to
ensure that the vesting result is reﬂective of the underlying
ﬁnancial and operational performance of the company over
the performance period. The use of this discretion is expected
to be exceptional and the committee would consult with its
major shareholders before making any upwards adjustment.
In relation to the awards granted in 2013, there is a cap and
collar limiting the extent to which this discretion can be applied
(if the vesting result indicated by the performance condition is
greater than 50% the committee may reduce the vesting to a
number not less than 50%; and if it is 0% it may increase it to
any ﬁgure not greater than 50%). This cap and collar approach
does not apply to awards granted from 2014 onwards.

In addition, for any awards to vest, the committee must be
satisﬁed that there has been no compromise to the commercial
practices or operational standards of the group. If the
committee is not so satisﬁed, then the vesting percentage may
be scaled back as appropriate (including to 0%).

Legacy Share Matching Plan
Until 2013, awards were also made under a Share Matching
Plan (SMP). Under the SMP, the executive directors could
receive up to 0.5 matching shares for each share deferred
under the annual bonus plan (the maximum award level was
therefore 30% of salary). The matching awards were subject to
achievement of a relative total shareholder return performance
condition and a ﬁnancial underpin. At the time of release,
participants also receive the value of the dividends which would
have been paid on vested shares over the performance period.
The outstanding awards will be allowed to pay out under the
approved policy, subject to achievement of the performance
conditions on which they were granted. Liv Garﬁeld and
James Bowling do not hold any outstanding awards under this
legacy plan.

Remuneration Committee discretion
The committee will operate all incentive plans according to the
rules of each respective plan and the discretions contained
therein. The discretions cover aspects such as the timing of
grant and vesting of awards, determining the size of the award
(subject to the policy limits), the treatment of leavers (see
policy on terminations), retrospective adjustment of awards
(e.g. for a rights issue, a corporate restructuring or for special
dividends) and, in exceptional circumstances, the discretion to
adjust previously set targets for an incentive award if events
happen which cause the committee to determine that it would
be appropriate to do so. In exercising such discretions, the
committee will take into account generally accepted market
practice, best practice guidelines, the provisions of the Listing
Rules and the company’s approved remuneration policy.

External directorships
Executive directors are permitted to take on external non-
executive directorships, though normally only one other FTSE
100 appointment, to bring a further external perspective to
the group and help in the development of key individuals’
experience. In order to avoid any conﬂicts of interest, all
appointments are subject to the approval of the Nominations
Committee. Executive directors are permitted to retain the fees
arising from one appointment.

Shareholding guidelines
The company operates shareholding guidelines under which
executive directors are expected to build and maintain a
shareholding in the company. The Chief Executive is expected
to build and maintain a holding of shares to the value of
200% of salary, and other executive directors 125% of salary.
Executive directors are expected to retain all of the net of tax
number of shares they receive through the LTIP and deferred
share bonus until the shareholding guidelines have been met.

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Severn Trent Plc Annual Report and Accounts 2015

Remuneration Committee continued

Reward scenarios
The bar charts show how the composition of each of the
executive directors’ remuneration packages varies at different
levels of performance achievement.

Minimum pay is ﬁxed pay only (i.e. salary + beneﬁts + pension). On target pay
includes ﬁxed pay, a 60% of salary bonus and 50% vesting of the LTIP awards (with
grant levels of 125% of salary for the Chief Executive and 80% of salary for the Chief
Financial Ofﬁcer). Maximum pay includes ﬁxed pay and assumes 100% vesting
of both the annual bonus and the LTIP awards. No share price growth has been
factored into the above chart and all amounts have been rounded to the nearest
£1,000. Salary levels (which are the base on which other elements of the package
are calculated) are based on those applying at 1 July 2015. The value of taxable
beneﬁts is the cost of providing those beneﬁts in the year ended 31 March 2015
(estimated value used in the case of James Bowling). The executive directors are
also permitted to participate in HMRC tax advantaged all employee share plans, on
the same terms as other eligible employees, but they have been excluded from the
above graph for simplicity.

£’000

2,500

2,250

2,000

1,750

1,500

1,250

1,000

750

500

250

2,472

1,659

34%

25%

24%

11%

32%

846

22%

78%

40%

27%

Minimum

On-target
Chief Executive

Maximum

916
17%

26%
13%

44%

516
23%

77%

1,316

24%

37%
9%

30%

Minimum

On-target
Chief Financial Officer

Maximum

Salary

Beneﬁts and pension

Annual bonus

Long term share awards

Service contracts and policy on payments for loss of ofﬁce
The remuneration related elements of the current contracts for executive directors are shown in the table below.

Provision
Notice period

Policy
12 months from either party

Termination payment Payments for loss of ofﬁce comprise a maximum of 12 months salary and beneﬁts only.

Mitigation

Change of control

Annual bonus

Any termination payment will not be made automatically but will be subject to both phasing
and mitigation (including offset against any earnings from new employment).

There are no speciﬁc contractual payments or beneﬁts which would be triggered in the event of a change in control
of the company. Outstanding incentive awards would vest in line with the treatment set out below for a good leaver
except that the performance and vesting period will end on the date of control.

The committee may exercise its discretion to pay a bonus to a departing executive, subject to performance and
pro rated to reﬂect the proportion of the year worked. The bonus would be paid at the same time as for the other
directors and, if the executive has left employment by that date, it may be paid solely in cash.

Any outstanding deferred bonus shares will vest on cessation of employment unless the departure is a result of
summary dismissal.

Long Term Incentive
Awards

The default treatment is that all awards will lapse on cessation of employment. However, executives will be
considered a good leaver in certain prescribed circumstances or by the discretion of the Committee. If an executive
is a good leaver, the award will ordinarily vest on the normal vesting date, subject to performance and time pro rating
(as set out below). The committee also has the discretion to determine that the awards for a good leaver should vest
early (e.g. on cessation of employment) subject to performance with time pro rating (as set out below).

For the outstanding awards under the legacy 2005 LTIP (awards granted in 2013 and prior), the time pro rating is
calculated by rounding up to the nearest full year unless otherwise speciﬁed. Time pro rating under the 2014 LTIP
(awards granted since 2014) and under the legacy Share Matching Plan is rounded up to the nearest month. In
exceptional circumstances the committee may time pro rate the 2005 LTIP, 2014 LTIP and SMP awards to a lesser
extent or not at all. For the Recruitment Awards granted on appointment to Liv Garﬁeld and to be granted to James
Bowling, no time pro rata reduction will be applied in a good leaver situation. This is in recognition of the fact that the
expected value of the forfeited awards was signiﬁcantly higher in both cases (with much of it being non performance
related) and which would not have been scaled back for a similar event.

Outplacement services and reimbursement of legal costs may be provided where appropriate. Any statutory entitlements or sums
to settle or compromise claims in connection with a termination would be paid as necessary. Outstanding awards under the SAYE
and the legacy Share Incentive Plan (SIP) would vest in accordance with the terms of the plans as approved by HMRC.

Approach to recruitment and promotion
The remuneration packages for all new executive directors will be set in line with the company’s approved policy. The committee
will take into account, in arriving at a total package, the skills and experience of the candidate, the market rate for a candidate of that
level of experience, as well as the importance of securing the best candidate.

Annual bonuses and long term incentives will be awarded in line with the maximum limits outlined in the policy on page 72.
Participation in the bonus plan will normally be prorated for the year of joining.

Severn Trent Plc Annual Report and Accounts 2015

The committee may make additional cash and/or share based awards if deferred pay is forfeited by an executive on leaving
a previous employer. Such awards would take into account the nature of awards forfeited (i.e. cash or shares), time horizons,
attributed expected value and any performance conditions. Awards would typically be made under the terms of the LTIP or under
the exemptions permitted under the Listing Rules. Non performance related payments unrelated to the forfeiture of awards, i.e.
‘golden hellos’, will not be made.

Other payments may be made in relation to relocation expenses and other incidental expenses as appropriate.

In the case of an internal appointment, any variable pay element awarded in respect of the prior role would be allowed to pay out
according to the terms on which it was originally granted.

Chairman and non-executive directors
The remuneration policy for non-executive directors, other than the Chairman, is determined by the board. The fee for the
Chairman is determined by the Remuneration Committee (without the Chairman present).

Element

Fee

Purpose and link
to strategy
To recruit and retain
non-executives of
a suitable calibre
for the role and
duties required.

Operation

Maximum opportunity

Base board fee with additional fees paid for the Senior Independent
Director and chairmanship of the Board Committees. The Chairman
receives a total fee in respect of his board duties. Fees are paid
monthly. Directors will be reimbursed for any reasonable business
expenses incurred in the course of their duties, including the tax
payable thereon.

Details of the current fee levels
for the directors are set out in the
Remuneration Committee Report.

The fee levels are set subject to
the maximum limits set out in the
Articles of Association.

The fees for the non-executive directors and Chairman are set taking
into account the time commitment of the role and market rates in
comparable companies. The fees are normally reviewed annually (but
not necessarily increased).

Non-executive directors normally serve terms of three years. They do not have service contracts. Instead, they are engaged by letters
of appointment which are terminable by either party with no notice period and no compensation in the event of such termination,
other than accrued fees and expenses. All of the directors are subject to appointment or reappointment at the 2015 AGM.

Annual Report on remuneration
This part of the report will be subject to an advisory vote at the AGM. The information on pages 75 to 84 is audited.

Membership of the Remuneration Committee and its advisors
The members of the committee are listed in the table below. All are independent non-executive directors, as deﬁned under the
Governance Code, with the exception of the company Chairman who was independent on his appointment. During the year ended
31 March 2015, the committee met six times to discuss key remuneration issues arising, the review and operation of the company’s
remuneration policy and market updates by its advisors.

Remuneration Committee attendance in 2014/15

Richard Davey
Andrew Duff
Martin Lamb
Philip Remnant
Dr Angela Strank

5/5
6/6
6/6
6/6
6/6

On 20 October 2014 it was announced that Richard Davey, non-executive director, Senior Independent Director and chairman of the
Remuneration Committee would be retiring on 23 January 2015, having served nine years on the board. Philip Remnant succeeded
him in the role of chairman of the Remuneration Committee with effect from 23 January 2015.

The committee members have no personal ﬁnancial interest, other than as shareholders, in the matters to be decided. The Chief
Executive, Director of Human Resources and by invitation the Head of Reward and Pensions also attended the committee meetings
to provide advice and respond to speciﬁc questions. Such attendances speciﬁcally excluded any matter concerning their own
remuneration. The Company Secretary acts as secretary to the committee.

To ensure that the company’s remuneration practices are in line with best practice, the committee has access to advice from New
Bridge Street (NBS) (a trading name of Aon Hewitt Limited). NBS is the independent advisor to the committee and was appointed
in 2011. The total fees paid to NBS during the year for services to the committee were £190,525 excluding VAT (2014: £209,089).
NBS also provided advice during the year to the company on the implementation of its share plans and other technical
matters. NBS is a signatory to the Remuneration Consultants Group Code of Conduct and reports directly to the Chair of the
committee. The committee reviews the appointment of its advisors annually and is satisﬁed that the advice it receives is objective
and independent.

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Severn Trent Plc Annual Report and Accounts 2015

Remuneration Committee continued

Directors’ emoluments

Base
salary and
fees

–
54.6
62.2

257.0
64.4
53.2

£’000
Non-executive directors
Dr Bernard
Bulkin(vi)
John Coghlan(vii)
Richard Davey(viii)
Andrew Duff
(Chairman)
Gordon Fryett
Martin Lamb
Baroness
Noakes(ix)
Philip Remnant(x)
Dr Angela Strank
Executive directors
Tony Ballance(x)
Liv Garﬁeld(xii)
Martin Kane(x)
Michael McKeon
Andy Smith(x)
Tony Wray(xi)
Total

207.3
610.0
261.5
475.4
278.7
19.6
2,469.1

19.5
54.3
51.4

Year ending 31 March 2015

Year ending 31 March 2014

Beneﬁts
in kind(i) Pension(ii)

Annual
bonus(iii)

Long term

incentives(iv) Other(v)

Total

Base
salary and
fees

Beneﬁts
in kind

Pension

Annual
bonus

Long term
incentivesiv Other

Total

–
–
–

–
0.1
0.4

–
–
–

–
0.2
0.1

–
54.7
62.6

257.0
64.4
53.2

19.5
54.5
51.5

47.3

75.0

250.0
53.3
50.0

65.0
0.2
9.4

–

–
–
–

–

–
–
–

–

–
–
–

–

–
–
–

0.1

47.4

0.2

75.2

– 250.0
53.3
–
50.0
–

0.3
–
–

65.3
0.2
9.4

16.5
16.6
53.1
16.3
16.5
0.7
119.7

76.6
203.1
78.6
190.5
112.1
7.8

100.7
405.5
198.8
276.2
177.9
–
668.7 1,159.1

0.3
548.4
147.0
12.5 2,097.7
850.0
807.7
179.5 36.2
322.0 22.3 1,302.7
776.1
0.3
190.6
518.8
548.5
1.6
2,207.9

202.1
–
255.5
463.1
262.9
561.2
74.0 6,698.5 2,295.0

16.6
–
145.8
16.5
16.5
16.5
211.9

–

74.6 162.0
–
76.6 126.5
185.6 344.8
149.9 210.5
228.6 452.4
715.3 1,296.2

–

161.7
–
181.8
367.1
216.0
547.9

6.3 623.3
–
5.0 791.2
0.5 1,377.6
9.7 865.5
11.9 1,818.5
1,474.5 34.0 6,026.9

Footnotes:

(i) Beneﬁts include a car allowance of £15,000 per annum, family level private medical insurance, life assurance worth 6 x base salary, telephone allowances and

participation in an incapacity beneﬁts scheme. The ﬁgure shown for Martin Kane includes remuneration paid as compensation for his required relocation to the US.
This ﬁgure includes his US cost of living expenses, comprising accommodation costs, UK and US private medical insurance, vehicle costs, air fares, tax advice, ﬂexible
beneﬁts, US disturbance allowance and utility costs. He also received compensation for UK tax suffered on US beneﬁts of £36,931 (2014: £49,434). These arrangements
ceased on 30 September 2014.

(ii) Liv Garﬁeld is a member of the deﬁned contribution scheme. The ﬁgure shown includes £40,000 paid into the scheme by the company via salary sacriﬁce; the remainder

has been paid as an annual cash supplement in lieu of a pension. Tony Ballance is also a member of the deﬁned contribution scheme and the ﬁgure shown is the
contribution paid into the scheme by the company in the year. For the other executive directors the ﬁgure shown is the annual cash supplement paid in lieu of a pension.

(iii) The annual bonus is paid 50% in cash and 50% in shares with the portion deferred into shares subject to an additional holding period of three years with no further

performance conditions attached.

(iv) The 2015 ﬁgure is comprised of:

– The vesting of the 2012 LTIP award, or in the case of Liv Garﬁeld the second tranche of her recruitment award. The performance period for these awards ended on

31 March 2015 and the awards vest on 1 April and are due to be released following the end of the close period. The value of the shares has been estimated by using the
average share price for the period from 1 January 2015 to 31 March 2015 of £20.62.

– The vesting of the 2011 SMP award. The performance period for this award ended on 19 May 2014. The awards vested on 20 May 2014 and shares were released on

2 June 2014 at a share price of £19.73.

The 2014 ﬁgure is comprised of:

– The vesting of the 2011 LTIP award. The performance period for this award ended on 31 March 2014. The awards vested on 1 April 2014 and shares were released on
5 June 2014 at a share price of £19.6433. This value has been updated to reﬂect the actual share price on vesting (a share price of £17.71 was used in determining the
ﬁgure in the prior year accounts).

– The vesting of the 2010 SMP plus the value of dividends earned on these shares including those due in the previous year paid during 2014/15.

(v) For non-executive directors, this ﬁgure relates to taxable expenses relating to travel. For executive directors, this ﬁgure consists of the value obtained from inclusion in

the Severn Trent all employee Save As You Earn Scheme and Share Incentive Plan.

(vi) Retired from the board on 24 January 2014.

(vii) Appointed to the board on 23 May 2014.

(viii) Retired from the board on 23 January 2015.

(ix) Retired from the board on 16 July 2014.

(x) Tony Ballance, Martin Kane and Andy Smith stood down from the board with effect from 23 January 2015 but remain on the Severn Trent Executive Committee.

The ﬁgures shown in the table above relate to amounts received for the full ﬁnancial year for ease of comparison. The equivalent ﬁgures relating purely to qualifying
services (i.e. whilst serving as a board director) would be 81.6% of the ﬁgure for salary, beneﬁts, pension and bonus being 298 days out of 365 and 95.5% of the value
shown for long term incentives being 100% of the SMP ﬁgure and 94.4% of the LTIP ﬁgure.

(xi) Retired from the board on 11 April 2014. Tony Wray was treated as a good leaver under the company’s longterm incentive plans and the ﬁgures relate to the vesting of

his 2012 LTIP and 2011 SMP awards.

(xii) Liv Garﬁeld joined Severn Trent Plc on 31 March 2014 and subsequently joined the board on 11 April 2014. The ﬁrst tranche of Liv Garﬁeld’s recruitment award (41,222
shares) vested on 5 June 2014. The value of the shares on vesting was £809,736. The value of this award has not been included in the table above since it was based on
performance to 31 March 2014 (i.e. prior to joining the board).

Severn Trent Plc Annual Report and Accounts 2015

Annual bonus outturn for 2014/15
The weighting of the performance measures for the annual bonus awarded during the year was as follows:

Tony Ballance

Liv Garﬁeld

Martin Kane

Michael McKeon

Andy Smith

10%

25%

10%

10%
10%

25%

50%

35%

45%

20%

32%

45%

20%

40%

Key

Severn Trent Water Balanced Scorecard

Severn Trent Water Business Unit Objectives

Severn Trent Services Business Unit Objectives

Personal Performance

During the year, Andy Smith moved from being responsible for Water Services to take on a new role as Managing Director,
Business Services (which encompasses the Severn Trent Services business, a new role for Retail for non-household Water
Services organisation and renewable energy). Martin Kane moved from CEO of Severn Trent Services to take on a new role of Chief
Engineer covering engineering design standards, quality assurance, R&D and innovation for the group, and all health and safety
aspects of our operations. Their business unit objectives were therefore split between objectives relating to Severn Trent Water
Limited and Severn Trent Services, reﬂecting their changes in role during the year.

a) Severn Trent Water – Balanced Scorecard
The bonus outturn in respect of Severn Trent Water performance was determined by reference to a balanced scorecard
of measures, based on 10 of the company’s 16 Key Performance Indicators (KPIs). The KPIs used to determine the annual
bonus were:

Key Performance Indicators
Employee

• Providing a safe working environment
• Developing a conﬁdent and

productive workforce

KPI 1
KPI 2

Lost time incidents per 100,000 hrs worked
Employee motivation

Customer

• Quality interaction with the customer KPI 4
KPI 5
KPI 7
KPI 8

Service Incentive Mechanism – Qualitative
Service Incentive Mechanism – Quantitative
Serviceability – Waste
Serviceability – Water

Financial

• Asset base enhancement
• Management of cost base

Environment

• Minimising environmental impact

KPI 9

Capital Expenditure (net) versus ﬁnal
determination – % outperformance
KPI 11 Operating Expenditure versus ﬁnal
determination – % outperformance

KPI 12 Pollution incidents (cat 1, 2 and 3)
Leakage Ml/d – Post MLE
KPI 16

Target

Stretch

Outturn

Points

0.19

82%

3rd
127
58
167

0.15

84%

1st
104
52
152

0.21

79%

2ndi
105.00
53.52
270

0.0%

0.5%

0.8%

0.5%

405
448

377
442

368
441
Total

115
129
122
0

100

140
135
926

i. For KPI4 the Ofwat introduced new methodology (an Ofwat pilot) to determine the outturn for Wave 4. The Wave 4 result placed STW in 2nd place against the other

WASCs. The bonus payout is based on us coming 2nd and is equivalent to achieving 115 points which the mid point between target and stretch.
Each KPI has 100 target points, 130 stretch points and extra points can be earned for above stretch performance. No points can
be earned for below a threshold level of performance. For executive directors to be awarded the maximum bonus available, they
are required to achieve 1,300 aggregate points. During the year, two of the 10 KPIs exceeded the stretch level of performance, with
KPI 12 generating a score of 140 points and KPI 16 generating a score of 135. The aggregate score was 926 points. The resulting
bonus awarded for the Severn Trent Water Limited portion of the annual bonus was 46.3% of the maximum, representing an
improvement to operational performance but set against challenging targets.

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Severn Trent Plc Annual Report and Accounts 2015

Remuneration Committee continued

b) Severn Trent Water – business unit objectives
The business unit objectives used to determine the annual bonus were:

Measure/Objective

Ballance Garﬁeld

Kane McKeon

Smith

Target

Stretch

Outturn % Payable

Applicable to:

1 Percentage of customers registered for

paperless bills

2 Speed of response in repairing leaks (% ﬁxed

with 24 hours)

3 Amount of renewable energy produced from

waste water renewable activities
4 Customer water quality complaints
5 Reduction of customer complaints waste water
6 Reduction written customer complaints
7 Sewer ﬂooding incidents
8 Reduction in controllable operating

expenditure (£m)

9 Number of properties interrupted for greater

than 12 hours

10 Capital blocks net spend £m water (£m)
11 Capital blocks net spend £m waste (£m)
12 Creating an investment fund to enable the ST

green business plan (£m)

(cid:57)

(cid:57)
(cid:57)
(cid:57)
(cid:57)
(cid:57)

(cid:57)

(cid:57)
(cid:57)

(cid:57)

(cid:57)
(cid:57)

33%

40%

12.9%

9.8%

50%

55%

38%

23.7%

30%
12,837
2,226
14,877
515

25.0

856
60.0
97.0

20.0

34%
11,920
1,670
13,910
478

40.0

770
58.4
95.0

22.5

28.4%
15,881
1,961
9,978
613.0

34.0%
8.5%
73.8%
100.0%
0.0%

25.5

51.7%

3,365
59.4
84.2

0.0%
68.8%
100.0%

13.4

8.8%

0% is payable for achieving the threshold level under each metric, increasing on a straight line basis to 50% for target performance
and 100% for stretch performance. Each metric is evenly weighted. Achievement against the business unit targets is set out in
the table above. The resulting bonus awarded for the Severn Trent Water business unit portion of the annual bonus were 17.5%
of the maximum for Tony Ballance, 41.7% of the maximum for Liv Garﬁeld, 48.8% of the maximum for Martin Kane, 26.1% of the
maximum for Michael McKeon and 30.5% of the maximum for Andy Smith.

c) Severn Trent Services – business unit objectives
Part of Martin Kane’s and Andy Smith’s bonuses related to the ﬁnancial and non ﬁnancial key performance indicators and business
unit objectives of Severn Trent Services as follows:

Financial performance (PBIT and Turnover)
Non ﬁnancial objectives
STS business unit objectives
Total

Weighting % achieved – Martin Kane
29.5%
5.6%
37.0%
72.1%

44.4%
11.2%
44.4%
100%

% achieved – Andy Smith
29.5%
5.4%
29.8%
64.7%

The ﬁnancial targets related to achievement of PBIT of £14.8 million and turnover of £337.7 million as set out in the business plan
for Severn Trent Services. The total bonus payable for Severn Trent Services performance was 72.1% of the maximum for Martin
Kane and 64.7% for Andy Smith. In respect of Michael McKeon and Liv Garﬁeld, whose performance was measured against the
achievement of speciﬁc business restructuring targets for Severn Trent Services, it was determined that these were met and they
were awarded 95% of the maximum bonus.

d) Personal contribution
All directors had 10% of their bonus opportunity measured against personal objectives. The personal objectives varied by individual
but covered PR14 and the AMP6 business plan, development of the retail business, talent and succession planning, and transition
management. The objectives for the Chief Executive related to developing the company strategy, PR14, customer service, raising
operational performance and talent management.

Severn Trent Plc Annual Report and Accounts 2015

e) Overall achievement for 2014/15

Name
Tony Ballance
Liv Garﬁeld
Martin Kane
Michael McKeon
Andy Smith

Severn Trent
Services Business
Unit Objectives
–

Severn Trent Water
Personal
Severn Trent Water
Business Unit
Performance
Balanced Scorecard
Objectives
8.5% (max.10%)
23.2% (max. 50%) 7.0% (max. 40%)
4.7% (max. 5%) 9.5% (max. 10%)
23.2% (max. 50%) 14.6% (max. 35%)
11.6% (max. 25%) 9.8% (max. 20%) 32.4% (max. 45%) 9.0% (max. 10%)
23.2% (max. 50%) 8.3% (max. 32%)
7.6% (max. 8%) 8.9% (max. 10%)
11.6% (max. 25%) 6.1% (max. 20%) 29.1% (max. 45%) 5.7% (max. 10%)

Total Bonus
(as % maximum)
38.7%
52.0%
62.8%
48.0%
52.5%

Total Bonus (£)
£100,691
£405,483
£198,804
£276,157
£177,872

The maximum bonus opportunity for all Directors is 120% of salary. Bonuses are paid 50% in cash and 50% in shares (deferred
for three years). The deferred shares will be granted in June 2015. The deferred shares are not subject to any further performance
conditions. Michael McKeon will be retiring on 31 May 2015 and, as permitted under the rules of the annual bonus plan, his bonus
will be paid solely in cash.

Long term incentive awards vesting in relation to performance in 2014/15
The 2011 SMP awards and the 2012 LTIP awards have vested or will vest based on performance during the year as follows:

a) 2011 SMP awards
The 2011 SMP awards were subject to a Total Shareholder
Return (TSR) performance condition, measured relative to
companies ranked 51–150 in the FTSE by market capitalisation
(excluding investment trusts). The overall performance period
was three years commencing on the date of grant (20 May
2011). However, the award was split into three tranches, each
with a different measurement period for TSR as follows:

TSR vesting schedule
Percentage of award vesting (%)

100

Tranche
1
2
3

Performance period
18 months
27 months
36 months

Weighting
20%
30%
50%

Severn Trent TSR
26.5%
42.6%
49.1%

Median

Upper Quartile

Position against FTSE 51–150 (excluding investment trusts)

Median TSR
3.6%
26.9%
40.9%

Upper Quartile TSR
22.6%
55.6%
77.4%
Overall level of vesting

Vesting
100%
70.3%
50.3%
66.2%

The committee was satisﬁed that the company’s TSR appropriately reﬂected the company’s underlying performance and the
award vested at 66.2%.

b) 2012 LTIP awards
The 2012 LTIP awards were subject to an RoRCV performance
condition, measured over three ﬁnancial years to 31 March
2015. Average RoRCV is compared to the baseline ﬁgure set
out in the Ofwat Final Determination. 0% of the award vests
if average RoRCV equals that set in the Final Determination,
increasing on a straight line basis to 50% vesting for 1.02 x
the Final Determination and 100% vesting for 1.07 x
Final Determination.

The committee has various discretions in relation to
determining the ﬁnal vesting outcome as set out in the
policy report. The committee considered the level of RoRCV
outperformance of the Ofwat Final Determination for the 2012
LTIP. This showed the average RoRCV over the three years
ending in 2014/15 had outperformed the RoRCV Ofwat Final
Determination by 1.14 times therefore resulting in 100% vesting.

RoRCV vesting schedule for 2012, 2013 and 2014 LTIP awards
Percentage of award vesting (%)

100

99%

100% 101% 102% 103% 104% 105% 106% 107%

108%

Average annual RoRCV against the Ofwat ﬁnal determination expectation

S
t
r
a
t
e
g
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

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r
o
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a
n
c
a
l
s
t
a
t
e
m
e
n
t
s

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o
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p
a
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a
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c
a
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O
t
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n
f
o
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a
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i
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n

Severn Trent Plc Annual Report and Accounts 2015

Remuneration Committee continued

c) Liv Garﬁeld recruitment award
The second tranche of Liv Garﬁeld’s recruitment award will vest in May 2015. It is subject to the same performance conditions as
the 2012 LTIP awards and therefore will vest at 100%.

d) Summary of long term incentive awards vesting based on performance in 2014/15

Executive
Tony Ballance

Award type
SMP
LTIP

Grant date
20/05/11
19/06/12

Number of
shares
granted
1,868
5,741

End of
performance
period
19/05/14
31/03/15

% vesting
66.2%
100%

Liv Garﬁeld

Recruitment

04/06/14

41,222

31/03/15

100%

Martin Kane

Michael McKeon(ii)

Andy Smith

Tony Wray(iii)

Total

SMP
LTIP

20/05/11
19/06/12

2,131
7,119

19/05/14
31/03/15

3,938
12,684

19/05/14
31/03/15

2,399
7,460

19/05/14
31/03/15

4,542
21,875

19/05/14
31/03/15

66.2%
100%

64.3%
100%

Number of
shares vesting
1,236
5,741
Total
41,222
Total
1,410
7,119
Total
2,606
12,684
Total
1,588
7,460
Total
2,922
21,875

Value of
resultant
award(i)
£24,386
£118,379
£142,765
£849,998
£849,998
£27,819
£146,794
£174,613
£51,416
£261,544
£312,960
£31,331
£153,825
£185,156
£57,651
£451,062
£508,713

Release/
vesting date
02/06/14
01/04/15

01/04/15

02/06/14
01/04/15

(i) For the SMP award this is based on the share price at release of £19.73. For the LTIP award this is based on the average share price over the ﬁnal three months of the

performance period (£20.62) as the awards will not be released until after the end of the close period.

(ii) Michael McKeon stepped down from the board on 1 April 2015 and will subsequently be retiring on 31 May 2015. As noted on page 85, he is being treated as a good
leaver under the rules of the LTIP. His award will vest as normal. In accordance with the rules, there is no pro rata reduction since he served for the whole of the
performance period.

(iii) Tony Wray retired from the board on 11 April 2014. As noted in last year’s Annual Report, he is treated as a good leaver under the rules of the SMP and LTIP. The awards
vested on the normal vesting date subject to performance and a time pro rata reduction. For the 2011 SMP award, time prorating was calculated to the nearest month.
For the 2012 LTIP award, time prorating was calculated to the nearest year in accordance with the rules of the plan.

Severn Trent Plc Annual Report and Accounts 2015

Outstanding scheme interests, including share awards granted during the year
The table below sets out details of the executives’ outstanding share awards as at 31 March 2015.

