Severn Trent Annual Report 2016

FY2016 Annual Report · Severn Trent
Loading PDF…
Severn Trent Plc  
Annual Report and Accounts 2016

SERVING
LEGACY
TRUST

Severn Trent Plc  |  Annual Report and Accounts 2016

Contents

2016 highlights

Strategic report
ifc  2016 highlights
02  What we do
10  Chairman’s statement 
13  Market and industry overview
16  Chief Executive’s review
20  How we are achieving 

our strategy

28  Regulated Water and 

Waste Water
36  Business Services
41  Financial review
46  Risk management
48  Principal risks
54  Corporate Responsibility report

Governance
65  Chairman’s letter
66  Board of Directors
68  Executive Committee
69  Governance report
79  Nominations Committee
82  Audit Committee
86  Corporate Responsibility  

Committee

89  Remuneration Committee
102  Directors’ report
106  Directors’ Responsibilities  

Statement

Group ﬁnancial  
statements
108  Independent auditor’s 
report to the members 
of Severn Trent Plc

112  Consolidated income statement
113  Consolidated statement of  
comprehensive income 
114  Consolidated statement of 

changes in equity

115  Consolidated balance sheet
116  Consolidated cash 
ﬂow statement
117  Notes to the group 

ﬁnancial statements

Company 
ﬁnancial statements
167  Company statement of  
comprehensive income
168  Company balance sheet
169  Company statement of  
changes in equity

170  Notes to the parent company  

ﬁnancial statements

Other information
174  Five year summary
175  Information for shareholders

Turnover

£1,786.9m2015: £1,801.3m

Group Underlying Proﬁt Before 
Interest and Tax

£522.8m

2015: £540.3m

Group Proﬁt Before Interest and Tax

£523.8m

2015: £521.6m

Dividend per share

Underlying earnings per share

80.66p

2015: 84.90p

108.7p

2015: 107.2p

Underlying EPS

up 1.4%

year on year

Financial performance:

Underlying Group Proﬁt 
Before Tax  
£313.6 million

up 4.4%

year on year

Group Proﬁt Before Tax 
£322.3 million

up 117.5%

year on year

Focus on operational improvement:

Net Award

£23.2m

In 2012/13 prices pre tax 

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).

Annual Report and Accounts 2016  |  Severn Trent Plc  |  01

Our vision is to be the 
most trusted water 
company by 2020, 
delivering an outstanding 
customer experience, 
best value service 
and environmental 
leadership. 
Our purpose is to 
serve our communities 
and build a lasting 
water legacy. 

DIGITAL FIRST

Visit our online Annual Report to see how we have 
performed and how our strategy will help us achieve our 
vision of being the most trusted water company by 2020.
ar2016.severntrent.com

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
02  |  Severn Trent Plc  |  Annual Report and Accounts 2016

What we do

SERVING

OUR CUSTOMERS

AND COMMUNITIES

We are committed to putting customers at the 
heart of all we do. Our customers will always 
come ﬁrst in our thinking and planning as 
we deliver our day-to-day business, working 
together tirelessly to serve our communities. 

Annual Report and Accounts 2016  |  Severn Trent Plc  |  03

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
04  |  Severn Trent Plc  |  Annual Report and Accounts 2016

What we do

Annual Report and Accounts 2016  |  Severn Trent Plc  |  05

BUILDING A 

LASTING WATER

LEGACY

We are dedicated to ensuring a sustainable future 
for water and our environment. By recognising the 
growing challenges and pressures on resources; by 
investing in smarter, more efﬁcient ways to supply 
the network and by adopting greener, renewable 
energy to support our operations, we demonstrate 
a commitment beyond serving the needs of today to 
securing a legacy for generations to come. 

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
06  |  Severn Trent Plc  |  Annual Report and Accounts 2016

What we do

EARNING THE

TRUST

OF ALL

We are committed to earning the trust of everyone 
we serve. We will do this by transforming our 
service today, driving operational improvements 
and shaping the future of our industry for 
tomorrow, for the mutual beneﬁt of our customers, 
communities, investors and employees.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  07

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
08  |  Severn Trent Plc  |  Annual Report and Accounts 2016

What we do
Severn Trent provides clean water and waste water 
services through our businesses, Severn Trent Water 
and Severn Trent Business Services

Regulated Water and Waste Water

Wholesale operations  
and engineering
Household customer services

For further details 
Page 28

About us
One of the largest of the 10 regulated water 
and waste water companies in England and Wales.  
We provide high quality services to more 
than 4.3 million households and businesses  
in the Midlands and mid-Wales.

Severn Trent Business Services

Business retail  
and operating services
Green energy
New water markets

For further details 
Page 36

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.

Renewable Energy
Severn Trent Business Services generates 
renewable energy from wind turbines, anaerobic 
digestion, hydropower and solar technology.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  09

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

£1,506.1m

Proﬁt*

£492.1m

* Before interest, tax and 
exceptional items

Households and 
businesses served

4.3m

Litres of drinking water 
supplied each day

1.8bn

Litres of waste water 
collected per day

1.4bn

Employees

5,080

as at 31 March 2016

Where we operate
Severn Trent Business Services includes our core businesses  
operating in the UK, the US, and Europe.

Key facts

Turnover*

£674.6m

Proﬁt*, **

£38.2m

Employees

1,968

as at 31 March 2016

* New segmental basis
** Before interest, tax and 
exceptional items

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
10  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Chairman’s statement

Underlying Group PBIT*

£522.8m

* Before exceptional items

Dividend

-5.0%

Dividend for the year

80.66p

This has been another positive year for 
Severn Trent. We have embraced the new 
regulatory environment put in place for Asset 
Management Plan 6 (‘AMP6’) and are seeing 
the fruits of our preparation and hard work 
in improved service to our customers and the 
returns we can deliver for our shareholders.

Embracing regulatory change
Following a robust regulatory challenge with 
Ofwat at the end of 2014, we started AMP6 
with a new regulatory framework that we 
believe will better align the interests of our 
customers, employees and investors through 
incentive mechanisms which seek to drive the 
right behaviours.

In 2015 we replaced our existing employee 
surveys into a single global survey. For its first 
year we are delighted that response rates have 
remained strong with the overall response 
rate at 80%.

Under the stewardship of our Chief Executive, 
Liv Garfield, Severn Trent planned and prepared 
well for the changes to our regulatory measures 
for the current AMP and I am pleased to see that 
this is delivering early positive results.

Last year we restructured and simplified our 
business by bringing our water and waste 
water operations together into one division. 
We now also have in place a restructured 
and refreshed management team with the 
right balance of experience and skills that will 
enable us to differentiate ourselves on a clear 
path to achieving our vision of being the most 
trusted water company by 2020. We have also 
simplified the management structure of our 
business, removing unnecessary layers from the 
organisational structure, giving our managers 
increased responsibility and empowering them 
to make the right decisions, enabling us to 
refocus our resources more towards front line 
services for our customers. 

I am particularly pleased to see us making 
good progress on some of our performance 
commitments which were agreed with our 
customers as part of the price review process. 
Not only do they clearly demonstrate our 
engagement with the new regulatory incentives, 
but they also reward us for delivering the things 
our customers tell us are most important to 
them – reaffirming our core value of putting our 
customers at the heart of all we do.

Regulation in our industry is ever evolving, never 
more so than in the current period. The non-
household retail market is due to open to 
competition in 2017 and we have swiftly moved 
to provide the best offering to customers in this 

market through Water Plus, our joint venture 
with United Utilities. This will see us combine 
both of our business retail operations into a 
new focused operation, based in Stoke-on-
Trent. Leveraging our combined experiences 
of successful operations in Scotland will 
enable this joint venture to deliver benefits and 
efficiencies and service quality to customers 
when the market opens next year.

We have long been industry thought leaders 
through our Changing Course series of 
publications and have continued that trend this 
year with the publication of our latest report, 
Charting a Sustainable Course. This aimed to 
shine a light on the main policy issues facing the 
water sector and promote a constructive debate 
about its future. We have been encouraged by 
the way Ofwat is progressing its thinking on a 
number of fronts, including further developing 
the role of Outcome Delivery Incentives (‘ODIs’), 
sludge trading and water trading. 

During the terrible flooding which hit homes 
and businesses over the Christmas and New 
Year period, we helped our fellow affected 
water companies in getting the essential water 
services back up and running. We have also been 
engaging with the Government on a number of 
ways in which water companies can help the 
Environment Agency improve flood defence to 
limit the impact of such events in the future.

Delivering returns
Total Group revenue fell by 0.8% to £1,787 million, 
while underlying Group PBT increased by 4.4% 
to £314 million. This resulted in underlying 
earnings per share of 108.7 pence, up from 
107.2 pence last year.

Having agreed a tough regulatory settlement for 
AMP6 at the start of the financial year, we revised 
our Dividend Policy for the five year period. As a 
result, your Board is proposing a final dividend of 
48.40 pence per share to be paid on 22 July 2016. 
This will take the total dividend for the year to 
80.66 pence per share. This is 5% lower than last 
year and will enable us to grow it at least in line 
with Retail Price Index (‘RPI’) over the remainder 
of AMP6. 

Investing for the future
We are undertaking our largest ever 
investment programme in this AMP, with a 
capital investment programme of £3.5 billion. 
This includes one of our most significant projects 
to secure the supply of water to Birmingham for 
generations to come, through our Birmingham 
Resilience project. This £300 million project 
will deliver resilience to the existing Elan Valley 
Aqueduct, currently the sole supply of water to 

Annual Report and Accounts 2016  |  Severn Trent Plc  |  11

SERVING 
COMMUNITIES

the city of Birmingham, enabling much more 
comprehensive maintenance projects on this 
feat of Victorian engineering.

This is an example of an infrastructure 
project that not only beneﬁts our customers 
and shareholders, but also makes important 
economic, social and environmental 
contributions to our regions.

Our investments this AMP will also include up 
to £190 million in renewable energy which will 
see us producing the equivalent of 50% of our 
energy needs from renewable sources such as 
solar, wind and anaerobic digestion, by 2020. 
We already self-generate energy equivalent 
to 33% of our needs, and we are proud to be 
leaders in our industry in this ﬁeld to help 
ensure safe, sustainable sources of energy 
for future generations.

Our colleagues
Our success is attributable to the fantastic work 
of our colleagues right across the business. 
It reﬂects the work being done each and every 
day to improve the services we provide to our 
customers and I would like to thank them for 
this hard work and dedication in delivering 
a better outcome for our customers and for 
the environment.

Looking forward
Strong foundations have been laid leading into 
AMP6 and I am pleased to report that your 
business is in good shape, embracing, leading 
and adapting to the changes in our industry.

Following year end, we announced changes 
to the composition of our Board and I am 
conﬁdent that these changes will enable us to 
continue to deliver rewards for our customers, 
communities, shareholders and their 
stakeholders. More information can be found 
in the Governance report on pages 64 to 105.

Andrew Duff 
Chairman

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
12  |  Severn Trent Plc  |  Annual Report and Accounts 2016

The markets  
we are  
focused on

The values  
we need  
to be successful

Wholesale operations and engineering

We put our customers first

What do we mean by this

Regulated water and waste  
water infrastructure and  
non infrastructure assets.

What do we mean by this

We’re here for our customers 
24/7. We want to create a 
relationship based on 
empathy and respect.

Household customer services

We are passionate about what we do

What do we mean by this

Customer services for 
household customers  
in the UK.

Business retail and operating services

We act with integrity

What do we mean by this

Customer and operating 
services for our business 
customers in the UK  
and overseas.

What do 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.

What do 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.

Green energy

We protect our environment

New water markets

What do we mean by this

Renewable energy generation 
including gas to grid, food 
waste biodigestion, wind 
and solar power.

What do we mean by this

Opportunities in sludge 
trading, water trading and 
upstream competition.

What do 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 do we mean by this

We’ll all work together to 
be creative and to make 
special things happen.

See our Market and industry overview 
Page 13

See our performance reviews 
Pages 28 and 36

Market and  
industry overview

Annual Report and Accounts 2016  |  Severn Trent Plc  |  13

Our biggest capital 
investment over 
(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:72)(cid:91)(cid:87)(cid:3)(cid:191)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:15)(cid:3)
the £300 million 
Birmingham Resilience 
(cid:83)(cid:85)(cid:82)(cid:77)(cid:72)(cid:70)(cid:87)(cid:15)(cid:3)(cid:76)(cid:86)(cid:3)(cid:77)(cid:88)(cid:86)(cid:87)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)
(cid:72)(cid:91)(cid:68)(cid:80)(cid:83)(cid:79)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:75)(cid:82)(cid:90)(cid:15)(cid:3)(cid:69)(cid:92)(cid:3)
creating a second 
source of water for 
the UK’s second 
(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:87)(cid:3)(cid:70)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:90)(cid:72)(cid:182)(cid:85)(cid:72)(cid:3)
working to safeguard 
our customers’ 
future supplies.

While meeting 21st century expectations, we also 
have to deal with the realities of an infrastructure 
that dates back, in some cases, to the early 20th 
century. Over the next ﬁve years, we’re investing 
£700 million in repairing and, where necessary, 
replacing parts of our infrastructure to leave 
behind an even better set of water and waste 
water services for the next generation.

Increasing our network’s resilience is also a 
priority. Extreme weather associated with global 
warming is likely to have a major impact on 
how we operate and how and where we invest. 
We’re committed to building resilience against, 
and adapting to, ﬂooding and drought in our 
plans. Our biggest capital investment over the 
next ﬁve years, the £300 million Birmingham 
Resilience project, is just one example of how, 
by creating a second source of water for the UK’s 
second largest city, we’re working to safeguard 
our customers’ future supplies.

Meanwhile the UK’s population continues to 
grow, and new households and businesses 
will place greater demand on our water and 
waste water services. Severn Trent Water 
Limited currently serves 4.3 million households 
and businesses and it is our responsibility to 
invest carefully to ensure that we have the right 
infrastructure and resources in place to meet 
their needs. 

And, underpinning all these challenges, we 
must continue to be able to ﬁnance our future 
investment needs in a sustainable way, so that 
we can keep offering affordable bills to our 
customers, and create value for our investors. 

Achievements 
It is just over 25 years since the English and 
Welsh water and waste water industry was 
privatised in 1989. Since then the industry has 
made signiﬁcant progress through innovation, 
greater efﬁciency and a substantial increase 
in investment on pre-privatised levels. 
Investment to date is £108 billion.

This investment has helped to deliver real 
improvements for the industry’s 50 million 
household and non-household consumers. 
Leakage has reduced by 35% since the mid-
1990s, sewer ﬂooding is 75% lower than a 
decade ago, and 99.96% of drinking water and 
95.4% of bathing waters now meet European 
Union (‘EU’) standards. At the same time, it is 
estimated that industry-wide efﬁciencies have 
kept customers’ bills £120 lower on average 
than they would otherwise have been.

Severn Trent Water Limited, our regulated 
business, is proud of the part it has played 
in these achievements as one of 18 regional 
suppliers. Ten of these, including Severn Trent 
Water Limited, provide water and waste water 
services. The remaining eight provide water only. 

Challenges
Our industry, the environment in which we work, 
and the needs of the customers who we serve, 
continue to change. And while these changes 
present, as we see them, fantastic opportunities, 
there remain challenges.

Our customers’ expectations are ever changing, 
not least how they’d like to communicate with 
us. Innovation in channels such as webchat 
and social media are transforming our industry 
beyond anything contemplated at the time of 
privatisation. At Severn Trent Water Limited, 
we’re committed to serving our customers 24 
hours a day, using channels that are convenient 
to them, and that means being a leader in this 
new digital world. 

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
14  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Market and  
industry overview

A changing regulatory landscape
The industry in England and Wales operates in 
a policy framework where standards shaped 
by the European Union (‘EU’) are implemented 
by the Department for Environment, Food 
and Rural Affairs (‘Defra’) and the Welsh 
Government respectively.

The Drinking Water Inspectorate (‘DWI’) 
oversees the quality of drinking water, and the 
Environment Agency, and its Welsh counterpart, 
Natural Resources Wales, licence water 
abstraction, and regulate river pollution 
and ﬂooding.

The Consumer Council for Water, which 
represents the industry’s customers, and 
Natural England which protects England’s 
natural environment, play an important part 
of this framework.

It is perhaps in the economic regulation of the 
industry, where, in recent years, we have seen 
some of the most notable changes.

Ofwat, the industry’s economic regulator, 
sets limits on the prices we can charge our 
customers over ﬁve year periods. These ﬁve year 
regulatory planning cycles, are known as Asset 
Management Plan (‘AMP’) periods. This ﬁnancial 
year was the ﬁrst of AMP6, which started on 
1 April 2015. 

Our planning for AMP6 concluded in 2014 
when Ofwat carried out its 2014 price review 
(‘PR14’). In our view, PR14 represented the 
most signiﬁcant development of the economic 
regulation framework since privatisation. 
Ofwat sought to put greater responsibility on 
companies to develop their plans in consultation 
with customers, giving them a stronger voice in 
determining the future of their services. 

To reinforce this customer-centric approach, 
Ofwat changed the nature of incentives within 
the price setting framework. By introducing 
Outcome Delivery Incentives (‘ODIs’), Ofwat 
better aligned the interests of companies with 
those of their customers using performance-
related penalties and rewards. Ofwat also 
encouraged companies to look at the whole 
life costs of their assets (by switching to a total 
expenditure cost assessment (‘Totex’)), and 
provided stronger incentives for companies to 
press for further efﬁciencies. Details about our 
ODIs can be found on pages 26 and 27. 

Our AMP6 plans, driven by our determination 
to embed customers at the heart of all we 
do, embraced these changes. Our regulated 
business performance review on page 28 sets 
out how well we did during the ﬁrst year.

Contributing to the future of regulation
The regulatory framework within which we 
operate continues to evolve. Ofwat consulted 
on its future proposals for the sector in its 
Water 2020 document. In establishing its 
proposals, Ofwat encouraged water companies 
to contribute to a ‘marketplace of ideas’. 
We contributed to this on access pricing, the 
allocation of the regulatory capital value (‘RCV’) 
and indexation. 

In September 2015, we also published Charting 
a Sustainable Course which set out our vision 
for the future of the water sector. This built on 
our previous series of Changing Course thought 
leadership publications. The Ofwat Water 2020 
document is aligned with a number of our 
proposals including developing markets for 
sludge trading and water resources.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  15

(cid:55)(cid:75)(cid:72)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:191)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)
immediate change 
to the framework in 
(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:90)(cid:72)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3)
is the introduction 
of retail competition 
for non-household 
customers in April 2017.

A sustainable company
The central issues as we see them are 
around ensuring we continue to chart a 
sustainable course:

(cid:228)(cid:3) empowerment for customers in decisions 

about their water services;

(cid:228)(cid:3) affordable services for customers in the 

long term;

(cid:228)(cid:3) a more resilient sector for water resources;
(cid:228)(cid:3) ﬂooding and drainage challenges, particularly 

during a period of climate change;

(cid:228)(cid:3) cost-effective delivery of further 

improvements to the environment;

(cid:228)(cid:3) innovation and market solutions to beneﬁt 

customers; and

(cid:228)(cid:3) working with partners across the 

community to deliver the most efﬁcient and 
effective solutions.

Industry stakeholders and regulators are 
involved in a continual, constructive debate 
on how best to meet the changing needs and 
aspirations of our customers. We are proud that 
Severn Trent is among the leaders in that debate. 

For the most part we are very supportive of 
the proposals. We believe that they will help us 
deliver our vision to be the most trusted water 
company by creating a much stronger emphasis 
on companies competing to deliver the best 
service for their customers. 

Overall we think the reforms proposed by 
Ofwat have the potential to deliver enormous 
beneﬁts to customers through lower prices and 
higher service levels. The ideas around sludge 
competition are perhaps the most exciting given 
recent technological developments and we think 
they will help promote a more innovative and 
sustainable sector.

We have suggested some improvements to 
the proposed package of reforms, particularly 
around sludge, direct procurement and the 
proposed transition to CPI. 

The most signiﬁcant immediate change to 
the framework within which we operate is 
the introduction of retail competition for non-
household customers in April 2017. This will 
enable businesses, charities and other non-
household customers to shop around for 
what they consider to be the best deal in water 
supply. Severn Trent welcomes the introduction 
of competition and the potential to win new 
customers. The Government has also asked 
Ofwat to look at how this choice might be 
extended to households and we welcome this 
review and are engaging with Ofwat to support 
its analysis.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
16  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Chief Executive’s review

TRANSFORMING 
CUSTOMER SERVICES

This has been a promising year at Severn 
Trent as we embrace the new regulatory 
environment. However, there remains much 
to do to ensure that we are consistently 
delivering great service for our customers each 
and every day to achieve our vision of being 
the most trusted water company by 2020.

Embracing change
I ﬁrmly believe that if you embrace change in 
a regulated business such as ours you will 
be a winner. I also ﬁrmly believe that if you 
start with the customer and deliver a better 
service for them, you will drive improvements 
throughout the business and be rewarded for 
doing so. The new regulatory emphasis that 
rewards companies for doing the right thing 
for customers, improving services and being 
more efﬁcient ﬁts exactly with our strategic 
framework. Our framework outlines ﬁve 
areas of embedding customers at the heart of 
all we do: driving operational excellence and 
continued innovation; investing responsibly for 
sustainable growth; changing the market for 
the better; and creating an awesome place to 
work. Focusing on these actions will, we believe, 
enable us to become the most trusted water 
company by 2020. 

WATCH NOW

Watch a video of Liv on our  
investor area of our site: 
ar2016.severntrent.com

Liv Garﬁeld

Annual Report and Accounts 2016  |  Severn Trent Plc  |  17

We planned and prepared well for these 
changes. For example, we sought to embed the 
principle of performance commitments and 
Outcome Delivery Incentives (‘ODIs’) across the 
business ahead of implementation, enabling 
us to assess what needed to be done to deliver 
operational improvements and ultimately 
improved services for customers.

This approach has enabled us to deliver some 
signiﬁcant milestones this year and make some 
great strides in operational improvements. 
For example, we have reduced the number 
of sites with coliform failures by 62% and 
incidents of internal sewer ﬂooding by 31%. 
These improvements have been achieved 
through a number of initiatives, such as pre-
emptive work on known problem areas or by 
working with customers to reduce materials that 
cause blockages, such as fats being disposed 
of in drains. By being proactive in managing our 
network we can prevent problems occurring 
in the ﬁrst place, which improves services for 
customers as well as enabling us to operate 
more cost-effectively and be rewarded for doing 
so. This type of thinking has seen us exceed 
our initial expectations and earn a reward of 
£23.2 million under the ODI mechanism this year. 

That said, we still have much to do to improve 
the quality of our service for our customers. 
We had two signiﬁcant unsatisfactory incidents 
during the year. In February, a burst water main 
in Nottingham saw more than 7,000 customers 
without water for over 12 hours. In March, an 
incident at our Castle Donington reservoir 
affected 3,700 customers on the Derbyshire 
and Leicestershire border, the majority of which 
were able to use their water supply within 24 
hours. These incidents show that there remains 
much work to be done to consistently deliver the 
high quality levels of service that our customers 
rightly deserve.

Our aim is to lead our sector in how we manage 
energy. We aim to generate more renewables, 
use less energy from the grid and pay the lowest 
prices where we are not generating our own. 
Over the last 12 months we have generated an 
extra 44GWh compared to 2014/15, which is an 
increase of 17%. We now generate an equivalent 
of 33% of our consumption.

Making the business better for customers 
requires us to look at all parts of our business. 
With a new management team in place we have 
been able to review our cost structures including 
how and where we spend our money. This has 
not only enabled us to lock in our £372 million 
(at 2012/13 prices) efﬁciency target set by Ofwat, 
but also to map out an additional £260 million 
of efﬁciencies, at nominal prices, that we can 
deliver over the course of the AMP. About half 
of this we will re-invest back into the business 
to improve water quality, security and service to 
vulnerable customers. These changes will not 
only make the business better, but cost less to 
run for customers and easier to manage for our 
colleagues. We want to be leaders in our industry 
and these improvements will serve us well on 
the journey towards maintaining our position at 
the frontier of efﬁciency of waste water and help 
us move closer to our ambition of upper quartile 
efﬁciency in water when compared to other 
UK water and waste water companies. In our 
Business Services division we continued to see 
growth in turnover and proﬁts.

Our regulator has started to further utilise 
markets in some downstream activities with the 
introduction of non-household retail competition 
in England. We think the best way to win in this 
market is to offer customers a cost-effective, 
service driven operation at scale and we have 
created a joint venture with United Utilities to 
achieve this. Water Plus, the new operation is 
based in Stoke-on-Trent and will combine the 
complementary skills of both companies in 
customer service, billing and debt management 
systems to deliver an outstanding customer 
service to non-household customers. I am 
very excited by the opportunity this innovative 
approach will bring for customers and 
shareholders alike.

All of this activity has been done against a 
backdrop of further reductions in customer bills 
with the average combined water and waste 
water bill for our customers being £329 p.a., 
once again the lowest in Britain. Our customers 
pay less than £1 a day for all their clean and 
waste water services. Of course water is an 
essential commodity and we must do all we 
can to ensure that vulnerable customers have 
access to all that we can offer. So I am delighted 
that our Big Difference Scheme has doubled the 
number of vulnerable customers we have helped 
this year. If everyone pays their fair share, then 
all customers get a better deal, so I am pleased 
to see that we have also further reduced bad 
debts again this year. 

Lowest average  
combined bill 2015/2016

£329

Internal Sewer Flooding

-31%

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
1

2

1   Our ‘Thinking Out Loud’ initiative 

gives a voice to employees across all 
business areas, enabling them to share 
their awesome ideas and to make a 
difference in company decisions.

2    Severn Trent achieved sector leading 
environmental performance again, 
having been awarded a provisional 
Environment Agency 4* rating for 
environmental performance.

Delivering returns
I am delighted that all of our hard work is 
delivering for our investors. We measure 
ourselves against four key measures of 
potential outperformance, three of which I have 
discussed above: ODIs, Totex and Renewables. 
James Bowling, our Chief Financial Ofﬁcer, 
discusses the fourth, Financing, in more detail 
in the Financial review, and through his careful 
stewardship I am pleased to see that we are on 
track to deliver outperformance on this, too.

ODIs, Totex and Financing are key enablers for 
us to deliver outperformance on our allowed 
return on regulatory equity (RoRE). This year 
we have achieved 8.4% RoRE. We see this as an 
important measure of the quality of our earnings 
as it reﬂects not only regulatory requirements, 
but in our case, the signiﬁcant improvements in 
underlying services provided to customers as 
measured by ODIs. This approach, we believe, 
holds us in good stead to deliver for all of our 
stakeholders in the years ahead.

(cid:44)(cid:3)(cid:191)(cid:85)(cid:80)(cid:79)(cid:92)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:73)(cid:3)(cid:92)(cid:82)(cid:88)(cid:3)(cid:72)(cid:80)(cid:69)(cid:85)(cid:68)(cid:70)(cid:72)(cid:3)
change in a regulated business such 
(cid:68)(cid:86)(cid:3)(cid:82)(cid:88)(cid:85)(cid:86)(cid:3)(cid:92)(cid:82)(cid:88)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:73)(cid:88)(cid:79)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
that if you start with the customer 
and deliver a better service for 
(cid:87)(cid:75)(cid:72)(cid:80)(cid:15)(cid:3)(cid:92)(cid:82)(cid:88)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:71)(cid:85)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
throughout the business and be 
rewarded for doing so.

18  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Chief Executive’s review

Continuing our strong track record of delivery 
from last year, we have achieved sector leading 
environmental performance again, having been 
awarded a provisional Environment Agency 
4* rating in their Environmental Performance 
Assessment, demonstrating that we continue 
to respect our environment and are viewed as 
industry leading when benchmarked against 
our peers.

Engaged workforce
None of this intense activity would have been 
possible without the hard work and dedication of 
all of my colleagues across the business. I could 
not be more proud of the way they have risen to 
the challenges, embraced change and delivered 
a better service for our customers. I thank them 
all wholeheartedly. 

I ﬁrmly believe that helping our colleagues to 
do their job more easily and effectively will not 
only make their lives better, but also improve 
the service we deliver to our customers. 
So I am pleased that despite some tough 
choices, we instigated a number of initiatives 
to simplify processes and management 
structures. By doing this we have empowered 
our colleagues to take the right action for our 
customers. Deploying digital tools, such as 
smartphones and tablets, as well as introducing 
apps, helps speed up processes and reduce 
costs. For example, a new app enables our 
teams out in the ﬁeld to photograph, map, spec 
and log work that needs doing in a fraction of the 
time taken previously and improves scheduling 
and deployment of resources. We have also 
introduced new ways for our customers 
to interact with us, such as webchat with 
100,000 chats this year already. Improving the 
management of, and access to, supplies and 
assets means that our teams can more easily 
get hold of the materials they need to complete 
jobs in a more timely manner. These are just a 
few of a number of changes we have introduced 
that are helping our colleagues do a better job for 
customers and there are many more that we will 
introduce in the years ahead.

Our colleagues’ health and safety (‘H&S’) is an 
on-going priority and on H&S measures we have 
seen operational improvements with a reduction 
of 20% in accidents this year.

Alongside all this, we have aligned bonus 
structures across the business, with everyone 
rewarded for delivering the same three 
key metrics – proﬁt, customer service and 
operational performance, and health and safety. 
This means that everyone is incentivised to 
work towards common goals, ensuring greater 
cohesion of objectives. 

Looking forward
This has been a year with some signiﬁcant 
achievements for Severn Trent. However there 
remains much to do. We will continue to 
prioritise water quality. We want to deliver 
the best quality possible to our customers. 
This will require us to remain obsessive about 
the provision of wholesome water and deliver 
continuous improvements.

We will continue to embrace regulatory change. 
We are well placed for the forthcoming changes 
to the non-household retail market and are 
engaging with Ofwat about the further opening 
up of competition in parts of our value chain, 
in particular in relation to sludge trading.

We have one of our largest ever asset-creation 
programmes underway for this AMP, which 
includes the Birmingham Resilience project, 
a major scheme that will secure the future 
supply of water to Birmingham for many years 
to come. Alongside this we will continue to invest 
in maintaining and upgrading our network as 
well as delivering our renewables programme. 
In fact, this is one of our largest investment 
periods in our history which will see us invest 
£3 billion, delivering one of the biggest increases 
in asset value across the sector.

These ambitious plans of course require us 
to continue to invest in our colleagues. We will 
invest further in digital technology for our teams 
to help make their jobs easier and more efﬁcient. 
Our apprenticeship and graduate schemes will 
increase in size this year, which alongside our 
technical training schemes will ensure Severn 
Trent is equipped to serve the needs of our 
customers for the next generation and beyond. 

Customers remain ﬁrmly at the heart of 
everything we do with a focus on doing the 
right thing for them each and every day. I am 
extremely privileged to be a part of this great 
company, to work with such a fantastic team of 
people and to ensure the sustainability of such 
an important service for customers. 

Liv Garﬁeld
Chief Executive

Annual Report and Accounts 2016  |  Severn Trent Plc  |  19

Our long term strategy 
is to transform customer 
services today, drive 
growth, and shape our 
industry for tomorrow, for 
the mutual beneﬁt of our 
customers, communities 
and investors. 
Read the following 
pages to see how  
we are doing it and  
the progress we have 
made in the past year.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
20  |  Severn Trent Plc  |  Annual Report and Accounts 2016

How we are achieving  
our strategy

Our purpose is to serve our communities and build a lasting water legacy. It is our vision by 2020 to be 
the most trusted water company: delivering an outstanding customer experience, the best value service 
and environmental leadership. How we plan to achieve this strategy is set out below.

Embed customers at the heart of all we do

What do 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.

Page 21

Our progress in 2015/16
 e Expanded digital channels and apps – launched 
webchat and Facebook, launched Track My Job 
and In My Street apps

 e Improved operational performance
 e Resolved longstanding legacy issues and improved 

case management

Areas of focus for 2016/17
 e Refresh online experience for customers
 e Expand personalised service and 
vulnerable customer offering
 e Improve customer contact centre 

effectiveness through cross-skilling 
our agents

 e Simpliﬁed customer experience by reducing contact 
numbers and simplifying our automated telephony

 e Expand proactive 

customer communications

Drive operational excellence and continuous innovation

What do we mean by this?

We’ll build a smart water 
and waste water network 
and relentlessly look at 
ways to improve operational 
performance and customer 
service levels.

Page 22

Our progress in 2015/16
 e We have made positive steps in our energy 

efﬁciency, investing in our ﬁrst Thermal Hydrolysis 
Plant during the year

 e We have embedded communities of practice to 

bring together experts from across the Company 
and empower them to drive improvement

 e We have aligned performance reporting to focus on 

what our customers value (ODIs)

Areas of focus for 2016/17
 e We will continue to work on our energy 
proﬁle, both usage and generation

 e We will continue to focus on 

improving information to drive 
better customer outcomes

Investing responsibly for sustainable growth

What do we mean by this?

We’ll develop an effective 
strategy which optimises 
our regulated asset 
base, whilst creating new 
growth opportunities for 
the future.

Page 23

Our progress in 2015/16
 e We have started our Proactive Asset Management 
programme focused on investing at the right time 
and cost to maintain and enhance the long term 
health of our assets

 e We continue to investigate new technology 

and process innovation which brings improved 
customer delivery at reduced cost

Areas of focus for 2016/17
 e Careful management of our investment 

programme to deliver high value 
projects on cost and on time

 e Selected investments in new technology 

to enhance customer delivery or 
reduce costs

Change the market for the better

What do we mean by this?

We’ll embrace market 
opening in England and 
explore opportunities 
for growth in new water 
markets worldwide.

Page 24

Our progress in 2015/16
 e We have laid the foundations for the retail market 
opening in our structures, creating a market facing 
unit and commercial pricing and delivery model
 e We have begun developing the right operating 

model to prepare for potential sludge 
market opening

Areas of focus for 2016/17
 e Readiness for shadow operation of the 
retail market, followed by successful 
market opening in full

 e Continued work on sludge market 
opening structures and models

Creating an awesome place to work

What do we mean by this?

We’ll create a culture 
of empowerment and 
accountability with a 
focus on skills, talent 
and career development.

Page 25

Our progress in 2015/16
 e 150 of our Team Managers completed our new 

Awesome Leaders Programme designed to help 
them engage and empower their teams to drive 
high performance

 e We have redesigned our annual opinion survey – 

QUEST – to provide better data to managers about 
engagement levels in their teams to focus their 
action planning

Areas of focus for 2016/17
 e A further 300 Team Managers will 

have completed the Awesome Leaders 
Programme by the end of July 2016
 e We will double our intake of graduates 
and apprentices in 2016 to build our 
talent pipelines for the future

Annual Report and Accounts 2016  |  Severn Trent Plc  |  21

Strategy in action

EMBED 
CUSTOMERS  
AT THE HEART  
OF ALL WE DO

Enhancing customer experience through digital 
channels has been a key priority for us this year 
and we’ve added real value for our customers, 
particularly through our new webchat facility. As an 
example, we recently assisted a customer whose 
husband had passed away and needed a change 
of name processed on their account. The webchat 
service made this easy to do and avoided her 
having to talk about the loss of her husband on the 
telephone. The changes were made in minutes and 
the ease of service shows how we’re expanding 
our channels to continuously put customers at the 
heart of all we do. 

We are excited to help as many customers as we 
can in ways they ﬁnd the most convenient for them. 
Further information on customer engagement 
can be found on page 32.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
22  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Strategy in action

DRIVE 
OPERATIONAL 
EXCELLENCE 
AND CONTINUOUS 
INNOVATION

We have begun an exciting programme of investment 
in renewable energy technology, aiming to generate 
50% of the electricity we use from renewable energy 
by 2020. A component of this plan is building solar 
photovoltaic arrays on unused land at our water and 
waste water treatment works.

One of the largest of these is at Barnhurst Treatment 
Works in Wolverhampton, where a 2.8MW array 
of 11,000 solar panels has been built to provide 
electricity for the equipment we use. This covers an 
area equivalent to four football pitches, generating 
enough electricity to power the equivalent of around 
800 homes! Further information on our renewables 
initiatives can be found on page 39.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  23

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

INVESTING 
RESPONSIBLY 
FOR SUSTAINABLE 
GROWTH

The Water Framework Directive is driving the need  
for phosphorus removal from sewage to very low 
levels. As current UK technologies are unlikely 
to be capable of achieving this, we have invested 
in a ground breaking trial at our Packington 
Sewage Treatment Works to investigate potential 
alternatives, including low energy, no chemical and 
phosphorus recovery technologies. 

Around £120 million investment in AMP6 to remove 
phosphorus from over 100 sewage treatment 
works will help ensure we invest in technologies 
capable of delivering effective solutions, whilst 
saving costs.

 
 
 
 
 
 
24  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Strategy in action

CHANGE THE 
MARKET FOR 
THE BETTER

In March 2016, we announced our joint venture, 
Water Plus, with United Utilities which combines our 
non-household retail businesses, centrally located 
in Stoke-on-Trent. With the non-household retail 
market in England opening for competition in 2017, 
this joint venture will combine the complementary 
skills of both companies, including sales, customer 
service, business strategy and credit management, 
to deliver an attractive proposition for large and 
small business customers across England and 
Scotland. Bringing our businesses together creates 
synergies to provide an efﬁcient and cost-effective 
operation focused on improved customer service 
and growth.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  25

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

CREATING  
AN AWESOME  
PLACE TO WORK

This year we launched our ﬁrst ever Wellbeing 
Programme, proactively investing in the health and 
wellbeing of our colleagues resulting in beneﬁts 
such as higher levels of staff engagement, improved 
productivity and reduced absence to name a few. 
Employee support for the programme has been very 
high and throughout the year we have undertaken 
a number of initiatives, including healthy heart 
days, skin check clinics, healthy eating promotion, 
skipping challenges and wellbeing kiosks. 
Our biggest success so far has been our Pedometer 
Challenge which was held in December 2015 and 
saw 20% of the business taking part. For more 
information about our Wellbeing Programme 
please see page 63.

 
 
 
 
 
 
26  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Progress against our 
Outcome Delivery Incentives

We continue to make progress  
against our ODIs and ﬁnancial KPIs.

1. Embed customers at the heart of all we do
External sewer ﬂooding
Internal sewer ﬂooding

Actual
804

Actual
7,142

Minutes without supply

Actual
11.17

Reward/Penalty
1,014

Reward
7,452

Penalty
7,639

Reward
12

Penalty
14.5

Rate of Reward/Penalty (per incident)

Rate of Reward/Penalty (per incident)

Rate of Reward/Penalty (per minute)

£42,2801

£19,7791

Why we measure it
To ensure we do everything we can to prevent ﬂooding 
of customers’ homes or businesses. It is one of our 
customers’ most important priorities.

Why we measure it
To ensure we do everything we can to prevent ﬂooding 
of customers’ homes or businesses. It is one of our 
customers’ most important priorities. 

Progress in the year
We are reporting a performance of 804 internal 
incidents against our committed performance level 
of 1,014 incidents.

Progress in the year
We are reporting a performance of 7,142 external 
incidents against our committed performance level 
of 7,639 incidents.

£1.10m1

Why we measure it
Our customers value water being there when they 
need it. This performance commitment ensures we 
are driving down the impact of any interruptions to 
supply across our network to minimise the impact 
on customers.

Progress in the year
We interrupted customers’ supplies for an average of 
11.17 minutes (11m 10s) in 2015/16. We are ahead of our 
performance commitment of 13.6 minutes (13m 36s).

2. Drive operational excellence and continuous innovation
Improvements to river water quality

Number of pollution incidents

Successful catchment management schemes

Actual
0

Actual
293

Actual
0

Penalty/Reward
233

Reward
374

Penalty
457

Penalty/Reward
12

Reward Cap
21

Rate of Penalty/Reward (per unit)

£150,0001

Why we measure it
We have statutory obligations to deliver, but our 
customers told us that we should do more where we 
can. This performance commitment ensures we meet 
our obligations and drives us to deliver more where it 
is possible. 

Progress in the year
There are no individual schemes that were due to 
be completed in 2015/16; but progress has been 
made against a number of deliverables which will be 
completed during 2016/17.

Rate of Reward/Penalty (per incident)

Rate of Penalty/Reward (per scheme)

£53,9001

Why we measure it
Minimising the impact our activity has on the 
environment is a key concern for our customers. 
This performance commitment ensures we drive to 
improve performance in this area.

Progress in the year
We are reporting 293 category three incidents against a 
committed performance level of 429; this is 136 ahead of 
target and 81 incidents ahead of our reward dead-band 
of 374 incidents.

£1.03m1

Why we measure it
Our customers want us to look for new and innovative 
ways to improve water quality, whilst working in 
partnership with other stakeholders to deliver wider 
beneﬁts. This performance commitment focuses on 
how our approaches are encouraging farmers and 
land owners to change their behaviour and practices. 

Progress in the year
We have made progress increasing our internal 
resources and agreeing a suite of performance 
indicators to demonstrate successful engagement and 
change in practice. As planned, no schemes have been 
fully delivered during 2015/16. Schemes are on track to 
be delivered in 2018/19.

3.  Invest responsibly for 
sustainable growth

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

See our Regulated Water and Waste Water 
performance review on pages 28 to 35.

Severn Trent Water Limited

0.25

2014/15: 0.21

Business Services

0.17

2014/15: 0.30

Annual Report and Accounts 2016  |  Severn Trent Plc  |  27

Progress against our 
ﬁnancial KPIs

Group revenue

£1,786.9m

2014/15: £1,801.3m

Group underlying PBIT

£522.8m

2014/15: £540.3m

Underlying earnings per share

108.7p

2014/15: 107.2p

SIM – Customer experience

Complaints about water quality

Not yet deﬁned by Ofwat

83.7 SIM score

Why we measure it
Providing good quality service to our customers is key 
and the Service Incentive Mechanism (‘SIM’) provides 
us with a regular opportunity to understand our 
performance and implement initiatives to improve the 
quality of service we provide, but also deliver value 
for money. 

Progress in the year
We have seen improvements in quantitative areas of 
our business although we have been inconsistent in our 
qualitative performance which has meant that we have 
reported a SIM score of 83.7 for 2015/16 against our 
original upper quartile target.

Actual
13,941

Reward
9,992

Penalty
11,900

Rate of Reward/Penalty (per complaint)

£9001

Why we measure it
Customers value the aesthetic quality of their 
water. This performance commitment is designed 
to ensure we manage our network to minimise the 
number of events that cause discolouration, taste or 
odour problems. 

Progress in the year
In 2015, whilst we reduced the number of drinking 
water quality complaints from 14,339 to 13,941, 
we did not achieve our committed performance 
level of 11,900.

Asset Stewardship – coliform failures

Leakage

Actual
5

Actual
434

Penalty
7

Reward/Penalty
444

Rate of Penalty

£463,0001

Rate of Reward/Penalty (per megalitre per day)

£123,0001

Why we measure it
The presence of coliforms in our drinking water is 
unacceptable so we continually monitor our works to 
ensure they are not being detected.

Why we measure it
Customers see leakage as a waste of a key resource; 
our customers want us to reduce our level of leakage 
as a priority. 

Progress in the year
During 2015 we detected coliforms at ﬁve water 
treatment works sites, which is better than our 
committed performance level of less than eight works 
with coliform detections. This is an improvement on 
our performance in 2014 where we identiﬁed 13 water 
treatment works with failures.

Progress in the year
Our outturn position for 2015/16 was a total  
of 434 Ml/day. We have achieved our committed 
performance level of 444 Ml/day.

Severn Trent engagement score2

52%

Notes
1  In 2012/13 prices after tax.
2   New engagement index used for the Group in 2015/16 
to support benchmarking and gain better insight 
about us as an employer. UK benchmark 50%.

Key

Actual

Severn Trent Actual Performance 2015/16

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
 
28  |  Severn Trent Plc  |  Annual Report and Accounts 2016

REGULATED

Regulated Water and Waste Water business model

Annual Report and Accounts 2016  |  Severn Trent Plc  |  29

Our regulated water and waste water business 
works within ﬁve year planning cycles that 
are determined by our economic regulator, 
Ofwat. Each of these periods is called an Asset 
Management Plan (‘AMP’) and allows us to 
fund our investment programme and cover our 
operating costs. This was the ﬁrst year of AMP6. 

Our prices and asset base are adjusted by 
inﬂation each year. Under certain circumstances, 
for example where there is a material change in 
costs due to factors that are beyond our control, 
we can request a price review during the AMP. 

The framework on which we build our activities 
consists of a package of 45 performance 
commitments that are largely unique to us 
and agreed with Ofwat. Of these, 33 Outcome 
Delivery Incentives (‘ODIs’) reward us for doing 
the right thing for customers, improving services 
and being more efﬁcient, or conversely penalise 
us for failing to do so. 

This is consistent with our own strategic 
framework, which focuses on embedding 
customers at the heart of all we do; driving 
operational excellence and continuous 
innovation; investing responsibly for sustainable 
growth; changing the market for the better; 
and creating an awesome place to work.

The resources and relationships critical to our success

Read more on Page 31

Our value chain

Water is collected 
We pay the Environment 
Agency and Natural Resources 
Wales for the water we collect 
from reservoirs, rivers and 
underground aquifers across 
our region.

Water is cleaned 
Our 133 groundwater and  
22 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.

Waste water is treated and 
returned to the environment 
Waste water is carefully 
screened, ﬁltered and treated  
in our 1,027 sewage treatment 
works to meet stringent 
environmental standards. 
We pay the Environment Agency 
and Natural Resources Wales 
annual consent fees 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 from outside 
properties and drains.

Customers enjoy our services 
We serve 4.3 million businesses 
and households with a safe, 
reliable supply of water and 
collect waste water 24 hours 
a day, 365 days a year.

Investment and maintenance 

Associated risks

Read more on Page 32

Read more on Page 31

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
 
 
 
30  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Regulated Water and Waste Water business performance review

Critical to our success
Putting customers ﬁrst
We serve 4.3 million households and businesses 
in the heart of the UK, in an area stretching from 
the Bristol Channel to the Humber, and from 
mid-Wales to the East Midlands. Our customers 
consume almost 2 billion litres of water every 
day and rely on us to collect almost as much 
waste water – some 1.4 billion litres daily. 

Our employees
We are ﬁrmly committed in our purpose to serve 
our communities and to build a lasting water 
legacy. In order to do this, we need to ‘create 
an awesome place to work’ for our colleagues 
and as part of this, we recognise that diversity 
and inclusion are important for our success. 
We need our workforce to reﬂect the customers 
and communities we serve, so that we can better 
understand and respond to their needs.

Customers are at the heart of all we do. 
They trust us to ensure that their water is not 
only available 24 hours a day, but is also always 
safe to drink. 

During the year, we have increased our water 
quality standards compliance to 99.96%, an 
improvement on 99.94% in 2014. We also 
reduced the number of pollution incidents and 
made signiﬁcant reductions in both internal and 
external sewer ﬂooding incidents. 

