Severn Trent Plc
Annual Report and
Accounts 2021
Making a difference together
VISION AND PURPOSE
Making a Difference Together
We provide clean water and waste water services
and develop renewable energy solutions through
our businesses.
Regulated water and waste water
Our regulated water and waste water
businesses Severn Trent Water and
Hafren Dyfrdwy.
Turnover
(£m)
The primary activities we focus on
• Wholesale operations and engineering
• Household customer services
About us
We are two of 11 regulated water and
waste water businesses in England and
Wales. We provide high-quality services
to more than 4.6 million households and
businesses in the Midlands and Wales.
Where we operate
Our region stretches across the heart
of the UK, from the Bristol Channel
to the Humber, and from North and
mid-Wales to the East Midlands.
£1,693.9m
-0.8%
Profit before interest
and tax (‘PBIT’) (£m)
£452.1m
-16.3%
Adjusted profit before
interest and tax1 (‘PBIT’) (£m)
Households and
businesses served
£452.1m
28.3%
4.6m
Litres of drinking water
supplied each day
Litres of waste water
treated each day
2.0bn
Employees2
6,536
3.1bn
Revenue split
98%
Severn Trent
2%
Hafren Dyfrdwy
Business Services
Where we operate
Business Services operates in the UK
and includes the following:
Green Power
Severn Trent Green Power generates
renewable energy from anaerobic
digestion, crop, hydropower, wind
turbines and solar technology.
Operating Services
Operating Services provides contract
services to municipal and industrial
clients in the UK and the UK Ministry
of Defence (‘MOD’) for the design,
build and operation of water and waste
water treatment facilities and networks,
and services to developers.
Property Development
Property Development manages
the sale of surplus land.
Other businesses include our affinity
and searches businesses.
Turnover
(£m)
Adjusted profit
before interest
and tax1 (‘PBIT’) (£m)
£134.7m
£25.8m
-2.3%
Profit before interest
and tax (‘PBIT’) (£m)
£23.7m
-30.1%
-28.3%
Employees2
486
-10.2%
1. Alternative Performance Measures are defined in note 43 to the Group financial statements.
2.
Average during 2020/21. See note 9 to the Group financial statements.
Highlights
Contents
Group turnover (£m)
Group profit before
interest and tax
(‘PBIT’) (£m)
Group adjusted profit
before interest and tax
(‘PBIT’) (£m)
1,767.4
1,843.5
1,827.2
563.3
568.2
573.6
570.3
470.7
472.8
2019
2020
2021
2019
2020
2021
2019
2020
2021
£1,827.2m
£470.7m
£472.8m
-0.9%
-17.2%
-17.1%
Dividend per share (p)
Basic earnings
per share (‘EPS’) (p)
100.08
101.58
93.37
133.4
89.1
66.7
Adjusted basic
earnings per share
(‘EPS’) (p)
145.8
146.0
105.4
2019
2020
2021
2019
2020
2021
2019
2020
2021
101.58p
+1.5%
89.1p
+33.6%
105.4p
-27.8%
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’
or words with a similar meaning, 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. This document speaks as at the date of the report.
Save as required by applicable laws and regulations, Severn Trent does not intend to update these forward-looking statements and does
not undertake any obligation to do so. Past performance of securities of Severn Trent Plc cannot be relied upon as a guide to the future
performance of securities of Severn Trent Plc. 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 United States,
absent registration or an applicable exemption from the registration requirements of the United States Securities Act of 1933 (as amended).
Strategic Report
01 Highlights
02 Our Strategic Framework
04 Purpose in Action
06 Business Model
08 Chair’s Statement
10 Chief Executive’s Review
14 Market and Industry Overview
15 Our COVID-19 Response
18 Key Performance Indicators
20
Regulated Water and Waste Water
Performance Review
Business Services
Performance Review
30
31 Chief Financial Officer’s Review
38 Our Approach to Risk
40 Our Principal Risks
46 Emerging Risks
46 Dedicated COVID-19 Statement
47
Viability Statement
49 Going Concern Statement
Sustainability Framework
50
51 Commitments to Climate Change
52 Our Journey to Net Zero
54
68
Our TCFD Disclosures
Engagement with Our
Stakeholders
72 Our People
76 Section 172 Statement
79
Non-Financial Information
Statement
Chair’s Introduction to Governance
Governance Report
80
84 Governance at a Glance
86 Board of Directors
88 Executive Committee
89 Governance Framework
90 Corporate Governance Statement
101 Nominations Committee Report
107 Audit Committee Report
114 Treasury Committee Report
116 Corporate Sustainability
Committee Report
120 Directors’ Remuneration Report
126 Remuneration at a Glance
129 Summary of Remuneration Policy
and Implementation
132 Company Remuneration
at Severn Trent
142 Annual Report on Remuneration
145 Remuneration Policy
154 Directors’ Report
158 Directors’ Responsibility
Statement
Group Financial Statements
159 Independent Auditor’s Report
166 Consolidated Income Statement
167 Consolidated Statement of
Comprehensive Income
168 Consolidated Statement of
Changes in Equity
169 Consolidated Balance Sheet
170 Consolidated Cash Flow
Statement
171 Notes to Group Financial
Statements
Company Financial Statements
232 Company Statement of
Comprehensive Income
232 Company Statement of
Changes in Equity
233 Company Balance Sheet
234 Notes to Company Financial
Statements
Other Information
239 Five-year Summary
240 Information for Shareholders
1
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION
VISION AND PURPOSE CONTINUED
Our Strategic Framework
Purpose – taking care of
one of life’s essentials
At Severn Trent, we believe our
clear social purpose helps drive
the right strategic decisions for
our business, our stakeholders
and the environment we depend on.
It is underpinned by our strong Values
and borne out in our culture which
governs how we think and behave,
from fostering a diverse and inclusive
working environment to rewarding
all of our people fairly.
Strategic outcomes
bills
Read more p22
Read more p23
difference
you can trust
Read more p21
for everyone
Read more p24
1 A company
2 A positive
3 Lowest possible
4 A service
5 An outstanding
6 Good to
7 Water
8 Waste water
9 A thriving
environment
Read more p29
always there
Read more p27
experience
Read more p28
Read more p25
Read more p26
drink
safely taken away
2
Online at severntrent.com
Severn Trent Plc Annual Report and Accounts 2021
Sustainability pillars
Our Values
Culture
Taking care of the environment
• Ensuring a sustainable water cycle
• Enhancing our natural environment
• Making the most of our resources
• Mitigating climate change
Read more p50
Helping people to thrive
• Delivering an affordable
service for everyone
• Providing a fair, inclusive
and safe place to work
• Investing in skills and knowledge
• Making a positive difference
in the community
Read more p50
Being a company you can trust
• Living our Values
• Balancing the interests
of all our stakeholders
• Running our company
for the long term
• Being open about what we do
and sharing what we know
Read more p50
Our culture is focused on nurturing
and promoting the health of the
natural environment and the
wellbeing of our customers,
colleagues and communities.
Stakeholder engagement
Effective stakeholder engagement
is a priority for every member of
the Severn Trent team, from the
frontline to the Board. Our emphasis
is on tracking the outcomes of our
engagement, encouraging a two-way
dialogue and making sure this helps
inform our decision making.
Read more p68
Rewarding our people
We are committed to rewarding all of our
people fairly, sharing rewards with our
communities through the Severn Trent
Community Fund and returning value
to our shareholders, many of whom are
also our employees.
Read more p72
Online at
severntrent.com/sustainability-strategy
Online at severntrent.com
Online at severntrent.com
3
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION VISION AND PURPOSE CONTINUED
Purpose in Action
As a purpose-led business with a strong
focus on our social impact, we were
pleased to have made strong progress
in a number of important areas, taking
care of one of life’s essentials and doing
the right thing for our customers, our
colleagues, society and the environment.
Triple Carbon Pledge
In 2019 we announced our Triple Carbon Pledge – committing
to net-zero operational carbon emissions, 100% renewable energy
and an all-electric fleet by 2030, subject to the availability of vehicles.
In 2020 we also announced our decision to invest £1.2 billion in
environmental initiatives including planting 1.3 million trees and
boosting the biodiversity of 5,000 hectares of land in our region.
Severn Trent Academy
Our Academy opened in Coventry in February 2021 and our range
of learning programmes are already training our engineers and
leaders of the future, giving our people opportunities for growth,
development and more rewarding careers.
Read more p54
Read more p75
Advancing our response to climate change
We are determined to play a leading role in addressing
the impact of climate change and mitigating our own impact,
the impact of our supply chain and adapting to the challenges
that climate change may bring in the future. In March 2021,
we submitted our proposed Scope 1, 2 and 3 emissions targets
to the Science Based Targets initiative, committing us to
significantly reduce our greenhouse gas emissions by 2030.
100%
Renewable energy
by 2030
100%
Electric vehicles
(where available)
by 2030
4
Supporting our suppliers
Along with our employees, our suppliers support us in
serving our customers. During the year we accelerated
payments to our supply chain, helping small and medium-
sized enterprises in our region with crucial cash flow
throughout the COVID-19 pandemic.
Severn Trent Plc Annual Report and Accounts 2021 Severn Trent Community Fund
Our Community Fund donates 1% of our profits each year to
projects in our local communities which need the most help,
and so far we have awarded £1.5 million to 93 projects. This year
we also launched our £1 million COVID-19 Emergency Fund and
have donated to 339 local charities to help them deal with the
effects of the pandemic. We also donated almost £1 million as
part of our water saving charity challenge.
Caring for our colleagues
Our people are fundamental to delivering one of life’s essentials
and we believe our culture is what makes us special. You can
read more about our ‘Caring for Colleagues’ and ‘Share a Smile’
campaigns launched during the year on page 17.
1.3m
Planting 1.3 million trees
by 2030
Kickstart scheme
In January 2021 we welcomed the first of our ‘Kickstarters’
as part of our ambitious plans to support 500 unemployed
16 to 24 year olds into employment with paid work experience
and skills development.
Diversity and inclusion initiatives
Our teams are passionate about creating an environment
where everyone can feel comfortable bringing their whole
self to work. During the year we launched our new diversity
and inclusion offering via our Academy and developed a
specific diversity and inclusion focus in our employee
QUEST survey.
Read more p22
Read more p73
5
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION BUSINESS MODEL
Running an Efficient Water Business
We provide clean water every time our customers
turn on the tap, and remove their waste water
in an affordable, sustainable and reliable way.
Resources
Physical
assets
A resilient, well maintained network
of clean water pipes and reservoirs,
sewers and pumping stations.
We maintain over 49,900 km of clean
water pipes and over 92,800 km of
sewer pipes.
Natural
resources
Water from reservoirs, rivers and
underground aquifers are essential
to support Severn Trent’s operations
and value creation.
We look after some of the UK’s most
impressive natural resources.
Financial
capital
We have a strong balance sheet and
are able to access a range of capital
markets to fund future operations.
Our combined STW and HD gearing
is 64.5% (2019/20: 64.4%). Severn
Trent Plc had undrawn committed
facilities of £845 million during
the year.
Principal Risks: 2 and 3
Principal Risks: 2, 3, 6 and 7
Principal Risks: 8 and 9
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 groundwater and surface
water treatment works clean raw
water to the highest standards,
making it safe to drink.
Clean water
is distributed
Our network of pipes and our
enclosed storage reservoirs bring
a continuous supply of clean water
right to our customers’ taps.
Taking care of one of life’s essentials at every step
Providing clean water and cleaning waste water is an ‘energy
hungry’ process so we use waste and renewables to help us
power our operations.
The green energy produced from food waste forms part of Severn
Trent’s Triple Carbon Pledge – achieving net-zero operational
carbon emissions, 100% renewable energy and an all-electric
fleet of vehicles, subject to the availability of vehicles, by 2030.
Food waste anaerobic
digestion plants generating
green energy
Physical assets
Replaced 48 km of our water
mains (2019/20: 260 km).
Natural resources
We are on track to improve
5,000 hectares of land across
our region by 2027.
We planted around 290,000
trees this year, on track to
meet our 1.3 million target
by 2030 as part of our Great
Big Nature Boost.
Financial capital
Sector leading ODI
performance.
Gearing close to the
regulatory model leading
to stable credit ratings.
Strategic outcomes: 7/8
Read more p27-28
Strategic outcomes: 2/9
Read more p22 and 29
Strategic outcomes: 1/3
Read more p21 and 23
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6
Severn Trent Plc Annual Report and Accounts 2021
We are committed to acting to protect our planet
and lead the way in combating climate change
in our industry. We do this through the important
relationships we maintain with our key stakeholders.
Relationships
Our customers
and communities
Are at the heart of everything we
do. We aim to anticipate and meet
changing customers’ and wider
societal needs.
We serve 4.6 million households
and businesses.
Our people
and culture
Our culture and Values support
Doing the Right Thing and drive
delivery of our strategy. We look to
attract, develop and retain talented
people from all backgrounds.
We directly employ over
7,000 people.
Our suppliers
and contractors
Strong supplier relationships
support our business
operations in line with our
modern slavery commitments.
We work with around 2,800
direct suppliers.
Our
regulators
Our industry is regulated by Ofwat
and several other regulators and
public bodies.
We proposed an ambitious package
of investments aimed at delivering
long-term, sustainable benefits for
current and future generations in our
region. Read more on page 13.
Principal Risks: 2 and 3
Principal Risk: 1
Principal Risk: 5
Principal Risks: 4 and 10
Customers
enjoy our services
We serve 4.6 million households
and businesses with a safe,
reliable supply of water and
collect waste water seven days
a week, every day of the year.
Waste water
is collected
Our network of sewers and
pumping stations collect
waste water from homes
and businesses and take it
to our treatment works.
Waste water
is cleaned
Waste water is carefully
screened, filtered and treated
in our sewage treatment
works to meet stringent
environmental standards.
Water is recycled
to the environment
We pay the Environment
Agency and Natural Resources
Wales annual consent fees
to return the treated water
to the water system.
Solar
Wind turbines
Clean gas and green electricity
from our sludge anaerobic
digestion plants
Our customers and communities
One of the lowest bills in
England over the last decade
for Severn Trent Water.
Hafren Dyfrdwy customers
continue to have the lowest
average combined bills in Wales.
We helped over 150,000 customers
through financial schemes
(2019/20: c.70,000).
Our people and culture
Developing people from all
backgrounds in line with our
Social Mobility Programme.
Our suppliers and partners
Building sustainable
relationships that
provide mutual benefit.
Over 15% of our graduates and
apprentices are from a Black,
Asian and minority ethnic
backgrounds (2019/20: 30%).
Over 1,000 suppliers have
signed up to our Sustainable
Supply Chain Charter
since 2016.
Our regulators
We stimulate regulatory
debates to improve
services for customers
across the industry.
Strategic outcomes: 2/3/4/5
Read more p22-25
Strategic outcomes: 1/2
Read more p21-22
Strategic outcomes: 1/2/4/5
Read more p21-22 and 24-25
Strategic outcomes: 1/2/5/9
Read more p21-22, 25 and 29
7
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION CHAIR’S STATEMENT
Fulfilling Our Role in Society
Christine Hodgson
Chair
“Severn Trent’s Purpose is to ‘take care
of one of life’s essentials’ and this year,
more than ever, has underlined the
importance of delivering our Purpose and
living our Values in everything we do –
delivering for our customers, inspiring our
people, attracting investors, generating
a positive impact for our communities
and the environment and reinforcing
that in the long term all those interests
are aligned. Our strategy is working and
we are confident that Severn Trent is in
a strong position for the challenges and
opportunities ahead.”
£470.7m
Group profit before
interest and tax
2020: £568.2m
101.58p
Dividend per share
2020: 100.08p
£1,827.2m
Group turnover
2020: £1,843.5m
8
Our Purpose
In our 2019/20 Annual Report we introduced our new company Purpose
and Values which were developed collaboratively by our people, for
our people. We know that what we do is crucial for everyone who lives
and works in our region – be that in the water they drink, the jobs we
create, the communities we support and the nature enjoyed by us all.
Our Purpose of ‘taking care of one of life’s essentials’ – underpinned
by our Values of Having Courage, Embracing Curiosity, Showing Care
and Taking Pride – reflects the deep connection that we have with the
communities we serve.
Now, more than ever before, we must lead with our Purpose and
act as a force for good. Our AMP7 strategic outcomes – focused on
the customers and communities we serve and the environment that
we depend on – are fully aligned with this objective. It is not only about
demonstrating that we are a socially responsible company, it is about
doing great business in an authentic way to make a real difference for
all of our stakeholders.
Our performance
The COVID-19 pandemic has dominated 2020/21 and has placed
extraordinary demands on every one of us as individuals, families,
communities and employees of an essential service provider. Our
priority throughout the year has been ensuring our operational and
financial resilience to serve our customers and play our part to make
a positive impact for the good of our stakeholders and wider society,
whilst also protecting the health and wellbeing of our employees.
This year has seen our Company successfully achieve a series of
important milestones, culminating in Ofwat proposing on 17 May 2021
that we can invest £565 million (2017/18 prices) in our ambitious Green
Recovery programme. This will deliver long-term growth for the
Company alongside new investment to support our ESG ambitions.
Read more on page 13. Our impressive operational performance is
discussed in detail in Liv’s Chief Executive’s Review. In this report, I want
to take the opportunity to look at the bigger picture by highlighting the
positive difference we have made for our stakeholders, the resilience
of our operations throughout the year, and underline our commitment
to being a force for good in the communities we serve – which is now,
more important than ever before.
Delivering for our customers while keeping our people safe
Our people take very seriously the responsibility that comes with providing
an essential service that touches the lives of millions. Their passion and
commitment shines through in everything they do – through embracing
change or adapting to unexpected incidents and extreme weather events
during the year. I have been humbled by the way in which they have
continued to work safely on the front line or switched to working at home
with remarkable adaptability. It has been particularly uplifting to witness
the spirit in which our colleagues have taken on these challenges. I would
like to record particular thanks to our people who continued to work on the
front line throughout the COVID-19 pandemic, meeting customers, solving
problems and working tirelessly to keep our services running smoothly 24
hours a day, seven days a week.
Our people were supported by the expert management of the evolving
situation by our Executive Team – who had clear objectives to: ensure
our people had access to the correct personal protective equipment
(‘PPE’); increase our internal communications to ensure our people
were kept informed; and apply focus on employees’ mental health
during the lockdowns. The Company also continued to deliver on
important projects throughout the pandemic to ensure the Company’s
long-term future resilience. Liv provides more detail within her Chief
Executive’s Review.
At an industry level, shockwaves from the tragic accident at
Avonmouth in December 2020 were felt across the sector and had
a profound impact across our business. In response to the event,
we immediately suspended all activity related to Dangerous
Substances and Explosive Atmospheres Regulations 2002 (‘DSEAR’)
and undertook comprehensive surveys at all of our bioresources
sites as well as a comprehensive review of all our high risk actions.
For those colleagues at Wessex Water who suffered personally, and
those families and friends affected, I extend my deepest sympathy.
Severn Trent Plc Annual Report and Accounts 2021 Your Board
My focus continues to be on maintaining a strong, value-adding
team, with a diverse range of professional backgrounds, skills and
perspectives. Succession planning is a key priority for the Board and
Nominations Committee and, to inform this work, I commissioned
an externally facilitated Board Effectiveness evaluation during the
year, which concluded that the Board operates very effectively and it
was evident that the Board places a strong emphasis on ensuring that
it considered the views of stakeholders in its discussions and decision
making. You can read more about the Board Evaluation process
on page 98.
We welcomed Sharmila Nebhrajani to the Board on 1 May 2020 and her
extensive induction programme took place during the year. Many of the
one-to-one meetings were held virtually due to the ongoing pandemic,
however, Sharmila was able to visit a number of our operational sites
once restrictions were lifted and COVID-secure measures were in
place. Further detail can be found on page 100.
As announced on 19 March 2021, Dominique Reiniche intends to retire
from the Board following our AGM on 8 July 2021, having served on the
Board for almost five years. On behalf of the Board, I would like to thank
Dominique for her service to Severn Trent and her valuable contribution
to the Board’s work.
Outlook
At the end of my first year as Chair of your Board, I have spent time
reflecting on everything that I have learned about Severn Trent thus
far – the talent and commitment of our employees, the focus on
operational excellence and resilience, our contribution to society and
our environmental achievements. This inspires me and reinforces that
our strategy is working and that Severn Trent is in a strong position for
the challenges and opportunities ahead. The impact of the COVID-19
pandemic will continue to present a degree of uncertainty for some
time to come. However, we are well placed to respond to the challenges
that may bring.
Finally, I want to thank everyone involved in this most challenging
of years – our customers, communities, investors, regulators
and suppliers. But above all, thank you to our colleagues, for
their unfaltering commitment to fulfil our Purpose to ‘take care
of one of life’s essentials’.
Christine Hodgson
Chair
Delivering resilient financial performance and sharing the rewards
Under our industry’s regulatory framework, high levels of customer
service create financial rewards through customer ODI outperformance.
This means that we are able to share the benefits of our work with all
stakeholders when we perform well. Over the course of AMP6, we
reinvested £220 million generated by our outperformance back into
our business, including supporting vulnerable customers, improving
water quality and enhancing security. Additionally, it enabled us to
support our communities through activities such as:
• Allocating over £1.5 million of funding through the Severn Trent
Community Fund to 93 projects in our region;
• Donating an additional £1 million through our COVID-19 Emergency
Fund to over 300 charities;
• Donating almost £1 million as part of our water saving charity challenge;
• Accelerating payments to our supply chain, helping small and
medium-sized enterprises in our region with crucial cash flow
at this challenging time; and
• Embracing the Government Kickstart Scheme with our ambitious
plans to support 500 unemployed 16 to 24 year olds into employment
with paid work experience and skills development.
We are proud that, despite exceptionally challenging circumstances,
we delivered excellent operational performance this year that enabled
resilient financial results – with Group turnover of £1,827.2 million
(down 0.9% from 2019/20). Adjusted earnings per share was 105.4
pence, down 27.8% from the prior year, and basic earnings per share
was 89.1 pence, up 33.6% from the prior year. Liv and our Chief Financial
Officer, James Bowling, will explain in more detail later in this report.
The Board is therefore proposing a final dividend of 60.95 pence per
share to be paid on 16 July 2021, taking the total dividend for the
year to 101.58 pence per share. We are pleased to be able to sustain
our dividend commitments and continue our engagement with
shareholders on performance against our strategy. I was also
delighted to meet with a number of shareholders during the year.
Advancing our response to climate change
Climate change is a key challenge of our generation and, as a
water company, we are better placed than many other businesses to
experience and understand the scale of the challenge ahead. We are
determined to play a leading role in addressing the impact of climate
change through mitigating our own impact, the impact of our supply
chain and adapting to the challenges that climate change may bring
in the future. Further detail on our climate change action plan can be
found within Liv’s Chief Executive’s Review and within our dedicated
Sustainability Report, available on our website.
Demonstrating the Company’s commitment to shareholders earlier
this year, the Board announced on 24 March 2021 its intention to put
its long-term approach to climate change before shareholders at
the Company’s Annual General Meeting (‘AGM’) on 8 July 2021. The
Company will subsequently seek an advisory vote every three years
on any material changes made or proposed to the plan. Further detail
can be found in the Notice of Meeting, available on our website.
Additionally, the Remuneration Committee has considered the
alignment of the Group’s remuneration framework to support
delivery of the Company’s Sustainability Framework even more
closely. The 2021 Remuneration Policy (the ‘Policy’) proposes the
introduction of a second, sustainability-focused, performance
measure in the Group’s Long Term Incentive Plan (‘LTIP’). Both the
Policy and the LTIP Rules will also be put forward for shareholder
approval at this year’s AGM. Further detail can be found within the
Directors’ Remuneration Report on pages 123 and 131 and in the
Notice of Meeting, available on our website.
Christine Hodgson meeting teams at Finham Thermal Hydrolysis Plant.
9
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION CHIEF EXECUTIVE’S REVIEW
Sustainability at the Heart of our Business
Advancing our response to climate change
“Climate change is a key challenge of our
time and we’re well placed to understand
the scale of the challenge ahead. We’re
determined to play a leading role in
mitigating the impact of climate change
and ensuring that we are resilient to its
impact – and in doing so, create value
for all our stakeholders.”
I’m delighted to present my Chief Executive’s Review for 2020/21,
providing you with an update on our performance and my personal
highlights of the year.
This year, more than any other, has reinforced my view of Severn
Trent’s strengths, our Values and our resilience. We asked a lot of
our people this year and I’m delighted that their efforts are reflected
in our excellent performance. I want to thank each and every one of
them for their amazing commitment – and for all they do for Severn
Trent, our customers and communities – 24 hours a day, seven days
a week. It is an honour to work alongside you.
As the COVID-19 pandemic unfolded – and our key workers focused on
maintaining normal business operations for our customers – I was clear
that we needed to focus on three key priorities for our stakeholders.
Firstly, we wanted to be there every step of the way for our customers.
We supported customers struggling to pay – through the WaterSure
scheme for those on low incomes and our Big Difference Scheme,
which offers bill discounts of 10%-90% for eligible customers. We also
introduced a temporary social tariff to help support our vulnerable
customers through a challenging time and made sure that our
vulnerable customers knew we were there for them with targeted
communications and support through our Priority Services Register.
Secondly, we knew we had to help make a difference to our communities.
So we established our £1 million COVID-19 Emergency Fund to support
charities and community projects at the forefront of our region’s
COVID-19 response. We launched a virtual education zone to help
parents with home-schooling – with activities, games and stories
to inspire the next generation of water users.
And finally, we knew we needed to embrace and support our
colleagues within Severn Trent, with a particular focus on mental
health. Our ‘Caring for our Colleagues’ programme and Company-
wide virtual events, ‘Share a Smile’ and ‘Awesome Awards’, lifted
all of our spirits throughout the year. As ever, our priority remains
the safety and wellbeing of our people and customers and we ensured
that all our key worker employees had access to the correct PPE and
our IT infrastructure enabled our non-key worker employees to work
safely from home so we could be there for our customers 24 hours
a day, seven days a week. As reported last year, we did not make any
redundancies or furlough any of our employees as a result of COVID-19
and we are maintaining our all-employee bonus in recognition of our
colleagues’ hard work over the last year.
You can read more about our COVID-19 response on pages 15-17
of this report.
Liv Garfield
Group Chief Executive
£470.7m
Group PBIT
2020: £568.2m
£1,827.2m
Group turnover
2020: £1,843.5m
£472.8m
Adjusted Group PBIT
2020: £570.3m
1.5%
Dividend increase
2020: 7.2%
£79m1
Net ODI reward
2020: Net reward of £35.3m
Our ODI outturn and percentage meeting or ahead of regulatory target (or within penalty
deadband for compliance measures) reflects our in-period performance commitments
– thereby excluding per capita consumption at end of period. ODI values for C-MeX and
D-MeX are calculated based on published industry data. A definitive value will be
published by Ofwat later in the year.
1.
10
Severn Trent Plc Annual Report and Accounts 2021 Our performance – powered by our Purpose
Our Purpose to ‘take care of one of life’s essentials’ – underpinned
by our Values of Having Courage, Embracing Curiosity, Showing
Care and Taking Pride – is more important than ever. We believe
that by living our Values in everything we do, we’ll deliver really
strong benefits for our colleagues, our customers, our communities,
our shareholders and ourselves. And at the end of our first year
in AMP7, we have made excellent progress and we’re on a strong
trajectory for the rest of this AMP, which will set us up to move
seamlessly into the next AMP to come.
In terms of some of my highlights this year, it’s clear that we’ve truly
ingrained our performance culture in Severn Trent which has helped
us deliver fantastic operational performance. We have delivered net
customer ODI outperformance of £79 million for the year with all
areas, including water, waste and retail, in reward.
I’m immensely proud of our operational performance – and it’s down
to our people who have worked tirelessly over the last year to keep
our services running smoothly 24 hours a day. Their hard work has
delivered year-on-year improvements of 8.9%, 30% and 60% in water
quality complaints, blockages and Compliance Risk Index (‘CRI’)
respectively – c.80% of our measures (across water, waste and retail)
have met or exceeded target. We have also seen a 21% year-on-year
improvement in pollution incidents this year, reinforcing that our
relentless focus in this area has really begun to move the needle.
I talk a lot about customer service and customer experience and
I’m delighted that we were highlighted in the Top 20 most improved
organisations within the January 2021 UK Customer Satisfaction
Index (‘UKCSI’) and are now in fifth position overall amongst utilities,
and all of this against the backdrop of one of the lowest bills in England,
at around £1 a day. However, £1 a day can still be a huge struggle
for some customers, which is why we’re also proud of the c.150,000
customers that we have supported from a financial perspective.
We have also used our Community Fund to help provide support
to people in our region.
Financial resilience and stability
Our resilient financial position was a factor in our decision to declare
a final dividend in line with our AMP7 dividend policy of growth of at
least CPIH. The Board considered carefully the Group’s prospects
and financial position; stakeholder interests including those of
customers, shareholders, employees and our communities; and the
Board’s decision not to use any of the Government’s COVID-19 business
support measures. Recognising the critical role that dividends play
in providing necessary income for pensioners and savers, and the
significant number of employee and former employee investors (77%
of our employees are also shareholders), the Board determined that
based on the strong performance in 2020/21 and the underlying
financial position of the Company it remains appropriate to recommend
to shareholders that a final dividend for year ended 2020/21 be paid.
You can read more about our operational performance in the
performance review and our financial performance in James’
Chief Financial Officer’s Review.
“Through this exciting partnership with
the Commonwealth Games, we’ll build on
our existing work and ambitions to deliver
lasting social and environmental change by
creating new green urban spaces, further
enhancing biodiversity, promoting plastic-
free thinking and delivering a carbon
neutral legacy for generations to come.’’
Working in partnership with the
Commonwealth Games
In March 2021, we were delighted to announce our partnership
with the Birmingham 2022 Commonwealth Games to support
their ambitions to make this the most sustainable games yet.
We’re proud to be leading on making it the first carbon neutral
games through a range of offsetting initiatives including
enhancing nature with 2,022 acres of forest in the Midlands
region and 72 mini forests representing each competing nation.
Like us, the games has an ambition to leave a positive lasting
legacy for future generations and we look forward to working
with them in the months to come.
Our people: working safely to deliver for customers,
every day of the year
Our Value, ‘Showing Care’, is central to how we keep our people and
communities safe in all that we do. It’s how we start every shift and
every meeting and our Goal Zero policy clearly sets out our target that
no one should be injured or made unwell by what we do. We experienced
no major safety incidents and no fatalities in the last 12 months, with
a 20% improvement in Lost Time Incidents (‘LTIs’) this year.
I was devastated to hear of the tragic accident at Avonmouth in December
2020 and its impact has been felt deeply by us all at Severn Trent. We extend
our deepest condolences to colleagues at Wessex Water who suffered
personally, and whose families have been affected. In response to this
event, we immediately suspended activity associated with DSEAR and
undertook comprehensive surveys at all of our bioresources sites as
well as a comprehensive review of all our high risk actions.
I believe passionately in building an inclusive organisation where
everyone feels able to bring their whole self to work, fulfil their
potential and perform at their best. An inclusive environment is the
foundation of a truly diverse organisation, with all of the rewards that
brings. Severn Trent has long been recognised as a global leader on
gender equality and we were once again named as one of the country’s
top performers in the 2021 Hampton-Alexander Review – ranking
second this year. In respect of broader diversity, we are working hard
to increase diversity in our talent pipelines. This year, we launched
our new inclusion programme to better enable careers and career
progression for colleagues from ethnic minority, LGBTQ+ and disabled
groups. We have also embraced the Government Kickstart Scheme
with our ambitious plans to support 500 unemployed 16 to 24 year
olds with paid work experience and skills development – our first
cohort of ‘Kickstarters’ joined the Company in January 2021.
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Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION CHIEF EXECUTIVE’S REVIEW CONTINUED
We’ve also continued our investment in training and I was thrilled that
the Severn Trent Academy opened its doors this year. Our range of
learning programmes are already training our engineers and leaders
of the future, giving our people opportunities for growth, development
and more rewarding careers. You can read more on page 75.
I am delighted that, during a difficult year for many, our employee
engagement score improved again this year – with an average
score of 8.3, once again placing us in the top 5% of utilities globally.
Colleagues scored the question, asking whether they would
recommend us as a place to work to a friend, 8.5.
Outlook and thank you
We’re proud of what we’ve achieved this year, and I am optimistic
for the year ahead. The roll out of the COVID-19 vaccine gives me
hope that the world will return to some sense of normality in the
near future. And as the UK moves into recovery mode, we’re ideally
placed to play our part in the next phase through delivering our
Green Recovery plans. We’re absolutely delighted by Ofwat’s
encouragement for our Green Recovery plans, proposing to award
Severn Trent with £565 million (2017/18 prices) across all of our project
proposals. Our plans will see us delivering new, innovative trials to
protect homes from flooding, increase water supplies and transform
stretches of river. Our proposals will also create up to 2,500 jobs in the
Midlands at a time when employment, and getting people back into
work, is vital for our region. Read more about the projects we will
deliver opposite.
Advancing our climate change action plans
As Christine highlighted in her report, even in the middle of the
pandemic, we continue to look to the future. We are committed
to playing our part in helping the UK become a sustainable, low
carbon economy and the impact of climate change is considered
in everything we do. We have made good progress on mitigating
our impact and adapting to the challenges that climate change
may bring, including the following:
100%
In May 2019, we made our Triple Carbon Pledge, committing
to net-zero operational carbon emissions, 100% renewable
energy and 100% electric fleet (where possible), by 2030.
£1.2bn
In March 2020, in support of our approach to climate change
and broader sustainability agenda, we announced our intention
to invest £1.2 billion to deliver a number of initiatives including
planting 1.3 million trees, and boosting the biodiversity of 5,000
hectares of land in our region.
£565m
On 17 May 2021, Ofwat proposed to award us £565 million
(2017/18 prices) to invest in our ambitious Green Recovery
programme, aimed at delivering low carbon water sources,
improving river quality and improving flooding resilience in
the process. Read more on the page opposite.
In March 2021, we submitted our proposed Scope 1, 2 and 3
emissions targets to the Science Based Targets initiative to
deliver real reductions by 2030.
12
I would like to recognise the contribution of the management team
for their exceptional leadership across the Group, which has been
particularly important in this past year. And we are grateful too for the
stewardship, support – and challenge – from Christine and the Board.
Finally, to reinforce my warmest thanks to my colleagues and all those
who supported them throughout a difficult year. We are a community
of around 7,000 colleagues – who rely on our families, friends and
support networks to help us be the best we can be. I am hugely
grateful to everyone who helped Severn Trent – whether directly
or indirectly – in supporting our customers, communities and each
other over the last 12 months. You can emerge from this pandemic
with a sense of pride in what we have done, and how we have helped
the region we serve.
Liv Garfield
Chief Executive
We have made excellent progress in reducing greenhouse gas
emissions from our operations, with a total reduction of 60% to
the end of 2020/21 driven by our procurement of 100% renewable-
backed energy. Alongside this activity, we’ve also increased our own
renewable energy self-generation equivalent from 51% to 53% this
year. And as part of our ongoing commitment to credible reduction
consistent with a 1.5°C global warming scenario by 2030,
addressing the targets set by the Paris Climate Agreement,
we have committed to delivering the following:
46%
A 46% reduction in Scope 1 and Scope 2 emissions by 2030,
consistent with the guidelines set out by the Science Based
Targets initiative.
A reduction in our Scope 3 emissions by engaging with over
70% of our supply chain to join us on the journey.
Of course, we are only part way through our journey – and it will
require considerable effort – but I am proud that Severn Trent is
taking a leading positive position in an area so critical to us all.
We are also committed to the recommendations of the Task Force
on Climate-Related Financial Disclosures (‘TCFD’), to provide our
stakeholders with decision-useful information on climate-related
risks and opportunities that are relevant to our business. This year’s
Annual Report includes a TCFD disclosure for the first time on
pages 54 to 57, setting out our approach to implementing the
recommendations of the TCFD, including how we think about the
governance, strategy, risk management and metrics and targets,
which underpin our approach. We aim to be fully compliant with the
TCFD by the end of 2021 and will publish a dedicated TCFD Report
in autumn 2021.
Severn Trent Plc Annual Report and Accounts 2021
Green Recovery – life beyond the pandemic
I am delighted that the water sector was asked to play its part
in the country’s Green Recovery from the COVID-19 pandemic.
Our region’s economy has been one of the hardest hit by COVID-19
and, as a responsible business in our region, we proposed an
ambitious package of investments aimed at delivering long-term,
sustainable benefits for current and future generations in our region,
through improving the environment and also creating jobs.
Our customers helped us to shape and develop the proposals and
we have been delighted and encouraged by their positive engagement
and feedback.
On 17 May 2021, Ofwat proposed to award us £565 million (2017/18
prices) to invest in our ambitious Green Recovery programme,
providing a great opportunity to deliver long-term growth for the
Company alongside new investment to support our ESG ambitions.
We are delighted with this outcome and have already started work
on the new investments, aimed at achieving the below goals:
Make rivers safe for swimming
We’re going to encourage wild swimming by trialling the creation
of two bathing rivers in stretches of the River Leam and the River
Teme. In transforming them so that they’re healthy enough to swim
in, we will also reinvigorate the pathway to how rivers in the UK
can achieve ‘good ecological status’. These investments will create
more leisure opportunities, improving wellbeing, and bringing in
a whole series of environmental initiatives that will benefit wildlife
as well as local communities.
Provide more water
for more customers
We want to make sure
that we’re ready for
the future by increasing
water supplies by enough
to serve a city the size
of Derby. And we’ll do it by
using low carbon
technology too, revealing
new insights we can share
with other companies
to support the water
sector’s aim to be net
zero by 2030.
Be leaders on removing lead
Customer-owned supply pipes are a hidden financial and health
liability for many people – over 40% of households don’t have the
savings to fix a burst, and up to half of all pipes could contain lead,
which the World Health Organisation states is unsafe at any level
in drinking water. Instead of tackling the lead by adding more
chemicals, we’re going to fix the problem at the source. In an
ambitious pilot, we’ll work with local plumbers across Coventry
to replace 25,000 pipes. We’ll also trial new approaches to 1,000
homes in Shropshire to reveal insight on how to tackle this national
problem, withdraw chemical use, and reduce the estimated 25%
of leaks that come from these customer-owned pipes.
Help customers save water
We’re rolling out a large-scale trial of over 150,000 smart water
meters. These will help customers use water more efficiently, while
also helping us reduce leakage by enough to supply a town the size
of Market Harborough. This will help reduce the need for future
investment in water resources that the Government has forecast
is needed across the entire country.