Executive
Tony Ballance

Liv Garﬁeld

Martin Kane

Award type
2012 LTIP
2013 LTIP
2014 LTIP
2012 SMP
2013 SMP
2012 ABS
2013 ABS
2014 ABS
2013 SAYE
2014 SIP
Total
2014 LTIP
Recruitment Award
Recruitment Award
2015 SAYE
Total
2012 LTIP
2013 LTIP
2014 LTIP
2012 SMP
2013 SMP
2012 ABS
2013 ABS
2014 ABS
2012 SAYE
2013 SAYE
2014 SAYE
2015 SAYE
2014 SIP
Total

Andy Smith

Michael McKeon 2012 LTIP
2013 LTIP
2014 LTIP
2012 SMP
2013 SMP
2012 ABS
2013 ABS
2014 ABS
2014 SIP
Total
2012 LTIP
2013 LTIP
2014 LTIP
2012 SMP
2013 SMP
2012 ABS
2013 ABS
2014 ABS
2013 SAYE
2015 SAYE
2014 SIP
Total
2012 LTIP
2013 LTIP
2012 SMP
2013 SMP
Total

Tony Wray(iii)

Maximum(ii)
number of
shares
5,741
5,855
8,817
1,721
2,963
3,442
5,926
4,179
725
24
39,393
42,383
41,222
41,223
1,136
125,964
7,119
7,119
10,720
2,162
4,360
4,324
8,721
3,265
152
290
270
681
24
49,207
12,684
12,937
19,480
3,685
6,757
7,370
13,514
8,898
24
85,349
7,460
7,610
11,459
2,234
3,842
4,468
7,684
5,431
725
568
24
51,505
21,875
8,057
3,023
2,298
35,253

Percentage vesting
at minimum
performance
0%
0%
0%
5%
5%
–
–
–
–
–

Exercise
price (p)
–
–
-
–
–
–
–
–
1,241
–

End of
performance
period
31/03/15
31/03/16
31/03/17
24/05/15
12/06/16
–
–
–
–
–

–
–
–
1,584

–
–
–
–
–
–
–
–
1,177
1,241
1,331
1,584
–

–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
1,241
1,584
–

–

0%
0%
0%
–

0%
0%
0%
5%
5%
–
–
–
–
–
–
–
–

0%
0%
0%
5%
5%
–
–
–
–

0%
0%
0%
5%
5%
–
–
–
–
–
–

0%
0%
5%
5%

31/03/17
31/03/15
31/03/16
–

31/03/15
31/03/16
31/03/17
24/05/15
12/06/16
–
–
–
–
–
–
–
–

31/03/15
31/03/16
31/03/17
24/05/15
12/06/16
–
–
–
–

31/03/15
31/03/16
31/03/17
24/05/15
12/06/16
–
–
–
–
–
–

31/03/15
31/03/16
24/05/15
12/06/16

Awards granted during the year

Vesting/(i)
Basis of award
exercise date
–
01/04/15
–
01/04/16
80% of salary
16/07/17
–
25/05/15
–
13/06/16
–
28/06/15
26/06/16
–
30/06/17 Deferred bonus
–
May–16
–
–

16/07/17
May–15
May–16
May–18

125% of salary
125% of salary
125% of salary
–

–
01/04/15
–
01/04/16
80% of salary
16/07/17
–
25/05/15
–
13/06/16
–
28/06/15
–
26/06/16
30/06/17 Deferred bonus
–
May–15
–
May–16
–
May–17
–
May–18
–
–

–
01/04/15
–
01/04/16
80% of salary
16/07/17
–
25/05/15
–
13/06/16
–
28/06/15
–
26/06/16
30/06/17 Deferred bonus
–

–

–
01/04/15
–
01/04/16
80% of salary
16/07/17
–
25/05/15
–
13/06/16
–
28/06/15
26/06/16
–
16/07/17 Deferred bonus
–
May–16
–
May–18
–
–

01/04/15
01/04/16
25/05/15
13/06/16

Face value
–
–
£169,040
–
–
–
–
£80,987
–
–

£812,500
£812,500
£812,500
–

–
–
£205,520
–
–
–
–
£63,267
–
–
–
–
–

–
–
£373,440
–
–
–
–
£172,417
–

–
–
£219,680
–
–
–
–
£105,249
–
–
–

S
t
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a
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e
g
c
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e
p
o
r
t

G
o
v
e
r
n
a
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e

G
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p
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a
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c
a
l
s
t
a
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m
e
n
t
s

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o
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p
a
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a
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c
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O
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n
f
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a
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n

(i) Awards that are due to vest in a close period will be released as soon as practicable after the end of the close period.

(ii) Additional dividend equivalent shares may be released where provided in the rules.

(iii) Tony Wray’s outstanding scheme interests have been adjusted to reﬂect a time pro rata reduction following his retirement on 11 April 2014.

Severn Trent Plc Annual Report and Accounts 2015

Remuneration Committee continued

a) Long Term Incentive Plan awards
The LTIP awards are granted as conditional shares. The awards are subject to an RoRCV performance condition measured over
three ﬁnancial years. Average RoRCV is compared with the baseline ﬁgure set out in the Ofwat Final Determination. 0% of each
award vests if average RoRCV equals that set in the Final Determination, increasing on a straight line basis to 50% vesting for 1.02 x
Final Determination and 100% vesting for 1.07 x Final Determination.

Ofwat are no longer publishing a baseline RoRCV ﬁgure in AMP6. This impacts on the ﬁnal year of the 2013 LTIP award and the ﬁnal
two years of the 2014 LTIP award. However, an equivalent baseline ﬁgure can be constructed using the component numbers set
out in the Ofwat model. To ensure a like for like comparison between the baseline ﬁgure and how actual RoRCV will be calculated
in those years, an adjustment has been made to increase the baseline ﬁgure to take into account the impact of expected income to
be received under Pay As You Go (which dictates what portion of total expenditure is treated like operating expenditure, and directly
passed through into customers’ bills, and what is treated as capital expenditure and added to Severn Trent Water’s asset base).
This gives a baseline ﬁgure of 3.49% for 2015/16 and 3.6% for 2016/17.

As noted on page 79, the 2012 LTIP vested at 100% on 1 April 2015. However, as the company was in a close period, the release of
awards will be made after this period ends.

The 2014 LTIP awards were granted on 16 July 2014. The share price used to calculate the number of shares granted was £19.17
(being the average price over the preceding three days).

b) Share Matching Plan awards
For the outstanding legacy Share Matching Plan awards, TSR performance is measured over three different measurement
periods, each commencing on the date of grant – 20% of each award is measured over 18 months, 30% over 27 months and 50%
over 36 months. 25% of each part of the award will become eligible for vesting for median performance, increasing (on a straight
line basis) to full vesting for upper quartile performance or above. However, for any of the awards to vest, the committee must
be satisﬁed that the company’s TSR is reﬂective of the company’s underlying performance over the full three year performance
period. The 2012 SMP awards will vest, subject to performance, on 25 May 2015. However, the current indication is that the 2012
SMP will not meet the TSR performance measure and as such no shares will vest.

c) Deferred shares under the Annual Bonus Scheme
Each year, 50% of an executive director’s annual bonus is deferred in shares for three years. The awards are granted in the form of
deferred shares. The 2014 award relates to the deferral of the annual bonus for 2013/14. The award was granted on 30 June 2014.
The share price used to calculate the number of shares granted was £19.38. The deferred shares relating to the annual bonus for
2014/15 will be granted in June 2015.

d) Save As You Earn
The executive directors, in common with all eligible UK employees of the group, are entitled to participate in the company’s HMRC
tax advantaged SAYE Scheme.

e) Share Incentive Plan
With the exception of Liv Garfield and Martin Kane, the executive directors received an award of free shares linked to the performance
of Severn Trent Water Limited under the Share Incentive Plan (worth £474) during the year, on the same terms as other Severn Trent
Water Limited employees.

f) Liv Garﬁeld’s Recruitment Award
A one-off LTIP award was granted to Liv Garfield on 4 June 2014 as partial consideration for her significant unvested entitlements
at her former employer. The award was split into three equal tranches, the face value of each being £812,500 (125% of base pay of
£650,000) vesting in 2014, 2015 and 2016. The tranches are subject to the same performance condition as the equivalent Severn Trent
LTIP awards vesting in each of those years (i.e. the 2011, 2012 and 2013 awards). The first tranche of the Recruitment Award vested at
100% on 5 June 2014 with a value upon release of £809,736. The second tranche of the Recruitment Award vests at 100% in May 2015.

Directors’ pension provisions

Service
completed in year
(including
transferred in
service credits)
35
9
6

Name
Martin Kane
Andy Smith
Tony Wray

Notes:

Accrued pension
at 31.03.15
£154,511
£41,226
£31,573

Increase in
accrued pension
during the year
2,587
-2,233
830

Increase in
accrued pension
during the year
(net of inﬂation)
-1,515
-3,406
0

Transfer value of
accrued pension
at 31.03.14
2,828.7
804.7
547.6

Transfer value of
accrued pension
at 31.03.15
2,711.5
802.4
599.7

Increase in
transfer value net
of directors’
contributions
-117.2
-2.3
52.1

Increase in value
net of directors’
contributions
-0.8
0.0
0.0

The accrued pension ﬁgures and transfer value calculations have been provided by Towers Watson. The inﬂation ﬁgure used in respect of the year to March 2015 was as at
September 2013 (2.7%) in line with statutory guidance for calculating the increase in value.

Andy Smith and Martin Kane have both elected to use the ‘Scheme Pays’ approach to meeting tax charges on pension savings above the annual allowance. The impact of
this reduces the accrued pension and transfer value at 31 March 2015 by the following amounts:

Andy Smith – Pension: £2,233 p.a. (of which £1,581 p.a. is in respect of the year to 31 March 2014) Transfer value: £43,500; and

Martin Kane – Pension: £1,474 p.a. (all of which is in respect of the year to 31 March 2014) Transfer value: £26,000.

Severn Trent Plc Annual Report and Accounts 2015

Tony Wray and Andy Smith are deferred members of the Severn Trent Pension Scheme (SSPS Section). Tony Wray ceased to
contribute to the Scheme from 31 December 2011 and Andy Smith ceased to contribute to the Scheme from 31 March 2014, when
they became deferred pensioners of the Scheme and stopped accruing pensionable service.

Martin Kane is a member of the Severn Trent Pension Scheme (WPS Section) but opted out of the scheme on 30 June 2007.
While he no longer accrues additional years of service for pension purposes, consistent with the legislation, his accrued beneﬁts
generally continue to be linked to his ﬁnal salary (or £161,000 plus RPI from 30 June 2007 to the date of his retirement, if higher) and
scheme beneﬁts are preserved in relation to ill health retirement and death in service.

External directorships
Michael McKeon was appointed as a non-executive director of The Merchants Trust Plc on 1 May 2008 and, in respect of his
appointment for the year ended 31 March 2015, he was paid fees of £27,750 (2014: £26,042).

Tony Wray was appointed as a non-executive director of Grainger plc on 24 October 2011 and in respect of the appointment (for the
period 1 to 11 April 2014) he was paid fees of £1,492 (2014: £48,500).

Liv Garﬁeld was appointed as a non-executive director of Tesco plc on 1 April 2013 and served until her resignation on 28 February
2015. She received fees in respect of her appointment (for the period 11 April 2014 to 28 February 2015) of £72,968.

No other executive directors currently hold any external fee earning non-executive directorships.

Directors’ shareholdings and summary of outstanding share interests
As disclosed in the Policy Report, the company operates shareholding guidelines under which executive directors are expected
to build and maintain a shareholding in the company of 200% salary for the Chief Executive and 125% of salary for other executive
directors. Details of the current shareholdings of the directors and whether they have met the new shareholding guidelines are set
out below.

Interests in shares as at 31 March 2015

Outstanding scheme interests

Director
John Coghlan
Richard Davey1
Andrew Duff
Gordon Fryett
Martin Lamb
Baroness Noakes2
Philip Remnant
Dr Angela Strank
Tony Ballance3
Liv Garﬁeld
Martin Kane3
Michael McKeon
Andy Smith3
Tony Wray4

Beneﬁcially
owned
400
588
8,184
2,312
3,012
4,018
1,400
235
22,566
21,748
32,051
55,456
31,815
45,837

LTIP and SMP
–
–
–
–
–
–

25,097
124,828
31,480
55,543
35,004
35,253

Deferred shares under the
Annual Bonus
–
–
–

SAYE options
–
–
–

–

–
–
13,547
–
16,310
29,782
17,583
0

–

–
–
725
1,136
1,393
–
1,293
–

Total
400
588
8,184
2,312
3,012
4,018
1,400
235
39,369
125,964
49,183
85,325
53,880
35,253

% shareholding
guideline
achieved*
–
–
–

–

–
–
278%
34%
314%
242%
296%
–

* The share price used to calculate the percentage of the shareholding guideline achieved was £20.59 (as at 31 March 2015).

1 Richard Davey retired from the board on 23 January 2015.

2 Baroness Noakes retired from the board on 16 July 2014.

3 Tony Ballance, Martin Kane and Andy Smith stepped down from the board on 23 January 2015.

4 Tony Wray retired from the board on 11 April 2014; the outstanding scheme interests have been adjusted to reﬂect a time pro rata reduction.
Shares counting towards achievement of the guideline include beneﬁcially owned shares and the net of tax value of deferred
shares under the annual bonus since they are not subject to performance conditions. The executive directors are expected to retain
all shares received through the vesting of any incentive schemes (after the settlement of any tax liability) until the shareholding
guidelines are met.

There has been no change in the directors’ interests in the ordinary share capital of the company between 31 March and
21 May 2015.

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Severn Trent Plc Annual Report and Accounts 2015

Remuneration Committee continued

Percentage increase in the remuneration of the Chief Executive

Chief Executive (£’000)
– Salary1
– Beneﬁts
– Bonus
Average per employee (£’000)
– Salary
– Beneﬁts2
– Bonus3

2015

2014

% Change

650.0
16.6
405.5

28.8
0.5
1.2

561.2
16.5
452.4

28.5
0.4
1.3

15.8%
0.6%
(10.4%)

1.1%
25%
(7.7%)

1 The salary ﬁgure for 2015 has been adjusted to include salary paid into the pension scheme as an employer pension contribution via salary sacriﬁce.

2 Includes car allowance and family level private medical insurance for senior and middle managers.

3 The ﬁgures are based on an estimate as the 2015 bonuses are not ﬁnalised before the date of publication.

The table above shows the movement in salary, beneﬁts and annual bonus for the director occupying the role of Chief Executive
between the current and previous ﬁnancial year compared with that of the average employee. The Chief Executive ﬁgures for 2014
relate to the former Chief Executive, Tony Wray. The ﬁgures for 2015 relate to the current Chief Executive, Liv Garﬁeld.

The committee has elected to use the average earnings per employee as this avoids the distortions that can occur to the company’s
total wage bill as a result of movements in the number of employees. The comparator group used were Severn Trent Water Limited
employees based in the UK as this is where the vast majority of our employees are based.

Total shareholder return chart (not subject to audit)
This graph shows the value, at 31 March 2015, of £100 invested
in Severn Trent Plc on 1 April 2009 compared with the value of
£100 invested in the FTSE 100 index. The FTSE 100 was chosen
as the comparator index because the company is a constituent
of that index. The intermediate points show the value at the
intervening ﬁnancial year ends.

Total shareholder return (value £)

300

250

200

150

100

Key

Severn Trent Plc

FTSE 100 index

Source: Datastream

Total remuneration of the Chief Executive

Chief Executive
Total remuneration (£’000)
Annual bonus (% of maximum)
LTIP vesting (% of maximum)
SMP vesting (% of maximum)

2010
Tony Wray
1,027.0
51.5%
63.0%
–

2011
Tony Wray
949.8
43.2%
0.0%
–

2012
Tony Wray
1,244.1
48.1%
28.4%
–

2013
Tony Wray
1,635.3
82.4%
57.5%
–

Year ending 31 March

2014
Tony Wray
1,818.4
78.7%
100%
78%

2015
Liv Garﬁeld
2,097.7
52.0%
100%
–

Relative importance of the spend on pay
The table below shows the expenditure of the company on staff costs against dividends paid to shareholders for both the current
and prior ﬁnancial periods, and the percentage change between the two periods.

Staff costs (£’m)
Dividends (£’m)

2015
369.5
196.9

2014
351.9
185.3

% Change
5.0%
6.3%

How the policy will be applied in 2015 onwards
Salary, beneﬁts and pension
The base salary for the Chief Executive will increase by 2.1% on 1 July 2015 (from £650,000 to £663,650). This is lower than the
average increase that will apply to the general UK workforce. As a new joiner to the company, James Bowling’s salary will next be
reviewed on 1 July 2016. The base salaries for the executive directors from 1 July 2015 are therefore as follows:

Liv Garﬁeld
James Bowling

£663,650
£400,000

Beneﬁts and pension provision will be applied in line with the policy set out in the table on pages 71 and 72.

Severn Trent Plc Annual Report and Accounts 2015

Annual bonus
The structure and operation of the annual bonus for the Chief Executive and Chief Financial Officer will be as outlined in the policy
table. The performance measures will be Severn Trent Water profit before interest and tax (50%), business unit performance (40%)
and personal performance (10%). The business unit performance relates to performance against Severn Trent Water Outcome
Delivery Incentives (25%), Severn Trent Business Services profit before interest and tax (10%) and health and safety performance (5%).
The Remuneration Committee considers the forward-looking performance targets to be commercially sensitive and has, therefore,
determined not to disclose them in advance. Details of the targets used will be disclosed in next year’s Remuneration report.

Long Term Incentive Plan
LTIP awards for 2015 will be 125% of salary for the Chief Executive and 80% for the Chief Financial Ofﬁcer, and will be made
as soon as possible after the AGM (subject to approval of the Policy report). The awards will be based on return on regulatory
equity (RORE) over the three year period to 31 March 2018. Our three year average RORE performance will be compared with the
baseline RORE ﬁgure set by Ofwat in our Final Determination. 25% of the award will vest if average RORE matches the baseline
ﬁgure of 5.65%, increasing on a straight line basis to full vesting for outperforming the baseline by 1.29 times (equivalent to 7.29%).
The Remuneration Committee considers that the threshold target is demanding and more challenging than the RORCV target set
for the previous AMP. It also considers that the upper target is very challenging and would require very signiﬁcant ODI and ﬁnancing
outperformance, together with a very high level of efﬁciencies, and was set signiﬁcantly ahead of analyst consensus.

Retirement from the board of Michael McKeon
Michael McKeon will be retiring from the company on 31 May 2015. He will not receive any compensation for loss of ofﬁce. As a
retiree, Michael McKeon will be treated as a good leaver in relation to his outstanding incentive awards. Consistent with the policy
on terminations, his bonus for 2014/15 will be paid in cash and his outstanding deferred share bonus awards will vest, in full, on
cessation of employment. His outstanding awards under the SMP and LTIP will continue to vest on the normal vesting dates,
subject to performance and a time pro rata reduction (where relevant). Any outstanding awards under the company’s HMRC tax
advantaged all employee share plans vest in accordance with their terms.

Recruitment of James Bowling as Chief Financial Ofﬁcer
The remuneration package granted to James Bowling on appointment is as follows:

• Salary of £400,000
• Pension contribution of 25% of salary
• Annual bonus potential of 120% of salary
• LTIP grant level of 80% of salary

The annual bonus and LTIP levels are in line with our policy. A one off LTIP award was necessary to secure his appointment, as partial
consideration for his significant unvested entitlements at his previous employer. The award will be split into three equal tranches,
the face value of each being £308,000 vesting in 2015, 2016 and 2017. It will be subject to the same performance conditions as the
equivalent Severn Trent LTIP awards vesting in each of those years.

Non-executive directors’ fees
There have been no changes to the fee levels for the Chairman and non-executive directors during the year. The current fee levels
are set out in the table below:

Chairman’s fee
Base fee paid to all non-executive directors
Supplementary fees:
– Senior Independent Director
– Audit Committee Chairman
– Remuneration Committee Chairman
– Corporate Responsibility Committee Chairman

Fees
£257,000
£51,350

£10,000
£15,000
£15,000
£13,000

The Chairman and non-executive directors normally serve for terms of three years. The current expiry dates of their letters of
appointment are John Coghlan (22 May 2017), Andrew Duff (9 May 2016), Gordon Fryett (20 June 2015), Martin Lamb (1 March 2017),
Philip Remnant (31 March 2017) and Dr Angela Strank (24 January 2017). However, all of the directors are subject to reappointment
at the 2015 AGM.

Statement of shareholding voting at AGM
At last year’s AGM, the Directors’ Remuneration report and policy received the following votes from shareholders:

Resolution
Approve Directors’ Remuneration Report
Approve Directors’ Remuneration Policy

Votes for
138,974,226 (99.35%)
136,960,503 (97.66%)

Votes against
908,111 (0.65%)
3,276,685 (2.34%)

Votes withheld
719,294
362,862

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Philip Remnant
Chairman of the Remuneration Committee

21 May 2015

Severn Trent Plc Annual Report and Accounts 2015

Directors’ report

The directors present their report, together with the audited
group ﬁnancial statements, for the year ended 31 March 2015.
The Governance section set out on pages 52 to 60 forms part of
this report.

Principal activity
The principal activity of the group is to treat and provide water
and remove waste water in the UK and internationally.

Details of the principal joint ventures, associated and subsidiary
undertakings of the group at 31 March 2015 are shown in notes
19 and 45 to the ﬁnancial statements on pages 119 and 145
to 146.

Business review
The Strategic report on the inside front cover through to page
46 provides detailed information relating to the group, its
business models and strategy, the operation of its businesses,
future developments and the results and ﬁnancial position for
the year ended 31 March 2015.

Details of the principal risks and uncertainties facing the group
are set out in the risk management section on pages 38 to 42.

Directors and their interests
Biographies of the directors currently serving on the board
are set out on pages 48 and 49. In addition, Michael McKeon
and Richard Davey served as directors during the year ended
31 March 2015.

All of the directors will be offering themselves for election or
re-election at the Annual General Meeting (AGM), as set out in
the Governance report on page 52.

Details of directors’ service contracts are set out in the
Directors’ remuneration report on page 76. The interests of the
directors in the shares of the company are shown on page 87 of
that report. The board has a full documented process in place
in respect of conﬂicts which is documented on page 57 and 58.

Insurance and indemnities
The company maintains directors’ and ofﬁcers’ liability
insurance in respect of legal action that might be brought
against its directors and ofﬁcers. In accordance with the
company’s Articles of Association, and to the extent permitted
by law, the company indemniﬁed each of its directors and
other ofﬁcers of the group against certain liabilities that may be
incurred as a result of their positions with the group.

Severn Trent does not have in place any indemnities for the
beneﬁt of the auditors.

Employees
The average number of employees within the group is shown in
note 9 to the ﬁnancial statements on page 112.

Severn Trent believes a diverse and inclusive workforce is a
key factor in being a successful business. This means more
than ensuring we don’t discriminate in any way – we want to
create and maintain a culture open to a diverse population.
We endeavour to keep employees in the workforce if they
become disabled, and make reasonable adjustments to their role
as well as looking for redeployment opportunities elsewhere in
the company if necessary. All our training, promotion and career
development processes are in place for all our employees to
access, regardless of their gender, race, age or disability.

The provision of occupational health programmes is of crucial
importance to Severn Trent with the aim of keeping our
employees ﬁt and healthy, including an employee assistance
programme which is available to Severn Trent Water
Limited employees.

The group actively encourages employee involvement and
consultation and places emphasis on keeping its employees
informed of its activity and ﬁnancial performance by way
of company wide communication forums, brieﬁngs and
publication to staff of all relevant information and corporate
announcements. To help align employees’ interests with the
success of the Company’s performance, Severn Trent offers
employees, the Severn Trent Sharesave Scheme, an HM
Revenue and Customs approved SAYE plan, which is offered to
UK employees on an annual basis.

Research and development
Expenditure on research and development is set out in note 7 to
the ﬁnancial statements on page 111.

Treasury management
The disclosures required under the EU Fair Value Directive in
relation to the use of ﬁnancial instruments by the company are
set out in note 35 to the ﬁnancial statements on pages 131 to
137. Further details on our treasury policy and management
are set out in the Financial review on page 43.

Post balance sheet events
Details of post balance sheet events are set out in note 43 to the
group ﬁnancial statements on page 145.

Dividends
An interim dividend of 33.96 pence per ordinary share was paid
on 9 January 2015. The directors recommend a ﬁnal dividend
of 50.94 pence per ordinary share to be paid on 24 July 2015 to
shareholders on the register on 19 June 2015. This would bring
the total dividend for 2014/15 to 84.90 pence per ordinary share
(2014: 80.40 pence). The payment of the ﬁnal dividend is subject
to shareholder approval at the AGM.

Capital structure
Details of the Company’s issued share capital and of the
movements during the year are shown in note 8 to the Company
ﬁnancial statements on page 152. The Company has one class
of ordinary shares which carries no right to ﬁxed income.
Each share carries the right to one vote at general meetings of
the Company. The issued nominal value of the ordinary shares
is 100% of the total issued nominal value of all share capital.

There are no speciﬁc restrictions on the size of a holding nor
on the transfer of shares, which are both governed by the
general provisions of the Articles of Association and prevailing
legislation. The directors are not aware of any agreements
between holders of the Company’s shares that may result in
restrictions on the transfer of securities or on voting rights.

Details of employee share schemes are set out in note 37 to the
ﬁnancial statements on pages 139 and 140. For shares held by
the Severn Trent Employee Share Ownership Trust, the trustee
abstains from voting.

No person has any special rights of control over the Company’s
share capital and all issued shares are fully paid.

With regard to the appointment and replacement of directors,
the Company is governed by its Articles of Association, the
Governance Code, the Companies Act 2006 and related
legislation. The Articles may be amended by special resolution
of the shareholders. The powers of directors are described in
the Severn Trent Plc Board Governance document, the Articles
and the Governance Report on pages 53 and 54.

Under its Articles of Association, the directors have authority to
allot ordinary shares, subject to the aggregate nominal amount
limit set at the 2014 AGM.

Severn Trent Plc Annual Report and Accounts 2015

There are a number of agreements that take effect after, or
terminate upon, a change of control of the Company, such as
commercial contracts, bank loan agreements, property lease
arrangements and employee share plans. None of these is
considered to be signiﬁcant in terms of their likely impact on
the business of the group as a whole. There are no agreements
between the Company and its directors or employees that
provide for compensation for loss of ofﬁce or employment that
occurs because of a takeover bid.

Substantial shareholdings
As at 31 March 2015 the Company had been notiﬁed in
accordance with chapter 5 of the Disclosure and Transparency
Rules of the following major shareholdings:

Name of Holder

No. of ordinary
shares of
9717/19p each

Percentage of voting
rights and issued
share capital

Blackrock Inc
Legal & General Group Plc

23,457,458
9,523,698

9.87%
3.99%

As at 21 May 2015, the Company had been notiﬁed of the
following holdings of voting rights in the ordinary share capital
of the Company: Blackrock Inc 23,457,458 (9.87%); Legal &
General Group Plc 9,523,698 (3.99%).

Authority to purchase shares
The Company was given authority at its AGM in 2014 to make
market purchases of ordinary shares up to a maximum
number of 23,949,741 ordinary shares. Similar authority
will again be sought from shareholders at this year’s AGM.
On 13 February 2015, the Company announced that it would
commence a share repurchase programme. Following that
announcement, during the year ended 31 March 2015 market
purchases of 966,578 ordinary shares were made with all of
these shares being cancelled following their purchase at an
average price of 2,031 pence. Following the year end, a further
882,678 ordinary shares have been repurchased to 21 May 2015
at an average price of 2,139 pence. In total 1,018,092 ordinary
shares have been cancelled with 733,946 ordinary shares being
held in treasury at 21 May 2015 to satisfy future share based
awards under long term incentives plan and no ordinary shares
having been transferred from treasury to satisfy the exercise of
share options.

The share repurchase was considered a low risk method
of returning capital to shareholders, satisfying future share
awards and moving gearing in Severn Trent Water Limited
towards the 62.5% net debt/RCV notional level used by Ofwat in
the price review PR14. The share repurchase has had minimal
impact on EPS, with less than 0.5% of issued share capital
cancelled during the year, increasing EPS by 0.1%.

Contributions for political and charitable purposes
Donations to charitable organisations during the year
amounted to £157,648 (2014: £108,000). Donations are given
to charities whose projects align closely with our aim to
promote the responsible use of water resources and waste
water services which provide the opportunity for longer term
partnerships. In addition, we provide donations to employee
nominated charities through a matched funding scheme and
health and safety reward schemes. We are also committed to
supporting WaterAid, the UK’s only major charity dedicated to
improving access to safe water, hygiene and sanitation in the
world’s poorest countries.

Severn Trent’s policy is not to make any donations for political
purposes in the UK, or to donate to EU political parties or incur
EU political expenditure. Accordingly neither Severn Trent Plc

nor its subsidiaries made any political donations or incurred
political expenditure in the ﬁnancial year under review.

Under the provisions of the Political Parties Elections and
Referendums Act 2000 (the relevant provisions of which
are now contained in Part 14 of the Companies Act 2006),
shareholder authority is required for political donations to be
made or political expenditure to be incurred by the company
or any of its subsidiaries in the EU and disclosure of any such
payment must be made in the Annual Report. The legislation
gives a wide deﬁnition of what constitutes political donations
and political expenditure including sponsorship, subscriptions,
payment of expenses, paid leave for employees fulﬁlling public
duties and support for bodies representing the business
community in policy review or reform. The Company has
therefore obtained limited authority from shareholders as
a precautionary measure to allow the Company to continue
supporting the community and such organisations without
inadvertently breaching the legislation.

At the 2014 AGM, shareholders gave the Company authority
to make political donations or to incur political expenditure
in the EU (which would not ordinarily be regarded as political
donations) up to an aggregate annual limit of £150,000 for the
Company and its subsidiaries. Pursuant to those authorities,
during the year ended 31 March 2015 the group incurred costs
of £nil (2014: £nil). Those authorities will expire at the 2015 AGM
and, in line with market practice to renew the authorities on an
annual basis, the board has decided to put forward a resolution
to this year’s AGM to renew the authorities to make donations
to political organisations and to incur political expenditure up
to a maximum aggregate of £150,000 per annum. As permitted
under the Companies Act 2006, this resolution also covers any
political donations made or political expenditure incurred, by
any subsidiaries of the Company.