Our customers pay the lowest combined water 
and waste water bills in Britain, at £329 p.a. 
in 2015/16 (2014/15: £333). We also continuously 
work hard to help our vulnerable customers 
who have difﬁculty paying their bills, through a 
number of schemes. More details can be found 
on page 32. 

There are several aspects to this. For one, it 
means encouraging and celebrating diversity in 
all of its forms including gender, race, national 
origin, disability status and social background. 
Secondly, to help us make meaningful progress, 
we have prioritised three key areas: women in 
operational leadership positions; women and 
BAME (Black, Asian and Minority Ethnic) people 
in engineering positions; and BAME people in 
technical operator positions. 

We are also driving a better working 
environment for our colleagues through our 
enhanced training and development initiatives 
such as our Awesome Leaders Programme.

What a big difference the Big 
Difference Scheme can make
One of our customers had been diagnosed 
with breast cancer, and as her partner 
suffered from dementia and was unable 
to work, when her sickness pay from her 
employer ceased, the couple were worried 
about how they would manage future 
payments. They had paid all but £40 of their 
water charges, and therefore their application 
for a trust fund grant had been declined. 
The Trustees identiﬁed that they were eligible 
for the Big Difference Scheme and referred 
them successfully. At a difﬁcult time, they 
were delighted to hear that Severn Trent 
were able to ease their ﬁnancial burden and 
reduce their bills for 2016/17. 

Annual Report and Accounts 2016  |  Severn Trent Plc  |  31

Regulatory framework
Ofwat, the industry’s economic regulator, 
sets limits on the prices we can charge our 
customers during each ﬁve year AMP period. 
Ofwat was founded at the time the industry 
was privatised and since then has incentivised 
companies to deliver better services at a lower 
cost, whilst ensuring efﬁcient companies 
are ﬁnanceable. 

Standards for water, waste water and the 
environment are consistent across the European 
Union. In England, the Department for the 
Environment, Food and Rural Affairs (Defra) 
sets the overall water and sewerage policy 
framework. In Wales the policy framework is set 
by the Welsh Government.

We also work closely with a variety of other 
public bodies:

(cid:228)(cid:3) The Consumer Council for Water speaks on 

behalf of all water consumers in England and 
Wales. As such, it advises consumers and 
takes up complaints on their behalf.

(cid:228)(cid:3) The Environment Agency allows us to collect 

water from reservoirs, rivers and aquifers and 
return it to the environment after it has been 
used by our customers and treated by us. 

(cid:228)(cid:3) Natural Resources Wales is the environmental 

regulator in Wales. It ensures that Wales’ 
natural resources are sustainably maintained, 
enhanced and used.

(cid:228)(cid:3) Natural England advises the Government on 

the natural environment in England and helps 
to protect nature and the landscape, with 
particular responsibility for freshwater and 
marine ecologies.

(cid:228)(cid:3) The Health and Safety Executive helps us 
to eliminate dangers to our employees 
and customers. 

(cid:228)(cid:3) The Drinking Water Inspectorate (DWI) 
provides independent reassurance that 
water supplies in England and Wales are 
safe and drinking water quality is acceptable 
to consumers. The DWI’s remit includes 
water quality audits, a regulatory strategy to 
further improve drinking water, enforcement 
processes and science and policy.

Associated risks

Each phase of the value chain on page 29 presents  
risks as well as opportunities. It is our job to maximise 
opportunities while anticipating and mitigating the 
associated potential and existing risks. 

Water is collected

Key asset failure could result in injuries, damage 
to property and /or disruption of water supply. 

Principal risk ref 7 and 8 
Read more Pages 51 and 52

Water is cleaned

During this phase, a failure of key assets or 
processes may cause a decline in water quality 
or disrupt our supply to customers. 

The use of potentially hazardous chemicals 
or processes may also result in injuries. 

Principal risk ref 6 and 7 
Read more Page 51

Principal risk ref 8 
Read more Page 52

Clean water is distributed

Distribution performance could fall below the 
required standards, resulting in poor customer 
service and increasing the risk of leakage from 
our network. 

Customers enjoy our services

Principal risk ref 1 and 6 
Read more Pages 48 and 51

A failure to improve or maintain our performance 
could result in customer disappointment. 

Principal risk ref 1 
Read more Page 48

Waste water is collected

Sewer ﬂooding could be the result of failing 
to deal effectively with customer waste. 

Principal risk ref 7 
Read more Page 51

Waste water is treated and returned to the environment

Operational failures during this phase could 
result in damage to the local environment. 

Potentially hazardous processes and 
substances may result in people being injured. 

Principal risk ref 8 
Read more Page 52

Principal risk ref 8 
Read more Page 52

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
32  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Regulated Water and Waste Water business performance review

Investment and  
maintenance
With a wholesale capital programme for 
the year of almost £500 million, our average 
spend was £113 per connected property. 
Expenditure encompassed ﬁnding and ﬁxing 
more leaks, reducing the number of pollution 
incidents and improving our water and waste 
water treatment plants. Additional upgrades to 
our sewer network also reduced incidents of 
sewer ﬂooding.

We funded this programme of essential work 
through customer bills, the proﬁts we generated 
from being efﬁcient and through borrowings 
from capital markets. 

The amounts we invest in improving and 
maintaining our networks, together with the other 
costs of operating the business, form the total 
expenditure of the business (‘Totex’). Part of our 
Totex is included in the calculation of current year 
prices and the remainder is added to our asset 
base, called the Regulated Capital Value (‘RCV’).

During AMP6, we aim to increase returns to our 
shareholders through the potential created by 
Outcome Delivery Incentives (‘ODIs’). The ODI 
framework means that if we deliver higher 
service levels where our customers value it 
most, we are rewarded for a year. In 2015/16 
we laid the foundation for potential rewards via 
ODI outperformance. 

Regulated Water and 
Waste Water business  
performance
We are ﬁrmly committed to delivering even 
better value for money, improved services and a 
healthier environment between 2015 and 2020. 

We aim to inspire trust among our customers by 
maintaining and expanding a water system on 
which they know they can rely upon: clean, safe, 
reliable and responsive to their needs. 

In this section, we explain how our regulated 
business performed during the last 12 months, 
as well as the actions we’re taking to achieve 
success during this AMP.

Embedding customers  
at the heart of all we do
Severn Trent customers pay the lowest average 
combined water and waste water bills in Britain 
and will continue to do so throughout AMP6. 
Our average combined bill in 2015/16 was 
£329 (2014/15: £333), which equates to a 1.2% 
reduction. Our challenge is to strike the right 
balance between keeping bills affordable for 
today’s generation and investing in our network 
and assets to ensure they remain affordable for 
future generations. 

We have worked to help our customers who 
have difﬁculty in paying. Whilst we didn’t 
meet our target, we were able to assist 24,110 
customers through a variety of schemes. 
In some cases, through our new social tariff, 
the Big Difference Scheme, we have been able 
to provide reductions of up to 90% for qualifying 
customers. Through carefully selected third 
party organisations, we also make available debt 
management advice to help our customers who 
are in difﬁculty get back on track. 

In 1997, the Severn Trent Trust Fund was 
established to provide assistance for those in the 
most ﬁnancial difﬁculty. This independent body 
aids people in arrears with their water bills and 
can also provide help with essential household 
bills or costs. Since its incorporation we have 
donated more than £56 million for the beneﬁt 
of 550,000 people across our region who have 
fallen behind with their payments. This ﬁnancial 
year, we have donated £3.5 million to the Fund.

In order to keep bills affordable, where possible 
we work to ensure that everyone who can pay, 
does, so they don’t increase the burden on 
others. During the year we reduced our level of 
bad debts to 1.5% of turnover, one of the best 
performances in the sector. 

In 2015/16 we began a more in-depth 
engagement with our customers on a range 
of issues, such as bill design and how we 
communicate. This included a survey of over 
15,000 respondents, involving a much wider 
cross-section of our customers than we’ve ever 
reached before, achieved through more frequent 
and effective communication. 

We have listened to our customers’ comments 
and have made our billing information simpler 
and introduced more convenient ways to pay. 

In response to feedback that customers 
wanted greater availability and accessibility 
of communications channels, we broadened 
access, setting up a webchat facility that has so 
far engaged in over 100,000 chats. We expanded 
our Twitter feed to be a 24/7 operation to better 
suit customers’ needs.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  33

In 2015, to expand our water catchment 
management programme, we recruited eight 
new agricultural advisers. These experts, 
together with other environmental colleagues, 
work closely with farmers throughout the 
Severn Trent region to promote better land 
management. With help from our agricultural 
advisers, more farmers are now using 
acceptable substitutes or channelling their 
contaminated water to prevent it joining streams 
and rivers. This initiative not only helps the 
environment, but also, by reducing the run-off 
of pesticides into our natural raw water sources, 
helps to reduce our treatment costs.

Our performance commitment score for Asset 
Stewardship Environmental Compliance was 
97.51% for the year. This fell just short of 100% 
compliance, largely as a result of the time it 
takes to see the required ﬂow conditions to 
conﬁrm the improvements we have made. 

Globally there is increased focus on mitigating 
the risk of climate change. During the year, 
we reduced our overall Severn Trent Water 
Limited carbon emissions to 484 kilotonnes of 
CO2e, a reduction of 1%, compared to 2014/15 
(491 kilotonnes). Despite this reduction however, 
we have not met our stretching ODI target for the 
year. More information on our greenhouse gas 
impact can be found on page 61. 

Renewable energy is an important part of our 
approach to sustainability. We will be investing 
up to £190 million to reach our 2020 target of 
producing the equivalent of half of our energy 
needs from renewable sources. We use a range 
of technologies such as anaerobic digestion of 
sewage sludge, food waste and crops as well 
as wind turbines, hydropower and solar panels. 
We lead the industry in this effort.

We remain on target to deliver our renewables 
commitment. This year we have invested in solar 
arrays at over 30 sites, erected two new wind 
turbines and we have started construction on 
our second food waste anaerobic digestion site 
at Roundhill, Staffordshire. We are also investing 
in Thermal Hydrolysis Process technology to 
extract even more energy from our sewage 
sludge before we recycle it to agricultural land. 
More on our renewable energy initiatives can 
be found in the Business Services performance 
review on page 36.

We have also committed to investigate the 
underlying causes of complaints and act on 
them in anticipation of problems. This effort 
is paying off. This year, household written 
complaints were down by 29%.

Enhancing customer experience through the 
intelligent use of customer data, current and 
future technologies will be an important part of 
our approach during AMP6. We’re continuing 
to invest in and develop systems, which will 
draw together the key elements of customer 
insights, people, processes and systems 
to provide a consistent experience to our 
customers regardless of their choice of channel. 
Increasing our knowledge of each customer will 
help us to predict their needs, so we can offer 
them a more personalised service. This will also 
support our colleagues to resolve more queries 
ﬁrst time.

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. This year 
SIM is based on household customers only 
and the overall score calculation is weighted at 
75% qualitative and 25% quantitative. We are 
reporting a company SIM score of 83.7. 

Investing responsibly
We hope to continue the strong start we’ve made 
to the current regulatory period, and plans are 
now in place to improve our performance further 
throughout AMP6. 

Our £300 million Birmingham Resilience 
project, due for completion in 2020, is our, and 
the sector’s, biggest single capital investment 
scheme for this AMP. It will create a second 
major source of water for the UK’s second largest 
city. Once operational, the new, state-of-the-art 
facility will supplement water ﬂowing through 
the existing Elan Valley Aqueduct, a Victorian 
landmark. Having this alternative source in place 
will enable us to divert supply in order to carry 
out maintenance and repairs to the full 74 mile 
length of the aqueduct. This restoration and 
modernisation will keep the aqueduct going for 
at least another century, creating a lasting legacy 
for the next generation and ensuring the security 
of Birmingham’s water supply.

We share our customers’ desires for a cleaner, 
greener future that protects and improves our 
environment for generations to come. During the 
year, we invested £91 million towards our 
targets on pollution, environmental compliance, 
biodiversity and sustainable sewage treatment. 
This forms part of a larger £250 million 
programme for AMP6 that will help ensure our 
assets are not preventing compliance with the 
Water Framework Directive.

1

1    We conducted a mini competition for 
the Birmingham Resilience Project to 
get the best prices from our One Supply 
Chain to procure a new tunnel boring 
machine, outperforming our 20% 
efﬁciency target.

2015/16 household 
written complaints down 

29%

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
1

2

1    As a reminder to our employees that 

even one injury is too many, a Goal Zero 
Clock is now available on every desktop 
to keep everyone aware of their role in 
perpetuating our safety culture, and to 
report any safety incidents as they occur.

2    Our new lime plant at Frankley was 
installed as part of a much wider 
programme to improve water supply to 
customers in Birmingham. The plant 
was designed and constructed off-site, 
reducing on-site work from three 
months to two weeks.

34  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Regulated Water and Waste Water business performance review

Driving operational excellence 
and continuous improvement
For our customers, being able to rely on the 
quality of the water we supply to their homes 
and businesses is their highest priority. 

To improve water quality, we have made 
substantial investment in our water treatment 
facilities. During the year, a total of £72 million 
was targeted at reducing water quality 
complaints, compliance with drinking water 
quality standards and reducing coliforms. 
Improvements include the installation of eight 
ultraviolet sterilisers at groundwater works, 
as part of our wider operational effectiveness 
programme. We have undertaken the sector’s 
most rigorous levels of testing, with sampling for 
coliform bacteria done as frequently as every 10 
to 15 minutes at our critical sites. During 2015, 
we improved drinking water quality standards 
to 99.96%, which was below our target, but an 
improvement on 99.94% in 2014/15. We have 
also seen an improvement in coliform detection, 
down to ﬁve sites this year, compared to 13 
sites the year before. The incident at Castle 
Donington in March 2016 however shows 
that there remains much work to be done to 
consistently deliver the services our customers 
rightly deserve.

Discolouration, while usually harmless, can be 
off-putting for our customers. More often than 
not, it is caused by changes in ﬂow, which can 
loosen harmless iron sediments from within the 
pipes. During the year, we increased our pipe 
cleaning programme from 1,000km in 2014/15 
to 1,500km in 2015/16. This helped to reduce 
complaints about water discolouration. We still 
had more than 7,000 discolouration contacts in 
2015/16, so we recognise that we have more to 
do to meet our targets.

We have reduced total leakage and have 
achieved our regulatory commitment for the 
ﬁfth year running. Our ‘Valuing Every Drop’ 
programme has been part of this success. 
It informs customers of the challenges we all 
face due to greater variability in weather patterns 
and more frequent episodes of extreme weather. 
Our shared goal with customers is to reduce 
unnecessary usage and to do everything we 
reasonably can to ﬁx leaks as quickly as possible. 

This year we set a target of meeting 70% of ﬁxed 
visible leakage, where safe to do so, in 24 hours. 
Whilst we improved to 53%, we have more to do 
to meet this challenging commitment.

Over the course of the year, customers 
experienced an average of 11 minutes 10 
seconds without supply, compared to an average 
of 9 minutes 54 seconds the year before. 

Although rare, a sewer ﬂooding is one of the 
worst things that can happen to a household. 
Whether it involves a backup within the property 
itself or an overﬂow from beyond the perimeter, 
the upheaval and damage can have a signiﬁcant 
and unpleasant impact. We therefore plan to 
increase our spend targeted at reducing such 
events, from £110 million in AMP5 to the current 
£135 million. 

In 2015/16 we accelerated our investment in 
ﬂood prevention and mitigation, and as a result, 
we were able to gain a better understanding 
of the cause of sewer ﬂoods and how best to 
prevent them in future. Looking at a decade of 
data, we also identiﬁed ‘hotspots’ throughout 
the region and have focused our investment and 
efforts in those locations. 

Thanks to these efforts, Severn Trent had 
31% fewer internal sewer ﬂoods, down from 
1,168 in 2014/15 to 804 in 2015/16 and a 28% 
drop in external ﬂooding during the year, 
down from 9,896 in 2014/15 to 7,142 in 2015/16. 
These improvements were ahead of target, 
and built on the advances already made in the 
previous year. 

We have reduced sewer blockages by 4%, which 
has been achieved in part through education 
programmes that help customers understand 
how they can prevent blockages, 75% of which 
are caused by customers putting the wrong 
items down the sink or toilet. Every year it costs 
us £10 million to clean over 700km of sewers, 
so helping customers understand how they can 
help prevent blockages also lessens the cost 
that is borne by them. 

Annual Report and Accounts 2016  |  Severn Trent Plc  |  35

The Environment Agency has provisionally 
assessed our overall environmental 
performance at 4*. If conﬁrmed, this would 
be the second time in the past three years. 
We have also increased our efforts in preventing 
pollution. During the course of the year our less 
serious spills (classiﬁed by the Environment 
Agency as category 3) were down by 21%, 
while more serious incidents (categories 1 & 2) 
were reduced by 80%. 

Throughout 2015/16, we have sought to 
enlist customer support to involve them 
more closely in what we do. That is why we 
launched a number of customer focused apps. 
These include ‘In My Street,’ which provides 
alerts to people of local water repair work and 
gives them the opportunity to adapt their travel 
and domestic arrangements accordingly, which 
Utility Week cited as among the sector’s best. 
Another app, ‘Track My Job’, supplies real-time 
updates on repairs, which means that customers 
can keep constant focus on the latest situation 
around any of the jobs or issues that they’ve 
raised with us. 

Creating an awesome place to work
Safety is an ongoing priority, which we have 
embedded into daily working life as well as 
safety in our supply chain. We have made 
improvements in a number of areas, but have 
fallen short of where we need to be in others. 
Our year end Lost Time Injury (‘LTI’) rate was 
0.25 across both Severn Trent Water Limited 
and our supply chain. This is slightly worse than 
the previous year’s LTI of 0.21 per 100,000 hours 
worked. Overall accidents reduced by 25% 
this year. 

At Severn Trent, a core value is to ‘create an 
awesome place to work’. For our employees 
that means being part of an organisation that 
celebrates diversity and individual thinking, 
provides recognition and reward whenever it is 
due and offers opportunities for advancement 
and job enrichment through professional and 
personal development. During the past year, we 
have made progress in all of these aspects of 
working life.  

During the year, we delivered more than 
15,000 training days in our UK water business. 
We undertook a comprehensive review of 
personal development plans for all senior 
leaders and line managers and devised tailored 
development programmes. On the technical 
side, we’ve provided training to all our staff on the 
importance of protecting drinking water quality.

Our new recognition scheme, ‘Our Brilliant 
People’ provides a new, online way of 
recognising individuals’ exemplary performance 
instantly throughout the Company. So far, we 
have had 14,764 such recognitions.

Our initiatives for greater involvement, 
recognition and empowerment are working. 
In 2015 we reviewed and replaced our existing 
employee surveys into a single global survey to 
give us new insights into employee engagement 
and thinking. For its ﬁrst year we are delighted 
that response rates have remained strong with 
the overall response rate at 80%. Our highest 
performing areas for 2015/16 were health and 
safety; customer focus; diversity and inclusion 
and corporate social responsibility. We remain 
determined to further improve our scores 
next year. 

We take a long term view of our business 
and are active in seeking out tomorrow’s 
talent – particularly among women and BAME 
candidates for jobs in engineering and technical 
operations roles. We recognise that diversity 
and inclusion are important for success and 
have always made them a business imperative. 
Our Severn Trent Water Limited workforce 
remains slightly more diverse than the sector 
average, with female employees accounting 
for 30.3% of the total compared with 30% 
across the industry. 7.64% of our employees 
are BAME against an industry average of 6%. 
More information on diversity can be found 
within the Nominations Committee report and 
our Corporate Responsibility report on pages 
81 and 63 respectively. Further information on 
human rights issues for the Group can be found 
on page 87.

Outlook
Only one year into AMP6, we can already 
see how the new regulatory framework is 
delivering better outcomes for our customers, 
our communities and for the environment.  
Our other stakeholders – investors and 
employees – are also beneﬁting, as ODI 
performance and a growing RCV provide 
new gains and new opportunities.

The investments we are currently making 
are yielding improved water and waste water 
services throughout our region for today’s 
customers, and we intend to continue improving 
our services so that tomorrow’s customers can 
also reap the beneﬁts for generations to come. 

Only one year into 
AMP6, we can already 
see how adherence to 
the new regulatory 
framework is delivering 
better outcomes for 
our customers, our 
communities and for 
the environment.

Compliance with drinking 
water quality standards

99.96%

2014: 99.94%

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
36  |  Severn Trent Plc  |  Annual Report and Accounts 2016

BUSINESS 
SERVICES

Business Services business model

Annual Report and Accounts 2016  |  Severn Trent Plc  |  37

Severn Trent’s Business Services portfolio 
allows us to apply our water and waste water 
services knowledge to create and deliver 
services to UK and international municipal, 
industrial and commercial customers. 

Business Services has had a strong year 
delivering revenue of £674.6 million and 
underlying PBIT of £38.2 million.

In July 2015, we completed the disposal of our 
Water Puriﬁcation business to Industrie De Nora 
S.P.A. in a transaction valued at US$99 million 
(£61.9 million).

Head start
In April 2017, the non-household retail market 
will open up to competition in England. At this 
point non-household customers (including 
businesses, charities, and public sector 
organisations) will be able to choose their 
water and waste water retailer who will provide 
billing services and general customer service. 
The existing water and sewerage companies 
will continue to provide the wholesale service, 
including water treatment, water distribution, 
waste water collection through the sewers and 
waste water treatment, to the retailers and non-
household customers.

The resources and relationships critical to our success

Read more on Page 31

Our value chain

Identify and develop opportunities  
Identify and develop opportunities in  
Business Services’ markets.

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

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

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

Operating services

Renewable energy

Associated risks

Read more on Page 39

Read more on Page 39

Read more on Page 40

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
  
 
 
 
 
 
 
 
38  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Business Services performance review

Market opening is an important development 
in the water industry, arguably the biggest 
since privatisation, and in March 2016 we were 
delighted to announce our joint venture with 
United Utilities to create a dedicated business to 
compete in this market. We believe the business 
will bring together our strengths and also deliver 
efﬁciencies that will result in an exciting offer 
for customers and represent greater value 
for money. 

The new business, Water Plus, will operate with 
its own dedicated management team from its 
new location in Stoke-on-Trent and we are well 
underway with preparations for establishing the 
new business and transferring employees into it.

Establishing a new market for the retailing 
of water and waste water services is a major 
undertaking and we are working hard on 
preparations. Naturally, the non-household 
retail business is undergoing major change but 
our wholesale business is impacted too as it 
will be serving multiple retailers in the future 
through new processes and relationships. 
We have established internal programmes to 
ensure that we make the necessary changes to 
business processes, establish new roles where 
necessary and equip our people with the skills 
that they will need. 

Meanwhile, we have continued to trade 
independently as Severn Trent Services in 
Scotland where the market is already open to 
competition. Our team have had a good year 
and have grown our market share proﬁtably by 
retaining our existing customers and gaining 
new ones in the face of stiff competition. 
The contracts with several important existing 
customers, including Sainsbury’s and 
Debenhams, came up for renewal this year 
and we were delighted to be able to retain 
their business through new contracts. It was 
particularly pleasing that our outstanding 
customer service was a major factor in securing 
these renewals. 

We were delighted to secure new customers 
including Boots and the Mitchells & Butlers 
chain of pubs and restaurants which combined, 
comprises a total of 387 sites in Scotland. 
We have increased from 388 to 1,451 sites in 
total. We have also started to participate in the 
SME sector which includes smaller businesses 
and have made some good initial inroads. 

Equally important are the lessons we have 
learned from the experience. We now have a 
better idea of what works, and what doesn’t, 
when selling our water supply services on a 
competitive basis. These lessons are serving 
us well and we will take them into the joint 
venture as we prepare to compete for the bigger 
combined Scottish and English non-household 
retail market in 2017.

In March 2016 we were 
delighted to announce 
our joint venture, 
Water Plus, with United 
Utilities to compete 
in the non-household 
retail market.

We are on track 
to invest up to 
£190 million 
in self-generation 
and renewables 
during AMP6.

Building on success 
In our Operating Services business in the UK, 
our 25 year, £1 billion operation and maintenance 
contract with the UK Ministry of Defence (‘MoD’) 
is now in its twelfth year. After more than a 
decade of working closely together, the new 
focus that our Business Services structure 
brings has enabled us successfully to bring 
Group knowledge and expertise to bear for the 
beneﬁt of our customers. Consequently, we 
are delivering operational services better than 
ever before and this year we have improved on 
all of our agreed operational key performance 
indicators including those on water quality, waste 
water compliance and environmental impact. 
Importantly, in line with our corporate strategy, 
we have focused heavily on understanding our 
customers’ needs and working together in 
partnership with them. We have seen improved 
feedback from our customers and have 
delivered a great improvement in our customer 
service measure, Net Promoter Score (‘NPS’), 
which has moved from -35 in November 2014 
to +36 in March 2016 for the MoD. We will be 
looking to build on this success as the MoD 
continues to review its infrastructure.

We have completed the ﬁrst year of our contract 
with the Coal Authority. Our role is to monitor 
and maintain water levels in disused mines 
to prevent ﬂooding and to treat the iron-laden 
water that is pumped from the mines to ensure it 
is safe to return to the water courses. Whilst we 
have been successful on many elements of the 
programme, there have been others where our 
performance has not met expectations. We have 
worked with the Coal Authority to develop an 
improvement plan which we are in the process 
of delivering. We are committed to improving our 
delivery and strengthening our relationship with 
the Coal Authority.

Also in the UK, our water hygiene businesses 
continue to perform in line with expectations. 

Annual Report and Accounts 2016  |  Severn Trent Plc  |  39

Coleshill food waste plant
Our food waste plant at Coleshill has 
completed its ﬁrst full year of operation, 
transforming 48,000 tonnes of food waste 
into more than 18,000 MWh of electricity and 
approximately 30,000 tonnes of biofertiliser 
for agricultural use. 

We are now well into the process of fully 
optimising the plant, for example, during 
the year we have signiﬁcantly improved the 
efﬁciency of the site by cleverly scheduling 
the plant’s mixers. This has reduced the 
energy required to process the food waste by 
700 kWh per day, which is a 10% efﬁciency 
improvement, saving over £20,000 per year. 

Our design, build and operate services 
businesses in Italy and Ireland are also managed 
from the UK and both have met sales and proﬁt 
targets. In Italy, the market remains challenging 
and we have addressed issues with our cost 
base through an organisational restructure and 
we continue to win proﬁtable new business. 

In our Operating Services business in the US, we 
have had a year of signiﬁcant change. We have 
set the business up on an independent footing 
following the disposal of our Water Puriﬁcation 
business in 2015. The new management team 
has focused heavily on customer service, 
new business development and operational 
excellence. We have achieved our targeted 
contract renewal rate of 85% plus for this year 
and established a healthy new business pipeline. 
In total we have won US$14 million in new 
business this year. The highlight was winning 
the contract to provide waste water treatment 
services to Oklahoma City, from January 2017. 
This ﬁve year contract (which may be renewed 
for two further ﬁve year periods) is worth 
US$14 million in annual revenue and we believe 
it is the biggest contract to have been awarded 
this year. This is our second largest contract 
behind our 10 year US$23 million annual 
revenue contract with the city of Bridgeport, 
Connecticut which continues to perform well.

Our operational and health and safety 
programmes are working well with 
improvements across the board in our 
operational measures. We’ve seen a reduction 
in water quality and waste water quality issues 
and an improvement in our reportable health 
and safety incidents. We will continue to focus 
on strengthening our regulatory compliance 
process through staff training, process 
improvement and audit. 

We have worked hard to improve our 
commercial approach. We have addressed our 
costs and focused on delivering better margins 
and we are pleased to have seen proﬁts grow 
during the year. We continue with our operational 
and cost improvement programmes and are 
investing in new ﬁnance systems which will be 
operational this year. The business is looking 
forward to building on a successful year 
of transformation. 

Greener energy
Last year we continued to build our renewable 
energy business and generated the equivalent of 
33% of our own energy use. We remain on target 
to self-generate energy equivalent to 50% of 
what we use by 2020.

We’ve invested in solar energy this year and 
were able to install 16MW capacity on 30 sites. 
This was an important achievement in the 
timescales available before incentive reductions 
and on all installations we delivered our promise 
of double digit returns. 

Our food waste plant at Coleshill has completed 
its ﬁrst year of operation successfully and 
has met its targets. We have transformed 
48,000 tonnes of food waste into more than 
18,000MWh of electricity and approximately 
30,000 tonnes of biofertiliser for agricultural use. 
More information on our Coleshill food waste 
plant is shown in the above case study.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
40  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Business Services performance review

In 2015/16, we started construction of our second 
plant at Roundhill, Staffordshire, which we 
expect to bring on-line in early 2017. 

We also completed our planned windpower 
investment with the two additional installations 
at our waste water treatment works in Lichﬁeld 
and Stoke Bardolph. 

We continue to maintain our focus on generating 
energy from sewage sludge. At Minworth, 
we operate one of the largest sewage plants 
in Europe and it’s our biggest generator of 
energy. There we inject the biogas we produce 
directly into the national grid where it can 
be used for heating and cooking as well as 
electricity generation. This has proven to be 
very successful and we are exploring other 
opportunities to utilise this technology. We have 
improved our operational effectiveness on 
the site by improving our processes and have 
generated 10% improvement. Again, we’re 
looking at opportunities to apply what we’ve 
learnt to other sites. We are also investing in 
our plant to install Thermal Hydrolysis Process 
technology (‘THP’) which generates more 
gas from the sewage by treating it at higher 
temperatures and pressures.

In addition to renewable generation, we have 
several energy usage reduction initiatives in 
place ranging from investment in new more 
efﬁcient equipment, improving the efﬁciency 
of our operating processes, and importantly, 
changing attitudes and behaviours on 
energy conservation.

All-in-all this remains a very exciting area 
for us and we will continue to explore new 
opportunities. We are on-track to invest up 
to £190 million (including investment by our 
regulated business), in self-generation and 
renewables during the course of AMP6 to deliver 
our target of self-generating the equivalent of 
half of our needs by 2020. 

For further information, please see our 
Corporate Responsibility report on pages 54 
to 63. 

Associated risks

Severn Trent Business Services delivered revenue of 
(cid:133)(cid:25)(cid:26)(cid:24)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:3)(cid:83)(cid:85)(cid:82)(cid:191)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:133)(cid:22)(cid:27)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)

We achieved this performance in the face of several 
associated risks that we continue to address.

Processes

Hazardous processes may cause  
injuries to our people. 

Principal risk ref 8 
Read more Page 52

Failures

Failure of products or treatment processes  
may cause environmental damage and a  
short-fall in regulatory compliance. 

Principal risk ref 4 and 8 
Read more Pages 50 and 52

Principal risk ref 2 
Read more Page 49

Changes

Regulatory or political change may lead to 
decreased demand for our services. 

Competition

We may be unable to take advantage  
of the opening up of the UK retail market 
to competition. 

Energy

We may be exposed to increased  
volatility in energy prices.

Opposition

Local opposition to our plans may affect  
our infrastructure efforts or our ability to 
generate sufﬁcient renewable energy  
to achieve our targets.

Financial review

The Group has delivered strong ﬁnancial results in the ﬁrst year 
of the new AMP. Our Regulated Water and Waste Water business 
has performed well, with reduced operating costs helping 
to offset the impact of the lower prices we agreed in the ﬁnal 
determination. Business Services has delivered growth in both 
sales and underlying PBIT this year and has made good progress 
in renewable energy generation and with the formation of the joint 
venture, Water Plus, we have made good progress in getting ready 
for non-household retail competition in England.

We saw the beneﬁts of our rebalanced ﬁnancing strategy, 
increasing the proportion of our debt that is at ﬂoating rates, which 
has helped to deliver a £30.7 million reduction in ﬁnancing costs 
year on year. Our effective interest rate for the year was 4.5%.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  41

The tables below reconcile our results for the year ended 31 March 
2016 under the old segmental basis (Severn Trent Water, Severn 
Trent Services, and Corporate and other) to the new basis.

Regulated Water 
and Waste Water
Total sales
Underlying PBIT

Severn 
Trent 
Water  
£m
1,550.2 
520.3 

Renewable 
energy 
(regulated)  
£m
(17.5)
(17.6)

Non-
household 
retail  
£m
(391.3)
(10.6)

Additional 
inter-
segment 
sales  
£m

Regulated 
Water and 
Waste 
Water  
£m
364.7  1,506.1 
492.1 

– 

Renewable 
energy 
(regulated 
and non-
regulated)  
£m
34.0 
16.9 

Severn 
Trent 
Services  
£m
233.2 
10.9 

Non-
household 
retail  
£m
391.3 
10.6 

Additional 
inter-
segment 
sales  
£m
16.1 
– 

Business 
Services  
£m
674.6 
38.2 

Our underlying tax rate was 18.5% (2014/15: 17.6%).

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

Business Services
Total sales
Underlying PBIT

(cid:228)(cid:3) Group turnover from continuing operations was £1,786.9 million 
(2014/15: £1,801.3 million), a decrease of £14.4 million or 0.8% 
reﬂecting primarily £31 million lower regulated revenues 
following the agreed 1.5% price reduction.

(cid:228)(cid:3) Underlying PBIT1 of £522.8 million (2014/15: £540.3 million) was 
£17.5 million lower as the reduction in turnover in Regulated 
Water and Waste Water was partially offset by lower operating 
costs in the regulated business and increased operating proﬁts 
in our non-regulated business.

(cid:228)(cid:3) Reported Group PBIT1 was £523.8 million 

(2014/15: £521.6 million).

(cid:228)(cid:3) We recorded an exceptional credit of £1.0 million from 
the release of a prior year provision (2014/15: charge 
of £18.7 million).

(cid:228)(cid:3) Net ﬁnance costs were £209.3 million (2014/15: £240.0 million).

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

as set out in note 8

Changes to segmental presentation
The Group is now organised into two main business segments, 
Regulated Water and Waste Water and Business Services: 

(cid:228)(cid:3) Regulated Water and Waste Water comprises Severn Trent 
Water Limited’s wholesale operations and household retail 
activities and related support functions. 

(cid:228)(cid:3) Business Services comprises the Operating Services 

businesses in the US, UK, Ireland and Italy; the Group’s 
renewable energy business and Severn Trent Water Limited’s 
non-household retail business. 

The Water Puriﬁcation business, which was sold on 2 July 2015, 
has been treated as a discontinued operation.

Corporate and other
Total sales
Underlying PBIT

Corporate 
and other 
(old basis)  
£m
11.7 
(8.6)

Renewable 
energy 
(non-
regulated)  
£m
(8.5)
0.7 

Corporate 
and other 
(new basis)  
£m
3.2
(7.9)

The new segments reﬂect the way we organise and manage the 
Group. Our renewable energy business, including the electricity 
and gas-generating assets owned by Severn Trent Water 
Limited’s regulated business, is now all managed in Business 
Services. We transferred management responsibility for non-
household retail to Business Services, in preparation for further 
competition in these activities from April 2017. This created a clear 
separation between our regulated wholesale and non-regulated 
retail activities.

On 3 May 2016 the Competition and Markets Authority (‘CMA’) 
announced clearance of the proposal to form the Water Plus joint 
venture with United Utilities PLC. On that date the disposal of 
the non-household retail activities to Water Plus became highly 
probable and these activities were reclassiﬁed as a discontinued 
operation and equity accounted. However, as this transaction 
was still subject to CMA approval at 31 March 2016, the results 
of the non-household retail activities are included in continuing 
operations in these ﬁnancial statements.

Comparative ﬁnancial information for 2014/15 on the new basis 
is not available across all segments and so the commentary that 
follows describes year on year performance on the old basis.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
42  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Financial review

Regulated Water and Waste Water
Turnover for the new Regulated Water and Waste Water segment 
was £1,506.1 million and underlying PBIT was £492.1 million.

On a like for like basis, turnover decreased by £31.0 million. 
The price reduction in our Final Determination reduced turnover 
by £30.2 million. This was partially offset by growth from 
new customers and consumption increases of £6.7 million. 
Tariff mix and other effects reduced turnover by £7.5 million. 
Underlying PBIT decreased by £18.7 million as lower operational 
costs partially offset the decline in turnover.

Within our 2015/16 revenue, there is around £11.5 million of 
over-billing against the Final Determination as a result of higher 
consumption and growth in our customer base; this, together 
with a small penalty of about £0.5 million for being outside the 
forecasting corridor, will be returned to customers through 
adjusted bills in 2017/18.

  New basis

Old basis

Turnover
Net labour costs
Hired and 
contracted costs
Bad debts
Power
Other costs

Infrastructure 
maintenance
Depreciation
Underlying PBIT
Adjustment for new 
segmental basis

 2016  
£m

 2016  
£m
1,506.1  1,550.2 
(142.1)

(135.1)

(157.2)
(20.3)
(89.1)
(179.2)
(580.9)

(126.0)
(307.1)
492.1 

(172.3)
(23.7)
(61.8)
(193.8)
(593.7)

(126.0)
(310.2)
520.3 

(28.2)
492.1 

2015  
£m
1,581.2 
(156.0)

(163.8)
(28.4)
(63.9)
(196.4)
(608.5)

(134.8)
(298.9)
539.0 

Better/
(worse)  
£m
(31.0)
13.9

(8.5)
4.7 
2.1 
2.6
14.8 

8.8 
(11.3)
(18.7)

%
(2.0)
8.9 

(5.2)
16.5 
3.3 
1.3
2.4 

6.5 
(3.8)
(3.5)

Net labour costs were 8.9% lower. The beneﬁts of the 
reorganisation carried out at the end of 2014/15 and the closure 
of the deﬁned beneﬁt pension scheme to future accrual more 
than offset the costs of the new employee incentive scheme.

Hired and contracted costs increased by £8.5 million. This is partly 
due to costs incurred in preparation for market opening including 
an increase in contributions to Open Water. In addition, we have 
seen an increase in distribution and tankering costs in our waste 
business and have paid a bonus to our supply chain for support 
on delivering our strong ODI performance.

Bad debt charges improved to 1.5% of turnover – down from 
1.8% in 2014/15 as a result of improved collection performance 
on amounts billed in the year and better management of aged 
debt balances. The provision level against our household debt is 
typically higher than for non-household debt and we therefore 
expect that after the transfer of our non-household business to 
Water Plus, this ratio will increase. 

Power costs decreased by £2.1 million mainly due to the beneﬁt of 
a full year of biogas to grid generation. We continue to make good 
progress on our renewable energy generation, and self-generated 
the equivalent of 33% of gross consumption in the year, providing 
an increasingly effective hedge against energy price volatility.

Material and other costs were £2.6 million lower year on year. 
Higher costs in particular on business rates and abortive capital 
write offs were more than offset by the £4.4 million refund from 
the Environment Agency at half year, and second half gains on 
property disposals were in line with those for the ﬁrst half.

Depreciation increased by £11.3 million, primarily due 
to the growing asset base and an accelerated charge of 
£3.6 million arising from the decommissioning of older 
assets as part of our water quality improvement programme. 
Infrastructure maintenance expenditure was £8.8 million 
lower due to a lower level of activity at the start of the year, 
and improved efﬁciencies in delivering the programme, 
as highlighted in our interim results. 

Return on Regulatory Equity (‘RoRE’)
A key indicator of the performance of the regulated business is 
the Return on Regulatory Equity. Outperformance against the 
Final Determination for Totex, ODIs and ﬁnancing is included 
in RoRE.

Proﬁts reported under IFRS do not reﬂect all of the regulatory 
impacts in the year of performance and may reﬂect the impacts 
of performance in previous years.

Severn Trent Water’s RoRE for the year ended 31 March 2016 is 
set out in the following table:

Base return2 
Totex outperformance3 
ODI outperformance4 
Financing outperformance5 
Other6
Regulatory return for the year 

%1 
5.7 
0.7
0.7
1.4
(0.1)
8.4 

1 Based on RCV of £7,324 million in 2012/13 prices

2 Per Final Determination

3 Company share of Totex outperformance in the year

4  Company assessment of performance, subject to conﬁrmation by Ofwat 

review process in Autumn 2016

5 Based on actual ﬁnancing cost and actual gearing

6  Includes non-household revenue, land sales and disposals, other income  

and the Wholesale Revenue Forecasting Incentive Mechanism

Severn Trent Water’s Totex beneﬁt to RoRE, after taking account of 
sharing with customers was £19 million in 2012/13 prices after tax.

Our assessment of performance on our Outcome Delivery 
Incentives (‘ODI’s) will be published in Severn Trent Water Limited’s 
Annual Performance Report in July 2016. We earned a net reward 
for performance in 2015/16 of £23.2 million before tax at 2012/13 
prices, which is subject to the Ofwat review process in Autumn 
2016. All of this relates to ‘in AMP’ measures, which will be 
reﬂected in increased prices that we will set for 2017/18.

Severn Trent Water’s ﬁnancing costs in 2015/16 were £40 million 
lower than the Final Determination in 2012/13 prices after tax. 
This is due to the impact of lower inﬂation on our index-linked 
debt and nominal interest rates achieved lower than assumed in 
the Final Determination – a consequence of low market interest 
rates and savings arising from our AMP6 ﬁnancing activities. 
In addition, we have a lower debt requirement than assumed in 
the Final Determination.

 
 
 
 
 
Annual Report and Accounts 2016  |  Severn Trent Plc  |  43

Business Services
Turnover for the new Business Services segment was 
£674.6 million and underlying PBIT was £38.2 million. 

Turnover and underlying PBIT on a like for like basis at actual 
exchange rates and on a constant currency basis are shown below:

Gains/(losses) on ﬁnancial instruments
The Group uses ﬁnancial derivatives solely to hedge risks 
associated with its normal business activities including:

(cid:228)(cid:3) exchange rate exposure on borrowings denominated in 

foreign currencies;

2016  
£m

2015  
£m

Increase/
(decrease)  
%

(cid:228)(cid:3) interest rate exposure on ﬂoating rate borrowings; and
(cid:228)(cid:3) exposure 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.

Where derivatives are held to their full term 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 principal of 
£518.1 million and cross currency swaps with a sterling principal 
of £98.3 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 credit 
of £53.8 million (2014/15 charge of £183.4 million in relation to 
these instruments.

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

The Group manages its electricity costs through a combination of 
self generation, forward price contracts and ﬁnancial derivatives. 
The Group has ﬁxed around 37% of the estimated wholesale 
energy usage for 2016/17.

Turnover
As reported
Impact of exchange 
rate ﬂuctuations
Constant currency
Underlying PBIT
As reported
Impact of exchange 
rate ﬂuctuations
Constant currency

233.2 

216.3 

7.8% 

– 
233.2 

8.3 
224.6 

10.7 

–
10.7 

9.7 

(0.1)
9.6 

3.8% 

10.3% 

11.5% 

The results above exclude the Water Puriﬁcation business, 
which was classiﬁed as a discontinued operation in 2014/15.

In our Operating Services business we saw good growth in 
turnover, up 3.8% on a constant currency basis to £233.2 million, 
mainly due to contract gains and additional work in our UK 
business. Underlying PBIT was up £1.1 million to £10.7 million with 
higher proﬁts across all regions.

Corporate and other
Corporate overheads totalled £10.6 million (2014/15: £13.4 million). 
Our other businesses generated a net proﬁt of £2.4 million 
(2014/15: £1.2 million). 

Exceptional items before tax
There was an exceptional operating credit of £1.0 million 
arising from the release of a provision originally recorded as 
an exceptional charge (2014/15: charge of £18.7 million).

Net ﬁnance costs
The Group’s net ﬁnance costs were £209.3 million, down from 
£240.0 million in the prior year. The reduction resulted from the 
actions we took at the end of 2014/15 to increase our exposure to 
ﬂoating rates, lower costs achieved on new ﬂoating rate debt and 
lower ﬁnance costs on our index-linked debt as a result of lower 
inﬂation in the year. Finance costs capitalised were £3.3 million 
lower mainly due to the lower ﬁnance cost incurred.

The effective interest rate, including index-linked debt, for the year 
ended 31 March 2016 was 4.5% (2014/15: 5.4%). The effective cash 
cost of interest (excluding the RPI uplift on index-linked debt) was 
4.2% (2014/15: 4.9%).

The Group’s net interest charge, excluding gains/(losses) on 
ﬁnancial instruments and net ﬁnance costs from pensions, 
was covered 4.3 times (2014/15: 3.7 times) by proﬁt before 
interest, tax, depreciation and exceptional items, and 2.7 times 
(2014/15: 2.4 times) by underlying PBIT.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
 
 
 
 
 
 
 
 
44  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Financial review

Taxation 
The total tax credit for the year was £9.7 million (2014/15: charge of 
£32.7 million).

The current tax charge for 2015/16 was £55.2 million 
(2014/15: £37.8 million). The deferred tax charge before exceptional 
tax was £13.7 million (2014/15: credit of £5.1 million).

There was an exceptional deferred tax credit of £78.6 million 
arising from the change in tax rates (2014/15: nil). This was a 
result of the Finance Act 2015 being enacted in the current year, 
reducing the corporation tax rate from 20% to 18% with effect 
from 1 April 2020.

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 
before tax and gains/(losses) on ﬁnancial instruments was 18.5% 
(2014/15: 17.6%).

Reported Group proﬁt for the period  
and earnings per share 
After a loss of £0.7 million (2014/15: proﬁt of £4.7 million) from 
discontinued operations, reported Group proﬁt for the period 
was £331.3 million (2014/15: £120.2 million). Proﬁt before interest 
and tax was broadly ﬂat year on year. Net ﬁnance costs were 
£30.7 million lower. Amounts charged to the income statement 
relating to ﬁnancial instruments improved by £141.2 million. 
Tax charged excluding exceptional tax was £36.2 million higher 
before an exceptional deferred tax credit of £78.6 million arising 
from the change in corporation tax rate to 18%.

Underlying basic earnings per share (from continuing 
operations, before exceptional items, gains/(losses) on ﬁnancial 
instruments, current tax on gains/(losses) on exceptional items 
and ﬁnancial instruments and deferred tax) was 108.7 pence 
(2014/15: 107.2 pence) (see note 15). Lower ﬁnancing costs largely 
offset the lower underlying PBIT and higher current tax charge.

Basic earnings per share were 139.8 pence (2014/15: 49.9 pence).

Group cash ﬂow

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

2016  
£m 
797.5 
(410.0)
(189.6)
– 
11.5
(44.9)
–
164.5 
45.7 
(197.0)
(89.8)
(76.6)
5.8 
(70.8)
(4,752.6)
(4,823.4)

55.2 
(1,249.8)
(3,539.7)
(117.2)
28.1 
(4,823.4)

2015  
£m
760.1 
(416.1)
(218.2)
(139.2)
10.5
(39.1)
(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)

Net debt at 31 March 2016 was £4,823.4 million (2014/15:  
£4,752.6 million). Balance sheet gearing (net debt/net debt 
plus equity) at the year end was 82.6% (2014/15: 86.1%). 
Net debt, expressed as a percentage of RCV at 31 March 2016 
of £7,829 million was 61.6% (2014/15: 61.4%). 