Protect homes from flooding
A new ‘nature-based’ approach, in Mansfield, is another way in
which we’re going to reduce flooding. Working closely with local
councils to install natural surface flood defences such as green
embankments, ponds and grassed areas. We’re aiming to protect
around 90,000 customers, reduce the broader harm that flooding
brings to local communities and give local people a more pleasant
natural environment to enjoy.
Accelerating environmental improvements
We’ll support environmental improvement to 500 km of rivers,
through accelerated delivery of our Water Framework Directive
statutory obligations and improvements to storm overflows –
delivering benefits five years earlier than we would have done
without this opportunity to contribute to the Green Recovery.
On top of the long-term benefits for customers and the environment, these investments will directly create around 2,500 jobs in the Midlands
at a time when employment, and getting people back into work, is vital for our region. And we’ll be recruiting and training local people, using
the brilliant facilities at our new Academy, to improve skills across our region.
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Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION MARKET AND INDUSTRY OVERVIEW
Market and Industry Overview
Our water sector
A total of 17 regional businesses supply water services to over
50 million household and non-household customers in England
and Wales. 11 of these, including Severn Trent Water Limited
and Hafren Dyfrdwy Cyfyngedig, provide water and waste water
services; the remaining six provide water only.
Looking to the next 25 years
At Severn Trent, we are absolutely committed to drive progress
in the water sector now and for generations to come. We are first
and foremost driven by our Purpose – ‘taking care of one of life’s
essentials’ – focused on the delivery of outcomes for the benefit
of our customers and wider society, as well as our shareholders.
In order to maintain the high-quality service our stakeholders
expect of us, it is important that we anticipate and plan for
long-term trends and issues likely to impact on our activities.
We review this information as part of our long-term planning
and our risk management process. Read more on page 38.
Over the next 25 years and beyond we have identified many challenges
and opportunities that we are likely to be faced with and how our
strategic priorities will help us tackle these challenges.
We are already underway with delivering our bold ambitions to
make positive contributions to the environment and deliver tangible
improvements for our customers, while ensuring bills remain
affordable. Moving forward, working in partnership with other
water and waste water companies is key to delivering water resource
resilience for future generations to come.
Our 2020-25 Business Plan and our Water Resource Management
Plan (‘WRMP’) are both available on our website and examine the
challenges and opportunities we face and how we will focus our
resources to meet them.
OUR BUSINESS PLAN FOR 2020-25
1%
of profits donated
to charities and
community groups
195,000
financially vulnerable
customers supported
per year by 2024/25
9%
average bill reductions
15%
reduction in leakage
(and a further commitment
to achieve 50% by 2045)
£6.8bn
Totex allowance
2,100km
of rivers improved
GOING FURTHER FOR SUSTAINABILITY
50%
reduction in
pollutions by 2025
14
5,000
hectares of
biodiversity
improved by 2027
Working with our regulators and stakeholders
We are subject to regulation of our price and performance by
economic, quality and environmental regulators, as outlined below.
You can read more about how we engaged with our regulators
and other stakeholders this year on pages 68-71.
POLICY
The Department for the Environment,
Food and Rural Affairs (‘Defra’) in England,
and the Welsh Government in Wales provide
strategic and policy direction for the industry
and our regulators.
REGULATION AND REPRESENTATION
The Consumer Council for Water (‘CCW’)
speaks on behalf of water consumers in
England and Wales. It provides advice to
consumers and takes up complaints on
their behalf.
The Drinking Water Inspectorate (‘DWI’)
independently checks that water supplies in
England and Wales are safe and that drinking
water quality is acceptable to consumers.
The Environment Agency (‘EA’) 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.
Natural England advises the Government
on the natural environment in England and
helps to protect nature and the landscape,
especially for plant and animal life in both
fresh water and the sea.
Natural Resources Wales is the
environmental regulator in Wales.
It oversees how the country’s natural
resources are maintained, improved
and used, both now and in the future.
Ofwat is the economic regulator for
the industry in England and Wales.
Ofwat principally exercises its duty
to protect the interests of customers
through periodic reviews of charges
(‘price reviews’) every five years.
We also work with a range of other regulators including:
• the Health and Safety Executive to manage risk and ensure
that the health and safety of our employees, customers and
visitors is preserved; and
• Ofgem, the economic regulator of gas and electricity markets,
whose remit extends to renewable energy generation.
Severn Trent Plc Annual Report and Accounts 2021 OUR COVID-19 RESPONSE
Our COVID-19 Response: Engaging at Every Stage
The impacts of COVID-19 are still being felt
across the globe. As a socially purposeful
company, we have carefully considered
how we can make a positive impact for
the good of our stakeholders but also
for wider society.
We have a well-rehearsed approach to incident management and
while COVID-19 presents many unique challenges, the governance
structure we have implemented has provided a stable foundation from
which we can respond to the changing situation. Our Strategic Incident
Team, comprising Executive Committee members, continues to lead
the swift implementation of plans and we continue to provide services
to customers while keeping our people safe and well. Our COVID-19
response Governance Framework is set out below.
Our COVID-19 Governance Framework
1
BOARD
OVERSIGHT
2
4
INTERNAL
CONTROL
STAKEHOLDER
ENGAGEMENT
Key
Informs
Reports
STRATEGIC
INCIDENT TEAM
MEMBERSHIP:
EXECUTIVE
COMMITTEE
3
TACTICAL
INCIDENT TEAM
MEMBERSHIP:
SENIOR
LEADERS
1. The Board oversees the business’s COVID-19 response and the
Strategic Incident Team’s response to the pandemic. It has directed
senior leadership considered all scenarios associated with the
pandemic, reviewed and considered potential response options,
and set expectations for our approach with each of its stakeholders.
The Board received regular updates on progress.
2 . The Strategic Incident Team leads the Company’s COVID-19
response and oversees the Tactical Incident Team. The Strategic
Incident Team considers how current and developing scenarios
will impact in the medium term and plans an effective response
to ensure the continued resilience of our operations.
3. The Tactical Incident Team ensures that the Company maintains
normal business operations, mitigates risks to core services,
protects the health and wellbeing of our people and protects
the health of our customers.
4. Internal controls and processes are continually reviewed
and updated to enable efficient delivery throughout, beyond
and during the pandemic.
Focused on effective outcomes
March 2020
All of our buildings confirmed COVID-secure.
COVID-19 Emergency Fund announced to support local charities
and non-profit organisations affected by COVID-19.
We kept customers reassured and informed throughout the
COVID-19 pandemic through regular content across a number
of channels, including emails, social media, TV and radio.
We confirmed that we would not be taking any Government
support, making any redundancies or furloughing any of
our employees as a result of COVID-19.
We helped SME suppliers by moving to immediate processing of
payments and continued to invest in our capital construction projects.
April 2020
Launch of ‘Caring for our Colleagues’ campaign.
Launch of our online Severn Trent Education Zone.
At their request, we reduced Christine’s fee, and Liv and James’
salaries by 25% for the first quarter of 2021/22 and donated the
equivalent amount to local charities supporting the response to
COVID-19 in our region.
May 2020
Launch of our industry first SMS and WhatsApp contact channels to
keep customers safe and maintain contact throughout the pandemic.
August 2020
Mapping COVID-19 through our sewers
Samples from a small number of sewage treatment works were sent
to specialist labs to test for remnants of COVID-19 to aid researchers
in narrowing down outbreaks in smaller geographical regions.
Public health officials could then act quickly to target areas at
greater risk of spreading the infection.
October 2020
Launch of Back-on-Track Scheme
We introduced a temporary social tariff – Back-on-Track – to help
support our vulnerable customers through a challenging time.
Our Education Team launched live online lessons for children
and to support parents with home-schooling.
January 2021
We proposed an ambitious package of investments aimed at
delivering long-term, sustainable benefits for current and future
generations in the Green Recovery of our region. Read more
on page 13.
February 2021
Launch of our ‘Share a Smile’ campaign.
New mental health podcast called ‘Elephant Talks’ with our senior
leaders sharing their own experiences of mental ill health, recovery
and how they look after their wellbeing.
March 2021
Supporting our colleagues by providing information on the
Government’s COVID-19 vaccination programme, with colleagues
who have been vaccinated sharing their own stories.
Launch of our new ‘Have you heard about D.E.B.S’ campaign
(Domestic abuse Education, Bullying and Support) to
support colleagues who may be concerned for their safety,
either at work or at home.
15
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021
OUR COVID-19 RESPONSE CONTINUED
Taking Care of our Stakeholders, Company and Colleagues
This section provides a snapshot of how we
have approached the COVID-19 pandemic
since mid-March 2020; from managing
our operational response, to mitigating as
much risk as possible while providing the
widest range of support possible to our
stakeholders. It also directs you to sections
of the Annual Report where you can find
more detail on each of the matters below.
Helping to make a difference to our communities
In 2020, in addition to helping our customers directly, we established
a £1 million COVID-19 Emergency Fund and were able to support 339
local charities in dealing with the impact of the pandemic.
We launched a virtual education zone to help parents with home-
schooling – through activities, games, and stories to inspire the next
generation of water users, and have held nearly 300 online sessions.
We embraced the Government’s Kickstart Scheme and have
ambitious plans to support 500 unemployed 16 to 24 year olds into
employment with paid work experience and skills development.
We also offered an additional 69 graduate and apprentice
placements this year.
Read more p22
“The way they have dealt with COVID, in
terms of giving back to the community
and their efforts to go and invest in the
environment, understanding that, with
the nature of their product, there is an
inherent link between the sustainability of
their natural environment and their licence
to serve the community. I think that is
really well conceived and quite prudent.”
Supporting our customers
Our priority remains the safety and wellbeing of our customers
and people, and we’ve more than doubled the number of
customers we’ve helped to over 150,000.
In October 2020 we launched our Back-on-Track Scheme
specifically designed to help those who may be struggling
to pay their bill as a result of the pandemic.
We have kept customers reassured and informed throughout
the COVID-19 period through regular content across several
channels, including emails, social media, TV and radio.
Our Priority Services Register supports those customers
that need additional support from us at certain times.
We have doubled the number of our customers registered
with us to 2.6% of our customer base (2019/20: 1.2%).
We continue to partner and support Local Resilience Forums
by providing advice and guidance in respect of vulnerable
customers and ensuring that they have access to the most up
to date information to support vulnerable people in our region.
We have a range of initiatives for those struggling to pay their
bills, including the WaterSure scheme for those on low incomes
and our Big Difference Scheme, which offers bill discounts of
10%-90% for eligible customers.
We made £3.5 million available as part of our Severn Trent Trust
Fund for those who may struggle to pay their household bills.
Magellan
(Investor)
Read more p23
16
Severn Trent Plc Annual Report and Accounts 2021 “Thanks to support from Severn Trent’s
COVID-19 Emergency Fund, we have been
able to keep our nature reserves buzzing
and chirruping with wildlife, and open for
local communities to enjoy throughout the
pandemic. Thank you, Severn Trent!”
Paul Wilkinson
Nottinghamshire Wildlife Trust CEO
Ensuring the long-term success
of our Company
The Board and Strategic Incident Team have continually monitored
the situation to ensure early detection of any deteriorating trends.
We have modelled plausible and extreme scenarios to determine
expected impacts and test the Group’s financial resilience.
Our strong financial position means that we are well placed
to withstand the economic shocks that COVID-19 might bring.
Read more in our Viability Statement on pages 47-49.
We continue to monitor the impact of the COVID-19 pandemic
across all areas of our business as part of our established
Enterprise Risk Management (‘ERM’) processes and a dedicated
COVID-19 Statement can be found on page 46.
Our resilient financial position was a factor in our decision to
declare a final dividend in line with our AMP7 dividend policy
of growth of at least CPIH.
Taking care of our colleagues
Our priority remains the safety and wellbeing of our people
and customers. We are supporting our key workers with the
processes, PPE and other equipment they need to continue
to deliver our essential services and all of our buildings were
confirmed as COVID-secure early in the pandemic. Our plans
were also approved by our Trade Unions.
In 2020 we announced that we would not be making any
redundancies or furloughing any of our employees as a result
of COVID-19 and we are maintaining our all-employee bonus
in recognition of our colleagues’ hard work over the last year.
Working with our suppliers and contractors
Throughout the year we have supported our supply chain by
moving to immediate processing of payments. This policy has
helped many of them through the pandemic with crucial cash flow.
In 2019/20 we agreed an annual pay increase of 2.3% for the
next three years to provide certainty and security for our
employees and their families.
We’re working closely and collaboratively with our whole supply
chain to provide support in respect of their underlying COVID-19
plans and continuing to invest in our capital construction projects.
This is an important focus given the role of our supply chain as key
employers in our region.
We continued to invest on our capital construction projects
throughout the year.
In April 2020 we launched a ‘Caring for our Colleagues’ campaign,
providing support on mental and physical wellbeing, and supported
individual care plans for our people living in a vulnerable situation.
In February 2021 we launched ‘Share a Smile’, an eight-week
campaign of exclusive employee events to help give our colleagues
and their families something to look forward to during lockdown.
We hosted four virtual events, a Comedy Night, Pub Quiz, Bingo
and Rockaoke. We also created weekly activity packs with a host
of ideas for our employees to do in their own time. Colleagues shared
their experiences via our dedicated ‘Share a Smile’ intranet hub.
Read more p72-75
17
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 KEY PERFORMANCE INDICATORS
Key Performance Indicators
The Key Performance
Indicators (KPIs)¹ set out
below represent financial
and non-financial
measures which we will
use from this year, and
throughout the current
regulatory period
(2020-25), to track our
performance as we
deliver our Purpose
and the Business Plan
outcomes we have
committed to our
customers and
communities.
A company you can trust
Lowest possible bills
8.1
2019/20
2.5% improvement
20% improvement
stable
8.3
0.20
0.16
66.0
2020/21
2019/20
2020/21
2019/20
67.0
2020/21
Employee engagement
(Score out of 10)
Lost Time Incidents (‘LTI’)
(Per 100,000 hours worked)
Value for money2
(Percentage)
Once again we saw an amazing 90% of
our colleagues giving feedback in our
engagement survey. We had a fantastic
level of engagement with Severn Trent
scoring 8.3 and Hafren Dyfrdwy 8.6 out
of 10. The results put us in the upper
quartile of all companies in the UK and,
even better, in the top 5% of utilities
across the world.
For the first time ever we have a
dashboard that includes diversity and
inclusion (score: 8.8). Although we have
scored well we know there is more to
do. Our ambition is to have a workforce
that reflects the communities we serve,
and build an inclusive organisation
where everyone feels able to bring their
whole self to work, fulfil their potential
and perform at their best.
We believe passionately that no one
should be hurt or made unwell by
what we do. We’ve achieved a 20%
reduction in our LTI rate (our
best-ever performance).
We have a comprehensive approach
to health, safety and mental wellbeing.
Throughout the pandemic we ensured
that all our key worker employees
had access to the correct personal
protective equipment (‘PPE’) and our
IT infrastructure enabled our non-key
worker employees to work safely from
home so we could be there for our
customers 24 hours a day, seven
days a week.
For the last decade we’ve had the
lowest bills in the industry – and
we still have one of the lowest bills
in England. This metric tracks our
customers’ opinions of the service
we offer through quarterly surveys,
undertaken by independent experts.
Value for money is a combination
of the bill level, customers’ perception
of the service they receive and the way
we contribute to wider society.
A positive difference
A service for everyone
A thriving environment
40,728
2020/21
35
2020/21
>100% improvement
1.2
2019/20
2.6
2020/21
2,632
2020/21
Education Programme2, 4
(Commitment)
Help to Pay When You Need It2
(% of customers)
Priority Services Register (‘PSR’)2
(Percentage)
Biodiversity2,4
(No. of hectares (ha))
This measure has changed for AMP7.
Alongside our education programme
we are also engaging with customers
to drive behaviour change.
During the year, our Education Team
launched online lessons to support our
customers and communities across
Severn Trent and Hafren Dyfrdwy with
home schooling during lockdown.
These interactive sessions ran four
times a day across the week, providing
children (and adults) with engaging
lessons about the water cycle, the
importance of looking after our sewers
and caring for the environment. Since
October 2020 we’ve live-streamed more
than 500 hours of content and secured
over 40,000 commitments.
Over the next five years we aim
to support more customers who
struggle to pay. We have provided
assistance to 35% of our customers
who needed support.
Our Big Difference Scheme, offering
discounts of up to 90% for eligible
customers, and our WaterSure scheme
are supporting this activity. In response
to COVID-19, we launched our
Back-on-Track tariff to support those
affected through the pandemic.
Read more on page 23.
Our PSR is in place for customers that
need additional support from us at
certain times. Currently 2.6% of our
customer base are registered with us.
We work with organisations across
our region, including the energy
industry, to identify customers that
may benefit from being registered
with us. Our ambition is to increase
our priority services coverage to 9.7%
of our customer base by 2025.
Last year we set a bold ambition to
improve over 5,000 ha of land (an area
around the size of Gloucester) across
our region and plant 1.3 million trees by
2030. This year we’ve improved 2,632 ha
and planted c.290,000 trees.
By working across our own land and in
partnerships, we will create a network
of wildlife improvements across our
whole region involving more than
70 different organisations in 2020/21,
including the RSPB, Severn Rivers
Trust and the National Forest.
The new Hedgerow and Woodland
scheme has been a huge success,
with farmers across our region able
to plant c.139,000 diverse hedgerow
and woodland saplings.
An outstanding experience
Good to drink
9th (77.65
score)
2019/20
6% improvement
9th (82.35
score)
2020/21
3.94
2019/20
c.60% improvement
<2
8.9% improvement
10,394
2020/21
2019/20
9,468
2020/21
Customer Measure of Experience2
(Index)
Developer Measure of Experience2
(Index)
Compliance Risk Index2 (‘CRI’)
(Index)
Drinking water quality2,4
(No. of complaints)
Ofwat’s measure of customer
experience (‘C-MeX’) places the
same weighting on the perceptions
of all of our customers as on those
who contact us.
This year, our C-MeX score ranked
ninth for Severn Trent and eleventh
for Hafren Dyfrdwy in the sector.
We recognise there is more to do
particularly around service delivery
and letting our customers know what
is happening and when.
Ofwat’s measure of service experience
for developers (‘D-MeX’) directly
compares us to our peers.
Our Developer Services customers
rank us in upper quartile in Ofwat’s
D-MeX measure of customer
experience demonstrating our
approach is clearly one of the best
across England and Wales. It is our
ambition to lead the water industry in
terms of our digital customer offering.
The CRI is the Drinking Water
Inspectorate’s measure of water
quality. Our final position in England
for 2020/21 has not yet been confirmed,
however we expect to see around a
c.60% improvement year-on-year.
Our food factory mentality, bringing
the expertise and control from food
production industries into our water
treatment works, alongside investment
in our assets has resulted in our
best-ever performance.
We’re continuing to develop our flow
cytometry capability, in order to rapidly
identify issues and put mitigations
in place.
Over the last few years we have
embarked on a programme to improve
our water quality performance.
This year marks the fourth year-on-
year improvement – a reduction of
over 30% since 2016/17.
Our operational teams have flushed,
conditioned and cleaned a record-
breaking length of pipe.
This programme has contributed to a
further 8.9% improvement this year,
meeting our regulatory target for the
first time.
18
Severn Trent Plc Annual Report and Accounts 2021 Water always there
Our financial KPIs
8.7
2019/20
31% deterioration
2.2% improvement
17.1% decrease
11.4
424.1
414.6
570.3
472.8
146.0
2020/21
2019/20
2020/21
2019/20
2020/21
2019/20
27.8% decrease
105.4
2020/21
Supply interruptions2,4
(No. of minutes)
Leakage2,4 (Three-year average)
(Megalitres per day (‘Ml/d’))
Group adjusted PBIT3
(£m)
Group adjusted EPS3
(pence)
Earlier this year, when we were in
lockdown, we saw unprecedented
demand for water across our region
which resulted in some of our
customers experiencing low pressure
or interrupted supply, leading to a
year-on-year deterioration in supply
interruptions performance.
Our underlying run-rate for the
second half of the year has been
really positive – delivering a
monthly performance that beats
our stretching regulatory target.
We’ve delivered this through a focus on
network response in our control centre
and out in the field, tankering team
activity and proactive asset maintenance.
Leakage is one of our most important
measures and we have seen our
lowest ever levels of District Metered
Area (‘DMA’) leakage.
Reducing leaks is a critical component
to ensuring a sustainable water cycle;
reducing stress on the environment
through a reduction in the volume
of water that needs to be abstracted
and reducing the energy used to treat
water and move it around our network.
We report leakage as the volume
of water we lose from the network
each day as a three-year average.
This year has seen us reduce leakage
by 2.2% starting us on our journey
to delivering a 15% reduction from
our 2019/20 baseline over the next
five years.
Waste water taken away safely
Group adjusted profit before
interest and tax (‘adjusted PBIT’)
is a measure of the profit generated
by the Group’s operations excluding
distortions caused by large and
unusual income or costs that are
classified as exceptional items.
Commentary on the performance
in the year is set out in the CFO’s
Review on page 31.
Earnings per share (‘EPS’) is a key
financial metric that indicates the
Group’s profitability after finance
costs and tax. Adjusted EPS excludes
distorting factors such as exceptional
gains and losses and accounting
adjustments for gains and losses
on valuations of financial instruments
and deferred tax. Commentary on
the performance in the year is set out
in the CFO’s Review and the calculation
of adjusted EPS is set out in note 15 to
the financial statements.
933
2019/20
16% improvement
780
5,468
34% improvement
3,606
64.4
0.1% increase
2020/21
2019/20
2020/21
2019/20
64.5
120
2020/21
2019/20
increase
190
2020/21
Internal sewer flooding2,4
(No. of incidents)
External sewer flooding2,4
(No. of incidents)
Regulated gearing
(percentage)
Reducing external sewer flooding was
our major success story of the last five
years. Our continued focus led to a 34%
year-on-year improvement.
We know that any incidences of
sewer flooding are a problem for our
customers, and we know we still have
more work to do. We have started our
roll out of smart sewer sensors across
our network – allowing us to accurately
target interventions and prevent the
escape of sewage.
Regulated gearing is calculated as the
Severn Trent Water Group’s net debt
divided by the Regulatory Capital Value
of the regulated businesses. It is an
important metric in Ofwat’s regulatory
model, which for AMP7 is based on a
notional gearing level of 60%.
Low gearing would lead to a higher cost
of capital as this would indicate a
reliance on more expensive equity
funding. High gearing indicates greater
risk of default on debt finance.
We’ve made a 16% year-on-year
improvement, despite high-intensity
storms in June and August effecting
our sewer network.
In September 2020 we began our
sewer sensors trial by installing
more than 1,550 battery-powered
smart units and we’re planning to
install a total of 40,000 by 2025.
These sensors will help prevent
flooding from blockages caused
by wet wipes, cooking fats and other
unflushables by giving us a better
understanding of what is happening
in the sewers in real-time so we can
take proactive steps to protect our
customers and the environment.
Waste water taken away safely
Return on Regulated Equity
outperformance (‘RoRE’) (basis points)
Return on Regulated Equity
outperformance (‘RoRE’) is a key
metric used by Ofwat and is the
performance metric used in our Long
Term Incentive Plans. It measures
performance against an expected
return set by Ofwat. Performance is
determined across three main areas:
• total expenditure (‘Totex’) measured
by efficiency in operational and
capital expenditure;
• operational performance is
measured by the customer Outcome
Delivery Incentive (‘ODI’) reward
earned or penalty incurred; and
• financing performance is measured
by performance against Ofwat’s
expected cost of debt set in the Final
Determination.
Commentary on the performance in the
year compared to the previous year is
set out in the CFO’s Review on page 33.
1,520
2019/20
31% improvement
242
2019/20
1,050
2020/21
21% improvement
190
2020/21
Public sewer flooding2,4
(No. incidents)
Pollutions incidents2,4
(No. of incidents)
This is the first year we’ve had a
regulatory commitment to reduce
flooding that impacts public open
spaces. We worked hard during
2019/20 to set the foundations for
our performance and are delighted
to report we’ve made a further
improvement during 2020/21.
Activities we have undertaken across
our sewer network to reduce the
number of blockages and sewage
spills have really helped drive down
the risk of public sewer flooding.
We’ve set ourselves a bold ambition
to halve the number of pollution
incidents by 50% by 2025 and we’ve
made a fantastic start with a
21% year-on-year improvement.
We’re continuing to expand our
pollution monitoring and response
capabilities. In Sutton Park, one of
the largest urban parks in the UK with
significant societal and environmental
importance, we have deployed 150
sensors alongside a part-time ranger
to monitor activity.
Notes
1. A number of our operational KPIs contribute to more than one of our Business
Plan outcomes.
2. Performance commitments relate to Severn Trent Water as it operates
today, following the realignment of the England – Wales boundary, unless
indicated otherwise.
3. Alternative performance measures are defined in note 43 to the Group
financial statements.
4. Where possible we have used consistent data for 2020/21 which may differ from
our APR20 reported value due to methodology changes for a number of ODIs.
19
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 PERFORMANCE REVIEW
Regulated Water and Waste Water Performance Review
We focus what we
do towards our nine
outcomes for the
customers and
communities we serve,
and the environment
that we depend on.
Our Regulated Water and Waste
Water business includes the
wholesale water and waste water
activities of Severn Trent Water
Limited and its retail services to
household customers, and Hafren
Dyfrdwy Cyfyngedig. Unless
stated otherwise, the information
in this section relates to Severn
Trent Water, which makes up 98%
of our total customer base.
2 A positive
difference
Read more p22
5 An outstanding
experience
Read more p25
3 Lowest possible
Read more p23
bills
6 Good to
drink
Read more p26
8 Waste water
Read more p28
safely taken away
9 A thriving
environment
Read more p29
1 A company
you can trust
Read more p21
4 A service
for everyone
Read more p24
7 Water
always there
Read more p27
20
Severn Trent Plc Annual Report and Accounts 2021 1A company
you can trust
Our stakeholders expect us to be
a company that not only delivers
on its commitments, but also
considers how it delivers those
commitments – being honest
about progress along the way.
Engaging with our customers
Customers are at the heart of everything we do, and our proactive and
continuous engagement ensures that we are truly able to understand
what matters to them and deliver improvements in service. Customers
have told us that they expect us to protect and improve the environment,
help mitigate the effects of climate change and make a positive difference
in the communities we serve. They have also told us that ensuring their
bills are affordable remains a priority and we are committed to delivering
against these expectations in all that we do.
Supporting our people
A happy and motivated workforce is vital to securing the trust of
our customers and stakeholders and we continuously adapt how
we listen, and respond to, the views of our people. We’re delighted
with this year’s QUEST employee engagement scores in Severn Trent
and Hafren Dyfrdwy (8.3 and 8.6 out of 10 respectively), placing us for
a second year in a row in the top 5% of utility companies.
Our strongest performing areas were growth, loyalty and satisfaction
which really reflects our efforts to create an inclusive organisation
where everyone feels able to bring their whole self to work, fulfil their
potential and perform at their best. Page 73 sets out our diversity
and inclusion programme in more detail.
We believe that no one should be injured or made unwell by what
we do and we were pleased with our best ever Health Safety and
Wellbeing performance this year, with a 20% improvement in Lost
Time Incident’s (‘LTIs’) this year.
6th place in Tortoise Responsibility100 Index
We were proud to remain the highest-ranked utility company in the
Tortoise Responsibility100 Index, which ranks FTSE100 companies
on their commitment to key social, environmental and ethical
objectives. We received first place for ‘Good Business’ (covering
a range of measures from employee engagement to Fair Tax and
research and development spend) and achieved second place for
Poverty and Wellbeing, assessing performance on employee
physical and mental wellbeing and real Living Wage accreditation.
Shareholder vote on our climate change approach
In order to demonstrate our commitment to shareholders, and
wider stakeholders, on 24 March 2021 the Board announced
its intention to put its long-term approach to climate change
before shareholders, and seek a non-binding advisory vote on
our ambitious plans to achieve them, at the Company’s AGM
on 8 July 2021. We believe it is important that shareholders,
and other stakeholders, have the opportunity to engage with
the plans we have developed to ultimately build trust.
Leading the way on gender diversity
Severn Trent has long been recognised as a global leader on gender
equality. As at 31 March 2021, four members (33%) of our Executive
Team and 22 members (42%) of our senior leaders were female, and
we have been named second in the Hampton-Alexander Review for
our performance in this area. We were ranked fifth in the UK (and 31st
globally) in the Equileap Gender Equality Global Report and recognised
as a global leader in the Bloomberg Gender-Equality Index, achieving
a score of 71% (up from 53% last year). As at 31 March 2021, female
representation in the Company was 28.6% (2,029 women) and 56% (5
women) on the Board. Page 104 sets out a gender breakdown of
Directors, senior managers and employees of the Company.
A fair approach to tax
Tax is a very public way that all businesses contribute to the society
that they serve. We were delighted to be awarded the Fair Tax Mark
for the second year running in recognition of our commitment to
managing our tax affairs responsibly, and supporting measures
aimed at enhancing tax transparency.
2nd
8.3
in the Hampton-Alexander
Review for our performance
on gender equality
out of 10 employee engagement
score, once again placing us in
the top 5% of global utilities
21
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION PERFORMANCE REVIEW CONTINUED
PERFORMANCE REVIEW CONTINUED
2 A positive
difference
Because of the unique nature of what
we do we can make changes right
across our value chain that add up to
a big difference for our communities.
Kickstart to the year
We have embraced the Government Kickstart Scheme with our
ambitious plans to support 500 unemployed 16 to 24 year olds
into employment with paid work experience and skills development –
with our first set of ‘Kickstarters’ having joined us in January 2021.
This is a key opportunity to help change the lives and future outlooks
for young people from our communities and equip them with the
experience and skills that will stand them in good stead as they look
to find full-time opportunities, possibly even within Severn Trent.
Each of our ‘Kickstarters’ will spend 25 hours a week with us for
six months and whilst the programme is a wonderful opportunity
for young people in our communities, we’ll also benefit from
new outlooks and fresh perspectives that they can bring.
Super sewer education
During the year, our Education Team adapted their programmes
and launched live online lessons to support our customers and
communities who were home schooling during lockdown. These
one-hour interactive sessions ran four times a day, five days a week,
providing children, and adults, with engaging and virtual lessons all
about the water cycle, the importance of looking after our sewers
and caring for the environment.
In December 2020, we also welcomed our new Secondary Education
Team, focused on inspiring young people (Key Stage 3 and above) and
community groups, particularly around preventing sewer blockages.
The new team has made great initial progress and has already
delivered a number of school sessions.
Our employability scheme
For the past five years, we have partnered with Hereward College
to offer nine-month internships to students with disabilities and
additional educational needs. Without such opportunities these
young people are three times more likely to be unemployed than
their contemporaries without disabilities – so offering real work
experience can significantly boost their chances of entering
paid employment after college. The programme has been
hugely successful with many of our interns entering paid
employment after their internships.
We’ve started looking at ways to expand the scheme to other partner
colleges in different areas of our region.
From April 2021, our education programme will focus on water
efficiency and, through our partnership with the Commonwealth
Games, will also promote messages in relation to sustainability
and the importance of water as a precious and finite resource.
500
unemployed 16 to 24 year
olds to be supported as part
of our Kickstart Scheme
c.300
livestreamed sessions for
schools and home learners
Our £1 million COVID-19 Emergency Fund
Early in the pandemic we established our £1 million COVID-19
Emergency Fund to support those at the forefront of our region’s
response. Whilst we already help thousands of customers who are
struggling to pay their bills or who are vulnerable, our emergency
fund gave additional support to community projects and charities,
helping those most in need during these difficult times. Financial
support is also available through a number of our schemes that
thousands of our customers are already taking advantage of.
22
Severn Trent Plc Annual Report and Accounts 2021
Lowest possible
bills3
We are always looking for efficiencies
and opportunities to innovate to keep
our bills as low as possible.
Lower bills, more value
We share the belief with our customers that water should be
affordable for all. Our customers’ perceptions of value for money
has remained stable at 67% this year, compared with 66% at the
close of AMP6. We know that we’re entering a challenging period
as the full economic impacts of COVID-19 become clearer. However,
we do so from a stronger position than we have seen in our recent
history – and we’ve increased activity to raise awareness of support
schemes available to customers to support them as we emerge
from this period of prolonged uncertainty.
Our average combined bill for the year – around £1 a day – remains
one of the lowest in the country, and we will continue to offer one of
the lowest bills in AMP7. Our Hafren Dyfrdwy customers continue
to have the lowest average combined bills in Wales.
Supporting our customers through COVID-19
As a regional business, with many of our people also being
customers and members of the communities we serve, we take
seriously the role we must play in supporting the communities hit
hardest by the pandemic, which is why we awarded c.£3.5 million
of funding to over 400 charities and not-for-profits in our region
through our COVID-19 Emergency Fund, Community Fund and
our Water Efficiency Savings Challenge.
We also made a real customer impact, issuing just under 4,000
trust fund grants to help our vulnerable customers through what
has remained a challenging time and we also introduced a temporary
social tariff called ‘Back on Track’ which has helped some of our
customers, who have struggled to pay, apply for a reduction of up
to 50% on their bill for 2021/22.
Supporting our Hafren Dyfrdwy customers
Our Purpose, taking care of one of life’s essentials, helps
shape our decision making, including creating societal value
through our social and environmental commitments beyond
those outlined in our AMP7 business plan.
COVID-19 has had a global impact and we are acutely aware
that some of our customers will be experiencing affordability
pressures. We have provided extra support for our customers
in need through our vulnerability schemes including WaterSure
and our Priority Services Register. Assistance is also available
online through ‘Here2Help’, our social tariff which has helped
1,382 customers access the support they need.
We have been working closely with Welsh Government,
the Consumer Council for Wales and stakeholders such as
Dˆwr Cymru to further understand the impacts of COVID-19
on customers and look at the additional support we can offer
where needed. Partnerships have been established with
Wrexham Borough Council, Powys and Wrexham Citizens Advice
and Warm Wales to sign-post customers to the support we offer.
1,382
of our Hafren Dyfrdwy
customers supported
through our Social Tariff
Around £1
a day
average combined
bill for the year
23
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION PERFORMANCE REVIEW CONTINUED
4A service
for everyone
We want everyone to have access
to, and be able to afford, our
services. This year, more than ever,
has underlined the importance of
our Purpose of taking care of one
of life’s essentials and delivering
a service for everyone.
Improving affordability
We understand that even though our bills are low, some customers
have difficulty paying and we continue to do everything we can to
help those who are genuinely struggling.
This year we helped over 150,000 customers with their bills,
equating to 35% of our customers who struggle to pay, through
a range of measures. Our Big Difference Scheme helped over
67,000 customers with over £15.5 million of support by offering
them a discount of between 10% and 90% on their average bills
and our WaterSure scheme has supported over 15,000 customers
with over £3 million. We’ve also, just as importantly, worked with
customers providing tips and guidance to help reduce their usage.
Our Priority Services Register allows us to establish the specific
needs of our customers and tailor our support. 2.6% of our customer
base are now registered with us and we’re working with organisations
across our region to identify customers that may benefit from being
registered. Our ambition is to increase our priority services coverage
to 9.7% of our customer base by 2025.
24
Caring for our care leavers
In 2020, we launched an industry first initiative to provide financial
support to care leavers as they move into independent living. A care
leaver is an adult who has spent time living in the care system,
away from their family. We partnered with Coventry City Council
to support 400 young adults and fast-track them on to the Big
Difference Scheme and receive up to 70% off their bills. We’re
proud to be the first utility company to join up with a local authority,
offering this type of support to care leavers, and we hope to work
with more local authorities across our region in the future.
Supporting accessibility
We’re focused on being there for our customers – 24 hours a day,
seven days a week – through whatever channel they choose. 53% of
our customers choose to contact us through digital channels and we
have set ourselves the ambition of leading the water industry in ‘digital’.
Customers can now contact us via social media (Facebook, Twitter,
Instagram), WhatsApp, Apple Chat and Webchat. Our commitment
was recognised at the UK National Contact Centre Awards this year.
Throughout the year we have focused on connecting our people to
our customers on a deeper level through our cultural programme,
Connected Customer Culture, and we’ve also improved our technology
to include speech analytics and better call handling to improve our
services even further.
We continue to learn and adapt to ensure our digital offer continues
to meet customers’ changing needs and provide the best experience
possible for them.
c.150,000
customers helped with
their bills during the year
2.6%
of our customer
base reached
through our Priority
Services Register
Severn Trent Plc Annual Report and Accounts 2021 5An outstanding
experience
We want to consistently
exceed our customers’
expectations and deliver
an outstanding experience.
Customer experience
We were highlighted in the Top 20 most improved organisations
within the January 2021 UK Customer Satisfaction Index and are
now in fifth position overall, and all of this against the backdrop
of one of the lowest bills in England, at around £1 a day. In addition,
we are upper-quartile in the ‘experience’ section of Ofwat’s customer
satisfaction measure (‘C-MeX’) which assesses the perceptions of
all our domestic customers. However, when taking into account
the views of customers who have specifically contacted us during
the year, for example in regard to a leak, blockage or billing query,
we rank in the median position. So, whilst we have much to be proud
of with the successes outlined above, we recognise there is more to
do particularly around service delivery and letting our customers
know what is happening and when.
Our Developer Services customers place us in the upper quartile
of Ofwat’s measure of service for developers (‘D-MeX’). It is our
ambition to build on this success and lead the water industry in
terms of our digital customer offering.
We are committed to improving our performance and offering the
best service and experience to all our customers and developers.
2020 National Contact Centre Award Winners
As a company, we put customers at the heart of everything we
do and we were delighted to win Training/Coaching Manager of
the Year and Learning and Development Team of the Year at the
2020 UK National Contact Centre Awards. We were also thrilled to
win a silver award at the European Contact Centre and Customers
Service Awards for ‘most effective management of peak demand’.
A new approach to customer experience
in waste
During the year we implemented a new Waste Customer
Management Centre in Derby, which focuses on complex
activity that forms approximately 20% of total job volumes,
but contributes to c.80% of customer dissatisfaction. We are
positive that this dedicated approach will drive improvements
to the end-to-end customer journey within waste.
Accelerating our digital transformation
Our digital strategy is focused on improving our customers’ experience
whilst also driving efficiencies to free up critical teams to resolve
complex customer issues. This year, we introduced a customer-centric
tech solution for our contact centres – a key stage in our journey –
which saw delivery of more advanced telephony capabilities, in-queue
call back functionality and enhanced call recording abilities.
In response to COVID-19, we promptly implemented COVID-secure
working and home working capability for our contact centre staff
to ensure that we could be there for our customers throughout
the pandemic and continue to deliver great customer experience
and operational performance.
25
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION PERFORMANCE REVIEW CONTINUED
6Good to
drink
Providing a safe supply of
water for our customers to
enjoy is at the very heart of
our Purpose of taking care
of one of life’s essentials.