Supplier payment policy
Individual operating companies within the group are
responsible for establishing appropriate policies with regard
to the payment of their suppliers, in accordance with the
Prompt Payment Code (PPC). The companies agree terms
and conditions under which business transactions with
suppliers are conducted. It is group policy that provided a
supplier is complying with the relevant terms and conditions,
including the prompt and complete submission of all speciﬁed
documentation, payment will be made in accordance with
agreed terms. It is also group policy to ensure that suppliers
know the terms on which payment will take place when
business is agreed.

Report on greenhouse gas emissions
This is the second year Severn Trent has been required to report
greenhouse gas (GHG) emissions in the Directors’ report.

Severn Trent is committed to reducing its GHG emissions.
For Severn Trent Water Limited, which accounts for 98 % of
our total group emissions, we have been publicly reporting
on our emissions since 2002. In that time we have reduced
our emissions primarily by being more energy efficient and
generating more renewable energy.

Our continued investment in renewable energy over the past
decade and beyond now allows us to generate 250 GWh per
annum, the equivalent of 28% of Severn Trent Water Limited’s
electricity needs over the year.

During the last year, we began generating renewable electricity
from food waste, increased generation from energy crops and
wind power and began injecting renewable biogas from sewage
directly into the national gas grid.

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Severn Trent Plc Annual Report and Accounts 2015

Directors’ report continued

In 2009 we set ourselves a target to generate the equivalent
of 30% of Severn Trent Water’s electricity needs by 2015.
In February 2015 we met that target, generating the equivalent
of 31% in the month, which rose to 33% in March. We continue
to lead the UK water industry in renewable energy production.
Our aim is to retain this leading position by generating the
equivalent of 50% of our electricity needs by 2020.

Severn Trent Water has held the Carbon Trust Standard
since 2009 in recognition of consistent emissions reductions
and effective carbon management processes. Our Gross
Greenhouse Gas (GHG) emissions have continued to reduce
since we first achieved the standard because of our reduction
in energy consumption and our increase in self supplied
renewable energy. This year, Severn Trent Water used 885 GWh
of electricity, which is 17 GWh (2%) less than in 2009–10.

Our approach of generating more of our own energy and
reducing the amount we use reduces our costs and our
reliance on the electricity grid.

Further details about our approach to climate change and
the risks and opportunities it presents to our business are
set out in our Carbon Disclosure Project (CDP) submission
(www.cdp.net). The CDP request information about climate
change from companies each year on behalf of investors and
score each company on the quality and completeness of their
responses. We have seen a year on year improvement in our
CDP score and in 2014 we achieved 85%, compared to the
average score of 77% across FTSE 350 companies.

Our GHG emissions are reported in tonnes of carbon dioxide
equivalent (tCO2e), for the period 1 April 2014 to 31 March 2015.

Our total net emissions have risen this year, due entirely to an
11% increase in the emissions intensity of grid electricity; a
factor over which we have no control. On a like for like basis our
emissions from the use of fuel and operation of our facilities
and our total energy consumption decreased by 1% compared
to last year.

The GHG data we report is reported internally during the year
to the Corporate Responsibility Committee and to the board.
We have subjected our GHG data and processes to external
assurance by Atkins.

Severn Trent Plc Direct Operational Greenhouse Gas
Emissions (tonnes CO2e)
Emissions from combustion of fuel and
operation of facilities (Scope 1)
Emissions from electricity purchased
for own use (Scope 2)
Total Annual Gross Operational Emissions
Emissions beneﬁt of the renewable energy
we export (including biomethane exported
for which we hold green gas certiﬁcates)
Total Annual Net Operational Emissions

Annual GHG intensity ratio (t CO2/unit)
Operational GHG emissions of Severn Trent
per £m turnover

2014-15

2013-14

154,644 169,844

357,756 330,697
512,400 500,523

(38,878)
(21,672)
473,522 478,851

2014-15

2013-14

269.7

269.6

Our approach to reporting is based on the GHG Protocol
Corporate Accounting and Reporting Standard and we have
included only emissions from the assets which we own and
operate and which we can directly inﬂuence and reduce, known
as the ﬁnancial control boundary. In accordance with the
reporting regulations, we have not reported on emissions we
can inﬂuence, but which we are not responsible for, referred to
as indirect emissions.

For Severn Trent Water, we have calculated our emissions
using the ‘Carbon accounting in the UK Water Industry:
methodology for estimating operational emissions, Version 9.11’
(released April 2015). This is a peer reviewed calculation tool
developed and used by all the major water companies in the
UK. It is updated each year to include the latest available
emissions factors. For Severn Trent Services, we have used
the latest Defra Emissions factors which include the relevant
conversion factors for overseas electricity.

Our long term aim is to be carbon neutral and energy self
sufﬁcient, provided that this is the best value option for our
customers and investors. We plan to continue to reduce our
emissions within Severn Trent Water by a further 7% between
2015 and 2020, primarily by reducing our energy use. We plan
to continue to increase our renewable generation mainly within
our non-regulated business. Pursuing these measures will
continue to reduce our key sources of emissions, reduce our
reliance on the electricity grid and bring ﬁnancial beneﬁts for
our customers and investors.

Internal controls
The board is responsible for the group’s system of internal
control and for reviewing its effectiveness. The board regularly
reviews the effectiveness of the system of internal control,
including risk management, ﬁnancial, operational and
compliance aspects, in accordance with the requirements of
the Governance Code. The internal control system can provide
only reasonable and not absolute assurance against material
misstatement or loss, as it is designed to manage rather than
eliminate the risk of failure to achieve business objectives.

The Audit Committee reviews the group’s risk management
process and the effectiveness of the system of internal controls
on behalf of the board and keeps under review ways in which to
enhance the control and assurance arrangements. The Audit
Committee receives reports every six months from the Chief
Executive detailing the signiﬁcant risks and uncertainties faced
by the group, an assessment of the effectiveness of controls
over each of those risks and an action plan to improve controls
where this has been assessed as necessary. During its review
of risk management during 2014/15, the board explicitly
considered the target position for signiﬁcant risks. The board
considered whether target risk positions are appropriate and
conﬁrmed that suitable timescales are agreed for reaching
these target positions.

During the course of its review of the system of internal control
in 2014/15, the Audit Committee has not identiﬁed nor been
advised of any signiﬁcant failings or weaknesses which it has
determined to be signiﬁcant to the group.

The Internal Audit department provides objective assurance
on risk management, governance and control matters.
The external auditors (Deloitte) report signiﬁcant ﬁnancial
control issues to the Audit Committee.

An independent reporter (Atkins) provides objective assurance
in relation to the Severn Trent Water Limited Annual Regulatory
Compliance Statement and Annual Regulatory Performance
Report. Deloitte performed calculations of the ﬁnancial KPIs
included in the Annual Regulatory Compliance Statement and
the Annual Regulatory Performance Report.

The board conﬁrms that procedures providing an ongoing
process for identifying, evaluating and managing the principal
risks and uncertainties faced by the group has been in place
for the year to 31 March 2015 and up to the date of approval
of the Annual Report, which is in accordance with the revised
guidance on internal control published in October 2005 (the
Turnbull Guidance).

Severn Trent Plc Annual Report and Accounts 2015

The group’s procedures for exercising control and managing
risk in relation to ﬁnancial reporting and preparation of
consolidated accounts include:

• the formulation and communication of group accounting
policies which are regularly updated for developments in
IFRS and other reporting requirements;

• speciﬁcation of a set of ﬁnancial controls that all of the

group’s operating businesses are required to implement as
a minimum;

• deployment of a group-wide consolidation system with

controls to restrict access and maintain integrity of data;

• recruitment, training and development of appropriately
qualiﬁed and experienced ﬁnancial reporting personnel;

• oversight by the Disclosure Committee of the group’s

compliance with its disclosure obligations; and

• monthly reviews by the board of ﬁnancial reports from the

group’s operating businesses.

Relevant audit information
The directors conﬁrm that:

• so far as each of them is aware, there is no relevant audit

information of which the company’s auditors are unaware;
and

• each of them has taken all the steps that he/she ought to

have taken as a director to make himself/herself aware of any
relevant audit information and to establish that the company’s
auditors are aware of that information.

This conﬁrmation is given and should be interpreted in
accordance with the provisions of section 418 of the Companies
Act 2006.

External auditors
Having carried out a review of their effectiveness during the
year, the Audit Committee has recommended to the board
the reappointment of Deloitte LLP. The reappointment and
a resolution to that effect will be on the agenda at the AGM.
Deloitte LLP indicated their willingness to continue as auditors.
The Audit Committee will also be responsible for determining
the audit fee on behalf of the board.

Disclosures required under Listing Rule 9.8.4R
The information required to be disclosed by Listing Rule 9.8.4R
can be located in the following pages of this Annual Report
and Accounts:

Section
(1)

(4)

(8)

Information to be included
A statement of the amount
of interest capitalised
Details of long term
incentive schemes
Section 7 in relation to any
major subsidiary undertakings

Location
112

145

(2), (5), (6), (7), (9)–(14)

Not applicable

Accounts of Severn Trent Water Limited
Regulatory accounts for Severn Trent Water Limited are
prepared and sent to Ofwat. A copy of these accounts will
be available on the website of Severn Trent Water Limited
(www.stwater.co.uk) or on request to the Company Secretary.
There is no charge for this publication.

Going concern
The group’s business activities, together with the factors likely
to affect its future development, performance and position and
the business reviews of Severn Trent Water Limited and Severn
Trent Services are set out in the Strategic report, from the
inside front cover to page 35. The ﬁnancial position of the group,
its cash ﬂows, liquidity position and borrowing facilities are
described in the Financial review on pages 43 to 46. The group’s
objectives, policies and processes for managing its capital
and its ﬁnancial risk management objectives are described in
the Financial review on pages 43 to 46 and in the Governance
report. Details of the group’s ﬁnancial instruments, hedging
activities and exposure to credit risk and liquidity risk are
described in note 35 to the group ﬁnancial statements.

The group’s principal operating subsidiary, Severn Trent Water
Limited, is a regulated long term business characterised by
multi year investment programmes. The group’s strategic
funding objectives reﬂect this. The group therefore seeks to
attain a balance of long term funding or commitment of funds
across a range of funding at the best possible economic cost.
Average debt maturity is 15 years and the effective average
interest cost during the year was 5.6%. The group is in a strong
liquidity position and had £176.7 million in cash and liquid
reserves and £745 million of undrawn committed bank facilities
at 31 March 2015, which are expected to be sufﬁcient to fund its
investment and cash ﬂow needs at least until July 2016 in the
normal course of business.

Severn Trent Water Limited operates in an industry that is
currently subject to economic regulation rather than market
competition, although Ofwat have signalled an intention to
introduce more competition in their 2020 water purification sector.
Ofwat, the economic regulator, has a statutory obligation to set
price limits that it believes will enable the water companies to
finance their activities. As a consequence the directors believe that
the group is well placed to manage its business risks successfully.

After making enquiries, the directors have a reasonable
expectation that the Company and the group have adequate
resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going
concern basis in preparing the Annual Report and Accounts.

Annual General Meeting
The AGM of the Company will be held at the International
Convention Centre, Broad Street, Birmingham B1 2EA at
11am on Wednesday 15 July 2015. The notice convening the
meeting, together with details of the business to be considered
and explanatory notes for each resolution, is distributed
separately to shareholders. It is also available on our website
(www.severntrent.com).

By order of the board

Bronagh Kennedy
Group General Counsel and Company Secretary

21 May 2015

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Severn Trent Plc Annual Report and Accounts 2015

Directors’ responsibilities statement

The directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable law
and regulations.

Company law requires the directors to prepare Financial
Statements for each ﬁnancial year. Under that law the directors
are required to prepare the group ﬁnancial statements in
accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and Article 4 of the
IAS Regulation and have elected to prepare the group ﬁnancial
statements in accordance with Financial Reporting Standard
101 Reduced Disclosure Framework. Under company law
the directors must not approve the accounts unless they are
satisﬁed that they give a true and fair view of the state of affairs
of the company and of the proﬁt or loss of the company for
that period.

In preparing the parent company Financial Statements, the
directors are required to:

• select suitable accounting policies and then apply

them consistently;

• make judgements and accounting estimates that are

reasonable and prudent;

• state whether Financial Reporting Standard 101 Reduced
Disclosure Framework has been followed, subject to any
material departures disclosed and explained in the ﬁnancial
statements; and

• prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business.

In preparing the group ﬁnancial statements, International
Accounting Standard 1 requires that directors:

• properly select and apply accounting policies;
• present information, including accounting policies, in a

manner that provides relevant, reliable, comparable and
understandable information;

• provide additional disclosures when compliance with the
speciﬁc requirements in IFRSs are insufﬁcient to enable
users to understand the impact of particular transactions,
other events and conditions on the entity’s ﬁnancial position
and ﬁnancial performance; and

• make an assessment of the company’s ability to continue as a

going concern.

The directors are responsible for keeping adequate accounting
records that are sufﬁcient to show and explain the company’s
transactions and disclose with reasonable accuracy at any time
the ﬁnancial position of the company and enable them to ensure
that the Financial Statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets
of the company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and
integrity of the corporate and ﬁnancial information included
on the company’s website. Legislation in the UK governing the
preparation and dissemination of ﬁnancial statements may
differ from legislation in other jurisdictions.

Responsibility statement
We conﬁrm that to the best of our knowledge:

• the Financial Statements, prepared in accordance with the
relevant ﬁnancial reporting framework, give a true and fair
view of the assets, liabilities, ﬁnancial position and proﬁt or
loss of the company and the undertakings included in the
consolidation taken as a whole;

• the Strategic report includes a fair review of the development

and performance of the business and the position of the
company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face; and

• the Annual Report and Financial Statements, taken as a

whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the
company’s performance, business model and strategy.

This responsibility statement was approved by the board of
directors on 21 May 2015 and is signed on its behalf by:

Andrew Duff
Chairman

21 May 2015

James Bowling
Chief Financial Ofﬁcer

Severn Trent Plc Annual Report and Accounts 2015

ROBUST
PERFORMANCE

Income statement
Earnings per share, group revenue,
costs and other important ﬁnancial
information.

Further details are provided
on page 96

Balance sheet
The group’s balance sheet at
31 March 2015.

Further details are provided
on page 99

Notes
Accounting policies, segmental
information and other helpful
guidance.

Further details are provided
on page 101

Group ﬁnancial statements
92

Independent auditor’s report
to the members of Severn Trent Plc

96 Consolidated income statement
97 Consolidated statement of
comprehensive income

98 Consolidated statement of changes in equity
99 Consolidated balance sheet
100 Consolidated cash ﬂow statement
101 Notes to the group ﬁnancial statements

Company ﬁnancial statements
147 Company statement of
comprehensive income
148 Company balance sheet
149 Company statement of changes in equity
150 Notes to the company ﬁnancial statements

Other information
154 Five year summary
155 Information for shareholders

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Severn Trent Plc Annual Report and Accounts 2015

Independent auditor’s report to the members
of Severn Trent Plc

Opinion on ﬁnancial
statements of
Severn Trent Plc

In our opinion:

the ﬁnancial statements give a true and fair view of the state of the group’s and of the parent
company’s affairs as at 31 March 2015 and of the group’s proﬁt for the year then ended;

• the group ﬁnancial statements have been properly prepared in accordance with International

Financial Reporting Standards (IFRSs) as adopted by the European Union;

• the parent company ﬁnancial statements have been properly prepared in accordance with

Financial Reporting Standard 101 Reduced Disclosure Framework; and

• the ﬁnancial statements have been prepared in accordance with the requirements of

the Companies Act 2006 and, as regards the group ﬁnancial statements, Article 4 of the
IAS Regulation.

The ﬁnancial statements comprise the Consolidated income statement, the Consolidated and
Parent Company statements of comprehensive income, the Consolidated and Parent Company
balance sheets, the Consolidated cash ﬂow statement, the Consolidated and Parent company
statements of changes in equity and the related Consolidated notes 1 to 45 and Parent Company
notes 1 to 16. The ﬁnancial reporting framework that has been applied in the preparation of
the group ﬁnancial statements is applicable law and IFRSs as adopted by the European Union.
The ﬁnancial reporting framework that has been applied in the preparation of the parent
company ﬁnancial statements is applicable law and Financial Reporting Standard 101 Reduced
Disclosure Framework.

Going concern

As required by the Listing Rules we have reviewed the directors’ statement contained within the
Directors’ Report on page 89 that the group is a going concern. We conﬁrm that:

• we have concluded that the directors’ use of the going concern basis of accounting in the

preparation of the ﬁnancial statements is appropriate; and

• we have not identiﬁed any material uncertainties that may cast signiﬁcant doubt on the group’s

ability to continue as a going concern.

However, because not all future events or conditions can be predicted, this statement is not a
guarantee as to the group’s ability to continue as a going concern.

Our assessment of risks
of material misstatement

The assessed risks of material misstatement described below are those that had the greatest
effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the
engagement team.

Severn Trent Plc Annual Report and Accounts 2015

Risk
Determination of the provision for impairment of trade
receivables in Severn Trent Water Limited (£122.5 million)
(note 4)
A proportion of Severn Trent Water Limited’s customers do not
or cannot pay their bills which results in the need for provisions
to be made for non payment of the customer balance. There
is signiﬁcant judgement involved in calculating the bad debt
provision, particularly regarding the estimation of future cash
collection.
Provisions are made against Severn Trent Water Limited’s trade
receivables based on historical experience of levels of recovery
from accounts in particular ageing categories.

Revenue recognition risk in relation to the estimation of unbilled
revenue in Severn Trent Water Limited (£192.5 million) (note 4)
For water and waste water customers with water meters, the
amount recognised depends upon the volume supplied, including
an estimate of the sales value of units supplied between the date
of the last meter reading and the year end. This is a key judgement
because the estimated usage is based upon historical data and
assumptions around consumption patterns.

Determining the classiﬁcation of costs between operating
expenditure and capital expenditure in Severn Trent Water
Limited (note 7)
Severn Trent Water Limited has a substantial capital programme
(ﬁxed asset additions in the year £423.8 million) which has been
agreed with Ofwat and therefore incurs signiﬁcant expenditure
in relation to the development and maintenance of both
infrastructure and non infrastructure assets. Expenditure in
relation to increasing the capacity or enhancing the network is
treated as capital expenditure. Expenditure incurred in maintaining
the operating capability of the network is expensed in the year
(£134.8 million) in which it is incurred. Capital projects often
contain a combination of enhancement and maintenance activity
which are not distinct and therefore the allocation of costs between
capital and operating expenditure is inherently judgemental.

Determining the amount of the group’s retirement beneﬁt
obligations (£468.9 million deﬁcit) (note 28)
This is a key area of judgement because the process is complex
and requires management (after taking advice from their actuarial
advisers) to make a number of assumptions concerning long term
interest rates, inﬂation, salary and pension increases, investment
returns and longevity of current and future pensioners.

Determination of current and deferred tax balances
(£32.7 million) (note 13)
Assessing the outcome of uncertain tax positions requires
judgements to be made regarding the result of negotiations with,
and enquiries from, tax authorities in a number of jurisdictions.

How the scope of our audit responded to the risk

We reviewed and challenged the information used to determine
the bad debt provision by considering cash collection performance
against historical trends and the level of bad debt charges over
time. Speciﬁcally, we reviewed the actual history of slow paying
customers in Severn Trent Water Limited in the period using data
analytics to understand the collection of previously aged debtors
and to recompute the ageing analysis. We also tested the key
controls relating to the production of the data used in the bad debt
model and agreed a sample of this data back to its source, being
the billing system.

We challenged the validity of management’s estimate of current
year accrued revenue by comparing actual amounts billed to
the estimate made in the prior year to determine the accuracy of
the estimation techniques. In addition, we used data analytics to
recompute the total level of unbilled revenue for the current year
in Severn Trent Water Limited as well as testing the operating
effectiveness of controls relating to the key data inputs to the
model and agreed a sample of this data back to its source.

We assessed the group’s capitalisation policy to determine
compliance with relevant accounting standards and tested the
operating effectiveness of controls over the application of the
policy to expenditure incurred on projects within the group’s
capital programme during the year. This includes consideration of
the allocation of costs between capital and operating expenditure.
In addition, for a sample of capital projects, we assessed the
application of the capitalisation policy to the costs incurred by
agreement to third party invoices and obtained explanations and
further support for any signiﬁcant changes in capital expenditure
from budget.

With support from the pension specialists within our audit team,
we challenged the assumptions used in the calculation of the
pension scheme deﬁcit as detailed in note 28, speciﬁcally regarding
the discount rate, inﬂation rate and mortality assumptions with
reference to comparable market and other third party data.

With support from the tax specialists within our audit team, we
considered the likely outcomes of uncertain tax positions and
reviewed correspondence with the relevant tax authorities to
assess the appropriateness of the tax balances that have been
recorded in the balance sheet.

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The description of risks above should be read in conjunction with the signiﬁcant issues considered by the Audit Committee
discussed on page 63.

Our audit procedures relating to these matters were designed in the context of our audit of the ﬁnancial statements as a whole, and
not to express an opinion on individual accounts or disclosures. Our opinion on the ﬁnancial statements is not modiﬁed with respect
to any of the risks described above, and we do not express an opinion on these individual matters.

Severn Trent Plc Annual Report and Accounts 2015

Independent auditor’s report to the members of Severn Trent Plc continued

Our application of materiality We deﬁne materiality as the magnitude of misstatement in the ﬁnancial statements that makes it

probable that the economic decisions of a reasonably knowledgeable person would be changed or
inﬂuenced. We use materiality both in planning the scope of our audit work and in evaluating the
results of our work.

We determined materiality for the group to be £18 million (2014: £18 million), which is approximately
6.0% (2014: approximately 7.0%) of pre-tax proﬁt before exceptional items and other adjustments
including the fair value movements in ﬁnancial instruments. As in 2014, these items are excluded
to focus on the group’s underlying trading performance, consistent with the group’s internal and
external reporting.

We agreed with the Audit Committee that we would report to the committee all audit differences
in excess of £750,000, as well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We also report to the Audit Committee on disclosure judgements
that we identiﬁed when assessing the overall presentation of the ﬁnancial statements.

Our group audit was scoped by obtaining an understanding of the group and its environment,
including group-wide controls, and assessing the risks of material misstatement at the group
level. Based on that assessment, we focused our group audit scope on the consolidation at the
parent company level and the group’s two business segments being Severn Trent Water Limited
and Severn Trent Services. Severn Trent Water Limited was subject to a full statutory audit using
component materiality of £15 million and it accounts for over 90% (2014: over 90%) of the group’s
net operating assets and operating proﬁt. The extent of our testing on Severn Trent Services
was based on our assessment of the risks of material misstatement and the materiality of the
segment’s global business operations, principally in the UK and the US. The materiality of each
component being lower than that of the group, with the highest materiality (£12 million) applied to
the US component.

At the parent company level, we also tested the consolidation process and carried out analytical
procedures to conﬁrm our conclusion that there were no signiﬁcant risks of material misstatement
of the aggregated ﬁnancial information of the remaining components not subject to audit or audit of
speciﬁed account balances.

The group audit team follows a programme of planned visits to the auditors of each of the
signiﬁcant components of the group not audited by the group team. This primarily relates to the
Severn Trent Services audit team in the US. The Senior Statutory Auditor or another senior member
of the group team visits the Severn Trent Services audit team in the US at least once every two
years. In years when we do not visit a signiﬁcant component we will include the component audit
team in our team brieﬁng, discuss their risk assessment, and review documentation of the ﬁndings
from their work.

In our opinion:

• the part of the Directors’ Remuneration Report to be audited has been properly prepared in

accordance with the Companies Act 2006; and

• the information given in the Strategic Report and the Directors’ Report for the ﬁnancial year for

which the ﬁnancial statements are prepared is consistent with the ﬁnancial statements.

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for

our audit have not been received from branches not visited by us; or

• the parent company ﬁnancial statements are not in agreement with the accounting records

and returns.

We have nothing to report in respect of these matters.

An overview of the scope
of our audit

Opinion on other matters
prescribed by the
Companies Act 2006

Matters on which
we are required to
report by exception

Adequacy of explanations
received and accounting
records

Directors’ remuneration

Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of
directors’ remuneration have not been made or the part of the Directors’ Remuneration Report to
be audited is not in agreement with the accounting records and returns. We have nothing to report
arising from these matters.

Severn Trent Plc Annual Report and Accounts 2015

Corporate Governance
Statement

Our duty to read other
information in the
Annual Report

Respective responsibilities
of directors and auditor

Scope of the audit of the
ﬁnancial statements

Under the Listing Rules we are also required to review the part of the Corporate Governance
Statement relating to the company’s compliance with ten provisions of the UK Corporate
Governance Code. We have nothing to report arising from our review.

Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in
our opinion, information in the annual report is:

• materially inconsistent with the information in the audited ﬁnancial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the

group acquired in the course of performing our audit; or

• otherwise misleading.

In particular, we are required to consider whether we have identiﬁed any inconsistencies between
our knowledge acquired during the audit and the directors’ statement that they consider the
annual report is fair, balanced and understandable and whether the annual report appropriately
discloses those matters that we communicated to the audit committee which we consider
should have been disclosed. We conﬁrm that we have not identiﬁed any such inconsistencies or
misleading statements.

As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible
for the preparation of the ﬁnancial statements and for being satisﬁed that they give a true and fair
view. Our responsibility is to audit and express an opinion on the ﬁnancial statements in accordance
with applicable law and International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. We also
comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology
and tools aim to ensure that our quality control procedures are effective, understood and applied.
Our quality controls and systems include our dedicated professional standards review team and
independent partner reviews.

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of
Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state
to the company’s members those matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our
audit work, for this report, or for the opinions we have formed.

An audit involves obtaining evidence about the amounts and disclosures in the ﬁnancial statements
sufﬁcient to give reasonable assurance that the ﬁnancial statements are free from material
misstatement, whether caused by fraud or error. This includes an assessment of: whether the
accounting policies are appropriate to the group’s and the parent company’s circumstances
and have been consistently applied and adequately disclosed; the reasonableness of signiﬁcant
accounting estimates made by the directors; and the overall presentation of the ﬁnancial
statements. In addition, we read all the ﬁnancial and non-ﬁnancial information in the annual
report to identify material inconsistencies with the audited ﬁnancial statements and to identify
any information that is apparently materially incorrect based on, or materially inconsistent with,
the knowledge acquired by us in the course of performing the audit. If we become aware of any
apparent material misstatements or inconsistencies we consider the implications for our report.

Carl D Hughes MA FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, UK

21 May 2015

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Severn Trent Plc Annual Report and Accounts 2015

Consolidated income statement

For the year ended 31 March 2015

Turnover
Operating costs before exceptional items
Exceptional operating costs
Total operating costs
Proﬁt before interest, tax and exceptional items
Exceptional items before interest and tax
Proﬁt before interest and tax
Finance income
Finance costs
Net ﬁnance costs
(Losses)/gains on ﬁnancial instruments
Share of results of associates and joint ventures
Proﬁt before tax, (losses)/gains on ﬁnancial instruments and exceptional items
Exceptional items before tax
(Losses)/gains on ﬁnancial instruments
Proﬁt on ordinary activities before taxation
Current tax excluding exceptional credit
Deferred tax excluding exceptional credit
Exceptional tax credit
Total taxation on proﬁt on ordinary activities
Proﬁt for the year from continuing operations
Proﬁt/(loss) for the year from discontinued operations
Proﬁt for the year
Attributable to:
Owners of the company
Non-controlling interests

Earnings per share (pence)
From continuing operations
Basic
Diluted
From continuing and discontinued operations
Basic
Diluted

2015

£m

2014
Restated
£m

1,801.3

1,756.7

(1,261.0)

(1,232.9)

(18.7)

(15.2)

(1,279.7)

(1,248.1)

540.3

(18.7)

521.6

81.7

(321.7)

(240.0)

(133.5)

0.1

300.4

(18.7)

(133.5)

148.2

(37.8)

5.1

–

(32.7)

115.5

4.7

120.2

119.1

1.1

120.2

48.3

48.1

49.9

49.6

523.8

(15.2)

508.6

80.8

(328.7)

(247.9)

58.0

0.2

276.1

(15.2)

58.0

318.9

(55.8)

(21.5)

230.2

152.9

471.8

(36.9)

434.9

433.8

1.1

434.9

198.5

197.6

182.1

181.3

Notes

5, 6

Severn Trent Plc Annual Report and Accounts 2015

Consolidated statement of comprehensive income

For the year ended 31 March 2015

Proﬁt for the year
Other comprehensive loss
Items that will not be reclassiﬁed to the income statement:

Net actuarial (loss)/gain on deﬁned beneﬁt pension schemes
Tax on net actuarial loss/gain
Deferred tax arising on change of rate

Items that may be reclassiﬁed to the income statement:

(Loss)/gain on cash ﬂow hedges
Deferred tax on loss/gain on cash ﬂow hedges
Amounts on cash ﬂow hedges transferred to the income statement in the year
Deferred tax on transfers to income statement
Exchange movement on translation of overseas results and net assets

Other comprehensive loss for the year
Total comprehensive income for the year
Attributable to:
Owners of the company
Non-controlling interests

2015
£m

120.2

2014
£m

434.9

(143.4)

28.8

–

(114.6)

(13.8)

2.8

23.6

(4.7)

8.9

16.8

(97.8)

22.4

19.6

2.8

22.4

3.7

(0.8)

(12.3)

(9.4)

15.1

(3.0)

8.1

(1.6)

(9.7)

8.9

(0.5)

434.4

434.3

0.1

434.4

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Severn Trent Plc Annual Report and Accounts 2015

Consolidated statement of changes in equity

For the year ended 31 March 2015

Equity attributable to owners of the company

Other
reserves
£m

Retained
earnings
£m

At 1 April 2013
Proﬁt for the period
Gains on cash ﬂow hedges
Deferred tax on gains on cash ﬂow hedges
Amounts on cash ﬂow hedges transferred to
the income statement
Deferred tax on transfers to the income
statement
Exchange movement on translation of
overseas results and net assets
Actuarial gains
Tax on actuarial gains
Deferred tax arising from rate change
Total comprehensive income for the period
Share options and LTIPs
– proceeds from shares issued
– value of employees’ services
– own shares purchased
Current tax on share based payments
Adjustment arising from change in
non-controlling interest
Dividends paid
At 31 March 2014
Proﬁt for the period
Losses on cash ﬂow hedges
Deferred tax on losses on cash ﬂow hedges
Amounts on cash ﬂow hedges transferred to
the income statement
Deferred tax on transfers to the income
statement
Exchange movement on translation of
overseas results and net assets
Actuarial losses
Tax on actuarial losses
Total comprehensive income for the period
Share options and LTIPs
– proceeds from shares issued
– value of employees’ services
– own shares purchased
Current tax on share based payments
Deferred tax on share based payments
Share buy back
Share cancellation
Transfer
Dividends paid
At 31 March 2015

Share
capital
£m

233.3

Share
premium
£m

89.7

–

0.6

4.5

–

233.9

94.2

–

0.7

6.0

–

(0.9)

–

233.7

100.2

Total
£m

833.2

433.8

15.1

(3.0)

8.1

(1.6)

(8.7)

3.7

(0.8)

(12.3)

434.3

5.1

5.8

(2.8)

1.0

(13.7)

(185.3)

1,077.6

119.1

(13.8)

2.8

23.6

(4.7)

7.2

437.9

433.8

–

3.7

(0.8)

(12.3)

424.4

–

5.8

(2.8)

1.0

(13.7)

(185.3)

667.3

119.1

–

(143.4)

28.8

4.5

–

7.7

(5.9)

0.7

(0.1)

28.8

19.6

6.7

7.7

(5.9)

0.7

(0.1)

(100.0)

–

0.5

(196.9)

377.8

–

0.5

(196.9)

809.9

Non-
controlling
interests
£m

10.8

1.1

–

(1.0)

–

0.1

–

2.2

(0.6)

12.5

1.1

–

1.7

–

2.8

–

(0.5)

(1.4)

13.4

Total
equity
£m

844.0

434.9

15.1

(3.0)

8.1

(1.6)

(9.7)

3.7

(0.8)

(12.3)

434.4

5.1

5.8

(2.8)

1.0

(11.5)

(185.9)

1,090.1

120.2

(13.8)

2.8

23.6

(4.7)

8.9

(143.4)

28.8

22.4

6.7

7.7

(5.9)

0.7

(0.1)

(100.0)

–

(198.3)

823.3

72.3

–

15.1

(3.0)

8.1

(1.6)

(8.7)

–

9.9

–

82.2

–

(13.8)

2.8

23.6

(4.7)

7.2

–

15.1

–

0.9

–

98.2

Severn Trent Plc Annual Report and Accounts 2015

Consolidated balance sheet

At 31 March 2015

Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interests in joint ventures and associates
Derivative ﬁnancial assets
Available for sale ﬁnancial assets

Current assets
Inventory
Trade and other receivables
Current tax receivable
Derivative ﬁnancial assets
Cash and cash equivalents
Assets held for sale

Total assets
Current liabilities
Borrowings
Derivative ﬁnancial liabilities
Trade and other payables
Provisions for liabilities and charges
Liabilities associated with assets held for sale

Non-current liabilities
Borrowings
Derivative ﬁnancial liabilities
Trade and other payables
Deferred tax
Retirement beneﬁt obligations
Provisions for liabilities and charges

Total liabilities
Net assets
Equity
Called up share capital
Share premium account
Other reserves
Retained earnings
Equity attributable to owners of the company
Non-controlling interests
Total equity

Signed on behalf of the board who approved the accounts on 21 May 2015.