The fair value of net debt at 31 March 2016 is estimated to be 
£5,686.4 million (2014/15: £5,645.4 million) compared to the book 
value of £4,823.4 million (2014/15: £4,752.6 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 management and liquidity
The Group’s principal treasury management objectives are:

(cid:228)(cid:3) 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;

(cid:228)(cid:3) to manage exposure to movements in interest rates to provide 

an appropriate degree of certainty as to its cost of funds; 

(cid:228)(cid:3) to minimise counterparty credit exposure risk;
(cid:228)(cid:3) to provide the Group with an appropriate degree of certainty as 

to its foreign exchange exposure;

(cid:228)(cid:3) to maintain an investment grade credit rating; and 
(cid:228)(cid:3) to maintain a ﬂexible and sustainable balance sheet structure. 

The Group continues to ensure it has adequate liquidity to 
support business requirements and provide headroom for 
downside risk. At 31 March 2016 the Group had £55.2 million 
(2014/15: £176.7 million) in cash and cash equivalents and 
committed undrawn facilities amounting to £875 million 
(2014/15: £745 million). 

 
 
 
Annual Report and Accounts 2016  |  Severn Trent Plc  |  45

The Group issues notes in foreign currency under its Euro 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.

Pensions
The Group operates two deﬁned beneﬁt pension schemes for its 
UK employees, of which the UK 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 p.a. in subsequent years 
to 2024/25 were agreed. Further payments of £8 million p.a. 
through an asset backed funding arrangement will also continue 
to 31 March 2032. The next triennial valuation, as at 31 March 2016, 
is underway.

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 
£309.5 million as at 31 March 2016. This compares to a deﬁcit of 
£468.9 million as at 31 March 2015. The movements in the net 
deﬁcit can be summarised as follows: 

Present value at 1 April 2015
Change in actuarial assumptions
Asset (under)/outperformance
Contributions in excess of income 
statement charge
Present value at 31 March 2016

2016  
£m
(468.9)
194.2 
(45.9)

11.1 
(309.5)

2015  
£m
(348.3)
(336.8)
193.4 

22.8 
(468.9)

The funding level has increased to 86.8% (2014/15: 81.7%).

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. The Company ﬁnancial 
statements are prepared in accordance with FRS 101.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

The Group is funded for its projected investment and cash ﬂow 
needs up to at least January 2018. 

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

In November 2015 Severn Trent Water Limited completed its 
ﬁrst US Private Placement debt issue raising the equivalent of 
£471 million at competitive pricing with maturities ranging from 11 
to 15 years. The proceeds were received in March 2016 and were 
used to repay the remaining £396 million of our €700 million bond.

The Group’s policy for the management of interest rate risk 
requires that not less than 40% of the Group’s borrowings in AMP6 
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 2016, interest rates for 56% (2014/15: 67%) 
of the Group’s net debt of £4,823.4 million were ﬁxed.

The Group’s long term credit ratings are:

Long term ratings
Moody’s
Standard & Poor’s

Severn Trent Plc
Baa1
BBB-

Severn Trent Water Limited
A3
BBB+

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

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 Limited, 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.

 
 
 
 
 
 
46  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Risk management

Our approach to risk
Managing risk is all about understanding the 
uncertainties surrounding the achievement 
of our aims and objectives. Therefore, risk 
management describes the activities performed 
within our organisation to identify, assess 
and control events which may impact on 
our aims and objectives. We also appreciate 
that uncertainty can manifest itself as both 
negative and positive impacts, hence our goal 
is to minimise these threats and maximise the 
opportunities for the beneﬁt of our customers, 
people, contractors and key stakeholders.

The Board has overall accountability for ensuring 
that risk is effectively managed across the 
Group. The Board’s mandate includes deﬁning 
risk appetite and monitoring risk exposure to 
ensure signiﬁcant risks are aligned with the 
overall strategy of the Group. The management 
of risk is embedded in our everyday business 
activities, with employees encouraged to play 
their part. 

On behalf of the Board, the Audit Committee 
assesses the effectiveness of the Group’s 
Enterprise Risk Management (‘ERM’) process 
and Internal Controls to identify, assess, 
mitigate and manage risk. Internal Audit 
supports the Audit Committee in evaluating the 
design and effectiveness of internal controls 
and risk mitigation strategies implemented 
by management. 

The Executive Committee reviews strategic 
objectives and assesses the levels of risk in 
achieving these objectives. This ‘top down’ 
risk process helps to ensure the ‘bottom up’ 
ERM process is aligned to current strategy 
and objectives. 

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.

Within Severn Trent Water Limited, 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 Limited 
business is such that there are some signiﬁcant 
inherent risks, as illustrated on pages 48 to 53. 
We aim to have a strong control framework in 
place to enable us to understand and manage 
these risks in accordance with our risk tolerance 
and appetite.

The ERM process

The Board
e   Sets strategy and  

determines regulatory  
outcomes
e   Sets business  
plan objectives
e  Deﬁnes risk appetite

ERM team
e  Monitors performance
e   Assesses ERM maturity across 

the Group

e   Provides challenge and insight
e   Reports to Executive Committee, 
Audit Committee and Board

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

actions

In our non-regulated businesses we take a 
more commercial approach to risk. 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’ regulated 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 
pages 48 to 53.

Our Enterprise Risk Management process
We use an established ERM process across the 
Group to assess and manage our signiﬁcant 
risks, which are linked to our corporate 
objectives, core processes, key dependencies, 
stakeholder expectations and legal and 
regulatory obligations. The process is controlled 
by the central ERM team and underpinned by 
standardised tools and methodology to ensure 
consistency. ERM Champions and Co-ordinators 
operate throughout the business, with support 
and challenge from the ERM team, to identify 
and assess risks in their business units quarterly 
against a deﬁned set of criteria considering 
the likelihood of occurrence and potential 
ﬁnancial and reputational impacts. The potential 
causes and subsequent impact of the risks 
are documented to enable the corresponding 
mitigating controls to reduce the likelihood and 
impact to be assessed. This assessment allows 
us to put in place effective mitigation strategies 
to remediate defective controls or implement 
additional controls.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  47

This information is combined to form a 
consolidated view of risk across the Group and 
allows the risks to be prioritised. Our signiﬁcant 
risks, in terms of likelihood and impact, form 
our Group risk proﬁle which is reported to the 
Executive Committee for review and challenge 
ahead of ﬁnal review and approval by the Audit 
Committee and Board half-yearly. In addition, 
individual risks or speciﬁc risk topics are also 
discussed by the Board during the year.

On a quarterly basis, the status of open risk 
mitigation actions across the Group risk proﬁle 
and level of ERM maturity in each business 
unit is reported into the Executive Committee 
by the central ERM team. Where necessary 
improvement plans are agreed to ensure ERM is 
fully embedded and effective. 

An overview of accountability for our ERM 
process is illustrated in the diagram opposite.

Risk appetite
The Board keeps under ongoing review the 
relationship between our strategic ambitions and 
the management of risk. 

The ERM process establishes target risk 
positions for each of our signiﬁcant risks. 
The Board formally discusses the progress 
towards this position and the mitigating actions 
being undertaken every six months. 

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 receives regular updates relating to 
funding, solvency and liquidity matters via the 
Treasury Committee so we can respond quickly 
to any changes in our ability to secure ﬁnancing 
(see Principal Risk 11). The pension fund Trustees 
and the Company regularly monitor our pension 
deﬁcit, with advice from investment managers 
and advisers. An annual pension fund review 
paper is produced for the Board to apprise them 
of fund performance and proposed initiatives 
to manage down pension liabilities and further 
improve investment returns (see Principal 
Risk 10).

The ERM process and relevant risk 
assessments are factored into the stress 
testing to assess the Group’s prospects as 
part of our Viability Statement.

Risk management in practice 
Every day we collect, treat and safely return to the environment, 1.4 billion litres of 
waste water. We use the remaining sludge from the treatment process to generate 
energy by using anaerobic digesters (see pages 39 and 40) and once this has been 
completed we safely dispose of the biosolids, a by-product of the process, by selling 
them for use by the agricultural industry as natural fertiliser. 

If there was ever an issue concerning the quality or safety of the biosolids, and we 
could no longer dispose of them in this way, we would have to use alternatives such as 
landﬁll and/or reopen the Severn Trent Water incinerators that are not currently in use. 
Not only are these alternatives costly for us, but they are less environmentally sound 
and fail to utilise the nutrients still present in the biosolids. 

That’s why, in order to reduce the likelihood of this happening, we have successfully 
achieved Biosolids Assurance Scheme (‘BAS’) accreditation to ensure the quality 
and viability of our biosolids product for use in agriculture. BAS combines legislative 
and non-legislative requirements, along with best practice, to ensure operational 
consistency and hence demonstrate transparency in the delivery of nutrients to 
agriculture. The investment in Thermal Hydrolosis Process (‘THP’) technology will 
help to generate more energy from the sewage treatment process but also reduce 
the quality of the bio solids by-product we have to dispose of, further reducing our 
exposure to this risk.

Long Term Viability Statement
The Directors’ assessment of the Group’s current ﬁnancial position is set out in the Financial review on 
pages 41 to 45 and their assessment of the Group’s principal risks is set out in the Principal risks section 
on pages 48 to 53.

The Company’s principal operating subsidiary is Severn Trent Water Limited, which is a regulated long term 
business characterised by multi-year investment programmes and stable revenues. The water industry in 
England and Wales is currently subject to economic regulation rather than market competition and Ofwat, 
the economic regulator, has a statutory obligation to secure that water companies are able to ﬁnance their 
appointed activities. Ofwat meets this obligation by setting price controls for ﬁve year Asset Management 
Periods (‘AMPs’). This mechanism reduces the potential for variability in revenues from the regulated 
business. The current AMP runs until March 2020.

The Group has an established process to assess its prospects. The Board undertakes a detailed 
assessment of the Group’s strategy on an annual basis and the output from this assessment sets the 
framework for the Group’s medium term plan which is updated annually. 

The plan assessed the Group’s prospects and considered the potential impacts of the principal risks and 
uncertainties. Stress tests were performed to assess the potential impacts of combinations of those risks 
and uncertainties. The plan also considered the mitigating actions that might be taken to reduce the impact 
of such risks and uncertainties and their likely effectiveness.

The Group’s investment programmes are largely funded through access to debt markets. The Group’s 
strategic funding objectives reﬂect the long term nature of the Severn Trent Water Limited business and 
the Group seeks to obtain a balance of long term funding at the best possible economic cost. The Group’s 
Treasury Policy requires that it maintains sufﬁcient liquidity to cover cash ﬂow requirements for a rolling 
period of 18 months in order to mitigate the risk of restricted access to capital markets. The Group’s debt 
maturity proﬁle is actively managed by the Group Treasury department to spread the timing of reﬁnancing 
requirements and to enable such requirements to be met under most market conditions. The weighted 
average maturity of debt at the balance sheet date was 15 years.

Bearing in mind the long term nature of the Group’s business; the enduring demand for its services; the 
nature of the Group’s established planning process and the changing nature of the regulation of the water 
industry in England and Wales, the Directors have determined that three years is an appropriate period over 
which to assess the Group’s prospects and make its Viability Statement.

In making its assessment the Board has made the following key assumptions:

(cid:228)(cid:3) Any period in which the Group is unable to access capital markets to raise ﬁnance during the period 

under review will be shorter than 18 months.

(cid:228)(cid:3) There will not be a catastrophic disruption to our drinking water supplies arising from external factors 

during any such period of market disruption.

The Directors have assessed the viability of the Company over a three year period to 31 March 2019, taking 
into account the Company’s current position and principal risks. Based on that assessment, the Directors 
have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities 
as they fall due over the period to 31 March 2019.

Going Concern Statement
In preparing the ﬁnancial statements the Directors considered the Company’s ability to meet its debts as 
they fall due for a period of one year from the date of this report. This was carried out in conjunction with the 
consideration of the Viability Statement above.

On this basis the Directors considered it appropriate to adopt the Going Concern basis in preparing the 
ﬁnancial statements.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
48  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Principal risks

The Directors have carried out a robust assessment of the principal risks facing 
the Company, including those that would threaten its business model, future 
performance, solvency or liquidity. These have been categorised across: 

(cid:228)(cid:3) customer perception; 
(cid:228)(cid:3) legal and regulatory environment;
(cid:228)(cid:3) operations, assets and people; and
(cid:228)(cid:3) ﬁnancial risks. 
For each risk we state what it means for us and what we are doing to manage it.

Customer perception

What is the risk?

1

What does it mean for us?

We may be unable to improve 
and maintain our levels of 
(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:86)(cid:88)(cid:775)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)
to deliver what our customers 
tell us they want.

Which part of Severn Trent is affected?

Group-wide

Link to how we’re achieving our strategy 
(page 20)

Embed customers at the heart of all we do

Link to our values (page 12)

We put our customers ﬁrst

We are passionate about what we do

We act with integrity

Performance commitments 

ODIs 24-27

We are a regulated utility providing essential services to our customers. We recognise that our customers 
increasingly expect more from us and demand an improved and more consistent experience. As other 
industries improve their levels of service, the bar continues to be raised.

Failure to deliver the service that customers expect will lead to customer dissatisfaction. This may result 
in ﬁnancial penalties under Ofwat’s Service Incentive Mechanism and associated ODI outturn.

What are we doing to manage the risk?

We have continued to focus on driving change to embed customers at the heart of what we do. We have 
developed six core household customer journeys so we understand customer needs and expectations. 
We have delivered some quick wins to augment our existing offering; Track My Job, In My Street, In My Area 
and SMS appointment reminders.

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 improving our web offering and 
digital self-service channels. We are also giving customers more choice in the way that they interact with us 
by introducing new contact channels such as Facebook, and ensuring our current channels are efﬁcient and 
effective, for example we have invested in a strategic webchat capability to ensure we can offer this service 
to reach a broader audience.

We know that providing great customer service needs the right resource so we have introduced a new 
performance and quality framework for our contact centre staff and undertaken capability assessments to 
identify and close any training gaps.

To help make sure we continue to improve our service in line with our customer’s expectations, we survey 
thousands of customers each month through our Rant & Rave tool. This gives us direct feedback on their 
experience of contacting us, and enables us to improve our service, spot trends and react to our customers 
needs. We are continuing to extend our ‘voice of the customer’ approach to capture feedback from more 
interactions across more of our business. We have used this feedback to develop a SIM forecast tool so we 
can predict our ODI performance for our qualitative element.

Movement in net risk exposure

Annual Report and Accounts 2016  |  Severn Trent Plc  |  49

What is the risk?

2

What does it mean for us?

We may be unable to take full 
advantage of the opportunities 
presented by the opening up of 
the non-household retail market 
to competition.

Which part of Severn Trent is affected?

Group-wide

Link to how we’re achieving our strategy 
(page 20)

Change the market for the better

Link to our values (page 12)

We are passionate about what we do

Performance commitments 

N/A

Competition will give non-household 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.

What are we doing to manage the risk?

We are positioning our business to succeed in this market and are actively preparing for the introduction 
of competition to non-household retail in England. The change programmes to govern and manage the 
adaption of our wholesale and retail businesses are well underway and on track for ‘Shadow Operation’ 
which commences in October 2016, and acts as a dress rehearsal for full market opening in April 2017. 
In February 2016, the Board signed the ﬁrst of three ‘Letters of Assurance’ conﬁrming to the Secretary 
of State for the Environment, Food and Rural Affairs that we are on track for market opening.

In March 2016, we announced a proposed joint venture with United Utilities to form a combined non-
household retail business. The joint venture will combine the complementary skills and capabilities of Severn 
Trent and United Utilities to improve our competitive offering for customers, increase efﬁciency and enhance 
value. The introduction of competition into the non-household retail market presents us with an exciting 
opportunity to combine our expertise for the beneﬁt of customers and shareholders.

We are developing a control framework to establish the protocols, policies, systems, guidance and 
training necessary for the operation of separate wholesale and retail business units and to ensure ongoing 
compliance with the relevant legislation, including competition law.

Movement in net risk exposure

Legal and regulatory environment

What is the risk?

3

What does it mean for us?

(cid:58)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:69)(cid:72)(cid:3)(cid:88)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:774)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)
(cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:18)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:192)(cid:88)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)
developments in the UK water 
industry resulting in our business 
plans becoming unsustainable.

Which part of Severn Trent is affected?

Severn Trent Water Limited

Link to how we’re achieving our strategy 
(page 20)

Change the market for the better

Severn Trent Water Limited 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 Limited.

What are we doing to manage the risk?

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 Market Operator Services Limited, the body which will help to 
facilitate competition in the non-household retail market.

We continue to actively participate in discussions with Ofwat regarding the development of the regulatory 
environment and our response to the Water 2020 consultation was submitted in February 2016. 
Engagement with our peers, other regulators, UK Government departments and other stakeholders, 
including the Welsh Government, helps us to inﬂuence the direction of regulatory policy where possible and 
put forward our own case for change in a constructive way.

Investing responsibly for sustainable growth

Movement in net risk exposure

Link to our values (page 12)

N/A 

Performance commitments

N/A

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
50  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Principal risks

What is the risk?

4

What does it mean for us?

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.

What are we doing to manage the risk?

Our governance framework and related policies and internal controls ensure our ongoing compliance with 
all applicable laws and regulations.

The forthcoming introduction of non-household retail competition means we need to refresh our policy 
framework. We are developing a control framework to establish the protocols, policies, systems, guidance 
and training necessary for the operation of separate wholesale and retail business units and to ensure 
ongoing compliance with the relevant legislation including competition law.

Changes to the legal and regulatory environment are captured as ‘emerging risks’ through our ERM process 
with the necessary owners and actions identiﬁed to ensure compliance when the changes come into effect.

Movement in net risk exposure

The regulatory landscape is complex 
and subject to ongoing change. 
There is a risk that processes may 
fail or that our processes may not 
(cid:72)(cid:774)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:78)(cid:72)(cid:72)(cid:83)(cid:3)(cid:83)(cid:68)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)
in legislation leading to the risk 
of non-compliance.

Which part of Severn Trent is affected?

Group-wide

Link to how we’re achieving our strategy 
(page 20)

Drive operational excellence and 
continuous innovation

Change the market for the better

Investing responsibly for sustainable growth

Link to our values (page 12)

We act with integrity

We protect our environment

Performance commitments

ODIs 1-4, 19-23, 30-43

Operations, assets and people

What is the risk?

5

What does it mean for us?

We may experience loss of data or 
interruptions to our key business 
systems as a result of cyber threats.

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.

Which part of Severn Trent is affected?

Group-wide

Link to how we’re achieving our strategy 
(page 20)

Embed customers at the heart of all we do

Drive operational excellence and 
continuous innovation

Link to our values (page 12)

We put our customers ﬁrst

Performance commitments

ODIs 1-4, 5-18, 19-23, 24-37

What are we doing to manage the risk?

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 Centre for Protection of Critical National Infrastructure (‘CPNI’) we have improved 
both our technology controls (security event alerting, enhanced email and web ﬁltering, vulnerability 
management and advanced threat management solutions all installed in the last 12 months) and training 
and awareness (cyber security incorporated into security and awareness training, cyber roadshows to 
raise awareness and online training).

We have also participated in a Government led cyber exercise for the water industry and recently delivered 
a company-wide exercise simulating a cyber attack and subsequent widespread power loss incident. 
Regular penetration testing of our corporate and customer websites is completed by cyber security 
specialists to identify any vulnerabilities and the resilience of our systems through regularly tested disaster 
recovery plans are in place.

Whilst progress has been made during the year to ensure we are better prepared, due to the rapidly evolving 
nature and complexity of the threat, this work will continue. Ongoing monitoring and reviews will ensure that 
our mitigating controls and plans continue to protect us and our customers.

Movement in net risk exposure

Annual Report and Accounts 2016  |  Severn Trent Plc  |  51

Legal and regulatory environment

What is the risk?

6

What does it mean for us?

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.

We need to ensure that our customers can trust and place conﬁdence in the operational performance data we 
publish. Our data assurance needs to be robust to conﬁrm the accuracy and integrity of this information. 

Which part of Severn Trent is affected?

What are we doing to manage the risk?

Severn Trent Water Limited

Link to how we’re achieving our strategy 
(page 20)

Embed customers at the heart of all we do

Drive operational excellence and 
continuous innovation

Investing responsibly for sustainable growth

Link to our values (page 12)

We put our customers ﬁrst

We are passionate about what we do

We protect our environment

Performance commitments

ODIs 1-45

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.

Under our Cleanest Water Plan we have undertaken a signiﬁcant amount of work at our water treatment 
works, boreholes and reservoirs, inspecting the sites and increasing our maintenance and capital 
replacement as well as formalising our processes, standards and operating procedures involved in 
delivering clean water.

We remain committed to investing in continuous improvement activities such as our Value Every Drop 
programme, which has reduced our time to process and react to leaks. We have also reduced total leakage 
and have achieved our regulatory commitment for the ﬁfth year running.

We continued to work to reduce the impact on our customers when things unfortunately do go wrong, 
for example by faster despatch of emergency tankers and providing our employees with a refresh of 
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.

Movement in net risk exposure

What is the risk?

7

What does it mean for us?

Failure of certain key assets or 
processes may result in inability to 
provide a continuous supply of clean 
water and safely take waste water 
away within our area.

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 water treatment works. 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.

Which part of Severn Trent is affected?

Group-wide

Link to how we’re achieving our strategy 
(page 20)

Embed customers at the heart of all we do

Drive operational excellence and 
continuous innovation

Investing responsibly for sustainable growth

Link to our values (page 12)

We put our customers ﬁrst

We are passionate about what we do

Performance commitments 

ODIs 1-4, 5-18, 19-23

What are we doing to manage the risk?

During the year, a total of £72 million was devoted to reducing water quality complaints, achieving compliance 
with water quality standards and reducing coliforms. Under our Cleanest Water Plan we have undertaken a 
signiﬁcant amount of work at our water treatment works, boreholes and reservoirs, inspecting the sites and 
increasing our maintenance and capital replacement as well as formalising our processes, standards and 
operating procedures involved in delivering clean water.

We’ve launched our Operational Effectiveness Programme to ensure maximum asset performance. 
We’re on track to create a suite of 18 major water treatment works that are uniformed and systematic in how 
they’re run. Consistent, undeviating processes that deﬁne how we work, will help us to produce a high quality 
product, regardless of which site it comes from. It will also help us to shave off unnecessary costs.

Our Proactive Asset Management programme has begun to look into how we can better use information 
about our network and assets to prevent failures in the ﬁrst place, reducing impacts on service levels but also 
being more cost-effective rather than carrying out reactive repairs. Our 2015-2020 business plan includes 
substantial investment in some of our largest strategic assets such as the Elan Valley and Derwent Valley 
Aqueducts, one of the major elements of which is the £300 million investment in one of our largest ever capital 
schemes to improve the resilience of our water supply to Birmingham.

We continue to maintain and test our ‘Being prepared framework’ to ensure our business continuity 
arrangements are ﬁt for purpose and the Group can react quickly to safeguard our critical operations. 

In addition to investing in resilience improvements to our network we also have assurance plans in place to 
monitor, inspect and maintain our most critical assets and to ensure clean water is always available to our 
customers and we will always be able to safely take their waste water away.

We will continue to make signiﬁcant investment into our network and processes but we accept there is always 
a risk of unexpected failures, the recent Castle Donington incident being a prime example (see page 17). 
How we respond to these and learn from them is vital in keeping the likelihood of unexpected failures as low 
as possible.

Movement in net risk exposure

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
52  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Principal risks

What is the risk?

8

What does it mean for us?

Due to the nature of our operations 
we could endanger the health and 
safety of our people, contractors 
and members of the public as well 
as negatively impact our local and 
wider environment.

Which part of Severn Trent is affected?

Group-wide

Link to how we’re achieving our strategy 
(page 20)

Drive operational excellence and 
continuous innovation

Investing responsibly for sustainable growth

Create an awesome place to work

Link to our values (page 12)

We protect our environment

We act with integrity

Performance commitments

ODIs 30-41, 42 & 43

The nature of our assets, operations and business are such that threats to the safety of our employees, 
contractors, customers and the wider public exist. Operational failures or negligence could result in damage 
to the environment.

We are responsible for a large estate of assets and have to secure these from unauthorised access to ensure 
our operations are not impacted nor the safety of the public compromised.

What are we doing to manage the risk?

Our 2015–2020 business plan includes substantial investment in community schemes to ensure the risk of 
failure at key points along our Elan Valley Aqueduct, that could cause substantial damage and endanger the 
safety of the public, is further reduced.

We have a well established Health, Safety and Wellbeing framework to ensure all of our operations and 
processes are conducted in compliance with health and safety legislation and in the interests of the safety 
of our people and contractors. Our Goal Zero initiative clearly establishes our target that no one should be 
injured or made unwell as a result of what we do.

There are a number of performance commitments we have made to protect our local environment, including 
river water quality, pollution incidents, biodiversity improvements and environmental compliance. During the 
year, we invested £91 million towards our targets on pollution, environmental compliance, biodiversity 
and sustainable sewage treatment. Continuing our strong track record of delivery from last year, we have 
provisionally been rated 4* by the Environment Agency. 

We recognise the impact our operations have on the wider environment and we want to reduce our 
carbon footprint by seeking lower carbon ways of operating our business and generating renewable 
energy. Our target is to increase the amount of renewable energy we generate and to invest in ways to 
make our processes more energy efﬁcient, such that by 2020, 50% of the energy we use will be from 
renewable sources.

Movement in net risk exposure

What is the risk?

9

What does it mean for us?

We are unable to deal with the 
impact of extreme and unpredictable 
weather events on our assets and 
infrastructure and/or are unable to 
successfully plan for future water 
resource supply and demand due to 
climate change.

Which part of Severn Trent is affected?

Group-wide

Link to how we’re achieving our strategy 
(page 20)

Drive operational excellence and 
continuous innovation

Investing responsibly for sustainable growth

Climate change (hotter and drier summers, wetter winters and increased storminess) could result in an 
inability to meet customer demand, lower river levels, decreased raw water quality, ﬂooding of our water or 
waste water works, sewer capacity being exceeded and increased land movement. Climate change could also 
be a contributing factor for principal risks 1, 6, 7 and 8 detailed above.

There are also some potential opportunities that climate change presents for us, including reduced leakage, 
aquifer recharge and increased biological treatment. It is important that we understand these opportunities 
to maximise the beneﬁts.

What are we doing to manage the risk?

Our climate change adaption report sets out our strategy for coping with future changes to our climate. 

It’s important to note that we don’t consider climate change risks in isolation and we view them alongside 
all the challenges we face. To that effect a large number of our current objectives and targets agreed as 
part of our performance commitments will increase our resilience against climate change, including 
reducing leakage, improving water efﬁciency, reducing properties prone to low pressure, protecting prone 
properties/areas from sewer ﬂooding and increasing the resilience of our water supply and water and waste 
water works.

We are also adapting to climate change through innovation, with 21 catchment management projects and 
a doubling of our sustainable urban drainage (‘SUDs’) projects planned for this AMP.

Our own impact and contribution to climate change cannot be ignored and, as outlined in principal risk 8 
above, there are a number of ways in which we are addressing our impact on the environment.

Link to our values (page 12)

Movement in net risk exposure

We protect our environment

Performance commitments

ODIs 1-4, 5-18, 19-23, 42-43

Annual Report and Accounts 2016  |  Severn Trent Plc  |  53

Financial risks

What is the risk?

10

(cid:47)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:192)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
or underperforming equity markets 
may require us to provide more 
funding for our pension schemes.

Which part of Severn Trent is affected?

Group-wide

Link to how we’re achieving our strategy 
(page 20)

Investing responsibly for sustainable growth

Link to our values (page 12)

N/A

Performance commitments

N/A

What does it mean for us?

We already provide signiﬁcant funding but could be called upon to provide more money to reduce pension 
deﬁcits in our deﬁned beneﬁt schemes.

What are we doing to manage the risk?

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

During the year the Risk Monitoring and Assessment Committee (‘RMAC’) was formed, comprising 
representation from the Company and Trustees. The Committee focuses on monitoring investment 
performance, reviewing scheme risks and operates as a forum for the Company and Trustees to collaborate 
in taking action to minimise the scheme deﬁcit.

Closure during the year of the main deﬁned beneﬁt scheme to future contributions by members was a major 
milestone and will help to cap future growth of the deﬁcit (deﬁned beneﬁt schemes having been closed to new 
members in 2006). 

Movement in net risk exposure

What is the risk?

11

What does it mean for us?

We are unable to fund the business 
(cid:86)(cid:88)(cid:775)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:85)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)
liabilities as they fall due.

Which part of Severn Trent is affected?

Group-wide

Link to how we’re achieving our strategy 
(page 20)

Investing responsibly for sustainable growth

Link to our values (page 12)

N/A

Performance commitments

N/A

We must ensure sufﬁcient liquidity is available to meet our near term ﬁnancial commitments. We have a 
signiﬁcant funding requirement in AMP6, to fund our investment programme and reﬁnance maturing debt. 
This is a well-controlled risk, but it is important that we maintain these high standards to mitigate this risk.

What are we doing to manage the risk?

The risk is managed by our Treasury Committee and their associated policies and procedures through 
detailed cash ﬂow forecasting, access to committed banking facilities, use of diverse lending sources 
including bonds, US Private Placement, European Investment Bank and other bank loans to spread risk, 
early reﬁnancing of bonds and other maturing debt (to manage reﬁnancing risk), interest rate monitoring and 
analysis of the impact interest rates could have on credit metrics and loan covenants. 

The Treasury Committee regularly reports to the Board to enable us to respond quickly to changes in our 
ability to secure ﬁnancing.

See our Viability Statement on page 47.

Movement in net risk exposure

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

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

 
 
 
 
 
 
54  |  Severn Trent Plc  |  Annual Report and Accounts 2016

CORPORATE
RESPONSIBILITY
REPORT

Building Trust

Annual Report and Accounts 2016  |  Severn Trent Plc  |  55

Our approach to Corporate Responsibility aligns with our strategic 
framework. To build trust, serve our communities and leave a lasting 
water legacy we must make sustainable choices and act responsibly 
in a way that demonstrates our values. 

Gordon Fryett
Chairman of the Corporate Responsibility Committee

Our Corporate Responsibility framework

Our purpose 
To serve our communities and 
build a lasting water legacy

Our vision 
To be the most trusted water 
company by 2020

Underpinned by our Corporate Responsibility Commitment 
By adopting responsible business practices and making sustainable choices  
we will be able to meet our purpose and fulﬁl our business strategy.

Our ambitions 

The nature of what we do means that we have an important role to play in protecting 
water as a precious resource and the wider environment. We have identiﬁed two 
stretching ambitions which will help us to achieve both our vision and purpose.

Ambition One 
We will make our region the most 
water efﬁcient in the UK

Ambition Two 
We will play a leading role to help make  
our region’s rivers even healthier

Our values

Through our company values we will deliver commitments expected of a leading, 
socially responsible company. We also expect our suppliers to support our values.

We put our  
customers ﬁrst

We are passionate 
about what we do

We act  
with integrity

We protect our 
environment

We are inspired 
to create an 
awesome company

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
56  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Corporate Responsibility report

Our responsible commitments and our performance against them 

Our Corporate Responsibility framework is centred around the issues that are most important to our 
customers and the most material issues underpinning our performance as a sustainable business. 
(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:191)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:86)(cid:87)(cid:68)(cid:78)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:79)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:87)(cid:68)(cid:78)(cid:72)(cid:81)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3)(cid:51)(cid:53)(cid:20)(cid:23)(cid:3)
(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:50)(cid:39)(cid:44)(cid:86)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:68)(cid:80)(cid:69)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:90)(cid:72)(cid:3)(cid:90)(cid:68)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:79)(cid:3)(cid:76)(cid:81)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:86)(cid:3)
provide key areas of focus. Each commitment has tough measures associated with it and are subject 
to a rigorous ongoing review to ensure they remain appropriately challenging. We will continue to 
develop our metrics where required.

Objective

Our commitment

We will provide 1,000 of our business 
customers with water efﬁciency 
devices and personal advice, working 
with our wholesale suppliers to 
reduce consumption
We will empower our customers to 
save up to 25Ml/d by 2020
We will improve understanding of 
our services through education

Ambition One: 
We will make our 
region the most 
water efﬁcient 
in the UK

How we are measuring 
our performance

Number of efﬁciency interventions we have 
carried out for our business customers, 
including audits, educational sessions 
and bespoke advice

15/16 
RAG***

This year’s 
performance

2015/16 
target

54

50

2020 
target

1,000

Water efﬁciency level achieved

4.32Ml/d

5MI/d

25MI/d

Number of customers we have educated 
from 2015 to 2020

117,728

155,000

700,000 
(cumulative  
over AMP6)

Ambition Two: 
We will play a 
leading role to 
help make our 
region’s rivers 
even healthier

We will work with landowners and partner 
organisations to reduce agricultural run-off in 
our region’s rivers
We will do our fair share to achieve Water 
Framework Directive good ecological 
status in our region’s failing water bodies, 
where it is cost-effective to do so

Positive engagement with land managers 
in targeted areas by end of AMP6

Number of Water Framework Directive 
classiﬁcation improvement points (as 
monitored by the Environment Agency) 

We will improve biodiversity in our region 
by improving at least 75 hectares of Sites 
of Special Scientiﬁc Interest (SSSI)

Number of hectares improved from 
unfavourable or deteriorating condition 
using Natural England’s database of SSSIs

We provide a service to our customers that is 
good value for money

We put our 
customers ﬁrst

We help our customers who are in genuine 
need and struggling to pay their bills 

% of customers who rate our service 
value for money in an independent 
quarterly survey
Number of customers we help 
each year through social tariffs 
and assistance schemes

4%

4%

80%

0

0

0

0

233  
(cumulative  
over AMP6)

75

57.5%

57%

55%

24,110

35,000

50,000

Our employees are passionate about what 
we do

Group % engagement score from our 
annual employee survey

52%

50% 

We involve our customers in our plans, 
and we’re honest about how they think 
we’re doing

We will invite the independent Water 
Forum to review and comment on our 
annual performance

 –

4 Water Forum 
meetings held 
this year

We do everything we can to prevent polluting 
the environment

Number of Environment Agency Category 
1 & 2 incidents (Calendar year metric)

We reduce our carbon footprint

% reduction in Group carbon emissions  
(scope 1 and 2) 

Our colleagues and community are not 
hurt or made unwell by the work we do

We believe a diverse and inclusive workforce 
is a key factor in being a successful business

We are a responsible payer

STW – LTI rate

Business Services – LTI rate
STW – Total workforce % Female

 –

Group – Total workforce % Female 

STW – Total workforce % BAME 

Group – Total workforce % BAME

% invoices paid on time (12 month 
ﬁnancial year average)

2

8%

0.25

0.17
30.3%

28.95%

7.64%

13.86%

96.4%

–

>8

4%

0.18

–
30%**

–

6.0%**

–

95%

B
e
n
c
h
m
a
r
k
*

B
e
n
c
h
m
a
r
k
*
*

–

–

0

19%

–

–
–

–

–

–

95%

We are passionate 
about what we do

We act with  
integrity

We protect our 
environment

We are inspired 
to create an 
awesome company

Our suppliers 
support our values

* Global benchmark from Aon Hewitt 
** Business in the community industry benchmark 2014
*** Against target

On track

Slightly off track

Off track

 
 
 
 
 
 
 
 
Annual Report and Accounts 2016  |  Severn Trent Plc  |  57

Our ambitions 

In order to achieve our vision of being 
the most trusted water company 
by 2020, we will demonstrate 
environmental leadership wherever 
we operate. The nature of what 
we do means that we have an 
important role to play in protecting 
and sustaining water as a natural 
resource and the environment as a 
whole. We take water from rivers 
and aquifers, transport it over large 
distances to our customers, and 
return treated waste water to rivers 
in our region. In the future, our ability 
to achieve this will be challenged 
by matters such as maintaining the 
resilience of our supplies, ensuring 
we continue to source water 
sustainably, meeting tightening 
environmental standards, coping 
(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:72)(cid:91)(cid:87)(cid:85)(cid:72)(cid:80)(cid:72)(cid:3)(cid:90)(cid:72)(cid:68)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:20)(cid:17)(cid:25)(cid:3)
(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:72)(cid:82)(cid:83)(cid:79)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:79)(cid:76)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:72)(cid:91)(cid:87)(cid:3)(cid:21)(cid:24)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:17)(cid:3)
We are committed to meeting these 
challenges, which form the basis of 
our two ambitions, and will help us to 
achieve our vision and purpose as set 
out in this report. 

Ambition One: 
We will make our region the most 
water efﬁcient in the UK 

We aim to do this through providing 
advice, equipment and education.

We will empower our customers to save up to 25Ml/d by 2020
We know water efﬁciency is important to our customers and we are committed 
to helping them to become more water efﬁcient and have set ourselves an 
ambitious target to help them save 25 mega litres per day (Ml/d) by 2020. 
Through helping our customers and by continuing to reduce leakage we want to 
make our region the most water efﬁcient in the UK.

We will provide 1,000 of our business customers with  
water efﬁciency devices and personal advice, working with  
our wholesale suppliers to reduce consumption
As part of our standard service to our key corporate customers, we engage with 
them on water efﬁciency discussions and also conduct site audits to help them 
manage their water consumption and costs. In 2015/16 we provided this advice 
to 20 of our key corporate customers and conducted 54 site audits, including 
ASDA, Next and several large universities, and completed 280 water efﬁciency 
audits with smaller businesses in Nottingham. In addition to this, we are working 
to provide third party consultancy, at no cost to customers, in key parts of our 
region. This is a joint engagement between our wholesale and retail teams. 
We are developing a segmented customer approach to engagement depending 
on their size and water efﬁciency needs. 

We will improve understanding of our services through education 
Our customers told us they want to better understand what we do. This year we 
set up our new Community Relationship Team who are focused on delivering 
two key messages: the importance of water efﬁciency, and ensuring our drains 
remain clean and blockage free. This work is really important in protecting 
our environment and our customers from pollutants and external and 
internal ﬂooding. In 2015/16, through a number of partnerships including local 
universities and City Councils, we have been able to educate 117,728 customers, 
a number which we anticipate will increase substantially. These partnerships 
are mutually beneﬁcial; preventing blockages proactively in both our customers’ 
networks and ours. Through education and training packages on water efﬁciency 
we also enable customers with the potential to reduce their water usage and 
therefore water bills. 

Water efﬁciency achieved this year

4.32 Ml/d

Customers educated

117,728

in 2015/16

New water efﬁciency home 
check programme
This year we launched our new water efﬁciency 
home check programme, starting in the Rugby 
area. Customers in and around the area can sign 
up for a free home check, where Severn Trent 
contractors, PN Daly, visit the customer’s home 
and ﬁt free water saving devices, offer advice on 
how they can save water and check for simple 
leaks. This free service will help customers save 
water, energy and money. So far we’ve completed 
5,590 home checks and we aim to deliver more 
in the future.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
58  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Corporate Responsibility report

Ambition Two: 
We will play a leading role to help make 
our region’s rivers even healthier

We aim to achieve this through working with  
landowners and partner organisations, achieving good 
ecological status and improving biodiversity. 

We will work with landowners and partner organisations to reduce 
agricultural run-off into our region’s rivers
Partnerships such as those with Wye & Usk Foundation, Trent Rivers Trust, Severn 
Rivers Trust, Catchment Sensitive Farming and Nottinghamshire Wildlife Trust 
have been key to helping us deliver our AMP6 catchment ambitions. Through these 
partnerships we are reducing agricultural run-off, such as pesticides getting 
into the water and polluting it, therefore improving river water quality, reducing 
treatment costs and improving the river environment as a whole. Our catchment 
team, alongside a range of moorland partners, have been successful in securing 
€16 million of EU support to deliver our targets in the Bamford catchment. 

Newly recruited agricultural advisers will play a vital role in engaging with 
farmers across 27 catchments, which is a core part of our catchment 
scheme delivery. The team have received a pleasing number of Severn Trent 
Environmental Protection Scheme (‘STEPS’) applications during their ﬁrst 
farmer grant applicant window. The work is aimed at improving water quality 
in our catchments. Applicants have ranged from improved pesticide handling 
facilities to rainwater harvesting equipment. STEPS grants will be available to 
farmers in priority catchments annually until 2020. In 2016/17 we will continue to 
focus on farmer engagement speciﬁcally in groundwater catchments, setting up 
and running ‘Farmers as Producers of Clean Water’ and metaldehyde product 
substitution schemes in our surface water catchments. 

We will do our fair share to achieve Water Framework Directive 
(‘WFD’) good ecological status in our region’s failing water bodies, 
where it is cost-effective to do so
In AMP6 we will be delivering our largest ever environmental improvement 
programme, spending over £300 million to deliver improvements to rivers 
throughout our region, a programme which is supported by our customers 
who wanted to see us do more to improve river water quality.

Our investment programme seeks to contribute our fair share of the 
improvements needed to get targeted river lengths within our region to ‘good 
ecological status’, to support the WFD objective to get all water bodies (lakes, 
rivers etc) to this status. The majority of improvements are targeted at sewage 
treatment works to produce a higher quality efﬂuent, which will in turn help 
improve river water quality. This investment will deliver new or improved assets 
onsite and involve complex capital schemes. We have worked closely with the 
Environment Agency in order to optimise the environmental beneﬁts of our 
programme. We are also reducing abstractions by 85Ml/d from sources that 
are no longer environmentally sustainable. 

We will improve biodiversity in our region by improving at least 75 
hectares of Sites of Special Scientiﬁc Interest (‘SSSIs’)
Planning has been our primary focus this year to date, identifying all 11 SSSIs and 
Special Areas of Conservation that Severn Trent will be improving over AMP6, 
allocating specific projects to be undertaken to either improve or stop deterioration 
at each site and setting up monitoring processes. We have been working closely 
with Natural England to determine a methodology for capturing improved 
biodiversity and clarifying the details of our performance commitment, with the 
support of our customer challenge group, the Water Forum.

Farmers engaged with since Agricultural 
Advisers in place (October 2015)

762

WatersideCare
Working with our project partners Keep 
Britain Tidy, the Environment Agency and 
the Canal and River Trust, we are proud to 
be supporting the WatersideCare volunteers 
to breathe new life into their local rivers and 
canals. There are over 50 community groups 
in the Midlands who work hard to improve 
their local environment by clearing litter 
from river stretches, increasing awareness 
of the effects of pollution, managing invasive 
species and monitoring their local aquatic 
environment. At the end of the ﬁfth year of 
the partnership, they have cleared 7,606 
bags of litter, removed 1,130 bulky items 
from waterways, reported 48 suspected 
misconnections and 15 environmental 
crimes, giving an impressive 30,481 hours 
of their time to their local waterways.

Innovation in integrated 
water management 
In Tyseley, Birmingham, we’re leading on the 
creation of a community scale, model site, 
to demonstrate the practicality and societal 
beneﬁts of integrated water management. 
Working with the community and a range of 
partners we are trialling a number of innovative 
measures including new water efﬁciency 
products and rain water harvesting for toilet 
ﬂushing to reduce water consumption and our 
customers’ bills. The outcomes will inﬂuence our 
investment elsewhere to ultimately beneﬁt all 
our customers.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  59

Number of customers 
we’ve helped this year

24,110

Number of customers 
we aim to help each 
year during AMP6

50,000

We put our customers ﬁrst

Customers are at the heart of all we do and 
this means putting them ﬁrst. We invest time to 
listen to our customers. We work hard to design 
an experience they expect and translate it into 
our business plans. We put our customers and 
communities ﬁrst, aim to provide a service that 
is value for money, help our customers who 
struggle to pay their bills and to make a positive 
difference through volunteering.

We put our customers and communities 
ﬁrst when carrying out our work
We recognise that planned and unplanned 
work on our networks can cause disruption. 
In February 2015 we launched ‘Customers 
and Communities First’, our guide to help our 
colleagues and one of our supply chain partners 
deliver a great customer experience every time 
they carry out planned work. It explains what 
we need to do and who we need to engage 
with before work begins, during and after our 
work is complete. We seek feedback from our 
customers at the end of every scheme to ensure 
we successfully learn from experiences, sharing 
areas for improvement and best practice.

We provide a service to our customers 
that is good value for money
Our customers pay the lowest combined water 
and waste water bills in the UK, and will continue 
to do so in AMP6. However, our research shows 
that customers want more than just low bills, 
they expect us to make a positive difference 
especially when it comes to our investments and 
the environment. Operating efﬁciently, we are 
able to do both of these things and provide good 
value for money to customers. In an independent 
quarterly study of our customer base, 57.5% of 
our customers consider us good or very good 
value for money. 

We help our customers who are in genuine 
need and struggling to pay their bills
We work hard to ensure our bills are affordable, 
but we understand that some customers 
may need additional assistance. We can help 
customers through a review of their account and 
support through one of our affordability schemes 
such as metering, Watersure and our new social 
tariff, the Big Difference Scheme. We launched 
the Big Difference Scheme, in April 2015, which 
offers between a 10% and 90% reduction to the 
average bills. 

In 2015/16, we assisted 24,110 customers. 
Our target was 35,000, however, in the early part 
of the year application volumes were lower than 
expected, due in part to challenges engaging 
with the customers who need our support. 
We also believe that the perceived social stigma 
associated with seeking ﬁnancial support may be 
affecting applications. We have new engagement 
plans in place for 2016/17 and are determined 
to support more of our customers who need it 
the most. 

Severn Trent Trust Fund provides assistance 
to those in the most ﬁnancial difﬁculty.  
For more information on the support we offer 
our customers, see page 30.

Our people make a positive difference in 
the community through volunteering
In February 2016, we launched our programme 
of activity ‘Love Our Network’, focusing on 
volunteering, education and network vigilance 
under the headings of ‘Love to Care’, ‘Love to 
Share’ and ‘Always Aware’. We have worked 
with our employees and our newly established 
employee community panels, to steer our 
approach to volunteering throughout the 
business. Following a vote by our employees, 
we support two charities; continuing our support 
with WaterAid and a new partnership with 
Make-A-Wish Foundation. In addition to this, 
we will support national set piece fundraising 
events, and local teams will be able to select the 
causes they wish to raise funds for, volunteer 
or do team building activities for. All employees 
have two days paid volunteering leave available 
to them per annum. We encourage volunteering 
in support of our two CR ambitions around water 
efﬁciency and healthier rivers and ensure that 
all volunteering activities are conducted in a 
safe manner. 

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
60  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Corporate Responsibility report

We act with integrity

Being trusted means always doing the right 
thing for our customers, communities, investors, 
regulators and colleagues. This means that we 
will never tolerate fraud, bribery or corruption 
– and that we only ever work with suppliers and 
partners who care about this as much as we do.

Our employees are not afraid to  
stand up for what’s right
We believe it is important that employees feel 
able to speak up and are conﬁdent they can 
raise issues and concerns, whatever the nature. 
Openness and transparency are both key to this, 
and form part of how we want to do business. 
Sometimes, however, that isn’t enough, and 
this is where our Whistleblowing Policy comes 
into play. The process is easily accessed, widely 
communicated and acted upon. 