Strong performance on water quality
Our additional investment over the last few years has continued
to improve our performance on water quality complaints. This
year marks the fourth year-on-year improvement – a reduction of
just under 9% since last year and a 30% reduction in complaints
since 2016/17. Our operational teams have also relined over
48 km of water mains this year.
The Compliance Risk Index is the Drinking Water Inspectorate’s
measure of water quality and we’ve seen significant improvements
delivering c.60% year-on-year in Severn Trent and c.70% in Hafren
Dyfrdwy. We are utilising technology, allowing us to more quickly
address issues, ensuring we maintain exceptional quality water to
our customers’ taps.
Our performance has been helped by our approach to asset
health in the round with our ‘Overall Equipment Effectiveness’
approach delivering tangible benefits through: reducing planned
work volumes and associated time to complete the tasks, reducing
cost and improving asset performance.
Severn Trent’s Environmental Protection
Schemes (‘STEPS’)
Our STEPS grant schemes offer farmers and land managers
– both owners and tenants – financial and technical support, to
invest in tailored solutions to help tackle diffuse water pollution,
protect and maintain biodiversity, and support the natural
environment. STEPS has been running since 2015 and we’ve
awarded more than 1,900 grants. Funding is prioritised for
projects that will have a greater impact on our pollution
reduction targets.
26
2020 Alliancing and Partnership Initiative
of the Year – Farming for Water
In 2015, we launched the Farming for Water scheme, aimed
at reducing water pollution from agricultural practices and
improving biodiversity across the region. In simple terms, we
set the goal of reducing pollution from agriculture – pesticides,
nitrate and cryptosporidium – entering our water system.
The recognition is a real testament to the hard work our teams
and partners have put in over the past five years and the great
relationships we’ve cultivated at all levels.
Catchment management
When it comes to improving water quality, prevention is always better
than a cure and we’ve continued to make investments to ensure that
the water that enters our rivers is as clean as possible in the first
place. Our Catchment and Biodiversity Team has developed new ways
of working with farmers, community groups and Non-Government
Organisations (‘NGOs’) to safeguard the delivery of our Biodiversity
and Farming for Water initiatives.
During the year we held 1,811 meetings with farmers in our region
and are on track to meet our ambitious engagement target of 9,000
farmers by 2025. Our Farming for Water initiatives can help us reduce
phosphate levels by 50% more than traditional treatment technology.
Last year we set a new bold ambition to improve 5,000 hectares
(an area around the size of Gloucester) across our region by 2027 and
we have delivered 2,632 hectares of improvements this year alone.
You can read more about our approach to Catchment Management
in our Sustainability Report in the ‘Enhancing our Natural Environment
Cycle’ section.
Severn Trent Plc Annual Report and Accounts 2021 7 Water
always there
We will ensure that water
is always there when our
customers need it – both today
and for future generations.
Maintaining supply
At 11 minutes 21 seconds, we once again saw how unexpected events
can impact performance. Our underlying run-rate for the second half
of the year has been really positive – delivering a monthly performance
that beats our regulatory target. We’ve delivered through a focus on:
network response in our control centre and out in the field; reacting
quickly and getting our teams out on the ground as soon as possible to
re-direct water and repair the asset; and to further minimise the time
our customers go without supply, we temporarily restore supply with
our in-house team injecting water directly into the network.
Our proactive maintenance strategy is essential as we have thousands
of assets on the network – our focus this year has been on the most
critical valves, which thousands of customers rely on to ensure their
water can be re-directed in the event of an interruption to supply.
We are pleased that we have met our mains bursts target.
Water demand
Our water efficiency programme has experienced a number of
successes this year including our schools education programme,
providing water-efficiency advice through home visits to 11,866
customers; installing 83,000 water meters, and offering free
and subsidised water-saving devices to customers. With the help
of our customers, we’ve saved c.25 million litres a day between
2015 and 2020, and our aim is to achieve per capita consumption
of 118 litres per person, per day by 2045.
For our Welsh customers, we’ve embraced the Welsh Government’s
ambitions for a lead-free Wales by beating our year one target for
lead pipe replacement four times over.
Interconnector
By 2050 the UK is projected to be home to an extra 12 million
people, adding pressure on an already diminishing water
supply. We continue to play our part on a national level by
working with Affinity, United Utilities and Thames Water on
interconnector schemes to take raw water from the North West
to the South East. Each scheme of the project is at different
stage of development and work continues to ensure that
the carbon and environmental impacts are understood
and mitigated as far as practicable.
Improving pressure
Our customers told us how important water pressure was for them.
Understanding pressure variations and behaviour in our network
with data-led insight means we are not only able to carry out timely
proactive maintenance, creating a calmer network, and improve the
service for our customers. We have exceeded our target on our
two pressure commitments: resolution of low pressure complaints
and persistent low pressure.
Reducing leakage
Reducing leakage is a priority for us and we have set a goal to reduce
it by 15% by 2025 and we exceeded our target this year.
With an extensive network of loggers, our teams constantly monitor
our network, checking for subtle changes in flow rate and pressure
that may indicate leaks, and their expertise, combined with the
technology we use, means we are able to detect a large percentage
of leaks before they become an issue for the public. This year we
have achieved our lowest ever level of District Metered Area (‘DMA’)
leakage helping us to achieve a 2.2% year-on-year reduction.
We know we need to go further and our aspiration is to achieve a
50% reduction by 2045. The Ofwat Innovation Fund is one way we
can explore and understand new opportunities. We are pleased
that Hafren Dyfrdwy secured funding to investigate if existing
fibre networks (e.g. broadband, traffic signalling/monitoring)
can be used to detect leaks alongside partners Focus Sensors,
Costain, Dˆwr Cymru and Portsmouth Water.
World Water Innovation Fund (‘WWIF’)
Through our WWIF we work with 12 partners globally to collaborate
on a range of circular economy and carbon offsetting projects
including heat recovery from sewers, cellulose recovery and
ammonia and hydrogen recovery initiatives. Read more in our
Sustainability Report in the ‘Building an Innovative Business’ section.
92%
of our customers’ pressure
issues resolved first time
2.2%
leakage reduction
year-on-year
27
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION PERFORMANCE REVIEW CONTINUED
8 Waste water
safely taken away
Every day we take 3.1 billion litres
of our customers’ waste water away,
ready to be made safe to return
to the natural environment.
Reducing sewer flooding and blockages
We invest tens of millions cleaning over 32,000 sewer blockages each
year. The accelerated ‘Blockbuster’ work we initiated and continued
into this year has been key in delivering across our flooding and
pollutions commitments.
We’ve made a 16% year-on-year improvement on internal sewer
flooding, despite high-intensity storms in June and August. In early
2021 we set up a Flooding Improvement Team to collaborate on the
single goal of making us more ‘Storm Secure’ in the future. This
team have been looking at a range of improvement areas such as:
using data and predictive modelling; accelerating our flood mitigation
plans; improving our customer journey; and improving information
flows when flooding happens. We’ve also been working closely with
our industry flood risk management partners and our local MPs.
We know we have more to do to reduce sewer flooding further.
In September 2020 we began our sewer sensors trial by installing
more than 1,500 battery-powered smart units in Wolverhampton and
we’re planning to install a total of 40,000 by 2025. These sensors will
help prevent flooding from blockages across our region caused by
wet wipes, cooking fats and other non-flushables which could lead
to flooding or pollution incidents and also gives us a much clearer
understanding of what is happening in the sewers in real time so we
can react proactively to protect our customers and the environment.
The Secret Science of Sewage
The BBC Two TV programme which aired in March 2021 went behind
the scenes at our largest sewage treatment works at Minworth,
educating viewers all about the wonderful world of sewage and
what our waste can tell us about the way we live. The programme
also looked at the revolutionary science that has the potential to
discover new life-changing medicine and other valuable resources
hidden inside sewage.
28
Sewer network in Stroud
In March 2021, we announced plans to invest £25 million to
improve the sewer network in Stroud by installing over two
miles of pipes and upgrading many of the old Victorian sewers
in the town. This is one of the largest projects we will invest in
over the next five years and will provide those living in Stroud
with a resilient sewer network, helping to protect homes and
businesses from blockages and flooding.
Alongside investment in infrastructure we’re also working with our
communities and industries to reduce the amount of Fats, Oils and
Greases (‘FOGs’) that end up in our sewers. Around 70% of blockages
on our network are caused by customers flushing non-flushable
wipes or FOGs down toilets and sinks – a challenge we must tackle.
Our new Inspect and Resolve service continues to see reductions in
repeat blockages and targeted network investments have yielded
strong benefits.
Performing on pollutions
Since 2011 there have been 57% fewer incidents per 10,000 km sewer
(total pollution incidents category 1-3) and this year we’ve had one
of our best performances during the year, with a 21% reduction on
category 1-3 waste pollution incidents, which puts us on track to
hit our target to halve pollutions by the end of the AMP.
Protecting asset health
Developing a proactive, predictive approach to asset maintenance
is critical to our future success. Over the past 12 months we have
invested in new technology including vibration monitoring meters
to determine asset health and the use of thermal imaging equipment
to detect unwanted energy sources or energy losses which may
affect asset or process health. Whilst the use of this technology is
in its early stages, we are already observing the benefits and the
technology is enabling us to take preventative action and keep our
sites running smoothly.
Severn Trent Plc Annual Report and Accounts 2021 9 A thriving
environment
We rely on the natural environment.
Taking care of natural resources while
using nature as a source of innovation
and climate change mitigation is
fundamental to what we do.
A positive impact on our environment
We want to drive significant environmental improvement through
our biodiversity programme, and we are pleased to have made
a very strong start to the AMP. Enhancing biodiversity helps build
resilience in our natural ecosystems, boosting the health and quality
of several areas including woods, soils, rivers and wetlands.
Our biodiversity enhancements will improve water quality and
therefore make this vital resource more sustainable.
Last year we announced our intention to invest £1.2 billion in
environmental initiatives in order to reduce emissions, improve
the environment, and support customers, through programmes
such as our Great Big Nature Boost. This year we have improved
2,632 hectares of our land, which is c.53% of our bold ambition
to improve 5,000 hectares across our region by 2027.
We quickly adapted our planned improvement activity in response
to COVID-19 lockdown restrictions and weather fluctuations during
the year. The Biodiversity and Ecology Team focused on alternative
ideas including a hedgerow restoration scheme for farmers and our
‘tree guard amnesty’. The partnerships we have built – including with
the National Trust, Wildlife Trust, Rivers Trust and RSPB – and our
relationships with our regulators – including the EA, DWI, Natural
England and Natural Resources Wales – continue to make a positive
contribution and we look forward to building on this.
Working with the Woodland Trust, we have planted around 290,000
trees this year and remain on track to meet our 1.3 million target
New THP facility at Stoke Bardolph
In 2020 we received permission from the EA to vary our existing
environmental permit for our Stoke Bardolph Sewage Treatment
Works enabling us to construct a new Thermal Hydrolysis Plant
(‘THP’) and biogas upgrading unit. Commissioning of the new plant
is almost complete and the THP plant is being used for the
pre-treatment of all sludges prior to digestion, facilitating the
production of an enhanced sludge product at this site. The biogas
plant upgrades the biogas produced on-site through anaerobic
digestion and makes it suitable for injection into the National Gas
Grid for onward use by end consumers. The new plant increases
the efficiency of our gas production and our contribution to a
net-zero carbon UK.
Resource Recovery and Innovation Centre
Our Resource Recovery and Innovation Centre at Spernal provides
a full-scale plug-and-play testbed where we can develop new
technologies and undertake demonstrations and trials in a safe,
controlled environment. We are investigating technology, including
how low energy treatment processes aid the recovery of materials
from waste water.
by 2030. This will help provide natural protection against the worst
effects of climate change.
Converting sewage waste into hydrogen
Through collaboration with researchers from Coventry University and
the Organics Group we are pioneering efforts to turn waste ammonia
captured at our sewage treatment facility into green fuel. Currently we
destroy the waste ammonia due to its toxic properties, but the exciting
programme could see it captured and converted into hydrogen. If trials
are successful, we have the potential to recover up to 10,000 tonnes of
green ammonia each year from our waste water treatment plants
which could be converted into 450 tonnes of hydrogen.
Helping deliver the first ever carbon neutral
Commonwealth Games
In March 2021, we were delighted to announce our role as the Official
Nature and Carbon Neutral Supporter of the Birmingham 2022
Commonwealth Games. We are proud to be leading on making it the
first carbon neutral games through a range of offsetting initiatives
including enhancing nature with 2,022 acres of forest in the Midlands
region and 72 mini-forests representing each competing nation.
Like us, the games have an ambition to leave a positive lasting legacy
for future generations and we look forward to working with them in
the months to come.
Supporting the Green Economic Recovery
We support the Government’s approach to investing in a Green
Recovery and, as a responsible business in our region, we proposed
an ambitious package of investments aimed at delivering long-term,
sustainable benefits for current and future generations in our region,
through improving the environment and also creating jobs.
On 17 May 2021, Ofwat announced that we had been given the go ahead
to invest £565 million (2017/18 prices) in our ambitious Green Recovery
programme, providing a great opportunity to deliver long-term
growth for the Company alongside new investment to support our
ESG ambitions. We are delighted with this outcome and have already
started work on the new investments, aimed at supporting the wider
national agenda on climate change, delivering long-term flooding
resilience, addressing national river quality, reducing water consumption,
improving additional water supply resilience and acting as a leader
on removing lead from customer-owned supply pipes. In addition, our
Green Recovery projects will create direct employment opportunities
with us over the next four years and further employment opportunities
with our delivery partners and in the wider supply chain. Read more
on page 13.
Our customers helped us to shape and develop the proposals and
we have been delighted and encouraged by their positive engagement
and feedback. In a survey of 1,000 of our customers, 98% supported or
strongly supported our package of investment areas.
29
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION BUSINESS SERVICES PERFORMANCE REVIEW
Business Services Performance Review
Business Services operates a
UK-focused portfolio that complements
Severn Trent Group’s core competencies
and is well positioned to capitalise on
market opportunities in three areas:
Green Power; Operating Services;
and Property Development.
Leading on self generation
Our Green Power business recycles over 600,000 tonnes of green
and mixed food waste each year. The green energy produced from
food waste forms part of Severn Trent’s Triple Carbon Pledge –
achieving net-zero operational carbon emissions, 100% renewable
power and an all-electric fleet of vehicles by 2030, where available.
We were proud to deliver on our commitment to self-generate the
equivalent of 50% of our energy needs from renewable sources,
a year earlier than targeted, and this year, we were pleased in
Green Power to deliver our record level of generation at 267GWh
of renewable energy from nine Anaerobic Digestion (‘AD’) sites
as well as our wind, solar and hydro plants.
We kept our eight food waste plants open throughout the national
lockdown, to prevent food waste from heading to landfill. As a result,
we saw a 17% increase in the amount of domestic food waste that
arrived at our doors between March and July. During this period, our
operational teams went the extra mile, recycling 126,000 tonnes and
producing 50,000MWh of electricity – enough to power 11,900 homes.
At the same time, our compost sites recycled over 17,000 tonnes of
garden waste, producing around 8,500 tonnes of compost. Despite the
increase in domestic food waste received, full-year generation was
behind budget (notwithstanding a 1% increase year-on-year) due
to the fall in commercial food waste volumes as a consequence of to
the impact on the hospitality sector from COVID-19.
Severn Trent Green Power shortlisted
as recycling business of the year 2020
Now in their 17th year, the Awards for Excellence in Recycling and
Waste Management recognise innovation, dedication and success
within the waste and recycling industries, local authorities and the
wider sector. We are delighted that we were selected as a finalist
in the ‘Organics Recycling Business of the Year’ category. Being
shortlisted is a great achievement and a testament to the hard
work of the team over the past year.
30
Pumpkin Power
In October 2021, teams based across eight depots in the
Midlands, Oxfordshire, South Wales and London took delivery
of over 50,000 pumpkins at their food waste plants after Halloween.
As the pumpkins break down through the AD process, biomethane
gas is naturally released and is then injected back into the local gas
grid or converted into electricity, which can be exported to the local
electricity grid, decarbonising the energy we all use. At the end of
this process, we’re left with a by-product that acts as an excellent
fertiliser, rich in nitrates, which is great for farming – effectively
returning food waste to the ground it was grown in. Converting
the food waste into green gas and electricity on site also allows our
sites to be self-sustainable, consuming less energy than we create.
In April 2020 we were proud to win a five-year contract with
Peterborough City Council to manage the City’s food waste and
convert it into renewable energy. Peterborough’s food waste will
be treated at Severn Trent Green Power’s North London AD facility
in London Colney, Hertfordshire, where 50,000 tonnes of household
and commercial food waste is treated each year. Enough to power
almost 6,000 homes. This site alone has the net carbon
benefit equivalent of taking 71,000 cars off the road.
Delivering on customer service
Operating Services achieved its best ever performance on over 75%
of its contract key performance indicators. We performed strongly
throughout the year in regards to our Ministry of Defence (‘MOD’)
contract, delivering our best-ever performance across product and
service failures and our leakage performance was industry leading.
The Coal Authority contract has delivered best-ever PBIT
performance, achieving over £1 million for the second year running.
Our water hygiene business has continued to grow and has achieved
its best performance yet and our searches business has seen
improvements year-on-year with house buyers taking advantage
of the Government’s temporary reduction in Stamp Duty Land Tax
(‘Stamp Duty’), despite a slow start to the year.
Our Property Development business also performed well as a
consequence of Stamp Duty reductions, despite ongoing uncertainty
of economic conditions.
Severn Trent Plc Annual Report and Accounts 2021
CHIEF FINANCIAL OFFICER’S REVIEW
Chief Financial Officer’s Review
James Bowling
Chief Financial Officer
At the end of a challenging year I’m pleased to report a resilient
financial performance in line with our expectations.
As expected, our turnover reflected the rebasing of tariffs under the
price review and the significant impact of the COVID-19 lockdowns.
This time last year we guided to a £50 million to £85 million reduction
in revenue, and we have seen the impact at the low end of this range,
as higher domestic usage helped mitigate the significant decline in
non-household consumption. Under the regulatory model we will be
able to recover shortfalls in this year’s allowed wholesale revenue in
2022/23. This decline in revenue was offset on a reported basis by a
£33 million reclassification of deferred income and diversions income
now released to revenue (previously credited to operating costs).
A summary of our financial performance for the year is set out below:
Turnover
Adjusted PBIT
Adjusting items
PBIT
Net finance costs
Gains/losses on financial instruments, share of results
of joint venture and impairment of loans receivable
Profit before tax
Tax
Profit for the year
Adjusted PBIT was down 17.1% to £472.8 million. In addition to
the impact of lower revenue, we spent more through our net labour,
hired and contracted and other cost lines to support our strong
customer ODI performance, and saw anticipated increases in power
and chemical costs and depreciation. Our bad debt costs were down
year-on-year, as strong household customer cash collections helped
reduce our underlying bad debt charge, only partly offset by the
additional provision we have made to account for forecasted COVID-19
related rises in unemployment. Business Services PBIT was also
lower, in part due to lower energy prices and also the timing of
property transactions during an unsettled year.
Reported Group PBIT was down 17.2% to £470.7 million
(2019/20: £568.2 million).
We continue to benefit from both low inflation on our index-linked
debt and fixed debt issued at low interest rates in recent years. Our
effective interest cost was 30 bps lower at 3.4% (2019/20: 3.7%) and
our effective cash cost of interest was flat at 3.1% (2019/20: 3.1%).
We have recognised our £8.9 million share of Water Plus’ loss
for the year and the £4.9 million of exceptional losses that were
disclosed but not recognised in the previous year. Last year we
recorded losses of £46.8 million in relation to Water Plus, mainly
arising from impairment losses due to the expected impacts
of COVID-19. After obtaining £70 million of external finance
during the year the business is now well placed to benefit from
increased economic activity after lockdown.
Our full effective tax rate was 20.6% and our adjusted effective
tax rate was 11.4%, up from 10.4% in 2019/20 largely due to lower
pension contributions in the year.
Reported Group profit after tax increased to £212.2 million
(2020: £158.8 million). Basic earnings per share increased to
89.1 pence, (2019/20: 66.7 pence) and adjusted basic earnings per share
were down 27.8% to 105.4 pence per share, in line with expectations.
Operational cash flow was £860.3 million, a reduction of £28.2 million
as a result of lower PBIT partially offset by higher depreciation and
amortisation and improved cash collection from household customers.
Cash capex was £206.3 million lower than the previous year, when
we completed major end of AMP6 projects. Net cash outflow before
changes in net debt was £170.2 million (2019/20: £348.2 million).
2021
£m
2020
£m
1,827.2
1,843.5
472.8
570.3
(2.1)
(2.1)
Change
£m
(16.3)
(97.5)
–
%
(0.9)
(17.1)
–
470.7
568.2
(97.5)
(17.2)
(187.1)
(188.4)
1.3
0.7
(16.4)
267.2
(69.1)
310.7
(55.0)
(151.9)
212.2
158.8
52.7
(43.5)
96.9
53.4
76.3
(14.0)
63.8
33.6
31
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
Our net debt was £6,443.8 million (2020: £6,231.5 million) and regulated gearing was 64.5% (2020: 64.4%) reflecting strong capital management
despite the impact of low inflation on our RCV. In April 2021 we renewed our £1.0 billion revolving credit facility, extending its maturity to 2026.
Our cash flow requirements are now funded to December 2022.
Our RoRE for the year was 5.8%, 190 bps above the base return of 3.9%. This outperformance came from our customer ODIs, following continued
outperformance on our Waste measures and improvements in Water and financing, as the continued reduction in our effective interest cost
exceeded the drag of lower inflation in the year compared to Ofwat’s Final Determination assumption. This outperformance was partly offset by
higher totex reflecting early investment to enhance our resilience and support ODI performance and the COVID-19 related bad debt charge.
Changes to segmental presentation
Last year the Bioresources and Developer Services businesses were managed by, and included in, Business Services. Both of these businesses
which form part of the appointed businesses of Severn Trent Water and Hafren Dyfrdwy, are included in the regulatory settlement determined by
Ofwat and are now managed by our Regulated Water and Waste Water Team. We have therefore amended our segmental presentation to include
Bioresources and Developer Services within our Regulated Water and Waste Water business.
We have restated the prior year segmental analysis to present both years on a consistent basis. Details of the adjustments made are set out in
note 5 to the financial statements.
Regulated Water and Waste Water
Turnover
Net labour costs
Net hired and contracted costs
Power
Raw materials and consumables
Bad debts
Other costs
Infrastructure renewals expenditure
Depreciation
Adjusted PBIT
2021
£m
2020
(restated)
£m
1,693.9
1,708.1
(156.0)
(187.5)
(100.0)
(61.3)
(40.5)
(181.5)
(726.8)
(151.0)
(364.0)
452.1
(151.8)
(174.6)
(94.2)
(54.9)
(42.5)
(147.3)
(665.3)
(149.6)
(352.8)
540.4
Change
£m
(14.2)
(4.2)
(12.9)
(5.8)
(6.4)
2.0
(34.2)
(61.5)
(1.4)
(11.2)
(88.3)
%
(0.8)
(2.8)
(7.4)
(6.2)
(11.7)
4.7
(23.2)
(9.2)
(0.9)
(3.2)
(16.3)
Turnover for our Regulated Water and Waste Water business was
£1,693.9 million (2019/20: £1,708.1 million) and adjusted PBIT was
£452.1 million (2019/20: £540.4 million).
The key components of the £14.2 million decline in revenue were:
Net hired and contracted costs were £12.9 million (7.4%) higher.
Investment in activities to reduce blockages and enhance biodiversity
and in new technology licence increased costs. We also brought in
additional temporary resources to respond to the hot weather period
in early summer.
• A below-inflation annual increase in regulated revenue, largely as
a result of the price review rebasing of tariffs at the start of AMP7
(£15 million).
• An increase of £33 million from the reclassification of deferred
income releases and diversions income (previously credited to
operating costs and infrastructure renewals expenditure –
see note 2).
• A net decrease of £50 million due to lower consumption by
commercial customers, partially offset by increases in domestic
usage during the national lockdowns and the dry summer period.
• Other net decreases as a result of legacy refunds to non-household
retailers and other adjustments (£12 million).
We carried forward ODI rewards from AMP6 of approximately
£191 million in nominal prices. Our turnover in the year ended
31 March 2021 includes £38.2 million from these rewards.
Net labour costs of £156.0 million were up 2.8% compared to the prior
year. Gross employee costs increased due to the annual pay award of
2.3% and insourcing of design activity in our Capital Delivery Team.
This was partially offset by higher capitalisation of employee costs,
largely related to this insourcing activity.
Power costs were up £5.8 million due to the expected rise in pass-
through costs and additional consumption to meet higher household
demand for water, with some offset from an increase in self-
generation and lower variable tariffs in the first half of the year.
Raw materials and consumables increased by £6.4 million due to
chemical costs on new Water Framework Directive schemes, and
COVID-19 related consumables.
Household cash collection was 5% higher year-on-year – 3.5% from
higher tariffs and consumption and 1.5% from improved targeting
of older debt. As a result, the element of our bad debt charge relating
to historical collections reduced by £9.4 million to £30.9 million.
Despite this strong performance, and the range of social tariffs
we have made available for struggling customers, our expectation
is that the rise in unemployment forecast by the Bank of England
for next year will result in more customers falling into arrears.
In anticipation of this, and based on the forecast available at the year
end, we recorded an additional bad debt charge of £9.6 million
(2019/20: £2.2 million) against amounts already billed but not yet
collected at the year end. Taken together, our bad debt charge as a
percentage of household revenue was 3.0% (2019/20: 3.2%).
32
Severn Trent Plc Annual Report and Accounts 2021
Reported other costs rose by £34.2 million. Before the £15.5 million
reclassification of deferred income releases to turnover, other costs
were up £18.7 million. This increase was primarily due to:
Business Services
• A £6.0 million subscription for the new Ofwat Innovation Fund for
AMP7, which is offset within our household tariffs in turnover.
• Increased insurance charges of £3.9 million.
• A £3.6 million increase in Community Support during the pandemic.
• A number of smaller items including £2.2 million higher business
rates (due to inflationary increases this year and significant rebates
in the prior year).
Reported Infrastructure renewals expenditure was £1.4 million higher
in the year. Before the reclassification of £17.5 million of diversions
income to turnover, expenditure was £16.1 million lower due to the
completion of significant AMP6 projects last year, including our Trunk
Mains Renewal Programme.
Depreciation of £364.0 million was £11.2 million higher than the
prior year. Major AMP6 projects that were brought into service and
other additions increased the depreciable asset base by around 7%;
the effect of this was partly offset by a £9.8 million reduction in
the depreciation charge following a review of useful lives for significant
mechanical and electrical assets.
Return on Regulated Equity (‘RoRE’)
RoRE is a key performance indicator for the regulated business and
reflects our combined performance on totex, customer ODIs and
financing against the base return allowed in the Final Determination.
Severn Trent Water’s RoRE for the year ended 31 March 2021 and for
the five-year period ended on that date is set out in the following table:
Base return
Enhanced RoRE returns
ODI outperformance1
Totex performance
Financing outperformance
Regulatory return for the year2
1. ODI performance includes PCC and forecast D-MeX outturn.
2. Calculated in accordance with Ofwat guidance set out in RAG 4.07.
2020/21
%
3.9
0.3
1.7
(0.7)
0.6
5.8
Turnover
Operating
Services and Other
Green Power
Adjusted PBIT
Operating
Services and Other
Green Power
Property
Development
2020
(restated)
£m
2021
£m
Increase/(decrease)
£m
%
82.8
51.9
84.4
53.5
134.7
137.9
(1.6)
(1.6)
(3.2)
(1.9)
(3.1)
(2.4)
20.9
2.6
2.3
25.8
21.7
6.6
7.7
36.0
(0.8)
(4.0)
(5.4)
(10.2)
(3.7)
(60.6)
(70.1)
(28.3)
Business Services turnover was £134.7 million (2019/20: £137.9 million)
and adjusted PBIT was £25.8 million (2019/20: £36.0 million).
In our Operating Services business, turnover and adjusted PBIT
decreased by £1.6 million and £0.8 million respectively, largely
driven by lower volumes in the Property Searches business
during the national lockdown in the first half of the year.
In Green Power, turnover decreased by £1.6 million and adjusted
PBIT decreased by £4.0 million. Adjusted PBIT was impacted by lower
wholesale energy prices in the first half of the year and the higher cost
of purchasing alternative feedstocks to compensate for less hospitality
industry food waste during lockdowns.
Profits from Property Development were £5.4 million lower as there
were no individually significant disposals in the current year, as guided.
We remain on track to deliver £100 million of PBIT from property
sales by 2027.
Corporate and other
Corporate costs were £5.9 million (2019/20: £8.6 million), with the
reduction largely due to releases of provisions relating to prior year
corporate transactions that are no longer required. Our other
businesses generated PBIT of £0.7 million (2019/20: £3.0 million).
We have delivered RoRE of 5.8% in the year, outperforming the base
return by 1.9% as a result of:
Exceptional items before tax
We recorded no exceptional operating costs (2019/20: nil).
• ODI performance of 1.7%, driven by continued strong performance
on waste measures, including blockages and sewer flooding, and
improvements in water measures, including water quality, CRI and
low pressure.
• Our totex position of (0.7)% reflects early investment to enhance our
resilience and support ODI performance, as well as the higher
COVID-19 related bad debt charge.
• Financing performance of 0.6%, from the continued reduction in our
effective interest cost, offset by the drag of lower inflation in the year
compared to Ofwat’s Final Determination assumption.
In 2019/20 we recorded exceptional losses before tax of £51.7 million
from the impact of COVID-19 on our joint venture Water Plus, including
£46.8 million from our share of its losses and an exceptional
impairment charge of £4.9 million on our loans due from Water Plus.
In view of the materiality of these impacts and the unprecedented
nature of the impact of COVID-19 on Water Plus we considered these
items to be exceptional.
33
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION
• Exchange rate exposure on foreign currency borrowings;
Business rates and property taxes
• Interest rate exposures on floating rate borrowings;
Employers’ National Insurance
• Exposures to increases in electricity prices; and
• Changes in the regulatory model from RPI to CPIH.
Environmental taxes
Other taxes
Tax incurred:
Corporation tax
2021
£m
30.0
83.6
28.0
6.7
5.5
2020
£m
26.7
81.6
28.9
6.6
4.9
153.8
148.7
CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
Net finance costs
Net finance costs for the year were £1.3 million lower than the prior
year at £187.1 million. Average net debt increased to £6,263.6 million
(2019/20: £5,972.2 million) but our effective cash cost of interest
(excluding indexation adjustment on index-linked debt and pensions-
related charges) was 3.1% (2019/20: 3.1%). Interest cost on index-
linked debt decreased by £14.8 million due to lower inflation, and as a
result our effective interest cost fell to 3.4% (2019/20: 3.7%).
Capitalised interest of £30.4 million was £13.8 million lower year-on-
year due to the lower level of capital activity compared to last year.
Our earnings before interest, tax depreciation and amortisation
(‘EBITDA’) interest cover was 4.7 times (2019/20: 5.3 times) and
adjusted PBIT interest cover was 2.6 times (2019/20: 3.2 times).
See note 43 for further details.
Gains/losses on financial instruments
We use financial derivatives solely to hedge risks associated
with our normal business activities including:
We hold interest rate swaps with a net notional principal of
£653 million floating to fixed, and cross currency swaps with
a sterling principal of £141 million, which economically act to
hedge exchange rate risk on certain foreign currency borrowings.
We revalue the derivatives at each balance sheet date and take the
changes in value to the income statement, unless the derivative is
part of a cash flow hedge.
Where hedge accounting is not applied, if the risk that is being
hedged does not impact the income statement in the same period as
the change in value of the derivative, then an accounting mismatch
arises and there is a net charge or credit to the income statement.
During the year there was a loss of £8.2 million (2019/20: loss of
£9.8 million) in relation to these instruments.
Note 12 to the financial statements gives an analysis of the amounts
charged to the income statement in relation to financial instruments.
As part of our power cost management strategy, we have fixed around
82% of our estimated wholesale energy usage for 2021/22.
Share of loss of joint venture
In common with other participants in the non-household retail market,
Water Plus has been significantly impacted by the COVID-19 outbreak,
the resulting lockdowns and the effects on commercial customers.
Water Plus’ revenue was around £150 million lower than the previous
year and in these difficult trading conditions it incurred a loss after tax
of £17.7 million. During the year Water Plus obtained £70 million of
external debt facilities and, since the year end, along with our joint
venture partner, we have each converted £32.5 million of the revolving
credit facilities we have advanced to Water Plus to equity and consider
this to form part of our long-term investment in Water Plus at the year
end. The business is now well placed to benefit from the recovery as
economic activity increases after lockdown.
We have recognised our share of Water Plus’ loss after tax for the year
(£8.9 million) and the £4.9 million of exceptional losses not recognised
in the prior year.
We have updated our assessment of expected credit losses on our
loans to Water Plus and reduced the provision recorded by £3.6 million.
34
Taxation
We are committed to paying the right amount of tax at the right time.
We pay a range of taxes, including business rates, employers’ national
insurance and environmental taxes such as the Climate Change Levy
as well as the corporation tax shown in our tax charge in the income
statement. Our corporation tax charge for the year was higher than
the statutory rate, reflecting non-deductible items charged to our
income statement such as depreciation charged on assets which
are not eligible for capital allowances and on which no deferred tax
is provided, partially offset by tax credits arising from overpayments
in the previous year. Cash tax payments were reduced by the benefit
of tax allowances on our capital programme and contributions to
our pension schemes.
Further details on the taxes and levies that we pay can be found in our
report, “Explaining our Tax Contribution 2020/21”, which will be made
available at www.severntrent.com/sustainability-strategy/reports-
and-publications/tax/ when our Annual Report and Accounts is
published in June.
The corporation tax charge for the year recorded in the
income statement, before exceptional taxes, was £55.0 million
(2019/20: £59.2 million) and we made net corporation tax payments
of £23.2 million in the year (2019/20: £33.9 million). The difference
between the tax charged and the tax paid is summarised below:
Tax on profit on ordinary activities
before exceptional taxes
Tax on exceptional items
Exceptional deferred tax charge arising
from rate change
2021
£m
55.0
–
–
2020
£m
59.2
0.9
91.8
Tax effect of timing differences
(28.2)
(120.9)
Current tax credits recorded in Other
Comprehensive Income or equity
Overprovisions in previous years
Corporation tax payable for the year
Repayments received
Payments relating to prior years
Overpayments in the year
Overpayments in prior years offset in
the current year
Net tax paid in the year
(0.4)
3.6
30.0
–
–
–
(6.8)
23.2
(9.5)
5.2
26.7
(0.4)
4.5
3.1
–
33.9
Severn Trent Plc Annual Report and Accounts 2021
Net tax paid in the year of £23.2 million (2019/20: £33.9 million) includes
£4.9 million paid to Water Plus for consortium relief (2019/20: nil).
Note 13 in the financial statements sets out the tax charges and credits
in the year, which are described below.
The current tax charge for the year was £26.8 million
(2019/20: £31.0 million) and the deferred tax charge was £28.2 million
(2019/20, before the exceptional deferred tax charge arising from the
change of rate: £29.1 million).
UK tax rules specify the rate of tax relief available on capital expenditure.
Typically this is greater in the early years than the rate of depreciation
used to write off the expenditure in our accounts. The impact of this
timing difference applied across our significant and recurring capital
programme tends to reduce our adjusted effective current tax rate and
corporation tax payments in the year. By the same token we make a
provision for the tax that we will pay in future periods when the tax
relief on the capital expenditure has been received and we receive
no allowance for the depreciation charge arising on that expenditure.
This is the most significant component of our deferred tax position.
Our full effective tax rate this year was 20.6% (2019/20: 48.9%), which
is higher than the UK rate of corporation tax (19%), due to items of
expenditure that are not deductible for tax (2019/20: higher mainly
due to the exceptional deferred tax charge).
In March 2021 the UK Government announced its intention to increase
the rate of corporation tax to 25% with effect from 1 April 2023. If this
rate had applied at the balance sheet date the deferred tax liability
would have been £286 million higher.
Our adjusted effective current tax rate was 11.4% (2019/20: 10.4%)
(see note 43).
Profit for the year and earnings per share
Total profit for the year was £212.2 million (2019/20: £158.8 million).
Basic earnings per share from continuing operations increased by 33.6%
to 89.1 pence (2019/20: 66.7 pence). Adjusted basic earnings per share
was 105.4 pence (2019/20: 146.0 pence). For further details see note 15.
Cash flow
Operational cash flow
Cash capex
Net interest paid
Proceeds on sale of subsidiary
Net payments for swap terminations
Net tax paid
Free cash flow
Dividends
Issue of shares
Change in net debt from cash flows
Non-cash movements
Change in net debt
Opening net debt
Closing net debt
Bank loans
Other loans
Lease liabilities
Net cash and cash equivalents
Cross currency swaps
Loans due from joint venture
Net debt
2021
£m
860.3
(593.2)
(186.2)
0.7
(0.2)
(23.2)
58.2
(240.2)
11.8
2020
£m
888.5
(799.5)
(184.2)
–
(0.3)
(33.9)
(129.4)
(228.4)
9.6
(170.2)
(348.2)
(42.1)
(49.2)
(212.3)
(397.4)
(6,231.5)
(5,834.1)
(6,443.8)
(6,231.5)
2021
£m
2020
£m
(1,011.1)
(1,251.9)
(5,471.3)
(5,058.5)
(121.3)
(122.7)
44.0
31.9
84.0
48.6
60.4
92.6
(6,443.8)
(6,231.5)
35
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
Operational cash flow was £860.3 million (2019/20: £888.5 million).
The impact of lower PBIT was partially offset by higher depreciation
and amortisation and improved collection from household customers.
Our long-term credit ratings are:
Net cash capex of £593.2 million (2019/20: £799.5 million) was
above our expectation of £580 million as we made a fast start
to our AMP7 programme.
Our net interest payments of £186.2 million (2019/20: £184.2 million)
were broadly in line with the previous year as the impact of higher
net debt was largely offset by lower finance costs. Our net tax
payments were £23.2 million, a decrease of £10.7 million, mainly
due to quarterly instalment payments higher than the corporation
tax payable in the prior year.
We received £11.8 million (2019/20: £9.6 million) from the exercise
of options under the employee Save As You Earn share scheme and
our dividends paid increased in line with our policy.
These cash flows, together with accounting adjustments to the
carrying value of debt, resulted in an increase of £212.3 million
in net debt (2019/20: £397.4 million).
At 31 March 2021 we held £44.0 million (2020: £48.6 million) in
net cash and cash equivalents. Average debt maturity was around
13 years (2020: 13 years). Including committed facilities, our cash
flow requirements are funded until December 2022.