Andrew Duff
Chairman

James Bowling
Chief Financial Ofﬁcer

Company Number: 2366619

Note

2015
£m

14.3

66.7

2014
£m

14.8

80.2

7,239.8

7,023.5

4.6

13.5

0.1

5.2

72.4

0.1

7,339.0

7,196.2

16.7

492.0

11.2

13.5

176.7

107.9

818.0

8,157.0

(463.0)

(32.2)

(494.0)

(15.9)

(35.3)

27.2

513.2

16.5

12.9

123.2

–

693.0

7,889.2

(206.1)

(24.8)

(412.7)

(12.1)

–

(1,040.4)

(655.7)

(4,463.7)

(4,416.0)

(175.1)

(542.0)

(625.1)

(468.9)

(18.5)

(6,293.3)

(7,333.7)

823.3

233.7

100.2

98.2

377.8

809.9

13.4

823.3

(206.2)

(492.4)

(654.0)

(348.3)

(26.5)

(6,143.4)

(6,799.1)

1,090.1

233.9

94.2

82.2

667.3

1,077.6

12.5

1,090.1

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100

Severn Trent Plc Annual Report and Accounts 2015

Consolidated cash ﬂow statement

For the year ended 31 March 2015

Cash generated from operations
Tax (paid)/received
Net cash generated from operating activities
Investing activities
Interest received
Acquisition of non-controlling interests
Proceeds on disposal of property, plant and equipment and intangible assets
Purchases of intangible assets
Purchases of property, plant and equipment
Contributions and grants received
Net cash used in investing activities
Financing activities
Interest paid
Payments to close out interest rate swaps
Interest element of ﬁnance lease payments
Dividends paid to owners of the company
Dividends paid to non-controlling interests
Repayments of borrowings
Repayments of obligations under ﬁnance leases
New loans raised
Issue of shares
Share buy back
Purchase of own shares
Net cash used in ﬁnancing activities
Increase/(decrease) in cash and cash equivalents
Net cash and cash equivalents at beginning of period
Effect of foreign exchange rates
Transferred to assets held for sale
Net cash and cash equivalents at end of period
Net cash and cash equivalents comprise:
Cash at bank and in hand
Short term deposits
Net cash and cash equivalents at end of period

The increase in cash and cash equivalents is reconciled to the movement in net debt in note 39.

Note

2015
£m

760.1

(28.6)

731.5

1.8

–

11.6

(17.7)

(446.2)

36.2

(414.3)

(213.1)

(139.2)

(6.9)

(196.9)

(1.4)

(334.2)

(21.2)

685.0

6.7

(17.5)

(5.9)

(244.6)

72.6

123.2

0.2

(19.3)

176.7

24.9

151.8

176.7

2014
£m

730.2

27.2

757.4

6.5

(11.4)

10.3

(13.9)

(490.6)

30.3

(468.8)

(206.9)

–

(4.2)

(185.3)

(0.6)

(172.4)

(0.4)

0.7

5.1

–

(2.8)

(566.8)

(278.2)

403.2

(1.8)

–

123.2

46.4

76.8

123.2

Severn Trent Plc Annual Report and Accounts 2015

101

Notes to the group ﬁnancial statements

For the year ended 31 March 2015

1 General information
The Severn Trent group has a number of operations. These are
described in the segmental analysis in note 5.

Severn Trent Plc is a company incorporated and domiciled in the
United Kingdom. The address of its registered ofﬁce is shown
on the back of the cover of the annual report and accounts.

Severn Trent Plc is listed on the London Stock Exchange.

2 Accounting policies
a) Basis of preparation
The ﬁnancial statements for the group and the parent company
have been prepared on the going concern basis (see Directors’
report on page 89) under the historical cost convention as
modiﬁed by the revaluation of certain ﬁnancial assets and
liabilities at fair value.

(i) Consolidated ﬁnancial statements
The consolidated ﬁnancial statements have been prepared in
accordance with International Financial Reporting Standards
(IFRS), International Accounting Standards (IAS) and IFRIC
interpretations issued and effective and ratiﬁed by the
European Union as at 31 March 2015.

(ii) Parent company ﬁnancial statements
The parent company ﬁnancial statements have been prepared
in accordance with United Kingdom Accounting Standards and
comply with the Companies Act 2006. The company meets the
deﬁnition of a qualifying entity as deﬁned in FRS 100 ‘Financial
Reporting Standard 100’, accordingly the company has elected
to apply FRS 101 ‘Reduced Disclosure Framework.

Therefore the recognition and measurement requirements
of EU adopted IFRS have been applied, with amendments
where necessary in order to comply with Companies Act 2006
and The Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 (SI 2008/410) as
the parent company ﬁnancial statements are Companies Act
2006 accounts.

As permitted by FRS 101, the parent company has taken
advantage of the disclosure exemptions available under
that standard in relation to share based payments, ﬁnancial
instruments, capital management, presentation of comparative
information in respect of certain assets, standards not yet
effective, impairment of assets and related party transactions.
Where required, equivalent disclosures are given in the
consolidated ﬁnancial statements.

As permitted by Section 408 of the Companies Act 2006, no
proﬁt or loss account or cash ﬂow statement is presented for
the parent company. The proﬁt for the year is disclosed in the
statement of comprehensive income.

Severn Trent Plc is a partner in Severn Trent Limited
Partnership (“the partnership”), which is registered in Scotland.
As the partnership is included in the consolidated accounts,
the parent company has taken advantage of the exemption
conferred by Regulation 7 of The Partnership (Accounts)
Regulations 2008 from the requirements of Regulations 4 to 6.

The key accounting policies for the group and the parent
company are set out below and have been applied consistently.
Differences in the accounting policies applied in the
consolidated and the parent company ﬁnancial statements are
described below.

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(iii) Prior year restatement
Prior year ﬁgures in the consolidated income statement
and related notes have been restated to present separately
amounts relating to operations classiﬁed as discontinued in the
current year. For details see note 38.

b) Basis of consolidation
The consolidated ﬁnancial statements include the results
of Severn Trent Plc and its subsidiaries, joint ventures and
associated undertakings. Results are included from the date
of acquisition or incorporation and excluded from the date
of disposal.

Subsidiaries are consolidated where the group has the power
to control a subsidiary.

Joint venture undertakings are accounted for on an equity
basis where the group exercised joint control under a
contractual arrangement.

Associates are accounted for on an equity basis where the
group holding is 20% or more or the group has the power to
exercise signiﬁcant inﬂuence.

Non-controlling interests in the net assets of subsidiaries are
identiﬁed separately from the group’s equity. Non-controlling
interests consist of the amount of those interests at the date
of the original business combination and the non-controlling
interests’ share of changes in equity since that date.

Transactions between the company and its subsidiaries have
been eliminated on consolidation and are not included within
the group ﬁnancial statements.

c) Revenue recognition
Revenue includes turnover and interest income.

Turnover represents the fair value of consideration receivable,
excluding value added tax, trade discounts and inter-company
sales, in the ordinary course of business for goods and
services provided.

Turnover is not recognised until the service has been provided
to the customer or the goods to which the sale relates have
either been despatched to the customer or, where they are held
on the customer’s behalf, title has passed to the customer.

Turnover includes an estimate of the amount of mains water
and waste water charges unbilled at the year end. The accrual
is estimated using a deﬁned methodology based upon a
measure of unbilled water consumed by tariff, which is
calculated from historical billing information.

In respect of long term contracts, turnover is recognised
based on the value of work carried out during the year with
reference to the total sales value and the stage of completion of
these contracts.

Interest income is accrued on a time basis by reference
to the principal outstanding and at the effective interest
rate applicable.

d) Exceptional items
Exceptional items are income or expenditure, which individually
or, if of a similar type, in aggregate should, in the opinion of
the directors, be disclosed by virtue of their size or nature if
the ﬁnancial statements are to give a true and fair view. In this
context, materiality is assessed at the segment level.

102

Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

2 Accounting policies (continued)
e) Taxation
Current tax payable is based on taxable proﬁt for the year
and is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.

Deferred taxation is provided in full on taxable temporary
differences between the tax bases of assets and liabilities
and their carrying amounts in the ﬁnancial statements.

Deferred taxation is measured on an undiscounted basis using
the tax rates and laws that have been enacted or substantively
enacted by the balance sheet date and are expected to apply
when the related deferred income tax asset is realised or the
deferred tax liability is settled.

A deferred tax asset is only recognised to the extent it is
probable that sufﬁcient taxable proﬁts will be available in the
future to utilise it.

Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities.

f) Goodwill
Goodwill represents the excess of the fair value of purchase
consideration over the fair value of the net assets acquired.

Goodwill arising on acquisition of subsidiaries is included
in intangible assets, whilst goodwill arising on acquisition
of associates is included in investments in associates. If an
acquisition gives rise to negative goodwill this is credited
directly to the income statement. Fair value adjustments
based on provisional estimates are amended within one year
of the acquisition, if required, with a corresponding adjustment
to goodwill.

Goodwill arising on all acquisitions prior to 1 April 1998 was
written off to reserves under UK GAAP and remains eliminated
against reserves. Purchased goodwill arising on acquisitions
after 31 March 1998 is treated as an intangible ﬁxed asset.

Amortisation charged on intangible assets is taken to the
income statement through operating costs.

Intangible assets are reviewed for impairment where indicators
of impairment exist, (see 2l).

Development expenditure is capitalised as an intangible asset
and written off over its expected useful economic life where the
following criteria are met:

• it is technically feasible to create and make the asset

available for use or sale;

• there are adequate resources available to complete the

development and to use or sell the asset;

• there is the intention and ability to use or sell the asset;
• it is probable that the asset created will generate future

economic beneﬁts; and

• the development costs can be measured reliably.

Research expenditure is expensed when it is incurred.

h) Pre-contract costs
Costs incurred in bidding and preparing for contracts are
expensed as incurred except where it is probable that the
contract will be awarded, in which case they are recognised as
a prepayment which is written off to the income statement over
the life of the contract.

The group assesses that it is probable that a contract will be
awarded when preferred bidder or equivalent status has been
achieved and there are no signiﬁcant impediments to the award
of the contract.

i) Property, plant and equipment
Property, plant and equipment is held at cost (or at deemed
cost for infrastructure assets on transition to IFRS) less
accumulated depreciation. Expenditure on property, plant and
equipment relating to research and development projects is
capitalised and depreciated over the expected useful life of
those assets.

Goodwill is tested for impairment in accordance with the
policy set out in note 2l) below and carried at cost less
accumulated impairment losses. Goodwill is allocated to the
cash-generating unit that derives beneﬁt from the goodwill for
impairment testing purposes.

The costs of like for like replacement of infrastructure
components are recognised in the income statement as
they arise. Expenditure which results in enhancements
to the operating capability of the infrastructure networks
is capitalised.

Where goodwill forms part of a cash-generating unit and
all or part of that unit is disposed of, the associated goodwill
is included in the carrying amount of that operation when
determining the gain or loss on disposal of the operation.

g) Other intangible non-current assets
Intangible assets acquired separately are capitalised at cost.
Following initial recognition, the historical cost model is applied.

Finite life intangible assets are amortised on a straight line
basis over their estimated useful economic lives as follows:

Software
Other assets

Years

3-10

2-20

Where items of property, plant and equipment are transferred
to the group from customers or developers, the fair value of the
asset transferred is recognised in the balance sheet. Fair value
is determined based on estimated depreciated replacement
cost. Where the transfer is in exchange for connection to the
network and there is no further obligation, the corresponding
credit is recognised immediately in turnover. Where the
transfer is considered to be linked to the provision of ongoing
services the corresponding credit is recorded in deferred
income and released to operating costs over the expected
useful lives of the related assets.

Where assets take a substantial period of time to get ready for
their intended use, the borrowing costs directly attributable to
the acquisition, construction or production of these assets are
added to their cost.

Severn Trent Plc Annual Report and Accounts 2015

103

2 Accounting policies (continued)
i) Property, plant and equipment (continued)
Property, plant and equipment is depreciated to its estimated
residual value over its estimated useful life, with the exception
of freehold land which is not depreciated. Assets in the course
of construction are not depreciated until commissioned.

The estimated useful lives are:

Infrastructure assets
Impounding reservoirs
Raw water aqueducts
Mains
Sewers
Other assets
Buildings
Fixed plant and equipment
Vehicles and mobile plant

Years

250

80-150

150-200

30-80

20-40

2-15

j) Leased assets
Leases where the group obtains assets which transfer
substantially all the risks and rewards of ownership to
the group are treated as ﬁnance leases. The lower of the
fair value of the leased asset or the present value of the
minimum lease payments is capitalised as an asset with
a corresponding liability representing the obligation to the
lessor. Lease payments are treated as consisting of a capital
element and a ﬁnance charge; the capital element reducing the
obligation to the lessor and the ﬁnance charge being written
off to the income statement at a constant rate over the period
of the lease in proportion to the capital amount outstanding.
Depreciation is charged over the shorter of the estimated useful
life and the lease period.

Leases where substantially all the risks and rewards of
ownership remain with the lessor are classiﬁed as operating
leases. Rental costs arising under operating leases are
expensed on a straight line basis over the term of the lease.
Leases of land are normally treated as operating leases, unless
ownership is transferred to the group at the end of the lease.

k) Grants and contributions
Grants and contributions received in respect of non-current
assets, including certain charges made as a result of new
connections to the water and sewerage networks, are treated
as deferred income and released to operating costs over the
useful economic life of those non-current assets.

Grants and contributions which are given in compensation for
expenses incurred with no future related costs are recognised
in operating costs in the period that they become receivable.

l) Impairment of non-current assets
If the recoverable amount of goodwill, an item of property, plant
and equipment, or any other non-current asset is estimated to
be less than its carrying amount, the carrying amount of the
asset is reduced to its recoverable amount. Where the asset
does not generate cash ﬂows that are independent from other
assets, the group estimates the recoverable amount of the
cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell
or estimated value in use at the date the impairment review
is undertaken. Fair value less costs to sell represents the
amount obtainable from the sale of the asset in an arm’s length
transaction between knowledgeable and willing third parties,
less costs of disposal. Value in use represents the present
value of future cash ﬂows expected to be derived from a cash-
generating unit, discounted using a pre-tax discount rate that
reﬂects current market assessments of the cost of capital of
the cash-generating unit or asset.

The discount rate used is based on the group’s cost of capital
adjusted for the risk proﬁles of individual businesses.

Goodwill is tested for impairment annually. Impairment reviews
are also carried out if there is an indication that an impairment
may have occurred, or, where otherwise required, to ensure
that non-current assets are not carried above their estimated
recoverable amounts.

Impairments are recognised in the income statement.

m) Parent company investments
The parent company recognises investments in subsidiary
undertakings at historical cost.

After initial recognition at cost (being the fair value of the
consideration paid), investments which are classiﬁed as held
for trading or available for sale are measured at fair value,
with gains or losses recognised in proﬁt and loss or equity
respectively. When an available for sale investment is disposed
of or impaired, the gain or loss previously recognised in
reserves is taken to the proﬁt and loss account.

n) Inventory
Inventory and work in progress is stated at the lower of cost and
net realisable value. Cost includes labour, materials, transport
and attributable overheads.

o) Trade receivables
Trade receivables are measured at fair value on initial
recognition. If there is objective evidence that the asset is
impaired, it is written down to its recoverable amount and
the irrecoverable amount is recognised as an expense in
operating costs.

Trade receivables that are assessed not to be impaired
individually are assessed collectively for impairment by
reference to the group’s historical collection experience for
receivables of similar age.

p) Service concession agreements
Where the group has an unconditional right to receive cash
from a government body in exchange for constructing or
upgrading a public sector asset, the amounts receivable
are recognised as a ﬁnancial asset in prepayments and
accrued income.

Costs of constructing or upgrading the public sector asset
are recognised on a straight line basis, before adjusting for
expected inﬂation, over the life of the contract.

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104

Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

2 Accounting policies (continued)
q) Retirement beneﬁts
(i) Deﬁned beneﬁt schemes
The difference between the value of deﬁned beneﬁt pension
scheme assets and deﬁned beneﬁt pension scheme liabilities
is recorded on the balance sheet as a retirement beneﬁt asset
or obligation.

Deﬁned beneﬁt pension scheme assets are measured
at fair value using bid price for assets with quoted prices.
Deﬁned beneﬁt pension scheme liabilities are measured at
the balance sheet date by an independent actuary using the
projected unit method and discounted at the current rate of
return on high quality corporate bonds of equivalent term and
currency to the liability.

Service cost, representing the cost of employee service in
the period, is included in operating costs. Net ﬁnance cost is
calculated by applying the discount rate used for the scheme
liabilities to the net deﬁcit.

Changes in the retirement beneﬁt obligation arise from:

• differences between the return on scheme assets and

interest included in the income statement;

• actuarial gains and losses from experience adjustments; and
• changes in demographic or ﬁnancial assumptions.

Such changes are classiﬁed as remeasurements and are
charged or credited to equity and recorded in the statement of
comprehensive income in the period in which they arise.

There is no contractual agreement, or stated policy, for
charging the net deﬁned beneﬁt cost to participating group
companies. Therefore, the parent recognises a charge in the
proﬁt and loss account which is equal to the contributions
payable in the year. The net deﬁned beneﬁt cost is recognised
by the sponsoring employer, Severn Trent Water Limited.

(ii) Deﬁned contribution scheme
Contributions to deﬁned contribution pension schemes are
charged to the income statement in the period in which they
fall due.

r) Provisions
Provisions are recognised where:

• there is a present obligation as a result of a past event;
• it is probable that there will be an outﬂow of economic

beneﬁts to settle this obligation; and

• a reliable estimate of this amount can be made.

Insurance provisions in the group’s captive insurance
subsidiary are recognised for claims notiﬁed and for claims
incurred but which have not yet been notiﬁed, based on advice
from the group’s independent insurance advisers.

Provisions are discounted to present value using a pre-tax
discount rate that reﬂects the risks speciﬁc to the liability
where the effect is material.

s) Purchase of own shares
Shares held by the Severn Trent Employee Share Ownership
Trust which have not vested unconditionally by the balance
sheet date are deducted from shareholders’ funds until such
time as they vest.

t) Borrowings
The accounting policy for borrowings that are the hedged item
in a fair value hedge is set out in note 2u).

All other borrowings are initially recognised at fair value
less issue costs. After initial recognition, borrowings are
subsequently measured at amortised cost using the effective
interest rate method whereby interest and issue costs are
charged to the income statement and added to the carrying
value of borrowings at a constant rate in proportion to the
capital amount outstanding.

Index-linked debt is adjusted for changes in the relevant inﬂation
index and changes in value are charged to ﬁnance costs.

Borrowings denominated in foreign currency are translated to
sterling at the spot rate on the balance sheet date.

Exchange gains or losses resulting from this are credited or
charged to gains/losses on ﬁnancial instruments.

u) Derivative ﬁnancial instruments
Derivative ﬁnancial instruments are stated at fair value,
including accrued interest. Fair value is determined using the
methodology described in note 34a. The accounting policy
for changes in fair value depends on whether the derivative is
designated as a hedging instrument. The various accounting
policies are described below.

Interest receivable or payable in respect of derivative ﬁnancial
instruments is included in ﬁnance income or costs.

Derivatives not designated as hedging instruments
Gains or losses arising on remeasurement of derivative
ﬁnancial instruments that are not designated as hedging
instruments are recognised in gains/losses on ﬁnancial
instruments in the income statement.

Derivatives designated as hedging instruments
The group uses derivative ﬁnancial instruments such as cross
currency swaps, forward currency contracts and interest rate
swaps to hedge its risks associated with foreign currency and
interest rate ﬂuctuations.

At the inception of each hedge relationship, the
group documents:

• the relationship between the hedging instrument and the

hedged item;

• its risk management objectives and strategy for undertaking

the hedge transaction; and

• the results of tests to determine whether the hedging

instrument is expected to be highly effective in offsetting
changes in fair values or cash ﬂows (as appropriate) of the
hedged item.

The group continues to test and document the effectiveness of
the hedge on an ongoing basis.

Hedge accounting is discontinued when the hedging instrument
expires, is sold, terminated or exercised, or no longer qualiﬁes
for hedge accounting.

Severn Trent Plc Annual Report and Accounts 2015

105

2 Accounting policies (continued)
u) Derivative ﬁnancial instruments (continued)
Fair value hedges
Where a loan or borrowing is in a fair value hedging relationship
it is remeasured for changes in fair value of the hedged risk at
the balance sheet date, with gains or losses being recognised in
gains/losses on ﬁnancial instruments in the income statement.
The gain or loss on the corresponding hedging instrument
is also taken to gains/losses on ﬁnancial instruments in the
income statement so that the effective portion of the hedge will
offset the gain or loss on the hedged item.

If hedge accounting is discontinued, the fair value adjustment
arising from the hedged risk on the hedged item is amortised to
the income statement over the anticipated remaining life of the
hedged item.

Cash ﬂow hedges
The portion of the gain or loss on the hedging instrument
that is determined to be an effective hedge is recognised in
equity and the ineffective portion is charged to gains/losses on
ﬁnancial instruments in the income statement. When the gain
or loss from the hedged underlying transaction is recognised
in the income statement, the gains or losses on the hedging
instrument that have previously been recognised in equity are
recycled through gains/losses on ﬁnancial instruments in the
income statement.

If hedge accounting is discontinued, any cumulative gain or
loss on the hedging instrument previously recognised in
equity is held in equity until the forecast transaction occurs,
or transferred to gains/losses on ﬁnancial instruments in
the income statement if the forecast transaction is no longer
expected to occur. If the hedging instrument is terminated,
the gains and losses previously recognised in equity are
transferred to the income statement. From this point the
derivative is accounted for in the same way as derivatives not
designated as hedging instruments.

Embedded derivatives
Where a contract includes terms that cause some of its
cash ﬂows to vary in a similar way to a derivative ﬁnancial
instrument, that part of the contract is considered to be an
embedded derivative.

Embedded derivatives are separated from the contract and
measured at fair value with gains and losses taken to the
income statement if:

• the risks and characteristics of the embedded derivative are

not closely related to those of the contract; and

• the contract is not carried at fair value with gains and losses

reported in the income statement.

In all other cases embedded derivatives are accounted for in
line with the accounting policy for the contract as a whole.

v) Share based payments
The group operates a number of equity settled share based
compensation plans for employees. The fair value of the
employee services received in exchange for the grant is
recognised as an expense over the vesting period of the grant.

The fair value of employee services is determined by
reference to the fair value of the awards granted, calculated
using an appropriate pricing model, excluding the impact of
any non-market vesting conditions. The number of awards
that are expected to vest takes into account non-market
vesting conditions including, where appropriate, continuing
employment by the group. The charge is adjusted to reﬂect
shares that do not vest as a result of failing to meet a
non-market condition.

Share based compensation plans are satisﬁed in shares of
the parent company. Where the fair value of the awards is
not recharged to participating group companies, the parent
company records the fair value of the awards as an increase
in its investment in the subsidiary. The investment is adjusted
to reﬂect shares that do not vest as a result of failing to meet a
non-market based condition.

w) Cash ﬂow statement
For the purpose of the cash ﬂow statement, cash and cash
equivalents include highly liquid investments that are readily
convertible to known amounts of cash and which are subject
to an insigniﬁcant risk of change in value. Such investments
are normally those with less than three months maturity from
the date of acquisition and include cash and bank balances and
investments in liquid funds.

Net cash and cash equivalents include overdrafts repayable
on demand.

Interest paid in the cash ﬂow statement includes amounts
charged to the income statement and amounts included in the
cost of property, plant and equipment.

x) Net debt
Net debt comprises borrowings, cross currency swaps
that are used to ﬁx the sterling liability of foreign currency
borrowings (whether hedge accounted or not) and net cash and
cash equivalents.

y) Foreign currency
The results of overseas subsidiary and associated undertakings
are translated into sterling, the presentational currency of the
group, using average rates of exchange ruling during the year.

The net investments in overseas subsidiary and associated
undertakings are translated into sterling at the rates of
exchange ruling at the year end. Exchange differences arising
are treated as movements in equity. On disposal of a foreign
currency denominated subsidiary, the deferred cumulative
amount recognised in equity since 1 April 2004 relating to
that entity is recognised in the income statement under the
transitional rule of IFRS 1.

Foreign currency denominated assets and liabilities of the
company and its subsidiary undertakings are translated into
the relevant functional currency at the rates of exchange ruling
at the year end. Any exchange differences so arising are dealt
with through the income statement.

Foreign currency transactions arising during the year
are translated into sterling at the rate of exchange ruling
on the date of the transaction. All proﬁts and losses on
exchange arising during the year are dealt with through the
income statement.

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106

Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

2 Accounting policies (continued)
z) Discontinued operations and assets held for sale
Where an asset or group of assets (a disposal group) is
available for immediate sale and the sale is highly probable
and expected to occur within one year then the disposal group
is classiﬁed as held for sale. The disposal group is measured
at the lower of the carrying amount and fair value less costs to
sell. Depreciation is not charged on such assets.

b) Provisions for other liabilities and charges
Assessing the ﬁnancial outcome of uncertain commercial and
legal positions requires judgements to be made regarding
the relative merits of each party’s case and the extent to
which any claim against the group is likely to be successful.
The assessments made are based on advice from the
group’s internal counsel and, where appropriate, independent
legal advice.

Where a group of assets which comprises operations that can
be clearly distinguished operationally and for ﬁnancial reporting
purposes, from the rest of the group (a component), has been
disposed of or classiﬁed as held for sale, and it:

• represents a separate major line of business or geographical

area of operations; or

• is part of a single co-ordinated plan to dispose of a separate
major line of business or geographical area of operations; or

• is a subsidiary acquired exclusively with a view to resale;

then the component is classiﬁed as a discontinued operation.

3 New accounting policies and future requirements
The group has adopted IFRS 10, IFRS 11 and IFRS 12 with effect
from 1 April 2014. These have not had a material impact on the
results or net assets of the group or company.

At the date of approval of these ﬁnancial statements, the
following Standards and Interpretations were in issue but not
yet effective:

IFRS 9 “Financial Instruments” is likely to affect the
measurement and disclosure of ﬁnancial instruments.
This Standard has not yet been adopted by the EU.

IFRS 15 “Revenue from contracts with customers” will affect
the measurement and recognition of revenue with effect from
1 April 2018. The impact on the results or net assets of the
group or company of the changes to the standard has not yet
been quantiﬁed.

4 Signiﬁcant accounting judgements and key sources of
estimation uncertainty
In the process of applying the group’s accounting policies,
the group is required to make certain judgements, estimates
and assumptions that it believes are reasonable based on the
information available. Although these estimates are based on
management’s best knowledge of the amount, event or actions,
actual results may ultimately differ from those estimates.

The more signiﬁcant judgements were:

a) Tax provisions
Assessing the outcome of uncertain tax positions requires
judgements to be made regarding the result of negotiations
with and enquiries from tax authorities in a number of
jurisdictions. The assessments made are based on advice from
independent tax advisers and the status of ongoing discussions
with the relevant tax authorities.