We involve our customers in our plans, 
and we’re honest about how they think 
we’re doing

We will invite the independent Water  
Forum to review and comment on our  
annual performance.

The Water Forum is an independently chaired, 
multi-stakeholder group that has a continuing 
role to challenge whether we are delivering our 
commitments to our customers, and how we 
communicate that performance. Over the past 
year the key areas of focus have been how we 
measure and share our AMP6 performance 
and the development of our assurance plan and 
risk statement. In both areas the Water Forum 
were invited to challenge our proposals and the 
insight they provided shaped our ﬁnal approach. 
To gain greater understanding of our customers, 
Water Forum members were invited to attend 
customer research focus groups undertaken 
as part of the non-household retail tariff review 
programme. This will enable members to 
comment on the outputs of our research that 
will form part of our submission to Ofwat in July 
2016. We are developing a new performance 
report that is aimed towards our household 
customers and will share our performance in a 
clear and accessible format. This is the ﬁrst year 
it will be published and we will work to develop it 
throughout the AMP.

We make a constructive contribution 
to developing sustainable and resilient 
water and waste water services

We will publish our consultation responses 
on our website. We report annually on the 
initiatives we have taken to contribute. 

We have been at the forefront of contributing to 
the Government’s policy debate regarding the 
long term structure and regulation of the water 
industry. In our two most recent publications, 
Changing Course and Charting a Sustainable 
Course, we have developed and published 
ideas ranging from customer empowerment, 
affordability, resilience, ﬂooding and drainage, 
sustaining the environment and the role of 
competition and markets. 

We are committed to working with all key 
stakeholders to ensure that we promote a 
constructive and engaging debate about the 
future of the water sector. Responding to 
public consultations is a key component of this 
debate and it is essential that we use these 
opportunities to share our views and to seek 
to shape the outcome. We also believe that it is 
imperative that our customers can see what we 
are saying and how we are working to safeguard 
these essential services for today and tomorrow. 
We achieve this by publishing our responses to 
consultations on our website so that customers 
can read and understand the issues that 
affect them.

Performance management 
based on behaviours
Our employees live our values
Ensuring our employees ‘Do the Right 
Thing’ and act with integrity forms a crucial 
part of our performance management 
framework which is called ’Inspiring 
Great Performance’, with behaviours 
making up 50% of our performance rating. 
Inspiring Great Performance details our 
behaviour models and the behaviours you 
need to be a great colleague within Severn 
Trent. We truly want everyone to be the best 
they can be and to reach their full potential 
and Inspiring Great Performance is at the 
heart of helping everyone to do just this.

We protect our environment

Acting responsibly and sensitively towards the 
environment and taking environmental issues 
seriously is key to how we are judged as a 
company and as an industry. Our environmental 
responsibilities extend far beyond the 
treatment of water and waste water to keep 
our rivers clean. We aim to play a leading role 
in promoting water as a vital resource, mitigate 
our environmental impact and to work with 
suppliers and partners to achieve this. It is also 
important that we engage constructively with 
regulators and other stakeholders to ensure a 
sustainable water industry. In our CR report, 
we focus on preventing pollutions and reducing 
our carbon footprint. 

We do everything we can to prevent 
polluting the environment 
Cleaning waste water means that we have to 
deal with unpleasant or dangerous substances 
that, if discharged to a watercourse untreated, 
could cause a serious pollution event. In 2015 we 
had two serious pollutions. This is a signiﬁcant 
improvement on our 2014 performance 
where there were eight serious pollutions. 
This reduction has been achieved through 
continued investment in high risk assets, 
improving our operational processes and 
investigating third party sources of pollution 
entering our network. Our highest risk of 
pollution continues to be sewer blockages, 
resulting in sewage entering watercourses. 
In 2016, we will be installing over 500 monitors 
at high risk locations to detect the formation of 
blockages, in order to proactively resolve the 
issue before a pollution is caused. Our goal is 
to have zero serious pollutions (Environment 
Agency Category 1 or 2) by 2019.

We have been awarded a provisional 
environmental performance rating of 4*  
by the Environment Agency. 

Annual Report and Accounts 2016  |  Severn Trent Plc  |  61

We reduce our carbon footprint
We are reducing our carbon emissions year on year, primarily by being more 
energy efﬁcient and generating more renewable energy. We’ve seen a consistent 
reduction since 2002 when we began publicly reporting on our greenhouse 
gas emissions.

Severn Trent Water Carbon Emissions

800

700

600

500

400

300

200

100

e
2
O
C
t
k

0

2002-03

Key

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

Early Reporting
Industry-agreed methodology (latest Defra factors each year)

ODI Target Combined W&WW (uses 2013 grid factor)

Source: Annual regulatory returns – data subject to external assurance each year.

ODI Measure Combined W&WW (uses 2013 grid factor)

Reduction in Group 
carbon emissions 
since 2014/15

8%

CLIMATE 
DISCLOSURE 
LEADER 2015

We have held the Carbon Trust Standard since 
2009 in recognition of consistent emission 
reductions and effective carbon management 
processes. Our performance against the standard 
is in the top 15% of all organisations. We have 
seen a year on year improvement in our Carbon 
Disclosure Project (‘CDP’) score. 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. This year we were recognised 
in the carbon disclosure leadership index 
for the ﬁrst time (99/100), for demonstrating a 
considerable improvement from our previous 
CDP submission (2014: 85/100). This is largely 
due to our updated climate change risk assessment 
and the adaptation action report. 

Journey towards 
sustainable transport
We own a ﬂeet of approximately 2,700 vehicles 
and in October 2015 we tendered for new 
vehicles that are industry leading on CO2 
emissions and fuel efﬁciency. We measure the 
weekly statistics from these vehicles including 
CO2, miles driven, fuel used and empty miles. 
In 2012/13 we also purchased three Euromec 
electric vehicles for ground maintenance, which 
we will continue to purchase through AMP6. 

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
 
62  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Corporate Responsibility report

Climate change adaptation – Future Prooﬁng
This year we conducted a thorough analysis of the risks that climate 
change poses to us and our adaptation actions. 

The main risks posed by climate change are:

(cid:228)(cid:3) increased pressure on our water resources and the higher 

costs associated with meeting our customers’ needs;

(cid:228)(cid:3) higher levels of rainfall mean run-off exceeds the capacity of 

our sewer systems and our storage capacity; and

(cid:228)(cid:3) decrease in raw water quality as a result of run-off from ﬁelds 

carrying pollutants such as pesticides. 

To deal with these risks, we are investing to improve our resilience, 
including £300 million in a scheme to provide an alternative water supply 
to Birmingham. This allows us to carry out vital improvement work to 
the robust but ageing Victorian aqueduct that brings the city’s supplies 
from mid-Wales. Liv Garﬁeld, Severn Trent Chief Executive, said: “We’re 
looking forward to delivering our plans for 2015 to 2020. Climate change 
presents a big challenge to us, yet it is a challenge that we can respond 
positively to.” The full report, which details the actions taken to adapt to 
climate change and to improve resilience, is available at:  
www.stwater.co.uk/environment/adapting-to-climate-change. 

During the year, we increased renewable 
energy generation from food waste, energy 
crop, sewage sludge, wind and solar power. 
Generating an equivalent of 33% of Severn 
Trent Water Limited’s electricity needs, we 
continue to lead the UK water industry, with an 
aim of building on this position by generating 
the equivalent of 50% of our electricity needs by 
2020. For more information see our Business 
Services performance review on pages 36 to 40.

Over the long term we aim to reduce our carbon 
emissions and increase our renewable energy 
generation. We plan to continue to reduce our 
emissions within Severn Trent Water Limited by 
a further 5% between 2015 and 2020, primarily 
by reducing our energy use and to continue 
to increase our renewable energy generation 
mainly within Business Services. 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.

Severn Trent Plc Direct Operational Greenhouse  
Gas Emissions (tonnes CO2e) * (‘GHG’)

2015/16

2014/15

2013/14

Emissions from combustion of fuel and  
operation of facilities (Scope 1)

Emissions from electricity purchased  
for own use (Scope 2)

156,979

169,211

169,844

337,028

357,756

330,679

Total Annual Gross Operational Emissions

494,008

526,968

500,523

Emissions beneﬁt of the renewable energy  
we export (including biomethane exported  
for which we hold green gas certiﬁcates)

45,085

38,878

21,672

Total Annual Net Operational Emissions

448,923

488,090

478,851

Annual GHG intensity ratio (t CO2/unit)

2015/16

2014/15

2013/14

Operational GHG emissions of Severn Trent  
per £m turnover

270.7

276.0

269.6

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 Jacobs.

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. 

Our GHG emissions are reported in tonnes of carbon dioxide equivalent (tCO2e), the year ended 31 March 
2016. For Severn Trent Water Limited, we have calculated our emissions using the ‘Carbon accounting 
in the UK Water Industry: methodology for estimating operational emissions, Version 10’ (released April 
2016). 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. For continuity, we have used the same global warming potential values 
throughout the three years of our reporting in this Annual Report and Accounts.

*Severn Trent Water Limited accounts for 98% of our total Group emissions

Annual Report and Accounts 2016  |  Severn Trent Plc  |  63

We are inspired to create 
an awesome company

Our people are essential to achieving success. 
We aim to create an awesome place to work 
for our employees in part by looking after their 
health, safety and wellbeing and encouraging 
diversity and inclusiveness.

Our colleagues and community are not 
hurt or made unwell by the work we do
Our vision for health, safety and wellbeing is that 
– ‘no one gets hurt or is made unwell by what we 
do’. We are working with the business to develop 
a road map to Goal Zero to set out exactly what 
we need to do to achieve our vision between now 
and 2017. A major focus this year has been on 
compliance with our health, safety and wellbeing 
(‘HSW’) standards and developing action plans 
to drive further improvements. This activity is 
complemented by regular ‘Thinking Out Loud’ 
campaigns, where our people submit their ideas 
on how to encourage everyone to follow our HSW 
standards, every time and every day. We also 
seek to ensure that members of the public are 
not injured as a result of our work. The ‘Love Our 
Network’ app was launched as a trial in January 
2015, facilitating easy reporting of network issues 
and therefore protecting our communities from 
slips, trips and falls. 

Our suppliers support 
our values 

We want our supply chain to both live by and 
reﬂect our values and as such require all 
suppliers to sign up to ‘Doing The Right Thing’ 
– our Code of Conduct. 

It’s also important to us that we are a responsible 
payer, and that’s why throughout 2015/16 we 
have worked hard to improve our payment 
to terms, part of which has involved bringing 
more suppliers onto self-bill to ensure a quicker 
‘procure to pay’ process. This year we paid 96.4% 
of our invoices on time.

(cid:21)(cid:19)(cid:20)(cid:24)(cid:18)(cid:20)(cid:25)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:86)(cid:72)(cid:72)(cid:81)(cid:3)(cid:88)(cid:86)(cid:3)
visit a busy schedule 
of school career 
events, raising 
awareness of our 
career opportunities 
and providing 
employability support 
across our region.

DIGITAL FIRST

Visit our online annual  
report to ﬁnd out more: 
ar2016.severntrent.com

We are investing in the wellbeing of our 
colleagues to help them provide the best 
service they can
This year we launched our ﬁrst ever Wellbeing 
Programme, focussing our efforts on mental 
health. The programme has received really 
positive engagement and we have seen a 
steady decline in absence due to mental health. 
For more information, please see our case study 
on page 25.

We believe a diverse and inclusive 
workforce is a key factor in being a 
successful business
As a customer focused organisation, we need 
our workforce to reﬂect the customers and 
communities we serve to ensure we understand 
and can respond to their needs. 

We have prioritised three key areas: women in 
operational leadership positions, women and 
BAME (Black, Asian and Minority Ethnic) people 
in engineering positions and BAME people in 
technical operator positions. This year we have 
worked to ensure that our workplace is not 
only diverse but that it also inclusive and our 
colleagues feel that they can be themselves at 
work, for example recognising major faith days. 
We continue to work with Business Disability 
Forum to support disability at work. 

Our approach to diversity and inclusion has 
seen a steady development in recent years, 
as evidenced with a silver classiﬁcation from 
Business in the Community ‘BITC’ following its 
2015 diversity survey.

We are committed to improving the sustainability 
and resilience of our supply chain, which will 
form an area of focus going forward. 2016/17 will 
see further developments and initiatives focusing 
on collaborative working with our suppliers, 
to identify and manage both environmental 
and social elements we could improve in 
line with our core values and Corporate 
Responsibility framework. 

The strategic report, as set out from the inside front cover through to page 63, 
has been approved by the Board.

By order of the Board

Bronagh Kennedy
Group General Counsel and Company Secretary

23 May 2016

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
64  |  Severn Trent Plc  |  Annual Report and Accounts 2016

GOVERNANCE
REPORT

Governance
65  Chairman’s letter
66  Board of Directors
68  Executive Committee
69  Governance report
79  Nominations Committee
82  Audit Committee
86  Corporate Responsibility  

Committee

89  Remuneration Committee
102  Directors’ report
106  Directors’ Responsibilities  

Statement

Chairman’s letter

Annual Report and Accounts 2016  |  Severn Trent Plc  |  65

Andrew Duff
Chairman

UK Corporate Governance Code 
Compliance Statement 
The version of the Corporate Governance Code 
applicable to the current reporting period is the 
September 2014 UK Corporate Governance Code 
(the ‘Code’). The Code is available on the Financial 
Reporting Council’s website (www.frc.org.uk). 

Severn Trent Plc was compliant with all relevant 
provisions of the Code except that in relation to Code 
provision C.3.5, for part of the year, the review of 
the adequacy of arrangements of the Company’s 
whistleblowing procedures fell within the remit 
of the Corporate Responsibility (‘CR’) Committee, 
rather than the Audit Committee. This divergence 
from the Code was addressed in October 2015. 
The Terms of Reference of the Audit Committee have 
been updated to reﬂect this change and can be found 
on our website (www.severntrent.com).

Both the Audit Committee and the CR Committee 
review reports on all whistleblowing allegations at 
their meetings.

Dear Shareholder
I am pleased to introduce our Governance report for 2016 on behalf of your Board 
in accordance with the September 2014 UK Corporate Governance Code (the 
‘Code’). Severn Trent has complied with all relevant provisions at the year end, 
having expanded the remit of the Audit Committee to consider the adequacy of 
whistleblowing arrangements (this was formerly a matter for the Corporate 
Responsibility (‘CR’) Committee) as detailed on page 86.

My role, together with the Board, is to ensure that Severn Trent operates to the 
highest standards of corporate governance within a well-developed framework 
to effectively deliver the Group’s strategic objectives and to meet its obligations 
to the Company’s stakeholders. Ultimately, effective governance is integral to the 
successful delivery of our business objectives. It 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. We also have clearly deﬁned values and standards of behaviour which 
we expect from everyone who works for Severn Trent. 

My focus continues to be on maintaining a strong, value adding team, with a broad 
range of professional backgrounds, skills and perspectives. In March 2016, the 
Board announced the appointment of Emma FitzGerald as an Executive Director 
to the Boards of Severn Trent Plc and Severn Trent Water Limited (together ‘the 
Board’), with effect from 1 April 2016. 

Following year end, we announced that our longest serving Non-Executive 
Directors, Martin Lamb and Gordon Fryett, would retire from the Board after the 
Annual General Meeting. I would like to thank Martin and Gordon for their valuable 
contribution to the Board during their tenure. At this time, we announced the 
appointment of Kevin Beeston to the Board as a Non-Executive Director, with effect 
from 1 June 2016, and the appointment of Dominique Reiniche to the Board as a 
Non-Executive Director, with effect from 20 July 2016.

Kevin will succeed Martin as Senior Independent Non-Executive Director and will 
become a member of the Audit, Remuneration and Nominations Committees. 
Dominique will succeed Gordon as a Non-Executive Director and become a member 
of the Corporate Responsibility and Nominations Committees. Dr. Angela Strank will 
succeed Gordon as Chair of the Corporate Responsibility Committee.

As can be seen from their biographies on page 67, Kevin and Dominique have a 
wealth of experience to bring to the Board.

At Severn Trent we have a broad and diverse range of skills and perspectives around 
the boardroom table, further details of which can be found on pages 66 and 67.  
As at the date of this report, our Board consists of nine Directors. Our Non-Executive 
Directors continue to bring extensive experience, diversity and challenge to the 
Board. 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 with the right culture in place to execute it.

This 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 Code, the FRC Listing Rules and Disclosure and Transparency Rules, have been 
applied in practice. For more information on our Corporate Responsibility activities, 
please refer to our new Corporate Responsibility report which can be found on 
pages 54 to 63.

I would like to encourage our shareholders to attend our Annual General Meeting. 
We welcome the opportunity to meet with you and I hope you will take the 
opportunity to do so this year.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

Andrew Duff
Chairman

 
 
 
 
 
 
66  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Board of Directors

1.

2.

3.

4.

5.

6.

Committee membership key

  Audit Committee 
  Corporate Responsibility Committee
  Executive Committee 
  Nominations Committee 
  Remuneration Committee
  Treasury Committee

1. Martin Lamb BSc MBA (56)     
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 Evoqua Water Technologies LLC
 – Chairman of Rotork Plc 
 – Non-Executive Director of Mercia Technologies plc 
 – Member of the Advisory Board of AEA Investors Management (UK) Limited

2. John Coghlan BCom, ACA (58)     
Independent Non-Executive Director
Appointed to the Board on 23 May 2014 
Chairman of the Audit and Treasury Committees
John is a chartered accountant and has a valuable background in ﬁnancial 
and general management across a variety of sectors. Currently, John is 
also a Non-Executive Director of Associated British Ports Companies, and 
a Non-Executive Director and Chairman of the Remuneration Committee of 
Lavendon Group plc. Previously, John 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 
 – Non-Executive Director of Associated British Ports Companies
 – Non-Executive Director and Chairman of the Remuneration Committee 

of Lavendon Group plc

 – Chairman of Freight Transport Association Ireland Limited

3. James Bowling BA (Hons) Econ, ACA (47)   
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. Dr. Angela Strank BSc PhD (63) 
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 Downstream Technology and Group Chief 
Scientist at BP plc. She is a member of the Downstream Executive Leadership 
Team. Angela is responsible for enabling delivery of the Downstream 
strategic agenda through the development of differentiated technology 
advantage across the reﬁning, fuels, lubricants and petrochemicals 
businesses. Since joining BP in 1982, she has held many senior leadership 
roles around the world in business development, commercial and technology, 
including in 2012, 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 Governor, University of Manchester

5. Olivia Garﬁeld BA (Hons) (40) 
Chief Executive 
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, Liv was Chief Executive Officer of 
Openreach, part of the BT Group, where she spearheaded and oversaw the 
commercial roll-out 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. 

External appointments
 – Director of Water Plus Limited – joint venture with United Utilities

6. Gordon Fryett (62) 
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

   
 
 
7.

8.

9.

10.

11.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  67

STRONG 
LEADERSHIP

9. Emma FitzGerald MA, DPhil Oxon, MBA (49) 
Managing Director, Wholesale Operations
Appointed to the Board on 1 April 2016
Emma joined Severn Trent in July 2015 as Managing Director, Wholesale 
Operations. Emma was previously CEO of Gas Distribution at National Grid. 
Until 1 December 2015, she was 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. Emma’s experience and expertise brings a huge amount of value in 
ensuring the delivery of the commitments we have made in our business plan.

External appointments
 – The Windsor Leadership Trust – Company Vice President and Trustee
 – BUPA – Association Member

10. Dominique Reiniche MBA (60)
Independent Non-Executive Director
To be appointed to the Board with effect from 20 July 2016
Dominique has a wealth of operational experience in Europe and 
has international consumer marketing and innovation experience. 
Dominique is Independent Vice Chairman of CHR Hansen Holdings A/S and 
also a Non-Executive Director of Mondi Plc, Paypal (Europe) and AXA SA. 
Dominique started her career with Procter & Gamble AG before moving to 
Kraft Jacobs Suchard AG as Director of Marketing and Strategy where she 
was also a member of the Executive Committee. Dominique previously held a 
number of senior roles at Coca-Cola Enterprises and at Coca-Cola Company, 
including President – Western Europe, President – Europe and Chairman 
– Europe. Until December 2015, Dominique was a Non-Executive Director 
of Peugeot-Citroen SA.

External appointments
 – Non-Executive Director of Mondi Plc
 – Non-Executive Director of Paypal (Europe)
 – Non-Executive Director of AXA SA
 – Independent Vice Chairman of CHR Hansen Holdings A/S

11. Kevin Beeston FCMA (53)
Independent Non-Executive Director
Appointed to the Board with effect from 1 June 2016
Kevin has a wealth of commercial, ﬁnancial and high level management 
experience. Kevin is Chairman of Taylor Wimpey plc and Equiniti plc and 
also a Non–Executive Director of The Football Association Premier League 
Limited. Previously Kevin spent 25 years at Serco plc, where he held 
the roles of Finance Director, Chief Executive and ﬁnally Chairman until 
2010. Kevin was previously Chairman of Domestic & General Limited and 
Partnerships in Care Limited and a Non-Executive Director of IMI plc. 

External appointments
 – Chairman of Taylor Wimpey plc 
 – Chairman of Equiniti plc
 – Non-Executive Director of The Football Association Premier League Limited

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

7. Andrew Duff BSc FEI (57) 
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 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

8. The Hon. Philip Remnant CBE FCA MA (61)       
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 and Chairman of M&G Group Limited, 
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. He served on the Board of Northern Rock plc from 2008 to 
2010 and from 2007 to 2012 was Chairman of the Shareholder Executive.

External appointments
 – Senior Independent Director and member of the Audit, Nomination and 

Remuneration Committees of Prudential Plc

 – Chairman of M&G Group Limited
 – 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
 – Director and Trustee of St Paul’s Cathedral Foundation 

   
 
 
 
 
 
 
68  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Executive Committee

1.

6.

2.

7.

3.

8.

4.

9.

5.

10.

1. Dr. Tony Ballance BSc (Hons), MA (Econ), PhD (51)
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
 – Trustee, the National Forest Company
 – Member of Water UK Council

2. Sarah Bentley BSc (Hons), Management Science 
with Computing (44) 
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.

External appointments
 – Twizzletwig Limited – Director
 – Twizzletwig Limited – Secretary

3. Emma FitzGerald MA, DPhil Oxon, MBA (49) 
Managing Director, Wholesale Operations
Please see full biography on page 67.

4. Evelyn Dickey BSc (Hons) (53)
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 Chemist.

External appointments
 – Non-Executive Director, Nuclear Decommissioning Authority

5. Olivia Garﬁeld BA (Hons) (40) 
Chief Executive
Please see full biography on page 66.

Committee membership key

  Audit Committee 
  Corporate Responsibility Committee
  Executive Committee 
  Nominations Committee 
  Remuneration Committee
  Treasury Committee

6. Martin Kane BSc, CEng, CEnv, MICE, MIWEM, FIW (63)
Chief Engineer
Martin joined Severn Trent Water in 1975 and was appointed Chief Engineer in 
July 2014. He 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 Plc, from May 2006 
until January 2012, and Chief Executive Ofﬁcer of Severn Trent Services until 
July 2014.

External appointments
 – Member of the Boards of Utilities and Service Industries Training Limited 
 – Trustee of International Society for Trenchless Technology

7. Bronagh Kennedy BA (Hons) (52)
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 (Hons) Econ, ACA (47)   
Chief Financial Ofﬁcer
Please see full biography on page 66.

9. Helen Miles CIMA (45)
Group Commercial Director
Helen joined Severn Trent in November 2014 as the Chief Commercial 
Ofﬁcer and brings with her a breadth of commercial experience having 
worked within regulated businesses and sectors across Telecoms, Leisure 
and Banking. As a member of the UK Board, Helen was instrumental in 
delivering HomeServe’s future growth strategy and ensuring a sustainable, 
customer-focused business. As an experienced ﬁnance professional, Helen 
was previously Chief Financial Ofﬁcer for Openreach, part of BT Group plc, 
and has extensive experience of delivering major business transformation 
across the Group. Prior to BT Group, Helen worked in a variety of sectors 
and organisations such as Bass Taverns, Barclays Bank, Compass Group 
and HSBC.

10. Andy Smith BTech (Hons) (55) 
Managing Director, Business Services
Andy was appointed to the role of MD, Business Services on its creation in 
2014 having previously been responsible for the drinking water business 
within Severn Trent Water. Andy brings to the role a broad range of executive 
and operational expertise gained from diverse sectors. He has worked in 
the UK and overseas with global businesses such as BP, Mars and Pepsi in 
both engineering, HR and operational management roles. Previously he has 
served as a member of the Board at Severn Trent Plc and at Boots Group Plc. 

External appointments
 – Non-Executive Director, Chairman of the Remuneration Committee and 

Member of the Audit and Nominations Committees of Diploma PLC

 
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 to effectively control and 
manage legal, ﬁnancial and administrative decisions 
throughout the Group. These arrangements are 
reviewed annually, with the last review undertaken 
in March 2016.

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 
decisions, the delegated authority is subject to an 
obligation to work with specialist business service 
areas (such as Tax, Treasury, Group Finance and 
Company Secretariat), which provides 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 Severn Trent Plc 
Board. Severn Trent Water Limited also complies 
with the UK Corporate Governance Code (the ‘Code’) 
to ensure the highest standards of governance.

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

Subsidiary Company Boards are managed through 
designated governance processes. 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 regulatory requirements and 
obligations under competition law are complied with 
in respect of all transactions between them, or with 
third parties.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  69

Introduction
Our Board is responsible to our stakeholders for ensuring the sound running of 
the Company in accordance with best practice corporate governance. The Code 
sets out ﬁve key principles: Leadership, Effectiveness, Accountability, Relations 
with Shareholders and Remuneration. This report is structured against each of 
these principles which, together with the Nominations Committee report, Audit 
Committee report and Remuneration Committee report, set out on pages 79 to 81, 
82 to 85 and 89 to 101 respectively, describe how we have complied with the relevant 
provisions of the Code throughout the year. 

  Code principle: Leadership
1

Charter of Expectations
In November 2014, the Severn Trent Charter of Expectations was 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.

In accordance with provision A.2.1 of the Code, there is a clear division of 
responsibilities between the roles of Chairman and Chief Executive. These are 
clearly established, set out in writing and agreed by the Board in the Charter 
of Expectations.

The Charter of Expectations is also used to assist in the ongoing annual assessment 
of the effectiveness of the Board and its Committees, and that of individual 
Directors, and is available on our website (www.severntrent.com).

Governance framework
The Board is responsible to all stakeholders, including its shareholders, for 
the approval and delivery of the Group’s strategic objectives. It ensures that the 
necessary ﬁnancial, technical and human resources are in place for the Company 
to meet its objectives. The Board leads the Group within a framework of prudent 
and effective controls which enable risk to be assessed and managed.

Responsibility for the development and implementation of the Group’s strategy and 
overall commercial objectives is delegated to the Chief Executive who is supported 
by the Severn Trent Executive Committee (‘STEC’). 

The Group’s principal decision-making body is the Board. In line with the Code, 
the Board delegates certain roles and responsibilities to its various 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 Terms of Reference of each Committee comply with the provisions 
of the Code and have been updated to take account of best practice as part of 
their annual review in March 2016. The sub-committee structure is detailed in the 
governance framework overleaf and key responsibilities are set out on page 71.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
70  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Governance report

Governance framework

CHAIRMAN – Andrew Duff

BOARD

6

3

Leads our uniﬁed Board, ensuring that the 
principles and processes of the Board are 
maintained in line with our Code of Conduct 
and Charter of Expectations.

The Board’s role is to: understand and meet its obligations to the Company’s stakeholders; 
lead the Group within a framework of prudent and effective controls which enable risk to be 
assessed and managed; approve the Group’s strategic objectives and ensure that sufﬁcient 
resources are available to enable it to meet those objectives; and monitor and review the 
operating and ﬁnancial performance of the Group. It has responsibility and accountability 
for the long term success of the Group.

CEO – Liv Garﬁeld

Delegated responsibility for the development 
and implementation of the Group’s strategy and 
overall commercial objectives.
Responsible for the day-to-day management of the 
business and the communication of Board agreed 
objectives to employees.

SEVERN TRENT EXECUTIVE  
COMMITTEE (‘STEC’)  
Chair – Liv Garﬁeld

4

6

STEC operates under the direction and authority of 
the CEO overseeing the development and execution of 
strategy. It also has accountability for achieving ﬁnancial 
and operational performance.

EXECUTIVE SUB-COMMITTEE

DISCLOSURE COMMITTEE  
Chair – James Bowling

3

1

The Disclosure Committee oversees the Company’s 
compliance with its disclosure obligations and 
considers the materiality, accuracy, reliability and 
timeliness of information disclosed.

BOARD COMMITTEES

AUDIT COMMITTEE  
Chair – John Coghlan

3

The Audit 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, Risk Management and the 
internal and external Auditors. It also reviews the adequacy of the Company’s 
whistleblowing arrangements. 
More information can be found on page 82.

TREASURY COMMITTEE*  
Chair – John Coghlan

4

The Treasury Committee provides oversight of treasury activities in 
implementing the policies, funding and treasury risk management plan 
approved by the Board. These include inter alia: the measurement and 
management of risks in respect of interest rates; funding; counterparty 
credit; liquidity and treasury operations; funding proposals; relationship 
with rating agencies; debt investor relations; bank relationship 
management; and treasury internal controls.

REMUNERATION COMMITTEE  
Chair – Philip Remnant

3

1

On behalf of the Board, the Remuneration Committee determines the 
Company’s policy on the remuneration of Executive Directors, other 
members of the Executive Committee and the Chairman of the Board.
More information can be found on page 89.

CORPORATE RESPONSIBILITY COMMITTEE  
Chair – Gordon Fryett

2

2

The Corporate Responsibility Committee provides guidance and 
direction to the Company’s corporate responsibility and sustainability 
programme based on our values. It also reviews the Group’s  
non-ﬁnancial risks and opportunities. 
More information can be found on page 86.

NOMINATIONS COMMITTEE  
Chair – Andrew Duff

5

1

The Nominations Committee assists the Board by keeping the 
structure, size, composition and succession needs of the Board under 
review. It also assists the Board on issues of Directors’ conﬂicts of 
interest and independence.
More information can be found on page 79.

More information on Board and Committee membership, can be found on page 66. 

Each Board Committee has written Terms of Reference reviewed annually and approved 
by the Board, which are available on the Company’s website.

* Membership of the Treasury Committee includes Head of Group Treasury

Indicates membership of each 
Committee, including gender.

Male

Female

Annual Report and Accounts 2016  |  Severn Trent Plc  |  71

Key responsibilities

Chairman – Andrew Duff

(cid:228)(cid:3) Leads our uniﬁed Board and is responsible for its effectiveness.
(cid:228)(cid:3) Responsible for setting agendas for Board meetings and for the timely dissemination of information to 

the Board, in consultation with CEO, CFO and the Company Secretary.

(cid:228)(cid:3) Responsible for scrutinising the performance of the Executive Committee. 
(cid:228)(cid:3) Facilitates contribution from our Directors.
(cid:228)(cid:3) Ensures effective communication with our shareholders and other stakeholders.

Chief Executive (‘CEO’)  
– Liv Garﬁeld

(cid:228)(cid:3) Responsible for the overall commercial objectives of the Group.
(cid:228)(cid:3) Develops and implements the Group’s strategy, as approved by the Board.
(cid:228)(cid:3) Promotes and conducts the affairs of the Group with the highest standards of integrity, probity and 

corporate governance.

Chief Financial Ofﬁcer (‘CFO’) 
– James Bowling

(cid:228)(cid:3) Manages the Group’s ﬁnancial affairs.
(cid:228)(cid:3) Supports the CEO in the implementation and achievement of the Group’s strategic objectives.

Senior Independent  
Non-Executive Director 
(‘SID’) – Martin Lamb

Independent Non-Executive 
Directors (‘NEDs’)  
– John Coghlan, Gordon 
Fryett, Dr. Angela Strank, 
Philip Remnant

Executive Director 
– Emma FitzGerald

Group General Counsel 
and Company Secretary 
– Bronagh Kennedy

In addition to his responsibilities as a NED, Martin Lamb: 

(cid:228)(cid:3) Supports the Chairman in delivery of his objectives. 
(cid:228)(cid:3) Is available to all shareholders should they have a concern, in the event the normal channels of 

Chairman, CEO and CFO have failed to resolve.

(cid:228)(cid:3) Leads the appraisal of the Chairman’s performance with the Non-Executive Directors.
(cid:228)(cid:3) Together with the Nominations Committee, is responsible for ensuring that an orderly succession 

planning process is in place for the Board.

(cid:228)(cid:3) Constructively challenge our Executive Directors in all areas.
(cid:228)(cid:3) Monitor the delivery of strategy by the Executive Committee within the risk and control framework set 

by the Board.

(cid:228)(cid:3) Satisfy themselves on the integrity of ﬁnancial information and the effectiveness of ﬁnancial controls 

and risk management systems.

(cid:228)(cid:3) Responsible for determining appropriate levels of remuneration of Executive Directors.
(cid:228)(cid:3) Scrutinise the performance of the Executive Committee. 

(cid:228)(cid:3) Responsible for the Group’s wholesale business.
(cid:228)(cid:3) Supports the CEO in the implementation and achievement of the Group’s strategic objectives.

(cid:228)(cid:3) Acts as Secretary to our Board and its Committees, ensuring sound information ﬂows to the Board 

and between senior management and the Non-Executive Directors.

(cid:228)(cid:3) Responsible for advising the Board on all corporate governance matters. 
(cid:228)(cid:3) Facilitates a comprehensive induction for newly appointed Directors, tailored to 

individual requirements. 

(cid:228)(cid:3) Responsible for compliance with Board procedures.
(cid:228)(cid:3) Co-ordinates the performance evaluation of the Board.
(cid:228)(cid:3) Provides advice and services to the Board.

In accordance with provision A.2.1 of the Code, there is a clear division of responsibilities between the roles of Chairman and Chief Executive. 

Additional information on the role of the Board, its Committees and further information in relation to each of the roles outlined above, can be found on the corporate 
governance section of our website. 

Biographical details of each member of the Board can be found on pages 66 and 67. 

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
72  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Governance report

Formal schedule of Matters Reserved 
to the Plc 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 CEO, the accountability 
of the CEO for that authority, and guidance on 
managing the relationship between the Board and 
the CEO are documented. These processes are 
reviewed annually.

The Board has reserved the following matters for its 
own consideration:

(cid:228)(cid:3) Strategy and Management;

(cid:228)(cid:3) Structure and Capital;

(cid:228)(cid:3) Financial Reporting and Controls;

(cid:228)(cid:3) Internal Controls;

(cid:228)(cid:3) Contracts and Policies;

(cid:228)(cid:3) Board Membership and other appointments, 

including the appointment of the Chief Executive, 
Directors and the Company Secretary;

(cid:228)(cid:3) Remuneration;

(cid:228)(cid:3) Delegation of Authority including the GAA which 
sets out the Group’s delegated approval limits; 
and

(cid:228)(cid:3) The approval or adoption of documents, 

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

More information on the GAA can be found on page 69.

Board meetings
Forward plan

Each year the Chairman, and respective Committee Chairmen, work with the 
Company Secretary to develop and agree a forward agenda for Board and 
Committee meetings for the year ahead. The purpose of the forward agenda is to 
ensure that proper oversight of key areas of responsibility are scheduled regularly 
and that sufﬁcient time is allocated during the year for the Board to fully consider 
strategic matters.

Papers, including minutes of Board and Committee meetings held since the 
previous meeting, are circulated approximately a week in advance of each meeting.

The table overleaf sets out the main matters considered by the Board in 2015/16 
at its scheduled Board meetings. The Board’s agenda is normally structured, in 
accordance with the identiﬁed requirements of the forward agenda plan, as follows:

(cid:228)(cid:3) Performance review (including health and safety, operational, customer and 

ﬁnancial matters);

(cid:228)(cid:3) Bi-annual Enterprise Risk Management review;
(cid:228)(cid:3) Strategic items;
(cid:228)(cid:3) Matters for approval;
(cid:228)(cid:3) Matters to note;
(cid:228)(cid:3) Governance and regulatory matters; and
(cid:228)(cid:3) Committee reports.

The Board monitors the performance and customer service standards of the 
regulated water and waste water business at every meeting and receives monthly 
updates on performance against all ODIs, including those listed on page 26 and 27 of 
the strategic report. The Board also regularly discusses reports on capital efﬁciency 
and asset management.

The Board annually reviews and approves all ﬁnancial results announcements, 
the Annual Report and Accounts, dividend payments and all changes to the 
composition of the Board and its Committees.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  73

Board activities 

Topic 
Customers

Activities/Discussion
(cid:228)(cid:3) Discussion and review of performance and engagement reports at each meeting.
(cid:228)(cid:3) Approach in respect of social tariffs and support for vulnerable customers.

Link to our values (page 12)
We put our 
customers ﬁrst

Shareholders

(cid:228)(cid:3) Review and discussion of feedback following stakeholder meetings with CEO and CFO, investor 

We act with integrity

roadshows, conferences and Capital Markets Day.

Strategy

(cid:228)(cid:3) Review and discussion of shareholder feedback in advance of the Annual General Meeting.

Environment, 
Health & Safety

Governance 
& Risk

(cid:228)(cid:3) Discussion and review of health and safety performance at every meeting.
(cid:228)(cid:3) Discussion and review of environmental matters.

(cid:228)(cid:3) Review of Severn Trent’s governance framework.
(cid:228)(cid:3) Review of the GAA.
(cid:228)(cid:3) Board Committee reports.
(cid:228)(cid:3) Board and Committee effectiveness review – including the Board, its Committees, 

individual Directors and conﬂicts of interest.

We are passionate 
about what we do

We protect our 
environment

We act with integrity 

(cid:228)(cid:3) Annual review of Terms of Reference for all Board Committees.
(cid:228)(cid:3) Tender of external Auditor. More information on the tender can be found on page 84.
(cid:228)(cid:3) Review of the effectiveness of the Group’s Internal Controls and Risk Management processes. 
(cid:228)(cid:3) Bi-annual Enterprise Risk Management review.
(cid:228)(cid:3) Regular governance report provided by the Company Secretary, including annual review 

of compliance with the Code.

(cid:228)(cid:3) Bi-annual review of the Group’s disclosure requirements.

Financial

(cid:228)(cid:3) Review of annual performance, including approval of full year, half year results 

We act with integrity

and trading updates.

(cid:228)(cid:3) Distributions to shareholders.
(cid:228)(cid:3) Annual Report and Accounts.
(cid:228)(cid:3) Treasury funding arrangements.
(cid:228)(cid:3) Group Budget 2015/16, medium term ﬁnancial plan and regulated business ODIs.
(cid:228)(cid:3) Review of the Group’s ﬁnancial performance against budget and forecast.

(cid:228)(cid:3) Regulatory business discussions at every meeting.
(cid:228)(cid:3) Engagement with regulators, including relationship mapping.
(cid:228)(cid:3) Discussion and review of water quality updates.

(cid:228)(cid:3) Discussion and review of employee engagement across the Group from the results of 

the QUEST survey. 

(cid:228)(cid:3) Discussion and review of talent development and succession planning across the Group. 
(cid:228)(cid:3) Annual pension fund review.
(cid:228)(cid:3) Review the composition and succession of the Board and its Committees.

Regulation

Employees  
& Leadership

We act with integrity 

We put our 
customers ﬁrst

We are inspired 
to create an 
awesome company 

Ethics

(cid:228)(cid:3) Discussion and review of the Group’s ethics culture.

We act with integrity

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
74  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Governance report

The attendance of members at Board meetings 
during the year was as follows:

Director

Andrew Duff
James Bowling
John Coghlan
Gordon Fryett
Liv Garﬁeld
Martin Lamb
Philip Remnant
Dr. Angela Strank

Meetings attended

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

Where a Director was unable to attend a Board 
or Committee meeting, in each case the Director 
concerned was provided with all relevant papers and 
provided comments on the matters to be considered 
to the Chairman.

No concerns were raised in relation to the 
commitment of any Director as part of this year’s 
Board effectiveness review. 

Emma FitzGerald was appointed to the Board 
on 1 April 2016.

Attendance at Board and Committee meetings

Seven scheduled Board meetings were planned and held during the year. The table 
opposite shows attendance levels at the Board meetings held during the year.

Board Committee meetings 2015/16

In addition to the standing Committees of the Board, there were ad hoc Committee 
meetings of the Board convened throughout the year to consider such matters as 
the deregulation of the non-household retail market, our joint venture with United 
Utilities, Severn Trent Plc’s preliminary and interim results, quarterly management 
statements and regulatory disclosures.

Independent advice

Directors have access to independent professional advice at the Company’s expense 
on any matter relating to their responsibilities. There is an agreed procedure 
enabling them to do so, which is managed by the Company Secretary. No such 
independent advice was sought during the ﬁnancial year.

  Code principle: Effectiveness
2

Our Board’s composition
As at the date of this report, the Board consisted of nine Directors. A table listing the 
composition of the Board for the year ended 31 March 2016 is set out opposite.

Independence of NEDs

The independence of Non-Executive Directors is formally reviewed by the 
Nominations Committee on an annual basis, which makes a recommendation to 
the Board in relation to the reappointment of Directors at the Company’s Annual 
General Meeting. 

In the event of a situational conﬂict arising, the Board has a documented 
authorisation process in place, ensuring that either the Director does not attend 
the meeting or participate in discussion in respect of any matter where a situational 
conﬂict exists.

An annual review of conﬂicts is carried out alongside a review of our Gifts and 
Hospitality Register, and is incorporated into the year end process of verifying 
Directors’ interests. Half yearly reports are also made available to the Board 
detailing all Directors’ conﬂicts and Directors are reminded of their obligations to 
disclose any potential conﬂicts.

During its last review in November 2015, the Board considered all external 
commitments and skillsets required, including those set out in the Code. 
No Director had a material interest in any contract of signiﬁcance with the Company 
or any of its subsidiary undertakings, at any time during the year. 

The Board considers that there are no business or other circumstances that are 
likely to affect the independence of any Non-Executive Director. In accordance with 
the Code, all the Directors, with the exception of Martin Lamb and Gordon Fryett, will 
retire at this year’s AGM and submit themselves for appointment or reappointment 
by the shareholders. Each of the Non-Executive Directors, seeking appointment or 
reappointment are considered to be independent in character and judgment.

Appointments to our Board and its Committees

The Board, through the Nominations Committee, has in place formal, rigorous and 
transparent procedures for the appointment of new Directors to the Board. In March 
2016, the Board announced the appointment of Emma FitzGerald, Managing 
Director of Wholesale Operations and Executive Committee member, to the Board, 
with effect from 1 April 2016. Following year end, the Board also announced the 
appointments of Kevin Beeston to the Board, with effect from 1 June 2016, and 
Dominique Reiniche to the Board as a Non-Executive Director, with effect from 
20 July 2016. Further information in relation to these appointments and the work 
of the Nominations Committee can be found on pages 79 to 81.

Board Strategy Day 
In addition to formal meetings, in November 2015 
the Board attended a full day strategy session along 
with the Executive Committee to consider areas of 
future value creation across the Group, including: 

(cid:228)(cid:3) Opportunities for wider upstream competition 

enabled through Water 2020 and changes arising 
from the Water Act 2014. 

(cid:228)(cid:3) Review of growth strategies across our portfolio 

of businesses.

(cid:228)(cid:3) Long term scenarios and options for the asset 

strategy of our regulated business.

(cid:228)(cid:3) The future of ﬂood defences and how this could 

impact Severn Trent.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  75

In advance of a formal recommendation for a Non-Executive Director appointment 
to the Board, the proposed, ﬁnal candidate attended an individual preappointment 
meeting with Ofwat.

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.

In accordance with the Code, any term beyond six years for a Non-Executive Director 
is subject to rigorous review and takes into account the need for progressive 
refreshing of the Board. 

Evaluation of the Board
The effectiveness of the Board is reviewed at least annually and an independent 
externally facilitated review is conducted every three years. A full externally 
facilitated Board evaluation exercise was last conducted in 2015 and reported on 
in our 2014/15 Annual Report and Accounts.

A summary of the actions taken following the 2015 review can be found below.

Area for further focus identiﬁed  
in 2015 external review
Allocation of agenda time to 
agreed key strategic priorities 
also including length and format 
of Board papers.

Mentoring, talent management 
and succession planning below 
Executive Committee level.
Enhance KPIs to reﬂect risks 
and operational performance 
against new AMP6 regulatory 
requirements.

Actions taken 
Company Secretariat conducted a review 
of strategy topics to be considered at Board 
meetings throughout the year. The length and 
format of Board papers were also reviewed, 
with best practice guidance implemented by 
Directors and report writers.
Discussion and review of talent and 
succession across the Group at July 
and November Board meetings.
Instead of reporting against KPIs as in AMP5, 
we now report performance against ODIs at 
each meeting of STEC and the Board. We also 
report on the moving annual performance 
and provide updated targets for the year 
at each meeting.

In February 2016, the Board conducted an internally facilitated review of its  
effectiveness, including a review of the Board, its Committees and individual 
Directors in the context of the Company’s Charter of Expectations. Emma FitzGerald, 
Kevin Beeston and Dominique Reiniche had not been appointed to the Board at this 
time. This evaluation process was led by the Chairman and the Company Secretary 
through a series of one-to-one meetings and discussions. Separate meetings were 
held to consider the effectiveness of the Chairman, led by our Senior Independent 
Non-Executive Director, Martin Lamb.

The ﬁndings of the evaluation were discussed and reviewed by the Nominations 
Committee and subsequently the Board in March 2016. The evaluation concluded 
that excellent progress had been made in respect of areas for further focus 
identiﬁed in the 2015 externally facilitated review. It was agreed that talent and 
succession planning would remain a regular Board agenda topic and that the 
Board strategy day meeting would be scheduled outside the normal Board meeting 
calendar. The evaluation also concluded that the Board and its Committees were 
effective and that each Director made a constructive and valuable contribution to 
the Board and the running of the Company. 

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
76  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Governance report

Board Training Sessions 2015/16 

Date

April 2015

May 2015
July 2015

October 2015

Topic

Knowledge 
share with senior 
management team
Drought response
Catchment 
management
Strategic grid 
management

November 2015 New bill launch
January 2016

Water discolouration 
– contribution of 
manganese
Developer Services

March 2016

Board  
attendance

88%*

100%
100%

100%

100%
100%

88%**

* Martin Lamb was unable to attend for this topic.

** Gordon Fryett was unable to attend for this topic.

Directors’ resources
An online resource library and Continuing 
Professional Development (‘CPD’) repository 
is available for use by the Directors, which is 
continuously reviewed and updated. 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 updates and guidance on changes to 
legislation and corporate governance best practice. 
The Directors also have access to professional 
development provided by external bodies and our 
advisers. CPD requirements were considered, 
through individual performance review meetings 
between the Chairman and each Director, as part of 
the Board effectiveness review in 2015/16.