Net debt at 31 March 2021 was £6,443.8 million (2020: £6,231.5 million)
and balance sheet gearing (net debt/net debt plus equity) was 84.9%
(2020: 83.4%). Severn Trent Water Group net debt, expressed as a
percentage of estimated RCV at 31 March 2021 was 64.5%
(2020: 64.4%).
The estimated fair value of debt at 31 March 2021 was £1,449.5 million
higher than book value (2020: £951.8 million higher). The increase in
the difference to book value is largely due to the impact of higher
inflation expectations on the fair value of our index-linked debt.
In December 2020 we issued £100 million 35-year CPIH linked debt at
a premium of around £22 million. The notes carry a coupon of 0.01%.
Our policy for the management of interest rates is that at least
40% of our borrowings should be at fixed interest rates, or hedged
through the use of interest rate swaps or forward rate agreements.
At 31 March 2021 interest rates for 67% (2020: 64%) of our gross debt
of £6,603.7 million were fixed; 8% were floating and 25% were index
linked. We continue to carefully monitor market conditions and our
interest rate exposure.
Long-term ratings Severn Trent Plc Severn Trent Water
Outlook
Moody’s
Baa2
Baa1
Standard
and Poor’s
BBB
BBB+
Stable
Stable
We invest cash in deposits with highly rated banks and liquidity funds.
We regularly review the list of counterparties and report to the
Treasury Committee.
Pensions
We have three defined benefit pensions arrangements, two from
Severn Trent and one from Dee Valley Water. The Severn Trent
schemes (‘the Schemes’) are closed to future accrual.
The most recent formal actuarial valuations for the Schemes were
completed as at 31 March 2019. The agreement reached with the
Trustee for the STPS, which is by far the largest of the
schemes, included:
• Inflation-linked payments of £15.0 million per annum through
an asset-backed funding arrangement, potentially continuing
to 31 March 2031, although these contributions will cease earlier
should a subsequent valuation of the Severn Trent Pension Scheme
(‘STPS’) show that these contributions are no longer needed;
• Payments under another asset-backed funding arrangement
of £8.2 million per annum to 31 March 2032; and
• Annual deficit reduction payments of £32.4 million increasing
in line with inflation through to 31 March 2027.
In addition to these payments, the Company will directly pay the
annual PPF levy incurred by the STPS (£2.7 million in 2020/21).
The Schemes have entered into additional hedging arrangements to
reduce the impact of fluctuations in interest rates and inflation on the
Schemes’ liabilities without adversely impacting the expected return
from the Schemes’ assets.
Hafren Dyfrdwy participates in the Dee Valley Water Limited Section
of the Water Companies Pension Scheme (the ‘Section’). The Section
funds are administered by trustees and are held separately from the
assets of the Group. The Section is closed to new entrants. The most
recent formal actuarial valuation of the Section was completed as at
31 March 2020 and no deficit reduction contributions to the Section
are required.
On an IAS 19 basis, the net position (before deferred tax) of all of the
Group’s defined benefit pension schemes was a deficit of £367.7 million
(2020: £234.0 million). To calculate the pension deficit for accounting
purposes, we are required to use corporate bond yields as the basis
for the discount rate of our long-term liabilities, irrespective of the
nature of the schemes’ assets or their expected returns.
On an IAS 19 basis, the funding level reduced to 88% (31 March 2020: 91%).
36
Severn Trent Plc Annual Report and Accounts 2021
The movements in the net deficit during the year were:
Fair value of
scheme
assets
£m
Defined
benefit
obligations
£m
Net deficit
£m
At start of the year
2,414.1
(2,648.1)
(234.0)
The actual outturn in the year for inflation and other assumptions was
better than expected and this reduced scheme liabilities by £31 million.
The scheme assets increased in value by around £213 million more
than the return included in the income statement in the year.
Contributions paid to the STPS in the year included:
• The amounts due under the asset-backed funding arrangements of
£24.8 million;
53.4
(63.2)
(9.8)
• A payment of £11.4 million that was deferred from the March 2020
deficit reduction payment to April 2020; and
Amounts credited/
(charged) to income
statement
Actuarial gains/(losses)
taken to reserves
Net contributions received
and benefits paid
212.7
(374.7)
(162.0)
(79.8)
117.9
38.1
At end of the year
2,600.4
(2,968.1)
(367.7)
The income statement includes:
• Current service costs on the Dee Valley Water Scheme, which
remains open to further accrual but is closed to new members,
and past service costs relating to Guaranteed Minimum Pension
(‘GMP’) equalisation. Together these amounts were £0.5 million;
• Scheme administration costs of around £3.9 million; and
• Net interest on scheme liabilities and expected return on the
scheme assets – together a cost of £5.4 million.
At the previous year end there was a short-lived increase in corporate
bond spreads that increased the discount rate applied in calculating
the scheme liabilities. Corporate bond spreads were around 100 bps
lower at 31 March 2021 but the impact of this on the discount rate
applied was mitigated by a 50 bps increase in gilt yields. The net
reduction in the discount rate increased the scheme liabilities by
around £150 million.
Inflation expectations have increased by around 70bps since the
previous year end and this increased scheme liabilities by around
£290 million.
Changes to demographic assumptions reduced scheme liabilities
by around £34 million. This included an update to the most recent
CMI data tables and also a weighting to allow for the high mortality
experienced in 2020.
• A one-off supplementary payment of £1.3 million.
There were also normal contributions of £0.2 million to the Dee Valley
Water Scheme and payments of benefits under the unfunded scheme
amounting to £0.4 million.
Dividends
In line with our policy for AMP7 to increase the dividend by at least
CPIH each year, the Board has proposed a final ordinary dividend of
60.95 pence per share for 2020/21 (2019/20: 60.05 pence per share).
This gives a total ordinary dividend for the year of 101.58 pence
(2019/20: 100.08 pence).
The final ordinary dividend is payable on 16 July 2021 to shareholders
on the register at 28 May 2021.
37
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION
OUR APPROACH TO RISK
Our Approach to Risk
We think of risk as those things that could
prevent us delivering our strategic objectives.
Risk manifests itself in both negative and positive
impacts. In identifying and categorising risk, we
consider the causes, including people, process,
assets and external factors, and the control
environment. The successful delivery of Severn
Trent’s strategic objectives depends on the effective
identification, understanding and mitigation of risk.
2020/21 risk landscape
This year has seen some long-term risks manifest, as a consequence
of the UK’s Brexit negotiation process, and short-term shocks, such
as the COVID-19 pandemic. The EU-UK Trade and Cooperation
Agreement, signed on 30 December 2020, avoided a no-deal Brexit,
but there remains some additional risk associated with the movement
of goods between the EU and UK. The implications for our supply
chain, particularly in relation to chemical supplies, have been
carefully managed, with dedicated working groups continually
reviewing market conditions and monitoring demand against market
availability. We have also approved new framework agreements
for our capital supply contracts to provide additional flexibility and
prevent excessive supplier concentration.
Towards the end of 2019/20, the COVID-19 pandemic presented
immediate, and longer-term, human, social, economic and
business effects that have potential to shape the operating
context for Severn Trent for years to come. Our initial focus
was on maintaining operational performance in a COVID-secure way,
continuing to deliver our essential services without interruption whilst
protecting our employees.
At an industry level, shockwaves from the tragic accident at
Avonmouth in December 2020 were felt across the sector and had
a profound impact across our business. In response to the event,
we immediately suspended all DSEAR activity and undertook
comprehensive surveys at all our bioresources sites as well
as a comprehensive review of all our high-risk actions.
February 2021 saw a cyber attack against a water treatment plant
in Florida, US. The attacker attempted to alter the chemical dosing
of the water, after gaining remote access to the treatment systems.
The attack was promptly identified and no damage or injury resulted.
The incident highlights the importance of cyber security within the
water sector. Severn Trent commits significant resources and financial
investment to maintain the integrity and security of assets and data
(see Principal Risk 4 for more information).
38
Risk appetite statement
Severn Trent’s Purpose is ‘taking care of one of life’s essentials’.
No business is free of risk and to achieve our strategic objectives we
often need to take calculated risks. We will, however, only accept risk
that is consistent with our Purpose, Values and strategy. Risks we
accept must be well understood, so that we can manage them effectively.
Our sector has inherent risks, particularly due to the nature and scale
of our operational infrastructure and the importance of our activities to
the health, safety and wellbeing of our people and the communities we
serve. More widely, the sector is subject to political, regulatory and
financial market risk, as well as risks arising from developments in
technology, stakeholders’ evolving expectations and climate change.
Within the Severn Trent Group, we operate both regulated and
non-regulated businesses, which have different risk profiles and
tolerances. Our water and waste water regulated businesses are
monopoly providers that are economically regulated and
characterised by relatively stable, inflation-linked cash flows. Our
non-regulated businesses have more variable cash flows and operate
in less predictable, competitive environments.
In some areas, we have risks for which we have little or no appetite.
Even though we have implemented high standards of control and
mitigation, the nature of these risks mean that they cannot be
eliminated completely.
Our risk priorities
In addition to managing the inherent risks associated with our
business, we prioritise the following:
The health, safety and wellbeing of our people and the communities
we serve is our top priority, and we have no appetite for risks brought
on by unsafe actions.
Protecting the environment is a key long-term commitment. We aim
to enhance the water environment and improve biodiversity. We are
determined to play a leading role in addressing the impact of climate
change through mitigating our own impact, the impact of our supply
chain and adapting to the challenges that climate change may bring
in the future.
In areas such as our approach to financing, we look to take measured
risk consistent with providing the best long-term value for our
customers and shareholders.
The Board has overall responsibility for determining the nature and
extent of the risks in which Severn Trent participates and for ensuring
that risks are managed effectively across the Group.
Overseeing risk
Our approach to risk management is designed to enable the business
to deliver its strategic objectives while managing the inherent
uncertainty that can manifest itself as both opportunities and threats
to these outcomes.
We have an established Enterprise Risk Management (‘ERM’) process
and control framework that enables us to effectively identify, evaluate
and manage these risks to inform decision making in support of
creation of value in a sustainable way. Our approach cannot eliminate
all risk entirely, but ensures we have the right structure to effectively
navigate the challenges and opportunities we face, and only accept risk
that is appropriate to achieving our strategic objectives.
We operate a top-down and bottom-up model of risk management that
ensures both a clear articulation of risk appetite and a comprehensive
process of risk identification. Our risk management framework
opposite show the groups involved in risk across Severn Trent.
Severn Trent Plc Annual Report and Accounts 2021 Top-down
The Board has overall responsibility for oversight of risk and for
maintaining a robust risk management and internal control system.
The Board recognises the importance of identifying and actively
monitoring our strategic, reputational, financial and operational
risks, and other longer-term threats, trends and challenges facing
the business.
The Executive Committee reviews strategic objectives and assesses
the level of risk taken in achieving these objectives.
The Audit Committee supports the Board in the management of
risk and is responsible for reviewing the effectiveness of the risk
management and internal control processes during the year.
This top-down risk process helps to ensure the bottom up risk process,
described below, is aligned to our current strategy and objectives.
Bottom-up
Operating in the water sector means risk management is embedded
throughout our processes, from day-to-day asset operation and
monitoring, medium-term deployment of capital investment to
long-term modelling of asset health, performance, and societal
and environmental changes.
Our strong continuous improvement culture ensures that risk
discussions happen at all levels of the business, resulting in risks
being identified, categorised, and entered into the ERM system.
Risk reporting
The ERM process is operated by the Central ERM Team and
underpinned by a standardised methodology to ensure consistency.
ERM Champions and Co-ordinators operate throughout the business,
with support and challenge from the ERM Team, continually identifying
and assessing risks in their business units and reporting on a quarterly
basis. Standardised criteria are used to consider the likelihood and
velocity of occurrence and potential financial and reputational impacts.
The potential causes, impact and mitigating controls related to each
risk are well documented. This assessment allows us to put in place
effective strategies to remediate defective controls or implement
additional controls.
Business unit information is combined to form a consolidated view
of risk across the Group. Our significant risks form our Group risk
profile which is reported to the Executive Committee for review
and challenge. This is then reported to the Audit Committee and
Board on a six-monthly basis. The report provides an assessment
of the effectiveness of controls over each risk and action plans to
improve controls where necessary.
Risk management framework
Risk
Governance
Board
• Sets the risk culture.
• Defines and regularly
reviews risk appetite.
Risk
Oversight
Risk
Management
n
w
o
d
-
p
o
T
p
u
-
m
o
t
t
o
B
Executive Committee:
• Supports the Board in the
management of risk.
• Assesses the level of risk
taken to achieve objectives;
challenges the AMP7
Business Plan.
• Approves significant risk
mitigation strategies assigned
to individual members of the
Executive Committee.
• Sets and evaluates
risk tolerances.
• Identifies and assesses
Principal and Emerging Risks.
• Signs-off the ERM
risk framework.
Strategic Planning:
• Longer-term, holistic
risk response plans,
e.g. Water Resources
Management Plan (‘WRMP’)
and AMP7 Business Plan.
• Establishes critical controls
to ensure the operational
effectiveness of
essential services.
• Challenges the level of risk
taken to pursue objectives.
• Makes risk-informed decisions
and provides oversight for key
strategic risks.
• Responsible for effective
risk oversight of enterprise-
wide risks at Group level.
• Undertakes annual assessment
of Principal Risks.
Central ERM Team:
• Applies the ERM framework.
• Owns the corporate ERM
management system.
• Monitors and reports key risk
information, including response
plans and risk tolerance.
• Establishes best practice risk
processes across the Group.
• Provides guidance and training
for Risk Champions and Risk
Co-ordinators.
• Assists with the identification
and assessment of Principal
and Emerging Risks.
• Facilitates risk escalation process.
Audit Committee:
• Supports the Board in monitoring
significant risks, tracking progress
against risk mitigation plans.
• Reviews effectiveness of our
risk management and internal
control processes; tests key
controls in risk response plans.
Internal Audit:
• Provides assurance for significant
risk mitigation strategies.
• Assesses effectiveness of the
risk programmes by analysis
of key controls.
• Evaluates internal
control environment.
Service Area Boards:
• Capital investment
programme management.
• Implement strategic risk
management processes,
such as WRMP.
Business Unit & Risk Champions:
• Day-to-day risk and incident
management, e.g. Severn Trent
Operational Risk Management
(‘ST-ORM’) and Drinking Water
Safety Plans (‘DWSP’).
• Identify and monitor Emerging
• Identify, assess and respond
Risks and opportunities.
• Assess all categories of risk
at an operational level.
to risks at a local level.
• Continual monitoring of risks
assigned within the business unit.
• Produce risk response plans
and strategies.
• Define, implement and
monitor key controls.
• Follow ERM risk framework.
39
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION OUR PRINCIPAL RISKS
Our Principal Risks
Our 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, to identify
risks that could:
• Adversely impact the safety or security of the Group’s employees,
customers and assets;
• Have a material impact on the financial or operational performance
of the Group;
HEALTH & SAFETY
RISK 1.
Due to the nature of our operations, we could endanger the health and safety of
our people, contractors and members of the public.
Strategic outcomes
Stakeholders
• Impede achievement of the Group’s strategic objectives and financial
targets; and/or
Risk mitigations
1 2 5 6
• Adversely impact the Group’s reputation or stakeholder expectations.
This list does not comprise all the risks that the Group may face, and
they are not presented in order of importance.
The nature and profile of these risks is updated each year to reflect
the changing risk landscape. This year sees ten Principal Risks
being reported.
There may be additional risks that emerge in the future and we undertake
regular horizon scanning to identify and report these to the Board.
Risks can present significant value creation and possibilities for
innovation. Our Principal Risks, detailed from pages 40 to 45, include an
‘Opportunities’ section for each risk describing possible future events
which, should they occur, could have a positive effect on the achievement
of objectives or potentially reduce the risk exposure further.
Strategic outcomes
A company you can trust
A positive difference
Lowest possible bills
A service for everyone
An outstanding experience
Good to drink
Water always there
Waste water safely taken away
A thriving environment
Stakeholders
1 Our customers
2 Our colleagues
3 Our communities
4
5
Shareholders and investors
Suppliers and contractors
6 Regulatory and Government
Movement
Increase in risk exposure
No change in risk exposure
Decrease in risk exposure
* New risk
40
• The Group’s Goal Zero policy clearly sets out our target that
no one should be injured or made unwell by what we do.
• A well-established Health, Safety and Wellbeing Framework
to ensure all our operations and processes are conducted
in compliance with Health and Safety legislation and in the
interests of the safety of our people and our contractors.
The Framework is subject to regular review.
• Monitoring of our supply chain through Site Manager Forums
and on-site inspections, including Health and Safety reviews
to ensure compliance.
• Health and safety bulletins cascaded throughout the Group,
including the supply chain.
• A dedicated Health, Safety and Wellbeing toolkit, called Safety
Net, that allows real time data recording to capture, analyse and
report on all Health, Safety and Wellbeing incidents and
implement targeted interventions in a timely manner.
Change in year
In 2020/21, we did not experience any major safety incidents or
fatalities and have achieved our best ever LTI rate, which equates to
20% fewer LTIs than last year.
We instigated a full review of all our high-risk activities, following
the Wessex Water tragedy at Avonmouth, and have refreshed our
approach to monitoring, training, documentation and assurance.
COVID-19 impact
Following the emergence of COVID-19, we have reviewed our
framework and processes and revised working practices to ensure
we keep people as safe as possible while delivering our essential
services. Throughout the year, we have remained closely aligned
to Government advice and guidance, with over 50% of our workforce
working from home. For employees required to attend work, the
focus has been on ensuring that workplaces are COVID-secure with
extensive risk assessments continuing to be carried out on a weekly
basis at all our facility-managed locations.
We have also run a very effective ‘Caring for your Colleagues’
campaign since March 2020 aimed at supporting both the physical
and mental wellbeing of all our employees.
In response to the COVID-19 pandemic, we have revised working
practices to ensure we keep people as safe as possible whilst
delivering our essential services.
Opportunities
Continue to work with our extensive supply chain to share best
practice and promote safe working.
Severn Trent Plc Annual Report and Accounts 2021
SERVICE FAILURE & ASSET RESILIENCE
SERVICE FAILURE & ASSET RESILIENCE
RISK 2.
Failure to provide a safe and secure supply of drinking water to our customers
and the potential for reduced public confidence in water supply.
RISK 3.
Failure to effectively transport and treat waste water and the potential for
reduced public confidence in our waste water system.
Strategic outcomes
Stakeholders
Strategic outcomes
Stakeholders
Risk mitigations
Risk mitigations
1 3 4 5 6
1 3 4 5 6
• Comprehensive resilience plans, such as our WRMP and Drought
Plan feed into our capital investment programme and
Business Plan.
• Key operational employees are required to complete mandatory
Water Quality Competency training.
• Investment in in-house capability to bolster response teams and
facilitate an accelerated response to maintain supplies whilst
repairs are undertaken, complemented by our new
Academy facility.
• 24/7 control centre monitoring of our operations and assets,
including real time telemetry coverage from our loggers.
See Principal Risk 5.
• Strategic modelling to assess potential changes to supply and
demand on our water network and the impact of climate change
see Principal Risk 6.
• Regular updates to processes, standards and operational procedures.
• Strategic modelling to assess potential changes to supply and
demand on our waste network, to reduce service issues and
potential damage to the environment. See Principal Risk 7.
• 24/7 control centre monitoring of our operations and assets,
including real time telemetry coverage. See Principal Risk 5.
This is supported by our new in-house waste Network Response
Team and Wet Well Cleansing Team, as well as installation of
more than 1,500 sewer sensors.
• Key operational employees are required to complete mandatory
training programmes to ensure continued competency with
evolving standards.
• Educational programmes with customers to promote safe use of
the waste water system, including appropriate disposal of wet
wipes and cooking fat.
Change in year
Change in year
For 2020/21, we have separated our clean water and waste water
operations into two Principal Risks to reflect the distinct risk profiles
and mitigation strategies.
For 2020/21, we have separated our clean water and waste water
operations into two Principal Risks to reflect the distinct risk profiles
and mitigation strategies.
COVID-19 impact
COVID-19 impact
In response to COVID-19, we implemented appropriate social
distancing and safe working practices to keep all of our sites
operational during the pandemic.
In response to COVID-19, we implemented appropriate social
distancing and safe working practices to keep all of our sites
operational during the pandemic.
COVID-19 led to changes in usage profiles, with lower business
usage and increased household demand. Our network proved
to be resilient throughout this period.
The Company participated in COVID-19 community testing
programmes, helping to identify infections through waste
water testing.
Opportunities
Opportunities
Trial and implement new technologies and innovation to improve
our water treatment processes and network operations, such as
leakage detection, which can help us achieve the 15% reduction
performance commitment.
Opportunities to trial and implement new technologies and
innovation to improve our treatment processes and capacity
to reduce power usage and generate more green electricity,
helping achieve our ambitious sustainability targets
(Principal Risk 6).
41
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION
OUR PRINCIPAL RISKS CONTINUED
CYBER SECURITY & TECHNOLOGY RESILIENCE
CAPITAL PROJECT DELIVERY & SCHEME RESILIENCE
RISK 4.
Cyber threats cause damage to key infrastructure assets, interruptions to core
systems or data loss resulting in a negative impact on our reputation,
operations, regulatory (including GDPR) compliance or finances.
RISK 5.
Failure to design or deliver to time and cost capital projects that ensure the
resilience of our operations and safety of our assets.
Strategic outcomes
Stakeholders
Strategic outcomes
Stakeholders
Risk mitigations
Risk mitigations
1 2 3 4 5 6
1 4 5 6
• Dedicated Information Security Team and Data Privacy Officer
• Framework agreements covering multiple contractual partners,
responsible for monitoring information security and cyber threat.
to provide a flexible and diverse supply chain.
• All employees complete mandatory annual cyber security and
• Use of a gated capital process to provide assurance around design
GDPR training.
and delivery.
• A robust operational security programme, including physical
access controls, on-site system protection and remote system
protection. A programme of regular internal and third-party
testing of our security network and systems.
• An effective vulnerability management system, including
penetration testing of publicly accessible systems, behavioural
alerts, patching processes, data disposal and access control,
including Multi-Factor Authentication.
• Working closely with third-party IT service partners to manage
risk and improve technical standards.
• Migration to Cloud platforms improving the resilience of
our disaster recovery and business continuity plans.
• All operational and office sites have business continuity and crisis
management plans in place, which are tested on a regular basis.
• AMP7 projects grouped into Major Critical, Critical, Major and
Standard, allowing us to tailor our process to suit project type.
• Implementation of an in-house design team for AMP7.
• Dedicated quality and assurance teams who perform in-depth
quality reviews.
• Regular contract review and performance meetings, including
Key Performance Indicators (‘KPIs’) review and proactive supplier
and market assessments.
• Appropriate regular training for contract management teams.
• Investment plans that balance affordability, efficiency and value,
both in economic terms and other value areas like natural capital
see Principal Risk 7.
Change in year
Change in year
The level of this risk has not changed from the prior year, reflecting
that, whilst companies continue to be subject to an increasing
number of attempted cyber attacks, we have stepped up our
investment in and development of mitigation controls.
A strong start to AMP7 following our fast-track status, has allowed
us to improve engagement with our contractor partners by providing
early visibility of designs through integrated project teams.
COVID-19 impact
COVID-19 impact
The COVID-19 pandemic has created new cyber security threats
and there has been an increase in cyber-related events nationally
and globally during the pandemic. However, there have been no
material instances impacting Group operations.
We were able to implement appropriate social distancing and safe
working practices to keep all our capital programmes on track, and
accelerated activity where the consequences of lockdown (such as
quieter roads and availability of resources) supported our activity.
Opportunities
Opportunities
Take advantage of new technologies, as they become available,
to help protect our systems and data.
Use the experience and expertise from within our supply chain to
design and deliver projects more efficiently and effectively.
42
Severn Trent Plc Annual Report and Accounts 2021
CLIMATE CHANGE, ENVIRONMENT & BIODIVERSITY
CLIMATE CHANGE, ENVIRONMENT & BIODIVERSITY
RISK 6.
Severn Trent’s climate change strategy does not enable us to respond to the
shifting natural climatic environment and maintain our essential services.
RISK 7.
We fail to positively influence natural capital in our region.
Strategic outcomes
Stakeholders
Strategic outcomes
Stakeholders
Risk mitigations
Risk mitigations
1 2 3 4 5 6
1 2 3 4 5 6
• Scenario modelling and data reviews, to develop an understanding
of the impacts climate change could have on our essential
services. See Principal Risks 2 and 3.
• Our AMP7 Business Plan supports increased resilience against
the potential impacts of climate change through capital scheme
delivery. See Principal Risk 5.
• Climate Change Steering Groups bringing together expertise
from across the business.
• Strong engagement with our supply chain to drive
environmental leadership.
• In 2019, we announced our Triple Carbon Pledge – committing us
to net-zero carbon emissions, 100% renewable energy and
an all-electric fleet by 2030, where available. See Our TCFD
Disclosures on pages 54 to 67 for further details.
• In March 2021, we submitted our proposed Scope 1, 2 and 3
emissions targets to the Science Based Targets initiative,
committing us to significantly reducing our greenhouse gas
emissions by 2030.
• Strategic plans to enhance biodiversity in our region and a number
of ODI commitments to protect our local environment, including
river water quality, pollution incidents, biodiversity improvements
and environmental compliance.
• Use of catchment management approaches to work with
landowners in our region to mitigate the effect of pesticides,
fertilisers and organic nutrients on the environment
and biodiversity.
• Modelling to estimate the impact of increasing pressures on
nature, for example, from climate change, such as, drought or
extreme weather events (see Principal Risk 6) and biodiversity
loss that has potential to impact ecosystems.
• In-house ecology expertise to enhance the Group’s capability
to work towards enhancing biodiversity.
Change in year
*
Change in year
On 26 May 2020, we successfully completed our inaugural
Sustainable Bond issue raising £300 million for 20 years with a
coupon of 2.0%. This was the first bond issue under our Sustainable
Finance Framework, with the proceeds being used for green
and social purposes.
Our involvement in the 2022 Birmingham Commonwealth Games
creates a platform to further enhance our local environment.
We have committed to creating 2,022 acres of new forest as part
of this programme, as well as helping make it the first ever carbon
neutral games.
COVID-19 impact
COVID-19 impact
The potential for accelerated long-term or rapid short-term changes
in customer usage patterns due to COVID-19 impact on lifestyle and
working patterns.
COVID-19 caused delays in a number of our plans that were reliant
on delivery through NGO partners and community groups.
Despite these challenges, we managed to deliver biodiversity
enhancements on over 2,000 hectares of land in year one, through
creating alternative biodiversity grant schemes for farmers and
projects with alternative delivery routes.
Opportunities
Opportunities
Continued engagement with stakeholders, including our supply
chain, to target innovation, on the mitigation of Scope 1, 2, and 3
emissions.
Engagement with our supply chain and customers to promote
biodiversity and use of our redundant land to lead the way in
our region.
43
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION
OUR PRINCIPAL RISKS CONTINUED
FINANCIAL LIABILITIES
FINANCIAL LIABILITIES
RISK 8.
Failure to fund our Severn Trent defined benefit (‘DB’)
pension scheme sustainably.
RISK 9.
We are unable to ensure sufficient liquidity to meet our funding requirements.
Strategic outcomes
Stakeholders
Strategic outcomes
Stakeholders
Risk mitigations
Risk mitigations
2 4 6
2 4 6
• The Company agreed the triennial actuarial valuation as at
31 March 2019, including repair payments of c.£55 million
per annum until 2022.
• Interest rate, inflation and equity risk are managed through
appropriate hedging strategies to manage downside risks,
with regular monitoring in place.
• We continue to work with the Trustee in considering The Pensions
Regulator’s consultation on its funding code of practice.
• Deficit recovery plans are agreed by the Company, setting out the
cash contributions required from Severn Trent to the Scheme.
• We are represented on the Investment Committee of the Scheme
and the investment policy is formally approved by the Group
Financial Director.
• The Group’s Treasury activity is overseen by our Treasury
Committee with support from dedicated advisers.
• The Group has a diversified capital structure, in both tenor
and access to global debt capital markets to mitigate risks.
• The Group maintains liquidity headroom of at least 18 months.
The Severn Trent Water revolving credit facility was recently
refinanced providing liquidity for a further seven years.
• Group cash balances are deposited across a range of
investment grade counterparties to spread and mitigate risk.
• The proportion of the Group’s debt maturing in any AMP
period does not exceed 40% of the Group’s total debt to
reduce refinancing risks.
• Treasury policy statements and procedure manuals are in place
and operating effectively. These are reviewed at least annually.
Change in year
Change in year
While our pension deficit has increased on an IAS 19 basis, to
£367.7 million (2020: £234.0 million), this is predominantly due
to a short-lived spike in corporate bond yields around March 2020,
which has since normalised.
We have worked with the Trustees to consider and respond to The
Pensions Regulator’s consultation on the funding code of practice.
We continue to be active in various Debt Capital Markets and have
recently issued £400 million of new debt in the sterling market and
a £100 million CPIH debt issue.
The Group recently refinanced its £1 billion revolving credit facility
for five years (with two one-year extensions).
COVID-19 impact
COVID-19 impact
Whilst there has been an increase in national mortality rates due
to the pandemic, the impact on long-term mortality is as yet unclear.
We are monitoring this with the Company’s and Scheme’s actuaries.
We continue to stress test our business plans by modelling plausible
and extreme scenarios to determine expected impacts and test the
Group’s financial resilience. Additional detail can be found in our
Viability Statement on pages 47 to 49.
Opportunities
Opportunities
Work with The Pensions Regulator to introduce positive changes
for fund schemes that benefit our scheme members, shareholders
and customers.
Maintaining strong liquidity levels, a strong credit rating and an
attractive ESG profile, will allow us access to a broad range of
financial markets optimising the Group’s financing costs.
44
Severn Trent Plc Annual Report and Accounts 2021
POLITICAL, LEGAL & REGULATORY
RISK 10.
Accelerating changes in the political, legal environment and environmental
obligations increase the risk of non-compliance.
Strategic outcomes
Stakeholders
Risk mitigations
4 6
• Fast-track status for our Severn Trent Water PR19 Final
Determination provided early sight over the AMP7 period enabling
a prompt start on our plans.
• Engagement with the UK Government, MPs, the Welsh
Government, regulators and other stakeholders about the future
shape and direction of the water sector, sharing our experience
where possible.
• Established Governance Framework, policies and training
ensuring our ongoing compliance with all applicable laws and
regulations, including Competition Law and GDPR, for the
operation of separate Wholesale and Retail business and between
our Group businesses. This is subject to regular review.
• Control frameworks subject to regular review, on at least an
annual basis, to take account of changes to legislation, regulation
and our business.
• External legal advisers providing detailed reviews in respect of
upcoming legislation that may affect the Group.
Change in year
There has been no significant change in the year. We await Ofwat
publishing the framework and detail for PR24 in late May 2021.
This will provide insight into the direction of the industry.
COVID-19 impact
We have supported Ofwat‘s COVID-19 initiatives, such as continued
review and support for business retailers and the Green Recovery
programme to boost national investment. Read more on page 13.
Opportunities
Engage with regulators to fast-track positive changes for our
communities and the environment.
45
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION
EMERGING RISKS
Emerging Risks
We define Emerging Risks as upcoming events which present
uncertainty but are difficult to assess at the current stage.
Emerging Risk management ensures these risks are identified
and helps to ascertain whether we are adequately prepared for the
potential opportunities and threats they pose. It aims to identify new
and changing risks at an early stage and analyse them thoroughly to
deduce the potential exposure to Severn Trent. We continually identify
and monitor Emerging Risks with good top-down and bottom-up
approaches. Management considers changing, new or emerging risks
through regular review and discussion. More locally, our network of
ERM Co-ordinators, ERM Champions and risk owners use techniques
such as cross-functional workshops and PESTLE (Political, Economic,
Social, Technological, Legal and Environmental) analysis. This culminates
in an Emerging Risk horizon map reported annually to the Audit
Committee and Board. We closely monitor Emerging Risks that may,
with time, become either complete ERM risks, incorporated into our
existing corporate risk reporting process; have potential to be superseded
by new Emerging Risks; or cease to be relevant as the internal and
external environment in which we operate evolves. The Directors have
carried out a robust assessment of the Company’s Emerging Risks and
consider the following to be risks that have the potential to increase in
significance and affect the performance of the Group:
Title
Detail
Area / Factor
Time Horizon
Macroeconomic
uncertainty
Continued macroeconomic uncertainty post-pandemic and adjustment
to new processes set out in the EU-UK Trade and Cooperation Agreement.
Economic
Medium
Performance
challenges
The greater disaggregated regulatory framework in AMP7 with new and more
challenging operational performance targets requires us to adapt to meet our
ambitions over the remaining years of the AMP.
Operational
Medium
Accelerating
customer
expectations
Energy
security
We have experienced a shift in customer expectations and will need to be flexible
in adjusting our plans over the coming years.
Reputational
Short –
Medium
Despite the UK having a reliable energy system with electricity supply from a diverse
range of sources, as a large energy user we are susceptible to extended power
disruptions. To increase our resilience to such events, increasing our self-generation
capability from renewable energy sources is being investigated as part of our
Climate Change Adaptation Strategy (from page 54).
Technology
Medium
Micro plastics
Understanding and addressing the impact of micro plastics – including
on natural resources and customers’ health.
Health, safety and
environmental
Medium
HS2
Direct impact on operational sites along the proposed route and the indirect
impact on labour availability in the area.
Operational
Medium –
Long
Dedicated COVID-19 Statement
Whilst global pandemics have not previously been noted as a Principal Risk, they do feature on our horizon scanning and many of
the associated risks are captured within our ERM framework. We have a well-rehearsed approach to incident management and
while COVID-19 presented many unique challenges, the governance structure we implemented in response to the pandemic provided
a stable foundation from which we could respond to the changing situation. You can read more about our COVID-19 response on pages
15 to 17. COVID-19 assumptions are built into our budget and business plan processes and you can read more about financial resilience
testing in our Viability Statement on pages 47 to 49. Our priority remains the health and safety of our people and customers, and we are
taking all possible actions to support them whilst continuing to deliver our essential services. The Board continues to receive regular
updates on the Group’s COVID-19 response in order to assess, monitor and respond to the evolving impact of COVID-19 on our operations
and business, including impacts for all of our stakeholders.
46
Severn Trent Plc Annual Report and Accounts 2021 VIABILITY STATEMENT
Viability Statement
Assessment of current position and long-term prospects
The Directors’ assessment of the Group’s current financial position
is set out in the Chief Financial Officer’s review on pages 31 to 37.
Our principal operating subsidiary is Severn Trent Water, which is a
regulated long-term business characterised by multi-year investment
programmes and relatively 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 can (in particular
through securing reasonable returns on their capital) finance the
proper carrying out of their statutory functions. Ofwat meets this
obligation by setting price controls for five year Asset Management
Periods (‘AMPs’) including mechanisms that reduce the risk of
variability in revenues from the regulated business in the medium
term by adjusting future revenues to balance over or under recovery
compared to the original plan.
AMP7 runs to 31 March 2025 and Severn Trent Water has developed its
plans to deliver the operational and financial performance set out in
Ofwat’s Final Determination. We have based our assessment of
prospects for the next four years on these plans, subject to modifications
resulting from the impacts of the COVID-19 pandemic (see below).
When considering the Group’s prospects beyond 2025, it is necessary
to make assumptions about the price review process for the period
2025 – 2030 (PR24), which will take place in 2024. In making this
assessment we have taken account of:
• Ofwat’s statutory duty to secure that companies can finance the
proper carrying out of their functions;
• Severn Trent Water’s financial structure, which is close to the
Ofwat notional capital structure and our plan to retain this; and
• Severn Trent Water’s plans for AMP7, the successful execution
of which would deliver benefits to all stakeholders and financial
incentives that would help to further strengthen our financial
resilience in the period beyond 2025.
We have significant investment programmes, largely funded through
access to debt markets. Our strategic funding objectives reflect the
long-term nature of the Severn Trent Water business and we seek
to obtain a balance of secure long-term funding at the best possible
economic cost. We maintain sufficient liquidity to cover cash flow
requirements for a rolling period of at least 18 months in order to limit
the risk of restricted access to capital markets. Our Group Treasury
Team actively manages our debt maturity profile 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 13 years.
We have an established process to assess the Group’s 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 our medium-term plan, which we update annually.
Our medium-term plan reflects the Group’s prospects and considers the
potential impacts of the Principal Risks and uncertainties. We perform
stress tests to assess the potential impact of combinations of those
risks and uncertainties. The plan also considers mitigating actions
that we might take to reduce the impact of such risks and uncertainties,
and the likely effectiveness of those mitigating actions.
Impact of COVID-19 on the Group’s prospects
The Office for Budget Responsibility identified the water industry
as likely to be amongst the least affected by the COVID-19 pandemic,
but we are not immune to the impacts on the wider economy. In the
last year we have, as expected, seen a reduction in consumption from
non-household customers following the restrictions implemented
by the Government. We have thankfully seen only limited changes
in household customer payment behaviour, but recognise that there
may be a lag between the change in family household financial
circumstances (for example unemployment) and the change in cash
collections. We have increased the availability of our range of social
tariffs to help mitigate this. There was also a sharp reduction in
inflation during 2020 and 2021 that will impact our revenue in financial
year 2021/22 and continued low inflation in 2021 would impact revenue
in 2022/23. We have updated our model of the likely impacts of
COVID-19 on our medium-term plan and developed an updated
assessment of our prospects allowing for the anticipated impacts of
COVID-19 based, inter alia, on Government advice and water sector
specific guidance from our regulator Ofwat. We have applied our
stress tests, including a ‘third wave’ of COVID-19, to this adjusted plan.
Period of assessment
The Board considered a number of factors in determining the period
covered by the assessment. The long-term nature of our principal
business, together with relatively stable revenues and a model of
economic regulation that places a duty on the regulator to secure that
water companies can finance the proper carrying out of their functions,
support a longer period of assessment.
However, the changing nature of regulation of the water industry
and the impacts of the COVID-19 pandemic increase the uncertainty
inherent in our financial projections. We have an established planning
and forecasting process and the Board considers that the assessment
of the Group’s prospects is more reliable if based on an established
process. Our latest medium-term plan extends in detail to the end
of the AMP7 period in 2025, with less detailed projections looking
beyond this.
A longer period of assessment introduces greater uncertainty
because the variability of potential outcomes increases as the
period considered extends.
Bearing in mind the long-term nature of our business; the enduring
demand for our services; our established planning process; and the
changing nature of the regulation of the water industry in England
and Wales, the Board has determined that seven years is an
appropriate period over which to assess the Group’s prospects
and make its Viability Statement this year.
Assessment of viability
In assessing our future prospects, we have considered the
potential effects of risks and uncertainties that could have a
significant financial impact under severe but plausible scenarios.