The key accounting estimates were:

a) Depreciation and carrying amounts of property, plant and
equipment
Calculating the depreciation charge and hence the carrying
value for property, plant and equipment requires estimates
to be made of the useful lives of the assets. The estimates
are based on engineering data and the group’s experience of
similar assets. Details are set out in note 2i).

b) Retirement beneﬁt obligations
Determining the amount of the group’s retirement beneﬁt
obligations and the net costs of providing such beneﬁts requires
assumptions to be made concerning long term interest rates,
inﬂation, salary and pension increases, investment returns
and longevity of current and future pensioners. Changes in
these assumptions could signiﬁcantly impact the amount of the
obligations or the cost of providing such beneﬁts. The group
makes assumptions concerning these matters with the
assistance of advice from independent qualiﬁed actuaries.
Details of the assumptions made are set out in note 28 to the
ﬁnancial statements.

c) Unbilled revenue
Severn Trent Water raises bills and recognises revenue in
accordance with its right to receive revenue in line with the
limits established by the periodic regulatory price review
processes. For water and waste water customers with water
meters, the amount recognised depends on the volume
supplied including an estimate of the sales value of units
supplied between the date of the last meter read and the
year end. Meters are read on a cyclical basis and the group
recognises revenue for unbilled amounts based on estimated
usage from the last billing to the end of the ﬁnancial year.
The estimated usage is based on historical data, judgement
and assumptions.

d) Provision for impairment of trade receivables
Provisions are made against Severn Trent Water’s trade
receivables based on historical experience of levels of recovery
from accounts in a particular ageing category. The actual
amounts collected could differ from the estimated level of
recovery which could impact operating results.

e) Fair value of derivatives
Determining the fair value of derivatives where quoted prices
are not available requires estimates to be made of the future
expected cash ﬂows and an appropriate discount rate which
reﬂects the credit risk of the counterparties. The valuation
techniques and key inputs used are described in note 34.

Severn Trent Plc Annual Report and Accounts 2015

107

5 Segmental analysis
The group has two reportable segments: Severn Trent Water and Severn Trent Services. The key factor determining the
identiﬁcation of reportable segments is the regulatory environment in which the businesses operate. Severn Trent Water is
subject to economic regulation by Ofwat and operates under a licence to provide water and sewerage services within a deﬁned
geographical region in England and Wales. Severn Trent Services is not subject to economic regulation and operates in markets in
the USA, Europe and Asia. Interests in joint ventures and associates are not material and are not included in the segmental reports
reviewed by STEC.

The Severn Trent Executive Committee (STEC) is considered to be the group’s chief operating decision maker. The reports provided
to STEC include segmental information prepared on the basis described above. Details of Severn Trent Water’s operations are
described on pages 18 to 29 of the Strategic Review and those of Severn Trent Services on pages 32 to 35.

Transactions between reportable segments are included within segmental results, assets and liabilities in accordance with group
accounting policies. These are eliminated on consolidation.

The group has a large and diverse customer base and there is no signiﬁcant reliance on any single customer.

The measure of proﬁt or loss that is reported to STEC for the segments is underlying PBIT (proﬁt before interest, tax and
exceptional items). A segmental analysis of sales and underlying PBIT is presented below.

The results from the Water Puriﬁcation business have been excluded from the Severn Trent Services segment, in both the current
and prior year, as it has been classiﬁed as a discontinued operation. See note 38.

a) Segmental results

External sales
Inter-segment sales
Total sales
Proﬁt before interest, tax and exceptional items
Exceptional items
Proﬁt before interest and tax
Proﬁt before interest, tax and exceptional items is stated after:
Amortisation of intangible assets
Depreciation of property, plant and equipment
Proﬁt on disposal of ﬁxed assets

The reportable segments’ revenue is reconciled to group turnover as follows:

Severn Trent Water
Severn Trent Services
Other
Inter-segment sales
Group turnover

Severn
Trent
Water
£m

1,579.1

2.1

1,581.2

539.0

(20.6)

518.4

22.2

276.7

(0.4)

2015
Severn
Trent
Services
£m

216.2

0.1

216.3

9.7

1.9

11.6

1.0

3.5

(0.1)

2014
Severn Trent
Services
Restated
£m

209.9

0.3

210.2

13.3

(2.3)

11.0

0.9

3.2

(0.2)

2014
Restated
£m

1,544.8

210.2

13.1

(11.4)

Severn
Trent
Water
£m

1,542.6

2.2

1,544.8

518.6

8.2

526.8

28.0

267.5

(0.3)

2015

£m

1,581.2

216.3

15.8

(12.0)

1,801.3

1,756.7

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108

Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

5 Segmental analysis (continued)
a) Segmental results (continued)
Segmental underlying PBIT is reconciled to the group’s proﬁt before tax and discontinued operations as follows:

Underlying PBIT
– Severn Trent Water
– Severn Trent Services
– Corporate and other costs
Consolidation adjustments
Group underlying PBIT
Exceptional items allocated to segments
– Severn Trent Water
– Severn Trent Services
– Corporate and other
Share of results of associates and joint ventures
Net ﬁnance costs
(Losses)/gains on ﬁnancial instruments
Proﬁt before tax and discontinued operations

2015

£m

2014
Restated
£m

539.0

9.7

(12.1)

3.7

540.3

(20.6)

1.9

–

0.1

(240.0)

(133.5)

148.2

518.6

13.3

(11.5)

3.4

523.8

8.2

(2.3)

(21.1)

0.2

(247.9)

58.0

318.9

The group’s treasury and tax affairs are managed centrally by the Group Treasury and Tax departments. Finance costs are
managed on a group basis and hence interest income and costs are not reported at the segmental level. Tax is not reported to
STEC on a segmental basis.

b) Segmental capital employed
Separate segmental analyses of assets and liabilities are not reviewed by STEC. The balance sheet measure reviewed by STEC on
a segmental basis is capital employed which includes the following components:

Operating assets
Goodwill
Interests in joint ventures and associates
Segment assets
Segment operating liabilities
Capital employed

Severn Trent
Water
£m

2015
Severn Trent
Services
£m

7,679.9

1.3

0.1

7,681.3

(1,350.1)

6,331.2

100.9

14.3

4.5

119.7

(58.8)

60.9

Severn Trent
Water
£m

7,442.2

1.3

0.1

7,443.6

(1,155.7)

6,287.9

2014
Severn Trent
Services
£m

172.8

14.8

5.0

192.6

(92.2)

100.4

Operating assets comprise other intangible assets, property, plant and equipment, inventory and trade and other receivables.

Operating liabilities comprise trade and other payables, retirement beneﬁt obligations and provisions.

Capital employed does not include assets held for sale or liabilities associated with assets held for sale.

Severn Trent Plc Annual Report and Accounts 2015

109

5 Segmental analysis (continued)
b) Segmental capital employed (continued)
Additions to other intangible assets and property, plant and equipment were as follows:

Other intangible assets
Property, plant and equipment

Severn Trent
Water
£m

2015
Severn Trent
Services
£m

Severn Trent
Water
£m

2014
Severn Trent
Services
£m

15.4

481.3

1.0

2.7

8.2

519.6

5.5

6.9

The reportable segments’ assets are reconciled to the group’s total assets as follows:

Segment assets
– Severn Trent Water
– Severn Trent Services
Corporate assets
Other ﬁnancial assets
Current tax receivable
Assets held for sale
Consolidation adjustments
Total assets

Note

2015
£m

2014
£m

7,681.3

7,443.6

119.7

78.6

203.8

11.2

107.9

(45.5)

192.6

68.2

208.6

16.5

–

(40.3)

8,157.0

7,889.2

The consolidation adjustments comprise elimination of intra-group debtors and unrealised proﬁts on ﬁxed assets.

The reportable segments’ liabilities are reconciled to the group’s total liabilities as follows:

Segment liabilities
– Severn Trent Water
– Severn Trent Services
Corporate liabilities
Other ﬁnancial liabilities
Deferred tax
Liabilities associated with assets held for sale
Consolidation adjustments
Total liabilities

The consolidation adjustments comprise elimination of intra-group creditors.

Note

2015
£m

2014
£m

(1,350.1)

(1,155.7)

(58.8)

(149.1)

(92.2)

(60.1)

(5,134.0)

(4,853.1)

(625.1)

(35.3)

18.7

(654.0)

–

16.0

(7,333.7)

(6,799.1)

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110

Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

5 Segmental analysis (continued)
c) Geographical areas
The group’s sales were derived from the following countries:

UK
USA
Other

2015

£m

2014
Restated
£m

1,649.4

1,610.9

129.3

22.6

120.1

25.7

1,801.3

1,756.7

The group’s non-current assets (excluding ﬁnancial instruments, deferred tax assets and post employment beneﬁt assets) were
located in the following countries:

UK
USA
Other

6 Revenue

Regulated water and sewerage services
Other services
Service concession arrangements (note 41)
Total turnover
Interest receivable (note 10)

2015
£m

2014
£m

7,299.2

7,084.8

25.2

1.1

36.1

2.9

7,325.5

7,123.8

2015

£m

2014
Restated
£m

1,570.5

1,534.5

187.3

43.5

180.0

42.2

1,801.3

1,756.7

1.6

1,802.9

4.8

1,761.5

Severn Trent Plc Annual Report and Accounts 2015

111

7 Operating costs

Wages and salaries
Social security costs
Pension costs
Share based payments
Total employee costs
Power
Carbon Reduction Commitment
Raw materials and consumables
Rates
Charge for bad and doubtful debts
Service charges
Depreciation of property, plant and equipment
Amortisation and impairment of intangible ﬁxed assets
Hired and contracted services
Operating leases rentals
– land and buildings
– other
Hire of plant and machinery
Research and development expenditure
Proﬁt on disposal of property, plant and equipment
Foreign exchange (gains)/losses
Infrastructure maintenance expenditure
Ofwat license fees
Other operating costs

Release from deferred income
Own work capitalised

Before
exceptional
costs
£m

Exceptional
costs
£m

276.7

20.0

32.4

7.7

336.8

68.8

7.3

75.7

74.1

30.1

32.6

280.4

23.2

222.8

1.4

1.2

0.3

4.6

(0.9)

(0.1)

134.8

5.3

65.1

1,363.5

(10.1)

(92.4)

13.5

0.1

17.9

–

31.5

–

(6.3)

–

0.2

0.7

0.1

–

(7.7)

–

0.2

18.7

–

2015

Total
£m

290.2

20.1

50.3

7.7

368.3

68.8

7.3

75.7

74.1

23.8

32.6

280.4

23.4

223.5

1.5

1.2

0.3

4.6

(8.6)

(0.1)

134.8

5.3

65.3

Before
exceptional
costs
£m

Exceptional
costs
£m

2014
Restated

Total
£m

269.6

20.0

32.0

6.2

327.8

70.9

5.9

72.8

75.6

31.4

31.6

268.8

28.9

227.4

2.0

1.5

3.3

4.1

(8.6)

0.6

140.3

3.7

62.2

1,350.2

(9.5)

(92.6)

2.2

–

2.2

–

18.7

–

(8.2)

–

2.5

15.2

–

267.4

20.0

32.0

6.2

325.6

70.9

5.9

72.8

75.6

31.4

31.6

268.8

28.9

208.7

2.0

1.5

3.3

4.1

(0.4)

0.6

140.3

3.7

59.7

1,382.2

1,335.0

(10.1)

(92.4)

(9.5)

(92.6)

1,261.0

18.7

1,279.7

1,232.9

15.2

1,248.1

Further details of exceptional costs are given in note 8.

During the year the following fees were charged by the auditors:

Fees payable to the company’s auditors for
– the audit of the company’s annual accounts
– the audit of the company’s subsidiary accounts
Total audit fees
Fees payable to the company’s auditors and their associates for other services to the group
– audit related assurance services
– other services relating to taxation
– other assurance services
Total non-audit fees

2015
£m

2014
£m

0.2

0.4

0.6

0.1

0.4

0.6

0.1

0.5

0.6

0.1

0.4

0.6

Details of directors’ remuneration are set out in the Directors’ Remuneration report on pages 69 to 85.

Other assurance services include certain agreed upon procedures performed by Deloitte in connection with Severn Trent Water
Limited’s regulatory reporting requirements to Ofwat. In the current year, the balance includes fees in connection with PR14.

Details of the group policy on the use of the auditor for non-audit services and how auditor independence and objectivity are
safeguarded are set out in the Audit Committee Report on pages 63 to 65. No services were provided pursuant to contingent
fee arrangements.

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112

Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

8 Exceptional items before tax

Severn Trent Water
Restructuring costs
Proﬁt on disposal of ﬁxed assets

Severn Trent Services
Restructuring costs
Release of bad debt provision

Corporate and Other
Professional fees related to LongRiver proposal
Provision for terminated operations and disposals

Total exceptional operating items before tax

Exceptional tax is disclosed in note 13.

9 Employee numbers
Average number of employees (including executive directors) during the year:

2015

£m

2014
Restated
£m

28.3

(7.7)

20.6

4.4

(6.3)

(1.9)

–

18.7

–

(8.2)

2.3

–

2.3

18.7

2.4

21.1

15.2

By type of business
Severn Trent Water
Severn Trent Services
Corporate and Other

10 Finance income

Interest income earned on:
Bank deposits
Other ﬁnancial income
Total interest receivable
Interest income on deﬁned beneﬁt scheme assets

11 Finance costs

Interest on bank loans and overdrafts
Interest on other loans
Interest on ﬁnance leases
Total borrowing costs
Other ﬁnancial expenses
Interest cost on deﬁned beneﬁt scheme obligations

Continuing
operations
Number

Discontinued
operations
Number

5,532

1,888

7,442

–

419

–

419

2015

Total
Number

5,532

2,307

7,861

Continuing
operations
Number

Discontinued
operations
Number

5,634

1,895

7,548

–

444

–

444

2014

Total
Number

5,634

2,339

7,992

2015
£m

2014
£m

0.6

1.0

1.6

80.1

81.7

2015
£m

17.1

201.8

6.9

225.8

1.4

94.5

321.7

1.8

3.0

4.8

76.0

80.8

2014
£m

22.0

205.0

7.7

234.7

2.3

91.7

328.7

Borrowing costs of £19.8 million (2014: £13.8 million) incurred funding eligible capital projects have been capitalised at an interest
rate of 4.89% (2014: 5.11%). Tax relief of £4.2 million (2014: £3.2 million) was claimed on these costs which was credited to the
income statement, offset by a related deferred tax charge of £4.0 million (2014: £2.8 million).

Severn Trent Plc Annual Report and Accounts 2015

12 (Losses)/gains on ﬁnancial instruments

Loss on cross currency swaps used as hedging instruments in fair value hedges
Gain arising on adjustment for foreign currency debt in fair value hedges
Exchange gain on other loans
Loss on cash ﬂow hedges transferred from equity
Hedge ineffectiveness on cash ﬂow hedges
(Loss)/gain arising on swaps where hedge accounting is not applied

The group’s hedge accounting arrangements are described in note 36.

13 Taxation
a) Analysis of tax charge/(credit) in the year

Current tax
Current year at 21% (2014: 23%)
Prior years at 23% (2014: 24%)
Total current tax
Deferred tax
Origination and reversal of temporary differences – current year
Origination and reversal of temporary differences – prior year
Exceptional credit arising from rate change
Total deferred tax

113

2014
£m

(26.5)

21.9

24.2

(8.1)

2.0

44.5

58.0

2015
£m

(2.6)

–

73.3

(23.6)

2.8

(183.4)

(133.5)

2015

Total
£m

46.4

(8.6)

37.8

(11.3)

6.2

–

(5.1)

32.7

Before
exceptional
tax
£m

Exceptional
tax
£m

46.5

9.3

55.8

30.2

(8.7)

–

21.5

77.3

–

(59.2)

–

(56.2)

(114.8)

(171.0)

(230.2)

2014
Restated

Total
£m

46.5

(49.9)

(3.4)

30.2

(64.9)

(114.8)

(149.5)

(152.9)

The current tax charge was £37.8 million (2014: £55.8 million before exceptional tax). This includes a credit of £8.6 million (2014:
charge of £9.3 million) arising from adjustments to prior year tax computations.

In the prior year an exceptional current tax credit of £59.2 million was recognised, reﬂecting the anticipated refund of overpayment
of tax in prior periods. This was following an agreement with HMRC that certain capital expenditure within our water and waste
water treatment works is eligible for capital allowances as plant and machinery. This also resulted in an exceptional deferred tax
credit of £56.2 million.

The Finance Act 2013 was enacted in the prior year which implemented a reduction in the corporation tax rate from 23% to 21%
with effect from 1 April 2014 and then to 20% with effect from 1 April 2015. This resulted in an additional exceptional deferred tax
credit of £114.8 million in the income statement and a deferred tax charge of £12.3 million in reserves.

b) Factors affecting the tax charge/(credit) in the year
The tax expense for the year is lower (2014: lower) than the standard rate of corporation tax in the UK of 21% (2014: 23%).
The differences are explained below:

Proﬁt on ordinary activities before tax from continuing operations
Tax at the standard rate of corporation tax in the UK 21% (2014: 23%)
Tax effect of expenditure not deductible in determining taxable proﬁts
Current year impact of rate change
Effect of different rates in overseas jurisdictions
Adjustments in respect of prior years
Exceptional deferred tax credit arising from rate change
Total tax charge/(credit)

2015

£m

148.2

31.1

4.0

–

(2.4)

–

32.7

2014
Restated
£m

318.9

73.3

6.9

(3.7)

0.2

(114.8)

(152.9)

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114

Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

13 Taxation (continued)
c) Tax (credited)/charged directly to equity
In addition to the amount charged/(credited) to the income statement, the following amounts of tax have been (credited)/charged
directly to equity:

Current tax
Tax on share based payments
Tax on pension contributions in excess of income statement charge
Total current tax credited to equity
Deferred tax
Tax on actuarial gain/loss
Tax on cash ﬂow hedges
Tax on share based payments
Tax on transfers to the income statement account
Effect of change in tax rate
Total deferred tax (credited)/charged to equity

14 Dividends
Amounts recognised as distributions to owners of the company in the period:

2015
£m

(0.7)

(3.0)

(3.7)

(25.8)

(2.8)

0.1

4.7

–

(23.8)

Final dividend for the year ended 31 March 2014 (2013)
Interim dividend for the year ended 31 March 2015 (2014)
Total dividends
Proposed ﬁnal dividend for the year ended 31 March 2015

2015

£m

115.5

81.4

196.9

Pence per
share

45.51

32.16

77.67

Pence per
share

48.24

33.96

82.20

50.94

2014
£m

(1.0)

–

(1.0)

0.8

3.0

–

1.6

12.3

17.7

2014

£m

108.6

76.7

185.3

The proposed ﬁnal dividend is subject to approval by shareholders at the AGM and have not been included as a liability in these
ﬁnancial statements.

Severn Trent Plc Annual Report and Accounts 2015

115

15 Earnings per share
a) Basic and diluted earnings per share
Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the year, excluding those held in the Severn Trent Employee Share Ownership Trust
which are treated as cancelled.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all
potentially dilutive ordinary shares. These represent share options granted to employees where the exercise price is less than the
average market price of the company’s shares during the year.

Basic and diluted earnings per share from continuing and discontinued operations are calculated on the basis of proﬁt from
continuing and discontinued operations attributable to the owners of the company.

The calculation of basic and diluted earnings per share is based on the following data:

Earnings for the purpose of basic and diluted earnings per share from continuing operations

Proﬁt for the period attributable to owners of the company
Adjusted for (proﬁt)/loss from discontinued operations (see note 38)
Proﬁt for the period from continuing operations attributable to owners of the company

Number of shares

Weighted average number of ordinary shares for the purpose of basic earnings per share
Effect of dilutive potential ordinary shares
– share options and LTIPs
Weighted average number of ordinary shares for the purpose of diluted earnings per share

b) Adjusted earnings per share

Adjusted basic earnings per share
Adjusted diluted earnings per share

2015
£m

119.1

(3.7)

115.4

2015
m

238.8

1.1

239.9

2015
pence

107.2

106.7

2014
£m

433.8

39.1

472.9

2014
m

238.2

1.1

239.3

2014
pence

92.5

92.1

Adjusted earnings per share ﬁgures are presented for continuing operations. These exclude the effects of deferred tax, exceptional
tax, losses/gains on ﬁnancial instruments, current tax related to losses/gains on ﬁnancial instruments, exceptional items and
current tax related to exceptional items. The directors consider that the adjusted ﬁgures provide a useful additional indicator of
performance. The denominators used in the calculations of adjusted basic and diluted earnings per share are the same as those
used in the unadjusted ﬁgures set out above.

Adjustments to earnings
The adjustments to earnings that are made in calculating adjusted earnings per share are as follows:

Earnings for the purpose of basic and diluted earnings per share from continuing operations
Adjustments for
– exceptional items before tax
– current tax related to exceptional items
– loss/(gain) on ﬁnancial instruments
– current tax related to loss/gain on ﬁnancial instruments
– deferred tax excluding exceptional charge
– exceptional tax
Earnings for the purpose of adjusted basic and diluted earnings per share

2015

£m

115.4

18.7

(4.7)

133.5

(1.8)

(5.1)

–

256.0

2014
Restated
£m

472.9

15.2

(0.9)

(58.0)

(0.1)

21.5

(230.2)

220.4

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116

Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

16 Goodwill

Cost
At 1 April
Transferred to assets held for sale (see note 38)
Exchange adjustments
At 31 March
Impairment
At 1 April
Impairment charge in the year
Transferred to assets held for sale (see note 38)
Exchange adjustments
At 31 March
Net book value
At 31 March

2015
£m

42.9

(26.5)

1.3

17.7

(28.1)

–

24.7

–

(3.4)

2014
£m

45.2

–

(2.3)

42.9

(3.5)

(24.7)

–

0.1

(28.1)

14.3

14.8

Goodwill impairment tests
Goodwill is allocated to the group’s cash-generating units (CGUs) identiﬁed according to country of operation and business
segment. All of the group’s goodwill is in the Severn Trent Services segment.

A summary of the goodwill allocation by CGU is presented below. Goodwill in the group’s Water Puriﬁcation business is included in
assets held for sale at 31 March 2015, see note 38.

Water Puriﬁcation US
Operating Services US
Services Italy

2015
£m

–

12.5

1.8

14.3

2014
£m

1.4

11.2

2.2

14.8

The group has reviewed the carrying value of goodwill, including that within the Water Puriﬁcation US CGU, for impairment in
accordance with the policy stated in note 2l.

The value in use calculations use cash ﬂow projections based on ﬁnancial budgets approved by management covering a ﬁve year
period. The key assumptions underlying these budgets are revenue growth and margin. Management of each CGU determines
assumptions based on past experience, current market trends and expectations of future developments.

Cash ﬂows beyond the ﬁve year period are extrapolated using an estimated nominal growth rate. The growth rate does not exceed
the long term average growth rate for the economy in which the CGU operates and are consistent with the forecasts included in
industry reports.

The assumptions used in relation to growth rates beyond the ﬁve year period and discount rates were:

Operating Services US
Services Italy

Nominal growth rate
2014
%

2015
%

Post tax discount rate
2014
%

2015
%

Pre-tax discount rate
2014
%

2015
%

3.0

1.8

3.5

2.5

6.0

4.6

6.8

6.5

7.6

5.5

9.1

8.8

Speciﬁc discount rates for the CGUs are not available and hence a post tax discount rate reﬂecting risks relating to the CGU has
been estimated and used to calculate the value in use of the CGU from its post tax cash ﬂow projections. The equivalent pre-tax
discount rate is disclosed above.

Changes in the growth rate outside the ﬁve year period or in the discount rate applied to the cash ﬂows may cause a CGU’s
carrying value to exceed its recoverable amount. However, in the opinion of the directors, the changes in growth rate or discount
rate that would be required to reduce the recoverable amount of the CGUs below their carrying value are not reasonably possible.
Therefore no sensitivity analysis has been presented.

Severn Trent Plc Annual Report and Accounts 2015

117

17 Other intangible assets

Cost
At 1 April 2013
Additions
Disposals
Reclassiﬁcations
Exchange adjustments
At 1 April 2014
Additions
Disposals
Reclassiﬁcations
Transfers to assets held for sale (see note 38)
Exchange adjustments
At 31 March 2015
Amortisation
At 1 April 2013
Amortisation for the year
Impairment arising from exceptional item
Disposals
Reclassiﬁcations
Exchange adjustments
At 1 April 2014
Amortisation for the year
Impairment arising from exceptional item
Disposals
Transfers to assets held for sale (see note 38)
Exchange adjustments
At 31 March 2015
Net book value
At 31 March 2015
At 31 March 2014

Computer software

Internally
generated
£m

Purchased
£m

Capitalised
development
costs and
patents
£m

127.8

4.6

–

43.9

(0.2)

176.1

5.7

(0.2)

–

(0.2)

181.4

(118.9)

(13.9)

(2.4)

–

(5.1)

0.1

(140.2)

(10.8)

(0.2)

0.2

–

0.1

(150.9)

30.5

35.9

188.7

8.4

(74.7)

(43.9)

(0.5)

78.0

11.5

(21.6)

–

(4.9)

0.4

63.4

(108.3)

(14.5)

–

74.7

5.1

0.3

(42.7)

(11.6)

–

21.5

3.7

(0.3)

(29.4)

34.0

35.3

28.2

0.8

(5.0)

–

(1.4)

22.6

0.5

–

(0.4)

(10.3)

1.1

13.5

(18.2)

(0.9)

–

5.1

–

0.4

(13.6)

(1.6)

–

4.3

(0.4)

(11.3)

2.2

9.0

Total
£m

344.7

13.8

(79.7)

–

(2.1)

276.7

17.7

(21.8)

(0.4)

(15.2)

1.3

258.3

(245.4)

(29.3)

(2.4)

79.8

–

0.8

(196.5)

(24.0)

(0.2)

21.7

8.0

(0.6)

(191.6)

66.7

80.2

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118

Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

18 Property, plant and equipment

Cost
At 1 April 2013
Additions
Disposals
Exchange adjustments
At 1 April 2014
Additions
Disposals
Transfer to assets held for sale (see note 38)
Exchange adjustments
At 31 March 2015
Depreciation
At 1 April 2013
Charge for the year
Disposals
Exchange adjustments
At 1 April 2014
Charge for the year
Disposals
Transfer to assets held for sale (see note 38)
Exchange adjustments
At 31 March 2015
Net book value
At 31 March 2015
At 31 March 2014

Land and
buildings
£m

Infrastructure
assets
£m

Fixed
plant and
equipment
£m

Movable
plant
£m

2,786.2

136.5

(4.9)

(0.7)

2,917.1

130.3

(10.1)

(6.1)

0.2

4,413.6

127.0

(0.3)

–

4,540.3

152.9

(0.1)

–

3,601.3

266.4

(12.9)

(2.8)

3,852.0

214.0

(76.9)

(15.1)

1.9

62.0

6.7

(4.2)

(1.4)

63.1

7.3

(6.5)

(0.3)

1.9

Total
£m

10,863.1

536.6

(22.3)

(4.9)

11,372.5

504.5

(93.6)

(21.5)

4.0

3,031.4

4,693.1

3,975.9

65.5

11,765.9

(918.7)

(64.1)

3.7

0.2

(978.9)

(68.5)

8.2

4.2

–

(1,151.2)

(1,995.2)

(30.9)

(168.4)

–

12.8

2.5

(1,182.1)

(2,148.3)

(32.0)

(174.3)

–

76.9

12.0

(1.4)

(1,035.0)

(1,214.1)

(2,235.1)

1,996.4

1,938.2

3,479.0

3,358.2

1,740.8

1,703.7

(38.0)

(6.6)

3.8

1.1

(39.7)

(6.8)

5.5

0.3

(1.2)

(41.9)

23.6

23.4

(4,103.1)

(270.0)

20.3

3.8

(4,349.0)

(281.6)

90.6

16.5

(2.6)

(4,526.1)

7,239.8

7,023.5

Total
£m

145.3

158.1

The carrying amount of property, plant and equipment includes the following amounts in respect of assets held under
ﬁnance leases:

Net book value
At 31 March 2015
At 31 March 2014

Infrastructure
assets
£m

Fixed
plant and
equipment
£m

118.7

119.6

26.6

38.5

Property, plant and equipment includes £561.1 million (2014: £604.1 million) in respect of assets in the course of construction for
which no depreciation is charged.

Severn Trent Plc Annual Report and Accounts 2015

119

19 Interests in joint ventures and associates
Particulars of the group’s principal joint venture undertakings at 31 March 2015 were:

Name
Cognica Limited
Jackson Water Partnership
Servizio Idrico S.c.p.a (SII)

Country of incorporation

Proportion of ownership interest

Joint venture

Associate

Great Britain

USA

Italy

50%

70%

25%

The partnership agreement for the Jackson Water Partnership requires that certain key decisions require the unanimous consent
of the partners and consequently the partnership has been accounted for as a joint venture.

The results and net assets of principal joint ventures and associates are shown below:

Group’s share of carrying value
Group’s share of proﬁt and comprehensive income

Interest in joint ventures
2014
£m

2015
£m

Interest in associates
2014
£m

2015
£m

0.2

–

0.3

–

4.4

0.1

4.9

0.2

2015
£m

4.6

0.1

Total
2014
£m

5.2

0.2

All results are from continuing operations in both the current and preceding year.

As at 31 March 2015 and 2014 the joint ventures and associates did not have any signiﬁcant contingent liabilities to which the group
was exposed and the group did not have any signiﬁcant contingent liabilities in relation to its interests in joint ventures or associates.
The group had no capital commitments in relation to its interests in the joint ventures or associates at 31 March 2015 or 2014.

The group has given certain guarantees in respect of the associate’s borrowings. The guarantees are limited to €5.1 million
(2014: €5.1 million). The group does not expect any liabilities that are not provided for in these ﬁnancial statements to arise from
these arrangements.