Training and development
Induction 

On appointment to the Board, a Director’s induction needs are evaluated and they 
are provided with a comprehensive and personalised induction pack which includes 
information on our business model, key operations and processes, how we are 
regulated, how we are shaping future regulation, strategic plans, ﬁnancial reports, 
business plans, information on our governance framework, Directors’ roles and 
responsibilities and legal and regulatory duties. 

Meetings are arranged with members of the Executive Committee and with external 
advisers 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 appointed to the Board 
and subsequently throughout the year.

These arrangements have been followed for the induction of Emma FitzGerald.

Ofwat issued a letter to the Company on 19 April 2016 formalising a preappointment 
meeting process as part of any Non-Executive Director appointment which will also 
be included in induction programmes going forward. This process was included in 
the induction of Kevin Beeston and Dominique Reiniche.

Training and Continuing Professional Development

As well as Board agenda items, training sessions in relation to specific topics of interest 
have been presented to Directors during the year as indicated in the table opposite.

The aim of the training sessions is to continually refresh and expand the Board’s 
knowledge and skills to enable them to effectively fulﬁl their roles on the Board and 
its Committees and contribute to discussions on technical and regulatory matters. 
The sessions also serve as an opportunity for the Board to discuss strategy and 
risks with management below Executive Committee level and gain further insight 
into our businesses and management capability.

  Code principle: Accountability
3

Charter of Expectations
Our Charter of Expectations sets out the matters for which the Board and key roles 
are accountable.

‘Doing The Right Thing – The Severn Trent Way’ (‘DTRT’)
Every day our 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 our customers, doing what is right ethically and 
what is right legally.

It details the values we work by 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 the Group, no 
matter where in the world they are based or what they do. It provides a consistent 
framework for responsible business practices and sets the standards we need to 
follow in our day-to-day activities.

During the year we have refreshed DTRT, and our Group policies, in preparation 
for roll-out across the Group in 2016/17 to make sure that everyone in the business 
understands our expectations in relation to our values and ethical standards. 
All employees will be given a copy and training sessions will be provided.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  77

  Code principle: Remuneration 
4

The Board has established a Remuneration Committee. The composition and 
activities of the Remuneration Committee are described on pages 89 to 101. 
Our Remuneration Policy has been designed to take into account the Company’s 
strategic objectives both over the short and long term and the external market.

  Code principle: Relations with Shareholders
5

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. Following a consultation with shareholders 
in March 2015, a signiﬁcant majority of shareholders, 88%, can now view and 
download the Annual Report online. 12%, continue to receive a hard copy. The next 
consultation will take place in 2018.

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. Various mechanisms have been put in place to ensure 
it remains in touch with key activities and developments, including:

(cid:228)(cid:3) monthly update reports on the key shareholder engagement activities carried out 

by the Executive Committee and the Investor Relations team;

(cid:228)(cid:3) a monthly report of our shareholder register, outlining the signiﬁcant buyers and 

sellers of Severn Trent Plc shares; and

(cid:228)(cid:3) regular summaries of sector research notes, allowing the Board 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 also meets with shareholders without the Executive Directors on a 
periodic basis and is available to meet with them at any other time upon request.

In line with the Code, we recognise that the Board has overall responsibility for 
ensuring that a satisfactory dialogue with shareholders takes place. On a more 
informal basis, the Chairman, Chief Executive and the Chief Financial Ofﬁcer 
regularly report to the Board the views of larger shareholders about the Company. 

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

Primary investor events 

2015/16

June 15
June 15

June 15

June 15
June 15
June 15

September 15

September 15
September 15

September 15

November/
December 15
December 15
January 16

February 16

March 16
March 16

London Roadshow
Bank of America Merrill Lynch 
Utilities Conference
Private Client Roadshow – 
London
Edinburgh Roadshow
European Roadshow
RBC Utilities & Infrastructure 
Reverse Roadshow
Morgan Stanley Power 
& Utility Summit
North American Roadshow
Private Client Roadshow – 
London
Bernstein’s 12th Annual 
Strategic Decisions Conference
London Roadshow

Edinburgh Roadshow
Citi European Utilities 
Conference
Private Client Roadshow – 
London
North American Roadshow
European Roadshow

 
 
 
 
 
 
78  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Governance report

VIEW ONLINE

Our online Annual Report 
and Accounts
Easier, greener and only a click away.

We’re always looking to make life easier. 
Our online Annual Report is designed to help 
you read the information that matters to you, 
wherever you may be, whether on the move 
or at your desktop. It reduces our paper 
use too, which is kinder to the environment. 
We hope you like it.

ar2016.severntrent.com

2016 AGM
The AGM of the Company will be held at the 
Ricoh Arena, Phoenix Way, Coventry, CV6 6GE 
at 11am on Wednesday 20 July 2016.

Presentations will be made on the Group’s activities 
and performance, including exhibitions around 
our key activities, during the year prior to the 
formal business of the meeting. The Chairs of the 
Audit, Remuneration, Nominations, Treasury and 
Corporate Responsibility Committees, together 
with all other Directors, attend the AGM.

Our conversations with investors during 2015/16 have focused on how the Company 
is delivering under the new AMP6 regulatory environment, what changes have been 
made to achieve this performance and how the Company expects to outperform 
key aspects of the regulatory Final Determination. Discussion has focused on the 
areas we believe we have the opportunity to outperform the Return on Regulatory 
Equity (‘RoRE’) allowed in our AMP6 Final Determination, notably operational 
improvements measured through ODIs, efﬁciency savings and management of 
Totex, delivery of our renewables programme, the management of our ﬁnancing as 
well as the deregulation of the non-household retail market in 2017. During the year, 
Ofwat published Water 2020 which set out some of its thinking on the direction of 
our industry for the next regulatory period, AMP7. As a result, there was discussion 
with investors about the risks and opportunities of Water 2020 discussion topics, 
including sludge and water trading, the possible move to the Consumer Price Index 
(‘CPI’) rather than Retail Price Index (‘RPI’) as the measure of inﬂation, and the 
potential opening of the household retail market.

Looking ahead to 2016/17
We expect to continue our extensive programme of investor events and discussions 
will continue to focus on how we deliver against our strategic framework and the key 
elements of outperformance, as well as our ability to deliver returns relative to the 
RoRE allowed by our Final Determination for AMP6. We also expect to have further 
discussions with Ofwat on the future direction of our industry, as part of its Water 
2020 initiatives. We will continue with our extensive programme of roadshows in 
the UK, Europe and North America. 

AGM
The AGM provides a useful opportunity for all shareholders to provide feedback on 
performance, management and the way we work in a very direct fashion, through 
the questions they ask. Shareholders can also meet informally with Directors and 
senior management before and after the meeting.

The Board encourages shareholders to attend our 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. All proxy votes received in respect of each Resolution 
at the AGM are counted and the balance for and against, and any votes withheld, are 
indicated. The poll results from the 2016 AGM will be made available on our website 
after the meeting.

Nominations Committee

Annual Report and Accounts 2016  |  Severn Trent Plc  |  79

Introduction from the Chairman  
of the Nominations Committee 
I am pleased to introduce the report of the Nominations Committee which details 
the role of the Committee and the work it has undertaken during the year. 

The Nominations Committee is responsible for assisting the Board by keeping the 
structure, size and composition (including the skills, knowledge, independence, 
experience and diversity) of the Board under proactive review and to make 
appropriate recommendations to the Board with respect to any necessary changes.

The Committee reviews the leadership needs of the Group and considers plans for 
orderly succession for appointments to the Board and to senior management to 
maintain an appropriate balance of skills and experience within the Company and to 
ensure progressive refreshment of the Board. The Committee considers the 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 full Terms of Reference for the Committee, which were updated during the year, 
can be found on our website and are also available from the Company Secretary. 
The letters of appointment for the Non-Executive Directors are made available for 
inspection at the Company’s registered ofﬁce, during normal business hours.

Succession planning 
The Nominations Committee annually reviews the Board’s effectiveness and 
composition in relation to long term succession planning, including the review of 
plans in place for the orderly and progressive refreshing of the Board. In particular, 
the Committee considers the balance of skills, experience and independence of the 
Board when considering new appointments and oversees the preparation of a role 
speciﬁcation that is provided to an independent search ﬁrm retained to conduct a 
global search. In addition to the speciﬁc skills, knowledge and experience deemed 
necessary, the speciﬁcation contains criteria such as:

(cid:228)(cid:3) a proven track record of creating shareholder value;
(cid:228)(cid:3) unquestioned integrity and a diversity of experience;
(cid:228)(cid:3) a commitment to the highest standards of governance;
(cid:228)(cid:3) having the required time available to devote to the role;
(cid:228)(cid:3) a strategic focus, an awareness of market leadership and outstanding 

monitoring skills;

Andrew Duff
Chairman of the Nominations Committee

Key areas of focus
In accordance with its Terms of Reference, the key 
areas of focus of the Nominations Committee in 
2015/16 included:

(cid:228)(cid:3) regularly reviewing the structure, size and 

composition (including the skills, knowledge, 
experience, time available and diversity) of 
the Board;

(cid:228)(cid:3) reviewing the leadership needs of the Company, 

both Executive and Non-Executive;

(cid:228)(cid:3) succession planning considerations for 
Directors and other senior executives;

(cid:228)(cid:3) reviewing the results of the annual Board 

effectiveness exercise;

(cid:228)(cid:3) annual review of the Company policy on Board 

level diversity; and

(cid:228)(cid:3) recommending to the Board the appointment or 
reappointment by shareholders of Directors at 
the AGM, in accordance with the Code.

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

(cid:228)(cid:3) a preparedness to question, challenge and openly assess; and
(cid:228)(cid:3) an independent point of view.

The Chairman does not chair any Nominations Committee meetings relating 
to the appointment of his successor. In these circumstances the Committee is 
chaired by an Independent Non-Executive Director elected by the remaining 
members. Directors do not attend any meetings which dealt with the appointment 
of their successor. 

Member of the Nominations Committee
Andrew Duff (Chairman) 
John Coghlan
Gordon Fryett
Martin Lamb
Philip Remnant
Dr. Angela Strank 

Attendance 
4/4
4/4
2/4
4/4
4/4
4/4

In addition to the scheduled meetings of the 
Committee, there was an ad hoc meeting of the 
Committee convened during the year to consider 
Non-Executive Director succession. 

Gordon Fryett did not attend two scheduled 
meetings of the Committee relating to the potential 
appointment of his successor.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
80  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Nominations Committee

Appointment and reappointment of the Board 
In March 2016, the Board announced the appointment of Emma FitzGerald to 
the Boards of Severn Trent Plc and Severn Trent Water Limited (together ‘the 
Board’) as an Executive Director with effect from 1 April 2016. Having proved 
her capability as a member of the Executive Committee as Managing Director of 
Wholesale Operations, and taking into account her previous experience as CEO of 
Gas Distribution at National Grid, her appointment as an internal candidate was 
recommended to the Board by the Nominations Committee. Emma’s appointment 
broadens the collective experience of the Board, adds a fresh perspective to 
boardroom discussions and brings a huge amount of value in ensuring the delivery 
of the commitments we have made in our business plan. 

Following year end, the Board announced that Martin Lamb and Gordon Fryett, 
would retire from the Board after the AGM. The Committee initiated a planned 
succession process to search for a new Senior Independent Non-Executive 
Director, to succeed Martin, and a new Non-Executive Director, to succeed Gordon. 
Korn Ferry Whitehead Mann and The Zygos Partnership were appointed as 
advisers and provided with a role speciﬁcation and a detailed brief of the desired 
candidate proﬁles. The Committee considered a list of potential candidates and 
those shortlisted were interviewed by members of the Board. The proposed, ﬁnal 
candidates attended individual preappointment meetings with Ofwat ahead of a 
formal recommendation of appointment being made to the Board. Martin Lamb and 
Gordon Fryett took no part in any meetings relating to their succession.

Following the process, the Board agreed with the Committee’s recommendation 
that Kevin Beeston join the Board as Non-Executive Director, with effect from 
1 June 2016, and that Dominique Reiniche would join the Board as a Non-Executive 
Director, with effect from 20 July 2016. Kevin will succeed Martin as Senior 
Independent Non-Executive Director following the conclusion of the AGM and will 
become a member of the Audit, Remuneration and Nominations Committees. 
Dominique will succeed Gordon as a Non-Executive Director and become a member 
of the Corporate Responsibility and Nominations Committees. 

Dr. Angela Strank will succeed Gordon as Chair of the Corporate Responsibility 
Committee following the conclusion of the AGM.

The Committee considers that the Board consists of individuals with the right 
balance of skills, experience and knowledge to provide strong and effective 
leadership of the Company. The majority of the Board, excluding the Chairman, 
are Independent Non-Executive Directors.

In accordance with the requirements of the Code, all members of the Board, 
with the exception of Martin Lamb and Gordon Fryett, will seek appointment or 
reappointment at the AGM on 20 July 2016. In February 2016, the Board conducted 
an internally facilitated review of its effectiveness, including a review of the Board, 
its Committees and individual members in the context of the Company’s Charter 
of Expectations, as detailed on page 75. The ﬁndings of the evaluation concluded 
that each Director made a constructive and valuable contribution to the Board and 
the running of the Company. As part of the evaluation, full consideration was given 
to the number of external positions held by the Non-Executive Directors. The full 
list of external appointments held by our Non-Executive Directors can be found 
in the Board of Directors’ biographies on pages 66 to 67. As a result of this review, 
the Committee did not identify any instances of overboarding. Full details of the 
internal evaluation can found on page 75.

The Committee annually considers the time commitment required of its Directors 
to ensure the successful running of the Company. The Committee considered the 
reappointment of Directors prior to their recommended approval to shareholders at 
the AGM. The Non-Executive Directors who have been on the Board for more than 
six years were subject to particularly rigorous review. The Committee supports and 
recommends each Director’s reappointment to the Board. 

Gender diversity as at 31 March 2016

2

STEC

4

Board

6

Senior manager

Graduates

18

22

49

6

25

Apprentices

Group

25

2,039

76

5,012

Male

Female

Severn Trent Board diversity ﬁgures

Tenure (years)*

8

7

6

5

4

3

2

1

0

Ja m es B o wling
Liv Garﬁeld

John Coghlan

Andre w D uff

Gordon Fryett

P hilip R e m nant
M artin La m b
m a FitzGerald
Dr. Angela Strank

E m

Male

Female

* Figures as at the date of this report.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  81

Diversity 
At Severn Trent, we are committed to supporting diversity and creating an inclusive 
culture. A diverse organisation, underpinned by meritocracy, will value and 
beneﬁt from differences in skills, regional and industry experience, background, 
race, gender, sexual orientation, religion, belief and age, as well as culture and 
personality. The Nominations Committee reviews the Boards’ effectiveness and 
composition each year and, in particular, considers the balance of skills, experience 
and independence of the Board. It considers the beneﬁts of all aspects of diversity, 
but without compromise as to the calibre of Directors, when identifying candidates 
for appointment. The selection of candidates to join the Board will continue to 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 candidates available. 
All Board appointments have been and will continue to be based on merit and must 
be in the interests of all stakeholders. 

The Company continues to engage with executive search ﬁrms to ensure the widest 
possible pool of candidates for Board positions. Executive search ﬁrms are briefed 
of our diversity requirements to ensure an anti-discriminatory long list. In 2015 
one search ﬁrm did not meet this criteria and was replaced. As and when Board 
appointment opportunities arise, we make full use of the procedures recommended 
by the Davies Report and by the Code to support this aspiration.

A breakdown by gender of the number of persons who were Directors of the 
Company, senior managers and other employees as at 31 March 2016 is set 
out opposite. 

As at 31 March 2016, we had two female members on the Board of eight 
(representing 25%) and six female members out of ten on the Executive Committee 
(representing 60%). As at the date of this report, (following the appointment of 
Emma FitzGerald to the Board on 1 April 2016) we had three female members on 
our Board of nine (representing 33%) and six female members out of ten on the 
Executive Committee (representing 60%). 

Talent management
Severn Trent recognises the importance of developing people, and talent 
management was a key topic of discussion by the Nominations Committee during 
the year. In line with our strategy of creating an awesome place to work, we seek to 
create a culture of empowerment and accountability with a focus on skills, talent 
and career development.

During the year, the Committee reviewed the bench strength of leadership capability 
in Severn Trent and the initiatives in place to develop a robust pipeline of talent. 
In April 2012, Severn Trent implemented a ﬁve year talent plan which continued to 
gain momentum during this ﬁnancial year. As at the date of this report, we have 
a total of 47 graduates and 101 apprentices in training. A signiﬁcant programme 
of STEM (Science, Technology, Engineering and Maths) activities was undertaken 
through Engineering UK to further support our future technical talent pipeline and 
encourage young people to maintain an interest in science and technology courses 
at schools and universities. 

Our Awesome Leaders Development Programme was introduced in 2015 for our 
team leaders and team managers as we understand the importance of nurturing 
and developing our internal talent, particularly in relation to succession planning for 
senior positions within the Company. 

Membership and Director attendance during the year  
ended 31 March 2016 
The members of the Committee in 2015/16 were the Non-Executive Directors of 
the Board. Only members of the Committee have the right to attend Committee 
meetings. Other individuals such as the Chief Executive, members of senior 
management, Director of Human Resources and external advisers may be invited 
to attend meetings as and when appropriate.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
82  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Audit Committee

Introduction from the Chairman of 
the Audit Committee 
I am pleased to introduce the report of the Audit Committee which details the role of 
the Committee and the work it has undertaken during the year. 

The Audit Committee is responsible for assisting the Board in discharging its oversight 
responsibilities for the integrity of the Company’s financial statements, the assessment 
of the effectiveness of the system of Internal Controls and Risk Management. 
The Committee also has responsibility for overseeing the relationship with our 
external Auditor, including the assessment of their ongoing objectivity and oversees 
the assurance of regulatory returns made by Severn Trent Water Limited to Ofwat.

John Coghlan
Chairman of the Audit Committee 

In performing its duties, the Committee has access to the services of the Head of 
Internal Audit, the Company Secretary and, if required, external professional advisers. 

Key areas of focus 
In accordance with its Terms of Reference, which 
were updated during the year, the key areas of focus 
of the Audit Committee in 2015/16 included:

(cid:228)(cid:3) ﬁnancial statements and accounting policies;

(cid:228)(cid:3) Risk Management and Internal Controls;

(cid:228)(cid:3) oversight of internal and external audit;

(cid:228)(cid:3) responsibility for the external Auditor tender, 
including making a recommendation to the 
Board for the appointment or reappointment 
of the Auditor;

(cid:228)(cid:3) review of the adequacy of the Group’s 

procedures for whistleblowing, reporting 
fraud and other inappropriate behaviour, 
including reviewing reports of all allegations 
at their meetings;

(cid:228)(cid:3) review of the new Financial Reporting Council 

(‘FRC’) reporting requirements on Going 
Concern and Viability Statements; and

(cid:228)(cid:3) regulatory reporting obligations of our 
subsidiary Severn Trent Water Limited.
The Committee reports to the Board on its 
work and the Committee’s performance was 
included in the review of the Board Committees’ 
effectiveness referred to on page 75.

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

Member of the Audit Committee
John Coghlan (Chairman) 
Philip Remnant
Martin Lamb

Attendance 
4/4
4/4
4/4

Financial statements and accounting policies
The Committee looked carefully at those aspects of the financial statements which 
required significant accounting judgments or where there was estimation uncertainty. 
These areas are explained in note 4 of the financial statements on page 123. 
The Committee receives detailed reports from both the Chief Financial Officer and the 
external Auditor 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 Auditor’s 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 Auditor’s 
and satisfies itself that the judgments made by management are robust and should be 
supported. The significant issues that the Committee considered in 2015/16 were:

(cid:228)(cid:3) Determination of the provision for impairment of trade receivables in Severn Trent 

Water Limited;

The Committee receives information bi-annually on the level of the provision and 
on any changes in the methodology of calculating the provision.

(cid:228)(cid:3) The amount of the provisions held for tax liabilities and the calculation of deferred 

tax balances in relation to infrastructure income; 

The Committee received reports from management, setting out the reasons 
for, and the basis of calculation of, the adjustments to deferred tax in relation 
to infrastructure income.

(cid:228)(cid:3) Determination of the amount of the Group’s retirement beneﬁt obligations;

The Committee reviewed the assumptions underlying the valuation of the obligations 
and considered whether the assumptions taken as a whole are appropriate.

(cid:228)(cid:3) The proposed classiﬁcation and disclosure of items of income or expenditure 

as exceptional items;

The Committee reviewed the reasons for classifying items as exceptional and 
considered whether there were items that had not been treated as exceptional 
that met the criteria.

(cid:228)(cid:3) Whether the Group’s non-household retail activities, which will be transferred 
to the Water Plus joint venture with United Utilities, should be treated as a 
discontinued operation.

The Committee considered the judgment made that the disposal of the non-
household retail business was not highly probable at the balance sheet date and, 
in view of the status of the CMA review at that date, concurred with the judgment 
not to classify the business as discontinued.

For all of the matters described above the Committee concluded that the treatment 
adopted in the Group financial statements was appropriate.

The Committee reviewed and challenged the evidence and assumptions underpinning 
the 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. 

Internal Controls

The 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 Group’s approach 
to evolving risks.

Reviews the procedures, systems 
and controls designed to prevent and 
detect fraud and bribery, including 
the adequacy of whistleblowing 
arrangements for the Group.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  83

This was carried out in conjunction with the consideration of the Viability Statement 
on page 47.

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, a sub-committee of the Executive Committee which is 
chaired by the Chief Financial Ofﬁcer.

The Audit Committee reviewed the outcome of the process to conﬁrm that the 
report and accounts are ‘fair, balanced and understandable’. The Disclosure 
Committee undertook a detailed review of the Annual Report and Accounts prior to 
making a recommendation to the Board that it could make the fair, balanced and 
understandable statements contained in the Directors’ Responsibility Statement on 
page 106. 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.

Risk Management
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 at every meeting from the Chief Financial 
Ofﬁcer 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. 

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 Board conﬁrms that procedures providing an ongoing process for identifying, 
evaluating and managing the principal risks and uncertainties faced by the Group 
have been in place for the year to 31 March 2016 and up to the date of approval of 
the Annual Report, which is in accordance with the Code and Guidance on Risk 
Management, Internal Control and Related Financial and Business Reporting 
September 2014 (the ‘Guidance’). During its review of risk management during 
2015/16, 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. 

Internal Controls
The Board is responsible for the Group’s Internal Control systems and for reviewing 
their effectiveness. The Audit Committee regularly monitors and reviews the 
effectiveness of the systems of Internal Control, including Risk Management, 
ﬁnancial, operational and compliance aspects, in accordance with the requirements 
of the Code and the Guidance, and these systems have been in place for the year 
ending 31 March 2016 and up to the date of the Annual Report. 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.

Throughout the year the Committee has received regular reports from Internal 
Audit covering the Internal Control framework in respect of ﬁnancial and operating 
performance, signiﬁcant projects and for compliance matters, with the key audit 
ﬁndings and the associated management’s actions discussed by the Committee. 
During the year the Committee examined the requirements of the revised UK 
Corporate Governance Code in relation to the assessment and reporting of longer-
term viability and internal control. 

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
84  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Audit Committee

Internal Audit

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

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

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

The Head of Internal Audit and his team report on 
a day-to-day basis to the Executive Committee 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 at every meeting 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 Internal Audit function is supported via a co-
source arrangement with PwC. The Committee 
believes that this arrangement adds value beyond 
that of a full Internal Audit function, through greater 
access to expertise and the ability to independently 
challenge management.

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

The Group’s procedures for exercising control and managing risk in relation to 
ﬁnancial reporting and preparation of consolidated accounts include:

(cid:228)(cid:3) the formulation and communication of Group accounting policies which are 

regularly updated for developments in IFRS and other reporting requirements;

(cid:228)(cid:3) speciﬁcation of a set of ﬁnancial controls that all of the Group’s operating 

businesses are required to implement as a minimum;

(cid:228)(cid:3) deployment of a Group-wide consolidation system with controls to restrict access 

and maintain integrity of data; 

(cid:228)(cid:3) recruitment, training and development of appropriately qualiﬁed and experienced 

ﬁnancial reporting personnel; and

(cid:228)(cid:3) oversight by the Disclosure Committee, a sub-committee of STEC, of the Group’s 

compliance with its disclosure obligations.

To support these control activities, the Audit Committee receives reports from 
Internal Audit which provide objective assurance on risk management, governance 
and control matters. The external Auditor reports signiﬁcant ﬁnancial control issues 
to the Audit Committee.

An independent technical assurer, Jacobs, provides objective assurance in relation to 
Severn Trent Water Limited’s reporting against performance commitments and ODIs 
in the Annual Performance Report. Deloitte audit the regulatory ﬁnancial reporting 
and the price control and additional segmental reporting and provide speciﬁc 
assurance on the additional regulatory information, all of which is included in the 
Annual Performance Report.

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 Audit Committee has not identiﬁed nor has been advised of any failings or 
weaknesses which it has deemed to be signiﬁcant to the Group during the course of 
its review of internal control systems in 2015/16. 

External Auditor – tender
The Company has complied with the provisions of the Statutory Audit Services for Large 
Companies Market Investigation Order. As a result, the Committee formally tendered 
the external audit service during the 2015/16 financial year. The tender was carried 
out in accordance with the OJEU regulations. Four firms responded to the invitation to 
tender, including the incumbent Auditor, Deloitte who were first appointed as Auditor 
for the year ended 31 March 2006. Each firm was provided with access to a virtual data 
room and meetings with key Directors and Executives. Responses to requests for 
further information were provided to all firms involved in the tender. Presentations were 
made to a panel comprising the Audit Committee, the Chairman, the Chief Executive, 
the Chief Financial Officer and the Group Financial Controller. The proposals received 
were assessed against pre-determined criteria including Service Team, Service 
Delivery, Implementation and Value for Money. Following careful consideration, the 
Committee agreed that, across the criteria as a whole, Deloitte had delivered the best 
proposal and therefore the Audit Committee recommended to the Board that Deloitte 
LLP be reappointed as Auditor. The Board is proposing a resolution to the AGM to 
reappoint Deloitte as Auditor for the year ending 31 March 2017.

There are no contractual obligations to restrict the Committee’s choice of external Auditor.

In respect of 2015/16, Deloitte audited all signiﬁcant subsidiaries of the Group. 
Annually, the Committee reviews the external Auditor’s 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 
Auditor by the Committee and key Executives; and conﬁrmation that the Auditor 
meets 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 Auditor be proposed for reappointment 
at the Company’s AGM.

Membership and Director attendance during 
the year ended 31 March 2016 
The members of the Committee in 2015/16 were 
John Coghlan as Chairman, Philip Remnant and 
Martin Lamb, whose experience and backgrounds 
are set out on pages 66 and 67. Only members 
of the Committee have the right to attend 
Committee meetings. 

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

The Chairman, Chief Executive, Chief Financial 
Ofﬁcer, Head of Internal Audit, Group Financial 
Controller and the external Auditor 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 the Head 
of Internal Audit and external Auditor separately.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  85

The Audit Partner, currently Kari Hale, is required to rotate after a maximum of ﬁve 
years, 2019/20 being his last ﬁnancial year. 

Details of the amounts paid to Deloitte for audit and non-audit services in 2015/16 
are provided in note 5 to the accounts on page 129.

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 Auditor.

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

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

The policy was reviewed by the Committee during this year and the schedule of 
services that the Auditor may be used for was amended to exclude those services 
which are not permitted under the FSCs proposed new ethical standard for 
Auditors. The policy was also amended to prohibit aggregate fees for non-audit 
services in excess of the audit fee for the year.

Non-audit services where the external Auditor may be used include: audit-related 
services required by statute or regulation, 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 Auditor is expected to cost more than £100,000.

In the course of completing the disposal of the Water Purification business, the purchaser 
requested an audit of the financial statements of the disposal Group. Since Deloitte had 
already performed work on some of the companies as part of the Group audit, the most 
pragmatic and economic solution was for Deloitte to perform this work.

Other assurance services include certain agreed upon procedures performed by Deloitte 
in connected with Severn Trent Water Limited’s regulatory reporting requirements to 
Ofwat. In the previous year, the balance included fees in connection with PR14.

In approving these non-audit fees, the Committee considered the overall ratio of 
non-audit fees to audit fees and given the scope of work, considered that Deloitte 
was best placed to perform these services.

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

In March 2016, the Committee reviewed Severn Trent Water Limited’s statement 
of risks, strengths and weaknesses, which is a requirement of Ofwat’s Company 
Monitoring Framework. This document sets out the process, timeline and assurance 
framework in place for information published for customers and other stakeholders, 
including the Annual Performance Report.

Deloitte provides an audit opinion on the regulatory ﬁnancial reporting and price 
control segmentation sections of the Annual Performance Report, and assurance 
of certain aspects of additional regulatory information that is included. The Annual 
Performance Report also provides an overall picture of performance, covering 
many aspects which are not ﬁnancial including performance against Severn Trent 
Water Limited’s commitments and ODIs. Severn Trent Water Limited appoints 
engineering consultants, Jacobs, to report and provide assurance on those aspects. 
The Committee receives reports from Jacobs and Deloitte on their work as part of its 
review of the Annual Performance Report. 

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
86  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Corporate Responsibility Committee

The Committee provides guidance on the 
Company’s Corporate Responsibility (‘CR’) 
programme, reviews the Group’s key non-
(cid:191)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:82)(cid:81)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)
performance against a CR framework. 

The Terms of Reference for the 
Committee can be found on our website 
(www.severntrent.com) and are also 
available from the Company Secretary. 
For part of the year, the review of the 
adequacy of arrangements of the Company’s 
whistleblowing procedures fell within the 
remit of the CR Committee. In October 
2015 the remit of the Audit Committee 
was amended to include responsibility for 
this review. Notwithstanding this change, 
the CR Committee continues to review all 
whistleblowing allegations at every meeting. 
For more information please see page 88.

Gordon Fryett
Chairman of the Corporate 
Responsibility Committee

Attendance at scheduled Committee meetings
During the year there were four scheduled meetings 
of the Committee. The attendance ﬁgures for these 
meetings are detailed below.

Members of CR Committee

Meetings attended

Gordon Fryett
Andrew Duff
Liv Garﬁeld
Dr. Angela Strank

4/4
4/4
4/4
4/4

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

Our Corporate Responsibility framework
Our Corporate Responsibility framework is ambitious and underpinned by 
stretching targets. It is aimed at ensuring responsible business practices in line 
with our strategic framework, across our whole business. By acting in this way we 
support our purpose of serving our communities, building a lasting water legacy 
and achieve our vision to be the most trusted water company by 2020. An underlying 
premise of our approach to CR is that we can add value to society by the way in which 
we fulﬁl our role, not just by what we do. 

To monitor performance against our new framework, we have an effective 
performance management system in place through which the performance of 
our CR metrics are reported. Internally, quarterly reports are provided to the 
Executive Committee and to the CR Committee. Externally, annual reports are 
published on our website, in our Annual Report and Accounts and through selected 
Environmental, Social and Governance indices. 

Our Corporate Responsibility framework

Ambition One
We will make our region the most 
water efﬁcient in the UK

Ambition Two
We will play a leading role to 
help make our region’s rivers 
even healthier

We put our  
customers ﬁrst

We are passionate 
about what we do

We act  
with integrity

We protect our 
environment

We are inspired 
to create an 
awesome company

Through our company values we will deliver commitments expected 
of a leading, socially responsible company. We also expect our 
suppliers to support our values.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  87

Key areas of focus for 2015/6

The Committee provides Board oversight of our CR framework, strategy and 
performance relating to our ambitions and essentials. The Committee also 
regularly reviews reputational risks and non-ﬁnancial internal audit reports, 
in addition to any whistleblowing allegations.

Key areas of discussion and review during 2015/16 included the following:

(cid:228)(cid:3) Our climate change adaptation report. We have delivered signiﬁcant adaptation 
action on the ground and have increased our understanding of the risks climate 
change poses to us, but we still have more to do to build our resilience, which is 
reﬂected in our plans going forward. 

(cid:228)(cid:3) Re-launch of our Code of Conduct ‘Doing The Right Thing the Severn Trent 

Way’ (‘DTRT’) and supporting principles and policies as an integral part of the 
articulation of our strategic framework, particularly our values and our CR 
essentials, so that they are consistent and mutually reinforcing.

(cid:228)(cid:3) An update on ‘Managing our suppliers responsibly’. Good progress has been 

made to embed DTRT in our supply chain and progress regarding other aspects 
of managing our supply chain responsibly will be monitored by the Committee 
going forward.

(cid:228)(cid:3) Adoption of our CR framework by Business Services. Wherever possible, 

consistent CR measures will be used, and although we cannot currently report 
on all measures across all regions, we will be working towards this for 2016/17.
(cid:228)(cid:3) An update on the expanded scope of our environmental management systems. 
New requirements from the Environment Agency regarding environmental 
permit templates require an expansion of our current scope to cover combined 
sewer overﬂows, pumping stations and all sewage treatment works. 
Key deliverables will include an expanded training programme and assurance 
against compliance. This will be monitored by the standards maintenance team 
going forward.

(cid:228)(cid:3) An update on focus areas for diversity. We are focusing on recruitment of BAME 

applicants and women into leadership roles.

(cid:228)(cid:3) A review of external news and trends relevant to Severn Trent such as an update 
on the political landscape following the general election in May 2015 and Paris 
COP21 – the United Nations conference on climate change. 

Human rights

We have a responsibility to understand our potential impact on human rights and 
to mitigate or eliminate this impact. We are committed to operating in accordance 
with the United Nations Global Compact Principles and DTRT 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.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
88  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Corporate Responsibility Committee

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 Limited. 

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 meet with our trade unions on a quarterly 
basis at the Company forum, and see real beneﬁt in sharing information with our 
colleagues and seeking their feedback and suggestions. We believe this fosters a 
joint understanding of business needs and helps to deliver common solutions aimed 
at making our business successful. 

Whistleblowing

All Severn Trent employees are encouraged to raise concerns at work in the 
ﬁrst instance through their line manager, or senior management however, we 
recognise that employees may feel inhibited in certain circumstances. If this should 
be the case, employees are encouraged to use our conﬁdential and independent 
whistleblowing helpline or email service, 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.

Prevention and detection 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. 

Responsible business practices are an integral part of our business strategy, and 
will be seen throughout our strategic report. For more information about our 
Corporate Responsibility framework, our ambitions and values, please see our CR 
report on pages 54.

Remuneration Committee

Annual Report and Accounts 2016  |  Severn Trent Plc  |  89

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. 

Philip Remnant
Chairman of the Remuneration Committee

Dear Shareholder
The new regulatory period, AMP6, brought with it considerable uncertainty, driven 
by changes to the regulatory regime which shifted the balance of risk and reward. 
New mechanisms were introduced, such as Outcome Delivery Incentives (ODIs) 
and total expenditure (Totex), giving companies the opportunity to outperform the 
regulatory allowance, but at the same time creating a risk of underperformance. 
I am pleased to report that our executive team has successfully navigated the 
business through this ﬁrst year, delivering impressive returns on regulated capital 
measured by return on regulatory capital value (RoRCV) and return on regulated 
equity (RoRE). Furthermore, our service levels have continued to improve, with a 
strong performance on operational metrics against a backdrop of a £4 reduction in 
our average household bill in 2015/16. This performance is, therefore, reﬂected in 
the payments under our incentive plans during the year.

Remuneration for the year under review
The annual bonus payments to the Chief Executive Ofﬁcer and the Chief Financial 
Ofﬁcer for the ﬁnancial year to 31 March 2016 were 105.8% and 104.0% of base 
salary respectively, reﬂecting strong proﬁt growth and performance against 
our ODIs. 

The recruitment awards for the Chief Executive Ofﬁcer and Chief Financial Ofﬁcer 
which were based on RoRCV performance over the three years to 31 March 2016 will 
vest in full, reﬂecting outperformance against our Business Plan. 

There is a detailed breakdown of the targets set and the payments under the annual 
bonus and long term incentive plan (LTIP) on pages 96 and 97.

Application of the policy for 2016/17
We operate under the framework approved by shareholders at the 2015 AGM and 
I set out below a brief overview of how the policy will be applied in the year ahead:

(cid:228)(cid:3) Base salaries: An increase of 2% will be applied to base salaries with effect 

from 1 July 2016 in line with the average level of increase for the wider workforce.

(cid:228)(cid:3) Beneﬁts and pension: There will be no changes to beneﬁts and pensions 

during 2016/17. 

(cid:228)(cid:3) Annual bonus: Will continue to be based on the same metrics as for 2015/16 
(Severn Trent Water (STW) proﬁt before interest and tax (PBIT), STW ODIs, 
Business Services PBIT, health and safety, and personal objectives). However, the 
weighting in respect of health and safety will be increased from 5% to 8% with a 
consequential reduction in the STW PBIT weighting. The Committee considers 
the forward looking targets to be commercially sensitive but full disclosure of the 
targets (and performance outcome) will be set out in next year’s Remuneration 
Report. The maximum bonus opportunity remains 120% of salary and 50% of any 
bonus paid will be deferred in shares for three years.

(cid:228)(cid:3) Long term incentives: Awards worth 150% of base salary for the Chief Executive 
Ofﬁcer and 100% for the Chief Financial Ofﬁcer will be granted in June 2016 
(grants worth 125% and 80% of base salary were made in 2015). The award 
level for the Managing Director, Wholesale Operations is 80% of base salary. 
The increase in award levels for the Chief Executive Ofﬁcer and Chief Financial 
Ofﬁcer is within our LTIP policy and reﬂects the strong performance of the 
Company and individuals, their career progression and the higher RoRE stretch 
target for the 2016/17 awards. The performance targets (for the awards to be 
granted in 2016) will require average RoRE to equal Ofwat’s 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 1.39 times (7.85%). 
The Committee considers that the 1.39 times Final Determination RoRE stretch 
target is challenging because it would require very signiﬁcant outperformance 
on ODIs, Financing and Totex efﬁciencies; it is signiﬁcantly ahead of the current 
market consensus; and 1.39 times Final Determination would be almost three 
times the level of outperformance achieved on average, had RoRE applied over 
AMP5 (1.14 times Final Determination).

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
90  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Remuneration Committee

Finally, the Chairman’s fee increased from £257,000 to £275,000 with effect from 
1 April 2016. This reﬂects the Chairman’s strong performance, the fact that the 
last review was in April 2014 and the desire to move closer to the median of the 
FTSE 51-150.

Structure of the report
This letter and the Annual Report on Remuneration will be subject to an advisory 
vote at the 2016 AGM. There is no vote on the Policy Report this year. The Policy 
Report, set out for reference on the following pages, reﬂects the Remuneration 
Policy approved by shareholders in 2015 (supported by 98% of votes cast). It is 
currently intended that this policy will continue to apply until the 2018 AGM when it 
will be subject to approval again by shareholders as required under the regulations. 

I hope that you remain supportive of our Remuneration Policy and will approve the 
resolution on the Annual Report on Remuneration at the AGM.

Philip Remnant
Chairman of the Remuneration Committee

Annual Report and Accounts 2016  |  Severn Trent Plc  |  91

Policy Report
This section sets out the Remuneration Policy approved by 
shareholders at the 2015 AGM. No changes to the Remuneration 
Policy are proposed this year and therefore there will be no 
shareholder vote on the policy at the 2016 AGM. 

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 
the 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 Executive Directors 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. 

Linkage to all employee pay 
The Committee reviews changes in remuneration arrangements 
in the workforce generally. It ensures that Executive Director base 
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 STW, and all UK employees may participate in the 
HMRC approved Sharesave Scheme (SAYE). 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 Funds1 and proxy advice agencies 
such as Institutional Shareholder Services. When any signiﬁcant 
changes are proposed to be made to the Remuneration Policy, 
the Remuneration Committee Chairman discusses these with 
major shareholders in advance and may offer meetings for more 
detailed discussion.

Remuneration Policy for the Executive Directors 
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 Executive 
Directors 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 96. 

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.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

1  Now the Pension and Lifetime Savings Association.

 
 
 
 
 
 
92  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Remuneration Committee

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 pension arrangements 
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 Director.

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 
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 or gross 
negligence, fraud or gross misconduct.

The Executive Directors are able to 
participate in HMRC approved all 
employees share plan 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  
predetermined 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 base salary. 

Maximum annual bonus 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 2016/17 is 
150% of base salary for the Chief 
Executive Ofﬁcer, 100% for the 
Chief Financial Ofﬁcer and 
80% for the Managing Director, 
Wholesale Operations. 

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

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

Annual Report and Accounts 2016  |  Severn Trent Plc  |  93

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 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 100.

Long term incentives (LTIP)

For LTIP awards granted in 2015 onwards, 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. 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 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 98. 

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. None of the Executive Directors hold 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 
Payments for Loss of Ofﬁce on page 94), 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 
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 Ofﬁcer 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. 

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
94  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Remuneration Committee

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 150% of salary for the Chief Executive Ofﬁcer, 100% of salary 
for the Chief Financial Ofﬁcer and 80% of salary for the Managing Director, 
Wholesale Operations). 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 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 2016. The value of taxable 
beneﬁts is the cost of providing those beneﬁts in the year ended 31 March 2016. 
The Executive Directors are also permitted to participate in HMRC approved all 
employee share plans, on the same terms as other eligible employees, but they 
have been excluded from the chart for simplicity. 

£’000

3,000

2,500

2,000

1,500

1,000

500

0

2,691

1,777

38%

29%

23%
10%

30%
7%

863
22%

1,426

29%

34%
8%

1,310

24%

36%
9%

912
17%

26%
13%

514
23%

978
21%

25%
12%

529
23%

78%

38%

25%

77%

42%

29%

77%

44%

30%

m
u
m
n
M

i

i

t
e
g
r
a
t
-
n
O

m
u
m
i
x
a
M

m
u
m
n
M

i

i

t
e
g
r
a
t
-
n
O

m
u
m
i
x
a
M

m
u
m
n
M

i

i

t
e
g
r
a
t
-
n
O

m
u
m
i
x
a
M

Chief Executive

Chief Financial Officer

Managing Director, 
Wholesale Operations

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

LTIP & legacy SMP

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 of 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 the change of control.

The Committee may exercise its discretion to pay a bonus to a departing Executive Director, 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 Director 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.

The default treatment is that all awards will lapse on cessation of employment. However, an Executive Director will be 
considered a good leaver in certain prescribed circumstances or by the discretion of the Committee. If an Executive 
Director 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) is calculated on a daily basis and under the legacy SMP 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, James Bowling and 
Emma FitzGerald, 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 from their previous employment was signiﬁcantly higher in each case 
(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 savings/awards under the SAYE 
and the legacy Share Incentive Plan (SIP) would be transferred in accordance with the terms of the plans as approved by HMRC.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  95

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 92. 
Participation in the bonus plan will normally be pro-rated for the year of joining. 

The Committee may make additional cash and/or share based awards if deferred pay is forfeited by an Executive Director 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 Severn Trent Executive Committee. 
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-Executive 
Directors of a 
suitable calibre 
for the role and 
duties required.

Operation
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.

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). 

Maximum Opportunity
Details of the current fee levels 
for the Directors are set out in the 
Annual Report on Remuneration 
on page 101. 

The fee levels are set subject to 
the maximum limits set out in 
the Articles of Association.

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 annual appointment or reappointment at the AGM with the exception 
of Martin Lamb and Gordon Fryett who will be retiring from the Board at the 2016 AGM. 

Annual Report on Remuneration 
This part of the report will be subject to an advisory vote at the AGM. The information on pages 95 to 101 is audited. 

Membership of the Remuneration Committee and its advisers

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 2016, the Committee met ﬁve times to discuss key remuneration issues arising, the review and operation of the Company’s 
Remuneration Policy and market updates by its advisers.

Remuneration Committee attendance in 2015/16

Andrew Duff
Martin Lamb
Philip Remnant (Chairman of the Remuneration Committee)
Dr. Angela Strank

5/5
5/5
5/5
5/5

The Committee members have no personal ﬁnancial interest, other than as shareholders, in the matters to be decided. The Chief 
Executive Ofﬁcer, Director of Human Resources and by invitation the Head of Strategy 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 adviser to the Committee and was appointed in 2011. 
The total fees paid to NBS during the year for services to the Committee were £77,211 excluding VAT (2015: £190,525). 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 Chairman of the Committee. The Committee reviews the 
appointment of its advisers annually and is satisﬁed that the advice it receives is objective and independent. 

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
96  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Remuneration Committee

Directors’ emoluments 
The single remuneration ﬁgure table below sets out the remuneration received by the Directors for 2015/16 (or for performance periods 
ending in 2015/16 in respect of the long term incentives) and, for the purposes of comparison, for 2014/15. 