The risks and uncertainties considered were identified in the Group’s
ERM process, which is described on pages 39 to 46, and from the key
assumptions in the financial model. Where the risk occurs at a point
in time we have assumed that it occurs at the point in the plan with
the lowest headroom.
47
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION The regulatory model includes mechanisms to adjust
future revenues to balance out any under recovery when
compared to the original price review. The application of
these mechanisms would necessarily take into account
affordability of customers’ bills and therefore might be
spread into AMP8.
Reduce discretionary expenditure to mitigate the
impact of lower revenue in the affected years.
Lower inflation would reduce the finance cost
incurred on index-linked debt.
Consider use of hybrid debt instruments to
protect credit ratings.
Consider a temporary reduction in, or re-phasing
of, dividends.
Discuss impact on debt covenants with lenders
and seek a temporary waiver if necessary.
Consider use of hybrid debt instruments
to protect credit ratings.
Consider a temporary reduction in dividends.
Identify and implement sustainable cost
savings and efficiencies.
Reduce working capital to support cash flow.
VIABILITY STATEMENT CONTINUED
The scenarios tested are described below.
Scenario tested
Related Principal Risk
Mitigating actions
1. A severe impact from a new variant
of COVID-19 resulting in a prolonged
‘lockdown’ period resulting in lower
economic activity, higher
unemployment and lower inflation
The adjustments that we have made to our
medium-term plan to reflect a possible
new variant of COVID-19 are based on a
number of assumptions and experience
gained over the last 12 months. We have
modelled a further period of ‘lockdown’
and restrictions which might result in
more severe impacts on total revenues and
household bad debts, together with a
larger and longer reduction in inflation,
and an impact on ODIs earned.
2. An increase in the funding deficit
of the Group’s defined benefit
pension schemes
Risk 8 – page 44
The planned funding for the Group’s
defined benefit pension arrangements is
based on current assumptions for future
inflation, asset returns and members’
longevity. Outcomes adverse to our
assumptions could result in a higher
funding deficit. We have assessed the
impact of an increase in cash contributions
to the schemes to £92 million per annum.
Contributions are reviewed and agreed
with the Scheme trustee on a triennial
basis with the next valuation of the main
scheme based on the funding position at
31 March 2022.
3. Severn Trent Water experiences a
severe operational failure or other
exceptional event with a very significant
financial impact
The Group’s ERM process has identified a
number of risks including failure of key
assets and cyber attacks that might have a
significant impact on the Group’s
operational and financial performance.
We have assessed the effects of an incident
with an impact of £300 million.
Risk 1 – page 40
Risks 2-3 – page 41
Risk 4 – page 42
Risk 6 – page 43
Reduce discretionary expenditure to cover any
extra costs resulting from the event.
Consider use of hybrid debt instruments to protect
credit ratings.
Consider a temporary reduction in dividends.
Discuss the impact on debt covenants with lenders
and seek a temporary waiver if necessary.
4. Severn Trent Water underperforms
Risks 2-3 – page 41
against its performance commitments
Reduce discretionary expenditure to cover any extra
costs resulting from penalties.
Discuss the impact on debt covenants with lenders
and seek a temporary waiver if necessary.
Severn Trent Water operates under
a regulatory model that encourages
companies to deliver what customers
want, using performance-related
rewards and penalties. Failure to deliver
performance at the committed level
can lead to significant penalties. We
have assessed the impact of a penalty
equivalent to 3% of one year’s revenue.
48
Severn Trent Plc Annual Report and Accounts 2021 Scenario tested
Related Principal Risk
Mitigating actions
5. Severn Trent Water incurs higher costs
Risk 10 – page 45
Reduce discretionary expenditure in the short term.
than planned that are not funded
Significant overspending could result
in a deterioration in financial metrics
and performance, which might adversely
impact the Group’s solvency. We have
assessed the impact of a 10% overspend
on capital and operating expenditure in
each year of the plan.
In the medium term implement an efficiency and
cost reduction programme to bring costs back in
line with regulated allowances.
Discuss impact on debt covenants with lenders
and seek a temporary waiver if necessary.
Consider a temporary reduction in dividends.
6. A combination of scenarios 4 and 5
See above
Reduce discretionary expenditure in the short term.
Reduce working capital to support cash flow.
Discuss impact on debt covenants with lenders
and seek a temporary waiver if necessary.
Consider a temporary reduction in dividends.
Governance and assurance
The Board reviews and approves the medium-term plan on which
this Viability Statement is based. The Board also considers the period
over which it should make its assessment of prospects and the Viability
Statement. The Audit Committee supports the Board in performing
this review. Details of the Audit Committee’s activity in relation to
the Viability Statement are set out in the Audit Committee Report
on page 107.
This Viability Statement is subject to review by Deloitte, our external
auditor. Their Audit Report is set out from page 159.
Assessment of viability
The Board has assessed the viability of the Company over a seven
year period to March 2028, 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 2028.
The combined scenario represents a situation where several of the
severe but plausible scenarios occur simultaneously. In this situation,
the same mitigating actions would be available but their application
would be deeper.
We have significant funding requirements to refinance existing debt
that falls due for repayment during the period under review and to
fund our capital programme. Under all scenarios considered, the
Group would remain solvent and have access to sufficient funds
in normal market conditions. Our Treasury Policy requires that we
retain sufficient liquidity to meet our forecast obligations, including
debt repayments for a rolling 18-month period.
In making its assessment, the Board has made the following
key assumption:
• 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.
On this basis, the stress tests indicated that none of these scenarios,
including the combined scenario, would result in an impact to the
Group’s expected liquidity, solvency or debt covenants that could not
be addressed by mitigating actions and are therefore not considered
threats to the Group’s viability.
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.
49
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION SUSTAINABILITY FRAMEWORK
Sustainability at the Heart of our Approach
As a company taking care of one of life’s
essentials, we know that the resilience of
our business is intrinsically linked to the
resilience of our region, its communities
and the natural environment.
Our long-standing commitment to sustainability has been clear for
some time, but over the past 18 months we have worked hard to
ensure it focuses on the areas we know can have a genuine impact
for our region – climate change mitigation and resilience, reducing
waste, taking care of nature, taking care of our people, customers and
communities – and doing all of this in a transparent and genuine way.
We launched our framework in March 2020 and announced our
intention to invest £1.2 billion over the next five years and we are on
track to do exactly that, with the opportunity to go even further with
the Green Recovery proposals we submitted to Ofwat earlier this year.
Read more on page 13.
Across our Annual Report and Sustainability Report we continue to
improve the transparency of our reporting, making the information
accessible for our stakeholders. This includes following the principles
of the Global Reporting Initiative (‘GRI’) with a mapping to the relevant
Sustainability Accounting Standards Board (‘SASB’) initiatives and
continuing to evolve our climate risk disclosures in line with the Task
Force on Climate-related Financial Disclosures (‘TCFD’) guidelines.
Our Purpose
Taking care of one of life’s essentials
Taking care
of the
environment
Helping
people to
thrive
Being a
company
you can trust
Ensuring a sustainable water cycle
Secure water sources in the long term –
through catchment management, demand
reduction and climate change adaptation –
so that we can deliver our services for
future generations.
Enhancing our natural environment
Protect and enhance nature at each stage of
the water cycle by improving biodiversity and
stopping pollution; benefiting nature, local
communities and our business.
Delivering an affordable
service for everyone
Work with our industry to end water poverty
by supporting customers who struggle to pay
their bills and providing priority support to
those who need it.
Living our Values
Nurture a strong, open, one-team culture
based on company Values that articulate
what we stand for.
Providing a fair, inclusive
and safe place to work
Balancing the interests
of all our stakeholders
Build a workforce that is reflective of the
community we serve and foster a culture where
everyone can be themselves, driving better
decision making and performance.
Understand the needs of stakeholders in
order to make business decisions that benefit
shareholders, society and the environment.
Making the most of our resources
Generate renewable energy and other useful
resources from our waste and aim for zero
waste to landfill through our business activities.
Investing in skills
and knowledge
Support the skills base of our people
and our region and inspire the next
generation of customers to adopt more
sustainable behaviours.
Mitigating climate change
Play our part in reducing global carbon
emissions in line with the 2015 Paris Agreement,
aiming for net-zero carbon and supporting the
UK’s energy transition.
Making a positive difference
in the community
Serve our local communities through
community projects and volunteering,
and global communities through
charity partnerships.
Running our company
for the long term
Put strong governance – leadership, ethics,
and management of risks and opportunities –
at the heart of our business.
Being open about what we do
and sharing what we know
Build trust through transparency, and work
with our sector on innovative solutions to our
shared challenges.
Linked SDGs
Linked SDGs
Linked SDGs
We have mapped the United Nation’s
Sustainable Development Goals (‘SDGs’) to
the pillars of the Sustainability Framework.
50
Severn Trent Plc Annual Report and Accounts 2021
COMMITMENTS TO CLIMATE CHANGE
Commitments to Climate Change Timeline
2021
Science Based Targets
Submitted to SBTi in March
including a 46% reduction in
Scope 1 and 2 emissions and over
70% engagement target on Scope
3 emissions.
Net-Zero Roadmap
At our Capital Markets Day in
September we will outline our
roadmap to net zero by 2030 in
more detail.
2022
Electric vehicle charging
Over 350 charge points installed
over 65 sites.
Commonwealth Games
Supporting the games with
their Carbon Neutral and
Nature ambitions by planting over
2,022 acres of forest.
2025
Delivering on our AMP7
ambitions including:
• 50% reduction in pollutions;
• 15% reduction in leakage;
• Improving the quality of
over 2,100 km of rivers.
2027
Biodiversity enhanced in
over 5,000 ha in our region.
Green Recovery
Commencing work on additional projects
to support nature, net zero and climate
resilience as part of the Green Recovery.
Read more on page 13.
Strategic Direction
We will reveal our 30-year Strategic
Roadmap alongside our Environment
Strategy and detail of how we will
continue to adapt to changing climate.
Shareholder vote on our climate
change approach
In March 2021, the Board announced its
intention to put its long-term approach to
climate change before shareholders, and
seek a non-binding advisory vote on plans
to achieve them, at the AGM on 8 July.
2023
Electric vehicles
Commitment to purchase electric vans
from 2023 onwards (where available).
Water always there
As part of our approach to becoming more resilient to
climate change while reducing our own impact we have
proposed a project to utilise new abstraction rights, build
more storage and move water through our river system
to provide over 100 Ml/d of additional water to support
water-scarce homes and businesses.
2026
All company cars electric (where
available).
2030
• 100% electric fleet, where available.
• Net-zero operational carbon emissions
including 46% reduction in
Scope 1 and 2 emissions.
Reducing pollutions
We have made great strides in reducing category 1-3
waste pollutions by 21% this year through careful
management of our pipes and treatment works and
educating customers, but we know we must do more
to reach our 50% reduction ambition by 2025.
51
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 OUR JOURNEY TO NET ZERO
Our Journey to Net Zero
Our targets
We recognise the growing threat of climate
change and we want to lead the way in
reducing emissions of greenhouse gases.
That’s why we have set our 2030 Triple
Carbon Pledge and committed to meet
science-based carbon targets.
This means not only reducing our own
operational emissions from the assets we
own and operate, but also going further
to reduce emissions in our supply chain.
Our Triple Carbon Pledge by 2030:
Reach net operational greenhouse gas emissions of zero
The definition of this was set out in our industry
‘Net-Zero Roadmap’ published in November 2020.
100% of our vehicles will be electric, where available
For vans and HGVs this may mean using alternative fuels
like hydrogen depending on how the market evolves.
100% renewable energy
This means all the energy we use will be direct from a renewable
source or via a supplier from a renewable-backed source.
We submitted our targets for verification to the Science Based
Targets initiative in March 2021. Science Based Targets go further
than our Triple Carbon Pledge targets by including our supply chain.
Our targets to 2030 are only the first part of our journey
and ambition. Beyond 2030 we want to go beyond net zero
and reduce emissions entirely.
Our road to operational net zero by 2030
Our plans are constantly evolving and there will be large changes
in this area, but our current roadmap is made up of a mix of actions
ranging from reductions to offsets.
Key
Reduce
Replace
Growth and quality requirements
Remove
Offset
Growth &
quality
requirements
Renewable –
backed import
electricity
Electrify
vehicle fleet
Process
emissions
reductions
E
N
I
L
E
S
A
B
0
2
/
9
1
0
2
52
Reduce
direct fossil
fuel use
Renewable
gas export
growth
Nature-
based carbon
capture
New green
markets
Purchased
offsets
Severn Trent Plc Annual Report and Accounts 2021
Innovation
Accelerating known innovations and driving creativity
through partnerships to discover new solutions
Reduce
Delivering real reductions in
emissions and energy use
from our operations
Offset
Generating and exporting
renewable energy and
biomethane to replace fossil
fuel in the national grid
Replace
Replacing fossil fuels with
renewable sources and biofuel;
replacing our diesel vehicles
with electric
Remove
Harnessing the power
of nature in our region to
capture carbon while
improving biodiversity
Engagement
Influencing our customers, colleagues
and our supply chain to contribute
to our net-zero ambitions
Biogenic emissions
CO2 is produced from sewage treatment,
the combustion of biogas and the production
and combustion of biomethane. Currently,
we estimate but don’t report these emissions
because the equivalent carbon is taken in
by the food grown which ultimately becomes
the waste we treat and they are therefore
‘short-cycle’ emissions.
Markets
For some areas of our work, there are no
feasible alternatives or technology readily
available on the market. Where we can’t
develop the solutions alone, we need
markets to adapt and make these available
so we can find the best way to adopt the
solutions. This includes carbon removal,
capture and storage technologies which
are not currently affordable.
Our approach
Our approach to reducing
emissions follows the
carbon hierarchy, looking
to reduce and avoid first
before looking to offset
or remove carbon emissions.
Our top five challenges
Supply chain emissions
We do not control the supply chain and we
need markets and companies to change to
find solutions. For example, at present we
need chemicals to treat water to meet
drinking water standards. We must work with
the supply chain to find zero carbon ways of
manufacturing and delivering these
chemicals or find alternatives in order to
achieve carbon zero treatment processes.
Process emissions
Emissions of nitrous oxide and methane
from waste and sludge treatment are
now our largest source of greenhouse gas
emissions. There are currently no feasible, or
affordable alternatives to our current method
of treatment and capturing will be expensive.
Offsets
It’s possible we won’t be able to completely
avoid all current emissions. Therefore, in
order to achieve zero carbon in the long term,
carbon removal technologies will need to be
available on the market which are not
currently affordable or feasible.
53
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 OUR TCFD DISCLOSURES
Our Approach to Climate Change
1st
Water company in the UK to commit
to developing Science Based Targets
2030
Signatory to the UN Climate Change Race to
Zero campaign, pledging to deliver a net-zero
water supply for customers by 2030
Triple Carbon Pledge
Pledge extended with new target:
• Net-zero operational carbon emissions by 2030
• 100% energy coming from renewable sources by 2030
• 100% electric fleet by 2030, where available
Our approach to climate change
We are committed to the recommendations of the Task Force
on Climate-related Financial Disclosures (‘TCFD’), providing our
stakeholders with decision-useful information on climate-related
risks and opportunities that are relevant to our business. We seek
to put sustainability at the heart of everything we do and this section
sets out our approach to implementing the recommendations of
the TCFD, including how we think about the governance, strategy,
risk management and the metrics and targets which underpin our
approach. As a company that relies on people, communities and the
environment, sustainability is central to our strategy. Our strategy
focuses on the positive impact we can have on the communities we
serve and on the environment that we rely on. In supporting the
creation of value – be that economic, environmental or social –
we deliver sustainable value for all of our stakeholders. Our
Sustainability Framework on page 50 is fully embedded into
our overall strategy and draws together our environmental,
social and governance ambitions. These are delivered as part of
our Business Plan and are fully embedded in the way we work.
Additional information can be found in our Sustainability Report.
Five-year TCFD
disclosure roadmap
We have a strong track record of improving
environmental performance and are
committed to continually enhancing our
reporting against the TCFD recommendations.
YEAR ONE
YEAR TWO
2019/20
In 2019/20 we made our
first TCFD disclosure within
our Sustainability Report.
During the year we undertook
a gap analysis to better
understand our material
risks and opportunities
and embed climate change
modelling into our approach.
2020/21
In 2020 we established our
dedicated TCFD Working
Group and established our
five year TCFD Roadmap.
We continue to develop a
full TCFD disclosure aligned to
other documents due for release
this year including our Climate
Change Adaptation Report,
Strategic Direction Statement
and new Environment Strategy.
54
Severn Trent Plc Annual Report and Accounts 2021 Board statement on its commitment to the 2015 Paris Agreement
The Severn Trent Plc Board believes that the 2015 Paris Agreement
is an important step forward in addressing the serious risks of
climate change and recognises the constructive contribution we
can play in tackling climate change and help the transition to a
low carbon economy. It is our ambition to be a net-zero company
by 2030 by building on the work we have been undertaking for many
years to reduce emissions across our business and within our supply
chain. In March 2020, we were the first water company in the UK to
commit to developing Science Based Targets. This means that we
will develop longer-term commitments to make real reductions
to emissions, in line with the 2015 Paris Agreement to limit global
warming to well below 2°C above pre-industrial levels and pursue
efforts to limit warming to 1.5°C. These commitments are based
on emissions targets under Scope 1 (direct emissions arising from
owned or controlled sources), Scope 2 (indirect emissions arising
from energy purchase) and Scope 3 (indirect emissions arising
within the value chain).
During 2020/21, the Company has focused on developing targets,
which include a combined Scope 1 and 2 target to sit alongside our
existing emissions reduction commitments, our Triple Carbon
Pledge of net-zero operational emissions, 100% energy coming
from renewable sources, and 100% electric fleet by 2030, where
available. From 2015 to 2020, Severn Trent has self-generated
more than 50% of Severn Trent Water’s electricity needs from
renewable sources, reduced net carbon emissions by 40% and
invested £350 million in improving a third of the rivers in its region.
Additionally, we have also committed to plant 1.3 million trees and
revive 5,000 hectares of land to support our plan to reduce carbon.
In January 2021, we announced that we have signed up to the UN
Climate Change Race to Zero campaign, pledging to deliver a
net-zero water supply for customers by 2030. Led by the United
Nations Framework Convention on Climate Change (‘UNFCCC’),
we joined other companies from around the world to rally
leadership across businesses, cities, regions and investors
for a healthy, resilient and zero carbon recovery.
Our net-zero scope, definition and journey align with the wider
water industry commitment to reach net zero as a sector by 2030.
Our Scope 3 categories make up a significant part of our overall
emissions and as such we have set a Scope 3 target to engage
with our supply chain and set Science Based Targets on 73% of
their emissions and have worked to identify where our biggest
areas of opportunity lie. We will use this to continue to build our
understanding, gain a more accurate and complete picture of
our current position, and use this insight to build an ambitious
but achievable reduction target.
The information provided in this section, in conjunction with our
wider Annual Report and Accounts and separate Sustainability
Report, demonstrate how we have embedded climate-related
risks and opportunities into our strategy and business model; the
progress we’re making on our journey; the metrics and targets we
have set ourselves over the next several years, and our approach
to understanding and mitigating the risks posed.
The tables on the pages 56 and 57 set out where stakeholders can find
further information on how we have applied the recommendations of
the TCFD and the Paris Agreement goals, including where additional
information on our climate-related financial disclosures can be
found within this report. We will continue to evolve and enhance our
reporting against the TCFD framework, and we welcome feedback
on our approach.
YEAR THREE
YEAR FOUR
YEAR FIVE
2021/22
In September 2021 we
intend to publish a full TCFD
disclosure, expanding on the
information here, six months
ahead of the target timeline
outlined by Government.
This will allow us to continue
to embed and mature our
processes across the Group,
which will naturally be built into
our ongoing business planning
processes for this AMP and
form a key component of the
Price Review process.
2022/23
In the spirit of improvement
our 2022/23 disclosures will
include quantitative data
surrounding our Scope 3
carbon reduction work with
our supply chain. It will form
part of proposals to Ofwat
which will be submitted in
2023. We will also explore the
role that the Task Force for
Nature-related Financial
Disclosures (‘TNFD’) could
have in our long-term thinking.
2023/24
We recognise the importance
of continually reviewing the
effectiveness of our approach
and established mechanisms
and this will be a core focus
for us in year five as well
as refreshing our risk
assessments across both the
Group and wider supply chain.
55
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION OUR TCFD DISCLOSURES CONTINUED
Climate-related Financial Disclosure Statement
TCFD FOCUS AREA
WHERE CAN I FIND OUT MORE?
DISCLOSURE OBJECTIVE
OUR PROGRESS
-
Governance
Disclose the organisation’s
governance around climate-related
risks and opportunities
Strategy
Disclose the actual and potential impacts
of climate-related risks and opportunities
on the organisation’s businesses, strategy,
and financial planning where such
information is material
See Climate-related Governance on page 58
• Describe the Board’s oversight of climate-related risks
The Board and individual Directors possess significant
See Governance Report on pages 80 to 153
and opportunities.
• Describe management’s role in assessing and managing
climate-related risks and opportunities.
See Climate-related Strategy on pages 58 to 60
• Describe the climate-related scenarios the organisation
As a company providing an essential service drawn from nature,
See business model on pages 6 to 7
has identified over the short, medium and long term.
• Describe the impact of climate-related risks and
opportunities on the organisation’s businesses, strategy,
and financial planning.
• Describe the resilience of the organisation’s strategy,
taking into consideration different climate-related scenarios,
including a 2°C or lower scenario.
Risk Management
Disclose how the organisation
identifies, assesses and manages
climate-related risks
See Climate-related Risk Management on pages 61 to 63
See Our Approach to Risk on pages 38 to 39
See Principal Risks on pages 40 to 45
• Describe the organisation’s processes for identifying
and assessing climate-related risks.
• Describe the organisation’s processes for managing
climate-related risks.
• Describe how processes for identifying, assessing and
managing climate-related risks are integrated into the
organisation’s overall risk management.
climate-related expertise (as outlined on page 97). As such,
our Board has a sound basis from which to consider the risks
and opportunities presented by a changing climate. To further
strengthen our governance around climate-related risk and
opportunities, we have constituted a TCFD working group to
oversee the implementation of the TCFD recommendations.
This approach ensures that key management teams throughout
the business, including Strategy, Risk, Finance, Treasury and
Compliance, have an aligned approach in respect of climate-
related matters to support delivery of the Group’s overall
climate strategy.
we know that our sector is particularly vulnerable to the effects
of climate change. Our in-depth scenario analysis, which looks
at a range of climate futures, enables us to identify areas within
our value chain which may be more sensitive to the impacts of
climate change, and to ensure that we make investments to
enhance resilience without over-investing.
In addition to our physical risk assessment, we understand that
a changing world may have different political, technological or
market pressures than we do today. That’s why we seek to drive
our strategy to meet the needs of the future and ensure that we
assess a range of future scenarios to understand our resilience.
Environmental risk management is a well-established part of
our risk management processes and is embedded throughout
our organisation. We have made progress in the last 12 months
on developing our scenario analysis, integrated with our long-term
planning such as the Drainage and Waste Water Management Plan
(‘DWMP’) and Water Resources Management Plan (‘WRMP’), and
in identifying both the risk themes and detailed risk assessment
across our value chain, as shown on pages 62 to 63.
The sector has shown resilience to changing environmental and
output quality expectations in the past, as the expectations of
customers and regulators have changed. Given the uncertainty
around climate risk, a key focus for our risk management approach
is achieving a co-ordinated approach to data capture, modelling
and regulation for the sector as a whole.
Metrics and Targets
Disclose the metrics and targets used
to assess and manage relevant climate-
related risks and opportunities where
such information is material
56
See Climate-related Metrics and Targets on page 64
• Disclose the metrics used by the organisation to assess
The provision of clean, safe water, and the treatment of waste
See Sustainability Report on our website
climate-related risks and opportunities in line with its
strategy and risk management process.
• Disclose Scope 1, Scope 2 and, if appropriate, Scope 3
greenhouse gas (‘GHG’) emissions, and the related risks.
water is core to our business. As such, we have a number of key
metrics and targets that assess our ability to reduce the risk when
providing these core services, and ensuring that we can continue
to deliver for generations to come.
• Describe the targets used by the organisation to manage
In addition to ensuring we can adapt to climate change, we are
climate-related risks and opportunities and performance
committed to mitigating our impact on climate change. We have
against targets.
committed to Science Based Targets, set a Net-Zero Ambition
by 2030 and released our Net-Zero Roadmap (see pages 54 to 55).
Severn Trent Plc Annual Report and Accounts 2021 TCFD FOCUS AREA
WHERE CAN I FIND OUT MORE?
DISCLOSURE OBJECTIVE
OUR PROGRESS
-
See Climate-related Governance on page 58
See Governance Report on pages 80 to 153
• Describe the Board’s oversight of climate-related risks
and opportunities.
• Describe management’s role in assessing and managing
climate-related risks and opportunities.
See Climate-related Strategy on pages 58 to 60
See business model on pages 6 to 7
• Describe the climate-related scenarios the organisation
has identified over the short, medium and long term.
• Describe the impact of climate-related risks and
opportunities on the organisation’s businesses, strategy,
and financial planning.
• Describe the resilience of the organisation’s strategy,
taking into consideration different climate-related scenarios,
including a 2°C or lower scenario.
See Climate-related Risk Management on pages 61 to 63
See Our Approach to Risk on pages 38 to 39
See Principal Risks on pages 40 to 45
• Describe the organisation’s processes for identifying
and assessing climate-related risks.
• Describe the organisation’s processes for managing
climate-related risks.
• Describe how processes for identifying, assessing and
managing climate-related risks are integrated into the
organisation’s overall risk management.
The Board and individual Directors possess significant
climate-related expertise (as outlined on page 97). As such,
our Board has a sound basis from which to consider the risks
and opportunities presented by a changing climate. To further
strengthen our governance around climate-related risk and
opportunities, we have constituted a TCFD working group to
oversee the implementation of the TCFD recommendations.
This approach ensures that key management teams throughout
the business, including Strategy, Risk, Finance, Treasury and
Compliance, have an aligned approach in respect of climate-
related matters to support delivery of the Group’s overall
climate strategy.
As a company providing an essential service drawn from nature,
we know that our sector is particularly vulnerable to the effects
of climate change. Our in-depth scenario analysis, which looks
at a range of climate futures, enables us to identify areas within
our value chain which may be more sensitive to the impacts of
climate change, and to ensure that we make investments to
enhance resilience without over-investing.
In addition to our physical risk assessment, we understand that
a changing world may have different political, technological or
market pressures than we do today. That’s why we seek to drive
our strategy to meet the needs of the future and ensure that we
assess a range of future scenarios to understand our resilience.
Environmental risk management is a well-established part of
our risk management processes and is embedded throughout
our organisation. We have made progress in the last 12 months
on developing our scenario analysis, integrated with our long-term
planning such as the Drainage and Waste Water Management Plan
(‘DWMP’) and Water Resources Management Plan (‘WRMP’), and
in identifying both the risk themes and detailed risk assessment
across our value chain, as shown on pages 62 to 63.
The sector has shown resilience to changing environmental and
output quality expectations in the past, as the expectations of
customers and regulators have changed. Given the uncertainty
around climate risk, a key focus for our risk management approach
is achieving a co-ordinated approach to data capture, modelling
and regulation for the sector as a whole.
See Climate-related Metrics and Targets on page 64
See Sustainability Report on our website
• Disclose the metrics used by the organisation to assess
climate-related risks and opportunities in line with its
strategy and risk management process.
• Disclose Scope 1, Scope 2 and, if appropriate, Scope 3
greenhouse gas (‘GHG’) emissions, and the related risks.
• Describe the targets used by the organisation to manage
climate-related risks and opportunities and performance
against targets.
The provision of clean, safe water, and the treatment of waste
water is core to our business. As such, we have a number of key
metrics and targets that assess our ability to reduce the risk when
providing these core services, and ensuring that we can continue
to deliver for generations to come.
In addition to ensuring we can adapt to climate change, we are
committed to mitigating our impact on climate change. We have
committed to Science Based Targets, set a Net-Zero Ambition
by 2030 and released our Net-Zero Roadmap (see pages 54 to 55).
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Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION OUR TCFD DISCLOSURES CONTINUED
Climate-related Governance
Our Sustainability Governance Framework
Our governance processes are aligned with the Group’s Sustainability
Framework – ensuring that the Board is effective in its: oversight of the
Group’s Sustainability Framework; consideration of climate-related
risks and opportunities; and scrutiny of management’s assessment
and management of climate-related risks and opportunities.
The Board delegates certain sustainability oversight and climate-
related risk oversight activity to its Board Committees to support
the continued delivery of the Group’s Sustainability Framework.
Detail is provided opposite, including cross-reference to where
you can find additional information throughout this Annual Report
and in our separately published Sustainability Report.
Severn Trent is committed to making decisions for the long term –
decisions that add value for our customers, the communities
we serve and the environment, and treating all of our employees
and other stakeholders fairly. This means we work to achieve our
outcomes in a sustainable way – be it through taking care of the
environment, helping people thrive or being a company you can trust.
This is integral to the way we operate.
Addressing the challenge of climate change is core to our strategy and
is therefore at the centre of many Board considerations and decision
making throughout the year. This requires robust governance to
empower business areas in the management of climate-related risks
and opportunities. Our Sustainability Governance Framework ensures
that the Board is effective in both making decisions and maintaining
oversight, whilst also adhering to our well-established culture of
Doing the Right Thing (read more on page 59). Strong governance
of sustainability issues, including climate change specifically, extends
below the Board to a number of management committees and our
TCFD working group, as shown in the infographic.
Assessing the transitional risks of climate change
During 2020/21 we carried out a strategic review looking at key
trends to assess the resilience of our strategy in consideration
of a changing environment. This activity identified eight trends
related to the environment and climate change, adoption of
maturing and low carbon technologies, and evolving socio-
demographics, which we felt would be the most influential in
shaping the next three decades and inform our strategic thinking.
By stressing different levers of change, we assessed five possible
scenarios which we associated with potential futures within a range
of warming between 1.5°C and 4°C. This qualitative exercise enabled
us to assess the future direction of our core strategy to ensure that
we are resilient to a changing environment.
The outputs of the strategic planning process, which summarises
our strategic response to the trends and their implications will
be published in 2021.
Climate-related Strategy
Mitigating climate change
Climate change is one of the greatest challenges our society will face
this century and we are better placed than many to understand the
scale of the problem.
Sustainability is central to the long-term success of our business,
and central to this approach is our Sustainability Framework as
set out on page 50. This focuses on our environmental, social and
governance ambitions – the areas that our stakeholders have told
us are most important to them. This includes playing our part in the
UK’s Green Recovery and more information can be found on page 13.
As part of our Triple Carbon Pledge, we will contribute to reducing
the impact of our activities on climate change and ensure that we
make a positive contribution to the environment. Read more about
our targets and approach to climate change mitigation on page 12.
Adapting to climate change
As a company providing an essential service drawn from nature,
we know that our sector is particularly vulnerable to the effects of
climate change. In fact, we’ve already felt the impacts of extremes
in weather over the past few years. Providing water and treating waste
water are key to our operations, and requires a sector-wide approach
and long-term strategic thinking to ensure that the risks affecting our
ability to provide these services are mitigated.
Hotter, drier summers may lead to water shortages, and wetter
winters with more intense rainfall could exceed sewer capacity,
resulting in flooding. Realising opportunities through our demand
reduction programmes may also increase the headroom available
to meet additional demand requirements. There may also
be significant changes to the political, legal and regulatory
environment, increased levels of opportunity arising from
technological developments and renewable energy programmes,
and changing consumer focus toward environmental activities.
These risks and opportunities are currently assessed as part
of our overall ERM system outlined on pages 38 and 39.
58
Severn Trent Plc Annual Report and Accounts 2021 Sustainability Governance Framework
Strong governance of sustainability issues, including over climate-related risks and opportunities specifically, extends below the
Board to a number of Board and management committees, as outlined below.
THE BOARD
The Board’s role is to ensure the long-term sustainable success of Severn Trent by setting our strategy through which value can be created
and preserved for the mutual benefit of our shareholders, customers, employees and the communities we serve. The Board, led by our Chair
Christine Hodgson, has ultimate responsibility for sustainability. Oversight of the Group’s sustainability strategy is a matter reserved for
the Board. The Board provides rigorous challenge to management on progress against goals and targets, and ensures the Group maintains an effective
risk management and internal control system, including over climate-related risks and opportunities.
Sustainability-related discussions take place at all Board meetings and the Chair of the Corporate Sustainability Committee provides a detailed update on
sustainability matters at every Board meeting, through a standing agenda item. The Board possesses a high-level of sustainability expertise, with individual
Directors possessing a variety of skills and experience relating to areas such as environmental science, climate change and social responsibility.
Biographies
Read more p 86 – 87
Board Activities
Read more p 92 – 94
Board Skills Matrix
Read more p97
Roles and Responsibilities
Read more p95
Informing
Reporting
THE BOARD DELEGATES CERTAIN SUSTAINABILITY OVERSIGHT MATTERS TO ITS PRINCIPAL COMMITTEES
Corporate Sustainability
Committee
Nominations Committee
Remuneration Committee
Treasury Committee
Audit Committee
Meeting frequency:
At least four times per year
Meeting frequency:
At least four times per year
Meeting frequency:
At least four times per year
Meeting frequency:
At least four times per year
Meeting frequency:
At least four times per year
Supports the Group’s
sustainability strategy
by scrutinising progress
and providing guidance
and direction to the
Sustainability Framework.
Responsible for reviewing
the Group’s non-financial
risks and opportunities,
including climate-
related risks.
Four members of the Board
sit on the Committee,
including the Chair, and the
CEO has a standing invitation
to attend meetings.
Supports the Group’s
sustainability strategy
through monitoring the
Board’s overall structure,
size, composition and
balance of skills.
Sustainability expertise
is given sufficient
prominence in Board
succession planning and
recruitment activity.
Sustainability expertise is
listed as a key skill for Board
appointment long-lists in
our selection processes.
Supports the Group’s
sustainability strategy
through alignment of the
Group’s remuneration
policies and procedures
to reinforce achievement
of our sustainability aims.
In addition to ESG measures
which already form part of
the annual bonus scheme
metrics, this year the
Committee has agreed the
development of a carbon
reduction performance
measure in the LTIP (in
addition to the existing
RoRE measure).
Supports the Group’s
sustainability strategy
through incorporation
of sustainability into the
Group’s financing strategy.
A key area of focus for the
Treasury Committee has
been the recent introduction
and subsequent monitoring
of our Sustainable Finance
Framework, under which
the Group can raise debt
to support the financing
and/or refinancing of
assets and expenditures
of a sustainable nature
across their activities.
Supports the Group’s
sustainability strategy
through ensuring that
risk is effectively
managed across the Group,
including climate-related
risks and opportunities.
The Committee is also
responsible for overseeing
the Group’s financial
statements and non-
financial disclosures,
including climate-related
financial disclosures.
Read more p116 – 119
Read more p101 – 106
Read more p120 – 153
Read more p114 – 115
Read more p107 – 113
THE CHIEF EXECUTIVE AND THE SEVERN TRENT EXECUTIVE COMMITTEE (STEC)
The Chief Executive has overall responsibility for climate change and environmental matters. Responsibility for the development
and implementation of the Group’s strategy, including in relation to sustainability, rests with the Chief Executive, who is supported by STEC.
Sustainability Framework
Read more p50
STEC Members
Read more p88
STEC DELEGATES CERTAIN CLIMATE-RELATED RISK AND OPPORTUNITY OVERSIGHT MATTERS TO ITS MANAGEMENT COMMITTEES
Sustainability Steering
Committee
Energy Steering
Committee
Strategic Risk Forum
Disclosure Committee
TCFD Working Group
Sets the Group’s overall
energy strategy and targets,
ensuring that robust plans
are in place to deliver them.
Monitors progress and
performance against plans.
A cross-business group
which takes a holistic view
of ERM risks and focuses
on horizon scanning to
identify new and emerging
risks, including climate-
related risks.
Facilitated by Severn Trent’s
dedicated Sustainability
Team, Executive and senior
management oversee
performance and progress
against our Sustainability
Framework.
The Committee is
responsible for identifying
and reviewing climate-
related risks and
opportunities.
An Executive Committee
responsible for overseeing
the Group’s compliance with
its disclosure obligations,
considering the materiality,
accuracy, reliability and
timeliness of information
disclosed and assessment
of assurance received.
The Committee is also
responsible for overseeing
the Group’s financial
statements and non-
financial disclosures,
including climate-related
financial disclosures.
The TCFD working group
was established in 2020
to provide oversight and
drive implementation of
the TCFD recommendations
and the Group’s wider
climate change strategy.
The Group reports to the
Severn Trent Executive
Disclosure Committee and
the Severn Trent Corporate
Sustainability Committee.
It includes representatives
from business areas
including strategy, risk,
finance, treasury and
compliance.
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Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION
OUR TCFD DISCLOSURES CONTINUED
Climate-related Strategy continued
Our risks and opportunities
In order to align with the recommendations of the TCFD, we have outlined examples of the risks and opportunities relevant for our business,
and how our business could be impacted by a changing climate. Whilst these risks are assessed as part of our long-term horizon scanning,
we also assess these risks more frequently as part of our five-yearly AMP reporting cycles. More information on some of these risks and the
potential financial implications on our business can be found within our CDP climate disclosure on our website at https://www.severntrent.com/
sustainability-strategy/reports-and-publications.
The time horizons over which our risks are assessed are outlined below. More detail on our risk management approach will be detailed in our
disclosure in September 2021.
Risk assessment period Time horizon
Commentary
Short term
0 – 1 years
Short-term risks include dynamic risk assessments and assessments during schemes,
which are generally limited to one year ahead.
Medium term
1 – 10 years
This is the range of our business planning period – we set a plan in 2018/19 which will
deliver through to 2030.
Longer term
10 – 80 years
Generally, our risk assessment approach limits to a 25-year look-ahead – but as many of our
assets have asset lives longer than that, risk can be assessed much further in some instances
(e.g. scheme design). For our WRMP and DWMP we have tested scenarios forecasting 80 years
ahead to identify any gaps or shortfalls in our schemes, which contributes to our decision
making when considering future capital schemes.
Assessing the physical risks of climate change
We assess and monitor the physical risks arising from climate change on water resources as part of our WRMP which addresses uncertainty
around those long-term impacts. Our DWMP uses a similar approach to evaluate the impacts of climate change on our waste water systems.