20 Categories of ﬁnancial assets

Fair value through proﬁt and loss
Cross currency swaps – not hedge accounted
Interest rate swaps – not hedge accounted
Foreign exchange forward contracts – not hedge accounted

Derivatives designated as hedging instruments
Cross currency swaps – fair value hedges

Total derivative ﬁnancial assets
Available for sale investments carried at fair value
Unquoted shares
Loans and receivables (including cash and cash equivalents)
Trade receivables
Short term deposits
Cash at bank in hand
Total loans and receivables
Total ﬁnancial assets
Disclosed in the balance sheet as:
Non-current assets
Derivative ﬁnancial assets
Available for sale ﬁnancial assets

Current assets
Derivative ﬁnancial assets
Cash and cash equivalents
Trade receivables (see note 21)

2015
£m

2014
£m

–

4.2

0.2

4.4

22.6

27.0

0.1

172.5

151.8

24.9

349.2

376.3

13.5

0.1

13.6

13.5

176.7

172.5

362.7

376.3

39.5

12.1

0.1

51.7

33.6

85.3

0.1

195.6

76.8

46.4

318.8

404.2

72.4

0.1

72.5

12.9

123.2

195.6

331.7

404.2

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120

Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

21 Trade and other receivables

Trade receivables
Less doubtful debt provision
Net trade receivables
Other amounts receivable
Prepayments and accrued income

2015
£m

297.5

(125.0)

172.5

42.0

277.5

492.0

The carrying values of trade and other receivables are reasonable approximations of their fair values.

Prepayments and accrued income include £24.4 million (2014: £24.8 million) in respect of amounts due from customers for
contract work and £33.2 million (2014: £34.4 million) which is recoverable after more than one year.

Doubtful debts provision
Movements on the doubtful debts provision were as follows:

At 1 April
Charge for bad and doubtful debts
Amounts written off during the year
Amounts recovered during the year
Reclassiﬁcation
Exchange adjustments
Transfer to discontinued operations
At 31 March

2015
£m

120.8

28.1

(22.4)

–

(1.5)

125.0

2014
£m

316.4

(120.8)

195.6

27.9

289.7

513.2

2014
£m

138.0

32.1

(25.7)

0.2

(23.1)

(0.7)

–

120.8

The reclassiﬁcation in the prior year arose on the re-ﬁnancing of the amounts receivable from the group’s associate company, SII,
which were reclassiﬁed to other debtors.

The aged analysis of receivables that are speciﬁcally provided for is as follows:

Up to 90 days
91-365 days
1-2 years
2-3 years
More than 3 years

2015
£m

2.2

4.8

6.7

6.3

8.0

28.0

A collective provision is recorded against assets which are past due but for which no speciﬁc provision has been made. This is
calculated based on historical experience of levels of recovery.

The aged analysis of receivables that were overdue at the reporting date but not individually provided for is as follows:

Up to 90 days
91-365 days
1-2 years
2-3 years
More than 3 years

2015
£m

44.0

65.1

29.6

13.7

9.4

161.8

2014
£m

0.6

3.3

7.6

5.3

7.3

24.1

2014
£m

49.7

69.1

29.7

12.0

7.8

168.3

Severn Trent Plc Annual Report and Accounts 2015

121

21 Trade and other receivables (continued)
Doubtful debts provision (continued)
The amounts above are reconciled to gross and net debtors in the table below:

Not Due
Overdue not speciﬁcally provided
Overdue and speciﬁcally provided

Gross
£m

Provision
£m

107.7

161.8

28.0

297.5

–

(97.0)

(28.0)

(125.0)

2015
Net
£m

107.7

64.8

–

172.5

Gross
£m

Provision
£m

124.0

168.3

24.1

316.4

–

(97.9)

(22.9)

(120.8)

2014
Net
£m

124.0

70.4

1.2

195.6

Credit risk
Credit control policies and procedures are determined at the individual business unit level. By far the most signiﬁcant business
unit of the group is Severn Trent Water, which represents 88% of group turnover and 76% of net trade receivables. Severn Trent
Water has a statutory obligation to provide water and sewerage services to customers within its region. Therefore there is no
concentration of credit risk with respect to its trade receivables and the credit quality of its customer base reﬂects the wealth and
prosperity of all of the commercial businesses and domestic households within its region. None of the other business units are
individually signiﬁcant to the group.

22 Cash and cash equivalents

Cash at bank and in hand
Short term deposits

2015
£m

24.9

151.8

176.7

2014
£m

46.4

76.8

123.2

Of the £151.8 million (2014: £76.8 million) of short term bank deposits, £36.7 million (2014: £43.8 million) is held as security deposits
for insurance obligations and is not available for use by the group. In addition, £6.0 million (2014: £7.4 million) is restricted for use on
the Ministry of Defence contract and is not available for use by the group.

23 Borrowings

Bank loans
Other loans
Finance leases

Disclosed in the balance sheet as:
Current liabilities
Non-current liabilities

2015
£m

1,279.2

3,467.5

180.0

4,926.7

463.0

4,463.7

4,926.7

2014
£m

594.9

3,826.0

201.2

4,622.1

206.1

4,416.0

4,622.1

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122

Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

24 Finance leases
Obligations under ﬁnance leases are as follows:

Gross obligations under ﬁnance leases
Less future ﬁnance charges
Present value of lease obligations

2015
£m

232.1

(52.1)

180.0

2014
£m

260.5

(59.3)

201.2

A maturity analysis of gross obligations under ﬁnance leases is presented in note 35. Net obligations under ﬁnance leases fall due
as follows:

Within 1 year
1-2 years
3-5 years
After more than 5 years
Included in non-current liabilities

2015
£m

38.6

25.9

7.9

107.6

141.4

180.0

2014
£m

21.3

38.6

30.5

110.8

179.9

201.2

The remaining terms of ﬁnance leases ranged from 1 to 17 years at 31 March 2015. Interest terms are set at the inception of the
leases. The leases bear ﬁxed interest at a weighted average rate of 5.36% (2014: 5.36%). The lease obligations are secured against
the related assets.

There were no contingent rents, escalation clauses or material renewal or purchase options. The terms of the ﬁnance leases do
not impose restriction on dividend payments, additional debt or further leasing.

25 Categories of ﬁnancial liabilities

Fair value through proﬁt and loss
Cross currency swaps – not hedge accounted
Interest rate swaps – not hedge accounted
Foreign exchange forward contracts – not hedge accounted

Derivatives designated as hedging instruments
Interest rate swaps – cash ﬂow hedges
Energy swaps – cash ﬂow hedges

Total derivative ﬁnancial liabilities
Other ﬁnancial liabilities
Borrowings (see note 23)
Trade payables (see note 26)
Total other ﬁnancial liabilities
Total ﬁnancial liabilities
Disclosed in the balance sheet as:
Non-current liabilities
Derivative ﬁnancial liabilities
Borrowings

Current liabilities
Derivative ﬁnancial liabilities
Borrowings
Trade payables

2015
£m

2014
£m

25.2

170.6

0.2

196.0

10.5

0.8

11.3

207.3

21.7

158.9

0.3

180.9

47.2

2.9

50.1

231.0

4,926.7

4,622.1

32.7

4,959.4

5,166.7

175.1

4,463.7

4,638.8

32.2

463.0

32.7

527.9

31.8

4,653.9

4,884.9

206.2

4,416.0

4,622.2

24.8

206.1

31.8

262.7

5,166.7

4,884.9

Severn Trent Plc Annual Report and Accounts 2015

123

26 Trade and other payables

Current liabilities
Trade payables
Social security and other taxes
Other payables
Deferred income
Accruals

Non-current liabilities
Deferred income
Accruals

27 Deferred tax
An analysis of the movements in the major deferred tax liabilities and assets recognised by the group is set out below:

At 1 April 2013
Reclassiﬁcation
Credit to income
Credit to income arising from rate change
Charge to equity
Charge to equity arising from rate change
At 1 April 2014
Credit to income
Credit to equity
At 31 March 2015

Accelerated
tax
depreciation
£m

Retirement
beneﬁt
obligations
£m

Fair value
of ﬁnancial
instruments
£m

891.5

52.6

(60.7)

(123.1)

–

760.3

13.3

–

773.6

(88.2)

–

6.3

3.8

0.8

7.7

(69.6)

1.7

(25.8)

(93.7)

(62.7)

–

12.2

3.8

4.6

4.3

(37.8)

(25.0)

1.9

(60.9)

Other
£m

45.2

(52.6)

7.5

0.7

–

0.3

1.1

4.9

0.1

6.1

Deferred tax assets and liabilities have been offset. The offset amounts, which are to be recovered/settled after more than
12 months, are as follows:

Deferred tax asset
Deferred tax liability

2015
£m

(154.6)

779.7

625.1

2015
£m

2014
£m

32.7

5.8

22.0

10.0

423.5

494.0

538.0

4.0

542.0

31.8

6.3

22.9

9.2

342.5

412.7

482.7

9.7

492.4

Total
£m

785.8

–

(34.7)

(114.8)

5.4

12.3

654.0

(5.1)

(23.8)

625.1

2014
£m

(121.7)

775.7

654.0

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124

Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

28 Retirement beneﬁt schemes
a) Deﬁned beneﬁt pension schemes
(i) Background
The group operates a number of deﬁned beneﬁt pension schemes in the UK which closed to future accrual on 31 March 2015.
The deﬁned beneﬁt pension schemes cover increases in accrued beneﬁts arising from inﬂation and future pension increases.
Their assets are held in separate funds administered by trustees. The trustees are required to act in the best interests of the
schemes’ beneﬁciaries. A formal actuarial valuation of each scheme is carried out on behalf of the trustees at triennial intervals
by an independent professionally qualiﬁed actuary. Under the deﬁned beneﬁt pension schemes, members are entitled to
retirement beneﬁts calculated as a proportion (varying between 1/30 and 1/80 for each year of service) of their salary for the ﬁnal
year of employment with the group or, if higher, the average of the highest three consecutive years’ salary in the last ten years
of employment.

The UK deﬁned beneﬁt pension schemes and the date of their last formal actuarial valuation are as follows:

Severn Trent Pension scheme (STPS)*
Severn Trent Mirror Image Pension Scheme

* The STPS is by far the largest of the group’s UK deﬁned beneﬁt schemes.

Date of last formal actuarial valuation

31 March 2013

(ii) Amount included in the balance sheet arising from the group’s obligations under deﬁned beneﬁt pension schemes

Fair value of scheme assets
Equities
Gilts
Corporate bonds
Property
Hedge funds
Cash
Total fair value of assets
Present value of the deﬁned beneﬁt obligations – funded schemes

Present value of the deﬁned beneﬁt obligations – unfunded schemes
Liability recognised in the balance sheet

The equities, gilts, corporate bonds and hedge funds have quoted prices in active markets.

Movements in the fair value of the scheme assets were as follows:

Fair value at 1 April
Interest income on scheme assets
Contributions from the sponsoring companies
Contributions from scheme members
Return on plan assets (excluding amounts included in ﬁnance income)
Scheme administration costs
Beneﬁts paid
Fair value at 31 March

2015
£m

2014
£m

999.5

327.2

450.8

159.3

60.9

89.1

2,086.8

(2,545.7)

(458.9)

(10.0)

(468.9)

870.6

270.5

388.8

148.4

56.9

88.4

1,823.6

(2,162.5)

(338.9)

(9.4)

(348.3)

2015
£m

2014
£m

1,823.6

1,724.3

80.1

81.0

4.8

193.4

(2.9)

(93.2)

76.0

73.0

5.1

24.9

(3.0)

(76.7)

2,086.8

1,823.6

Severn Trent Plc Annual Report and Accounts 2015

125

28 Retirement beneﬁt schemes (continued)
a) Deﬁned beneﬁt pension schemes (continued)
(ii) Amount included in the balance sheet arising from the group’s obligations under deﬁned beneﬁt pension schemes (continued)
Movements in the present value of the deﬁned beneﬁt obligations were as follows:

Present value at 1 April
Service cost
Past service cost
Interest cost
Contributions from scheme members
Actuarial gains arising from changes in demographic assumptions
Actuarial losses arising from changes in ﬁnancial assumptions
Actuarial gains arising from experience adjustments
Beneﬁts paid
Present value at 31 March

Of which:

Amounts relating to funded schemes
Amounts relating to unfunded schemes
Present value at 31 March

2015
£m

2014
£m

2,171.9

2,108.0

22.8

18.1

94.5

4.8

–

366.2

(29.4)

(93.2)

22.4

0.1

91.7

5.1

(15.7)

37.0

–

(76.7)

2,555.7

2,171.9

2015
£m

2014
£m

2,545.7

2,162.5

10.0

9.4

2,555.7

2,171.9

The group has an obligation to pay pensions to a number of former employees, whose beneﬁts would otherwise have been
restricted by the Finance Act 1989 earnings cap. Provision for such beneﬁts amounting to £10.0 million (2014: £9.4 million) is
included as an unfunded scheme within the retirement beneﬁt obligation.

(iii) Amounts recognised in the income statement in respect of these deﬁned beneﬁt pension schemes

Amounts charged to operating costs
Current service cost
Past service cost
Scheme administration costs

Amounts charged to ﬁnance costs
Interest cost
Amounts credited to ﬁnance income
Interest income on scheme assets
Total amount charged to the income statement

2015
£m

(22.8)

(18.1)

(2.9)

(43.8)

2014
£m

(22.4)

(0.1)

(3.0)

(25.5)

(94.5)

(91.7)

80.1

(58.2)

76.0

(41.2)

The actual return on scheme assets was a gain of £270.6 million (2014: gain of £97.2 million).

Actuarial gains and losses have been reported in the statement of comprehensive income. The cumulative amount of actuarial
gains and losses recognised in the statement of comprehensive income since the adoption of IFRS is a net loss of £459.1 million
(2014: £315.7 million).

(iv) Actuarial risk factors
The schemes typically expose the company to actuarial risks such as investment risk, inﬂation risk and longevity risk.

Investment risk
The group’s contributions to the schemes are based on actuarial calculations which make assumptions about the returns expected
from the schemes’ investments. If the investments underperform these assumptions in the long term then the group will need to
make additional contributions to the schemes in order to fund the payment of accrued beneﬁts.

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126

Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

28 Retirement beneﬁt schemes (continued)
a) Deﬁned beneﬁt pension schemes (continued)
(iv) Actuarial risk factors (continued)
Inflation risk
The beneﬁts payable to members of the schemes are linked to inﬂation measured by the RPI. The group’s contributions to
the schemes are based on assumptions about the future level of inﬂation. If inﬂation is higher than the levels assumed in the
actuarial calculations then the group will need to make additional contributions to the schemes in order to fund the payment of
accrued beneﬁts.

Longevity risk
The group’s contributions to the schemes are based on assumptions about the life expectancy of scheme members after
retirement. If scheme members live longer than assumed in the actuarial calculations then the group will need to make additional
contributions to the schemes in order to fund the payment of accrued beneﬁts.

(v) Actuarial assumptions
The major assumptions used in the valuation of the STPS (also the approximate weighted average of assumptions used for the
valuations of all group schemes) were as follows:

Price inﬂation
Discount rate
Salary increases
Pension increases in payment
Pension increases in deferment

2015
%

3.0

3.3

n/a

3.0

2014
%

3.3

4.4

3.0

3.3

The assumption for price inﬂation is derived from the difference between the yields on longer term ﬁxed rate gilts and on
index-linked gilts. The discount rate is set by reference to AA rated sterling 18 year corporate bonds.

No salary assumption is required in the current year because the scheme closed to future accrual on 31 March 2015.

The mortality assumptions are based on those used in the triennial valuation of the STPS as at 31 March 2013. The mortality
assumptions adopted at the year end and the life expectancies at age 65 implied by the assumptions are as follows:

Mortality table used
Mortality table compared with standard table
Future improvement per annum
Remaining life expectancy for members currently aged 65 (years)
Remaining life expectancy at age 65 for members currently aged 45 (years)

Men
‘SAPS’
S1NMA_L

116%

21.4

22.7

2015
Women

S1NFA_L

92%

24.5

26.1

Men
‘SAPS’
S1NMA_L

116%

21.3

22.6

2014
Women

S1NFA_L

92%

24.4

26.0

The calculation of the scheme liabilities is sensitive to the actuarial assumptions and in particular to the assumptions relating
to discount rate, price inﬂation and mortality. The following table summarises the estimated impact on scheme liabilities from
changes to key actuarial assumptions whilst holding all other assumptions constant.

Assumption
Discount rate
Price inﬂation
Mortality

Change in assumption
Increase/decrease by 0.1%
Increase/decrease by 0.1%
Increase in life expectancy by 1 year

Impact on scheme liabilities
Decrease/increase by £50 million
Increase/decrease by £45 million
Increase by £75 million

In reality, interrelationships exist between the assumptions, particularly between the discount rate and price inﬂation. The above
analysis does not take into account the effect of these interrelationships.

In presenting the above sensitivity analysis, the present value of the deﬁned beneﬁt obligation has been calculated using the
projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the deﬁned beneﬁt
obligation liability recognised in the balance sheet.

Severn Trent Plc Annual Report and Accounts 2015

127

28 Retirement beneﬁt schemes (continued)
a) Deﬁned beneﬁt pension schemes (continued)
(vi) Effect on future cash ﬂows
Contribution rates are set in consultation with the trustees for each scheme and each participating employer.

The average duration of the beneﬁt obligation at the end of the year is 18 years (2014: 18 years). The expected cash ﬂows payable
from the scheme are presented in the graph below:

Expected beneﬁt payments (£millions)

140

120

100

50
Year

100

Following the completion of the triennial valuation of both schemes, future lump sum deﬁcit contributions have been agreed with
the Trustee. In respect of the shortfall, a cash contribution of £35 million was made in the current year, a further £15 million
contribution will be made in the year to 31 March 2016, followed by £12 million per annum to 31 March 2025. An annual contribution
of £8.2 million will also be made through an asset backing funding arrangement for at least 12 years from 31 March 2015.

b) Deﬁned contribution pension schemes
The group also operates deﬁned contribution arrangements for certain of its UK employees.

The Severn Trent Pension Scheme, Choices section was replaced by the Severn Trent Group Personal Pension from 1 April 2015
and all members of other pension schemes were transferred. This scheme has been open since 1 April 2012 and new employees
were automatically enrolled from this date.

The total cost charged to operating costs of £9.4 million (2014: £9.5 million) represents contributions payable to these schemes
by the group at rates speciﬁed in the rules of the schemes. As at 31 March 2015, contributions amounting to £1.0 million
(2014: £0.7 million) in respect of the current reporting period were owed to the schemes.

29 Provisions

At 1 April 2014
Charged/(released) to income statement
Utilisation of provision
Unwinding of discount
Reclassiﬁcations
Transfer to liabilities held for sale (see note 38)
Exchange differences
At 31 March 2015

Disclosed in the balance sheet as:
Current liabilities
Non-current liabilities

Restructuring
£m

Insurance
£m

Onerous
contracts
£m

Terminated
operations
and disposals
£m

3.7

11.6

(12.4)

–

(0.2)

2.7

23.1

6.4

(7.6)

–

21.9

2.1

0.3

(1.1)

0.1

–

(0.4)

–

1.0

6.4

0.4

(3.5)

–

3.3

Other
£m

3.3

1.3

(1.4)

0.1

3.4

(1.1)

(0.1)

5.5

2015
£m

15.9

18.5

34.4

Total
£m

38.6

20.0

(26.0)

0.2

3.4

(1.5)

(0.3)

34.4

2014
£m

12.1

26.5

38.6

The restructuring provision reﬂects costs to be incurred in respect of committed restructuring programmes. The associated
outﬂows are estimated to arise over the next twelve months from the balance sheet date.

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128

Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

29 Provisions (continued)
Derwent Insurance Limited, a captive insurance company, is a wholly owned subsidiary of the group. Provisions for claims are made
as set out in note 2. The associated outﬂows are estimated to arise over a period of up to ﬁve years from the balance sheet date.

The onerous contract provision relates to speciﬁc contractual liabilities either assumed with businesses acquired or arising in
existing group businesses, where estimated future costs are not expected to be recovered in revenues or other economic beneﬁts.
The associated outﬂows are estimated to occur over a period of ten years from the balance sheet date.

Provisions relating to terminated operations and disposals include amounts that it is probable will be paid in respect of claims
arising from services performed by these businesses. The associated outﬂows are estimated to occur over a period of ﬁve years
from the balance sheet date.

Other provisions include provisions for dilapidations and commercial disputes. The associated outﬂows are estimated to arise over
a period up to six years from the balance sheet date.

30 Share capital

Total issued and fully paid share capital
238,683,513 ordinary shares of 9717/19p (2014: 238,942,647)

2015
£m

2014
£m

233.7

233.9

On 13 February 2015 the group entered into an irrevocable, non-discretionary arrangement to enable market purchases of ordinary
shares of 9717/19 pence each up to an amount of £110 million during the period commencing on 16 February 2015 and ending no later
than 23 November 2015.

By 31 March 2015 966,578 shares had been repurchased and cancelled under the programme.

Changes in share capital were as follows:

Number

£m

Ordinary shares of 9717/19p
At 1 April 2013
Shares issued under the Employee Sharesave Scheme
At 1 April 2014
Shares issued under the Employee Sharesave Scheme
Shares repurchased and cancelled
At 31 March 2015

31 Share premium

At 1 April
Share premium arising on shares issued under the Employee Sharesave Scheme
At 31 March

32 Other reserves

At 1 April 2013
Total comprehensive income for the year
At 1 April 2014
Total comprehensive income for the year
Purchase of own shares
At 31 March 2015

238,365,734

576,913

238,942,647

707,444

(966,578)

238,683,513

2015
£m

94.2

6.0

100.2

Capital
redemption
reserve
£m

Translation
reserve
£m

Hedging
reserve
£m

156.1

–

156.1

–

0.9

157.0

28.9

(8.7)

20.2

7.2

–

27.4

(112.7)

18.6

(94.1)

7.9

–

(86.2)

233.3

0.6

233.9

0.7

(0.9)

233.7

2014
£m

89.7

4.5

94.2

Total
£m

72.3

9.9

82.2

15.1

0.9

98.2

The capital redemption reserve as at 1 April 2014 arose on the redemption of B shares. The movement in the current year arose
from the repurchase and cancellation of own shares, as outlined in note 30.

The translation reserve arises from exchange differences on translation of the results and ﬁnancial position of foreign subsidiaries.

The hedging reserve arises from gains or losses on interest rate swaps taken directly to equity under the hedge accounting
provisions of IAS 39 and the transition rules of IFRS 1.

Severn Trent Plc Annual Report and Accounts 2015

129

33 Capital management
The group’s principal objectives in managing capital are:

• to access a broad range of sources of ﬁnance to obtain both the quantum required and lowest cost compatible with the need for

continued availability;

• to manage exposure to movements in interest rates to provide an appropriate degree of certainty as to its cost of funds;
• to minimise counterparty credit exposure risk;
• to provide the group with an appropriate degree of certainty as to its foreign exchange exposure;
• to maintain an investment grade credit rating; and
• to maintain a ﬂexible and sustainable balance sheet structure.

The group seeks to achieve a balance of long term funding or commitment of funds across a range of funding sources at the
best possible economic cost. The group monitors future funding requirements and credit market conditions to ensure continued
availability of funds.

Whilst the group does not have a speciﬁc gearing target and seeks to maintain gearing at a level consistent with its capital
management objectives described above, the board has decided to move towards a net debt/RCV gearing ratio of around 62.5%,
which is in line with Ofwat’s notional assumption for AMP6. As part of this move, on 13 February 2015 the group announced that it
had entered into an irrevocable, non-discretionary arrangement to enable market purchases of ordinary shares up to an amount of
£110 million.

The group took a number of ﬁnancing steps in readiness for AMP6, aimed at reducing short term reﬁnancing risk and increasing
exposure to currently low ﬂoating interest rates. These steps included:

• Entering into a new £530 million, ﬂoating rate, nine year facility with the European Investment Bank. At 31 March 2015,

£200 million of the facility had been drawn, with the balance drawn down in April 2015.

• On 31 March 2015 the group purchased €182.6 million of its €700 million Eurobond which is due for repayment in March 2016.

On the same date the equivalent amount of the corresponding swap, paying ﬁxed rate 6.325%, was cancelled.

• In March 2015 the group cancelled ﬂoating to ﬁxed interest rate swaps with a notional principal amount of £275 million, for a

cash payment of £139.2 million. The average ﬁxed rate interest on the swaps was 5.2%. The cash payment was charged against
the fair value liability on the balance sheet, and £11 million that had been recognised in reserves was recycled through the
income statement.

• On 19 March 2015 the group amended and extended the revolving credit facility which was due to mature in October 2018.

The new £900 million facility has a period of ﬁve years, with two one year extension options exercisable with lender consent.
At 31 March 2015 £485 million of the facility was drawn.

The group’s dividend policy is a key tool in achieving its capital management objectives. This policy is reviewed and updated in line
with Severn Trent Water’s ﬁve year price control cycle and takes into account, inter alia, the planned investment programme, the
appropriate gearing level achieving a balance between an efﬁcient cost of capital and retaining an investment grade credit rating
and delivering an attractive and sustainable return to shareholders. The board has decided to set the 2015/16 dividend at 80.66p, a
reduction of 5% compared to the total dividend for 2014/15 of 84.90p. Our policy will then be to grow the dividend annually at no less
than RPI until March 2020. This replaces the previous dividend policy of RPI+3% which ran until March 2015.

Cash and short term deposits
Bank loans
Other loans
Obligations under ﬁnance leases
Cross currency swaps
Net debt
Equity attributable to the owners of the company
Total capital

2015
£m

176.7

(1,279.2)

(3,467.5)

(180.0)

(2.6)

(4,752.6)

(809.9)

(5,562.5)

2014
£m

123.2

(594.9)

(3,826.0)

(201.2)

51.4

(4,447.5)

(1,077.6)

(5,525.1)

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130

Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

34 Fair values of ﬁnancial instruments
a) Fair value measurements
The valuation techniques that the group applies in determining the fair values of its ﬁnancial instruments on a recurring basis are
described below. The techniques are classiﬁed under the hierarchy deﬁned in IFRS 13 which categorises valuation techniques into
Levels 1 – 3 based on the degree to which the fair value is observable. All of the group’s valuation techniques are level 2.

Cross currency swaps
Assets
Liabilities

Interest rate swaps
Assets
Liabilities

Energy swaps
Assets
Liabilities

Foreign currency forward contracts
Assets
Liabilities

2015
£m

22.6

(25.2)

2014
£m

73.1

(21.7)

4.2

(181.1)

12.1

(206.1)

Valuation techniques and key inputs
Discounted cash ﬂow
Future cash ﬂows are estimated based on forward interest rates from
observable yield curves at the year end and contract interest rates
discounted at a rate that reﬂects the credit risk of counterparties.
The currency cash ﬂows are translated at the spot rate.

Discounted cash ﬂow
Future cash ﬂows are estimated based on forward interest rates from
observable yield curves at the year end and contract interest rates
discounted at a rate that reﬂects the credit risk of counterparties.

–

(0.8)

0.2

(0.2)

–

(2.9)

0.1

(0.3)

Discounted cash ﬂow
Future cash ﬂows are estimated based on forward electricity prices
from observable indices at the year end and contract prices discounted
at a rate that reﬂects the credit risk of counterparties.

Discounted cash ﬂow
Future cash ﬂows are estimated based on observable forward
exchange rates at the year end and contract forward rates discounted
at a rate that reﬂects the credit risk of counterparties.

b) Comparison of fair value of ﬁnancial instruments with their carrying amounts
The directors consider that the carrying amounts of cash and short term deposits, bank overdrafts, trade receivables and trade
payables approximate their fair values. The carrying values and estimated fair values of other ﬁnancial instruments are set out below:

Floating rate debt
Bank loans
Currency bonds

Fixed rate debt
Bank loans
Sterling bonds
Currency bonds
Other loans
Finance leases

Index-linked debt
Bank loans
Sterling bonds

Carrying
value
£m

984.3

84.3

2015
Fair
value
£m

970.3

84.3

1,068.6

1,054.6

188.5

1,855.3

370.8

2.0

180.0

204.4

2,268.4

391.3

2.0

190.7

Carrying
value
£m

300.0

215.6

515.6

189.7

1,902.9

571.5

1.7

201.2

2014
Fair
value
£m

293.0

217.4

510.4

201.1

2,108.1

627.3

1.7

197.7

2,596.6

3,056.8

2,867.0

3,135.9

106.4

1,155.1

1,261.5

4,926.7

123.0

1,585.1

1,708.1

5,819.5

105.2

1,134.3

1,239.5

4,622.1

114.7

1,213.3

1,328.0

4,974.3

Fixed rate sterling and currency bonds are valued using market prices.

Index-linked bonds are rarely traded and therefore quoted prices are not considered to be a reliable indicator of fair value.
Therefore, these bonds are valued using discounted cash ﬂow models with discount rates derived from observed market prices for
a sample of bonds.

Fair values of the other debt instruments are also calculated using discounted cash ﬂow models.

Severn Trent Plc Annual Report and Accounts 2015

131

35 Risks arising from ﬁnancial instruments
The group’s activities expose it to a variety of ﬁnancial risks:

• market risk (including interest rate risk, exchange rate risk and other price risk);
• credit risk;
• liquidity risk; and
• inﬂation risk.

The group’s overall risk management programme addresses the unpredictability of ﬁnancial markets and seeks to reduce
potential adverse effects on the group’s ﬁnancial performance or position.

Financial risks are managed by a central treasury department (Group Treasury) under policies approved by the board of directors.
The board has established a Treasury Committee to monitor treasury activities and to facilitate timely responses to changes in
market conditions when necessary. Group Treasury identiﬁes, evaluates and hedges ﬁnancial risks in close co-operation with the
group’s operating units. The board deﬁnes written principles for overall risk management, as well as written policies covering
speciﬁc areas such as exchange rate risk, interest rate risk, credit risk and the use of derivative and non-derivative ﬁnancial
instruments. The group’s policy is that derivative ﬁnancial instruments are not held for trading but may be used to mitigate the
group’s exposure to ﬁnancial risk. The types of derivative instruments held and the related risks are described below.

Interest rate swaps are held to mitigate the group’s exposure to changes in market interest rates. Further details are set out in
sections a) (i) and note 36 b) below.

Cross currency swaps are held to mitigate the group’s exposure to exchange rate movements on amounts borrowed in foreign
currencies. Further details are set out in section a) (ii) below.

Energy swaps are held to mitigate the group’s exposure to changes in electricity prices. Further details are provided in note 36 b)
below.

Severn Trent Water, the group’s most signiﬁcant business unit, operates in a regulatory environment where its prices are linked to
inﬂation measured by RPI. In order to mitigate the risks to cash ﬂow and earnings arising from ﬂuctuations in RPI, the group holds
debt instruments where the principal repayable and interest cost is linked to RPI.

a) Market risk
The group is exposed to ﬂuctuations in interest rates and, to a lesser extent, exchange rates. The nature of these risks and the
steps that the group has taken to manage them are described below.