Base 
salary 
and fees(i)

£’000
Non-Executive Directors
Andrew Duff 
(Chairman)
John Coghlan(viii)
Gordon Fryett
Martin Lamb
Philip Remnant(ix)
Dr. Angela Strank
Executive Directors(x)
Liv Garﬁeld(xi)
James Bowling(xii)
Total

257.0
66.4
64.4
61.4
66.4
51.4

610.2
400.0
1,577.2

Year ending 31 March 2016

Year ending 31 March 2015

Beneﬁts 

in kind(ii)  Pension(iii)

Annual 
bonus(iv)

Long term 
incentives(v) Other(vi)

Base 
salary and 
fees

Total

Beneﬁts  
in kind

Pension

Annual 
bonus

Long term 
incentives(vii) Other

Total

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
–
–
0.1

257.0
66.4
64.4
61.4
66.4
51.5

257.0 
54.6
64.4 
53.2 
54.3 
51.4 

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

–
0.1
–
–
0.2
0.1

257.0 
54.7
64.4 
53.2 
54.5
51.5 

17.1
18.8
35.9

215.1  702.1
100.0
416.0
315.1 1,118.1

876.0 12.7 2,433.2
610.0
9.4 1,244.1
299.9
–
1,175.9 22.2 4,244.4 1,144.9

16.6
–
16.6

203.1 405.5
–
203.1 405.5

–

949.9
–
949.9

12.5 2,197.6
–
12.9 2,732.9

–

(i)  Base salary for Liv Garﬁeld is shown after the deduction of beneﬁts (£49,995) purchased through the Company’s salary sacriﬁce scheme

(ii)  Beneﬁts include a car allowance of £15,000 per annum, family level private medical insurance, life assurance worth six times base salary and participation in an 

incapacity beneﬁts scheme

(iii)  Liv Garﬁeld is a member of the deﬁned contribution pension scheme. The ﬁgure shown includes £49,995 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. James Bowling receives a cash allowance equal to 25% of base salary 

(iv)  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 

(v)  This relates to the vesting of the third tranche of Liv Garﬁeld’s recruitment award and the second tranche of James Bowling’s recruitment award. The performance 

condition for these awards was the same as for the 2013 LTIP grant, which was based on RoRCV performance over the three year period to 31 March 2016. The awards 
vested at 100% 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 2016 to 31 March 2016 of £21.25

(vi)  For Non-Executive Directors, this ﬁgure relates to taxable expenses relating to travel. For Liv Garﬁeld and James Bowling this relates to their respective 

disturbance expenses

(vii)  This relates to the vesting of the second tranche of Liv Garﬁeld’s recruitment award (42,966 shares, inclusive of 1,744 dividend shares). The ﬁgure has been updated to 

reﬂect the actual share price on the date of vesting (£22.11)

(viii)  Appointed to the Board on 23 May 2014

(ix)  Appointed to the Board on 31 March 2014

(x)  Michael McKeon stood down from the Board on 1 April 2015 and left the Company on 31 May 2015. He received remuneration of £2,600 in relation to his services as 
an Executive Director during the year (being his salary, beneﬁts and pension for 1 April 2015). As set out in last year’s Annual Report on Remuneration, as a retiree, 
he was treated as a good leaver under the terms of the LTIP and SMP. Details of the awards vesting to him based on performance periods ended 31 March 2016 are 
set out on page 99

(xi)  Liv Garﬁeld joined Severn Trent Plc on 31 March 2014 and was subsequently appointed to the Board on 11 April 2014 

(xii)  James Bowling joined Severn Trent Plc on 16 March 2015 and was subsequently appointed to the Board on 1 April 2015. The ﬁrst tranche of James Bowling’s 

recruitment award (14,115 shares) vested on 1 June 2015. The value of the shares on vesting was £312,047. The value of this award has not been included in the table 
above since it was based on performance to 31 March 2015 (i.e. prior to joining the Board) 

Annual bonus outturn for 2015/16 

Annual bonus performance is measured over a single ﬁnancial year against a range of ﬁnancial and non-ﬁnancial targets and against 
personal objectives. The maximum bonus opportunity was 120% of salary. The table below shows a summary of the metrics and targets 
which were used to determine the annual bonus awards: 

Measure
STW PBIT

Business Unit 
Objectives

Personal  
Performance

STW ODIs
Business Services PBIT(ii)
Health & safety (no. of lost 
time incidents divided by no. 
of hours worked multiplied 
by 100,000) 

(i)  The STW ODI ﬁgure is based on 2012/13 pre tax prices

(ii)  Based on continuing operations

Weighting
50%
25%
10%

Threshold 
(0% payable)
£474.1m
£0.0m
£20.7m

Target  
(50% payable)
£502.9m
£4.8m
£34.8m

Stretch 
(100% payable)

Actual 
Performance(i)
£524.1m £520.3m
£23.2m
£38.2m

£7.3m
£38.9m

%  
Payable
91%
100%
92%

5%

10%

0.20

0.18

0.17

0.25

See below

0%
85% for Liv Garﬁeld and 
70% for James Bowling

Annual Report and Accounts 2016  |  Severn Trent Plc  |  97

The Directors had 10% of their bonus opportunity measured against personal objectives. Key objectives for Liv Garﬁeld (Chief Executive 
Ofﬁcer) related to growth and further improving the ﬁnancial strength of the business, customer experience and organisational 
effectiveness. Activities included education and engagement sessions for all employees on delivering outcomes for customers and end 
to end process reviews in operational areas, which has contributed towards 95% of operational measures being stable or improved, ODI 
outperformance, (net reward of £23.2 million) and a reduction in customer complaints, down 28% year on year. We have been recognised 
by the Environment Agency as being a leader on environmental performance and we have delivered 8.4% RoRE which was in the upper 
range of Ofwat expectations. In addition, the business has been strengthened by the Water Plus joint venture established with United 
Utilities to deliver a market leading non-household retail offer when the market opens in 2017. As a result, the Remuneration Committee 
decided to award Liv Garﬁeld a personal performance bonus at 85% of the maximum.

The objectives for James Bowling (Chief Financial Ofﬁcer) related to the delivery of the ﬁnance strategy and plans, including rebalancing 
ﬁxed and ﬂoating debt and creating procurement savings. Delivering on our ﬁnance strategy, active treasury management initiatives 
were undertaken during the year to rebalance the debt portfolio and lower index linked debt costs. This has helped deliver a £31.4 million 
reduction in net ﬁnance costs (excluding pensions) year on year and led to an effective ﬁnance cost of 4.5%, down from 5.4%. In addition, 
bad debt charges decreased from 1.8% of turnover to 1.5% as a result of improved collection performance on amounts billed in the year 
and better management of aged debt balances. Procurement savings have contributed to wholesale Totex of £1,017 million, £38 million 
lower than the Final Determination. Power costs have reduced by £2.1 million and we continue to make good progress on renewable 
energy, generating 33% of our energy needs through the renewables programme and on track for 50% by 2020. As a result, the 
Remuneration Committee decided to award James Bowling a personal performance bonus at 70% of the maximum.

5% of the 2015/16 bonus opportunity for the Executive Directors related to health and safety performance targets (as per the annual 
bonus outturn table on page 96), which were not achieved. Therefore the proportion of annual bonus weighting against this objective 
for 2016/17 has been increased from 5% to 8% (with a consequential reduction in the STW PBIT target (47%)) and more challenging 
targets set.

The bonuses awarded for 2015/16 were 105.8% of base salary for Liv Garﬁeld (£702,142) and 104.0% of base salary for  
James Bowling (£416,000) out of a maximum bonus opportunity of 120% of salary for both Directors. 

Bonuses are paid 50% in cash and 50% in shares (deferred for three years). The deferred shares will be granted in June 2016. 
The deferred shares are not subject to any further performance conditions.

Long term incentive awards vesting in relation to performance in 2015/16
The table below shows the outcome of long term share awards which had performance periods ending on 31 March 2016: 

Executive
Liv Garﬁeld

James Bowling

Total

Award type
Recruitment 
(Tranche 3)
Recruitment 
(Tranche 2)

Grant date

Number of 
shares  
granted

End of 
performance 
period

% award  
vesting

Number of 
shares vesting

Value of 
resultant  
award
£000s(i)

Vesting date

04/06/14

41,223

31/03/16

100%

41,223

£876.0

20/05/16

29/05/15

14,115

31/03/16

100%

14,115

£299.9
£1,175.9

01/04/16

(i)  Based on the average share price over the ﬁnal three months of the performance period (£21.25) as the awards will not be released until after the end of the close period 

The third tranche of Liv Garﬁeld’s and the second tranche of James Bowling’s recruitment awards were based on performance over 
three ﬁnancial years to 31 March 2016 (the performance conditions mirrored that of the 2013 LTIP awards). 

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 times Final Determination and 100% vesting for 1.07 times 
Final Determination. 

Ofwat are no longer publishing a baseline RoRCV ﬁgure in AMP6. This impacts the third measurement year of the 2013 LTIP award. 
Therefore, we have calculated the equivalent baseline ﬁgure using the component numbers set out in the Ofwat Final Determination 
for AMP6. To ensure consistency between this equivalent baseline and RoRCV, the baseline ﬁgure was adjusted 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 directly passed through 
into customers’ bills (which is how operating expenditure was historically treated), and what is added to STW’s asset base (which is how 
capital expenditure was historically treated). This gives a baseline ﬁgure of 3.49% for 2015/16.

The Committee considered the level of RoRCV outperformance of the Ofwat Final Determination for the 2013 LTIP. In order to derive a 
comparable measure of RoRCV for the ﬁnal year of the 2013 LTIP, the Committee decided, to ensure comparability with the equivalent 
baseline, that instead of using outturn Opex and Infrastructure Renewals Expenditure (IRE) (as adopted in the last two years of AMP5) 
it was more appropriate to multiply the actual total expenditure for 2015/16 by the Pay as You Go ratio from the Final Determination. 
This had the effect of reducing the level of outperformance for 2015/16. Taking this into account, the average RoRCV over the three 
years ending in 2015/16 reduced from 1.28 times the RoRCV baseline to 1.23 times, resulting in 100% vesting. The level of vesting was 
considered appropriate given the Company’s strong ﬁnancial and operational performance over the performance period.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
 
 
 
 
 
 
 
98  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Remuneration Committee

Outstanding scheme interests, including share awards granted during the year 
The table below sets out details of the Executives Directors’ outstanding share awards as at 31 March 2016. 

Executive
Liv Garﬁeld

James Bowling

Award type
Recruitment award 
(Tranche 3)
2014 LTIP
2015 LTIP
2015 ABS
2015 SAYE
Total
Recruitment award 
(Tranche 2)
Recruitment award 
(Tranche 3)
2015 LTIP
Total

Maximum 
number of 
shares(i)

Percentage 
vesting at 
threshold 
performance

Exercise 
price (p)

End of 
performance 
period

Awards granted during the year

Vesting/
exercise

 date(ii)

Basis of award

Face value

Notes

41,223
42,383
37,808
9,668
1,136
132,218

14,115

14,116
14,890
43,121

0%
0%
25%
–
–

0%

0%
25%

–
–
–
–
1584

–

–
–

31/03/16
31/03/17
31/03/18
–
–

20/05/16
16/07/17
15/07/18

May-18

–
–
125% of salary
Deferred bonus
–

–
–
£812,500
£202,742
–

31/03/16

01/04/16

Recruitment

£308,000

31/03/17
31/03/18

16/07/17
15/07/18

Recruitment
125% of salary

£308,000
£320,000

(a)
(c)
(d)
(e)
(f)

(b)

(b)
(d)

(i) Additional dividend equivalent shares may be released where provided in the rules

(ii) Awards that are due to vest in a close period will be released as soon as practicable after the end of the close period

a) Liv Garﬁeld’s Recruitment Award 

As set out in last year’s Remuneration Report, a one-off share award was granted to Liv Garﬁeld on 4 June 2014. The award was split into 
three equal tranches, vesting in 2014, 2015 and 2016, with the tranches subject to the same performance condition as the equivalent LTIP 
awards vesting in each of those years (i.e. the 2011, 2012 and 2013 LTIP awards). The third and ﬁnal tranche of this award vested at 100% 
and the shares will be released in May 2016 (see page 97). 

b) James Bowling’s Recruitment Award 

As set out in last year’s Remuneration Report, a one-off share award was granted to James Bowling on 29 May 2015 as partial 
consideration for his signiﬁcant unvested entitlements at his former employer. The award was split into three equal tranches, the face 
value of each being £308,000 (equivalent to 77% of his £400,000 base pay) vesting in 2015, 2016 and 2017. The share price used to calculate 
the number of shares granted was £21.82, being the average price over the preceding three days. The tranches are subject to the same 
performance condition as the equivalent LTIP awards vesting in each of those years (i.e. the 2012, 2013 and 2014 awards). The ﬁrst 
tranche of the recruitment award vested at 100% on 1 June 2015 with a value upon release of £312,047. The second tranche of the 
recruitment award vested at 100% and the shares will be released in May 2016 (see page 97). 

c) 2014 LTIP award 

The LTIP awards are granted as conditional shares. The 2014 awards are subject to an RoRCV performance condition measured over 
three ﬁnancial years. 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 times Final Determination and 100% vesting for 1.07 times Final Determination. As noted on page 97, 
Ofwat are no longer publishing a baseline RoRCV ﬁgure in AMP6. This impacts 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 giving a baseline ﬁgure of 3.49% 
for 2015/16.

d) 2015 LTIP award (awards granted during the year)

The 2015 awards are subject to a RoRE performance condition measured over three ﬁnancial years. Average RoRE performance 
is 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 2015 LTIP awards were granted on 15 July 2015. The share price used to calculate the number of shares granted was £21.49 
(being the average price over the preceding three days).

e) Deferred shares under the Annual Bonus Scheme (awards granted during the year)

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 2015 award relates to the deferral of the annual bonus for 2014/15. The award to Liv Garﬁeld was granted on 
29 June 2015. The share price used to calculate the number of shares granted was £20.97 (being the average price over the preceding 
three days). The deferred shares relating to the annual bonus for 2015/16 will be granted in June 2016.

f) 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  
approved Sharesave Scheme. 

 
 
 
 
 
 
 
 
 
Annual Report and Accounts 2016  |  Severn Trent Plc  |  99

External directorships 
Neither of the Executive Directors held any external non-executive directorships during the year.

Directors’ shareholdings and summary of outstanding share interests
The Company operates shareholding guidelines under which Executive Directors are expected to build and maintain a shareholding in 
the Company of 200% of salary for the Chief Executive Ofﬁcer and 125% of salary for other Executive Directors. Details of the current 
shareholdings of the Directors and whether Executive Directors have met the shareholding guidelines are set out below. 

Director
John Coghlan
Andrew Duff
Gordon Fryett
Martin Lamb
Philip Remnant
Dr. Angela Strank(i)
Liv Garﬁeld(i), (ii)
James Bowling(ii)

Interests in shares as at 31 March 2016

Outstanding scheme interests

Beneﬁcially 
owned(i)
400
8,184
2,400
3,012
1,400
459
49,117
7,500

LTIP and recruitment 
awards
–
–
–
–

121,414
43,121

Deferred shares under 
the annual bonus
–
–

SAYE options
–
–

–
–
–
9,668
–

–
–
–
1,136
–

Total
–
–
–
–
–
–
132,218
43,121

% shareholding 
guideline
achieved(ii)
–
–

–
–
–
88%
32%

(i)  The ﬁgures include the purchase of 224 shares by Dr. Angela Strank and 2,286 shares by Liv Garﬁeld on 30 March 2016 which settled on 1 April 2016

(ii)  The share price used to calculate the percentage of the shareholding guideline achieved was £21.73 (as at 31 March 2016). The guideline ﬁgures include unvested 

annual bonus scheme shares (50% deducted to cover statutory deductions)

Shares counting towards achievement of the guideline include beneﬁcially owned shares (including shares held by connected persons) 
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 from those set out in the table above 
to 23 May 2016. 

Payments to past Directors 
Tony Wray (who retired from the Board on 11 April 2014) and Michael McKeon (who retired from the Board on 1 April 2015) were treated 
as good leavers under the terms of the LTIP and SMP, thereby retaining their outstanding awards subject to performance and time pro-
rata reduction. Tony Ballance, Martin Kane and Andy Smith stepped down from the Board on 23 January 2015 but remain in continued 
employment with the Company thereby retaining their outstanding incentive awards. 

All the former Directors held awards under the 2012 SMP and 2013 LTIP grant cycles. The 2012 SMP awards lapsed on 25 May 2015 
due to failure to meet the threshold performance hurdle. As noted on page 97, the 2013 LTIP awards vested in full. The former Directors 
will receive the following shares in relation to this award: Tony Ballance, 5,855 shares; Martin Kane, 7,119 shares; Michael McKeon, 
12,937 shares (subject to pro-rating rules); Andy Smith, 7,610 shares; Tony Wray, 22,312 shares (subject to pro-rating rules).  
The shares vested on 31 March 2016 and will be released as soon as possible after the end of the close period. 

Payments for Loss of Ofﬁce 
No payments have been made for loss of ofﬁce during the year. 

Percentage increase in the remuneration of the Chief Executive Ofﬁcer 
The table below shows the movement in salary, beneﬁts and annual bonus for Liv Garﬁeld (CEO) between the current and previous 
ﬁnancial year compared with that of the average employee. 

Chief Executive Ofﬁcer (£’000)
– Salary(i)
– Beneﬁts
– Bonus
Average per employee (£’000)(ii)
– Salary
– Beneﬁts(iii)
– Bonus(iv)

2016

2015

% Change

663.7
17.1
702.1

29.5
0.3
2.2

650.0
16.6
405.5

28.8
0.5
1.2

2.1%
3.0%
73.1%

2.5%
-39.9%
84.9%

(i)  The salary ﬁgures for 2015 and 2016 have been adjusted to include salary paid into the pension scheme as an employer contribution via salary sacriﬁce 

(ii)  Based on full time equivalent comparisons 

(iii)  Includes car allowance and family level private medical insurance for senior and middle managers. The proportion of population entitled to receive such beneﬁts 

reduced during the year 

(iv)  2015/16 was the ﬁrst year of the new all employee bonus scheme 

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
100  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Remuneration Committee

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 STW employees based in the UK as 
this is where the vast majority of employees is based.

Total shareholder return chart (not subject to audit)
This graph shows the value, at 31 March 2016, 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 £)
350

300

250

200

150

100

50

0

09

10

11

12

13

14

15

16

Key

Severn Trent Plc

FTSE 100 index

Source: Datastream

Total remuneration of the Chief Executive Ofﬁcer
The total remuneration ﬁgure for the Chief Executive Ofﬁcer over the last seven ﬁnancial years is shown in the table below.  
The annual bonus payout and LTIP vesting level as a percentage of the maximum opportunity is also shown. 

Chief Executive Ofﬁcer
Total remuneration (£’000)
Annual bonus (% of maximum)
LTIP vesting (% of maximum)
SMP vesting (% of maximum)

2010
Tony Wray
1,027.0
51.5%
60.3%
 N/A

2011
Tony Wray
949.8
43.2%
0.0%
 N/A

2012
Tony Wray
1,244.1
48.1%
28.4%
 N/A 

2013
Tony Wray
1,635.3
82.4%
57.5%
 78.0% 

2014
Tony Wray
1,818.4
78.7%
100.0%
64.3%

Year ending 31 March

2015
Liv Garﬁeld
2,197.6
52.0%
100.0%
N/A

2016
Liv Garﬁeld
2,433.2
88.2%
100.0%
N/A

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)(i)
Dividends (£’m)

(i) The 2015 ﬁgure includes staff costs in respect of Business Services Water Puriﬁcation for the full period
How the policy will be applied in 2016 onwards 
Salary, beneﬁts and pension 

2016
337.8
197.0

2015
369.5
196.9

% Change
–8.58%
0.10%

Base salaries will increase by 2% on 1 July 2016. These increases are in line with the average increase that will apply to the general UK 
workforce. The base salaries for the Executive Directors from 1 July 2016 are as follows: 

Liv Garﬁeld
James Bowling
Emma FitzGerald

£677,000
£408,000
£397,800

Beneﬁts and pension provision will be applied in line with the policy set out in the table on pages 91 and 92. 

Annual bonus

The structure and operation of the annual bonus will be as outlined in the policy table. The performance measures will be STW PBIT 
(47%), business unit performance (43%) and personal objectives (10%). The business unit performance, for the Chief Executive Ofﬁcer 
and the Chief Financial Ofﬁcer, relates to performance against STW ODIs (25%), Business Services PBIT (10%) and health and safety 
performance (8%). For the Managing Director, Wholesale Operations, the business unit performance relates to STW ODIs (35%) and 
health and safety performance (8%). The weighting on health and safety performance has increased from 5% in 2015/16 to 8% in 2016/17 
with a consequential reduction in the weighting on STW PBIT from 50% in 2015/16 to 47% in 2016/17. 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. 

Annual Report and Accounts 2016  |  Severn Trent Plc  |  101

Long Term Incentive Plan

LTIP awards for 2016 will be 150% of base salary for the Chief Executive Ofﬁcer, 100% for the Chief Financial Ofﬁcer and 80% for the 
Managing Director, Wholesale Operations and will be made in June 2016. Grants worth 125% and 80% of salary were made to the Chief 
Executive Ofﬁcer and the Chief Financial Ofﬁcer last year. The increase in award levels for the Chief Executive Ofﬁcer and Chief Financial 
Ofﬁcer is within our current LTIP policy and reﬂects the strong performance of the Company and individuals, their career progression 
and the higher RoRE stretch target for the 2016 awards. The Committee was also aware that the previous award levels were signiﬁcantly 
below the market median of 200% of salary in the FTSE 51-150, the Company’s current benchmark. When considering the appropriate 
award levels the Committee has taken into account the overall competitiveness of the reward packages. 

The awards will be based on return on regulatory equity (RoRE) over the three year period to 31 March 2019. 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 
1.39 times (equivalent to 7.85%). 

This represents an increase to the stretch target from 1.29 times the Final Determination used for the 2015 awards. The target range has 
been set taking into account internal and external forecasts. The stretch target (1.39 times Final Determination) requires very signiﬁcant 
outperformance on ODIs, Financing and Totex efﬁciencies and is signiﬁcantly ahead of the current market consensus. 1.39 times Final 
Determination is equivalent to almost three times the level of outperformance achieved on average (had RoRE applied) over AMP5 
(1.14 times Final Determination).

Appointment to the Board of Emma FitzGerald

Emma FitzGerald, Managing Director, Wholesale Operations, was appointed to the Board on 1 April 2016. Her remuneration 
arrangements are as set out above. 

Chairman and Non-Executive Directors’ fees 

From 1 April 2016, Non-Executive Director base fees were increased by 2% from £51,350 to £52,400 and the Chairman’s fee was 
increased from £257,000 to £275,000. The Chairman’s fee increase reﬂects his strong performance, the fact that the last review was 
in April 2014, and the desire to move closer to the median of the FTSE 51-150.

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 
£275,000
£52,400

£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 2019), Gordon Fryett (20 July 2016), 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 annual appointment or 
reappointment at the AGM with the exception of Martin Lamb and Gordon Fryett who will be retiring from the Board at the 2016 AGM.

Statement of shareholding voting at the 2015 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
141,380,753 (99.00%)
140,177,341 (97.99%)

Votes against
1,431,919 (1.00%)
2,881,449 (2.01%)

Votes withheld
607,663
367,934

Philip Remnant
Chairman of the Remuneration Committee

23 May 2016

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
 
102  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Directors’ report

The Directors present their report and the audited Group ﬁnancial 
statements, for the year ended 31 March 2016. The performance 
review of the Company can be found within the strategic report 
on pages 1 to 63. This 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 2016. The governance section 
set out on pages 64 to 106 is incorporated by reference into this 
report and, accordingly, should be read as part of this report.

Details of the Group’s policy on addressing the principal risks and 
uncertainties facing the Group are set out in the risk management 
section on pages 46 to 53.

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 2016 are shown in note 45 
to the ﬁnancial statements on page 165.

Areas of operation 
Throughout 2015/16, the Group had activities and operations in 
the United Kingdom, Ireland, Italy and the United States. 

Directors and their interests
Biographies of the Directors currently serving on the Board are 
set out on pages 66 and 67. 

All of the Directors, with the exception of Martin Lamb and 
Gordon Fryett, will be offering themselves for appointment or 
reappointment at the Annual General Meeting (‘AGM’), as set 
out in the governance report on page 74.

Details of Directors’ service contracts are set out in the Directors’ 
Remuneration Report on page 94. The interests of the Directors 
in the shares of the Company are shown on page 99 of that report. 
The Board has a documented process in place in respect of 
conﬂicts which is described on page 74.

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. As permitted by the Company’s Articles 
of Association (the ‘Articles’), and to the extent permitted by law, 
the Company indemniﬁes 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. The indemnity was in force 
throughout the tenure of each Director during the last ﬁnancial 
year, and is currently in force.

Indemnities were also entered into with Emma FitzGerald, 
Kevin Beeston and Dominique Reiniche upon their appointments 
to the Board.

Severn Trent Plc does not have in place any indemnities for the 
beneﬁt of the external Auditor.

Employees 
The average number of employees within the Group is shown in 
note 9 to the ﬁnancial statements on page 130.

Severn Trent Plc believes a diverse and inclusive workforce is a 
key factor in being a successful business. Through our Diversity 
and Equal Opportunities Policy, the Company seeks to ensure that 
every employee, without exception, is treated equally and fairly and 
that all employees are aware of their responsibilities. 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 are an equal opportunities employer and welcome applications 
from all individuals, including those with a disability. We are fully 
committed to supporting applications made by disabled persons, 
and make reasonable adjustments to their environment where 
possible (having regard to their particular aptitudes and abilities). 
We are also responsive to the needs of our employees. As such, 
should any employee become disabled during their time with 
us, we will actively re-train that employee and make reasonable 
adjustments to their environment where possible, in order to keep 
the employee within the Group.

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.

Employee engagement 
We continuously engage with our employees in a number of ways 
to suit different working patterns. This includes:

(cid:228)(cid:3) all people brieﬁngs, ‘Team Talk’;
(cid:228)(cid:3) corporate communications events and roadshows held by 

functions across the Company;
(cid:228)(cid:3) a dedicated intranet, ‘Streamline’; 
(cid:228)(cid:3) online news portal and weekly roundup, ‘Pipeline News’; 
(cid:228)(cid:3) an active employee social media presence, ‘Yammer’;
(cid:228)(cid:3) conference calls and email; 
(cid:228)(cid:3) leadership engagement channels – Chief Executive’s weekly 
blog, senior management monthly visibility programme and 
quarterly events;

(cid:228)(cid:3) employee forum; and 
(cid:228)(cid:3) regular meetings with Unions.
Details of the ﬁnancial and economic factors affecting the 
performance of the Company are shared with all employees at 
the appropriate time using the methods listed above.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  103

We provide opportunities for employees to give their feedback to 
the Company in a number of ways, from team or shift meetings 
and annual employee satisfaction surveys.

The Company is keen to encourage greater employee involvement 
in the Group’s performance through share ownership. To help 
align employees’ interests with the success of the Company’s 
performance, we operate an HMRC approved all employee plan, 
the Severn Trent Sharesave Scheme (‘Sharesave’), which is offered 
to UK employees on an annual basis. Over 65% of Severn Trent’s 
UK employees participate in one or more of our schemes.

During the year, the Company has remained within its headroom 
limits for the issue of new shares for share plans as set out in the 
rules of the above plan. 

Research and development
Innovative use of existing and emerging technologies will continue 
to be crucial to the successful development of new products and 
processes for the Group and our products must continue to deliver 
value for customers. 

Expenditure on research and development is set out in note 7 to 
the ﬁnancial statements on page 129.

Internal Controls
Further details of our Internal Control framework can be found in 
the Audit Committee Report on page 83.

Treasury management
The disclosures required under the European Union (‘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 149 to 155. Further details on our Treasury Policy and 
management are set out in the ﬁnancial review on page 44.

Post balance sheet events
Details of post balance sheet events are set out in note 43 to the 
Group ﬁnancial statements on page 163.

Dividends
An interim dividend of 32.26 pence per Ordinary Share was paid 
on 8 January 2016. The Directors recommend a ﬁnal dividend 
of 48.40 pence per Ordinary Share to be paid on 22 July 2016 to 
shareholders on the register on 17 June 2016. This would bring 
the total dividend for 2015/16 to 80.66 pence per Ordinary Share 
(2014: 84.90 pence). The payment of the ﬁnal dividend is subject to 
shareholder approval at the AGM.

Dividend Policy 
In January 2015, Severn Trent announced its Dividend Policy 
for the period 2015-2020. The Board agreed to set the 2015/16 
dividend at 80.66 pence, a reduction of 5% compared to 2014/15 
total dividend for the year 84.90 pence. The policy is structured so 
as to grow the dividend annually at no less than RPI until March 
2020. This replaced the previous Dividend Policy of RPI+3% which 
expired in March 2015. 

The Dividend Policy reﬂects the lower cost of capital and 
stretching objectives and improvements in operating efﬁciencies 
required by the Final Determination. When determining the policy 
the Board considered various scenarios and sensitivities, and 
reviewed the impact of adverse changes in inﬂation and interest 
rates on key metrics. The Board believes that the Dividend Policy is 
commensurate with a sustainable investment grade credit rating. 

Capital structure
Details of the Company’s issued share capital and of the 
movements during the year are shown in note 30 to the Company 
ﬁnancial statements on page 146. 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 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 157 to 159. 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, the 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 64 
and 106.

Under the Articles, the Directors have authority to allot Ordinary 
Shares, subject to the aggregate nominal amount limit set at the 
2015 AGM.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
104  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Directors’ report

Change of control 
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 are 
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 2016, the Company had been notiﬁed in accordance 
with Chapter 5 of the Disclosure and Transparency Rules of the 
following major shareholdings:

Name of Holder
Blackrock Inc 
Legal & General 
Group Plc

No. of ordinary shares 
of 9717/19p each
23,457,458

Percentage of voting rights 
and issued share capital
9.87%

9,523,698

3.99%

As at 23 May 2016, 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%).

The percentage of voting rights detailed above was calculated at 
the time of the relevant disclosures made in accordance with Rule 
5 of the Disclosure and Transparency Rules.

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, and on 13 February 2015, the 
Company announced that it would commence a share repurchase 
programme. 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. The Company was again given authority at 
its AGM in 2015 to make market purchases of Ordinary Shares up 
to a maximum number of 23,949,741 Ordinary Shares. During the 
ﬁnancial year ended 31 March 2016, 4,274,576 Ordinary Shares 
have been repurchased at an average price of 2,139 pence. 
During the year, 51,514 shares have been cancelled with 4,136,921 
Ordinary Shares being held in treasury as at 23 May 2016 to satisfy 
future share based awards under the Long Term Incentive Plan. 
No Ordinary Shares have been transferred from treasury to satisfy 
the exercise of share options. The share repurchase programme 
concluded in January 2016. 

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. 

Authority will again be sought from shareholders at this year’s 
AGM to purchase up to a maximum of 23,554,028 Ordinary Shares.

Contributions for political and charitable purposes 
Donations to charitable organisations during the year amounted 
to £86,864 (2015: £157,648). 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 and Accounts. 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 2015 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 2016 the Group incurred costs of £nil (2015: £nil). 
Those authorities will expire at the 2016 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 p.a. 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.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  105

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. 

Relevant audit information
The Directors conﬁrm that:

(cid:228)(cid:3) so far as each of them is aware, there is no relevant audit 

information of which the Company’s Auditor are unaware; and
(cid:228)(cid:3) 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 
Auditor is aware of that information.

Greenhouse Gas Emissions
The disclosures required by law relating to the Group’s 
Greenhouse Gas Emissions are included in the Corporate 
Responsibility report on page 64.

Accounts of Severn Trent Water Limited
The Annual Performance Report for Severn Trent Water Limited 
is prepared and sent to Ofwat. A copy of this will be available on 
the website of Severn Trent Water Limited or on request to the 
Company Secretary. There is no charge for this publication.

Annual General Meeting 
The AGM of the Company will be held at the Ricoh Arena, 
Phoenix Way, Coventry, CV6 6GE at 11am on Wednesday 20 July 
2016. 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.

By order of the Board

This conﬁrmation is given and should be interpreted in accordance 
with the provisions of section 418 of the Companies Act 2006.

Bronagh Kennedy
Group General Counsel and Company Secretary

23 May 2016

External Auditor
Having carried out a review of their effectiveness during the 
year, and following the audit tender process described in the 
Audit Committee report on page 84, 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 Auditor. 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)
(2), (5), (6), (7), 
(9)–(14)

Information to be included
A statement of the amount 
of interest capitalised
Details of long term 
incentive schemes
Section 7 in relation to 
subsidiary undertakings

Location 

131

97

165

Not applicable

DIGITAL FIRST

Visit our online annual  
report to ﬁnd out more: 
ar2016.severntrent.com

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
106  |  Severn Trent Plc  |  Annual Report and Accounts 2016

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 company ﬁnancial 
statements in accordance with United Kingdom Generally 
Accepted Practice including FRS101 ‘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:

(cid:228)(cid:3) select suitable accounting policies and then apply 

them consistently;

(cid:228)(cid:3) make judgments and accounting estimates that are 

reasonable and prudent;

(cid:228)(cid:3) state whether applicable UK Accounting Standards have been 
followed, subject to any material departures disclosed and 
explained in the ﬁnancial statements; and

(cid:228)(cid:3) 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:

(cid:228)(cid:3) properly select and apply accounting policies;
(cid:228)(cid:3) present information, including accounting policies, in a 

manner that provides relevant, reliable, comparable and 
understandable information; 

(cid:228)(cid:3) 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

(cid:228)(cid:3) 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.

The Directors conﬁrm that they consider that 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 position and performance, 
business model and strategy.

Responsibility statement 
Each of the Directors conﬁrm that to the best of their knowledge:

(cid:228)(cid:3) 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; and

(cid:228)(cid:3) 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.

This Responsibility Statement was approved by the Board of 
Directors on 23 May 2016 and is signed on its behalf by:

Andrew Duff 
Chairman 

James Bowling 
Chief Financial Ofﬁcer

23 May 2016

Annual Report and Accounts 2016  |  Severn Trent Plc  |  107

FINANCIAL 
STATEMENTS

Group ﬁnancial  
statements
108  Independent auditor’s 
report to the members 
of Severn Trent Plc

112  Consolidated income statement
113  Consolidated statement of  
comprehensive income 
114  Consolidated statement of 

changes in equity

115  Consolidated balance sheet
116  Consolidated cash 
ﬂow statement
117  Notes to the group 

ﬁnancial statements

Company 
ﬁnancial statements
167  Company statement of  
comprehensive income
168  Company balance sheet
169  Company statement of  
changes in equity

170  Notes to the parent company  

ﬁnancial statements

Other information
174  Five year summary
175  Information for shareholders

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
108  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Independent auditor’s report to the members of Severn Trent Plc

Opinion on ﬁnancial 
statements of 
Severn Trent Plc

Going Concern and the 
directors’ assessment 
of the principal risks 
that would threaten 
the solvency or liquidity 
of the group

Independence

In our opinion:

(cid:228)(cid:3) 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 2016 and of the group’s proﬁt for the year then ended;

(cid:228)(cid:3) the group ﬁnancial statements have been properly prepared in accordance with International 

Financial Reporting Standards (IFRSs) as adopted by the European Union;

(cid:228)(cid:3) the parent company ﬁnancial statements have been properly prepared in accordance with United 
Kingdom Generally Accepted Accounting Practice including Financial Reporting Standard 101 
Reduced Disclosure Framework; and

(cid:228)(cid:3) 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 United 
Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including 
Financial Reporting Standard 101 Reduced Disclosure Framework.

As required by the Listing Rules we have reviewed the Directors’ statement regarding the 
appropriateness of the Going Concern basis of accounting contained within note 2 to the ﬁnancial 
statements and the Directors’ statement on the longer-term viability of the group contained within 
the strategic report on page 47.

We have nothing material to add or draw attention to in relation to:

(cid:228)(cid:3) the Directors’ conﬁrmation on page 48 that they have carried out a robust assessment of the principal 
risks facing the group, including those that would threaten its business model, future performance, 
solvency or liquidity;

(cid:228)(cid:3) the disclosures on pages 48-53 that describe those risks and explain how they are being managed 

or mitigated;

(cid:228)(cid:3) the Directors’ statement in note 2a) to the ﬁnancial statements about whether they considered it 

appropriate to adopt the Going Concern basis of accounting in preparing them and their identiﬁcation 
of any material uncertainties to the group’s ability to continue to do so over a period of at least twelve 
months from the date of approval of the ﬁnancial statements;

(cid:228)(cid:3) the Directors’ explanation on page 47 as to how they have assessed the prospects of the group, 

over what period they have done so and why they consider that period to be appropriate, and their 
statement as to whether they have a reasonable expectation that the group will be able to continue 
in operation and meet its liabilities as they fall due over the period of their assessment, including any 
related disclosures drawing attention to any necessary qualiﬁcations or assumptions.

We agreed with the directors’ adoption of the going concern basis of accounting and we did not identify 
any such material uncertainties. 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.

We are required to comply with the Financial Reporting Council’s Ethical Standards for Auditors and we 
conﬁrm that we are independent of the group and we have fulﬁlled our other ethical responsibilities in 
accordance with those standards. We also conﬁrm we have not provided any of the prohibited non-audit 
services referred to in those standards.

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.

Risk
Determination of the provision for impairment of trade receivables 
in Severn Trent Water Limited (£124.3 million) (note 21) 
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 judgment 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 (£193.0 million) (note 21)
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 judgment 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 18)
Severn Trent Water Limited has a substantial capital programme (ﬁxed 
asset additions in the year £411.5 million) which has been agreed with 
the regulator (‘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 (£126.0 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 
judgmental. Whilst under AMP6, total expenditure or Totex is a key driver 
of regulatory performance rather than capital expenditure which was 
monitored under AMP5, the accounting distinction between operating and 
capital expenditure remains and hence it is important that capital project 
expenditure is accounted for correctly in accordance with International 
Accounting Standards (‘IAS’). 
In addition, the comparative consolidated balance sheet has been 
restated to reﬂect a reclassiﬁcation between property, plant and 
equipment and non current trade and other payables. Contributions, 
which had been received in previous years in relation to infrastructure 
assets, and which had a carrying value of £294.5 million as at 31 March 
2014, were identiﬁed as being deducted from the carrying value of 
property plant and equipment. In order to comply with the requirements 
of IAS 16 and IAS 18, these contributions have been reclassiﬁed from 
property plant and equipment to non-current trade and other payables. 
Further details are set out in note 2a.

Determining the amount of the group’s retirement beneﬁt obligations 
(£309.5 million deﬁcit) (note 28) 
This is a key area of judgment 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 pensioners. 

Annual Report and Accounts 2016  |  Severn Trent Plc  |  109

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 tested 
the design and implementation of key management review 
controls and those relating to the production of the data 
used in the bad debt model. We have also 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 design and 
implementation of key management review controls 
and those relating to the key data inputs to the model. 
We also 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.
In relation to the reclassiﬁcation of infrastructure asset 
contributions from property, plant and equipment to non 
current trade and other payables, we have reconciled in 
total the contributions received in relation to infrastructure 
assets to the underlying accounting records and have 
conﬁrmed that the revised presentation is in line with 
International Accounting Standards. 

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.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
110  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Independent auditor’s report to the members of Severn Trent Plc

Risk
Determination of current and deferred tax balances (£9.7 million credit) 
(note 13)
Assessing the outcome of uncertain tax positions requires judgments 
to be made regarding the result of negotiations with, and enquiries from, 
tax authorities in a number of jurisdictions.
The opening current and deferred tax balance has been restated by 
£67.8 million with a corresponding debit adjustment in opening reserves, 
primarily in order to correct the deferred tax position in light of the 
reclassiﬁcation of contributions received in relation to infrastructure 
assets from property, plant and equipment to non-current trade and 
other payables. Further details are set out in note 2a).

How the scope of our audit responded to the risk

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.
We have reviewed the underlying workings supporting 
the restated current and deferred tax balances and 
challenged the revised treatment to test that it is in 
accordance with IAS 12 ‘Income Taxes’

The description of risks above should be read in conjunction with the signiﬁcant issues considered by the Audit Committee discussed on 
page 82.

These matters were addressed in the context of our audit of the ﬁnancial statements as a whole, and in forming our opinion thereon, and 
we do not provide a separate opinion on these matters.

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 (2015: £18 million), which is approximately 6% 
(2015: 6%) of proﬁt before tax, losses/gains on ﬁnancial instruments and exceptional items. As in 2015, 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 them all audit differences in excess of £750,000 
(2015: £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 matters that we identiﬁed when assessing the 
overall presentation of the ﬁnancial statements.

An overview of the 
scope of our audit

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 and Severn Trent Services. 

Severn Trent Water Limited was subject to a full statutory audit using component materiality of £15 million and 
accounts for over 90% (2015: over 90%) of the group’s net operating assets and operating proﬁt. The group audit 
team performs the audit of the Severn Trent Water business segment without the involvement of a component 
audit team. 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 is lower than that of the group, with the highest materiality 
(£9 million) applied to the US component.

At the parent entity 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 continued to follow a programme of planned visits to auditors of each of the signiﬁcant 
components of the group not audited by the group audit team. This primarily relates to the Severn Trent 
Services audit team in the US. In the current year, the Senior Statutory Auditor visited the Severn Trent Services 
component in the US. In years when we do not visit a signiﬁcant component we include the component audit 
partner in our team brieﬁng, discuss their risk assessment, and review documentation of the ﬁndings from 
their work.

In our opinion:

(cid:228)(cid:3) the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with 

the Companies Act 2006; and

(cid:228)(cid:3) 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.

Opinion on other 
matters prescribed 
by the Companies 
Act 2006

Annual Report and Accounts 2016  |  Severn Trent Plc  |  111

Matters on which 
we are required to 
report by exception

Adequacy of 
explanations 
received and 
accounting records

Under the Companies Act 2006 we are required to report to you if, in our opinion:

(cid:228)(cid:3) we have not received all the information and explanations we require for our audit; or
(cid:228)(cid:3) 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

(cid:228)(cid:3) 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.

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.

Corporate Governance 
Statement

Under the Listing Rules we are also required to review part of the Corporate Governance Statement relating to 
the company’s compliance with certain provisions of the UK Corporate Governance Code. We have nothing to 
report arising from our review.

Our duty to read 
other information in 
the Annual Report

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:

(cid:228)(cid:3) materially inconsistent with the information in the audited ﬁnancial statements; or
(cid:228)(cid:3) apparently materially incorrect based on, or materially inconsistent with, our knowledge of the group acquired 

Respective 
responsibilities 
of directors 
and auditor

Scope of the audit 
of the ﬁnancial 
statements

in the course of performing our audit; or

(cid:228)(cid:3) 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). 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.

Kari Hale, FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP  
Chartered Accountants and Statutory Auditor  
London, UK

23 May 2016

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
112  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Consolidated income statement
For the year ended 31 March 2016

Turnover
Net operating costs before exceptional items
Exceptional operating items
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
Gains/(losses) on ﬁnancial instruments
Share of results of associates and joint ventures
Proﬁt before tax, gains/(losses) on ﬁnancial instruments and exceptional items
Exceptional items before tax
Gains/(losses) on ﬁnancial instruments
Proﬁt on ordinary activities before tax
Current tax excluding exceptional credit
Deferred tax excluding exceptional credit
Exceptional tax credit
Total tax on proﬁt on ordinary activities
Proﬁt for the year from continuing operations
(Loss)/proﬁt 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

Notes

5, 6

7

8

5

8

10

11

12

8

12

13

13

13

13

38

15

15

15

15

2016  
£m

1,786.9

(1,264.1)

1.0

2015  
£m

1,801.3

(1,261.0)

(18.7)

(1,263.1)

(1,279.7)

522.8

1.0

523.8

73.1

(282.4)

(209.3)

7.7

0.1

313.6

1.0

7.7

322.3

(55.2)

(13.7)

78.6

9.7

332.0

(0.7)

331.3

330.0

1.3

331.3

140.0

139.4

139.8

139.1

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

Consolidated statement of comprehensive income
For the year ended 31 March 2016

Annual Report and Accounts 2016  |  Severn Trent Plc  |  113

Proﬁt for the year
Other comprehensive income/(loss)
Items that will not be reclassiﬁed to the income statement:

Net actuarial gain/(loss) on deﬁned beneﬁt pension schemes
Tax on net actuarial gain/loss
Deferred tax arising on change of rate

Items that may be reclassiﬁed to the income statement:

Loss on cash ﬂow hedges
Deferred tax on loss 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
Cumulative exchange losses transferred to income statement

Other comprehensive income/(loss) for the year
Total comprehensive income for the year
Attributable to:
Owners of the company
Non-controlling interests

2016  
£m

331.3

2015  
£m

120.2

148.3

(26.7)

(9.6)

112.0

(2.7)

0.4

12.2

(2.2)

(1.1)

11.7

18.3

130.3

461.6

460.2

1.4

461.6

(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

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
114  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Consolidated statement of changes in equity
For the year ended 31 March 2016

Equity attributable to owners of the company

Share 
premium 
£m

Other 
reserves 
£m

Retained 
earnings 
£m

At 1 April 2014
Restatement
At 1 April 2014 after restatement
Proﬁt for the year
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
Net actuarial losses
Tax on net actuarial losses
Total comprehensive income for the year
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
Proﬁt for the year
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
Cumulative exchange losses transferred  
to income statement
Net actuarial gains
Tax on net actuarial gains
Deferred tax arising from rate change
Total comprehensive income for the year
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
Disposal of minority interest
Dividends paid
At 31 March 2016

Share 
capital 
£m

233.9

–

233.9

–

–

–

–

–

–

–

–

–

94.2

–

94.2

–

–

–

–

–

–

–

–

–

0.7

6.0

–

–

–

–

–

(0.9)

–

–

–

–

–

–

–

–

–

–

233.7

100.2

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

0.7

6.6

–

–

–

–

–

(0.1)

–

–

–

–

–

–

–

–

–

–

(143.4)

(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)

(100.0)

667.3

(54.3)

613.0

119.1

–

–

–

–

–

–

0.5

(196.9)

323.5

330.0

–

–

–

–

–

–

148.3

(26.7)

(9.6)

442.0

–

5.2

(4.6)

1.2

(0.5)

Total 
£m

1,077.6

(54.3)

1,023.3

119.1

(13.8)

2.8

23.6

(4.7)

7.2

–

0.5

(196.9)

755.6

330.0

(2.7)

0.4

12.2

(2.2)

11.7

148.3

(26.7)

(9.6)

460.2

7.3

5.2

(4.6)

1.2

(0.5)

Non-
controlling 
interests 
£m

12.5

–

12.5

1.1

–

–

–

–

1.7

–

–

2.8

–

–

–

–

–

–

–

(0.5)

(1.4)

13.4

1.3

–

–

–

–

Total 
equity 
£m

1,090.1

(54.3)

1,035.8

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)

769.0

331.3

(2.7)

0.4

12.2

(2.2)

–

–

–

–

1.4

–

–

–

–

–

–

–

(13.7)

–

1.1

11.7

148.3

(26.7)

(9.6)

461.6

7.3

5.2

(4.6)

1.2

(0.5)

(10.0)

–

(13.7)

(197.0)

1,018.5

(1.2)

0.1

(1.1)

82.2

–

82.2

–

(13.8)

2.8

23.6

(4.7)

7.2

–

–

15.1

–

–

–

–

–

–

0.9

–

–

98.2

–

(2.7)

0.4

12.2

(2.2)

(1.2)

11.7

–

–

–

18.2

–

–

–

–

–

–

0.1

–

–

(10.0)

(10.0)

–

–

–

–

(197.0)

559.8

(197.0)

1,017.4

234.3

106.8

116.5

Consolidated balance sheet
At 31 March 2016

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
Current income tax liabilities
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 23 May 2016.

Andrew Duff 
Chairman 

James Bowling
Chief Financial Ofﬁcer

Company number: 02366619

Annual Report and Accounts 2016  |  Severn Trent Plc  |  115

Note

16

17

18

19

20

21

20

22

23

25

26

29

23

25

26

27

28

29

30

31

32

2016 

£m

14.8

72.2

2015 
Restated 
£m

2014 
Restated 
£m

14.3

69.3

14.8

82.8

7,718.6

7,531.7

7,315.4

5.1

40.2

0.1

4.6

13.5

0.1

5.2

72.4

0.1

7,851.0

7,633.5

7,490.7

21.0

516.6

–

0.7

55.2

–

593.5

8,444.5

(280.6)

(1.1)

(454.1)

(11.1)

(12.3)

–

16.7

492.0

9.3

13.5

176.7

107.9

816.1

8,449.6

(463.0)

(32.2)

(494.0)

–

(15.9)

(35.3)

27.2

513.2

14.6

12.9

123.2

–

691.1

8,181.8

(206.1)

(24.8)

(412.7)

–

(12.1)

–

(759.2)

(1,040.4)

(655.7)

(4,626.1)

(4,463.7)

(4,416.0)

(178.0)

(870.8)

(664.7)

(309.5)

(17.7)

(6,666.8)

(7,426.0)

1,018.5

234.3

106.8

116.5

559.8

1,017.4

1.1

1,018.5 

(175.1)

(823.0)

(691.0)

(468.9)

(18.5)

(6,640.2)

(7,680.6)

769.0

233.7

100.2

98.2

323.5

755.6

13.4

(206.2)

(773.4)

(719.9)

(348.3)

(26.5)

(6,490.3)

(7,146.0)

1,035.8

233.9

94.2

82.2

613.0

1,023.3

12.5

769.0 

1,035.8 

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
 
116  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Consolidated cash ﬂow statement
For the year ended 31 March 2016

Cash generated from operations
Tax received
Tax paid
Net cash generated from operating activities
Interest received
Net cash inﬂow from sale of businesses
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
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
(Decrease)/increase in cash and cash equivalents
Net cash and cash equivalents at beginning of period
Effect of foreign exchange rates
Amounts included in assets held for sale
Net cash and cash equivalents at end of period
Cash at bank and in hand
Short term deposits
Net cash and cash equivalents at end of period

Note

39

38

38

2016  
£m

797.5

11.5

(44.9)

764.1

5.3

45.7

10.8

(24.3)

(431.4)

34.9

(359.0)

(188.1)

–

(6.8)

(197.0)

–

(924.6)

(62.8)

926.7

7.3

(92.5)

(4.6)

(542.4)

(137.3)

196.0

(3.5)

–

55.2

23.4

31.8

55.2

2015  
£m

760.1

10.5

(39.1)

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

The decrease in cash and cash equivalents is reconciled to the movement in net debt in note 39.