Our WRMP uses the best practice UKCP09 and UKCP18 datasets which are based on the Special Report on Emissions Scenarios (‘SRES’)
and Relative Concentration Pathway (‘RCP’) scenarios and cover a range of climate impacts. We have tested the full range of UKCP09
scenarios on our investment decision making and have produced a plan that takes a proportionate approach to mitigating for climate
uncertainties. Whilst the UKCP09 climate change scenarios present us with a wide range of potential impacts, almost all of the scenarios
point to a long-term loss of deployable output due to changing weather conditions. As a result, we have proposed ambitious leakage and
demand management measures for AMP7 that complement our longer-term plans to improve water supply reliability. Our full climate
change modelling approach will be described in detail within our WRMP and DWMP. Ongoing work using the Met Office’s revised UKCP18
climate models will explore a wider range of climate models based on the IPCC’s RCP scenarios. The scenarios which provide the foundation
of the UKCP09 and UKCP18 models used in our analysis are outlined below.
Graph indicating the climate scenarios used as part of our ongoing physical risk assessment process. RCP and SRES climate models
provide the foundation for the UKCP09 and UKCP18 climate modelling used for our WRMP and DWMP.
RCP8.5
RCP6.0
RCP4.5
RCP2.6
SRES A1B
SRES A1FI
SRES A1T
SRES A2
SRER B1
SRES B2
2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
2100
6
5
4
3
2
1
0
60
Severn Trent Plc Annual Report and Accounts 2021
Climate-related Risk Management
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. You can read more
on page 38. Details of our Sustainability Governance Framework are
set out on page 59. This sets out the governance arrangements that
support the Board in discharging its duties in respect of identifying,
assessing and managing climate-related risks.
On behalf of the Board, the Severn Trent Plc Audit Committee assesses
the effectiveness of the Group’s ERM process and internal controls to
identify, assess, mitigate and manage risk. An overview of the Group’s
risk management governance process is provided below and further
detail is set out in the Audit Committee report on page 111.
The management of risk is embedded in our everyday business
activities and climate-related risks are treated in the same way as
all our other Company risks, captured at a local level by responsible
teams and managed centrally through our established ERM process
outlined above. During the year we established a new Strategic Risk
Forum independent from the ERM Team, to help provide a strategic
lens to, and review of, our existing and emerging risks.
We’ve disclosed our key climate change risks and adaptation actions in
our last Climate Change Adaptation Report and we’ll be updating this
assessment and action plan later this year. This includes a review of
weather impacts and latest climate projections. You can view this on
our website.
A schematic setting out how this process interacts with our overall
Governance Framework is set out below.
SEVERN TRENT PLC/SEVERN TRENT WATER LIMITED BOARDS
The Board provides rigorous challenge to management and ensures the Group maintains an effective risk management and internal
control system, including climate-related risks and opportunities. The Board delegates oversight of certain climate-related risks
oversight activity to its Board Committees to support the continued delivery of the Group’s sustainability strategy.
Reporting
Informing
CORPORATE SUSTAINABILITY COMMITTEE
AUDIT COMMITTEE
Responsible for reviewing the Group’s non-financial risks
and opportunities, including climate-related risks.
Supports the Group’s sustainability strategy through ensuring
that risk is effectively managed across the Group including
climate-related risks and opportunities.
Reporting
Informing
SEVERN TRENT PLC EXECUTIVE COMMITTEE
Onward oversight, management and reporting through
the Group’s established Governance Framework.
Reporting
Informing
STRATEGIC RISK FORUM
Consolidated Business Unit information reported to this Committee, with onward reporting
to the Severn Trent Plc Executive Committee on a six-monthly basis for review and challenge.
QUARTERLY RISK IDENTIFICATION PROCESS AND HORIZON
SCANNING WITH INDIVIDUAL BUSINESS UNITS
AMP BUSINESS PLANNING PROCESS
WITH INDIVIDUAL BUSINESS UNITS
The business is required to review all current and developing
risks which could impact on the achievement of strategic
objectives. This process includes assessing risk drivers,
including climate-related risks, and their potential impact
and likelihood of crystallisation.
This process includes identification and assessment of
potential risk drivers, including climate-related risks, over
short, medium and long-term horizons. Potential impacts
are factored into the Group’s long-term business planning
process and individual management plans set out
below. Planning occurs both on an annual basis and
long-term as part of our established Price Review process.
• WRMP • DRMP • Carbon Reduction Plans • Climate Change Adaptation Report • Strategic Direction Statement • Environment Strategy
MANAGEMENT PLANS
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Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION OUR TCFD DISCLOSURES CONTINUED
Examples of our climate-related risks and opportunities
within our value chain
WATER IS COLLECTED
WATER IS CLEANED
CLEAN WATER IS DISTRIBUTED
Failure to meet demand
Hotter, drier summers, changes to
precipitation patterns and increased demand
for water may impact upon water availability
and usage, making it more difficult to provide
a safe and secure supply of drinking water
Damage to infrastructure
Extreme changes to precipitation
may result in damage to our
water infrastructure
Minimising water use
Minimising water use will increase
the headroom available to meet
water demand and may reduce
infrastructure requirements
Minimising leakage
Minimising leakage will increase
the water available for use,
reducing demand requirements
in the future and enhance our
reputation with customers
Our Principal Risks that relate
to climate change or will be
exacerbated by climate change
• Failure to provide a safe and secure supply of drinking water
to our customers and the potential for reduced public
confidence in water supply (Principal Risk 2).
• Failure to effectively transport and treat waste water and
the potential for reduced public confidence in our waste water
system (Principal Risk 3).
• Severn Trent’s climate change strategy does not enable
us to respond to the shifting natural climatic environment
and maintain our essential services (Principal Risk 6).
• We fail to positively influence natural capital in our region
(Principal Risk 7).
• Accelerating changes in the political, legal environment
and environmental obligations increase the risk of
non-compliance (Principal Risk 10).
Impact on our business
The risks and opportunities identified have helped to form our
business strategy, ensuring we minimise environmental harm
whilst meeting our regulatory requirements as a highly regulated
water utility. Our strategy also ensures we are working to realise
opportunities that will arise in a changing future. Deferring from
the targets we have agreed with Ofwat may ultimately impact upon
our customer ODIs which are reported as part of our annual
reporting process (see pages 18 and 19). In addition, our WRMP
and DWMP identify capital investment requirements which are
regularly reviewed as part of our five-yearly AMP cycles.
You can read more about the impacts of some of these risks
on our organisation’s business, strategy and financial planning
within our CDP disclosures, within the WRMP and DWMP,
and within the strategic review which will be published in 2021.
Due to the long-term horizons over which our modelling takes place,
and the inherent uncertainty in climate projections, there is significant
uncertainty over the rate at which climate change will take place,
the impact of change and therefore the forecasting potential of
our modelling. Our adaptive approach enables us to highlight risk
response requirements to Ofwat as part of our WRMP and DWMP,
and ensures we make investments to enhance resilience within
a range of climate futures, without over-investing.
We work with Ofwat and other water utilities to ensure a sector-wide
approach to infrastructure resilience, enhancing our ability to meet
demand across the UK in line with Governmental objectives.
62
Severn Trent Plc Annual Report and Accounts 2021 CUSTOMERS ENJOY
OUR SERVICES
WASTE WATER IS
COLLECTED
WASTE WATER IS CLEANED
WATER IS RECYCLED TO
THE ENVIRONMENT
Increased consumer awareness
Increased awareness over value of
water in an increasingly resource-
stretched world may improve the
effectiveness of customer
engagement programmes
Meeting our mitigation commitments
Meeting our climate change mitigation
commitments will enhance our
reputation with stakeholders and
mitigate potential increases in the
cost of carbon
Renewable energy generation
Increasing our ability to generate energy
from waste will decrease our operational
energy costs and may provide additional
opportunities in a world transitioning to
a higher renewable energy mix
Changes in consumer behaviour
Market changes in consumer
behaviour may result in lower
public confidence in our operational
performance if our environmental
targets are not met
Flooding and pollution
Changes to precipitation and increased
variability in weather patterns may increase
the risk of sewer flooding and pollution
events, negatively impacting water quality
and resulting in a negative impact on
customer confidence
Increased and more stringent
environmental regulation
Changes to the political and regulatory
environment may result in more stringent
regulations, penalties and fines around
water quality or pollution events, and
may increase the cost of carbon
The negative impacts of climate change and the associated risks
mean that we want to do our part to mitigate climate change.
Our Triple Carbon Pledge ensures that carbon reduction is
embedded within our corporate strategy.
Resilience of our strategy
Our 2020/21 strategic review looks at the resilience of our strategy
against various political, economic, social, technological, legal
and environmental trends, and the results of this study will be
published in 2021.
Our continual review of the physical risks associated with climate
change as part of our WRMP and DWMP ensures that we continually
reassess our strategy to ensure that uncertainty over future climate
scenarios is managed effectively.
Our Sustainability Report, WRMP and DWMP outline the key actions
we are taking to:
• Reduce the harmful effects of carbon, and consequently our
operational energy costs through our Triple Carbon Pledge
• Increase water availability through enhanced and better-connected
infrastructure in a sustainable way
• Engage with our customers to reduce water usage and reduce
blockages which can lead to flooding and pollution events
• Enhance the resilience and efficiency of our infrastructure to
reduce leakage and ensure protection against a changing climate
Opportunities
Physical risks
Transitional risks
• Enhance our nature-based solutions to create or restore
habitats whilst decreasing the risk of flooding and pollution
• Improve our monitoring to increase our understanding
of pollution events
• Work across the landscape to slow the flow of water during
heavy rainfall
• Increase sewer and storage capacity to reduce the risk of
flooding and pollution
• Generate energy from waste through our anaerobic digestion plants
• Upgrade our digestion plants to a more efficient and higher energy
yielding thermal hydrolysis process
• Recycle our biosolids for use as agricultural fertiliser, contributing
to a more circular economy
• Actively work with Government and other stakeholders to change
the way we all value water
• Contribute to positive regulatory change by advocating for
mandatory water labelling, minimum standards for building
regulations and water-fitting regulations
Read more about our progress within our Sustainability Report in the chapter
‘Looking after the world around us: Building back greener’
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Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION
OUR TCFD DISCLOSURES CONTINUED
Climate-related Metrics and Targets
Adapting to climate change – measuring our progress
We measure and manage a wide range of metrics which help us to
assess how well we are doing to minimise our risks in a changing
future. Our regulatory performance commitments relating to water
leakage, pollution events, customer satisfaction and water quality
help us to manage our risks by reducing our impact in these areas.
Our targets around per capita consumption and smart meter
installations help to assess and understand water usage to identify
areas where our educational programmes will have the most impact
to increase water headroom.
Our leakage reduction targets ensure that we measure our progress
toward increased operational efficiency and protect our reputation
in a more environmentally conscious future.
Supply interruption targets ensure that we measure and assess our
ability to supply to our customers, even when extremes in weather
impact upon our infrastructure.
Monitoring the occurrence and frequency of flooding and pollution
events ensures that we reduce our environmental impacts and
enhance our systems to accommodate changes to weather
patterns, reducing the impact that changing regulation may
have on our business.
Measuring our energy generation from biogas and the waste
recycled to agriculture ensures that we contribute to a circular
economy and reduce our carbon footprint, protecting us against
changes to energy prices.
Our target of net-zero operational carbon emissions by 2030 exceeds
the Government’s target of 2050 and ensures that we are leading
the path to a more resilient and sustainable economy.
Mitigating climate change – reducing our greenhouse gas
(‘GHG’) emissions
We have been committed to reducing our carbon emissions since
2002 and continually improve on emissions reductions processes.
In 2020 we met our carbon performance commitments as detailed
in our 2020 regulatory return and are the first water utility to have
submitted SBTs based on the Paris Agreement’s highest level of
ambition, to limit global temperature to 1.5°C above pre-industrial
levels. This includes setting ambitious Scope 3 targets and working
with our supply chain to reduce emissions. In addition to setting
globally recognised SBTs, during 2021 we have also pledged
our commitment to net zero with a more ambitious 2030 target
(compared to the 2050 target for SBTs). In order to realise our
ambitions, we have set the following targets:
• Reducing our Scope 3 emissions by working with over 70%
of our supply chain to set their own emissions targets
• Ensuring that all new company cars will now be electric
• Installing over 350 electric car charging points over 65 sites,
to be completed by the end of 2021
• Having the potential to cover 100% of our electricity needs from our own
renewable sources or through Power Purchase Agreements by 2030
• Developing procedures for our suppliers to demonstrate they are
measuring and reducing their emissions and to ensure we are
meeting our targets to reduce Scope 3 emissions
More information about the activities we are undertaking to minimise
our impact can be found within the Journey to Net Zero (see pages 54
to 55) and Carbon and Energy Performance (see pages 65 to 67)
sections of this report, and our separate Sustainability Report.
Details of how sustainability-focused performance measures are
included in our LTIP can be found on pages 123 and 131 of the
Directors’ Remuneration Report.
Assessing our progress
This year, we are going beyond mandatory requirements and reporting
on our supply chain emissions. Our full emissions reporting, including
Scope 3 emissions reporting, can be found within the Carbon and
Energy Performance section of this report. The methodology behind
how we report on, account for, and gain assurance on our GHG
emissions is also outlined further in the Carbon and Energy
Performance section.
Science Based Targets
Scope 1, 2 and 3 targets
Submitted to SBTi by March 2021 to align to a 1.5°C pathway
64
Severn Trent Plc Annual Report and Accounts 2021
Carbon and Energy Performance
We have committed to achieving net-zero operational carbon
emissions by 2030, building on our long track record of making
year-on-year reductions in our emissions. Our 2030 commitment
is to generate or procure 100% renewable energy and move
our fleet to 100% electric vehicles, where available.
We have also set Science Based Targets for our operational emissions
and for our supply chain (Scope 3) emissions. Our operational reduction
is in line with the more ambitious 1.5°C temperature rise scenario.
For our supply chain, we commit that 70% of our emissions from
‘purchased goods and services’, ‘capital goods’, ‘upstream transportation
distribution’ and ‘waste generated in operation’, will have Science
Based Targets by 2025. We submitted these targets for verification
by the Science Based Targets initiative in March 2021.
We have held the Carbon Trust Standard continuously since 2009,
which recognises our consistent emissions reductions and effective
carbon management processes. We continue to report to the Carbon
Disclosure Project (‘CDP’) each year which means our climate change
information is publicly accessible. CDP requests information about
climate change from companies on behalf of investors and score
each company on the quality and completeness of responses.
This year, we are disclosing more information about our GHG emissions
and energy use, going beyond the mandatory requirements and
including supply chain emissions for the first time.
This year we reduced our net operational emissions on the market
basis, primarily through our switch to procuring 100% renewable-
backed energy via our import contracts. We continue to generate
more renewable energy than any other UK water company and
now generate the equivalent of 53% of Severn Trent Water Limited’s
energy needs, up from 51% in 2019/20.
To reduce our operational emissions further we will continue to focus
on improving our energy efficiency to offset the additional demands of
growing population and more stringent treatment quality requirements
and we will continue to procure 100% renewable-backed electricity.
We will also continue to electrify our fleet and encourage employees
to take up lower-carbon electric cars. Pursuing these measures will
continue to reduce our key sources of emissions, reduce our reliance
on the electricity grid and deliver financial benefits for our customers
and investors.
As we have already taken steps to reduce our Scope 2 emissions, we
are now focusing on our Scope 1 emissions and particularly our
emissions of methane and nitrous oxide from our sewage and sludge
treatment processes. These emissions are not as clearly aligned with
financial incentives and require new science, technology and innovation
to understand and solve. This year, we have invested in direct
monitoring of our methane and nitrous oxide emissions from sewage
and sludge treatment for the first time and are sharing our approach
and data across the industry to aid understanding and collaboration on
solutions to this difficult area.
Report on greenhouse gas (‘GHG’) emissions
This is the eighth year Severn Trent has been required to report
GHG emissions. For Severn Trent Water, which accounts for 93%
of our total Group emissions, we have been publicly reporting
on our emissions since 2002. For the second year, we are also
reporting our energy use and generation data and provide
more detail on how we manage energy use.
Our GHG emissions are reported in tonnes of carbon dioxide
equivalent (tCO2e), for the period 1 April 2020 to 31 March 2021.
We report our location-based and market-based emissions
separately and for the first time we also report on five Scope 3
categories – goods and services, capital goods, waste generated
in operations, business travel and upstream transportation and
distribution. We will disclose more of our Scope 3 emissions
from next year, in line with our new Science Based Targets.
The GHG data we report is reported internally during the year
to the Corporate Sustainability Committee and to the Board.
We have subjected our GHG data and processes to external
assurance by Jacobs.
Our approach to reporting is subjected to the GHG Protocol
Corporate Accounting and Reporting Standard. In Scope 1 and 2,
we have included the emissions from the assets which we own and
operate and which we can directly influence and reduce, known as the
financial control boundary. Emissions from our supply chain and from
assets which we do not own but operate on others behalf are included
in our Scope 3 category. We have now baselined our Scope 3 emissions
and this year we report on Scope 3 emissions from business travel,
energy transmission and distribution losses and outsourced sludge
tanker activity as part of our operational footprint. These are areas
where we have robust data collection processes already. We report
on emissions from our other Scope 3 categories in a separate table.
We are collecting more data on the remainder of our supply chain
and will report on more of our Scope 3 emissions next year.
For our net operational carbon footprint, we include the benefit
of renewable electricity which we export and also a carbon benefit
from the biomethane we export to the grid, but only where we have
not sold an associated green gas certificate. Where we have sold
a green gas certificate, we do not include the carbon benefit in our
net number overleaf.
Our emissions are calculated using the updated ‘Carbon accounting
in the UK Water Industry: methodology for estimating operational
emissions, Version 15’ (released April 2021). 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. All emissions arise in the UK.
65
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION OUR TCFD DISCLOSURES CONTINUED
Annual Operational Emissions – Location and Market Based
Operational Greenhouse Gas Emissions (Tonnes CO2e)
Scope 1 Emissions (Combustion of Fossil Fuel on Site)
Scope 1 Emissions (Process Emissions)
Scope 1 Emissions (Transport Fleet)
Scope 2 Emissions (Electricity Purchased for Own Use)
Scope 3 Emissions (Business Travel)
Scope 3 Emissions (Outsourced Sludge Tankers)
Scope 3 Emissions (Electricity Transmission and Distribution)
Total Annual Gross Operational Emissions
Emissions benefit of the renewable electricity we export
Emissions benefit of the renewable biomethane we export (for which we retire green gas certificates)
Total Annual Net Operational Emissions
2020/21
Location
based
Market
based
29,945
29,945
116,257
116,257
17,914
17,914
182,768
343
1
343
3,340
3,340
15,718
–
366,285
167,800
40,648
21,354
40,648
21,354
304,282
105,797
Supply Chain Emissions
The table below shows our estimated Scope 3 emissions which are not included as part of our operational footprint. These emissions are part
of our new Science Based Targets. We will be disclosing more data on these areas in future. Our primary source of emissions is capital work
and we have developed a tool to estimate carbon from capital schemes which we will be using in future to estimate emissions impacts and
use in decision making.
Other Scope 3 Greenhouse Gas Emissions (Tonnes CO2e)
Chemicals purchased (2020/21 volumes using Carbon Accounting Workbook)
Upstream Well to Tank Emissions from Gas and Fuel Use (2020/21 volumes using Carbon Accounting Workbook)
Capital Goods (2019/20 Baseline Estimate)
Other Purchased Goods and Services (2019/20 Baseline Estimate)
Upstream transportation and distribution (2019/20 Baseline Estimate)
Disposal of waste generated in operations (2019/20 Baseline Estimate)
Annual
Emissions
52,783
8,715
250,546
107,927
17,140
6,440
Operational Greenhouse Gas Emissions – Historic Trend
This table shows our historic emissions data alongside the current year in a comparable format to demonstrate our reduction trend. This also
shows our total Scope 1 and 2 emissions normalised by total Group revenue.
Operational Greenhouse Gas Emissions
(Tonnes CO2e)
Scope 1 Emissions (Combustion
of fuel and operation of facilities)
Scope 2 Emissions (Electricity
purchased for own use)
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
2020/21
132,535
132,406
134,584
138,131
134,307
132,360
156,014
164,115
330,679
357,756
337,028
294,426
279,393
217,726
199,635
182,768
Total Annual Gross Operational Emissions
463,214
490,163
471,612
432,557
413,700
350,086
355,649
346,883
Emissions benefit of the renewable energy
we export (including biogas for which we
hold green gas certificates)
Market-based carbon accounting benefit from
supply of REGO-backed renewable energy
21,672
38,878
45,085
42,069
45,333
46,986
59,878
62,003
–
–
–
–
–
34,818
35,784
182,768
Total Annual Net Operational Emissions
441,542
451,285
426,527
390,488
368,367
268,283
259,987
102,113
Annual GHG intensity ratio (tCO2/unit)
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
2020/21
Gross Location-Based Operational GHG
emissions of Severn Trent per £m turnover
1.
‘REGO’ – Renewable Energy Guarantees of Origin scheme.
66
260.8
277.1
259.5
237.0
244.2
198.1
192.9
190.0
Severn Trent Plc Annual Report and Accounts 2021 Report on Energy
In line with the latest energy and carbon reporting requirements, below is further information on our energy consumption and generation for
the last three years across the Severn Trent Group. This is source data for the carbon data reported above and is tracked internally on a
monthly basis. All data is collected from metered data for electricity and gas imports and exports. Biogas combustion information is
calculated using assumptions based on metered data. Fuel use is reported based on financial records of fuel purchased. We have applied
assumptions on standard calorific values to convert all liquid and gas fuel types to a common energy metric (GWh) and data is reported for
the period 1 April 2020 to 31 March 2021. All energy is used in the UK.
The figures below include the large quantity of renewable biogas from organic waste, which we generate from sludge and food waste and
then either combust in combined heat and power engines or export to the National Gas grid. Overall energy use has risen this year. Our most
significant change is a large increase in natural gas import which has been driven by the commissioning of two new heat-intensive sludge
treatment processes and our deployment of natural gas CHP. We have also increased our export of biomethane into the gas grid and decreased
the amount of biogas we combust in CHP. Electricity consumption rose by 0.6% this year due to increased demand for water, particularly
during the summer of 2020 and increased electrical demand from the first full year of operation of a number of capital projects completed
last year, such as our Birmingham resilience scheme.
Energy type
Source
Electricity
Electricity Imported
Electricity Generated from Renewable Sources and Used on Site
Electricity Generated from Renewable Sources and Exported
Gas Fuels
Gas Imported from the Grid
Biogas Generated and Combusted on site
Biomethane Generated and Exported to the Grid
Liquid Fuels
Fuel Used by Plant (gas oil and diesel)
Totals
Fuel Used by Company Fleet
Fuel Used for Business Travel (personal cars)
Total energy used
(i.e. Annual quantity of energy consumed from activities for
which the Company is responsible, including combustion
of fuel and operation of facilities)
Total energy imported
(i.e. Annual quantity of energy consumed resulting from the purchase
of electricity and gas. No imports of heat, steam or cooling)
Normalised Metrics
Total Energy per Unit of Revenue
Energy Imported per Unit of Revenue
Clean Water Electricity Use per Unit Treated
Units
2018/19
2019/20
2020/21
GWh
GWh
GWh
GWh
GWh
GWh
GWh
GWh
GWh
771
198
114
52
745
166
20
62
7
780
194
184
44
922
181
20
70
6
784
196
174
120
872
245
23
77
4
GWh
1,855
2,037
2,076
GWh
GWh/£m
GWh/£m
kWh/Ml
912
1.05
0.52
714
921
1.11
0.50
698
1,008
1.14
0.55
718
Energy Efficiency
We continually invest in improving energy efficiency and we have a dedicated Energy Management Team focused on driving operational
change to reduce energy. This is supported by a network of energy champions across our business, overseen by an Energy Steering Group.
Over the course of the last year we have invested £5.6 million of capital in specific energy efficiency and flexibility schemes to control energy
demand and reduce energy use. Over the course of the last six years we have invested £26 million in energy efficiency. These capital schemes
include proactive maintenance on our most energy-intensive assets, such as pumps and air blowers, and investment in improved controls
and monitoring to reduce energy use.
We use our half-hourly meter data, regular internal communication and performance reporting to understand energy efficiency and drive
behaviour, minimise waste and identify opportunities. We have energy e-learning for all employees, and detailed energy training, for example
on pump efficiency, for specific roles.
We are transitioning our fleet from fossil fuels to electric vehicles with the aim of 100% by 2030, where available, 5% of our company cars are
now electric and we continue to deploy more dedicated site charging points. This year we launched a new staff scheme for electric vehicles.
Our aim is that by 2030 all energy that we use comes from a renewable source. That means it is either directly renewable or covered by a
renewable-backed source of gas or electricity with REGO or green gas certificates. Achieving this target will require electrification, which will
increase our use of electricity in order to phase out the use of fossil fuels our business and the use of biofuels and green hydrogen to
replace diesel.
67
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION ENGAGEMENT WITH OUR STAKEHOLDERS
Stakeholder Engagement is Central to our Strategy
We are focused on driving
long-term sustainable
performance for the
benefit of our customers,
shareholders, and
wider stakeholders.
This section provides some insight into how
the Board engages with our stakeholders
to understand what matters to them and
further inform the Board’s decision making
and the actions taken as a consequence. You
can read more in our formal Section 172
Statement on pages 76 to 78, which sets out
our approach to s.172 and provides
examples of decisions taken by the Board,
including how stakeholder views and inputs
have been considered in its decision making.
STAKEHOLDER
HOW WE ENGAGE AT BOARD LEVEL
HOW WE ENGAGE ACROSS THE COMPANY
WHAT MATTERS
HOW WE DELIVERED ON
TO THEM
FEEDBACK THIS YEAR
Our Customers
In serving our customers, we want to provide both
value and a great experience. Our consultation with
customers helped our Severn Trent Water Limited
2020-25 Business Plan to be fast-tracked by Ofwat.
Our Colleagues
Our greatest asset is our experienced, diverse
and dedicated workforce. Our relationship with
them is open and honest, and they are appropriately
supported, developed and rewarded to encourage
them to do their best in all that they do.
68
• Customer-shareholders engage with the Board
and submit questions in advance of our Annual
General Meeting.
• Customer delivery performance is discussed
at every Board meeting.
• Customer perceptions of value for money
reported to our Corporate Sustainability
Committee.
• Extensive customer engagement shapes
our strategy and business plan.
• Quarterly meetings with CCW at management level.
• Frequent discussion and consultation with our online
customer community.
• Quarterly tracking of customer perceptions against
key indicators including trust and satisfaction.
• Created new online self-service options for
customers and made it easier to check for and
report problems through our ‘Check My Area’ app
and ‘Report a Problem’ services.
• Ensured customers could contact us 24/7.
• Launched our new Water Alert System.
• Introduced new two-way messaging functionality
through SMS, WhatsApp and Apple chat channels.
• Customer service
and performance
• Leakage and
supply reliability
• Affordability and
value for money
• Assistance in
times of need
• Responsible investment
• Improved ODI performance scores during the
year with c.80% of ODIs (across water, waste,
environment and customer) having met or
exceeded target
• Improved UK Customer Service Index scores
achieving UQ for utilities
• Supported 35% of customers who
needed support
• Provided over £15.5 million of support through
our Big Difference scheme and over £3 million
of support through our WaterSure scheme
• A dedicated virtual employee engagement event,
• Employees are invited to attend the ‘Ask Our
‘Ask Our Board’, was held in May 2021.
Board’ events.
• Health, safety
and wellbeing
• Our employee engagement survey ranked
us in the top 5% of utility companies globally
• Employee-shareholders have the opportunity to
meet the Board and submit questions to the AGM.
• The Chair, Non-Executive and Executive Directors
attend Company Forum meetings and provide
feedback at Board meetings.
• Company Purpose and culture, talent
development and our People Strategy are
discussed at Board meetings.
• The Remuneration Committee reviews
workforce policies and practices and
makes recommendations to the Board.
• The Board considers our employee engagement
– QUEST – survey results and steps taken to
address feedback.
• In addition to Board attendance, our Company
Forum brings together employee representatives at
quarterly meetings, including Trade Union
representatives.
• Continual internal communication to employees
on COVID-19 impacts and mental and physical
health awareness.
• At our ‘Bouncing Back Stronger’ event at Carsington
Water in September 2020, we took c.500 of our senior
managers through our approach to bouncing back
stronger from the impacts of COVID-19.
• Our Executive Committee and senior leaders led
our ‘Share a Smile’ campaign, providing four virtual
events for everyone in the Company, with the aim of
lifting spirits throughout the COVID-19 pandemic.
• Diverse and
• Achieved 8.3 out of 10 for employee
inclusive workplace
satisfaction in our QUEST results
• Opportunities to
reach full potential
• Opening of the Severn Trent Academy
and syllabus launch
• Open and honest
• Developed a specific diversity and inclusion
environment
focus in our 2021 QUEST survey
• Fair pay and reward
• Achieved a 20% reduction in Lost Time Incidents
(‘LTI’) compared to 2019/20, our best
ever LTI rate
vehicle benefit
• Launched our 2021 employee electric
• Continued to narrow our gender pay gap
Severn Trent Plc Annual Report and Accounts 2021 The principles underpinning s.172 are not only
considered at Board level, they are part of our
culture. They are embedded in all that we do and
impacts on stakeholders are considered in the
business decisions we make across the Company,
at all levels, and strengthened by our Board setting
the right tone from the top. Pursuant to the
Companies Act, this information is incorporated
by cross reference in the Governance Report
from page 80.
This section also includes high-level detail of
stakeholder engagement below Board level and
how we have delivered on feedback received, and
signposts where further information is provided
throughout this Annual Report. You can also read
more in our separately published Sustainability
Report which can be found on our website. We
welcome any feedback from our stakeholders.
STAKEHOLDER
HOW WE ENGAGE AT BOARD LEVEL
HOW WE ENGAGE ACROSS THE COMPANY
WHAT MATTERS
TO THEM
HOW WE DELIVERED ON
FEEDBACK THIS YEAR
Our Customers
• Customer-shareholders engage with the Board
• Quarterly meetings with CCW at management level.
In serving our customers, we want to provide both
value and a great experience. Our consultation with
customers helped our Severn Trent Water Limited
2020-25 Business Plan to be fast-tracked by Ofwat.
• Extensive customer engagement shapes
and ‘Report a Problem’ services.
our strategy and business plan.
and submit questions in advance of our Annual
General Meeting.
• Customer delivery performance is discussed
at every Board meeting.
• Customer perceptions of value for money
reported to our Corporate Sustainability
Committee.
• Frequent discussion and consultation with our online
customer community.
• Quarterly tracking of customer perceptions against
key indicators including trust and satisfaction.
• Created new online self-service options for
customers and made it easier to check for and
report problems through our ‘Check My Area’ app
• Ensured customers could contact us 24/7.
• Launched our new Water Alert System.
• Introduced new two-way messaging functionality
through SMS, WhatsApp and Apple chat channels.
Our Colleagues
• Customer service
and performance
• Leakage and
supply reliability
• Affordability and
value for money
• Assistance in
times of need
• Responsible investment
• Improved ODI performance scores during the
year with c.80% of ODIs (across water, waste,
environment and customer) having met or
exceeded target
• Improved UK Customer Service Index scores
achieving UQ for utilities
• Supported 35% of customers who
needed support
• Provided over £15.5 million of support through
our Big Difference scheme and over £3 million
of support through our WaterSure scheme
• A dedicated virtual employee engagement event,
• Employees are invited to attend the ‘Ask Our
‘Ask Our Board’, was held in May 2021.
Board’ events.
• Health, safety
and wellbeing
• Our employee engagement survey ranked
us in the top 5% of utility companies globally
• Employee-shareholders have the opportunity to
• In addition to Board attendance, our Company
meet the Board and submit questions to the AGM.
Forum brings together employee representatives at
• Diverse and
inclusive workplace
• Achieved 8.3 out of 10 for employee
satisfaction in our QUEST results
Our greatest asset is our experienced, diverse
and dedicated workforce. Our relationship with
them is open and honest, and they are appropriately
supported, developed and rewarded to encourage
them to do their best in all that they do.
• The Chair, Non-Executive and Executive Directors
attend Company Forum meetings and provide
feedback at Board meetings.
• Company Purpose and culture, talent
development and our People Strategy are
discussed at Board meetings.
• The Remuneration Committee reviews
workforce policies and practices and
makes recommendations to the Board.
• The Board considers our employee engagement
– QUEST – survey results and steps taken to
address feedback.
quarterly meetings, including Trade Union
representatives.
• Continual internal communication to employees
on COVID-19 impacts and mental and physical
health awareness.
• At our ‘Bouncing Back Stronger’ event at Carsington
Water in September 2020, we took c.500 of our senior
managers through our approach to bouncing back
stronger from the impacts of COVID-19.
• Our Executive Committee and senior leaders led
our ‘Share a Smile’ campaign, providing four virtual
events for everyone in the Company, with the aim of
lifting spirits throughout the COVID-19 pandemic.
• Opportunities to
reach full potential
• Open and honest
environment
• Opening of the Severn Trent Academy
and syllabus launch
• Developed a specific diversity and inclusion
focus in our 2021 QUEST survey
• Fair pay and reward
• Achieved a 20% reduction in Lost Time Incidents
(‘LTI’) compared to 2019/20, our best
ever LTI rate
• Launched our 2021 employee electric
vehicle benefit
• Continued to narrow our gender pay gap
Supporting the elephants at
West Midlands Safari Park
Our Network Response Team provided some much needed help and
support to West Midlands Safari Park in April 2021. Normally they’re
busy injecting water into our water mains and reservoirs but this
time it was helping to fill a drinking water pond for the Safari Park’s
elephants and putting our newest tanker to the test.
69
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 ENGAGEMENT WITH OUR STAKEHOLDERS CONTINUED
STAKEHOLDER
HOW WE ENGAGE AT BOARD LEVEL
HOW WE ENGAGE ACROSS THE COMPANY
WHAT MATTERS
HOW WE DELIVERED ON
TO THEM
FEEDBACK THIS YEAR
Our Communities
Our aim is to be a force for good in the
communities we serve and, in doing so,
create value for all our stakeholders.
Shareholders and Investors
Continued access to capital is vital to the long-term
performance of our business. We work to ensure
that our shareholders, investors and investment
analysts have a strong understanding of our
strategy, performance, ambition and culture.
Many of our shareholders are also customers,
employees and pensioners.
Suppliers and Contractors
Along with our employees, our suppliers support
us in delivering for our customers. Strong supplier
relationships ensure sustainable, high quality
delivery for the benefit of all stakeholders.
Regulators and Government
The policy framework for the water sector in
England and Wales is set by the English and Welsh
Governments, respectively. We seek to engage
constructively with the Government to achieve the
best outcomes for customers and the environment.
Below the policy framework, our industry is regulated
by Ofwat and others. We agree commitments with our
regulators and continually report our performance
against these. We work closely with our regulators to
shape our industry to help ensure the right outcomes
for customers and the environment.
70
• Employees who live and work in our communities
‘meet’ the Board at the Employee Forum, AGM,
and site visits.
• Employees who live and work in our communities
could also engage with the Board through the
employee engagement virtual event, ‘Ask
Our Board’, held in May 2021.
• Corporate responsibility, community activities
and volunteering programmes are discussed
at Board meetings.
• Environmental matters are regularly considered
by the Board.
• Our employability scheme inspires our people
and makes a real difference to people’s lives.
• Regular engagement with Government officials
and elected representatives on water and
environment-related issues.
• Our people volunteer, when safe to do so, through
our Community Champions programme, working
to improve our communities and environment.
• Our Education Team launched free live online
lessons for kids, four times a day, five days a week.
• Launched our Great Big Nature Boost campaign.
• The Board approves the full and half-year
results and Annual Report and attends
results presentations.
• When safe to do so, investor site visits take place so
that shareholders can experience our operations
and culture first-hand.
• Regular dialogue with shareholders to support
them in their investments.
• The Chair, SID, Chief Executive, CFO and
Non-Executive Directors attend investor
meetings and feedback is reported to the Board.
• The Head of Investor Relations gives an update
to the Board on a regular basis and the Investor
Relations Strategy is discussed by the Board.
• The Chair attends the Capital Markets Day.
• The Board announced its non-binding advisory
Shareholder vote at the 2021 AGM on the Group’s
approach to climate change.
• Commercial performance is discussed at every
Board meeting, including an update on
relationships with suppliers.
• Regular meetings with our suppliers, including
training on Modern Slavery, and our Code of
Conduct, Doing the Right Thing.
• Supplier representatives attend the Capital
• Presented at a Morgan Stanley Sustainability
Markets Day and the Employee Forum alongside
Executive Directors and Non-Executive Directors.
• Our Corporate Sustainability Committee regularly
monitors progress on sustainability in our
supply chain.
conference about the importance of the ‘S’ in ESG.
• Engaged with over 50 suppliers at our Supplier
Summit to outline our sustainability ambitions,
helping inspire and bring them along with us
on our sustainability journey.
• Operational impact
• Created our £1 million COVID-19
and disruption
Emergency Fund
• Local employment
• Financial support was given to care leavers
• Economic contribution
• Protection of the
environment
through our Big Difference Scheme
• Donated almost an additional £1 million
to charity following our customer water
saving challenge
• Donated c.£7 million to charitable
organisations this year
• Welcomed the first of our first 500 ‘Kickstarters’
as part of our Kickstart Programme
• Welcomed 69 new apprentices and graduates
• Strategy and
business model
• AMP7 dividend policy with a growth rate
of at least CPIH
• Financial performance
• Capital investment exceeding £590 million
including accelerated activity on
strategic renewable projects
• All resolutions received over 92% of votes
at our 2020 AGM
and returns
• Reputation
• ESG performance
• Financial risk
management
• Strong leadership
• Fair engagement
• Accelerated payments to our supply chain
and payment terms
as a result of COVID-19
• Collaboration
• Registered by the Chartered Institute of
• Responsible
supply chain
Procurement and Supply (‘CIPS’) with the
Ethics Mark
• Regular virtual meetings with our regulators
at management level including the EA, Natural
Resources Wales, Natural England, Ofwat, the
DWI and Defra.
• Regular engagement with Government officials
and elected representatives on water and
environment-related issues.
• To deepen Board level understanding of our
Regulators, our Chair and Non-Executive
Directors formally met with Ofwat during the year.
• Regulatory matters are regularly considered
by the Board, including Price Review Plans,
Water Resources Management Plan and
Scheme of Wholesale Charges.
• Regulatory stakeholders attend Board meetings,
including from Ofwat, the Drinking Water
Inspectorate (‘DWI’), the Environment Agency
(‘EA’), the Consumer Council for Water (‘CCW’)
and Defra.
• Regulatory consultation updates are considered
by the Board.