(i) Interest rate risk
The group’s income and its operating cash ﬂows are substantially independent of changes in market interest rates. The group’s
interest rate risk arises from long term borrowings.

Borrowings issued at variable rates expose the group to the risk of adverse cash ﬂow impacts from increases in interest rates.

Borrowings issued at ﬁxed rates expose the group to the risk of interest costs above the market rate when interest rates decrease.

The group’s policy is to maintain 45% to 90% of its interest bearing liabilities in ﬁxed rate instruments. In measuring this metric,
management makes adjustments to the carrying value of debt to better reﬂect the amount that interest is calculated on. Details of
the adjustments made are set out below:

Net debt (see note 39)
Cash and cash equivalents
Cross currency swaps included in net debt at fair value
Fair value hedge accounting adjustments
Exchange on currency debt
Interest bearing ﬁnancial liabilities

2015
£m

4,752.6

176.7

(2.6)

(19.1)

22.6

2014
£m

4,447.5

123.2

51.4

(26.8)

(18.6)

4,930.2

4,576.7

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132

Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

35 Risks arising from ﬁnancial instruments (continued)
a) Market risk (continued)
(i) Interest rate risk (continued)
The group manages its cash ﬂow interest rate risk by borrowing at ﬁxed or index-linked rates or by using interest rate swaps.
Under these swaps the group receives variable rate interest and pays ﬁxed rate interest calculated by reference to the agreed
notional principal amounts. In practice the swaps are settled by transferring the net amount. These swaps have the economic
effect of converting borrowings from variable rates to ﬁxed rates. The group has entered into a series of these interest rate swaps
to hedge future interest payments beyond 2030.

The following tables show analyses of the group’s interest bearing ﬁnancial liabilities by type of interest. Debt raised in foreign
currencies has been included at the sterling value of the payable leg of the corresponding cross currency swap since this is the
amount that is exposed to changes in interest rates. Valuation adjustments that do not impact the amount on which interest is
calculated, such as fair value hedge accounting adjustments, are excluded from this analysis.

The net principal amount of interest rate swaps is shown as an adjustment to ﬂoating rate and ﬁxed rate debt to demonstrate the
impact of the swaps on the amount of liabilities bearing ﬁxed interest.

2015
Bank loans
Other loans
Finance leases

Impact of interest rate swaps not matched against speciﬁc debt instruments
Interest bearing ﬁnancial liabilities
Proportion of interest bearing ﬁnancial liabilities that are ﬁxed
Weighted average interest rate of ﬁxed rate debt
Weighted average period for which interest is ﬁxed (years)

2014
Bank loans
Other loans
Finance leases

Floating
rate
£m

(984.3)

(62.2)

–

Fixed
rate
£m

(188.5)

(2,253.7)

(180.0)

Index-
linked
£m

(106.4)

(1,155.1)

–

Total
£m

(1,279.2)

(3,471.0)

(180.0)

(1,046.5)

(2,622.2)

(1,261.5)

(4,930.2)

541.4

(541.4)

–

(505.1)

(3,163.6)

(1,261.5)

(4,930.2)

64%

5.66%

9.7

Fixed
rate
£m

(189.7)

Index-
linked
£m

(105.2)

Total
£m

(594.9)

(2,440.6)

(1,134.3)

(3,780.6)

Floating
rate
£m

(300.0)

(205.7)

–

(201.2)

–

(201.2)

(505.7)

(2,831.5)

(1,239.5)

(4,576.7)

591.4

85.7

(591.4)

–

(3,422.9)

(1,239.5)

(4,576.7)

75%

5.68%

10.7

Severn Trent Plc Annual Report and Accounts 2015

133

35 Risks arising from ﬁnancial instruments (continued)
a) Market risk (continued)
(i) Interest rate risk (continued)
Interest rate swaps not hedge accounted
The group has a number of interest rate swaps which are not accounted for as cash ﬂow hedges. Economically these swaps act to
ﬁx the interest cost of debt within the group which is denominated as ﬂoating rate, but they do not achieve hedge accounting under
the strict criteria of IAS 39. This has led to a charge of £108.0 million (2014: credit of £66.7 million) in the income statement.

Pay ﬁxed rate interest
Within 1 year
1-2 years
2-5 years
5-10 years
10-20 years
20-30 years

Receive ﬁxed rate interest
Within 1 year
1-2 years

Average contract ﬁxed
interest rate
2014
%

2015
%

Notional
principal amount
2014
£m

2015
£m

6.32

–

5.06

5.45

–

5.47

5.18

–

5.18

–

6.32

–

4.98

5.37

5.10

5.44

–

5.18

(225.0)

–

(450.0)

(66.4)

–

(741.4)

200.0

–

200.0

(541.4)

–

(225.0)

–

(225.0)

(216.4)

(125.0)

(791.4)

–

200.0

(591.4)

Fair value
2014
£m

–

(18.2)

–

(42.4)

(63.0)

(35.3)

2015
£m

(6.3)

–

(129.5)

(34.9)

–

(170.7)

(158.9)

4.2

–

4.2

–

12.1

(166.5)

(146.8)

Interest rate sensitivity analysis
The sensitivity after tax of the group’s proﬁts, cash ﬂow and equity, including the impact on derivative ﬁnancial instruments, to
changes in interest rates at 31 March is as follows:

Proﬁt or loss
Cash ﬂow
Equity

+1.0%
£m

56.9

2.6

56.9

2015
-1.0%
£m

(63.4)

(2.6)

(63.4)

+1.0%
£m

73.3

(1.6)

97.8

2014
-1.0%
£m

(83.7)

1.6

(111.0)

(ii) Exchange rate risk
Except for debt raised in foreign currency, which is hedged, the group’s business does not involve signiﬁcant exposure to foreign
exchange transactions. Although the group operates internationally and its net investments in foreign operations are subject to
exchange risk, substantially all of the group’s proﬁts and net assets arise from Severn Trent Water, which has very limited and
indirect exposure to changes in exchange rates, and therefore the sensitivity of the group’s results to changes in exchange rates is
not material.

Certain of the group’s subsidiaries enter into transactions in currencies other than the functional currency of the operation.
Exchange risks relating to such operations are not material but are managed centrally by Group Treasury through forward
exchange contracts to buy or sell currency.

In order to meet its objective of accessing a broad range of sources of ﬁnance, the group has raised debt denominated in currencies
other than sterling. In order to mitigate the group’s exposure to exchange rate ﬂuctuations, cross currency swaps were entered into
at the time that the debt was drawn down to swap the proceeds into sterling debt bearing interest based on LIBOR. The terms of
the receivable leg of the swap closely match the terms of the underlying debt hence the swaps are expected to be effective hedges.

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Notes to the group ﬁnancial statements continued

35 Risks arising from ﬁnancial instruments (continued)
a) Market risk (continued)
(ii) Exchange rate risk (continued)
The group’s gross and net currency exposures arising from currency borrowings are summarised in the tables below. These show,
in the relevant currency, the amount borrowed and the notional principal of the related swap or forward contract. The net position
shows the group’s exposure to exchange rate risk in relation to its currency borrowings.

2015
Borrowings by currency
Cross currency swaps – hedge accounted
Cross currency swaps – not hedge accounted
Net currency exposure

2014
Borrowings by currency
Cross currency swaps – hedge accounted
Cross currency swaps – not hedge accounted
Net currency exposure

Euro
€m

(540.0)

19.9

517.4

(2.7)

Euro
€m

(722.9)

19.9

700.0

(3.0)

US Dollar
$m

Japanese
Yen
¥Bn

Czech
Krona
CZKm

(50.0)

50.0

–

(5.0)

5.0

–

US Dollar
$m

Japanese
Yen
¥Bn

(52.7)

50.0

–

(2.7)

(24.5)

14.5

10.0

–

Czech
Krona
CZKm

(620.0)

620.0

–

b) Credit risk
Operationally the group has no signiﬁcant concentrations of credit risk. It has policies in place to ensure that sales of products
are made to customers with an appropriate credit history, other than in Severn Trent Water Limited, whose operating licence
obliges it to supply domestic customers even in cases where bills are not paid. Amounts provided against accounts receivable and
movements on the provision during the year are disclosed in note 21.

Cash deposits and derivative contracts are only placed with high credit quality ﬁnancial institutions, which have been approved
by the board. Group Treasury monitors the credit quality of the approved ﬁnancial institutions and the list of ﬁnancial institutions
that may be used is approved annually by the board. The group has policies that limit the amount of credit exposure to any one
ﬁnancial institution.

Credit risk analysis
At 31 March the aggregate credit limits of authorised counterparties and the amounts held on short term deposits were as follows:

AAA
Double A range
Single A range

Credit limit
2014
£m

Amount deposited
2015
2014
£m
£m

20.0

100.0

600.0

720.0

1.2

22.1

128.5

151.8

1.2

24.2

51.4

76.8

2015
£m

20.0

100.0

600.0

720.0

The fair values of derivative assets analysed by credit ratings of counterparties were as follows:

Rating
Double A range
Single A range

Derivative assets
2014
£m

2015
£m

11.5

15.5

27.0

16.7

68.6

85.3

Severn Trent Plc Annual Report and Accounts 2015

135

35 Risks arising from ﬁnancial instruments (continued)
c) Liquidity risk
(i) Committed facilities
Prudent liquidity management requires sufﬁcient cash balances to be maintained; adequate committed facilities to be available;
and the ability to close out market positions. Group Treasury manages liquidity and ﬂexibility in funding by monitoring forecast and
actual cash ﬂows and the maturity proﬁle of ﬁnancial assets and liabilities, and by keeping committed credit lines available.

During the year the group agreed two new facilities; a £530 million committed facility, of which £200 million was drawn at the
31 March 2015, which will mature in September 2023, and a £900 million revolving credit facility, of which £485 million was drawn
at the 31 March 2015, which will mature in March 2020.

At the balance sheet date the group had committed undrawn borrowing facilities expiring as follows:

2-5 years
After more than ﬁve years

2015
£m

415.0

330.0

745.0

2014
£m

500.0

–

500.0

(ii) Cash ﬂows from non-derivative ﬁnancial instruments
The following tables show the estimated cash ﬂows that will arise from the group’s non-derivative net ﬁnancial liabilities.
The information presented is based on the earliest date on which the group can be required to pay and represents the undiscounted
cash ﬂows including principal and interest.

Interest and inﬂation assumptions are based on prevailing market conditions at the year end date.

2015
Undiscounted amounts payable:
Within 1 year
1 – 2 years
2 – 5 years
5 – 10 years
10 – 15 years
15 – 20 years
20 – 25 years
25 – 30 years
30 – 35 years
35 – 40 years
40 – 45 years
45 – 50 years
50 – 55 years

Undiscounted amounts receivable:
Within 1 year

Floating
rate
£m

(60.6)

(161.2)

(667.8)

(243.0)

(50.7)

–

Fixed
rate
£m

(549.4)

(132.8)

(680.4)

(842.7)

(1,192.0)

(91.5)

(60.9)

(274.4)

–

Index
linked
£m

(25.2)

(25.5)

(78.7)

(431.6)

(344.4)

(123.2)

(149.4)

(178.8)

(213.2)

(650.0)

(3,252.7)

(28.9)

(445.1)

Trade
payables
£m

(32.7)

–

Payments on
ﬁnancial
liabilities
£m

(667.9)

(319.5)

(1,426.9)

(1,517.3)

(1,587.1)

(214.7)

(210.3)

(453.2)

(213.2)

(650.0)

(3,252.7)

(28.9)

(445.1)

(1,183.3)

(3,824.1)

(5,946.7)

(32.7)

(10,986.8)

Trade
receivables
£m

Cash and
short term
deposits
£m

Receipts
from
ﬁnancial
assets
£m

172.5

176.7

349.2

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G
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Notes to the group ﬁnancial statements continued

35 Risks arising from ﬁnancial instruments (continued)
c) Liquidity risk (continued)
(ii) Cash ﬂows from non-derivative ﬁnancial instruments (continued)

2014
Undiscounted amounts payable:
Within 1 year
1 – 2 years
2 – 5 years
5 – 10 years
10 – 15 years
15 – 20 years
20 – 25 years
25 – 30 years
30 – 35 years
35 – 40 years
40 – 45 years
45 – 50 years
50 – 55 years

Undiscounted amounts receivable:
Within 1 year

Floating
rate
£m

(142.6)

(54.8)

(316.5)

(26.3)

(43.5)

(16.8)

–

Fixed
rate
£m

(220.2)

(721.3)

(737.3)

(877.1)

(788.0)

(558.3)

(60.9)

(286.6)

–

Index-
linked
£m

(23.8)

(24.4)

(77.4)

(373.3)

(424.6)

(124.0)

(151.2)

(183.6)

(222.4)

(740.6)

(3,573.5)

(33.7)

(545.5)

Trade
payables
£m

(31.8)

–

Payments on
ﬁnancial
liabilities
£m

(418.4)

(800.5)

(1,131.2)

(1,276.7)

(1,256.1)

(699.1)

(212.1)

(470.2)

(222.4)

(740.6)

(3,573.5)

(33.7)

(545.5)

(600.5)

(4,249.7)

(6,498.0)

(31.8)

(11,380.0)

Trade
receivables
£m

Cash and
short term
deposits
£m

Receipts
from
ﬁnancial
assets
£m

195.6

123.2

318.8

Index-linked debt includes loans with maturities up to 52 years. The principal is revalued at ﬁxed intervals and is linked to
movements in the Retail Price Index. Interest payments are made biannually based on the revalued principal. The principal
repayment equals the revalued amount at maturity. The payments included in the table above are estimates based on the forward
inﬂation rates published by the Bank of England at the balance sheet date.

(iii) Cash ﬂows from derivative ﬁnancial instruments
The following tables show the estimated cash ﬂows that will arise from the group’s derivative ﬁnancial instruments. The tables
are based on the undiscounted net cash inﬂows/(outﬂows) on the derivative ﬁnancial instruments that settle on a net basis and
the undiscounted gross inﬂows/(outﬂows) on those derivatives that require gross settlement. When the amount payable or
receivable is not ﬁxed, the amount disclosed has been determined by reference to the projected interest and foreign currency
rates derived from the forward curves existing at the balance sheet date. Actual amounts may be signiﬁcantly different from those
indicated below.

2015
Within 1 year
1 – 2 years
2 – 5 years
5 – 10 years
10 – 15 years
15 – 20 years

Interest rate
swaps
£m

Energy
swaps
£m

(29.9)

(60.6)

(78.9)

(17.0)

(2.9)

(0.5)

(0.1)

(0.2)

–

Derivative liabilities
Cross currency swaps
Cash
payments
£m

Cash
receipts
£m

Interest rate
swaps
£m

396.6

(421.7)

4.2

–

(249.9)

(0.8)

396.6

(421.7)

4.2

Derivative assets
Cross currency swaps
Cash
payments
£m

Cash
receipts
£m

52.5

0.9

2.8

5.0

32.0

–

93.2

(42.7)

(0.3)

(1.2)

(2.4)

(21.2)

–

(67.8)

Total
£m

(41.5)

(60.1)

(59.2)

(76.3)

(6.2)

(2.9)

(246.2)

Severn Trent Plc Annual Report and Accounts 2015

137

35 Risks arising from ﬁnancial instruments (continued)
c) Liquidity risk (continued)
(iii) Cash ﬂows from derivative ﬁnancial instruments (continued)

2014
Within 1 year
1 – 2 years
2 – 5 years
5 – 10 years
10 – 15 years
15 – 20 years
20 – 25 years

Derivative liabilities
Cross currency swaps
Cash
payments
£m

Cash
receipts
£m

60.0

(82.0)

Energy
swaps
£m

(3.0)

–

Derivative assets
Cross currency swaps
Cash
payments
£m

Cash
receipts
£m

Interest rate
swaps
£m

8.5

3.5

–

109.0

664.2

3.1

5.5

21.5

16.8

–

(97.4)

(613.4)

(1.7)

(4.0)

(14.3)

(8.7)

–

Interest rate
swaps
£m

(40.6)

(38.4)

(67.0)

(63.3)

(28.4)

(18.2)

(0.7)

Total
£m

(45.5)

15.9

(65.6)

(61.8)

(21.2)

(10.1)

(0.7)

(256.6)

(3.0)

60.0

(82.0)

12.0

820.1

(739.5)

(189.0)

d) Inﬂation risk
The group’s principal operating subsidiary, Severn Trent Water, operates in a regulatory environment where its prices are linked
to inﬂation measured by RPI. Its operating proﬁts and cash ﬂows are therefore exposed to changes in RPI. In order to mitigate and
partially offset this risk, Severn Trent Water has raised debt which pays interest at a ﬁxed coupon based on a principal amount that
is adjusted for the change in RPI during the life of the debt instrument (index-linked debt). The amount of index-linked debt at the
balance sheet date is shown in section a) (i) interest rate risk, and the estimated future cash ﬂows relating to this debt are shown in
section c) (ii) cash ﬂows from non-derivative ﬁnancial instruments.

Inﬂation rate sensitivity analysis
The ﬁnance cost of the group’s index-linked debt instruments varies with changes in RPI rather than interest rates. The sensitivity
at 31 March of the group’s proﬁt and equity to changes in RPI is set out in the following table. This analysis relates to ﬁnancial
instruments only and excludes any RPI impact on Severn Trent Water’s revenues and Regulated Capital Value, or accounting for
deﬁned beneﬁt pension schemes.

Proﬁt or loss
Equity

+1.0%
£m

(10.0)

2015
-1.0%
£m

10.0

+1.0%
£m

(9.5)

2014
-1.0%
£m

9.5

36 Hedge accounting
The group uses derivative ﬁnancial instruments to hedge exposures to changes in exchange rates and interest rates.
Hedge accounting is adopted for such instruments where the criteria set out in IAS 39 are met.

a) Fair value hedges
The group raises debt denominated in currencies other than sterling. Cross currency swaps are entered into at the time that
the debt is drawn down to swap the proceeds into sterling debt bearing interest based on LIBOR in order to mitigate the group’s
exposure to exchange rate ﬂuctuations. The terms of the receivable leg of the swap closely match the terms of the underlying debt
hence the swaps are expected to be effective hedges.

At the year end the amounts of cross currency swaps designated as fair value hedges were as follows:

US dollar
Euro
Yen
Czech krona

Notional principal amount
2014
£m

2015
£m

27.0

11.4

23.8

–

62.2

27.0

11.4

71.4

14.7

124.5

Fair value
2014
£m

4.7

8.4

15.9

4.6

33.6

2015
£m

7.3

8.0

7.3

–

22.6

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Notes to the group ﬁnancial statements continued

36 Hedge accounting (continued)
b) Cash ﬂow hedges
The group has entered into interest rate swaps under which it has agreed to exchange the difference between ﬁxed and ﬂoating
interest rate amounts calculated on agreed notional principal amounts. Such contracts enable the group to mitigate the risk of
changing interest rates on future cash ﬂow exposures arising from issued variable rate debt. Where the hedge is expected to be
highly effective these interest rate swaps are accounted for as cash ﬂow hedges.

At the beginning of AMP5 the group entered into a number of interest rate contracts with future start dates during the regulatory
period to hedge the interest rate risk on the anticipated borrowings requirements of Severn Trent Water. These swaps were
accounted for as cash ﬂow hedges. During the year interest rate swaps with notional principal value £225 million reached their
start dates. Hedge accounting has been discontinued for these contracts as it has not been possible to match the swaps against
speciﬁc debt instruments. These instruments are now included in note 35 a).

Details of interest rate swaps that have been accounted for as cash ﬂow hedges are summarised below:

Period to maturity
10-20 years

Average contract
ﬁxed interest rate
2015
2014
%
%

Notional principal amount
2014
£m

2015
£m

5.18%

5.14%

42.3

264.7

Fair value
2014
£m

(47.2)

2015
£m

(10.5)

The group has entered into a series of energy swaps under which it has agreed to exchange the difference between ﬁxed and
market prices of electricity at six-monthly intervals up to March 2018.

Details of energy swaps that have been accounted for as cash ﬂow hedges are summarised below:

Period to maturity
Less than 1 year
1-2 years
2-5 years

Average contract price
2014
£/MWh

2015
£/MWh

54.4

49.8

46.7

62.9

–

Notional
contracted amount
2015
2014
MWh
MWh

70,272

21,960

162,000

254,232

174,720

–

174,720

Fair value
2014
£m

(2.9)

–

(2.9)

2015
£m

(0.5)

(0.1)

(0.2)

(0.8)

37 Share based payments
The group operates a number of share based remuneration schemes for employees. During the period, the group recognised total
expenses of £7.7 million (2014: £6.2 million) related to equity settled share based payment transactions.

The weighted average share price during the period was £19.74 (2014: £18.12).

At 31 March 2015, there were no options exercisable (2014: none) under any of the share based remuneration schemes.

a) Long Term Incentive Plans (LTIPs)
Under the terms of the LTIPs, conditional awards of shares may be made to executive directors and senior staff. Awards are
subject to performance conditions and continued employment throughout the vesting period. Awards have been previously made
on different bases to Severn Trent Plc and Severn Trent Water employees (the LTIP) and to Severn Trent Services employees (the
Services LTIP).

Awards outstanding
Awards made under the LTIP
These awards are subject to Severn Trent Water’s achievement of Return on Regulated Capital Value in excess of the level included
in the Severn Trent Water AMP5 business plan over a three year vesting period. It has been assumed that performance against the
LTIP non-market conditions will be 100% (2014: 100%).

Awards made under the Services LTIP
Awards are subject to achievement of turnover and proﬁt targets over the three year period from the ﬁnancial year that the awards
were granted. It has been assumed that performance against the 2012 Services LTIP non-market conditions will be 0% (2014: 25%)
and 2013 Services LTIP will be 0% (2014: 75%).

Severn Trent Plc Annual Report and Accounts 2015

139

37 Share based payments (continued)
a) Long Term Incentive Plans (LTIPs) (continued)
Details of changes in the number of awards outstanding during the year are set out below:

Outstanding at 1 April 2013
Granted during the year
Vested during the year
Lapsed during the year
Outstanding at 1 April 2014
Granted during the year
Vested during the year
Lapsed during the year
Outstanding at 31 March 2015

Details of LTIP and Services LTIP awards outstanding at 31 March were as follows:

Date of grant
July 2011
July 2012
July 2013
July 2014

Normal date of vesting

2014

2015

2016

2017

Number of awards
LTIP Services LTIP

321,024

88,996

(67,302)

(66,586)

276,132

309,770

(138,560)

(14,224)

433,118

89,872

38,902

–

(37,512)

91,262

–

(26,738)

64,524

Number of awards
2014

2015

–

152,713

166,840

178,089

497,642

127,777

115,809

123,808

–

367,394

Details of the basis of the LTIP schemes are set out in the remuneration report on page 73.

b) Employee Sharesave Scheme
Under the terms of the Sharesave Scheme, the board may grant the right to purchase ordinary shares in the company to those
employees who have entered into an HMRC approved Save As You Earn contract for a period of three or ﬁve years.

Options outstanding
Details of changes in the number of options outstanding during the year are set out below:

Outstanding at 1 April 2013
Granted during the year
Forfeited during the year
Cancelled during the year
Exercised during the year
Lapsed during the year
Outstanding at 1 April 2014
Granted during the year
Forfeited during the year
Cancelled during the year
Exercised during the year
Lapsed during the year
Outstanding at 31 March 2015

Number of
share
options

2,834,486

660,391

(32,527)

(58,850)

(576,913)

(25,713)

2,800,874

1,048,625

(55,907)

(62,552)

(707,444)

(4,465)

3,019,131

Weighted
average
exercise
price

1,027p

1,331p

1,151p

1,184p

874p

1,077p

1,125p

1,584p

1,072p

1,300p

944p

1,072p

1,321p

S
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a
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G
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Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

37 Share based payments (continued)
b) Employee Sharesave Scheme (continued)
Sharesave options outstanding at 31 March were as follows:

Date of grant
January 2007
January 2009
January 2010
January 2011
January 2012
January 2013
January 2014
January 2015

Normal date of exercise Option price

Number of share options
2014

2015

2014

2015

2014 or 2016

2015 or 2017

2016 or 2018

2017 or 2019

2018 or 2020

1,172p

862p

808p

1,137p

1,177p

1,241p

1,331p

1,584p

–

298,082

114,830

454,530

512,522

596,837

1,042,330

11,273

496,233

308,501

293,633

481,830

551,862

657,542

–

3,019,131

2,800,874

c) Share Incentive Plan (SIP)
Under the SIP the board may grant share awards to employees of group companies. During the year the board has announced that
it will make awards under the SIP based on performance against Severn Trent Water’s targets for its Key Performance Indicators.
Eligible employees will be entitled to shares to a maximum value of £750. It is expected that these awards will be made in August
2015. SIP shares vest with the employee on the date of grant.

d) Share Matching Plan (SMP)
Under the Share Matching Plan members of STEC receive matching share awards over those shares which have been acquired
under the deferred share component of the annual bonus scheme. Matching shares may be awarded at a maximum ratio of one
matching share for every deferred share and are subject to a three year vesting period. No matching shares have been awarded in
the current year.

Matching shares are subject to total shareholder return over three years measured relative to the companies ranked 51-150 by
market capitalisation in the FTSE Index (excluding investment trusts).

The number of shares subject to an award will increase to reﬂect dividends paid through the performance period on the basis of
such notional dividends being reinvested at the then prevailing share price. Awards will normally vest as soon as the Remuneration
Committee determines that the performance conditions have been met provided that the participant remains in employment at the
end of the performance period.

Awards outstanding

Outstanding at 1 April 2013
Granted during the year
Cancelled during the year
Vested during the year
Outstanding at 1 April 2014
Cancelled during the year
Vested during the year
Outstanding at 31 March 2015

Details of share matching awards outstanding at 31 March were as follows:

Date of grant
May 2011
May 2012
May 2013

Number of awards

57,383

33,803

(4,569)

(16,179)

70,438

(8,305)

(11,463)

50,670

Normal date
of vesting

May 2014

May 2015

May 2016

Number of awards

2015

–

18,024

32,646

50,670

2014

18,611

18,024

33,803

70,438

Severn Trent Plc Annual Report and Accounts 2015

141

37 Share based payments (continued)
e) Fair value calculations
The fair values of the share awards made and share options granted during the year were calculated using the Black Scholes
method. The principal assumptions and data are set out below:

Share price at grant date
Option life (years)
Vesting period (years)
Expected volatility
Expected dividend yield
Risk free rate
Fair value per share

LTIP

1,918p

18.2%

4.4%

n/a

1,679p

3 year
scheme

2,000p

3.5

18.2%

4.2%

0.7%

326p

2015
SAYE
5 year
scheme

2,000p

5.5

18.2%

4.2%

1.1%

311p

LTIP

1,696p

18.2%

4.7%

n/a

1,471p

3 year
scheme

1,694p

3.5

18.2%

4.7%

0.9%

280p

2014
SAYE
5 year
scheme

1,694p

5.5

18.2%

4.7%

1.8%

278p

Expected volatility is measured over the three years prior to the date of grant of the awards or share options. Volatility has been
calculated based on historical share price movements.

The risk free rate is derived from yields at the grant date of gilts of similar duration to the awards or share options.

The dividend yield is calculated using the expected dividend for the year divided by the share price at the date of grant.

38 Discontinued operations
On 23 January 2015 the board approved a process to dispose of the group’s Water Puriﬁcation business which formed part of
the Severn Trent Services segment. These operations were classiﬁed as discontinued and as a disposal group held for sale as
at 31 March 2015. The results of discontinued operations are disclosed separately in the income statement and the assets and
liabilities of the disposal group are presented separately in the balance sheet.

On 12 May 2015 the group entered into a binding agreement to sell the business to Industrie De Nora. The proceeds of disposal are
expected to exceed the carrying value of the group’s share of the disposal group’s net assets and hence no impairment loss has
been recognised on the classiﬁcation of these operations as held for sale.

The results of the discontinued operations were as follows:

Turnover
Operating costs before exceptional items
Exceptional operating items
Total operating costs
Proﬁt/(loss) before interest and tax
Finance costs
Proﬁt/(loss) before tax
Attributable tax expense
Proﬁt/(loss) for the year
Attributable to:
Owners of the company
Non-controlling interests

2015
£m

108.2

(103.3)

–

(103.3)

4.9

–

4.9

(0.2)

4.7

3.7

1.0

4.7

2014
£m

100.0

(107.0)

(29.2)

(136.2)

(36.2)

–

(36.2)

(0.7)

(36.9)

(39.1)

2.2

(36.9)

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Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

38 Discontinued operations (continued)
The major classes of assets and liabilities comprising the operations classiﬁed as held for sale are as follows:

Goodwill
Other intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash and bank balances
Total assets classiﬁed as held for sale
Trade and other payables
Tax liabilities
Provisions for liabilities and charges
Total liabilities associated with assets held for sale
Net assets of disposal group

Cash ﬂows arising from the disposal group were as follows:

Net cash ﬂows attributable to:
– operating activities
– investing activities
– ﬁnancing activities

Basic and diluted earnings per share from discontinued operations are as follows:

Basic earnings per share
Diluted earnings per share

Weighted
average
number of
shares
m

238.8

239.9

2015

Per share
amount
pence

1.5

Earnings
£m

3.7

2015
£m

1.8

7.2

5.0

17.3

57.3

19.3

107.9

(33.6)

(0.2)

(1.5)

(35.3)

72.6

2014
£m

(8.3)

(4.3)

12.9

0.3

2014

2015
£m

1.8

(2.1)

3.6

3.3

Weighted
average
number of
shares
m

238.2

239.3

Per share
amount
pence

(16.4)

(16.3)

Earnings
£m

(39.1)

Severn Trent Plc Annual Report and Accounts 2015

39 Cash ﬂow statement
a) Reconciliation of operating proﬁt to operating cash ﬂows

Proﬁt before interest and tax from continuing operations
Proﬁt/(loss) before interest and tax from discontinued operations
Proﬁt before interest and tax
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment
Pension service cost
Deﬁned beneﬁt pension scheme administration costs
Pension contributions
Share based payments charge
Proﬁt on sale of property, plant and equipment and intangible assets
Deferred income movement
Provisions charged to the income statement
Utilisation of provisions for liabilities and charges
Operating cash ﬂows before movements in working capital
(Increase)/decrease in inventory
Increase in amounts receivable
Increase in amounts payable
Cash generated from operations
Tax (paid)/received
Net cash generated from operating activities

143

2014
£m

508.6

(36.2)

472.4

270.0

29.3

29.5

22.5

3.0

(73.0)

6.2

(8.6)

(9.5)

11.0

(13.8)

739.0

4.4

(17.2)

4.0

730.2

27.2

757.4

2015
£m

521.6

4.9

526.5

281.6

24.2

0.2

40.9

2.9

(81.0)

7.7

(8.6)

(10.1)

20.0

(26.0)

778.3

(5.7)

(32.5)

20.0

760.1

(28.6)

731.5

b) Non-cash transactions
No additions to property, plant and equipment during the year were ﬁnanced by new ﬁnance leases (2014: nil). Assets transferred
from developers at no cost were recognised at their fair value of £29.8 million (2014: £24.7 million).

c) Exceptional cash ﬂows
The following cash ﬂows arose from items classiﬁed as exceptional in the income statement:

Restructuring costs
Disposal of ﬁxed assets
Disposal of subsidiaries
Settlement of customer contractual disputes
Obligations arising from disposal of businesses
Professional fees relating to LongRiver proposal

d) Reconciliation of movement in cash and cash equivalents to movement in net debt

2015
£m

(25.4)

9.4

(3.5)

–

(19.5)

2014
£m

(4.3)

9.4

–

(1.9)

(1.6)

(18.7)

(17.1)

Net cash and cash equivalents
Bank loans
Other loans
Finance leases
Cross currency swaps
Net debt

As at
1 April
2014
£m

123.2

(594.9)

(3,826.0)

(201.2)

51.4

Cash ﬂow
£m

Fair value
adjustments
£m

RPI uplift on
index-linked
debt
£m

Foreign
exchange
£m

Other
non-cash
movements
£m

As at
31 March
2015
£m

72.6

(683.0)

332.2

21.2

–

(78.1)

–

(1.3)

(20.7)

–

0.2

–

73.3

–

(22.0)

73.5

(19.3)1

–

(26.3)

–

24.1

(21.5)

176.7

(1,279.2)

(3,467.5)

(180.0)

(2.6)

(4,752.6)

(4,447.5)

(257.0)

1. Other non-cash movements on cash and cash equivalents represent amounts transferred to assets held for sale (see note 38).