Cash and cash equivalents at the beginning of the period includes £19.3 million which was classiﬁed as assets held for sale (see note 38).

Notes to the group ﬁnancial statements
For the year ended 31 March 2016

Annual Report and Accounts 2016  |  Severn Trent Plc  |  117

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 strategic 
report on page 47) 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 2016.

(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.

(iii) Prior year restatement

The comparative balance sheet has been restated to reﬂect a 
reclassiﬁcation between property, plant and equipment and non-
current trade and other payables. Contributions which had been 
received in previous years in relation to infrastructure assets, 
and which had a carrying value of £294.5 million as at 31 March 
2014 were identiﬁed as being deducted from the carrying value 
of property, plant and equipment. In order to comply with the 
requirements of IAS 16 and IAS 18, these contributions have been 
reclassiﬁed from property, plant and equipment to non-current 
trade and other payables.

Whilst ﬁnalising the proposed adjustments, it was noted that 
amortisation was not charged on these contributions before 
2004 when the accounting treatment was clariﬁed and therefore 
an additional £13.5 million of amortisation has been credited to 
opening retained earnings. 

In addition, the restated balances result in an increased total tax 
liability of £67.8 million (£1.9 million current tax and £65.9 million 
deferred tax) as the carrying value of the underlying infrastructure 
assets previously shown net reduced the deferred tax liability 
previously calculated and there were other non-material 
adjustments to deferred tax arising from leases and ﬁnancial 
instruments. The total tax restatement of £67.8 million was 
charged to opening retained earnings.

Property, plant and equipment and other intangible assets have 
been analysed to disclose separately the carrying value of assets 
under construction. This resulted in a further adjustment between 
property, plant and equipment and other intangible ﬁxed assets 
of £2.6 million.

The adjustment to the opening balances at 1 April 2014 is:

As previously 

stated Restatement

After 
restatement

7,023.5 

80.2 

(491.9)

16.5 

(654.0)

(667.3)

291.9 

2.6 

(281.0)

(1.9)

(65.9)

54.3 

7,315.4 

82.8 

(772.9)

14.6 

(719.9)

(613.0)

Property, plant 
and equipment
Other intangible assets
Deferred income
Current tax receivable
Deferred tax
Retained earnings

b)   Basis of consolidation

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.

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.

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.

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.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
118  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

2  Accounting policies (continued)
b)   Basis of consolidation (continued)

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 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.

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 a non-discounted 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 or joint ventures is included in investments in 
associates or joint ventures respectively. 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 
of subsidiaries after 31 March 1998 is treated as an intangible 
ﬁxed asset.

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.

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, 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

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) below).

Development expenditure is capitalised as an intangible asset 
and written off over its expected useful economic life where the 
following criteria are met:

(cid:228)(cid:3) it is technically feasible to create and make the asset available 

for use or sale; 

(cid:228)(cid:3) there are adequate resources available to complete the 

development and to use or sell the asset;

(cid:228)(cid:3) there is the intention and ability to use or sell the asset;
(cid:228)(cid:3) it is probable that the asset created will generate future 

economic beneﬁts; and

(cid:228)(cid:3) the development costs can be measured reliably.

Research expenditure is expensed when it is incurred.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  119

2  Accounting policies (continued)
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. 

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 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.

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 under 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

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 waste water 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.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
120  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

2  Accounting policies (continued)
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 
changes in fair value 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.

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.

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 that arise from:

(cid:228)(cid:3) differences between the return on scheme assets and interest 

income included in the income statement;

(cid:228)(cid:3) actuarial gains and losses from experience adjustments; and
(cid:228)(cid:3) changes in demographic or ﬁnancial assumptions,

are classiﬁed as remeasurements, 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:

(cid:228)(cid:3) there is a present obligation as a result of a past event;
(cid:228)(cid:3) it is probable that there will be an outﬂow of economic beneﬁts 

to settle this obligation; and

(cid:228)(cid:3) a reliable estimate of this amount can be made.

Insurance provisions 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.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  121

2  Accounting policies (continued)
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:

(cid:228)(cid:3) the relationship between the hedging instrument and the 

hedged item;

(cid:228)(cid:3) its risk management objectives and strategy for undertaking the 

hedge transaction; and

(cid:228)(cid:3) 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.

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:

(cid:228)(cid:3) the risks and characteristics of the embedded derivative are not 

closely related to those of the contract; and

(cid:228)(cid:3) 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.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
122  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

2  Accounting policies (continued)
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.

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.

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:

(cid:228)(cid:3) represents a separate major line of business or geographical 

area of operations; or

(cid:228)(cid:3) is part of a single co-ordinated plan to dispose of a separate 
major line of business or geographical area of operations; or

(cid:228)(cid:3) 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
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 2019. The impact on the results or net assets of the 
group or company of the changes to the standard has not yet 
been quantiﬁed.

IFRS 16 ‘Leases’ sets out the principles for the recognition, 
measurement, presentation and disclosure of leases for both 
parties to a contract, ie the customer (‘lessee’) and the supplier 
(‘lessor’) and will be effective for the group from 1 April 2019. 
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 judgments and key sources 
of estimation uncertainty
In the process of applying the group’s accounting policies, 
the group is required to make certain judgments, 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 judgments were:

a)  Tax provisions

Assessing the outcome of uncertain tax positions requires 
judgments 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.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  123

5  Segmental analysis
The group is now organised into two main business segments:

Regulated Water and Waste Water includes the wholesale 
water and waste water activities of the group’s regulated 
subsidiary Severn Trent Water Limited and its retail services to 
domestic customers.

Business Services includes the group’s Operating Services 
businesses in the US, UK, Ireland and Italy; Severn Trent 
Water Limited’s non-household retail activities and the group’s 
renewable energy business.

In the prior year ﬁnancial statements all of Severn Trent Water 
Limited’s activities comprised a single segment and Severn Trent 
Services comprised the group’s Operating Services and Water 
Puriﬁcation businesses. Comparative information for the new 
segmentation is not available and the cost to develop it would be 
excessive. Therefore the current year results have been presented 
on both the old basis and new basis of segmentation in accordance 
with IFRS 8.

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 new basis 
described above. Details of Regulated Water and Waste Water’s 
operations are described on pages 28 to 35 of the strategic report 
and those of Business Services on pages 36 to 40.

Interests in joint ventures and associates are not material and are 
not included in the segmental reports reviewed by STEC.

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.

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 Water Puriﬁcation business was classiﬁed as a discontinued 
operation in the year ended 31 March 2015 and the sale of this 
business was completed on 2 July 2015. See note 38.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

4  Signiﬁcant accounting judgments and key sources 
of estimation uncertainty (continued)
b)  Provisions for other liabilities and charges

Assessing the ﬁnancial outcome of uncertain commercial 
and legal positions requires judgments 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 advisers.

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, pension increases 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 group 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 volumes 
based on estimated usage from the last billing to the end of the 
ﬁnancial year. The estimated usage is based on historical data, 
judgment 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.

 
 
 
 
 
 
124  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

5  Segmental analysis (continued)
a)  Segmental results

The tables below show the changes from the old to the new segmentation for turnover and PBIT for the year ended 31 March 2016:

Regulated Water and Waste Water
External sales
Inter-segment sales
Total sales
Proﬁt before interest, tax and exceptional items
Exceptional items (see note 8)
Proﬁt before interest and tax

Business Services
External sales
Inter-segment sales
Total sales
Proﬁt before interest, tax and exceptional items
Proﬁt before interest and tax

Corporate and other
External sales
Inter-segment sales
Total sales
Loss before interest, tax and exceptional items
Loss before interest and tax

Severn Trent 
Water 
£m

Renewable 
energy
 (regulated)1
£m

Non 
household 
retail2
£m

Additional 
inter-
segment
 sales3
£m

Regulated 
Water 
and Waste 
Water 
£m

1,548.5

1.7

1,550.2

520.3

1.0

521.3

(17.5)

–

(17.5)

(17.6)

–

(17.6)

(391.3)

–

(391.3)

(10.6)

–

(10.6)

–

364.7

364.7

–

–

–

1,139.7

366.4

1,506.1

492.1

1.0

493.1

Renewable 
energy 
(regulated 
and non-
regulated)1
£m

Non 
household 
retail2
£m

Additional 
inter-
segment 
sales4
£m

Severn Trent 
Services 
£m

233.1

0.1

233.2

10.7

10.7

30.7

3.3

34.0

16.9

16.9

391.3

–

391.3

10.6

10.6

–

16.1

16.1

–

–

Business 
Services 
£m

655.1

19.5

674.6

38.2

38.2

Corporate 
and other 
(old basis) 
£m

Renewable 
energy 
(non-
regulated)1
£m

Non 
household 
retail 
£m

Additional 
inter-
segment 
sales 
£m

Corporate 
and other 
(new basis) 
£m

5.2

6.5

11.7

(8.6)

(8.6)

(5.2)

(3.3)

(8.5)

0.7

0.7

–

–

–

–

–

–

–

–

–

–

–

3.2

3.2

(7.9)

(7.9)

1  The electricity generating assets owned by Severn Trent’s regulated and non-regulated businesses are now managed by the Business Services segment. 

Business Services’ external sales includes £8 million of income that was treated as a reduction in operating costs within Severn Trent Water

2 Management of Severn Trent Water’s non-household retail activities has been transferred to the Business Services segment

3  The additional inter-segment sales in Regulated Water and Waste Water represent the wholesale water and waste water charges to non-household retail within 

Business Services

4 The additional inter-segment sales in Business Services represent sales from the Regulated Renewable Energy business to Regulated Water and Waste Water

The following table shows the segmental turnover and PBIT on the old segmentation:

External sales
Inter-segment sales
Total sales
Proﬁt before interest, tax and exceptional items
Exceptional items (see note 8)
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

Severn Trent 
Water 
£m

2016
Severn Trent 
Services 
£m

Severn Trent 
Water 
£m

2015
Severn Trent 
Services 
£m

1,548.5

1.7

1,550.2

520.3

1.0

521.3

20.0

290.3

(3.0)

233.1

0.1

233.2

10.7

–

10.7

1.7

3.2

(0.1)

1,579.1

2.1

1,581.2

539.0

(20.6)

518.4

22.2

276.7

(0.4)

216.2

0.1

216.3

9.7

1.9

11.6

1.0

3.5

(0.1)

Annual Report and Accounts 2016  |  Severn Trent Plc  |  125

5  Segmental analysis (continued)
a)  Segmental results (continued)

The reportable segments’ sales are reconciled to group turnover as follows:

Severn Trent Water
Severn Trent Services
Regulated Water and Waste Water
Business Services
Corporate and other
Consolidation adjustments

2016  
(new basis)  
£m

2016  
(old basis)  
£m

– 

– 

1,550.2 

233.2 

1,506.1 

674.6 

3.2 

(397.0)

1,786.9 

– 

– 

11.7 

(8.2)

2015  

£m

1,581.2 

216.3 

– 

– 

15.8 

(12.0)

1,786.9 

1,801.3 

Segmental underlying PBIT is reconciled to the group’s proﬁt before tax and discontinued operations as follows:

Year ended 31 March
Underlying PBIT:

Severn Trent Water
Severn Trent Services
Regulated Water and Waste Water
Business Services
Corporate and other
Consolidation adjustments
Group underlying PBIT
Exceptional items:

Severn Trent Water
Severn Trent Services
Regulated Water and Waste Water

Share of results of associates and joint ventures
Net ﬁnance costs
Net gains/(losses) on ﬁnancial instruments
Proﬁt before tax

2016  
(new basis)  
£m

2016  
(old basis)  
£m

–

–

492.1

38.2

(7.9)

0.4

520.3

10.7

–

–

(8.6)

0.4

522.8

522.8

–

–

1.0

0.1

1.0

–

–

0.1

(209.3)

(209.3)

7.7

322.3

7.7

322.3

2015  

£m

539.0

9.7

–

–

(12.1)

3.7

540.3

(20.6)

1.9

–

0.1

(240.0)

(133.5)

148.2

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, as shown below.

The following tables show the changes from the old to the new segmentation for capital employed as at 31 March 2016:

Regulated Water and Waste Water
Operating assets
Goodwill
Interests in joint ventures and associates
Segment assets
Segment operating liabilities
Capital employed

Severn Trent 
Water 
£m

Renewable 
energy 
(regulated) 
£m

Non-
household 
retail 
£m

8,142.6

(59.6)

1.3

0.1

8,144.0

(1,555.9)

6,588.1

–

–

(59.6)

4.0

(55.6)

–

–

–

–

9.6

9.6

Inter-
segment 
payables & 
receivables 
£m

Regulated 
Water 
and Waste 
Water 
£m

27.8

8,110.8

–

–

27.8

(4.0)

23.8

1.3

0.1

8,112.2

(1,546.3)

6,565.9

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
 
 
126  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

5  Segmental analysis (continued)
b)  Segmental capital employed (continued)

Business Services
Operating assets
Goodwill
Interests in joint ventures and associates
Segment assets
Segment operating liabilities
Capital employed

Corporate and other
Operating assets
Segment assets
Segment operating liabilities
Capital employed

Renewable 
energy 
(regulated 
and non-
regulated) 
£m

Non-
household 
retail 
£m

Inter-
segment 
payables & 
receivables 
£m

Severn Trent 
Services 
£m

111.0

14.8

5.1

130.9

(64.2)

66.7

141.1

–

–

141.1

(24.2)

116.9

–

–

–

–

(9.6)

(9.6)

4.0

–

–

4.0

(27.8)

(23.8)

Renewable 
energy 
(non-
regulated) 
£m

Non-
household 
retail  
£m

Inter-
segment 
payables & 
receivables 
£m

Corporate 
and other 
£m

110.6 

110.6 

(60.3)

50.3 

(81.5)

(81.5)

20.2 

(61.3)

–

–

–

– 

–

–

–

–

Business 
Services 
£m

256.1

14.8

5.1

276.0

(125.8)

150.2

Corporate 
and other 
£m

29.1 

29.1 

(40.1)

(11.0)

The following table shows the segmental capital employed on the old segmentation:

Operating assets
Goodwill
Interests in joint ventures and associates
Segment assets
Segment operating liabilities
Capital employed

Severn Trent  
Water 

2016
Severn Trent 
Services 

£m

8,142.6

1.3

0.1

8,144.0

(1,555.9)

6,588.1

£m

111.0

14.8

5.1

130.9

(64.2)

66.7

Severn Trent 
Water 
Restated 
£m

7,974.4

1.3

0.1

7,975.8

(1,631.1)

6,344.7

2015
Severn Trent 
Services 

£m

100.9

14.3

4.5

119.7

(58.8)

60.9

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.

 
 
 
Annual Report and Accounts 2016  |  Severn Trent Plc  |  127

5  Segmental analysis (continued)
b)  Segmental capital employed (continued)

The tables below show the changes from the old to the new segmentation for additions to other intangible assets and property, plant and 
equipment as at 31 March 2016:

Regulated Water and Waste Water
Other intangible assets
Property, plant and equipment

Business Services
Other intangible assets
Property, plant and equipment

Corporate and other
Other intangible assets
Property, plant and equipment

Severn Trent 
Water 
£m

Renewable 
energy 
(regulated) 
£m

Non-
household 
retail 
£m

21.9

459.1

–

(6.7)

–

–

Regulated 
Water 
and Waste 
Water 
£m

21.9

452.4

Renewable 
energy 
(regulated 
and non-
regulated) 
£m

Severn Trent 
Services 
£m

1.8

2.2

–

36.7

Non-
household 
retail 
£m

–

–

Business 
Services 
£m

1.8

38.9

Renewable 
energy 
(non-
regulated) 
£m

–

(30.0)

Corporate 
and other 
£m

0.3

30.0

Non-
household 
retail 
£m

Corporate 
and other 
£m

–

–

0.3

–

The following table shows additions to other intangible assets and property, plant and equipment on the old segmentation:

Other intangible assets
Property, plant and equipment

Severn Trent 
Water 
£m

2016
Severn Trent 
Services 
£m

Severn Trent 
Water 
£m

2015
Severn Trent 
Services 
£m

21.9

459.1

1.8

2.2

15.4

481.3

1.0

2.7

The reportable segments’ assets are reconciled to the group’s total assets as follows:

Segment assets
– Severn Trent Water
– Severn Trent Services
– Regulated Water and Waste Water
– Business Services
– Corporate and other
Other ﬁnancial assets
Current tax receivable
Assets held for sale
Consolidation adjustments
Total assets

2016 
(new basis) 
£m

2016 
(old basis) 
£m

2015 
Restated 
£m

Note

–

–

8,144.0

130.9

7,975.8

119.7

8,112.2

276.0

29.1

96.2

–

–

–

–

110.6

96.2

–

–

(69.0)

(37.2)

–

–

78.6

203.8

9.3

107.9

(45.5)

8,444.5

8,444.5

8,449.6

38

The consolidation adjustments comprise elimination of intra-group debtors and unrealised proﬁts on ﬁxed assets.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
128  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

5  Segmental analysis (continued)
b)  Segmental capital employed (continued)

The reportable segments’ liabilities are reconciled to the group’s total liabilities as follows:

Segment liabilities
– Severn Trent Water
– Severn Trent Services
– Regulated Water and Waste Water
– Business Services
– Corporate and other
Other ﬁnancial liabilities
Current tax liabilities
Deferred tax
Liabilities associated with assets held for sale
Consolidation adjustments
Total liabilities

The consolidation adjustments comprise elimination of intra-group creditors.

c)  Geographical areas

The group’s sales were derived from the following countries:

UK
US
Other

2016 
(new basis) 
£m

2016 
(old basis) 
£m

2015 
Restated 
£m

Note

–

–

(1,555.9)

(1,631.1)

(64.2)

(58.8)

(1,546.3)

(125.8)

(40.1)

–

–

–

–

(60.3)

(149.1)

(5,085.8)

(5,085.8)

(5,134.0)

(11.1)

(664.7)

–

47.8

(11.1)

(664.7)

–

16.0

–

(691.0)

(35.3)

18.7

(7,426.0)

(7,426.0)

(7,680.6)

38

2016 
£m

2015 
£m

1,626.7

1,649.4

135.5

24.7

129.3

22.6

1,786.9

1,801.3

The group’s non-current assets (excluding ﬁnancial instruments, deferred tax assets and post employment beneﬁt assets) were located 
in the following countries:

UK
US
Other

6  Revenue

Water and waste water services
Other services
Service concession arrangements (note 41)
Total turnover
Interest receivable (note 10)

2016 

£m

2015 
Restated 
£m

7,784.1

7,593.7

24.7

2.0

25.2

1.1

7,810.8

7,620.0

2016 
£m

2015 
£m

1,539.7

1,570.5

202.8

44.4

187.3

43.5

1,786.9

1,801.3

5.4

1.6

1,792.3

1,802.9

 
Annual Report and Accounts 2016  |  Severn Trent Plc  |  129

7  Net 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 losses/(gains)
Infrastructure maintenance expenditure
Ofwat licence fees
Other operating costs
Other operating income

Release from deferred income
Own work capitalised

Further details of exceptional costs are given in note 8.

Before 
exceptional 
costs 
£m

Exceptional 
costs 
£m

Before 
exceptional 
costs 
£m

Exceptional 
costs 
£m

284.4

21.9

19.2

5.2

330.7

66.5

7.1

75.4

77.7

24.0

32.4

293.9

21.7

245.9

2.0

1.7

0.2

3.5

(0.9)

0.5

126.0

2.8

62.2

(4.9)

(0.3)

–

(0.7)

–

(1.0)

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

2016

Total 
£m

284.1

21.9

18.5

5.2

329.7

66.5

7.1

75.4

77.7

24.0

32.4

293.9

21.7

245.9

2.0

1.7

0.2

3.5

(0.9)

0.5

126.0

2.8

62.2

(4.9)

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

68.3

(3.2)

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

68.5

(3.2)

1,382.2

(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

–

–

1,368.4

(1.0)

1,367.4

1,363.5

(10.5)

(93.8)

–

–

(10.5)

(93.8)

(10.1)

(92.4)

1,264.1

(1.0)

1,263.1

1,261.0

18.7

1,279.7

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
130  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

7  Net operating costs (continued)
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

2016 
£m

2015 
£m

0.2

0.4

0.6

0.1

0.1

0.6

0.8

0.2

0.4

0.6

0.1

0.1

0.4

0.6

Details of directors’ remuneration are set out in the Directors’ Remuneration Report on pages 89 to 101.

In the course of completing the disposal of the Water Puriﬁcation business, the purchaser requested an audit of the ﬁnancial statements 
of the disposal group. Since Deloitte had already performed work on some of the companies as part of the group audit the most 
pragmatic and economic solution was for Deloitte to perform this work. This is included in other assurance services in the note above.

Other assurance services also include certain agreed upon procedures performed by Deloitte in connection with Severn Trent Water’s 
regulatory reporting requirements to Ofwat. In the previous year, the balance included fees in connection with Ofwat’s price review 2014.

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 82 and 85. No services were provided pursuant to contingent fee arrangements.

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

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:

2016 
£m

(1.0)

–

(1.0)

–

–

–

(1.0)

2015 
£m

28.3

(7.7)

20.6

4.4

(6.3)

(1.9)

18.7

By type of business
Severn Trent Water
Severn Trent Services
Corporate and other

Continuing 
operations 
Number

Discontinued 
operations 
Number

5,236

2,105

17

7,358

–

101

–

101

2016

Total 
Number

5,236

2,206

17

7,459

Continuing 
operations 
Number

Discontinued 
operations 
Number

5,532

1,888

22

7,442

–

419

–

419

2015

Total 
Number

5,532

2,307

22

7,861

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

Annual Report and Accounts 2016  |  Severn Trent Plc  |  131

2016  
£m

2015 
£m

0.4

5.0

5.4

67.7

73.1

2016 
£m

21.9

170.6

6.8

199.3

0.3

82.8

282.4

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

Borrowing costs of £16.5 million (2015: £19.8 million) incurred funding eligible capital projects have been capitalised at an interest rate of 
4.41% (2015: 4.89%). Tax relief of £3.3 million (2015: £4.2 million) was claimed on these costs which was credited to the income statement, 
offset by a related deferred tax charge of £3.0 million (2015: £4.0 million).

12  Gains/(losses) on ﬁnancial instruments

Loss on swaps used as hedging instruments in fair value hedges
Loss arising on debt in fair value hedges
Exchange (loss)/gain on other loans
Loss on cash ﬂow hedges transferred from equity
Hedge ineffectiveness on cash ﬂow hedges
Gain/(loss) 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 (credit)/charge in the year

Current tax
Current year at 20% (2015: 21%)
Prior years at 21% (2015: 23%)
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

2016 
£m

(0.7)

(1.1)

(32.6)

(12.2)

0.5

53.8

7.7

2015 
£m

(2.6)

–

73.3

(23.6)

2.8

(183.4)

(133.5)

2016

2015

Before 
exceptional 
tax 
£m

Exceptional
tax 
£m

57.6

(2.4)

55.2

10.9

2.8

–

13.7

68.9

–

–

–

–

–

(78.6)

(78.6)

(78.6)

Total 
£m

57.6

(2.4)

55.2

10.9

2.8

(78.6)

(64.9)

(9.7)

Total 
£m

46.4

(8.6)

37.8

(11.3)

6.2

–

(5.1)

32.7

The current tax charge was £55.2 million (2015: £37.8 million). This includes a credit of £2.4 million (2015: £8.6 million) arising from 
adjustments to prior year tax computations. 

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
132  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

13  Taxation (continued)
a)  Analysis of tax (credit)/charge in the year (continued)

The Finance Act 2015 was enacted in the current year which implemented a reduction in the corporation tax rate from 20% to 18% with 
effect from 1 April 2020. This resulted in an additional exceptional deferred tax credit of £78.6 million in the income statement and a 
deferred tax charge of £9.6 million in reserves.

A further reduction to 17% with effect from 1 April 2020 has been announced but not yet substantively enacted. The estimated impact of 
this rate change will be a reduction in the deferred tax liability of approximately £37 million.

b)  Factors affecting the tax (credit)/charge in the year

The tax expense for the year is lower (2015: higher) than the standard rate of corporation tax in the UK of 20% (2015: 21%). 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 20% (2015: 21%)
Tax effect of depreciation on non-qualifying assets
Tax effect of expenditure not deductible in determining taxable proﬁts
Current year impact of rate change
Adjustments in respect of prior years
Exceptional deferred tax credit arising from rate change
Total tax (credit)/charge

2016 
£m

322.3

64.5

3.8

1.4

(1.2)

0.4

(78.6)

(9.7)

2015 
£m

148.2

31.1

3.6

0.4

–

(2.4)

–

32.7

c)  Tax charged/(credited) directly to other comprehensive income or equity

In addition to the amount (credited)/charged to the income statement, the following amounts of tax have been charged/(credited) directly 
to other comprehensive income or equity:

Current tax
Tax on share based payments
Tax on pension contributions in excess of income statement charge
Total current tax credited to other comprehensive income or 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 charged/(credited) to other comprehensive income or equity

14  Dividends
Amounts recognised as distributions to owners of the company in the period:

2016 
£m

(1.2)

–

(1.2)

26.7

(0.4)

0.5

2.2

9.6

38.6

Final dividend for the year ended 31 March 2015 (2014)
Interim dividend for the year ended 31 March 2016 (2015)
Total dividends
Proposed ﬁnal dividend for the year ended 31 March 2016

2016

£m

121.2

75.8

197.0

Pence per 
share

48.24

33.96

82.20

Pence per 
share

50.94

32.26

83.20

48.40

The proposed ﬁnal dividend is subject to approval by shareholders at the AGM and has not been included as a liability in these 
ﬁnancial statements.

2015 
£m

(0.7)

(3.0)

(3.7)

(25.8)

(2.8)

0.1

4.7

–

(23.8)

2015

£m

115.5

81.4

196.9

Annual Report and Accounts 2016  |  Severn Trent Plc  |  133

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. 

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 loss/(proﬁt) 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)  Underlying earnings per share

Underlying basic earnings per share
Underlying diluted earnings per share

2016 
£m

330.0

0.6

330.6

2016 
m

236.1

1.1

237.2

2016 
pence

108.7

108.2

2015 
£m

119.1

(3.7)

115.4

2015 
m

238.8

1.1

239.9

2015 
pence

107.2

106.7

Underlying earnings per share ﬁgures are presented for continuing operations. These exclude the effects of deferred tax, exceptional 
tax, gains/losses on ﬁnancial instruments, current tax related to gains/losses 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 underlying 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 underlying 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
– gains/losses on ﬁnancial instruments
– current tax related to gains/losses on ﬁnancial instruments
– deferred tax excluding exceptional charge
– exceptional tax
Earnings for the purpose of underlying basic and diluted earnings per share

2016 
£m

330.6

(1.0)

(0.2)

(7.7)

(0.2)

13.7

(78.6)

256.6

2015 
£m

115.4

18.7

(4.7)

133.5

(1.8)

(5.1)

–

256.0

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
134  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

16  Goodwill

Cost
At 1 April
Transferred to assets held for sale (see note 38)
Exchange adjustments
At 31 March
Impairment
At 1 April
Transferred to assets held for sale (see note 38)
At 31 March
Net book value
At 31 March

Goodwill impairment tests

2016 
£m

17.7

–

0.5

18.2

(3.4)

–

(3.4)

2015 
£m

42.9

(26.5)

1.3

17.7

(28.1)

24.7

(3.4)

14.8

14.3

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 Business Services segment (2015: Severn Trent Services segment).

A summary of the goodwill allocation by CGU is presented below. Goodwill in the group’s Water Puriﬁcation business was included in 
assets held for sale at 31 March 2015, see note 38.

Operating Services US
Operating Services Italy

2016 
£m

13.0

1.8

14.8

2015 
£m

12.5

1.8

14.3

The group has reviewed the carrying value of goodwill 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 is 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
Operating Services Italy

Nominal growth rate
2015 
%

2016 
%

Post-tax discount rate
2015 
%

2016 
%

Pre-tax discount rate
2015 
%

2016 
%

3.0

1.4

3.0

1.8

5.6

4.9

6.0

4.6

6.9

6.4

7.6

5.5

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.

17  Other intangible assets

Cost
At 1 April 2014
Restatement
At 1 April 2014 after restatement
Additions
Disposals
Reclassiﬁcations
Transfers to assets held for sale
Exchange adjustments
At 1 April 2015
Additions
Exchange adjustments
At 31 March 2016
Amortisation
At 1 April 2014
Restatement
At 1 April 2014 after restatement
Amortisation for the year
Impairment arising from exceptional item
Disposals
Transfers to assets held for sale
Exchange adjustments
At 1 April 2015
Amortisation for the year
Exchange adjustments
At 31 March 2016
Net book value
At 31 March 2016
At 31 March 2015

Annual Report and Accounts 2016  |  Severn Trent Plc  |  135

Computer software

Internally 
generated 
£m

Purchased 
£m

Capitalised 
development 
costs and 
patents 
£m

176.1

(2.5)

173.6

5.7

(0.2)

–

–

(0.2)

178.9

10.1

(0.1)

188.9

(140.2)

1.4

(138.8)

(10.8)

(0.2)

0.2

–

0.1

(149.5)

(9.6)

–

(159.1)

29.8

29.4

78.0

25.7

103.7

11.5

(21.6)

–

(4.9)

0.4

89.1

13.8

1.6

104.5

(42.7)

(21.9)

(64.6)

(11.6)

–

21.5

3.7

(0.3)

(51.3)

(10.9)

(0.8)

(63.0)

41.5

37.8

22.6

–

22.6

0.5

–

(0.4)

(10.3)

1.1

13.5

–

–

13.5

(13.6)

(0.1)

(13.7)

(1.6)

–

–

4.3

(0.4)

(11.4)

(1.2)

–

(12.6)

0.9

2.1

Total 
£m

276.7

23.2

299.9

17.7

(21.8)

(0.4)

(15.2)

1.3

281.5

23.9

1.5

306.9

(196.5)

(20.6)

(217.1)

(24.0)

(0.2)

21.7

8.0

(0.6)

(212.2)

(21.7)

(0.8)

(234.7)

72.2

69.3

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
136  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

18  Property, plant and equipment

Cost
At 1 April 2014
Restatement
At 1 April 2014 after restatement
Additions
Transfer on commissioning
Disposals
Transfer to assets held for sale (see note 38)
Exchange adjustments
At 1 April 2015
Additions
Transfer on commissioning
Disposals
Exchange adjustments
At 31 March 2016
Depreciation
At 1 April 2014
Restatement
At 1 April 2014 after restatement
Charge for the year
Disposals
Transfer to assets held for sale (see note 38)
Exchange adjustments
At 1 April 2015
Charge for the year
Disposals
Exchange adjustments
At 31 March 2016
Net book value
At 31 March 2016
At 31 March 2015

Land and 
buildings 
£m

Infrastructure 
assets 
£m

Fixed  
plant and 
equipment 
£m

Movable 
plant 
£m

Assets  
under  
construction  
£m

Total  
£m

2,917.1

(52.3)

2,864.8

6.6

125.5

(10.1)

(6.1)

0.2

4,540.3

3,852.0

85.4

(413.2)

4,625.7

3,438.8

22.8

113.6

(0.1)

–

–

13.6

212.5

(76.9)

(15.1)

1.9

2,980.9

4,762.0

3,574.8

2.7

194.8

(10.6)

0.2

21.4

156.8

(0.3)

–

16.0

216.9

(17.4)

(2.2)

3,168.0

4,939.9

3,788.1

(978.9)

(12.8)

(991.7)

(69.1)

8.2

4.2

–

(1,182.1)

(2,148.3)

(12.1)

(1,194.2)

(30.8)

–

–

–

28.4

(2,119.9)

(174.8)

76.9

12.0

(1.4)

(1,048.4)

(1,225.0)

(2,207.2)

(77.0)

6.0

(0.1)

(31.5)

(178.6)

–

–

16.6

1.2

(1,119.5)

(1,256.5)

(2,368.0)

2,048.5

1,932.5

3,683.4

3,537.0

1,420.1

1,367.6

63.1

(0.5)

62.6

7.3

–

(6.5)

(0.3)

1.9

65.0

5.8

–

(4.3)

0.5

67.0

(39.7)

(0.5)

(40.2)

(6.9)

5.5

0.3

(1.2)

(42.5)

(6.8)

4.1

(0.4)

(45.6)

21.4

22.5

–

11,372.5

669.5

669.5

454.2

(451.6)

–

–

–

672.1

445.7

(568.5)

(4.1)

–

288.9

11,661.4

504.5

–

(93.6)

(21.5)

4.0

12,054.8

491.6

–

(36.7)

(1.5)

545.2

12,508.2

–

–

–

–

–

–

–

–

–

–

–

–

(4,349.0)

3.0

(4,346.0)

(281.6)

90.6

16.5

(2.6)

(4,523.1)

(293.9)

26.7

0.7

(4,789.6)

545.2

672.1

7,718.6

7,531.7

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 2016
At 31 March 2015

Infrastructure 
assets 
£m

Fixed  
plant and 
equipment 
£m

119.8

118.7

16.4

26.6

Total 
£m

136.2

145.3

Annual Report and Accounts 2016  |  Severn Trent Plc  |  137

19  Interests in joint ventures and associates
Particulars of the group’s principal joint venture undertakings at 31 March 2016 were:

Name
Cognica Limited
Jackson Water Partnership
Servizio Idrico S.c.p.a (SII)

Country of incorporation

Proportion of ownership interest

Joint venture

Joint venture

Associate

Great Britain

US

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
2015 
£m

2016 
£m

Interest in associates
2015 
£m

2016 
£m

0.2

–

0.2

–

4.9

0.1

4.4

0.1

2016 
£m

5.1

0.1

Total
2015 
£m

4.6

0.1

All results are from continuing operations in both the current and preceding year.

As at 31 March 2016 and 2015 the joint ventures and associates did not have any signiﬁcant contingent liabilities to which the group was 
exposed. The group had no capital commitments in relation to its interests in the joint ventures or associates at 31 March 2016 or 2015.

The group has given certain guarantees in respect of the associate’s borrowings. The guarantees are limited to €5.1 million 
(2015: €5.1 million). The group does not expect any liabilities that are not provided for in these ﬁnancial statements to arise from 
these arrangements.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
138  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

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
Interest rate 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 (note 21)
Short term deposits (note 22)
Cash at bank and in hand (note 22)
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

21  Trade and other receivables

Trade receivables
Less doubtful debt provision
Net trade receivables
Other amounts receivable
Prepayments 
Accrued income

2016 
£m

2015 
£m

10.4

–

0.7

11.1

17.7

12.1

29.8

40.9

0.1

177.8

31.8

23.4

233.0

274.0

40.2

0.1

40.3

0.7

55.2

177.8

233.7

274.0

2016  
£m

304.7

(126.9)

177.8

54.6

58.2

226.0

516.6

–

4.2

0.2

4.4

22.6

–

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

2015  
£m

297.5

(125.0)

172.5

42.0

54.5

223.0

492.0

The carrying values of trade and other receivables are reasonable approximations of their fair values.

Prepayments include £25.7 million (2015: £24.4 million) in respect of amounts due from customers for contract work and £49.6 million 
(2015: £33.2 million) which is recoverable after more than one year.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  139

21  Trade and other receivables (continued)
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
Transfer to assets held for sale
At 31 March

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

2016 
£m

125.0

24.0

(22.1)

–

126.9

2016 
£m

–

3.3

5.7

3.3

5.0

17.3

2015 
£m

120.8

28.1

(22.4)

(1.5)

125.0

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

The amounts above are reconciled to gross and net debtors in the table below:

2016  
£m

41.7

69.4

30.3

14.6

10.5

166.5

Not due
Overdue not speciﬁcally provided
Overdue and speciﬁcally provided

Credit risk

Gross 
£m

Provision 
£m

120.9

166.5

17.3

304.7

–

(109.6)

(17.3)

(126.9)

2016
Net 
£m

120.9

56.9

–

177.8

Gross 
£m

Provision 
£m

107.7

161.8

28.0

297.5

–

(97.0)

(28.0)

(125.0)

2015 
£m

44.0

65.1

29.6

13.7

9.4

161.8

2015
Net 
£m

107.7

64.8

–

172.5

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 Limited, which represents 87% of group turnover and 90% of net trade receivables. Severn Trent Water 
has a statutory obligation to provide water and waste water 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.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
140  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

22  Cash and cash equivalents

Cash at bank and in hand
Short term deposits

2016 
£m

23.4

31.8

55.2

2015 
£m

24.9

151.8

176.7

Short term bank deposits includes £31.8 million (2015: £36.7 million) held as security deposits for insurance obligations, which is not 
available for use by the group. In addition, £8.8 million (2015: £6.0 million) of cash at bank and in hand 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

Presented in the balance sheet as:
Current liabilities
Non-current liabilities

24  Finance leases
Obligations under ﬁnance leases are as follows:

Within 1 year
1 – 2 years
2 – 5 years
After more than 5 years
Gross obligations under ﬁnance leases
Less future ﬁnance charges
Present value of lease obligations

Net obligations under ﬁnance leases fall due as follows:

Within 1 year
1 – 2 years
2 – 5 years
After more than 5 years
Included in non-current liabilities

2016 
£m

1,249.8

3,539.7

117.2

4,906.7

280.6

4,626.1

4,906.7

2015 
£m

1,279.2

3,467.5

180.0

4,926.7

463.0

4,463.7

4,926.7

2016 
£m

5.7

6.1

21.1

129.8

162.7

(45.5)

117.2

2016 
£m

1.6

2.1

9.6

103.9

115.6

117.2

2015 
£m

44.7

30.5

19.6

137.3

232.1

(52.1)

180.0

2015 
£m

38.6

25.9

7.9

107.6

141.4

180.0

The remaining terms of ﬁnance leases ranged from 1 to 16 years at 31 March 2016. Interest terms are set at the inception of the 
leases. The leases bear ﬁxed interest at a weighted average rate of 5.35% (2015: 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 (note 23)
Trade payables (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

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

Annual Report and Accounts 2016  |  Severn Trent Plc  |  141

2016 
£m

2015 
£m

–

164.9

0.7

165.6

10.3

3.2

13.5

179.1

4,906.7

18.1

4,924.8

5,103.9

178.0

4,626.1

4,804.1

1.1

280.6

18.1

299.8

25.2

170.6

0.2

196.0

10.5

0.8

11.3

207.3

4,926.7

32.7

4,959.4

5,166.7

175.1

4,463.7

4,638.8

32.2

463.0

32.7

527.9

5,103.9

5,166.7

2016 

£m

2015 
Restated 
£m

18.1

6.2

16.9

10.9

402.0

454.1

867.4

3.4

874.9

32.7

5.8

22.0

10.0

423.5

494.0

819.0

4.0

823.0

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
 
142  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

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 2014
Restatement
At 1 April 2014 restated
Charge/(credit) to income
(Credit)/charge to equity
At 1 April 2015
Charge/(credit) to income
(Credit)/charge to income arising from rate change
Charge to equity
Charge to equity arising from rate change
At 31 March 2016

Accelerated 
tax 
depreciation 
£m

Retirement 
beneﬁt 
obligations 
£m

Fair value 
of ﬁnancial 
instruments 
£m

760.3

66.4

826.7

13.3

–

840.0

10.2

(84.0)

–

–

(69.6)

–

(69.6)

1.7

(25.8)

(93.7)

1.8

1.9

26.7

7.5

(37.8)

(0.5)

(38.3)

(25.0)

1.9

(61.4)

1.8

4.1

1.8

2.1

766.2

(55.8)

(51.6)

Other 
£m

1.1

–

1.1

4.9

0.1

6.1

(0.1)

(0.6)

0.5

–

5.9

Total 
£m

654.0

65.9

719.9

(5.1)

(23.8)

691.0

13.7

(78.6)

29.0

9.6

664.7

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

28  Retirement beneﬁt schemes
a)  Deﬁned beneﬁt pension schemes
(i) Background

2016 

£m

(107.5)

772.2

664.7

2015 
Restated 
£m

(155.1)

846.1

691.0

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 membership, up to 31 March 2015.

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

31 March 2013

 
Annual Report and Accounts 2016  |  Severn Trent Plc  |  143

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

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

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)/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

2016 
£m

2015 
£m

922.4

283.0

570.7

171.4

11.8

80.5

999.5

327.2

450.8

159.3

60.9

89.1

2,039.8

2,086.8

(2,339.9)

(2,545.7)

(300.1)

(9.4)

(309.5)

(458.9)

(10.0)

(468.9)

2016 
£m

2015 
£m

2,086.8

1,823.6

67.7

27.8

0.3

(45.9)

(2.3)

(94.6)

80.1

81.0

4.8

193.4

(2.9)

(93.2)

2,039.8

2,086.8

2016  
£m

2015 
£m

2,555.7

2,171.9

–

(0.7)

82.8

0.3

(147.9)

(46.3)

(94.6)

22.8

18.1

94.5

4.8

366.2

(29.4)

(93.2)

2,349.3

2,555.7

2016 
£m

2015 
£m

2,339.9

2,545.7

9.4

10.0

2,349.3

2,555.7

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

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 £9.4 million (2015: £10.0 million) is included as an unfunded 
scheme within the retirement beneﬁt obligation.

 
 
 
 
 
 
144  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

28  Retirement beneﬁt schemes (continued)
a)  Deﬁned beneﬁt pension schemes (continued)
(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

2016 
£m

–

0.7

(2.3)

(1.6)

2015 
£m

(22.8)

(18.1)

(2.9)

(43.8)

(82.8)

(94.5)

67.7

(16.7)

80.1

(58.2)

The actual return on scheme assets was a gain of £21.8 million (2015: £273.5 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 £310.8 million (2015: net loss of 
£459.1 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.

Inflation risk
The beneﬁts payable to members of the schemes are linked to inﬂation measured by 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
Pension increases in payment
Pension increases in deferment

2016 
%

3.0

3.6

3.0

3.0

2015 
%

3.0

3.3

3.0

3.0

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 because the scheme closed to future accrual on 31 March 2015.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  145

28  Retirement beneﬁt schemes (continued)
a)  Deﬁned beneﬁt pension schemes (continued)
(v) Actuarial assumptions (continued)

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%

1.0%

21.4

22.8

2016
Women

S1NFA_L

92%

1.0%

24.6

26.1

Men
‘SAPS’ 
S1NMA_L

116%

1.0%

21.4

22.7

2015
Women

S1NFA_L

92%

1.0%

24.5

26.1

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 £45 million
Increase/decrease by £40 million
Increase by £65 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.

(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 (2015: 18 years). The expected cash ﬂows payable from the 
schemes are presented in the graph below:

Expected beneﬁt payments (£millions)

140

120

100

80

60

40

20

0

0

10

20

30

40

50
Year

60

70

80

90

100

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 p.a. 
in subsequent years to 2024/25 were agreed. Further payments of £8 million p.a. through an asset backed funding arrangement will also 
continue to 31 March 2032. The next triennial valuation, as at 31 March 2016, is underway.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
146  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

28  Retirement beneﬁt schemes (continued)
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 £19.2 million (2015: £9.4 million) represents contributions payable to these schemes by the 
group at rates speciﬁed in the rules of the schemes. As at 31 March 2016, contributions amounting to £1.5 million (2015: £2.4 million) in 
respect of the current reporting period were owed to the schemes.

29  Provisions

At 1 April 2015
Charged/(released) to income statement
Utilisation of provision
Unwinding of discount
Reclassiﬁcations
Exchange differences
At 31 March 2016

Included in
Current liabilities
Non-current liabilities

Restructuring 
£m

Insurance 
£m

Onerous 
contracts 
£m

2.7

(0.3)

(2.1)

–

(0.1)

–

0.2

21.9

5.6

(6.3)

–

–

–

21.2

1.0

–

(0.8)

–

(0.2)

–

–

Other 
£m

8.8

0.6

(1.5)

0.1

0.3

0.3

8.6

2016 
£m

12.3

17.7

30.0

Total 
£m

34.4

5.9

(10.7)

0.1

–

0.3

30.0

2015 
£m

15.9

18.5

34.4

The restructuring provision reﬂects costs to be incurred in respect of committed restructuring programmes. The associated outﬂows 
are estimated to arise over the next 12 months from the balance sheet date. 

Insurance includes provisions in respect of Derwent Insurance Limited, a captive insurance company, which is a wholly owned subsidiary 
of the group, and insurance deductions in Severn Trent Water Limited. 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.

Other provisions include provisions for dilapidations, commercial disputes and disposals. 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
239,344,614 ordinary shares of 9717/19p (2015: 238,683,513)

2016 
£m

2015 
£m

234.3

233.7

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.

During the year the company repurchased 4,274,576 shares (2015: 966,578) under its share buy back programme. Of these repurchased 
shares, 51,514 (2015: 966,578) were cancelled and the remaining 4,223,062 (2015: nil) are held as treasury shares.

30  Share capital (continued)
Changes in share capital were as follows:

Ordinary shares of 9717/19p
At 1 April 2014
Shares issued under the Employee Sharesave Scheme
Shares repurchased and cancelled
At 1 April 2015
Shares issued under the Employee Sharesave Scheme
Shares repurchased and cancelled
At 31 March 2016

31  Share premium

At 1 April
Share premium arising on issue of shares for Employee Sharesave Scheme
At 31 March

32  Other reserves

Annual Report and Accounts 2016  |  Severn Trent Plc  |  147

Number

£m

238,942,647

233.9

707,444

(966,578)

0.7

(0.9)

238,683,513

233.7

712,615

(51,514)

0.7

(0.1)

239,344,614

234.3

2016  
£m

100.2

6.6

106.8

Capital 
redemption 
reserve 
£m

Translation 
reserve 
£m

Hedging 
reserve 
£m

2015 
£m

94.2

6.0

100.2

Total  
£m

82.2

15.1

0.9

98.2

18.2

0.1

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

At 1 April 2014
Total comprehensive income for the year
Purchase of own shares
At 1 April 2015
Total comprehensive income for the year
Purchase of own shares
At 31 March 2016

156.1

–

0.9

157.0

–

0.1

157.1

20.2

7.2

–

27.4

10.5

–

37.9

(94.1)

7.9

–

(86.2)

7.7

–

(78.5)

116.5

The capital redemption reserve as at 1 April 2014 arose on the redemption of B shares. The movement in the current and prior 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.