• Outcomes for
• Fast-track status secured for our AMP7
customers, the
environment and
long-term resilience
• Performance against
regulatory targets
business plan for Severn Trent Water Limited
• Ambitious Green Recovery package of
investments proposed – read more on page 13
• Maintained top-ranking position in the Tortoise
Responsibility100 index – ranking 6th effective
• Trust and transparency
April 2021
• Governance and
compliance
• Environmental impact
Severn Trent Plc Annual Report and Accounts 2021 STAKEHOLDER
HOW WE ENGAGE AT BOARD LEVEL
HOW WE ENGAGE ACROSS THE COMPANY
WHAT MATTERS
TO THEM
HOW WE DELIVERED ON
FEEDBACK THIS YEAR
• Employees who live and work in our communities
• Our employability scheme inspires our people
‘meet’ the Board at the Employee Forum, AGM,
and makes a real difference to people’s lives.
• Operational impact
• Created our £1 million COVID-19
and disruption
Emergency Fund
and site visits.
• Regular engagement with Government officials
• Local employment
• Financial support was given to care leavers
• Economic contribution
• Protection of the
environment
through our Big Difference Scheme
• Donated almost an additional £1 million
to charity following our customer water
saving challenge
• Donated c.£7 million to charitable
organisations this year
• Welcomed the first of our first 500 ‘Kickstarters’
as part of our Kickstart Programme
• Welcomed 69 new apprentices and graduates
• Strategy and
business model
• AMP7 dividend policy with a growth rate
of at least CPIH
• Financial performance
• Capital investment exceeding £590 million
and returns
• Reputation
• ESG performance
• Financial risk
management
• Strong leadership
including accelerated activity on
strategic renewable projects
• All resolutions received over 92% of votes
at our 2020 AGM
Improving the health and wellbeing
of children with disabilities in the
West Midlands
The KIDS Orchard Centre in Dudley provides a safe, fun and
educational environment for disabled young people across
Dudley and the Black Country. It offers a range of services,
including short breaks, after school clubs and young carers’
groups. With a grant of £10,000 from the Severn Trent Community
Fund, it has been able to transform an uninspiring outdoor space
into an inclusive environment which includes a growing and
planting area, a herb garden to encourage the children to
care for the plants, and bug hotels and bird boxes to encourage
insects and wildlife.
Our Communities
Our aim is to be a force for good in the
communities we serve and, in doing so,
create value for all our stakeholders.
Shareholders and Investors
• Employees who live and work in our communities
and elected representatives on water and
could also engage with the Board through the
environment-related issues.
employee engagement virtual event, ‘Ask
Our Board’, held in May 2021.
• Our people volunteer, when safe to do so, through
our Community Champions programme, working
• Corporate responsibility, community activities
to improve our communities and environment.
and volunteering programmes are discussed
at Board meetings.
• Environmental matters are regularly considered
by the Board.
• Our Education Team launched free live online
lessons for kids, four times a day, five days a week.
• Launched our Great Big Nature Boost campaign.
• The Board approves the full and half-year
• When safe to do so, investor site visits take place so
results and Annual Report and attends
that shareholders can experience our operations
results presentations.
and culture first-hand.
• The Chair, SID, Chief Executive, CFO and
• Regular dialogue with shareholders to support
Non-Executive Directors attend investor
them in their investments.
meetings and feedback is reported to the Board.
• The Head of Investor Relations gives an update
to the Board on a regular basis and the Investor
Relations Strategy is discussed by the Board.
• The Chair attends the Capital Markets Day.
• The Board announced its non-binding advisory
Shareholder vote at the 2021 AGM on the Group’s
approach to climate change.
Continued access to capital is vital to the long-term
performance of our business. We work to ensure
that our shareholders, investors and investment
analysts have a strong understanding of our
strategy, performance, ambition and culture.
Many of our shareholders are also customers,
employees and pensioners.
Suppliers and Contractors
• Commercial performance is discussed at every
• Regular meetings with our suppliers, including
• Fair engagement
• Accelerated payments to our supply chain
Board meeting, including an update on
training on Modern Slavery, and our Code of
and payment terms
as a result of COVID-19
relationships with suppliers.
Conduct, Doing the Right Thing.
• Supplier representatives attend the Capital
• Presented at a Morgan Stanley Sustainability
Markets Day and the Employee Forum alongside
conference about the importance of the ‘S’ in ESG.
Executive Directors and Non-Executive Directors.
• Engaged with over 50 suppliers at our Supplier
• Our Corporate Sustainability Committee regularly
Summit to outline our sustainability ambitions,
monitors progress on sustainability in our
helping inspire and bring them along with us
supply chain.
on our sustainability journey.
• Collaboration
• Registered by the Chartered Institute of
• Responsible
supply chain
Procurement and Supply (‘CIPS’) with the
Ethics Mark
• To deepen Board level understanding of our
• Regular virtual meetings with our regulators
• Outcomes for
• Fast-track status secured for our AMP7
Regulators, our Chair and Non-Executive
at management level including the EA, Natural
Directors formally met with Ofwat during the year.
Resources Wales, Natural England, Ofwat, the
• Regulatory matters are regularly considered
DWI and Defra.
by the Board, including Price Review Plans,
• Regular engagement with Government officials
Water Resources Management Plan and
and elected representatives on water and
Scheme of Wholesale Charges.
environment-related issues.
business plan for Severn Trent Water Limited
• Ambitious Green Recovery package of
investments proposed – read more on page 13
• Maintained top-ranking position in the Tortoise
Responsibility100 index – ranking 6th effective
April 2021
customers, the
environment and
long-term resilience
• Performance against
regulatory targets
• Trust and transparency
• Governance and
compliance
• Environmental impact
Along with our employees, our suppliers support
us in delivering for our customers. Strong supplier
relationships ensure sustainable, high quality
delivery for the benefit of all stakeholders.
Regulators and Government
The policy framework for the water sector in
England and Wales is set by the English and Welsh
Governments, respectively. We seek to engage
constructively with the Government to achieve the
best outcomes for customers and the environment.
Below the policy framework, our industry is regulated
by Ofwat and others. We agree commitments with our
regulators and continually report our performance
against these. We work closely with our regulators to
shape our industry to help ensure the right outcomes
for customers and the environment.
• Regulatory stakeholders attend Board meetings,
including from Ofwat, the Drinking Water
Inspectorate (‘DWI’), the Environment Agency
(‘EA’), the Consumer Council for Water (‘CCW’)
and Defra.
by the Board.
• Regulatory consultation updates are considered
Our Ecology Team get its teeth
into another rescue mission
First it was badgers. Then it was newts. Now it’s lampreys.
Our Ecology Team has been helping these fascinating fish to
thrive in the River Noe in Derbyshire. Lampreys are incredibly
important to maintaining healthy rivers and that’s why we went
all out to protect them when we were working in the area recently.
We were working on a project to remove silt along a stretch
of river, to stop it building up and spilling over a dam that’s
protecting an aquifer downstream when we found out our
silt is what lampreys call home.
We found a way to use floating diggers in short, sharp bursts,
to remove enough silt without polluting the river and bulldozing
their homes at the same time. Over 3,000 lampreys were safely
caught and relocated to new, safe homes in the silt.
71
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 OUR PEOPLE
Our People
Our people are fundamental to taking
care one of life’s essentials and we
believe our culture is what makes us
special. Our teams are passionate about
the positive role they can play in helping
customers and communities thrive and
they care that we create an environment
where everyone can feel comfortable to
bring their whole self to work.
This section is dedicated to showcasing our people: who we are, our
culture, and how we, at Severn Trent, work together as one community
– a community which supports each other to succeed, recognises and
rewards each other’s contributions, and listens and talks to each other.
Our Values:
“ I was more attracted
to the role because of the
business’ huge commitment
to building a sustainable
future. What makes me
tick is to have the satisfied
feeling that I’m making
a difference!”
Sadik
New Talent Programme –
Severn Trent Graduate, Technical
Leadership Programme (Engineering]
“ Learning from 12 other
lawyers is such an
invaluable experience and
it’s wonderful everyone is
so supportive and friendly;
it truly makes a difference.”
Teagan
Legal Apprentice, General Counsel
72
Top 5%
Our employee engagement
survey once again ranked
us in the top 5% of utility
companies globally.
8.3
Achieved 8.3 out of 10
employee satisfaction score
in our QUEST results.
20%
reduction
in Lost Time Incidents
compared with 2019/20.
Our best ever LTI rate.
74%
of our employees participate
in our Sharesave scheme.
“ I am really enjoying my
placement. I can access
training to develop
my skills that help in the
workplace, everyday life
and boost my career after
the Kickstart Scheme.”
Anneka
Kickstart Service Delivery
Assistant at Leicester Water Centre
“ My journey at Severn Trent
so far as a HR Learning and
Development apprentice has
been a pleasure. It has made
me excited for my future and
the difference I can make at
Severn Trent.”
Katy
New Talent Programme Apprentice
Programme – Learning and
Development Consultant, HR
Severn Trent Plc Annual Report and Accounts 2021 Keeping our people safe and well
We believe passionately that no one should be hurt or made unwell
by what we do, and our people have done a great job of keeping
themselves and those around them safe with a year-to-date total
of 21 Lost Time Incidents (‘LTIs’), our best ever performance, which
equates to 20% fewer LTIs than last year. This is a testament to all the
focus and attention we have given this critical area. Our Severn Trent
colleagues have been remarkable throughout the pandemic and we
have continued to support them through a comprehensive approach
to health, safety, mental wellbeing and financial security.
Our IT infrastructure has proved to be stable and resilient which has
allowed over half our workforce to work safely from home so we can
be there for our customers 24 hours a day, seven days a week.
Following the success of our Wellbeing Campaign, ‘Caring
for our Colleagues’, in February 2021 we launched our eight week
‘Share a Smile’ initiative, providing four virtual events for everyone
in the Company, as well as their families, to help keep spirits high
throughout the third lockdown. Read more on page 17.
0 fatalities
There were no fatalities of direct
employees in active service as
a direct result of COVID-19.
COVID-19 data
328
Reported positive cases of
COVID-19 within the workforce,
since we began tracking in October
2020. There were no reported
instances of COVID-19 being
transmitted within the workplace.
422
Reports of contacts to our
employees via Test & Trace
(the COVID-19 app) requiring
the individual to self-isolate.
Impact of COVID-19 on our employees
Our priority remains the safety and wellbeing of our people and
customers and we ensured that all our key worker employees had
access to the correct personal protective equipment (‘PPE’) and that
our IT infrastructure enabled our non-key worker employees to work
safely from home. This approach was supported by robust health and
safety protocols, that operated effectively throughout the COVID-19
pandemic. We have worked with the Health and Safety Executive,
sharing data to compare positive cases, and as a result of our
robust protocols, we have not had any instances of COVID-19
being transmitted within the workplace.
Providing a diverse and inclusive place to work
Our ambition is to have a workforce that reflects the communities we
serve, and build an inclusive organisation where everyone feels able
to bring their whole self to work, fulfil their potential and perform at
their best. An inclusive environment is the foundation of a truly diverse
organisation, with all of the rewards that brings. We also know that
diverse teams make better decisions and help us to better deliver
for our customers and communities.
Recognising that leadership is fundamental to creating an inclusive
workplace, this year we focused on maintaining our diverse and
inclusive culture and improving how we embed this into our policies
and procedures. All of our senior management participated in a
diversity and inclusion training session with personal insight from
employees in ethnic minority and LGBTQ+ groups. We have also
introduced our ‘Include me in Inclusion’, a campaign to educate our
colleagues, re-affirm our zero-tolerance stance on discrimination,
and outline our new diversity and inclusion ambition.
This year we were pleased to launch our new diversity and inclusion
programme via our Severn Trent Academy with a range of content
including specific modules for leadership and sessions where our
colleagues are able to share their own diversity and inclusion stories.
We now have well-established working groups that are helping to guide
our work, and our QUEST diversity and inclusion results remain well
above benchmark. We’re pleased to have been recognised externally in
several indices for the progress that we’ve made. Changing the diversity
of our organisation will take time, but our recruitment teams are
working hard to attract and recruit employees from all backgrounds.
As at 31 March 2021, 9% of our employees identified as belonging
to a minority ethnic group.
Achievements in 2020/21
Top 10 The Social Mobility Index –
maintained a Top 10 position
for the second year running
Image taken pre-COVID-19.
Top 200
The Stonewall Index which
measures LGBTQ+ inclusion
(414th in 2019/20 – 175th in 2020/21)
Supporting the NO MORE campaign
The safety and wellbeing of our colleagues is of the upmost
importance to us and we’re on hand to support our colleagues
regardless of whether their need for support stems from personal
or working lives. We understand that 75% of women who experience
abuse are targeted at work and no matter how small the likelihood
of this happening within our business is, we know it’s important
we’re aware and able to spot the signs. The NO MORE campaign
began in March 2021 to help create a culture of safety, equality
and respect in our communities and provide practical advice as to
how our colleagues can support each other, friends and families.
2nd
The Hampton-Alexander Review
where we moved up to second
place for Women on Boards
4th
The Tortoise Responsibility100
Index which ranks us fourth in the
FTSE100 on Equality
73
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION OUR PEOPLE CONTINUED
Inspiring the next generation of employees is equally as important,
and our school and university outreach programmes are now
targeting communities where we are under-represented, which
will seek to improve female and ethnic representation across our
Graduate and Apprentice programmes. For more experienced
hires, we’re ensuring that we provide hiring managers with diverse
candidate shortlists at every opportunity and we’ll start measuring
the impact of this next year.
The Government Kickstart programme will also be a great opportunity
to demonstrate some of these new interventions, and we are committing
to take on 100 black interns in the summer of 2022 as part of the
#10000BlackInterns’ initiative. Read more on our Kickstart
programme on page 22.
We’re proud of our track record on gender diversity. Once again,
we’ve been recognised in the Hampton-Alexander Review for our
performance on gender diversity, this year coming in second for
women’s representation on Boards and Leadership – one of the
first two FTSE100 companies in history to have a majority of
women on their Board. Female representation in our senior
leadership population is 42.3% and female representation on
our Board is now five, representing 56% of Directors. Page 104
sets out a gender breakdown of Directors, senior managers
(as defined in the 2018 Code and Companies Act 2006) and
employees of the Company.
Fairly rewarding our people
At the start of the COVID-19 pandemic, we committed to no furloughing,
no redundancies, honouring our all-employee bonus and agreeing
a 2.3% annual pay increase for three years for our front-line teams,
with 2021 being the second year of the three-year pay deal.
We understand that financial wellbeing is as important as mental
and physical wellbeing for many of our colleagues, and as part our
benefits offering, in 2021 we launched our financial workshop tool,
Money Hub, offering each of our colleagues the opportunity to learn
more about managing their finances. Within our LearnAnytime area
of the Severn Trent Academy, colleagues are also able to access
specific financial and wellbeing resources at a time to suit them.
In February we also made it easier for our people to access
their pension information with the Aegon Pension mobile app.
All of our employees have the opportunity to become part-owners
of the Company through our popular Sharesave scheme and an
amazing 74% participate, with 26% of participants saving the
maximum of £500 per month. We are especially delighted that so
many employees decide to retain their shares – and 77% of our
employees are also shareholders in the Company.
In November 2020, we published our Gender Pay Gap Report
highlighting a continued reduction in the median gender pay
gap between women and men for the fourth consecutive year.
The Report shows a median pay gap of 9.3%, down from 9.8% in
2019, as it continues to be positively impacted by a high proportion
of women within our management and senior management roles.
The Company’s mean pay gap has also improved, now at 2.3%,
compared to 3.6% in the previous year – a reflection of a greater
weighting towards higher-earning women and a shift in our overall
quartile distribution. The report also revealed there is no median
gender bonus gap between male and female employees.
Women make up 28.6% of our entire workforce, but the report
shows they remain underrepresented in operational roles.
We’ve been working hard to create a consistent framework
which includes transparent pay ranges to support us in measuring
our fair pay processes. We’ve focused on raising awareness for
diversity and inclusion and we’ve celebrated our success in attracting
women to senior roles, with a female Chief Executive and a female
Chair. The full Gender Pay Gap Report can be found on the Severn
Trent Plc website.
74
Electric vehicles
In January 2021, we announced our new and exciting employee
benefit, our electric vehicle (‘EV’) salary sacrifice scheme giving
our people the chance to drive a brand-new electric car as part of
a monthly ‘all inclusive’ cost to suit their budget.
This is a key contributor towards our Triple Carbon Pledge, where
we’ve committed to switching all of our fleet vehicles to electric by
2030, where available. We’re confident that by 2026 we will be
operating an all-electric fleet, availability permitting.
For our colleagues who cycle, we also increased our Cycle 2 Work
scheme, where all employees can make savings on purchasing
a bike up to £1,500.
Electric cars: what are the benefits?
Environmental benefits
• No tailpipe means no
exhaust gases = reduction
in local air pollution
• Reduce your carbon footprint
Discounts on congestion
charges
• Exempt from Clean
Air Zone charges,
designed to discourage
polluting vehicles entering
certain areas
Government funding
towards a charge point
• Currently, drivers of an
EV can benefit from a
Government grant
towards the cost of
installing a charge
point at home
Improved driving experience
• Experience responsive
acceleration
• Benefit from regenerative
braking, feeding energy
back into the battery
• Feel at ease with
automatic driving
£
Financial savings
• Make National Insurance
and tax savings (of over
30% based on current
HMRC rules)
• Find cheaper maintenance
and insurance costs
Lower running costs
• When compared to petrol
or diesel, EVs are extremely
cheap to run! On average, an
electric car costs about £2 to
drive 100 miles compared to
the average cost of
petrol at £15.80
Convenient charging
• EVs can be charged
wherever there’s
an appropriate electrical
socket or plug
• Charging points are available
across multiple sites
Reduce noise pollution
• EVs are quieter than petrol
and diesel vehicles, so noise
pollution can be reduced
Severn Trent Plc Annual Report and Accounts 2021 Developing our people
In February 2021 we were delighted to celebrate the official opening
of the Severn Trent Academy (the ‘Academy’) at Hawksley Park, part
of a wider £10 million investment in our learning and development
offering. Opening the Academy supports our ambition to be a socially
purposeful company in all that we do, giving back to the communities
we live and work in, and providing opportunities for people to learn,
retrain and develop with us in our industry.
The Academy is a thriving hub offering a range of physical and
experimental learning opportunities, as well as more traditional
classroom training in a collaborative environment (from technical rigs
through to virtual reality). When we’re not using the facility for our core
learning offer, we’ll be welcoming local schools and trade bodies to
give them the opportunity to learn about our industry, as well as giving
the local community the chance to take advantage of our learning offer.
“It is such an exciting moment to be opening
the Academy at Hawksley Park after years
of planning and true collaboration across
the business to make this happen. This
is a fantastic investment into learning
for all of us. We want everyone visiting
to be immersed in an environment that
makes learning enjoyable, encourages
collaboration and the sharing of knowledge.
We also have a vision that this is a facility
which will help to support our local
community and bring benefits to the
environment too. Hawksley Park will set
the benchmark for a new way of learning.”
Sarah Harris,
Head of the Academy
Through our QUEST and Academy learner surveys, our people have
told us they want more support on mentoring, and so this year we
re-designed our mentoring programme, to ensure our people can
grow and develop whilst with us. Our mentoring opportunities are
split into two categories – how we’re supporting our colleagues and
how we’re supporting our communities, through our new talent and
community offering, including our Kickstart programme, schools
careers guidance and employability schemes. We’ve created a
selection of workshops for mentees and mentors to help them get
the most from mentoring as well as dedicated networking sessions
offering a chance for our mentors and mentees to meet up, up-skill
and learn from each other.
Listening to our people
Providing opportunities for our employees to stay connected to
the direction of the Company and be involved in business decisions
is a key part of our culture and the Board’s selected workforce
engagement mechanism, our Company Forum, was facilitated via
a virtual platform for most of the year. The Company Forum provides
an opportunity for employee and Trade Union representatives to meet
with Board and Executive Committee members on a regular basis.
It ensures that views from a diverse cross-section of the workforce –
in terms of seniority, gender, ethnicity, tenure of employment and
job types – are considered in Board discussion and decision making,
and each meeting generates wide-ranging exchanges of opinion
and insights. Topics for discussion this year have included Outcome
Delivery Incentive (‘ODI’) performance, financial updates, the impact
of the hot weather and high-demand incident response in May, and
Executive remuneration.
As part of our response to COVID-19, we enhanced the already
significant dialogue we have with our employees through the
introduction of a virtual employee engagement event, ‘Ask Our
Board’. Employees were invited to pose questions to the Board in
a live Q&A environment, without management present or scripted
briefings, in order that the Board could listen to the views of the
workforce first-hand. With movement restrictions impacting the
ability of the Board to visit our sites and office locations for much
of the year, this virtual session enabled the continuation of our
direct dialogue with the workforce across the Group. The
response from our employees has been extremely positive.
We are always looking for new and different ways for the Board
to engage with employees from across the business and are
currently reviewing a number of digital solutions for a wider
population of our workforce to ask questions and interact with
our Non-Executive Directors.
Our annual employee engagement survey, QUEST, helps us
to understand what’s going well and where we can improve
across the Group. QUEST is conducted by an independent
research company to ensure the results are anonymous
and the results are reported to the Board.
We were delighted that our employee engagement score
improved again this year to an average score of 8.3 and were
thrilled to receive a score of 8.5 when colleagues were asked
if they would recommend Severn Trent to a friend.
Remuneration: Find out more
The Company Remuneration section, in the Directors’
Remuneration Report, sets out the steps we take to make sure
that our pay and reward framework, below Executives and senior
management, is transparent in a way that is meaningful and useful.
Further information can be found in our Directors’ Remuneration
Report on pages 132 to 141.
75
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION SECTION 172 STATEMENT
Section 172 Statement
Stakeholder engagement is central to the formulation and execution of
our strategy and is critical in achieving long-term sustainable success.
The needs of our different stakeholders as well as the consequences
of any decision in the long term are well considered by the Board.
It is not always possible to provide positive outcomes for all stakeholders
and the Board sometimes has to make decisions based on the competing
priorities of stakeholders. Our stakeholder engagement processes enable
our Board to understand what matters to stakeholders, carefully consider
all the relevant factors and select the course of action that best leads to
the high standards of business conduct and long-term success of Severn
Trent. The principles underpinning s.172 are not something that is only
considered at Board level, they are part of our culture and are embedded
in all that we do as a company.
The differing interests of stakeholders are considered in the business
decisions we make across the Company, at all levels, and are reinforced
by our Board setting the right tone from the top. All of the Board’s
significant decisions are subject to a s.172 evaluation to identify the
likely consequences of any decision in the long term and the impact
of the decision on our stakeholders.
In performing their duties during 2020/21, the Directors have had
regard to the matters set out in Section 172(1) of the Companies Act
2006. You can read more on how the Board had regard to each matter
during the year as follows:
S.172 FACTOR
RELEVANT DISCLOSURES
The likely
consequences
of any decision
in the long term
The interests of
the Company’s
employees
The need to
foster business
relationships with
suppliers, customers
and others
The impact of
the Company’s
operations on the
community and
the environment
The desirability
of the Company
maintaining a
reputation for
high standards of
business conduct
Company Purpose p2
Business Model p6-7
Performance Review p20-30
Dividend Policy p155
Performance Review p20-30
People p72-75
Diversity and Inclusion p73
Employee Engagement p72-75
Modern Slavery p119
Sustainability p50
Business Model p6-7
COVID-19 p15-17
Our Purpose and Vision p2
Sustainability p50
TCFD p54-67
Our Purpose and Vision p2
Whistleblowing p111
Internal Controls p111
Modern Slavery p119
The need to act fairly
as between members
of the Company
Stakeholder Engagement p68-71
Annual General Meeting p157
76
Principal decisions in 2020/21
The principal decisions taken by the Board in the year are detailed
on pages 92 to 94 of the Governance Report.
Our approach below sets out how the Board is supported in carefully
considering all the relevant factors that lead to its selection of the best
course of action to ensure the long-term success of the Company:
Leadership and management
receive training on Directors’ duties
to ensure awareness of the
Board’s responsibilities
Board papers include a table
setting out s.172 factors
and relevant information
relating to them
Stakeholder engagement
activities recorded, and
detail included in Board
papers where applicable
BOARD INFORMATION
s.172 factors considered in
the Board’s discussions on
strategy, including how they
underpin long-term value
creation and the implications
for business resilience
The Group’s culture ensures
that there is proper
consideration of the potential
impacts of decisions
BOARD STRATEGIC DISCUSSION
BOARD DECISION
Engagement and dialogue
with stakeholders
Follow up actions with
Board oversight
www.severntrent.com
s.172 reflected in our governance documentation:
• Matters Reserved to the Board
• Committee Terms of Reference
• Code of Conduct
• Charter of Expectations
Responsible Payment Practices p157
Anti-bribery and Corruption p119
Performance Review p20-30
The Chair ensures decision
making is sufficiently
informed by s.172 factors
The Board performs due
diligence in relation to the
quality of the information
presented and receives
assurance where
appropriate
Severn Trent Plc Annual Report and Accounts 2021
Key stakeholder groups
considered
Customers
Communities
Shareholders and Investors
Workforce
Suppliers and Contractors
Regulators and Government
Sustainability and ESG
Examples of decisions taken by the Board and how stakeholder views and inputs, as well as other s.172 considerations, have been
considered in its decision making are set out below:
GREEN RECOVERY SUBMISSION AND FINANCING
NEW APPROACH TO CUSTOMER EXPERIENCE IN WASTE
Context
In July 2020, the Government, the EA, the DWI, Ofwat and CCW invited
the water sector to submit proposals to support the Government’s
Green Recovery Initiative with the ambition of ‘building back greener’
from the COVID-19 pandemic, whilst also delivering real and lasting
improvements to the environment for current and future generations.
The Board considered the Company’s proposals aimed at delivering
long-term sustainable benefits for current and future generations
in our region, improving the environment and creating jobs.
Context
As part of the Board’s AMP7 Waste Networks Strategy, a new Waste
Infra Network Services contract was tendered in 2020 to shape the
future operating model and support delivery of our AMP7 outcomes
and customer performance commitments.
Consideration of s.172 impacts by the Board in its decision making
Consideration of s.172 impacts by the Board in its decision making
Customers: Ensuring customer bills are affordable is a key factor
in all Board decisions. In assessing which proposals to take forward,
the Board considered the impact on customer bills. The proposed
investment will have an annual average household bill impact of £6
in the period until 2025. We engaged with customers on these impacts
and they indicated they were supportive.
Investors: The proposals will deliver strong RCV growth for Severn Trent
Water, with associated shareholder benefits. The Board also considered
potential financing structures and conducted an assessment of the
impact on credit metrics, investors and other stakeholders. On 17 May
2021, Ofwat proposed to award the Company £565 million (2017/18
prices) to invest in its ambitious Green Recovery programme. Read more
about these projects on page 13.
Environment and the community: The Board was committed to proposing
schemes that address long-term issues that are important to customers
and deliver environmental benefits, such as developing net-zero carbon
water resources, delivering a step-change improvement in river water
quality, making towns more resilient to flooding and removing lead
from customers’ supply pipes. In addition to the long-term benefits for
customers and the environment, the proposals will create much needed
employment and training opportunities, utilising our new Academy facility.
Regulators: Regulators have been supportive of our Green Recovery
proposals and the Board engaged with Defra, Ofwat, the EA, the DWI and
CCW this year as part of its well-established regulatory engagement activity.
Customers: The Board recognises that obtaining best value contracted
services supports our objective to keep customer bills low whilst also
delivering improvements to customer service. The programme implemented
a dedicated Waste Customer Management Centre in Derby, focused on
complex activity that contributes to customer dissatisfaction.
Employees: The new contract will provide partnership working
opportunities for employees. The additional resource and capabilities
will also support delivery of our AMP7 outcomes and customer
performance commitments.
Environment and the community: A key part of the tender selection
process was to select suppliers that were aligned to the Group’s
sustainability and corporate social responsibility agenda. Additionally,
the contract plays an integral role in reducing pollutions and protecting
the environment.
Investors: The Board considered carefully the need to deliver value
for customers and shareholders. The new contract will deliver savings
and improve customer experience, supporting improvements in ODI
and C-MeX performance.
Relationship with suppliers: A key part of the tender selection process
was to ensure that Tier 2 suppliers had the opportunity to participate.
The Board considered this approach to be in the best interests of both
the Company and suppliers whilst also bolstering overall resilience.
Outcomes and impact on the long-term
sustainable success of the Company
The Board supports the Government’s approach to investing
in a Green Recovery and, as a responsible business in our region,
proposed a package in excess of £700 million of investment.
The impact of the Company’s operations in the community and the
positive role it could play in delivering long-term, sustainable benefits
for current and future generations in our region, improving the
environment and creating jobs were pivotal to the Board’s decisions.
Outcomes and impact on the long-term
sustainable success of the Company
The new contract will deliver an improved customer experience and
support improvements in ODI and C-MeX performance, with associated
benefits for communities, colleagues, investors and our supply chain,
whilst maximising efficiencies and supporting our Purpose – ‘Taking
care of one of life’s essentials’.
77
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION
SECTION 172 STATEMENT CONTINUED
PLANNING AND SCHEDULING TRANSFORMATION
ADAPTING OUR WORK FOR COVID-19
Context
The Board considered the centralisation and transformation of the
Group Planning and Scheduling function aimed at improving customer
experience, enhancing the effectiveness of the respective teams and
sustaining employee engagement throughout the transformation period.
Context
As the COVID-19 pandemic unfolded, the Board increased its interactions
to maintain continual dialogue on the potential impact on our customers,
communities, colleagues and shareholders and ensure effective Board
oversight of the Company’s response to the pandemic. Read more about
our COVID-19 response on pages 15 to 17.
Consideration of s.172 impacts by the Board in its decision making
Consideration of s.172 impacts by the Board in its decision making
Customers: Delivering improvements to customer experience was
a key factor in all Board discussions. The primary purpose of the
transformation programme was to enhance customer experience
through optimising the Planning and Scheduling function and better
resource teams delivering for customers.
Employees: The Board considered the impact of the programme on
employees and commissioned an extensive employee engagement
programme to keep employees informed and understand any concerns
regarding the transformation plans and changes to existing working
arrangements. A dedicated Trade Union employee working group
was constituted at the outset of the project to ensure that plans could
be developed in line with employee feedback.
Tailored support and training programmes were also developed and
continually refined in line with employee feedback. Regular updates
were provided also to the Board. As a result of the dedicated approach
taken, employee feedback was positive – supported by employee
engagement scores increasing compared to the prior year.
Investors: The Board carefully considered the need to deliver value for
customers and shareholders. The transformation project delivered cost
savings and improved customer experience, supporting improvements
in ODI and C-MeX performance.
Outcomes and impact on the long-term
sustainable success of the Company
The transformation programme will deliver an improved customer
experience and support improvements in ODIs, whilst reducing overall
travel time and delivering carbon benefits, with associated benefits for
communities, colleagues, investors and our supply chain partners,
whilst maximising efficiencies.
Other benefits include more efficient scheduling resulting in higher
productivity, improved employee engagement and better customer
engagement and experience.
78
Customers: The Board considered carefully the impact of the pandemic
on customers and regularly reviewed additional measures put in place
to support them, including the WaterSure and Big Difference schemes,
and Back-on-Track. The Board was particularly focused on support for
the Company’s vulnerable customers – with targeted communications
and support provided through the Priority Services Register. The Board
acknowledged the importance of maintaining contact with all customers
throughout the pandemic and oversaw enhancements to the Group’s
digital channel capability during the year.
Employees: The Board oversaw the development of a comprehensive
approach to health, safety, mental wellbeing and financial security –
committing to no furloughing, no redundancies, honouring the
all-employee bonus and agreeing a 2.3% annual pay increase for the
next three years. The Company ensured that all key worker employees
had access to the correct PPE and our IT infrastructure enabled our
non-key worker employees to work safely from home so we could be
there for our customers 24 hours a day, seven days a week.
Environment and the community: The wellbeing and safety of our
visitors, communities and colleagues is of significant importance
and, as such, the difficult decision to close all visitor sites was made
early in the pandemic to limit the risk of the spread of COVID-19. The
continuation of education programmes was recognised by the Board
as key and a virtual education zone was established to help parents
with home-schooling and to inspire the next generation of water users.
Government: The Government designated all Severn Trent employees
as key workers. However, the Board felt it important to identify
which employees were absolutely essential to providing our services
in order to keep as many people at home as possible in line with
Government advice and to ensure we did not take up any more school
spaces than were absolutely necessary. As such 50% of our employees
were identified as key workers. Additionally, the Board did not take
Government support in terms of the furlough scheme, a decision
which was influential with the rest of the sector.
Trade Unions: The Board was kept updated on communications with
Trade Unions, including the measures in place to ensure the health,
safety and wellbeing of all colleagues.
Relationship with suppliers: The Board recognised the opportunity to
help SME suppliers by moving to immediate processing of payments
for three months, meaning that payment to the supply chain continued
to flow into households. The scheme was originally targeted for three
months; however, the decision was taken to extend the scheme through
2021 so that the Company could continue to provide this
essential support.
Investors: The Board reached the decision that it was in the Company’s
best, long-term interest to approve and announce the year end dividend
in line with the AMP7 dividend policy, with a growth rate of at least CPIH.
Outcomes and impact on the long-term
sustainable success of the Company
The Board’s continued oversight of the Company’s COVID-19 response
is a key factor in the high-quality management of potential impacts
on our customers, communities, colleagues and shareholders.
Severn Trent Plc Annual Report and Accounts 2021
NON-FINANCIAL INFORMATION STATEMENT
Non-Financial Information Statement
This section of the Strategic Report constitutes the Non-Financial Information Statement of Severn Trent Plc, produced to comply
with sections 414CA and 414CB of the Companies Act 2006. The information listed in the table below is incorporated by cross reference.
Reporting requirement
Stakeholders
Policies and standards which
govern our approach
• Customer policy
• Group Data Protection policy
• Group Commercial policy
Environmental matters
• Group Environment policy
Employees
• Group Health, Safety and Wellbeing policy
• Group Speak Up policy
Respect for human rights
• Modern Slavery Statement
• Diversity within our workforce
Anti-corruption and bribery
• Group Financial Crime and Anti-Bribery
and Anti-Corruption policy
• Group Conflicts of Interest policy
• Group Security policy
• Group Competition and Competitive
Information policy
• Doing The Right Thing
• Group Environment policy
• Customer policy
Social matters
Description of Principal Risks
and impact of business activity
Description of the Business Model
Non-financial Key Performance Indicators
Additional information and risk management
Stakeholder Engagement, pages 68-71
s.172 Statement, pages 76-78
Board Activities, pages 92-94
Sustainability Disclosure, pages 50-67
Corporate Sustainability Committee Report,
pages 116-119
Sustainability Report, www.severntrent.com
Stakeholder Engagement, pages 68-71
Our People, pages 72-75
Gender Pay Gap, page 74
Governance Report, pages 80-153
Audit Committee Report, pages 107-113
Stakeholder Engagement, pages 68-71
Remuneration Report, pages 120-153
Modern Slavery Act 2015, page 119
Governance Report, pages 80-153
Corporate Sustainability Committee Report,
pages 116-119
Governance Report, pages 80-153
Audit Committee Report, pages 107-113
Sustainability Disclosure, pages 50-67
Corporate Sustainability Committee Report,
pages 116-119
Directors’ Report, pages 154-157
Sustainability Report, www.severntrent.com
Stakeholder Engagement, pages 68-71
Our Approach to Risk, pages 38-39
Principal Risks, pages 40-45
Emerging Risks, page 46
Business Model, pages 6-7
Business Model, pages 6-7
Strategic Report, pages 2-79
Key Performance Indicators, pages 18-19
The policies mentioned above form part of Severn Trent’s Group policies, which act as the strategic link between our Purpose and Values and
how we manage our day-to-day business. During the year, the Board determined that the policies remain appropriate, are consistent with the
Company’s Values and support its long-term sustainable success.
Approval
This Strategic Report was approved by the Board.
By order of the Board.
Bronagh Kennedy
Group General Counsel and Company Secretary
18 May 2021
79
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION CHAIR’S INTRODUCTION TO GOVERNANCE
Chair’s Introduction to Governance
“The Board’s overarching objective is to
ensure that Severn Trent is a successful,
socially purposeful company, making long-
term decisions for the enduring benefit of
all our stakeholders.”
What an extraordinary backdrop for my first year as Chair of
Severn Trent. As the COVID-19 pandemic unfolded, the Board
increased its interactions to maintain continual dialogue on the
potential impact on our customers, communities, colleagues
and shareholders and to ensure effective Board oversight of
the Company’s response to the pandemic.
In line with the approach implemented for non-key workers across
the business, Board meetings were held virtually whilst restrictions
were in place. The Board also met physically as soon as movement
restrictions allowed and undertook a number of site visits – in order to
thank key-worker front-line employees for their continued dedication.
Significant effort was applied to ensuring that all matters on the
Board’s forward plan were considered during the year and external
stakeholders continued to attend virtual Board events throughout
the pandemic. The Board values the insight gained from stakeholder
engagement and places significant importance on maintaining close
relationships with stakeholders, taking account of and responding to
their views. A range of engaging and accessible virtual events were also
held this year – including the ‘Ask our Board’ employee engagement
event, informal Board discussion meetings (outside of the formal
meeting programme) and company-wide virtual events such as the
‘Awesome Awards’ and our ‘Share a Smile’ campaign. I would like to
recognise the excellent work of our Communications, Company
Secretariat and Technology teams, who seamlessly migrated company
events and Board and Committee meetings to engaging and accessible
virtual formats, which enabled the Board to remain tuned into the views
and experiences of our employees throughout the pandemic.
The Board spent time considering a number of important strategic
topics during the year, including approval of the Company’s Green
Recovery submission, progress against our Net-Zero by 2030 Plan
– and the AGM resolution on the Company’s long-term approach
to climate change – and development of our Board objectives,
with a particular focus on the role the Company should play in
the post-pandemic economic recovery. You can read more about
the activities of the Board on pages 92 to 94.
Board events were held virtually whilst COVID-19
movement restrictions were in place
Board focus areas in 2020/21
Developed Board objectives to align with Purpose and Values
Oversaw the Company’s continued response to the COVID-19 pandemic
Approved the Company’s Green Recovery submission
Agreed an AGM resolution on the Company’s long-term
approach to climate change
Reviewed the Group’s strategy, five-year plan and budget
Satisfied itself that workforce policies and practices are
consistent with the Company’s Values and culture
Ensured an effective induction for Sharmila Nebhrajani following her
appointment as an Independent Non-Executive Director in May 2020
Read more about the key activities of the Board on p92-94.
Documents available at
www.severntrent.com
Severn Trent Plc Articles
of Association
Matters Reserved to the Board
Charter of Expectations
Non-Executive Director
Letters of Appointment
Terms of Reference for
Board Committees
Board Diversity Policy Statement
Modern Slavery Statement
Tax Strategy and Tax Report
Group Conflicts of Interest Policy
Non-Audit Services Policy
Doing the Right Thing
80
Severn Trent Plc Annual Report and Accounts 2021 Corporate governance
The Group’s long-term success depends on our commitment to
exceptional corporate governance standards, which underpin the
confident delivery of everything outlined within this Annual Report.