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Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

40 Contingent liabilities
Bonds and guarantees
Group undertakings have entered into bonds and guarantees in the normal course of business. No liability is expected to arise in
respect of either bonds or guarantees.

The group has given certain guarantees in respect of the borrowings of its associate, Servizio Idrico Integrato S.c.p.a.
The guarantees are limited to €5.1 million (2014: €5.1 million). The group does not expect any liabilities that are not provided for in
these ﬁnancial statements to arise from these arrangements.

41 Service concession arrangements
The group’s contract to provide water and waste water services to the Ministry of Defence (MoD) is a service concession
arrangement under the deﬁnition set out in IFRIC 12. The group acts as the service provider under the MoD Project Aquatrine
Package C – a 25 year contract spanning 1,295 sites across England covering the Eastern sea border and from Lancashire in the
North West to West Sussex on the South Coast.

Under the contract the group maintains and upgrades the MoD infrastructure assets and provides operating services for water and
waste water. Both the operating services and maintenance and upgrade services are charged under a volumetric tariff, along with
standard charges, which are adjusted with inﬂation as agreed in the contract.

Since the group has an unconditional right to receive cash in exchange for the maintenance and upgrade services, the amounts
receivable are recognised as a ﬁnancial asset within prepayments and accrued income. At 31 March 2015 the amounts receivable
were £24.4 million (2014: £24.8 million).

There have been no signiﬁcant changes to the arrangement during the year.

42 Financial and other commitments
a) Investment expenditure commitments

Contracted for but not provided in the ﬁnancial statements

2015
£m

75.2

2014
£m

158.5

In addition to these contractual commitments, Severn Trent Water Limited has longer term expenditure plans which include
investments to achieve improvements in performance mandated by the Director General of Water Services (Ofwat) and to provide
for growth in demand for water and sewerage services.

b) Leasing commitments
At the balance sheet date the group had outstanding commitments for future minimum operating lease payments under
non-cancellable operating leases, which fall due as follows:

Within 1 year
2-5 years
After more than 5 years

2015
£m

3.4

6.3

6.4

16.1

2014
£m

3.4

7.2

5.9

16.5

Operating lease payments represent rentals payable by the group for certain of its ofﬁce properties, plant and equipment.

Severn Trent Plc Annual Report and Accounts 2015

145

43 Post balance sheet events
Dividends
Following the year end the board of directors has proposed a ﬁnal dividend of 50.94 pence per share. Further details of this are
shown in note 14.

Discontinued operations
On 12 May 2015 the group entered into a binding agreement to sell its Water Puriﬁcation business to Industrie De Nora.
The proceeds of disposal are expected to exceed the carrying value of the group’s share of the disposal group’s net assets and
hence no impairment loss has been recognised on the classiﬁcation of these operations as held for sale. Further details of this are
shown in note 38.

44 Related party transactions
Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are
not included in this note. Trading transactions between the group and its associates and joint ventures are disclosed below.

SII

Sale of services
2014
£m

Amounts due from related parties
2014
£m

2015
£m

5.8

14.1

17.1

2015
£m

5.5

The related parties are associates and joint ventures in which the group has a participating interest. The retirement beneﬁt
schemes operated by the group are considered to be related parties. Details of transactions and balances with the retirement
beneﬁt schemes are disclosed in note 28.

Remuneration of key management personnel
Key management personnel comprise the members of STEC during the year.

The remuneration of the directors is included within the amounts disclosed below. Further information about the remuneration of
individual directors is provided in the audited part of the Directors’ remuneration report on pages 75 to 84.

Short term employee beneﬁts
Post employment beneﬁts
Termination beneﬁts
Share based payments

2015
£m

6.1

0.2

4.0

10.5

2014
£m

6.3

0.4

–

1.4

8.1

45 Subsidiary undertakings
Principal subsidiary undertakings
Details of the principal operating subsidiaries as at 21 May 2015 are given below. A complete list of subsidiary undertakings is
available on request to the company and will be ﬁled with the next Annual Return.

Country of incorporation and main operation is Great Britain and registration is in England and Wales unless otherwise stated.

All subsidiary undertakings are wholly owned and all shareholdings are in ordinary shares.

All subsidiary undertakings have been included in the consolidation.

Name
Derwent Insurance Limited
Severn Trent Environmental Services Inc.
Severn Trent Property Solutions Limited
Severn Trent Select Limited
Severn Trent Services Defence Limited
Severn Trent Services Operations UK Limited Great Britain Operation of water and sewerage infrastructure
Severn Trent Water Limited

Principal activity
Provision of insurance services to other group companies
Operation of water and sewerage infrastructure
Provision of residential and commercial property searches
Provision of licensed water and sewerage services
Provision of water and sewerage services to the Ministry of Defence

Provision of regulated water and sewerage services

Great Britain

Country of
incorporation
Gibraltar
USA
Great Britain
Great Britain
Great Britain

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Severn Trent Plc Annual Report and Accounts 2015

Notes to the group ﬁnancial statements continued

45 Subsidiary undertakings (continued)
Subsidiary audit exemptions
Severn Trent Plc has issued guarantees over the liabilities of the following companies at 31 March 2015 under section 479C of
Companies Act 2006 and these entities are exempt from the requirements of the Act relating to the audit of individual accounts by
virtue of section 479A of the Act.

Company number

City Analytical Services Limited

East Worcester Water Limited

Gunthorpe Fields Limited

Severn Trent (W&S) Limited

Severn Trent Carsington Limited

Severn Trent Corporate Holdings Limited

Severn Trent Data Portal Limited

Severn Trent Draycote Limited

Severn Trent Finance Holdings Limited

Severn Trent Finance Limited

Severn Trent Financing and Investments Limited

Severn Trent General Partnership

Severn Trent Holdings Limited

Severn Trent Investment Holdings Limited

Severn Trent LCP Limited

Severn Trent Overseas Holdings Limited

Severn Trent Power Generation Limited

Severn Trent Services Holdings Limited

Severn Trent Services International (Overseas Holdings) Limited

Severn Trent Services Puriﬁcation Limited

Severn Trent Systems Limited

Severn Trent Utility Services Limited

Severn Trent Wind Power Limited

2050581

2757948

4240764

3995023

7570384

4395566

8181048

7681784

6044159

6294618

6312635

SC416614

5656363

7560050

7943556

2455508

2651131

4395572

3125131

2409826

2394552

4125386

7742177

Severn Trent Plc Annual Report and Accounts 2015

147

Company statement of comprehensive income

For the year ended 31 March 2015

Proﬁt for the year
Other comprehensive income
Items that will not be reclassiﬁed to the income statement:

Deferred tax arising on change of rate

Items that may be reclassiﬁed to the income statement:

Amounts on cash ﬂow hedges transferred to the income statement in the year
Deferred tax on transfers to income statement

Other comprehensive income for the year
Total comprehensive income for the year

2015
£m

191.1

2014
£m

310.7

–

2.7

(0.5)

2.2

(0.5)

2.6

(0.5)

2.1

1.6

193.3

312.3

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Severn Trent Plc Annual Report and Accounts 2015

Company balance sheet

At 31 March 2015

Non-current assets
Intangible ﬁxed assets
Tangible ﬁxed assets
Investments in subsidiaries
Derivative ﬁnancial instruments

Current assets
Debtors
Derivative ﬁnancial instruments
Cash at bank and in hand

Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Net assets
Capital and reserves
Called up share capital
Share premium account
Other reserves
Retained earnings
Total capital and reserves

Signed on behalf of the board who approved the accounts on 21 May 2015.

Andrew Duff
Chairman

James Bowling
Chief Financial Ofﬁcer

Company number: 02366619

Note

2015
£m

0.2

0.3

2014
£m

0.2

0.4

3,760.3

3,762.7

–

2.6

3,760.8

3,765.9

34.6

2.0

–

36.6

(325.7)

(289.1)

25.0

3.6

25.9

54.5

(217.1)

(162.6)

3,471.7

3,603.3

(82.7)

(113.8)

3,389.0

3,489.5

233.7

100.2

159.6

2,895.5

3,389.0

233.9

94.2

156.5

3,004.9

3,489.5

Severn Trent Plc Annual Report and Accounts 2015

149

Company statement of changes in equity

For the year ended 31 March 2015

At 1 April 2013
Proﬁt for the year
Amounts on cash ﬂow hedges transferred to the income statement
Deferred tax on transfers to the income statement
Deferred tax arising from rate change
Total comprehensive income for the year
Share options and LTIPs
– proceeds from shares issued
– value of employees’ services
Dividends paid
At 31 March 2014
Proﬁt for the year
Amounts on cash ﬂow hedges transferred to the income statement
Deferred tax on transfers to the income statement
Total comprehensive income for the year
Share options and LTIPs
– proceeds from shares issued
– own shares purchased
Share buy back
Share cancellation
Dividends paid
At 31 March 2015

Share
capital
£m

233.3

Share
premium
£m

Other
reserves
£m

89.7

154.4

–

0.6

–

233.9

–

0.7

–

(0.9)

–

4.5

–

94.2

–

6.0

–

2.6

(0.5)

–

2.1

–

156.5

–

2.7

(0.5)

2.2

–

0.9

–

Retained
earnings
£m

2,877.0

310.7

–

(0.5)

310.2

–

3.0

Total
£m

3,354.4

310.7

2.6

(0.5)

312.3

5.1

3.0

(185.3)

3,004.9

191.1

–

3,489.5

191.1

2.7

(0.5)

191.1

193.3

–

(3.6)

6.7

(3.6)

(100.0)

–

(196.9)

233.7

100.2

159.6

2,895.5

3,389.0

In previous years £1,221.2 million of the company’s retained proﬁt arose as a result of group restructuring exercises, and is not
considered likely to be distributable.

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Severn Trent Plc Annual Report and Accounts 2015

Notes to the company ﬁnancial statements

For the year ended 31 March 2015

1 Intangible ﬁxed assets

Cost
At 1 April 2014 and 31 March 2015
Amortisation
At 1 April 2014 and 31 March 2015
Net book value
At 31 March 2014 and 31 March 2015

2 Tangible ﬁxed assets

Cost
As at 31 March 2014 and 31 March 2015
Depreciation
As at 1 April 2014
Charge for the year
As at 31 March 2015
Net book value
As at 31 March 2015
As at 31 March 2014

3 Investments

As at 1 April 2014
Loans repaid
As at 31 March 2015

Purchased
software
£m

0.9

(0.7)

0.2

Total
£m

Land and
buildings
£m

Ofﬁce
ﬁxtures and
equipment
£m

0.1

0.6

0.7

–

0.1

(0.3)

(0.1)

(0.4)

0.2

0.3

(0.3)

(0.1)

(0.4)

0.3

0.4

Shares
£m

3,313.6

–

3,313.6

Subsidiary undertakings
Total
£m

Loans
£m

449.1

(2.4)

446.7

3,762.7

(2.4)

3,760.3

Details of principal subsidiaries of the company are given in note 45 of the group ﬁnancial statements.

Severn Trent Plc Annual Report and Accounts 2015

4 Debtors

Amounts owed by group undertakings
Deferred tax
Corporation tax recoverable
Other debtors
Prepayments and accrued income

151

2014
£m

19.2

4.9

–

0.3

0.6

25.0

2015
£m

19.3

1.9

11.6

1.8

–

34.6

An analysis of the movements in the major deferred tax liabilities and assets recognised by the company is set out below:

Accelerated
tax
depreciation
£m

Fair value
of ﬁnancial
instruments
£m

Other
£m

Total
£m

At 1 April 2013
Charge to proﬁt and loss account
Charge to proﬁt and loss account arising from rate change
Charge to other comprehensive income
Charge to other comprehensive income arising from rate change
At 1 April 2014
Charge to proﬁt and loss account
Charge to other comprehensive income
Transfers
At 31 March 2015

5 Creditors: amounts falling due within one year

Bank overdrafts
Other loans
Borrowings (see note 7)
Derivative ﬁnancial instruments
Trade creditors
Amounts due to group undertakings
Other creditors
Taxation and social security
Accrued expenses

6 Creditors: amounts falling due after more than one year

Borrowings – other loans (see note 7)
Amounts due to group undertakings
Derivative ﬁnancial instruments

0.1

–

0.1

–

0.1

7.3

(2.2)

(0.5)

3.6

(1.9)

(0.5)

–

1.2

0.8

0.5

(0.1)

–

1.2

(0.8)

–

0.2

0.6

2015
£m

(6.1)

(17.0)

(23.1)

(6.5)

(0.1)

(204.8)

(7.0)

–

(84.2)

(325.7)

2015
£m

(79.7)

(3.0)

–

(82.7)

8.2

(1.7)

(0.6)

(0.5)

4.9

(2.7)

(0.5)

0.2

1.9

2014
£m

(4.0)

(26.4)

(30.4)

(0.2)

(0.4)

(146.2)

(10.1)

(28.7)

(1.1)

(217.1)

2014
£m

(95.5)

–

(18.3)

(113.8)

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Severn Trent Plc Annual Report and Accounts 2015

Notes to the company ﬁnancial statements continued

7 Borrowings

Borrowings due within one year
Borrowings due after more than one year
Between one and two years
Between two and ﬁve years
After more than ﬁve years
Total borrowings due after one year

2015
£m

23.1

–

79.7

102.8

2014
£m

30.4

17.8

–

77.7

95.5

125.9

Borrowings repayable after more than 5 years comprises the company’s RPI linked retail bonds issued in July 2012. The bonds
carry a coupon of 1.3% on the principal amount which is uplifted by RPI. The bonds are repayable in July 2022.

The company’s borrowings are denominated in sterling, after taking account of cross currency swaps the company has entered
into. There is no signiﬁcant difference between the book value and the fair value of the company’s borrowings. Fair values are based
on the expected future cash ﬂows discounted using zero coupon forward interest rates related to the expected timing of payments.

At the balance sheet date the company had committed undrawn borrowing facilities expiring as follows:

2-5 years

2015
£m

–

2014
£m

200.0

The facility in the prior year was shared with Severn Trent Water Limited. During the year the facility was renegotiated as a Severn
Trent Water Limited only facility.

8 Share capital

Total issued and fully paid share capital
238,683,513 ordinary shares of 9717/19p (2014: 238,942,647)

Changes in share capital were as follows:

Ordinary shares of 9717/19p
At 1 April 2014
Shares issued under the group’s Employee Sharesave Scheme
Share buy back
At 31 March 2015

9 Share premium

At 1 April
Share premium arising on shares issued under the group’s Employee Sharesave Scheme
At 31 March

2015
£m

2014
£m

233.7

233.9

Number

£m

238,942,647

233.9

707,444

(966,578)

0.7

(0.9)

238,683,513

233.7

2015
£m

94.2

6.0

100.2

2014
£m

89.7

4.5

94.2

Severn Trent Plc Annual Report and Accounts 2015

10 Other reserves

At 1 April 2013
Total comprehensive income for the year
At 1 April 2014
Total comprehensive income for the year
Share buy back
At 31 March 2015

153

Total
£m

154.4

2.1

156.5

2.2

0.9

159.6

Capital
redemption
reserve
£m

Hedging
reserve
£m

156.1

–

156.1

–

0.9

157.0

(1.7)

2.1

0.4

2.2

–

2.6

The capital redemption reserve arose on the redemption of B shares. The movement in the current year arose from the
repurchase and cancellation of own shares, as outlined in note 30 of the group ﬁnancial statements.

The hedging reserve arises from gains or losses on interest rate swaps taken directly to equity under the hedge accounting
provisions of IAS 39 and the transition rules of IFRS 1.

11 Share based payments
For details of employee share schemes and options granted over the shares of the company, see note 37 of the group ﬁnancial
statements. Details of options exercised and awards vesting during the year and of the weighted average share price of the
company during the year are also disclosed in that note.

12 Pensions
The group operates group deﬁned beneﬁt pension schemes, of which some employees of the company are members. There is
no contractual agreement for charging the net deﬁned beneﬁt cost of these schemes between the companies that participate in
the schemes. As a result, the net deﬁned beneﬁt cost of the scheme is recognised in the ﬁnancial statements of the sponsoring
employer, Severn Trent Water Limited. The cost of contributions to the group schemes amount to £0.1 million (2014: £0.1 million).
There were no amounts outstanding for contributions to the deﬁned beneﬁt schemes (2014: nil).

Information about the plans as a whole is disclosed in note 28 to the group ﬁnancial statements.

13 Related party transactions
The retirement beneﬁt schemes operated by the company are considered to be related parties. Details of transactions and
balances with the retirement beneﬁt schemes are disclosed in note 12.

14 Contingent liabilities
a) Bonds and guarantees
The company has entered into bonds and guarantees in the normal course of business. No liabilities are expected to arise in
respect of either the bonds or guarantees.

b) Bank offset arrangements
The banking arrangements of the company operate on a pooled basis with certain of its subsidiary undertakings. Under these
arrangements participating companies guarantee each others’ overdrawn balances to the extent of their credit balances,
which can be offset against balances of participating companies. As at 31 March 2015, the company had no contingent liabilities
(2014: £25.9 million).

15 Post balance sheet events
Following the year end the board of directors has proposed a ﬁnal dividend of 50.94 pence per share.

16 Dividends
For details of the dividends paid in the years ended 31 March 2015 and 31 March 2014 see note 14 in the group ﬁnancial statements.

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154

Severn Trent Plc Annual Report and Accounts 2015

Five year summary

Continuing operations
Turnover
Proﬁt before interest, tax and exceptional items
Net exceptional items before tax
Net interest payable before (losses)/gains on ﬁnancial
instruments and exceptional ﬁnance costs
(Losses)/gains on ﬁnancial instruments
Results of associates and joint ventures
Proﬁt on ordinary activities before taxation
Current tax on proﬁt on ordinary activities
Deferred tax
Exceptional tax
Proﬁt on ordinary activities after tax
Proﬁt for the period
Net assets employed
Fixed assets
Other net liabilities excluding net debt, retirement beneﬁt
obligation, provisions and deferred tax
Derivative ﬁnancial instruments 1
Retirement beneﬁt obligation
Provisions for liabilities and charges and deferred tax
Net assets held for sale

Financed by
Called up share capital
Reserves
Total shareholders’ funds
Non-controlling interests
Net debt 2

Statistics
Earnings per share (continuing) – pence
Adjusted earnings per share – pence
Dividends per share (excluding special dividend) – pence
Dividend cover (before exceptional items and deferred tax)
Gearing
Ordinary share price at 31 March – pence
Average number of employees
– Severn Trent Water
– Other

1 Excludes instruments hedging foreign currency debt

2 Includes instruments hedging foreign currency debt

3 Restated for discontinued operations (see note 38)

2015

2014

Restated3
£m

£m

2014
As
previously
stated
£m

1,801.3

1,756.7

1,856.7

540.3

(18.7)

(240.0)

(133.5)

0.1

148.2

(37.8)

5.1

–

115.5

523.8

(15.2)

(247.9)

58.0

0.2

318.9

(55.8)

(21.5)

230.2

471.8

516.8

(44.4)

(247.9)

58.0

0.2

282.7

(56.5)

(21.5)

230.2

434.9

2013

2012

2011

£m

1,831.6

495.4

(5.8)

(244.3)

(45.3)

0.2

200.2

(27.9)

8.2

38.4

218.9

£m

1,770.6

504.2

(50.9)

(229.0)

(67.7)

0.1

156.7

(60.5)

78.2

–

174.4

£m

1,711.3

519.1

(21.4)

(230.6)

(14.2)

0.1

253.0

(32.1)

53.6

–

274.5

7,325.5

7,123.8

6,906.1

6,743.6

6,635.3

(516.1)

(177.7)

(468.9)

(659.5)

72.6

(348.2)

(197.1)

(348.3)

(692.6)

–

(348.2)

(197.1)

(348.3)

(692.6)

–

(273.8)

(279.8)

(383.7)

(827.5)

–

(341.3)

(261.8)

(345.8)

(845.5)

–

(320.4)

(90.5)

(292.1)

(957.4)

–

5,575.9

5,537.6

5,141.3

4,949.2

4,974.9

233.7

576.2

809.9

13.4

4,752.6

5,575.9

48.3

107.2

84.9

1.3

85.2%

2,059.0

5,532

1,910

233.9

843.7

1,077.6

12.5

4,447.5

5,537.6

198.5

92.5

80.4

1.2

80.3%

1,823.0

5,634

1,914

233.9

843.7

1,077.6

12.5

4,447.5

5,537.6

182.1

88.4

80.4

1.1

80.3%

1,823.0

5,634

2,358

233.3

599.9

833.2

10.8

4,297.3

5,141.3

90.9

92.6

75.8

1.3

232.6

740.9

973.5

7.9

3,967.8

4,949.2

72.5

88.9

70.1

1.3

83.6%

1,712.0

80.2%

1,544.0

5,458

2,763

5,162

2,889

232.2

867.6

1,099.8

6.3

3,868.8

4,974.9

115.2

105.6

65.1

1.6

77.8%

1,446.0

5,237

3,045

Gearing has been calculated as net debt divided by the sum of equity and net debt.

Severn Trent Plc Annual Report and Accounts 2015

155

Information for shareholders

Severn Trent shareholder helpline
The company’s registrar is Equiniti Limited. Equiniti’s main
responsibilities include maintaining the shareholder register
and making dividend payments.

Dividend payments
Bank mandates
Dividends can be paid automatically into your bank or building
society account.

If you have any queries relating to your Severn Trent Plc
shareholding you should contact Equiniti.

Registrar contact details:

The beneﬁts of doing this are that you will:

• receive cleared funds in your bank account on the

payment date;

Online: www.shareview.co.uk from here, you will be able
to securely email Equiniti with your query.

• avoid postal delays; and
• remove the risk of your cheques getting lost in the post.

Telephone: 0871 384 2967*

Overseas enquiries: +44 121 415 7044

Text phone: 0871 384 2255*

By post: Equiniti, Aspect House, Spencer Road, Lancing,
West Sussex, BN99 6DA

Corporate website
Shareholders are encouraged to visit our website
www.severntrent.com which provides:

• company news and information;
• links to our operational businesses’ websites;
• details of our governance arrangements;
• details of our strategy;
• details of the group’s business models and business plan;

and

• the company’s approach to operating responsibly.

There is also a dedicated Investors’ section on the
website which contains up to date information for
shareholders including:

• comprehensive share price information;
• ﬁnancial results;
• a history of dividend payment dates and amounts; and
• access to current and historical shareholder documents

such as the Annual Report and Accounts.

Electronic communications
By registering to receive shareholder documentation from
Severn Trent Plc electronically shareholders can beneﬁt from
being able to:

• view the Annual Report and Accounts on the day it

is published;

• receive an email alert when shareholder documents

are available;

• cast their AGM vote electronically; and
• manage their shareholding quickly and securely online,

through Shareview.

Electronic shareholder communications also enable the
company to reduce its impact on the environment and
beneﬁt from savings associated with reduced printing and
mailing costs.

For further information and to register for electronic
shareholder communications visit www.shareview.co.uk.

To take advantage of this service or for further details contact
Equiniti or visit www.shareview.co.uk.

Dividend reinvestment plan (DRIP)
The DRIP gives shareholders the option of using their dividend
payments to buy more Severn Trent Plc shares instead of
receiving cash. If you would like to participate in the DRIP,
please request a dividend reinvestment plan mandate from
Equiniti Financial Services Limited.

Telephone: 0871 384 2268*

Telephone number from outside the UK: +44 121 415 7173

Buying and selling shares in the UK
If you wish to buy or sell certiﬁcated Severn Trent Plc shares,
you will need to use a stockbroker or high street bank which
trades on the London Stock Exchange. There are also many
telephone and online services available to you. If you are selling,
you will need to present your share certiﬁcate at the time of
sale. Details of low cost dealing services may be obtained from
www.shareview.co.uk or 0845 603 7037**.

Share price information
Shareholders can ﬁnd share price information on our website
and in most national newspapers. For a real-time buying or
selling price, you should contact a stockbroker.

Shareholder security
Fraudsters use persuasive and high-pressure tactics to lure
investors into scams. They may offer to sell shares that turn out
to be worthless or non-existent, or to buy shares at an inﬂated
price in return for an upfront payment. While high proﬁts are
promised, if you buy or sell shares in this way you will probably
lose your money.

How to avoid share fraud:

• Keep in mind that ﬁrms authorised by the Financial Conduct
Authority (FCA) are unlikely to contact you out of the blue with
an offer to buy or sell shares.

• Do not get into a conversation, note the name of the person

and ﬁrm contacting you and then end the call.

• Check the Financial Services Register from www.fca.org.uk
to see if the person and ﬁrm contacting you is authorised by
the FCA.

• Beware of fraudsters claiming to be from an authorised ﬁrm,

copying its website or giving you false contact details.
• Use the ﬁrm’s contact details listed on the Register if you

want to call it back.

• Call the FCA on 0800 111 6768 if the ﬁrm does not have

contact details on the Register or you are told they are out
of date.

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* Calls cost 8 pence per minute plus network extras. Lines are open from 8.30am to 5.30pm Monday to Friday.

** Lines are open Monday to Friday, 8:00am to 4:30pm for dealing, and until 6:00pm for enquiries.

156

Severn Trent Plc Annual Report and Accounts 2015

Information for shareholders continued

• Search the list of unauthorised ﬁrms to avoid at

www.fca.org.uk/scams.

• Consider that if you buy or sell shares from an unauthorised
ﬁrm you will not have access to the Financial Ombudsman
Service or Financial Services Compensation Scheme.

• Think about getting independent ﬁnancial and professional

advice before you hand over any money.

• Remember, if it sounds too good to be true, it probably is.

If you are approached by fraudsters please tell the FCA using
the share fraud reporting form at www.fca.org.uk/scams,
where you can ﬁnd out more about investment scams.

You can also call the FCA Consumer Helpline on 0800 111 6768.

If you have already paid money to share fraudsters you should
contact Action Fraud on 0300 123 2040.

Unsolicited mail
The company is legally obliged to make its share register
available to the general public. Consequently some
shareholders may receive unsolicited mail. If you wish to limit
the amount of unsolicited mail you receive please contact:

The Mailing Preference Service (MPS), Freepost 29 LON20771,
London W1E 0ZT

Alternatively, register online at www.mpsonline.org.uk or
call the MPS Registration line on 0845 703 4599.

Financial calendar

Ex dividend date – ﬁnal dividend
Record date to be eligible for the ﬁnal dividend
AGM
Interim management statement – Q1 Year ending 31 March 2016
Final dividend payment date
Interim results announcement – Year ending 31 March 2016
Ex dividend date – interim dividend
Record date to be eligible for the interim dividend
Interim dividend payment date

All dates are indicative and may be subject to change.

American Depositary Receipts (ADRs)
Severn Trent has a sponsored Level 1 American Depositary
Receipt (ADR) programme, for which The Bank of New York
Mellon acts as Depositary.

The Level 1 ADR programme trades on OTCQX which is the
premier tier of the US over the counter (OTC) market under
the symbol STRNY (it is not listed on a US stock exchange).
Each ADR represents 1 Severn Trent ordinary share.

If you have any enquiries regarding Severn Trent ADRs please
contact The Bank of New York Mellon.

By post: BNY Mellon Shareowners Services, PO Box 30170,
College Station, TX 77842-3170, US

By telephone:

If calling from within the US: (888) 269 2377 (toll-free)

If calling from outside the US: +1 201 680 6825

By email: shrrelations@cpushareownerservices.com
Website: www.mybnymdr.com

18 June 2015

19 June 2015

15 July 2015

24 July 2015

26 November 2015

3 December 2015

4 December 2015

8 January 2016

This report has been printed on Chorus Lux Silk a paper which is
certified by the Forest Stewardship Council®. The paper is made at a
mill with ISO 14001 environmental management system accreditation.

This report was produced using the pureprint® environmental print
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audited process that reduces the environmental impact of the printing
process. Printed using vegetable oil based inks by a CarbonNeutral®
printer certified to ISO 14001 environmental management system and
registered to EMAS the Eco Management Audit Scheme.

Severn Trent Plc
Registered office:
Severn Trent Centre
2 St John’s Street
Coventry CV1 2LZ

Tel: 02477 715000
www.severntrent.com

Registered in England and Wales
Registration number: 2366619