33  Capital management
The group’s principal objectives in managing capital are:

(cid:228)(cid:3) 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;

(cid:228)(cid:3) to manage exposure to movements in interest rates to provide an appropriate degree of certainty as to its cost of funds; 
(cid:228)(cid:3) to minimise exposure to counterparty credit risk;
(cid:228)(cid:3) to provide the group with an appropriate degree of certainty as to its foreign exchange exposure;
(cid:228)(cid:3) to maintain an investment grade credit rating; and
(cid:228)(cid:3) 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, the group purchased ordinary shares amounting to £110 million, as per the 
announcement on 13 February 2015. 

 
 
 
 
 
 
148  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

33  Capital management (continued)
The group has continued to increase exposure to currently low ﬂoating interest rates, primarily through the following:

(cid:228)(cid:3) In April 2015, drawing down the remaining £330 million of the £530 million, ﬂoating rate, facility with the European Investment Bank for 

a period of nine years. In March 2015 £200 million was drawn for a period of eight years.

(cid:228)(cid:3) Raising £471.4 million of ﬁnance through a private placement on the US market, which was drawn down on 3 March 2016. This debt has 
maturities of 11, 12 and 15 years. The proceeds were used in part to repay the remaining €517.4 million of the €700 million ﬁxed rate 
bond on 11 March 2016.

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 80.66 pence, a reduction of 5% 
compared to the total dividend for 2014/15 of 84.90 pence. Our policy is to grow the dividend annually at no less than RPI until March 2020.

The group’s capital at 31 March 2016 was:

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

34  Fair values of ﬁnancial instruments
a)  Fair value measurements

2016 

£m

55.2

(1,249.8)

(3,539.7)

(117.2)

28.1

2015 
Restated 
£m

176.7

(1,279.2)

(3,467.5)

(180.0)

(2.6)

(4,823.4)

(4,752.6)

(1,017.4)

(755.6)

(5,840.8)

(5,508.2)

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

2016 
£m

28.1

–

2015 

£m Valuation techniques and key inputs

Discounted cash ﬂow

22.6 Future cash ﬂows are estimated based on forward interest rates from 
observable yield curves at the year end and contract interest rates 
(25.2)
discounted at a rate that reﬂects the credit risk of counterparties.
The currency cash ﬂows are translated at the spot rate.

Discounted cash ﬂow

12.1

(175.2)

4.2 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.

(181.1)

–

(3.2)

0.7

(0.7)

Discounted cash ﬂow

– Future cash ﬂows are estimated based on forward electricity prices 

(0.8)

from observable indices at the year end and contract prices discounted 
at a rate that reﬂects the credit risk of counterparties.

Discounted cash ﬂow

0.2 Future cash ﬂows are estimated based on observable forward exchange 
rates at the year end and contract forward rates discounted at a rate that 
(0.2)
reﬂects the credit risk of counterparties.

 
Annual Report and Accounts 2016  |  Severn Trent Plc  |  149

34  Fair values of ﬁnancial instruments (continued)
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
Floating rate notes

Fixed rate debt
Bank loans
Sterling bonds
Currency bonds
Fixed rate notes
Other loans
Finance leases

Index-linked debt
Bank loans
Sterling bonds

Carrying  
value 
£m

954.4

36.6

147.6

2016
Fair  
value 
£m

954.3

36.6

150.3

Carrying 
value 
£m

984.3

84.3

–

2015
Fair 
value 
£m

970.3

84.3

–

1,138.6

1,141.2

1,068.6

1,054.6

187.6

1,857.3

–

326.9

2.8

117.2

186.8

2,221.8

–

399.0

2.6

125.4

2,491.8

2,935.6

107.8

1,168.5

1,276.3

4,906.7

116.1

1,576.8

1,692.9

5,769.7

188.5

1,855.3

370.8

–

2.0

180.0

2,596.6

106.4

1,155.1

1,261.5

4,926.7

204.4

2,268.4

391.3

–

2.0

190.7

3,056.8

123.0

1,585.1

1,708.1

5,819.5

The above classiﬁcation does not take into account the impact of hedging instruments.

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.

35  Risks arising from ﬁnancial instruments
The group’s activities expose it to a variety of ﬁnancial risks:

(cid:228)(cid:3) market risk (including interest rate risk, exchange rate risk and other price risk);
(cid:228)(cid:3) credit risk;
(cid:228)(cid:3) liquidity risk; and
(cid:228)(cid:3) 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 Management 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 below.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
150  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

35  Risks arising from ﬁnancial instruments (continued)
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) and 36a) below.

Energy swaps are held to mitigate the group’s exposure to changes in electricity prices. Further details are provided in note 36b) below.

Severn Trent Water, the group’s most signiﬁcant business unit, operates under 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 40% to 70% of its interest bearing liabilities in ﬁxed rate instruments during AMP6. 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 (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 not hedge accounted
Interest bearing ﬁnancial liabilities

2016 
£m

4,823.4

55.2

28.1

(15.2)

(5.9)

2015 
£m

4,752.6

176.7

(2.6)

(19.1)

22.6

4,885.6

4,930.2

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 ﬂoating 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 ﬂoating 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 which is hedged by interest 
rate swaps is included in the category after taking account of the impact of the swap. Debt raised in foreign currencies has been included 
at the notional 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 unhedged interest rate and cross currency 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.

2016
Bank loans
Other loans
Finance leases

Impact of 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)

Floating  
rate 
£m

(954.4)

(394.6)

Fixed  
rate  
£m

(187.6)

Index- 
 linked 
£m

(107.8)

(1,955.5)

(1,168.5)

–

(117.2)

–

Total 
£m

(1,249.8)

(3,518.6)

(117.2)

(1,349.0)

(2,260.3)

(1,276.3)

(4,885.6)

419.8

(419.8)

–

–

(929.2)

(2,680.1)

(1,276.3)

(4,885.6)

55%

5.16%

10.2

Annual Report and Accounts 2016  |  Severn Trent Plc  |  151

35  Risks arising from ﬁnancial instruments (continued)
a)  Market risk (continued)
(i) Interest rate risk (continued)

2015
Bank loans
Other loans
Finance leases

Impact of 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)

Floating  
rate 
£m

(984.3)

(62.2)

Fixed  
rate 
£m

(188.5)

Index- 
linked 
£m

(106.4)

(2,253.7)

(1,155.1)

–

(180.0)

–

Total 
£m

(1,279.2)

(3,471.0)

(180.0)

(1,046.5)

(2,622.2)

(1,261.5)

(4,930.2)

541.4

(505.1)

(541.4)

–

–

(3,163.6)

(1,261.5)

(4,930.2)

64%

5.66%

9.7

Interest rate swaps not hedge accounted
The group has a number of interest rate swaps which are not accounted for as cash ﬂow or fair value hedges. Economically these swaps 
act to ﬁx the interest cost of debt within the group which is denominated as ﬂoating rate but do not achieve hedge accounting under the 
strict criteria of IAS 39. This has led to a credit of £14.4 million (2015: charge of £108.0 million) in the income statement.

Pay ﬁxed rate interest
Less than one year
1 – 2 years
2 – 5 years
5 – 10 years
10 – 20 years

Receive ﬁxed rate interest
Less than one year

Average contract ﬁxed 
interest rate
2015 
%

2016 
%

Notional principal amount
2015 
£m

2016 
£m

Fair value
2015 
£m

2016 
£m

–

–

–

5.06

5.45

5.11

–

–

6.32

–

–

5.06

5.45

5.47

5.18

5.18

–

–

–

(450.0)

(68.1)

(518.1)

–

–

(518.1)

(225.0)

–

–

(450.0)

(66.4)

(741.4)

200.0

200.0

(541.4)

–

–

–

(129.2)

(35.7)

(164.9)

–

–

(6.3)

–

–

(129.5)

(34.9)

(170.7)

4.2

4.2

(164.9)

(166.5)

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 reasonably 
possible changes in interest rates at 31 March is as follows:

Proﬁt or loss
Cash ﬂow
Equity

+1.0% 
£m

45.9

6.2

45.9

2016
-1.0% 
£m

(51.3)

(6.2)

(51.3)

+1.0% 
£m

56.9

2.6

56.9

2015
-1.0% 
£m

(63.4)

(2.6)

(63.4)

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
152  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

35  Risks arising from ﬁnancial instruments (continued)
a)  Market risk (continued)
(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. These contracts led to a credit of £0.2 million (2015: charge of £0.1 million) in the income statement.

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. 

Where the terms of the receivable leg of the swap closely match the terms of the underlying debt, the swaps are expected to be effective 
hedges, hence the swaps have been accounted for as fair value hedges. The notional value and fair value of these swaps is shown in 
note 36a).

The group also has a number of ﬁxed to ﬂoating rate cross currency swaps with a sterling value of £98.3 million (2015: £396.6 million) 
which are not accounted for as fair value hedges. Economically these swaps act to mitigate the exchange rate risk of debt within the group 
which is denominated in foreign currency, but they do not achieve hedge accounting under the strict criteria of IAS 39. This has led to a 
credit of £39.2 million (2015: charge of £75.3 million) in the income statement which is partly offset by the exchange loss of £32.6 million 
(2015: gain of £73.3 million) on the underlying debt.

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.

2016
Borrowings by currency
Cross currency swaps – hedge accounted
Cross currency swaps – not hedge accounted
Net currency exposure

2015
Borrowings by currency
Cross currency swaps – hedge accounted
Cross currency swaps – not hedge accounted
Net currency exposure

Euro 
€m

(23.2)

19.9

–

(3.3)

Euro 
€m

(540.0)

19.9

517.4

(2.7)

US dollar 
$m

(150.0)

–

150.0

–

US dollar 
$m

(50.0)

50.0

–

–

Yen 
¥bn

(2.0)

2.0

–

–

Yen 
¥bn

(5.0)

5.0

–

–

Annual Report and Accounts 2016  |  Severn Trent Plc  |  153

35  Risks arising from ﬁnancial instruments (continued)
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
Triple B range

Credit limit
2015 
£m

Amount deposited
2016 
2015 
£m
£m

20.0

100.0

600.0

–

720.0

1.2

14.4

14.1

2.1

31.8

1.2

22.1

128.5

–

151.8

2016 
£m

5.0

100.0

615.0

20.0

740.0

The fair values of derivative assets analysed by credit ratings of counterparties were as follows:

Double A range
Single A range
Triple B range

c)  Liquidity risk
(i) Committed facilities

Derivative assets
2015 
£m

2016 
£m

–

33.0

7.9

40.9

11.5

15.5

–

27.0

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.

At the balance sheet date the group had committed undrawn borrowing facilities expiring as follows:

2 – 5 years
After more than ﬁve years

2016 
£m

875.0

–

875.0

2015 
£m

415.0

330.0

745.0

(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.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
154  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

35  Risks arising from ﬁnancial instruments (continued)
c)  Liquidity risk (continued)
(ii) Cash ﬂows from non-derivative ﬁnancial instruments (continued)

Interest and inﬂation assumptions are based on prevailing market conditions at the year end date.

2016
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

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

(286.9)

(166.1)

(44.3)

(636.5)

(191.7)

–

–

–

–

–

–

–

–

Fixed  
rate 
£m

(121.8)

(519.7)

(437.4)

(1,230.8)

(768.9)

(76.9)

(60.9)

(262.2)

–

–

–

–

–

Index-  
linked 
£m

(25.3)

(25.7)

(80.4)

(423.9)

(334.0)

(125.7)

(153.1)

(183.0)

(217.8)

(646.6)

(3,163.9)

(29.4)

(426.5)

Trade 
payables 
£m

(18.1)

–

–

–

–

–

–

–

–

–

–

–

–

Payments on 
ﬁnancial 
liabilities 
£m

(452.1)

(711.5)

(562.1)

(2,291.2)

(1,294.6)

(202.6)

(214.0)

(445.2)

(217.8)

(646.6)

(3,163.9)

(29.4)

(426.5)

(1,325.5)

(3,478.6)

(5,835.3)

(18.1)

(10,657.5)

Trade 
receivables 
£m

Cash and 
short term 
deposits 
£m

Receipts 
from 
ﬁnancial 
assets 
£m

177.8

55.2

233.0

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

Index-linked debt includes loans with maturities up to 51 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.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  155

35  Risks arising from ﬁnancial instruments (continued)
c)  Liquidity risk (continued)
(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.

Derivative liabilities
Cross currency swaps
Cash 
payments 
£m

Cash 
receipts 
£m

Interest rate 
swaps 
£m

Derivative assets
Cross currency swaps
Cash 
payments 
£m

Cash 
receipts 
£m

–

–

–

–

–

–

–

–

–

–

–

–

–

–

2.8

2.6

6.0

1.7

(0.4)

–

12.7

1.0

1.0

3.1

23.5

16.7

–

45.3

Interest rate 
swaps 
£m

Energy 
swaps 
£m

(23.4)

(24.7)

(66.4)

(66.3)

(12.5)

(0.7)

(0.4)

(0.8)

(2.9)

–

–

–

(194.0)

(4.1)

Interest rate 
swaps 
£m

Energy 
swaps 
£m

(29.9)

(23.4)

(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

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

(212.7)

(0.8)

396.6

(421.7)

4.2

Total 
£m

(20.2)

(22.1)

(61.1)

(54.7)

(5.5)

(0.7)

(0.2)

(0.2)

(0.9)

(13.6)

(9.3)

–

(24.2)

(164.3)

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)

(22.9)

(59.2)

(76.3)

(6.2)

(2.9)

(209.0)

2016
Within 1 year
1 – 2 years
2 – 5 years
5 – 10 years
10 – 15 years
15 – 20 years

2015
Within 1 year
1 – 2 years
2 – 5 years
5 – 10 years
10 – 15 years
15 – 20 years

d)  Inﬂation risk

The group’s principal operating subsidiary, Severn Trent Water, operates under 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 reasonably possible 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

(10.2)

(10.2)

2016
-1.0% 
£m

10.2

10.2

+1.0% 
£m

(10.0)

(10.0)

2015
-1.0% 
£m

10.0

10.0

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
156  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

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
(i) Cross currency swaps

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. Where the terms of the receivable leg of the swap closely match the terms of the underlying debt, 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

(ii) Interest rate swaps

Notional principal amount
2015 
£m

2016 
£m

–

11.4

8.5

19.9

27.0

11.4

23.8

62.2

Fair value
2015 
£m

7.3

8.0

7.3

22.6

2016 
£m

–

9.8

7.9

17.7

During the year the group raised £225 million of ﬁxed rate debt through its US Private Placement programme. In line with the strategy 
to increase the proportion of debt at ﬂoating rates this was swapped to ﬂoating rate debt via interest rate swaps. These swaps have been 
designated as hedging instruments to hedge the changes in fair value of the debt arising from movements in interest rates. Since the 
terms of the receivable leg of the swap closely match the terms of the underlying debt the swaps are expected to be effective hedges.

Period to maturity
10 – 20 years

b)  Cash ﬂow hedges
(i) Interest rate swaps

Average contract 
ﬁxed interest rate
2016 
2015 
%
%

Notional principal amount
2015 
£m

2016 
£m

3.36%

–

225.0

–

Fair value
2015 
£m

–

2016 
£m

12.1

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.

Details of interest rate swaps that have been accounted for as cash ﬂow hedges are summarised below:

Period to maturity
10 – 20 years

(ii) Energy swaps

Average contract 
ﬁxed interest rate
2016 
2015 
%
%

Notional principal amount
2015 
£m

2016 
£m

5.18%

5.18%

38.1

39.1

Fair value
2015 
£m

(10.5)

2016 
£m

(10.3)

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 2020.

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
2015  
£/MWh

2016  
£/MWh

49.8

43.6

48.5

54.4

49.8

46.7

Notional 
contracted amount
2016 
2015  
MWh
MWh

21,960

66,272

227,221

315,453

70,272

21,960

162,000

254,232

Fair value
2015  
£m

(0.5)

(0.1)

(0.2)

(0.8)

2016  
£m

(0.4)

(0.8)

(2.0)

(3.2)

Annual Report and Accounts 2016  |  Severn Trent Plc  |  157

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 £5.2 million (2015: £7.7 million) related to equity settled share based payment transactions.

The weighted average share price during the period was £21.44 (2015: £19.74).

At 31 March 2016, there were no options exercisable (2015: none) under any of the share based remuneration schemes.

a)  Long Term Incentive Plans (LTIPs)

Under 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
The 2013 and 2014 LTIP 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. The 2015 LTIP awards are subject to Severn 
Trent Water’s achievement of Return on Regulatory Equity in excess of the level included in the Severn Trent Water AMP6 business 
plan over a three year vesting period. It has been assumed that performance against the LTIP non-market conditions will be 100% 
(2015: 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 Services LTIP will be 0% (2015: 0%).

Details of changes in the number of awards outstanding during the year are set out below:

Outstanding at 1 April 2014
Granted during the year
Vested during the year
Lapsed during the year
Outstanding at 1 April 2015
Granted during the year
Vested during the year
Lapsed during the year
Outstanding at 31 March 2016

Details of LTIP and Services LTIP awards outstanding at 31 March were as follows:

Date of grant
July 2012
July 2013
July 2014
July 2015

Normal date of vesting

2015

2016

2017

2018

Details of the basis of the LTIP schemes are set out in the Remuneration report on pages 89 to 101.

Number of awards
Services 
LTIP

LTIP

276,132

309,770

(138,560)

(14,224)

433,118

244,396

(135,954)

(65,682)

475,878

91,262

–

–

(26,738)

64,524

–

–

(30,660)

33,864

Number of awards
2016
2015

–

170,648

170,759

168,335

509,742

152,713

166,840

178,089

–

497,642

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
158  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

37  Share based payments (continued)
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 2014
Granted during the year
Forfeited during the year
Cancelled during the year
Exercised during the year
Lapsed during the year
Outstanding at 1 April 2015
Granted during the year
Forfeited during the year
Cancelled during the year
Exercised during the year
Lapsed during the year
Outstanding at 31 March 2016

Sharesave options outstanding at 31 March were as follows:

Date of grant
January 2010
January 2011
January 2012
January 2013
January 2014
January 2015
January 2016

Number of 
share 
options

2,800,874

1,048,625

(55,907)

(62,552)

(707,444)

(4,465)

3,019,131

746,446

(111,180)

(65,462)

(712,615)

(17,709)

2,858,611

Weighted 
average 
exercise 
price

1,125p

1,584p

1,261p

1,300p

944p

1,072p

1,321p

1,724p

1,409p

1,486p

1,031p

1,210p

1,492p

Number of share options
2015

2016

–

97,855

91,194

451,766

521,944

298,082

114,830

454,530

512,522

596,837

950,908

1,042,330

744,944

–

2,858,611

3,019,131

Normal date of exercise Option price

2015

2016

2015 or 2017

2016 or 2018

2017 or 2019

2018 or 2020

2019 or 2021

808p

1,137p

1,177p

1,241p

1,331p

1,584p

1,724p

Annual Report and Accounts 2016  |  Severn Trent Plc  |  159

37  Share based payments (continued)
c)  Share Matching Plan (SMP)

Under the Share Matching Plan members of STEC have received matching share awards over those shares which had 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 one 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.

Details of changes in the number of awards outstanding during the year are set out below:

Outstanding at 1 April 2014
Lapsed during the year
Vested during the year
Outstanding at 1 April 2015
Lapsed during the year
Outstanding at 31 March 2016

Details of share matching awards outstanding at 31 March were as follows:

Date of grant
May 2012
May 2013

d)  Fair value calculations

Number of awards

70,438

(8,305)

(11,463)

50,670

(23,057)

27,613

Normal date 
of vesting

May 2015

May 2016

Number of awards

2016

–

27,613

27,613

2015

18,024

32,646

50,670

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

2,167p

3

3

18.2%

3.7%

n/a

1,938p

2016
SAYE
5 year 
scheme

2,151p

5.5

5

3 year 
scheme

2,151p

3.5

3

18.2%

18.2%

3.7%

0.8%

363p

3.7%

1.3%

362p

LTIP

1,918p

3

3

18.2%

4.4%

n/a

1,679p

2015
SAYE
5 year 
scheme

2,000p

5.5

5

3 year 
scheme

2,000p

3.5

3

18.2%

18.2%

4.2%

0.7%

326p

4.2%

1.1%

311p

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.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
160  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

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 at 31 March 2015. 

On 12 May 2015 the group entered into a binding agreement to sell the business to Industrie De Nora. The sale was completed on 
2 July 2015.

The results of the discontinued operations were as follows:

Turnover
Total operating costs
Proﬁt before tax
Attributable tax expense
Loss on disposal of discontinued operations
Attributable tax expense on loss on disposal
(Loss)/proﬁt for the year
Attributable to:
Owners of the company
Non-controlling interests

The major classes of assets and liabilities comprising the operations classiﬁed as held for sale were 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

2016 
£m

29.7

(27.6)

2.1

(0.1)

(2.7)

–

(0.7)

(0.6)

(0.1)

(0.7)

2016 
£m

(0.5)

(11.6)

(6.4)

(18.5)

2015 
£m

108.2

(103.3)

4.9

(0.2)

–

–

4.7

3.7

1.0

4.7

31 March 
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

2015 
£m

1.8

(2.1)

3.6

3.3

Annual Report and Accounts 2016  |  Severn Trent Plc  |  161

38  Discontinued operations (continued)
Basic and diluted (loss)/earnings per share from discontinued operations are as follows:

Basic (loss)/earnings per share
Diluted (loss)/earnings per share

The net assets of the business at the date of disposal were:

Goodwill
Other intangible assets
Property, plant and equipment
Investments
Inventories
Trade and other receivables
Cash and bank balances
Trade and other payables
Tax liabilities
Intercompany borrowings
Provisions for liabilities and charges

Attributable to:
Owners of the company
Non-controlling interest

The net loss on disposal is calculated as follows:

Consideration
Net assets attributable to owners of the company
Disposal costs
Provisions arising on disposal
Net gain on disposal before foreign exchange losses
Foreign exchange losses recycled from reserves
Net loss on disposal

The net cash ﬂows arising from disposal in the year were:

Consideration received in cash and cash equivalents
Settlement of intercompany loans
Disposal costs paid in cash and cash equivalents
Cash and bank balances disposed of

Weighted 
average 
number of 
shares 
m

236.1

237.2

Result 
£m

(0.6)

(0.6)

2016

Per share 
amount 
pence

(0.3)

(0.3)

Weighted 
average 
number of 
shares 
m

238.8

239.9

Result 
£m

3.7

3.7

2015

Per share 
amount 
pence

1.5

1.5

£m

1.8

6.5

3.6

0.1

14.6

59.9

11.0

(36.1)

(0.2)

(18.1)

(1.5)

41.6

27.9

13.7

41.6

£m

42.8

(27.9)

(4.8)

(1.1)

9.0

(11.7)

(2.7)

£m

42.8

18.1

(4.2)

(11.0)

45.7

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
162  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

39  Cash ﬂow statement
a)  Reconciliation of operating proﬁt to operating cash ﬂows

Proﬁt before interest and tax from continuing operations
(Loss)/proﬁt 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
Deﬁned beneﬁt pension scheme contributions
Share based payments charge
Proﬁt on sale of property, plant and equipment and intangible assets
Loss on disposal of businesses
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 in inventory
Increase in amounts receivable
Increase in amounts payable
Cash generated from operations
Tax received
Tax paid
Net cash generated from operating activities

b)  Non-cash transactions

2016 
£m

523.8

(0.6)

523.2

294.2

22.0

–

(0.7)

2.3

(27.8)

5.2

(0.9)

2.7

(10.5)

5.9

(10.7)

804.9

(2.8)

(24.1)

19.5

797.5

11.5

(44.9)

764.1

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

10.5

(39.1)

731.5

No additions to property, plant and equipment during the year were ﬁnanced by new ﬁnance leases (2015: none). Assets transferred from 
developers at no cost were recognised at their fair value of £24.8 million (2015: £29.8 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

2016 
£m

(4.0)

–

–

(4.0)

2015 
£m

(25.4)

9.4

(3.5)

(19.5)

d)  Reconciliation of movement in cash and cash equivalents to movement in net debt

Net cash and cash equivalents
Bank loans
Other loans
Finance leases
Cross currency swaps
Net debt

As at 
1 April  
2015 
£m

176.7

(1,279.2)

(3,467.5)

(180.0)

(2.6)

(4,752.6)

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  
2016 
£m

(137.3)

30.9

(33.0)

62.8

–

(76.6)

–

–

(1.1)

–

39.8

38.7

–

(1.4)

(13.4)

–

–

(3.5)

–

(32.6)

–

–

19.31

(0.1)

7.9

–

(9.1)

55.2

(1,249.8)

(3,539.7)

(117.2)

28.1

(14.8)

(36.1)

18.0

(4,823.4)

1 Other non-cash movements on cash and cash equivalents represent amounts transferred to assets held for sale (see note 38)

Annual Report and Accounts 2016  |  Severn Trent Plc  |  163

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 (2015: €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 an area of 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. At 31 March 2016 the amounts receivable were £25.7 million (2015: £24.4 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

2016 
£m

142.6

2015 
£m

75.2

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 waste water 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
1 – 5 years
After more than 5 years

2016 
£m

2.3

6.4

7.2

15.9

2015 
£m

3.4

6.3

6.4

16.1

Operating lease payments represent rentals payable by the group for certain of its ofﬁce properties, plant and equipment.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
164  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

43  Post balance sheet events
Dividends

Following the year end the board of directors has proposed a ﬁnal dividend of 48.40 pence per share. Further details of this are shown 
in note 14.

Water Plus joint venture

On 1 March 2016 the group announced its intention, subject to approval from the Competition and Markets Authority (CMA) to enter 
into a joint venture with United Utilities PLC to compete in the non-household water and waste water retail market in Great Britain. 
On 3 May 2016 the CMA announced approval of the joint venture. On this date the group determined that completion of the proposed 
transaction became highly probable and the non-household retail business was classiﬁed as a disposal group and discontinued 
operation with effect from this date.

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
2015 
£m

2016 
£m

Amounts due from  
related parties
2015 
£m

2016 
£m

5.1

5.5

17.9

14.1

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 89 to 101.

Short term employee beneﬁts
Post employment beneﬁts
Termination beneﬁts
Share based payments

2016  
£m

6.0 

0.1 

– 

2.7 

8.8 

2015  
£m

6.1 

0.2

0.2 

4.0 

10.5 

 
Annual Report and Accounts 2016  |  Severn Trent Plc  |  165

45  Subsidiary undertakings
Details of all subsidiary undertakings as at 31 March 2016 are given below. Details of associates and joint ventures are set out in note 19. 
All subsidiary undertakings have been included in the consolidation.

Owned directly by Severn Trent Plc
Severn Trent Investment Holdings Limited

Country of operation 
and incorporation
United Kingdom

Percentage of 
share capital held
100%

All subsidiary undertakings
Biogas Generation Limited
Charles Haswell and Partners Limited
City Analytical Services Limited
Debeo Debt Recovery Limited
Derwent Insurance Limited
East Worcester Water Limited
Etwall Land Limited
Gunthorpe Fields Limited
Iseco SpA
Midlands Land Portfolio Limited
Procis Software Limited
Severn Trent (Del.) Inc
Severn Trent (W&S) Limited
Severn Trent Africa (Pty) Ltd
Severn Trent Carsington Limited
Severn Trent Corporate Holdings Limited
Severn Trent Data Portal Limited
Severn Trent Draycote Limited
Severn Trent Enterprises Limited
Severn Trent Environmental Services, Inc
Severn Trent Finance Holdings Limited
Severn Trent Finance Limited
Severn Trent Financing and Investments Limited
Severn Trent Funding Limited
Severn Trent General Partnership Limited
Severn Trent Green Power Limited
Severn Trent Holdings Limited
Severn Trent Holdings SA
Severn Trent Home Services Limited
Severn Trent Italia SpA
Severn Trent MIS Trustees Limited
Severn Trent Metering Services Limited
Severn Trent Overseas Holdings Limited
Severn Trent Pension Scheme Trustees Limited
Severn Trent PIF Trustees Limited
Severn Trent Power Generation Limited
Severn Trent Property Solutions Limited
Severn Trent QUEST Limited
Severn Trent Reservoirs Limited
Severn Trent Response Limited
Severn Trent Retail and Utility Services Limited
Severn Trent Select Limited
Severn Trent Services (Water and Sewerage) Limited
Severn Trent Services Defence Holdings Limited
Severn Trent Services Defence Limited
Severn Trent Services Finance Limited
Severn Trent Services Holdings Limited
Severn Trent LCP Limited
Severn Trent Leasing Limited
Severn Trent Luxembourg Overseas Holdings S.à r.l.
Severn Trent Services, Inc
Severn Trent Services International (Overseas Holdings) Limited
Severn Trent Services International Limited
Severn Trent Services Operations UK Limited
Severn Trent Services Puriﬁcation Limited
Severn Trent SSPS Trustees Limited
Severn Trent Systems Limited
Severn Trent US Funding Management Limited
Severn Trent Utilities Finance Plc
Severn Trent Utility Services Limited
Severn Trent Water Limited
Severn Trent Wind Power Limited
ST Delta Limited
ST Services of Georgia, LLC
UKTalks Limited
Umbria due Servizi Idrici Scarl

Country of operation 
and incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Gibraltar
United Kingdom
United Kingdom
United Kingdom
Italy
United Kingdom
United Kingdom
United States
United Kingdom
South Africa
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United States
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Belgium
United Kingdom
Italy
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Ireland
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Luxembourg
United States
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United States
United Kingdom
Italy

Percentage of 
share capital held
100%
100%
100%
100%
100%
100%
100%
100%
80%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
60%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
64%

Class of share 
capital held
Ordinary 

Class of share 
capital held
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary
A and B Ordinary 
Common Stock 
Ordinary 
Ordinary 
A and B Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Common 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary 
 Ordinary 
Ordinary 
Ordinary 
Ordinary 
Ordinary
A and B Ordinary 
Ordinary 
Ordinary 
Quota 

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
166  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the group ﬁnancial statements

45  Subsidiary undertakings (continued)
Subsidiary audit exemptions

Severn Trent Plc has issued guarantees over the liabilities of the following companies at 31 March 2016 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

Charles Haswell and Partners Limited 
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 Limited 
Severn Trent Holdings Limited  
Severn Trent Investment Holdings Limited  
Severn Trent LCP Limited 
Severn Trent Leasing Limited 
Severn Trent Metering Services Limited 
Severn Trent Overseas Holdings Limited  
Severn Trent Power Generation Limited  
Severn Trent Reservoirs Limited 
Severn Trent Services Holdings Limited  
Severn Trent Services International (Overseas Holdings) Limited  
Severn Trent Services International Limited 
Severn Trent Services Puriﬁcation Limited  
Severn Trent Services UK Limited 
Severn Trent Systems Limited  
Severn Trent Utility Services Limited  
Severn Trent Services (Water and Sewerage) Limited 

2416605
2050581
2757948
4240764
3995023
7570384
4395566
8181048
7681784
6044159
6294618
6312635
SC416614
5656363
7560050
7943556 
6810163
2569703
2455508
2651131
3115315
4395572
3125131
2387816
2409826
8120387
2394552
4125386
8880470

 
Annual Report and Accounts 2016  |  Severn Trent Plc  |  167

Company statement of comprehensive income
For the year ended 31 March 2016

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

2016 
£m

292.1

2015 
£m

191.1

(0.2)

(0.2)

1.2

(0.2)

1.0

0.8

–

–

2.7

(0.5)

2.2

2.2

292.9

193.3

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
168  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Company balance sheet
At 31 March 2016

Non-current assets
Intangible ﬁxed assets
Tangible ﬁxed assets
Investments in subsidiaries

Current assets
Debtors
Derivative ﬁnancial instruments

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 23 May 2016.

Andrew Duff 
Chairman 

James Bowling
Chief Financial Ofﬁcer

Company number: 02366619

Note

2016  
£m

2015 
£m

1

2

3

4

5

6

8

9

10

0.4

0.3

3,811.5

3,812.2

63.9

0.7

64.6

(207.8)

(143.2)

3,669.0

(182.2)

3,486.8

234.3

106.8

160.7

2,985.0

3,486.8

0.2

0.3

3,760.3

3,760.8

34.6

2.0

36.6

(325.7)

(289.1)

3,471.7

(82.7)

3,389.0

233.7

100.2

159.6

2,895.5

3,389.0

Company statement of changes in equity
For the year ended 31 March 2016

At 1 April 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
– value of employees’ services
Share buy back
Share cancellation
Dividends paid
At 31 March 2015
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
– own shares purchased
Share buy back
Share cancellation
Dividends paid
At 31 March 2016

Annual Report and Accounts 2016  |  Severn Trent Plc  |  169

Share 
capital 
£m

233.9

Share 
premium 
£m

Other 
reserves 
£m

94.2

156.5

–

–

–

–

0.7

–

–

(0.9)

–

–

–

–

–

6.0

–

–

–

–

233.7

100.2

–

–

–

–

–

0.7

–

–

–

(0.1)

–

–

–

–

–

–

6.6

–

–

–

–

–

–

2.7

(0.5)

2.2

–

–

–

0.9

–

159.6

–

1.2

(0.2)

–

1.0

–

–

–

–

0.1

–

Retained 
earnings 
£m

3,004.9

191.1

–

–

Total 
£m

3,489.5

191.1

2.7

(0.5)

191.1

193.3

–

(3.6)

6.7

(3.6)

(100.0)

(100.0)

–

–

(196.9)

(196.9)

2,895.5

292.1

–

–

(0.2)

291.9

–

5.2

(0.6)

(10.0)

–

3,389.0

292.1

1.2

(0.2)

(0.2)

292.9

7.3

5.2

(0.6)

(10.0)

–

(197.0)

(197.0)

234.3

106.8

160.7

2,985.0

3,486.8

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.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
170  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the parent company ﬁnancial statements
For the year ended 31 March 2016

1 

Intangible ﬁxed assets

Cost
At 1 April 2015
Additions
At 31 March 2016
Amortisation
At 1 April 2015 and 31 March 2016
Net book value
At 31 March 2016
At 31 March 2015

2  Tangible ﬁxed assets

Cost
As at 31 March 2015 and 31 March 2016
Depreciation
As at 31 March 2015 and 31 March 2016
Net book value
As at 31 March 2015 and 31 March 2016

3 

Investments in subsidiaries

As at 1 April 2015
Additions
New loans raised
Loans impaired
As at 31 March 2016

Details of principal subsidiaries of the company are given in note 45 to the group ﬁnancial statements.

4  Debtors

Amounts owed by group undertakings
Deferred tax
Corporation tax recoverable
Other debtors
Prepayments

Purchased 
software 
£m

0.9

0.2

1.1

(0.7)

0.4

0.2

Land and 
buildings 
£m

Ofﬁce 
ﬁxtures and 
equipment 
£m

Total 
£m

0.1

–

0.1

0.6

0.7

(0.4)

(0.4)

0.2

0.3

Shares 
£m

3,313.6

5.2

–

–

Loans 
£m

446.7

–

52.3

(6.3)

Total 
£m

3,760.3

5.2

52.3

(6.3)

3,318.8

492.7

3,811.5

2016 
£m

15.8

0.7

43.5

0.8

3.1

63.9

2015 
£m

19.3

1.9

11.6

1.8

–

34.6

Annual Report and Accounts 2016  |  Severn Trent Plc  |  171

4  Debtors (continued)
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 2014
Charge to proﬁt and loss account
Charge to other comprehensive income
Transfers
At 1 April 2015
Charge to proﬁt and loss account
Credit/(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 31 March 2016

5  Creditors: amounts falling due within one year

0.1

–

–

–

0.1

–

–

–

–

0.1

3.6

(1.9)

(0.5)

–

1.2

(0.8)

0.1

(0.2)

(0.2)

0.1

Bank overdrafts
Other loans
Borrowings (note 7)
Derivative ﬁnancial instruments
Trade creditors
Amounts due to group undertakings
Other creditors
Taxation and social security
Accruals

6  Creditors: amounts falling due after more than one year

Borrowings – other loans (note 7)
Amounts due to group undertakings

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

1.2

(0.8)

–

0.2

0.6

–

(0.1)

–

–

0.5

2016 
£m

7.7

–

7.7

0.7

–

4.9

(2.7)

(0.5)

0.2

1.9

(0.8)

–

(0.2)

(0.2)

0.7

2015 
£m

6.1

17.0

23.1

6.5

0.1

191.1

204.8

6.2

0.1

2.0

207.8

2016 
£m

80.7

101.5

182.2

2016 
£m

7.7

–

–

80.7

80.7

88.4

7.0

–

84.2

325.7

2015 
£m

79.7

3.0

82.7

2015 
£m

23.1

–

–

79.7

79.7

102.8

Borrowings repayable after more than 5 years comprises the company’s RPI linked retail bond issued in July 2012. The bond carries a 
coupon of 1.3% on the principal amount which is uplifted by RPI. The bond is repayable in July 2022.

At the balance sheet date the company had £100 million (2015: £nil) undrawn borrowing facilities.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
172  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Notes to the parent company ﬁnancial statements

8  Share capital

Total issued and fully paid share capital
239,344,614 ordinary shares of 9717/19p (2015: 238,683,513)

Changes in share capital were as follows:

Ordinary shares of 9717/19p
At 1 April 2015
Shares issued under the group’s Employee Sharesave Scheme
Share buy back
At 31 March 2016

2016 
£m

2015 
£m

234.3

233.7

Number

£m

238,683,513

233.7

712,615

(51,514)

0.7

(0.1)

239,344,614

234.3

During the year the company repurchased 4,274,576 shares (2015: 966,578) under its share buy back programme. Of these repurchased 
shares, 51,514 (2015: 966,578) were cancelled and the remaining 4,223,062 (2015: nil) are held as treasury shares. 

9  Share premium

At 1 April
Share premium arising on issue of shares for Employee Sharesave Scheme
At 31 March

10  Other reserves

At 1 April 2014
Total comprehensive income for the year
Purchase of own shares
At 1 April 2015
Total comprehensive income for the year
Purchase of own shares
At 31 March 2016

2016 
£m

100.2

6.6

106.8

Capital 
redemption 
reserve 
£m

Hedging 
reserve 
£m

156.1

–

0.9

157.0

–

0.1

157.1

0.4

2.2

–

2.6

1.0

–

3.6

2015 
£m

94.2

6.0

100.2

Total 
£m

156.5

2.2

0.9

159.6

1.0

0.1

160.7

The capital redemption reserve arose on the redemption of B shares. The movement in the current and prior 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.

Annual Report and Accounts 2016  |  Severn Trent Plc  |  173

11  Share based payments
For details of employee share schemes and options granted over the shares of the company, see note 37 to 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
Deﬁned beneﬁt schemes

The group operates 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 schemes is recognised in the ﬁnancial statements of the sponsoring employer, Severn Trent 
Water Limited. The schemes closed to future accrual on 31 March 2015. The cost of contributions to the group schemes amount to £nil 
(2015: £0.1 million). There were no amounts outstanding for contributions to the deﬁned beneﬁt schemes (2015: £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 2016, the company had no contingent liabilities (2015: none).

15  Post balance sheet events
Following the year end the Board of Directors has proposed a ﬁnal dividend of 48.40 pence per share.

16  Dividends
For details of the dividends paid in the years ended 31 March 2016 and 31 March 2015 see note 14 in the group ﬁnancial statements.

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

 
 
 
 
 
 
174  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Five year summary

Continuing operations
Turnover
Proﬁt before interest, tax and exceptional items
Net exceptional items before tax
Net interest payable before gains/(losses) on ﬁnancial instruments and 
exceptional ﬁnance costs
Gains/(losses) on ﬁnancial instruments
Results of associates and joint ventures
Proﬁt on ordinary activities before tax
Current tax on proﬁt on ordinary activities
Deferred tax
Exceptional tax
Proﬁt on ordinary activities after tax
Results from discontinued operations
Proﬁt for the period
Net assets employed
Fixed assets
Other net liabilities excluding net debt, retirement beneﬁt obligation, 
provisions and deferred tax
Derivative ﬁnancial instruments1
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 debt2

Statistics
Earnings per share (continuing) – pence
Underlying earnings per share – pence
Dividends per share (excluding special dividend) – pence
Dividend cover (before exceptional items and deferred tax)
Gearing4
Ordinary share price at 31 March – pounds
Average number of employees
– Severn Trent Water
– Other

1 Excludes instruments hedging foreign currency debt

2 Includes instruments hedging foreign currency debt

3 Restated as per note 2 to the group ﬁnancial statements

4 Gearing has been calculated as net debt divided by the sum of equity and net debt

2016 

£m

1,786.9

522.8

1.0

(209.3)

7.7

0.1

322.3

(55.2)

(13.7)

78.6

332.0

(0.7)

331.3

2015
Restated3
£m

2014
Restated3
£m

1,801.3

1,756.7

540.3

(18.7)

(240.0)

(133.5)

0.1

148.2

(37.8)

5.1

–

115.5

4.7

120.2

523.8

(15.2)

(247.9)

58.0

0.2

318.9

(55.8)

(21.5)

230.2

471.8

–

471.8

2013 

2012 

£m

1,831.6

495.4

(5.8)

(244.3)

(45.3)

0.2

200.2

(27.9)

8.2

38.4

218.9

–

218.9

£m

1,770.6

504.2

(50.9)

(229.0)

(67.7)

0.1

156.7

(60.5)

78.2

–

174.4

–

174.4

7,810.8

7,620.0

7,418.3

6,906.1

6,743.6

(798.4)

(166.3)

(309.5)

(694.7)

–

(799.0)

(177.7)

(468.9)

(725.4)

72.6

(631.1)

(197.1)

(348.3)

(758.5)

–

(273.8)

(279.8)

(383.7)

(827.5)

–

(341.3)

(261.8)

(345.8)

(845.5)

–

5,841.9

5,521.6

5,483.3

5,141.3

4,949.2

234.3

783.1

1,017.4

1.1

4,823.4

5,841.9

140.0

108.7

80.7

1.3

82.6%

21.73

5,236

2,122

233.7

521.9

755.6

13.4

4,752.6

5,521.6

48.3

107.2

84.9

1.3

86.1%

20.59

5,532

1,910

233.9

789.4

1,023.3

12.5

4,447.5

5,483.3

198.5

92.5

80.4

1.2

81.1%

18.23

5,634

1,914

233.3

599.9

833.2

10.8

4,297.3

5,141.3

90.9

92.6

75.8

1.3

83.6%

17.12

5,458

2,763

232.6

740.9

973.5

7.9

3,967.8

4,949.2

72.5

88.9

70.1

1.3

80.2%

15.44

5,162

2,889

 
 
 
Information for shareholders

Annual Report and Accounts 2016  |  Severn Trent Plc  |  175

Severn Trent shareholder helpline
The Company’s registrar is Equiniti. Equiniti’s main responsibilities 
include maintaining the shareholder register and making 
dividend payments.

If you have any queries relating to your Severn Trent Plc 
shareholding you should contact Equiniti.

Registrar contact details:

Online: www.shareview.co.uk from here, you will be able 
to securely email Equiniti with your query.

Telephone: 0371 384 2967*

Overseas enquiries: +44 121 415 7044

Text phone: 0371 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:

(cid:228)(cid:3) Company news and information;
(cid:228)(cid:3) links to our operational businesses’ websites;
(cid:228)(cid:3) details of our governance arrangements;
(cid:228)(cid:3) details of our strategy;
(cid:228)(cid:3) details of the Group’s business models and business plan; and
(cid:228)(cid:3) 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:

(cid:228)(cid:3) comprehensive share price information;
(cid:228)(cid:3) ﬁnancial results;
(cid:228)(cid:3) a history of dividend payment dates and amounts; and
(cid:228)(cid:3) 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:

(cid:228)(cid:3) view the Annual Report and Accounts on the day it is published;
(cid:228)(cid:3) receive an email alert when shareholder documents 

are available;

(cid:228)(cid:3) cast their AGM vote electronically; and
(cid:228)(cid:3) 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.

Dividend payments
Bank mandates

Dividends can be paid automatically into your bank or building 
society account.

The beneﬁts of doing this are that you will:

(cid:228)(cid:3) receive cleared funds in your bank account on the payment date;
(cid:228)(cid:3) avoid postal delays; and
(cid:228)(cid:3) remove the risk of your cheques getting lost in the post.

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: 0371 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 
may 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 0345 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:

(cid:228)(cid:3) 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. 

(cid:228)(cid:3) Do not get into a conversation, note the name of the person 

and ﬁrm contacting you and then end the call. 

(cid:228)(cid:3) Check the Financial Services Register at www.fca.org.uk to see 
if the person and ﬁrm contacting you is authorised by the FCA. 
(cid:228)(cid:3) Beware of fraudsters claiming to be from an authorised ﬁrm, 

copying its website or giving you false contact details.

(cid:228)(cid:3) Use the ﬁrm’s contact details listed on the Register if you want 

to call it back. 

S
t
r
a
t
e
g
i
c
r
e
p
o
r
t

G
o
v
e
r
n
a
n
c
e

G
r
o
u
p
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

C
o
m
p
a
n
y
ﬁ
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s

O
t
h
e
r
i

n
f
o
r
m
a
t
i
o
n

* Lines are open 8.30am to 5.30pm Monday to Friday (excluding public holidays in England and Wales).

** Lines are open Monday to Friday, 8:00am to 4:30pm for dealing, and until 6:00pm for enquiries.

 
 
 
 
 
 
176  |  Severn Trent Plc  |  Annual Report and Accounts 2016

Information for shareholders

(cid:228)(cid:3) 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. 

(cid:228)(cid:3) Search the list of unauthorised ﬁrms to avoid  

at www.fca.org.uk/scams.

(cid:228)(cid:3) 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. 

(cid:228)(cid:3) Think about getting independent ﬁnancial and professional 

advice before you hand over any money.

(cid:228)(cid:3) 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 2017
Final dividend payment date
Interim results announcement – year ending 31 March 2017
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

16 June 2016

17 June 2016

20 July 2016

20 July 2016

22 July 2016

24 November 2016

1 December 2016

2 December 2016

6 January 2017

DIGITAL FIRST

Visit our online annual  
report to ﬁnd out more: 
ar2016.severntrent.com

Design and production by Radley Yeldar www.ry.com

This report has been printed on Galerie Satin, a paper which is certiﬁed 
by the Forest Stewardship Council®. The paper is made at a mill with 
ISO 14001 Environmental Management System accreditation. 

Printed by CPI Colour using vegetable oil based inks, CPI is a 
CarbonNeutral® printer, certiﬁed to ISO 14001 Environmental 
Management System and registered to EMAS, the Eco Management 
and 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