We do not see governance as something we do because we have to.
We see it as something that should be ingrained in the way we behave,
how we make decisions, how we run our business and, ultimately, how
we build trust. This year, two themes in particular have been central to
our governance approach – living our Purpose and culture and balancing
the interests of our stakeholders. Further detail is provided below.
Living our Purpose and culture
Having the right culture throughout the entire organisation, from the
boardroom to the front line, is a key enabling factor to achieving good
governance. Our Purpose of ‘taking care of one of life’s essentials’
comes to life through our Values of Having Courage, Embracing
Curiosity, Showing Care and Taking Pride. Our Values are integral
to the way we behave and the way we do business. They ensure that
every employee at Severn Trent understands what is important, how
we work together as a team and why the customers and communities
we serve, and the environment that we depend on, are at the centre
of everything we do. The Board and Executive Committee play a key
role in ensuring that our Values place customer, and wider society’s
needs at the heart of our plans to reinforce our overarching objective
of being a successful, socially purposeful company, making decisions
for the benefit of all our stakeholders to promote the long-term
success of the Company. The Board gathers feedback from our
stakeholders to assess our ongoing progress.
The Board was very pleased by the results of the annual QUEST survey
held in November 2020, with this year’s employee engagement score
of 8.3 out of 10, up from 8.1 last year, placing the Company in the top 5%
of utilities globally. For the first time, an interim survey was held in
June 2020 to capture employee feedback at the height of the pandemic
and inform our COVID-19 response. The positive employee feedback
from the June 2020 survey was confirmed in our annual survey and
you can read more about how we engaged with employees on
pages 72 to 75.
The Board recognises the need to foster an inclusive culture and
encourage all colleagues to bring their whole self to work, fulfil their
potential and perform at their best. We are recognised as a global
leader on gender equality, with 56% of the Board, 33% of the Executive
Committee and more than 42% of our senior leaders being female.
The Board has applied focus to broader diversity during the year and
you can read more about the Group’s new inclusion programme on
page 73. This important work is in its early stages, and is focused on
careers and career progression for colleagues from ethnic minority,
LGBTQ+ and disabled groups. We have also embraced the Government
Kickstart Scheme with ambitious plans to support 500 unemployed 16
to 24 year olds into employment with paid work experience and skills
development. The Board enjoyed an engaging and informative visit
to the new Severn Trent Academy in April 2021 to observe the range of
learning programmes available to develop engineers and leaders of
the future, with a particular focus on careers and career progression
and creating a working environment where everyone can thrive.
You can read more on page 75.
Balancing the interests of stakeholders
The Board is supportive of the 2018 UK Corporate Governance Code
(the ‘2018 Code’) and, in particular, its focus on boards demonstrating
how the views of stakeholders are captured and taken into account
when making decisions. This is an area where we have strong
foundations on which to build, through listening to the views of our
stakeholders – our customers, communities, shareholders,
regulators, suppliers and, this year in particular, our employees.
We continue to listen to these stakeholders and their insights help
shape our strategy and the decisions we take as a Board. It is not
always possible to provide positive outcomes for all stakeholders and
the Board sometimes has to make decisions based on competing
priorities. Our stakeholder engagement processes enable Board
members to understand what matters to stakeholders and carefully
consider all the relevant factors and select the course of action that
best leads to the high standards of business conduct and success of
Severn Trent in the long term. Our approach to s.172 is set out on pages
76 to 78 and provides examples of decisions taken by the Board and
how stakeholder views and inputs as well as other s.172 considerations
have been considered in its decision making.
Sustainability
The Board is responsible for overseeing the delivery of the Group’s
Sustainability Framework and, as such, sustainability is a key theme of
Board and Committee discussions. The role and responsibilities of the
Board and each of its Committees in relation to sustainability is set out
within our dedicated Sustainability Governance Framework on page 59.
The Board is also focused on the leading role the Company must play
in addressing the impact of climate change and the contribution we can
make as a business to mitigate our own impact and that of our supply
chain, and adapt to the challenges that climate change may bring in the
future. Further detail on our climate change action plan can be found
within our dedicated Sustainability Report.
Demonstrating the Company’s commitment to shareholders earlier
this year, the Board announced its intention to put its long-term
approach to climate change before shareholders at the AGM on 8 July
2021. Further detail can be found in the Notice of Meeting, available on
our website. Additionally, the Remuneration Committee considered the
alignment of the Group’s remuneration framework to support delivery
of the Company’s sustainability strategy through the introduction of a
sustainability-focused performance measure in the Group’s Long
Term Incentive Plan (‘LTIP’). Further detail can be found within the
Directors’ Remuneration Report on pages 123 and 131.
The Board
My focus continues to be on maintaining a strong, value-adding
Board, with a diverse range of professional backgrounds, skills and
perspectives. Succession planning has been a key priority for the
Nominations Committee and, to inform this work, we commissioned
an externally facilitated Board Effectiveness evaluation during the
year, conducted by Ffion Hague of Independent Board Evaluation
(‘IBE’), in line with the requirements of the 2018 Code. The review
assessed the Board’s progress since the last external review in 2018
and provided an opportunity to take a step back and reflect on the
Board’s overall effectiveness. The review concluded that the Board
operates very effectively and it was evident that the Board places
a strong emphasis on ensuring that it considered the views of
stakeholders in its discussions and decision making. I would like
to thank Ffion for her rigorous review and her honest assessment
of the Board. You can read more about the process and outcomes of
the Board Effectiveness evaluation on pages 98 to 99 of this report.
In line with the recommendations of the Board Effectiveness
evaluation, we refreshed the membership of the Treasury and
Corporate Sustainability Committees towards the end of the year,
so that membership of both Committees comprises Non-Executive
Directors only. You can read more on page 102.
During 2021, the Nominations Committee and Board considered
plans for succession and a search firm has been appointed to help
with the evolution of the Board over the next two to three years.
The Nominations Committee also considered succession planning for
the remainder of the Executive Committee and other key roles within the
senior leadership team, as well as initiatives underway to develop talent
internally. The Group’s succession readiness has improved during the
year and all key roles have credible succession plans in place.
81
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION CHAIR’S INTRODUCTION TO GOVERNANCE CONTINUED
As announced on 19 March 2021, Dominique Reiniche intends to
retire from the Board at the conclusion of our AGM on 8 July 2021,
having served on the Board for almost five years. On behalf of
the Board, I would like to thank Dominique for her service to
Severn Trent and her valuable contribution to the Board’s work.
We welcomed Sharmila Nebhrajani to the Board on 1 May 2020 and her
extensive induction programme took place during the year. Many of the
one-to-one meetings were held virtually due to the ongoing pandemic.
However, Sharmila was able to visit a number of our operational sites
once restrictions were lifted and COVID-secure measures were in
place. Further detail can be found on page 100.
Looking forward
Throughout its discussions this year, the Board has spent a significant
amount of time considering the important role the Company must play
in the post-pandemic economic recovery. As a Board, our overarching
objective is to ensure that Severn Trent remains a successful, socially
purposeful company, making decisions for the benefit of all our
stakeholders to promote the long-term success of the Company –
which is more important than ever before.
Finally, I would like to thank everyone involved in this most challenging
of years – our customers, communities, shareholders, my fellow
Board members and our inspiring colleagues, who have shown
unfaltering commitment to fulfil our Purpose to ‘take care of one
of life’s essentials’.
Christine Hodgson
Chair
18 May 2021
Our Values
Our Purpose and Values
Our Purpose
Taking care of one
of life’s essentials
Doing the Right Thing
To support the creation of long-term value for the mutual benefit
of our shareholders, employees, customers and communities,
the Board recognises the importance of building and promoting
a culture of integrity and openness, where inclusion and diversity
are valued.
At the heart of Severn Trent’s culture is a closely held set of Values.
Doing the Right Thing, our Code of Conduct, helps us put our Values
into practice. Our Values and Code of Conduct embody the principles
by which the Group operates and provide a consistent framework
for responsible business practices.
The Board also has oversight of a number of accompanying Group
policies. These policies, together with Doing the Right Thing, codify
how to identify and deal with suspected wrongdoing, fraud or
malpractice; how to ensure that the highest standards of safety
are maintained; and how to apply good ethics and sound judgment.
The Board monitors and assesses the culture of the Group by
regularly meeting with the Executive Committee and management,
reviewing the outcomes of employee surveys and engaging directly
with individual employees throughout the Group. We believe
that our strong culture is a unique strength and we see the
benefits in employee engagement, retention and productivity.
During the year, the Board has focused on deepening its
understanding of the Group’s culture even further, through
a dedicated Employee Voice session in November 2020. The
session was centred on the results of our employee survey,
‘QUEST’, and other relevant data. The Board considered the
positive and more challenging aspects revealed by the survey
and discussed the Company’s approach to addressing areas
of employee focus. Members of the Board also regularly attend
the Severn Trent Company Forum, to listen directly to what
employees have to say and for our employees to hear about
matters that the Board is reviewing and considering.
At Severn Trent, we do not see corporate governance as
something we do because we have to. We see it as something
that should be ingrained in the way we behave, how we make
decisions, how we run our business and ultimately, how we
build trust.
82
Severn Trent Plc Annual Report and Accounts 2021 The Board went to the new Severn Trent Academy in April 2021
Enhancing workforce engagement in response to COVID-19
The Board also spent time reviewing its approach to engaging
with the workforce, taking into account the 2018 Code provisions.
The Board’s selected workforce engagement mechanism, our
Company Forum, was facilitated via a virtual platform for the
majority of the year. The Company Forum provides an opportunity
for employee and Trade Union representatives to meet with Board
members on a regular basis. It ensures that views from a diverse
cross-section of the workforce – in terms of seniority, gender,
ethnicity, tenure of employment and job types – are considered
in Board discussion and decision making, and each meeting
generates wide-ranging exchanges of opinion and insights.
As part of its response to COVID-19, the Board enhanced the
already significant dialogue it has with the workforce through
the introduction of a virtual employee engagement event, ‘Ask
Our Board’. Employees were invited to pose questions to the
Board in a live Q&A environment, without management present
or scripted briefings, in order that the Board could listen to the
views of the workforce first-hand. With movement restrictions
impacting the ability for the Board to visit our sites and office
locations for much of the year, this virtual session enabled the
continuation of our direct dialogue with the workforce across
the Group. The response from our employees has been positive.
When national lockdown restrictions permitted, a number of
socially distanced COVID-secure site visits were undertaken
by Board members. This presented an ideal opportunity for
the Board to thank key-worker front-line employees for their
continued dedication throughout the pandemic. Such visits
also enable the Board to understand the culture of the Group
and assist with measuring progress against the Group’s People
Strategy, which focuses on employee health and wellbeing,
diversity and inclusion, and talent development.
Additionally, the annual QUEST survey was held in November 2020,
and for the first time an interim survey was held in June 2020 to
capture employee feedback at the height of the pandemic (ahead of
the November survey taking place). The Board takes seriously the
results and comments that arise from these surveys and it is a main
focus of the Board to make sure that management implements any
required interventions in a timely manner. The Board was delighted
that, during a difficult year for many, our employee engagement
score improved again this year. Further detail on this year’s QUEST
survey can be found on page 75.
Our virtual ‘Ask Our Board’ employee engagement event
COVID-secure measures were put in place for Board meetings
83
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION GOVERNANCE AT A GLANCE
Governance at a Glance
Highlights
Major Board decisions
101.58p
Dividend per share in 2021
increase of 1.5%
AGM
Resolution on Climate
Change Action Plan
8.3
Employee engagement
score for 2020/21
(out of 10)
‘ Ask Our
Board’
Virtual employee
engagement event
11
Dedicated Board training
sessions during the year
covering topics including
sustainability, cyber risk
and diversity and inclusion
1st
The Tortoise
Responsibility100 Index
ranked us 1st in the
FTSE100 on Good Business
(April 2021)
• Dedicated Board and Audit Committee sessions in respect
of enhancements made to the Group’s Enterprise Risk
Management processes and procedures.
• Green Recovery submission.
• Non-binding advisory AGM Resolution in relation to the
Company’s Climate Change Action Plan.
• AMP7 and Green Recovery financing.
• Dividend policy.
Read more: Key Activities of the Board p92-94
COVID-19 response
• Oversight of the Group’s response to the pandemic focused on
ensuring the wellbeing of colleagues and ways the Group can
continue to provide support to our workforce.
• Maintained effective governance throughout the
COVID-19 pandemic.
• £1 million COVID-19 Emergency Fund to support local charities
and non-profit organisations affected by the pandemic,
taking our total donation to charitable organisations to
c.£7 million.
• Delivery of the Group’s strategic priorities and development
of Board objectives.
Read more: Our COVID-19 Response p15-17
Governance improvements
• Review and approval of the Group’s Risk Appetite Statement.
• Dedicated session on the Group’s AMP7 Assurance Map.
• New ‘Ask Our Board’ virtual employee engagement event to
facilitate direct interaction between the Board and the wider
workforce throughout the COVID-19 pandemic.
• s.172 Board processes reviewed and refreshed, to ensure a
greater emphasis on sustainability and environmental impacts.
• Updated and approved the Board Committee Terms
of Reference.
Read more: Nominations Committee Report p101-106
Board changes
• The Board spent a significant amount of time considering
succession planning during the year.
• Sharmila Nebhrajani joined the Board as an Independent
Non-Executive Director on 1 May 2020.
Read more: Nominations Committee Report p102
84
Severn Trent Plc Annual Report and Accounts 2021
STRATEGIC REPORT
GOVERNANCE
GROUP FINANCIAL STATEMENTS
COMPANY FINANCIAL STATEMENTS
OTHER INFORMATION
7
Commercial
procurement
Political affairs
4
Brands
Construction/
Infrastructure
delivery
Our Board
What we bring to the Board
Key expertise
The Board benefits from a wide range of
backgrounds and strengths. The diagram below
provides an overview of the number of Board
members with specific skills, experience and
knowledge as a way of demonstrating the
different aspects the Directors bring to the
Board. More details can be found on
pages 86 to 87.
9
Strategy
Regulation
Utility sector
M&A
8
People management
100%
Board independence
as at 31 March 2021
11%
Ethnic minority
representation
on our Board
as at 31 March 2021
56%
Female representation
on our Board
as at 31 March 2021
100%
Board meeting attendance
for year ended 31 March 2021
Executive and Non-
Executive Directors
as at 31 March 2021
2 Executive
6
Accounting
Corporate finance/
Treasury
5
Customer
7 Non-Executive
Large capital
programmes
Technology/
Innovation/Cyber
Sustainability,
including climate
change
Non-Executive
Director Tenure
as at 31 March 2021 (years)
3
2
2
0-3
3-5
6+
2 Science
Engineering
1
Severn Trent Plc Annual Report and Accounts 2021
85
BOARD OF DIRECTORS
Board of Directors
The collective experience of the Directors and the diverse skills and experience they
possess enables the Board to reach decisions in a focused and balanced way, supported
by independent thought and constructive debate, crucial to ensuring the continued
long-term success of the Company. Integrity and mutual respect are the cornerstones
of relationships between our Directors, with a Board dynamic that supports open
and honest conversations to ensure decisions are taken for the long-term success
of Severn Trent in full consideration of the impact on all stakeholders.
Christine Hodgson, CBE
BSc (Hons), FCA
Olivia Garfield, CBE
BA (Hons)
James Bowling
BA (Hons) Econ, ACA
Kevin Beeston
FCMA
Senior Independent
Non-Executive Director
A
N
R
T
Appointed:
Independent Non-Executive
Director on 1 June 2016,
Senior Independent Non-Executive
Director on 20 July 2016.
Skills, competences
and experience:
Kevin has a wealth of commercial,
financial and high level management
experience. 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,
Partnerships in Care Limited and
Equiniti Group Plc, and was a
Non-Executive Director of IMI Plc
and Marston Corporate Limited. Until
February 2020, Kevin was Chairman
of Taylor Wimpey Plc, where he had
been on the Board since 2010.
Kevin has recent and relevant
financial experience as a fellow of the
Chartered Institute of Management
Accountants and was previously
Finance Director at Serco Plc.
External appointments:
• Non-Executive Director of the
Football Association Premier
League Limited
• Non-Executive Chairman of
Elysium Healthcare Limited
Chair
N
C
R
Appointed:
Non-Executive Director
on 1 January 2020,
Chair on 1 April 2020.
Chief Executive
Chief Financial Officer
D
E
Appointed:
Chief Executive
on 11 April 2014.
D
E
Appointed:
Chief Financial Officer
on 1 April 2015.
Skills, competences
and experience:
Skills, competences
and experience:
Skills, competences
and experience:
James is a chartered accountant,
who 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.
James has recent and relevant
financial experience as a member
of the Institute of Chartered
Accountants in England and Wales.
External appointments:
• Director of Water Plus Limited –
joint venture with United Utilities
Christine brings extensive Board
and governance experience to
the Company as well as a deep
understanding of business, finance
and technology leadership. She is
a committed advocate of the need
for companies to serve all of their
stakeholders effectively and deliver
their social purpose. Until her
appointment as Chair of the Severn
Trent Board, she was the Executive
Chair of Capgemini UK Plc, one of
the world’s largest technology and
professional services groups.
Christine joined Capgemini in 1997
and built her career in a variety of
roles including CFO for Capgemini
UK Plc and for the Global
Outsourcing business, CEO of
Technology Services North West
Europe and the Global Head of
Corporate Social Responsibility.
Christine was previously an
Independent Non-Executive
Director of Ladbrokes Coral Group
PLC until 2017. She is a fellow of the
Institute of Chartered Accountants
in England and Wales.
External appointments:
•
Senior Independent Director
of Standard Chartered Plc
• Chair of The Careers and
Enterprise Company Limited
• Senior Pro-Chancellor
and Chair of Loughborough
University Council
• External Board Advisor to
Spencer Stuart Management
Consultants NV
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.
In October 2020, Liv was appointed
Commander of the Order of the
British Empire (‘CBE’) in the Queen’s
Birthday Honours for services to
the water industry.
External appointments:
• Non-Executive Director
of Water UK
• CEO of the Council for
Sustainable Business
• Member of the Takeover Panel,
and its Hearings Committee and
Nomination Committee
• Director of Water Plus Limited –
joint venture with United Utilities
• Member of The 30% Club
• Member of the UK
Investment Council
• Member of the Build Back
Better Council
A
C
Audit
Committee
Corporate
Sustainability
Committee
N Nominations
Committee
R
T
D
E
Remuneration
Committee
Treasury
Committee
Disclosure
Committee
Executive
Committee
Denotes
Committee
Chair
86
Severn Trent Plc Annual Report and Accounts 2021 STRATEGIC REPORT
GOVERNANCE
GROUP FINANCIAL STATEMENTS
COMPANY FINANCIAL STATEMENTS
OTHER INFORMATION
Director
Position
Christine Hodgson
Chair
Liv Garfield
Chief Executive
James Bowling
Chief Financial Officer
Kevin Beeston
Senior Independent Non-Executive Director
John Coghlan
Independent Non-Executive Director
Sharmila Nebhrajani
Independent Non-Executive Director (appointed 1 May 2020)
Dominique Reiniche
Independent Non-Executive Director
Philip Remnant
Independent Non-Executive Director
Angela Strank
Independent Non-Executive Director
Board
Audit
Committee
Corporate
Sustainability
Committee
Nominations
Committee
Remuneration
Committee1
Treasury
Committee
7/7
7/7
7/7
7/7
7/7
6/6
7/7
7/7
7/7
–
–
–
6/6
6/6
5/5
–
6/6
–
4/4
4/4
–
–
–
4/4
4/4
–
4/4
3/3
–
–
3/3
3/3
3/3
3/3
3/3
3/3
9/9
–
–
9/9
–
–
–
9/9
8/92
–
–
6/6
–
6/6
–
–
6/6
–
1. Additional Remuneration Committee meetings were held during the year to discuss the framework for the Remuneration Policy review.
2.
Angela Strank was unable to attend a Remuneration Committee meeting due to a long-standing commitment. Angela was provided with all
relevant papers and provided comments on the matters to be considered to the Committee Chair.
John Coghlan
BCom, ACA
Sharmila Nebhrajani, OBE
MA (Hons), ACA
Dominique Reiniche
ESSEC MBA
The Hon. Philip Remnant, CBE
FCA, MA
Independent
Non-Executive Director
Independent
Non-Executive Director
Independent
Non-Executive Director
A
T
N
Appointed:
A
C
N
Appointed:
C
N
Appointed:
Independent
Non-Executive Director
R
A
N
T
Appointed:
Dame Angela Strank, DBE
FRS, FREng, CEng, FIChemE,
DSc, PhD
Independent
Non-Executive Director
C
N
R
Appointed:
Independent Non-Executive
Director on 23 May 2014.
Independent Non-Executive
Director on 1 May 2020.
Independent Non-Executive
Director on 20 July 2016.
Independent Non-Executive
Director on 31 March 2014.
Independent Non-Executive
Director on 24 January 2014.
Skills, competences
and experience:
Skills, competences
and experience:
Skills, competences
and experience:
Skills, competences
and experience:
Skills, competences
and experience:
Dominique has a wealth of
operational experience in Europe
and has international consumer
marketing and innovation
experience. 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.
Dominique was a Non-Executive
Director of Peugeot-Citroen SA
until December 2015 and was a
Non-Executive Director of
AXA SA until April 2017.
External appointments:
• Chair of Eurostar
International Limited
• Chair of CHR Hansen
Holdings A/S
• Non-Executive Director
of Mondi Plc
• Non-Executive Director
of PayPal (Europe)
• Non-Executive Director
of Deliveroo Plc (with effect
from 1 May 2021)
Philip is a senior investment banker
and brings substantial advisory and
regulatory experience to the Board.
A chartered accountant, he now
holds a number of non-executive
roles. 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. Until
2020, Philip was Chairman of City
of London Investment Trust Plc.
Philip has recent and relevant
financial experience as a fellow
of the Institute of Chartered
Accountants in England and Wales.
External appointments:
• Senior Independent Director
of Prudential Plc
• Deputy Chairman of the
Takeover Panel
• Trustee of City of London
Endowment Trust
John has a wealth of experience in
financial and general management.
He spent 11 years at Exel PLC as
Chief Financial Officer and ultimately
as Deputy Chief Executive Officer
until retiring in 2006. Since then,
he has been a Director of publicly
quoted and private companies
across several sectors.
John has recent and relevant
financial experience as a member
of the Institute of Chartered
Accountants in England and Wales.
External appointments:
• Non-Executive Director of
O.C.S. Group Limited
• Non-Executive Director, Vice
Chair and Senior Independent
Director of Clarion Housing Group
Sharmila brings extensive Board
and governance experience,
gained in a variety of roles spanning
the private sector, public sector
and NGOs. She brings sectoral
experience from a range of regulated
sectors including medicine,
bioethics, financial services and
the media. She is Chairman of the
National Institute of Health and Care
Excellence (‘NICE’), the organisation
that assesses clinical and cost
effectiveness of drugs, medical
devices and interventions in health
and social care.
Her previous executive roles include
Chief Executive of the Association
of Medical Research Charities and
Chief Operating Officer at BBC
Future Media & Technology, where
she managed the business functions
of bbc.co.uk, including the launch
of iPlayer. Previous non-executive
roles include Chairman of the
Human Tissue Authority, Deputy
Chairman of the Human Fertilisation
and Embryology Authority and
Non-Executive of the Pension
Protection Fund.
Sharmila read Physiological
Sciences (Medicine) at the
University of Oxford and was
awarded an OBE in 2014 for
services to medical research.
Sharmila has recent and relevant
financial experience as a member
of the Institute of Chartered
Accountants in England and Wales.
External appointments:
• Non-Executive Director of ITV Plc
• Chairman of National Institute
of Health and Care Excellence
• Non-Executive Director of
National Savings & Investments
• Trustee Director
of Lifesight Limited
• Governor of the
Health Foundation
Angela brings a wealth of strategic,
technical and commercial experience
to the Board. Until July 2020, Angela
was BP’s Chief Scientist and Head of
Downstream Technology at BP Plc
with responsibility for delivering the
strategic business agenda through
the development of differentiated
technology advantage across the
refining, fuels, lubricants and
petrochemicals businesses, as well
as shaping their transition to a lower
carbon future. From joining BP in 1982,
she held many senior and executive
leadership roles around the world in
business development, commercial,
finance and technology, including in
2012, being 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, recognising pioneering UK
women in business and industry. In
2017 she won the prestigious Energy
Institute’s Cadman Award for
outstanding contribution to the oil and
gas industry. Her track record and
experience in strategy, operations,
technology and transformational
change are a complementary addition
to the Board’s skill set. In June 2017,
Angela was recognised in the Queen’s
Birthday Honours List with the title
Dame Commander of the Most
Excellent Order of the British Empire
(‘DBE’) for services to the Oil and Gas
Industry and encouraging women into
STEM careers. She is an honorary
professor at the University of
Manchester and she has been awarded
honorary degrees from Bradford and
Royal Holloway London universities.
External appointments:
• Non-Executive Director of
Rolls Royce Holdings Plc
• Non-Executive Director of SSE Plc
• Member of Royal Academy of
Engineering Research Committee
• Non-Executive Director of
Mondi Plc (with effect from
22 April 2021)
87
Severn Trent Plc Annual Report and Accounts 2021
EXECUTIVE COMMITTEE
Executive Committee
The Severn Trent Executive Committee is established by the Chief Executive
to assist with the development and execution of the Group’s strategy. Individual
Executive Committee members are responsible for leading their directorates
and ensuring their areas of the business are being run effectively and efficiently.
Full biographies for each member of the Executive Committee are available
on the Severn Trent website.
Documents available at:
www.severntrent.com
• Severn Trent Executive
Committee Biographies
D
E
Disclosure
Committee
Executive
Committee
Denotes
Committee
Chair
88
Olivia Garfield, CBE
BA (Hons)
James Bowling
BA (Hons) Econ, ACA
Shane Anderson
BA (Hons) Econ
Dr. James Jesic
BEng (Hons), PhD,
MIChemE, CEng
Bronagh Kennedy
BA (Hons)
Chief Executive
Chief Financial Officer
Director of Strategy
and Regulation
Managing Director of
Customer Operations
Group General Counsel
and Company Secretary
D
E
D
E
D
E
E
D
E
Please see full biography
on page 86.
Please see full biography
on page 86.
Appointed Director of
Strategy and Regulation
in 2020.
Appointed Managing
Director of Customer
Operations in 2020 after
having held the position
of Director of Production
since 2017.
Joined Severn Trent
in 2011 as Group
General Counsel and
Company Secretary.
Helen Miles
CIMA
Neil Morrison
BSc (Hons), FCIPD
Andy Smith
BTech (Hons)
Capital and Commercial
Services Director
Director of
Human Resources
Director of Customer,
Retail and Technology
E
E
E
E
Joined Severn Trent in
November 2014 as the
Chief Commercial Officer,
and in 2020 became the
Capital and Commercial
Services Director.
Joined Severn Trent
in 2017 as Director
of Human Resources.
Appointed Director of
Customer, Retail and
Technology in 2020,
having held the role of
Managing Director –
Business Services
since 2014.
Appointed Chief
Engineer in 2018.
Executives serving
for part of the year
Dr. Bob Stear
MEng (Hons), PhD,
MCIWEM, CWEM, FIWater
Martin Kane
BSc, CEng, CEnv,
MICE, MIWEM, FIW
Chief Engineer
Special Advisor
Martin retired in June
2020 after 45 years of
service with Severn Trent.
Sarah Bentley
BSc (Hons)
Chief Customer Officer
Sarah stepped down
from the Executive
Committee in June 2020
and left the Company
in September 2020.
Severn Trent Plc Annual Report and Accounts 2021 GOVERNANCE FRAMEWORK
Governance Framework
We pride ourselves on having a high-functioning, well-composed, independent
and diverse Board and being transparent in all that we do. Maintaining the highest
standards of governance is integral to the successful delivery of our strategy.
Our Governance Framework ensures that the Board is effective in both making
decisions and maintaining oversight, whilst also adhering to our well-established
culture of Doing the Right Thing.
Documents available at:
www.severntrent.com
• Articles of Association
• Matters Reserved to the Board
• Charter of Expectations
• Committee Terms of Reference
THE BOARD
The Board’s role is to ensure the long-term sustainable success of Severn Trent by setting our strategy through
which value can be created and preserved for the mutual benefit of our shareholders, customers, employees and the
communities we serve. The Board provides rigorous challenge to management and ensures the Group maintains an
effective risk management and internal control system.
Biographies p86-87
Board Activities p92-94
Roles and Responsibilities p95-96
Informing
Reporting
THE BOARD DELEGATES CERTAIN MATTERS TO ITS PRINCIPAL COMMITTEES –
WHICH REPORT TO THE BOARD AT EVERY MEETING
Corporate
Sustainability
Committee
Provides guidance
and direction to
the Company’s
Sustainability
Strategy based on
our Code of Conduct,
Doing the Right Thing.
The Committee also
reviews the Group’s
non-financial risks
and opportunities.
Nominations
Committee
Remuneration
Committee
Treasury
Committee
Assists the Board
by keeping the
composition of
appointments to the
Board under review.
The Committee also
assists the Board on
issues of Executive
Director succession
planning, conflicts
of interest and
independence.
Determines the
Company’s policy
on the remuneration
of Executive
Directors, other
members of
the Executive
Committee and the
Chair of the Board.
The Committee also
reviews workforce
policies and
practices.
Provides oversight
of treasury activities
in implementing
the policies and the
funding and treasury
risk management
plan approved by
the Board. The
Committee also
reviews and approves
the Group Treasury
Policy Statements.
Audit
Committee
Assists the Board
in discharging its
responsibilities for
the integrity of the
Company’s financial
statements, risk
management,
assessment of the
effectiveness of the
system of internal
control and the
effectiveness of
Internal and
External Auditors.
Report p107-113
Report p116-119
Report p101-106
Report p120-153
Report p114-115
Informing
Reporting
THE CHIEF EXECUTIVE AND THE SEVERN TRENT EXECUTIVE COMMITTEE (‘STEC’)
Responsibility for the development and implementation of the Group’s strategy and overall commercial objectives rests with the
Chief Executive who is supported by STEC.
Informing
Reporting
An Executive Committee responsible for overseeing the Group’s compliance with its disclosure obligations, considering the materiality,
accuracy, reliability and timeliness of information disclosed and assessment of assurance received.
DISCLOSURE COMMITTEE
89
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION CORPORATE GOVERNANCE STATEMENT
Corporate Governance Statement
Board Leadership and
Company Purpose
An effective Board
The Board’s role is to be effective in securing the long-term success
of Severn Trent by ensuring the delivery of our strategy and that its
overarching objectives remain aligned with the Company’s Purpose
and Values. Maintaining the highest standards of governance is
integral to this, together with ensuring that the Board takes decisions
that create sustainable long-term value for the mutual benefit of our
shareholders, customers, employees and the communities we serve.
The operation of our Board is supported by the collective experience
of the Directors and the diverse skills and experience they possess.
This enables the Board to reach decisions in a focused and balanced
way, supported by independent thought and constructive debate
between the Directors. Trust and mutual respect are the cornerstones
of relationships between our Directors, with a Board dynamic that
supports open and honest conversations to ensure decisions are taken
for the long-term success of Severn Trent in full consideration of the
impact upon all stakeholders.
The requirements of the Board are clearly documented in the Severn
Trent Plc Articles of Association, Charter of Expectations and Schedule
of Matters Reserved to the Board. The Board reviewed and approved
the Schedule of Matters Reserved to the Board in March 2021. All of
these documents are available on the Severn Trent Plc website.
As outlined on page 95, there is a clear division of responsibilities
between the roles of Chair and CEO. To allow these responsibilities to
be discharged effectively, the Chair and CEO maintain regular dialogue
outside the Boardroom, to ensure an effective flow of information.
The Non-Executive Directors have direct access to senior management
at all times. Informal as well as formal contact with the wider business
is encouraged to develop a deeper understanding of Severn Trent’s
operations and requests for further information are welcomed. This
broadens the Non-Executive Directors’ sources of information and
enables them to consider the wider impact of any Board decisions on
stakeholders more broadly.
The effectiveness of the Board is reviewed at least annually and
conducted according to the guidance set out in the 2018 Code and
Financial Reporting Council (‘FRC’) Guidance on Board Effectiveness.
You can read more about this year’s externally facilitated process on
page 98 to 99.
Strategy
Responsibility to all of our stakeholders for the approval and delivery
of the Group’s strategy and for creating and overseeing the framework
to support its delivery sits with the Board. The Board also holds a
dedicated strategy meeting with the Executive Committee to help
consider the strategic direction of the Company for the short,
medium and long term.
Responsibility for the development and implementation of the
Group’s strategy and overall commercial objectives rests with
the Chief Executive who is supported by the Executive Committee.
The Directors present their report and the audited Group financial
statements, for the year ended 31 March 2021. The performance
review of the Company can be found within the Strategic Report.
This provides detailed information relating to the Group, its
business model and strategy, the operation of its businesses,
future developments and the results and financial position
for the year ended 31 March 2021.
Stakeholder engagement
Stakeholder engagement is central to our strategy. Our dedicated
stakeholder engagement and s.172 statements on pages 68 to 71
and 76 to 78 respectively set out how the Board balances the
interests of stakeholders.
Investor meetings
Investor meetings are predominantly attended by our CEO,
CFO and Head of Investor Relations, although other Executive
Committee members also attend. During the financial year ended
31 March 2021, we held over 140 investor meetings and met with
over 230 existing and potential investors. These meetings were
attended by 56 shareholders, representing c.64% of our register.
The meetings focused on the Group’s AMP7 strategy, our approach to
net zero, climate change adaptation, COVID-19 impact response and
long-term growth opportunities. The Chair and individual Directors
regularly engage with major shareholders to understand their views
on governance and performance against strategy. Committee Chairs
also engage with shareholders on significant matters related to their
area of responsibility.
Investor presentations and tours
During the pandemic we have been able to adapt to the virtual world
and have met with 173 investors in 15 countries through engaging
virtual roadshows and shareholder meetings. We are hosting our
virtual Capital Markets Day on 24 September 2021 to which we will
invite our investors, analysts and key stakeholders to attend. The
event will focus on our medium to longer-term ambitions, including
operation strategy, investment opportunity and journey to net zero.
Remuneration Policy consultation
In early 2021, we conducted an extensive consultation exercise with
our largest shareholders to understand their views on our proposed
new Remuneration Policy. More details on how we engaged with
shareholders, along with the outcome of this engagement, are
available within the Directors’ Remuneration Report, from 120.
90
Severn Trent Plc Annual Report and Accounts 2021 Annual General Meeting (‘AGM’)
Our 2020 AGM was held as a closed meeting on 15 July 2020 at
which 73.53% of our shareholders (voting capital) voted through
the Chair of the AGM as their proxy or by submitting their proxy
forms either electronically or by post. We were delighted to receive
in excess of 90% votes in favour for all of our resolutions, including
over 99% approval for our Remuneration Report. Despite the impact
of COVID-19 on the Company’s ability to hold a physical meeting, the
Board considered carefully a range of alternative mechanisms by
which shareholders could engage with the Company in advance of the
AGM. Shareholders were invited to submit questions to a dedicated
AGM mailbox in advance of the AGM and a process was put in place for
the Board to respond to any questions directly and publish responses
on the Company’s website. No questions were posed to the Board in
advance of the 2020 AGM. The Chair also published a video message
on the morning of the AGM.
This year’s AGM is to be held on Thursday, 8 July 2021 at 11.00am.
In light of the COVID-19 pandemic, the AGM will be conducted as a
hybrid meeting, which means that shareholders will be able to follow
the business of the meeting by virtual means as well as in person.
Those joining virtually will be able to log into a live webcast and pose
questions to the Board in real time in accordance with the 2018 Code
and the Annual General Meeting Guidance published by the Financial
Reporting Council in October 2020. Shareholders are also able to
submit questions in writing through our website in advance of the
AGM. The physical location of the AGM will be the Severn Trent
Academy, Hawksley Park, St. Martins Road, Finham, Coventry, CV3 6PR.
Annual Report
Our Annual Report is available to all shareholders and we aim to
make our Annual Report as accessible as possible. Shareholders
can opt to receive a hard copy in the post, a PDF copy via email or
download a copy from our website. Please contact the Company
Secretary to request a copy.
Corporate website
We continually monitor our website, severntrent.com, to ensure it is
user-friendly for our stakeholders. The website has a dedicated investor
section which includes an overview of Severn Trent Plc and our history,
our company information and results, our Annual Reports, results
presentations (including webcasts) and an investor news section
containing information which may be of interest to our shareholders.
Code compliance
During the year ended 31 March 2021, we have fully applied the principles of good governance and have been compliant
with the provisions contained in the 2018 UK Corporate Governance Code (the ‘2018 Code’).
The Board welcomed the move to simplify the Code, and the greater clarity it brings to how businesses should transparently
report to their shareholders.
We believe good corporate governance is about how we provide confidence in the delivery of our performance to our stakeholders
and is essential for the long-term sustainable success of our business.
This table shows where shareholders can evaluate how the Company has applied the principles of the 2018 Code and where
key content can be found in this report.
Principles of the 2018 Code
Board Leadership and Company Purpose
Composition, Succession and Evaluation
The Role of the Board
90 Board Biographies
Chair’s Introduction to Governance
80-82 Board Composition and Tenure
Board Engagement with Stakeholders
68-71 Board Evaluation
Section 172 Statement
76-78 Board Succession Planning
Establish Purpose and Values
82 Nominations Committee Report
Oversight of Strategy
Policies and Practices
90
79
Audit, Risk and Internal Controls
Assessing Risks and Viability
38-49
Audit Committee Report
Measurement of Strategy (ODIs and KPIs)
18-19
Our Approach to Risk
Division of Responsibilities
Board Independence
Board Committees
Board Attendance
Principal Risks
Emerging Risks
96
89
Remuneration
86-87
85
98-99
102
101-106
107-113
38-39
40-45
46
87 Directors’ Remuneration Report
120-153
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Key Activities of the Board in 2020/21
The key activities considered by the Board during the year are set
out below.
The Board recognises the value of maintaining close relationships
with its stakeholders, understanding their views and the importance of
these relationships in delivering our strategy and the Group’s Purpose.
The Group’s key stakeholders and their differing perspectives are
taken into account as part of the Board’s discussions. You can read
more in our s.172 Statement on pages 76 to 78. Board meeting
discussions are structured using a carefully tailored agenda that
is agreed in advance by the Chair, in conjunction with the CEO and
Company Secretary. Each meeting starts with a report, circulated
in advance of the meeting, from the Chairs of our Board Committees
on the proceedings of those meetings, including the key discussion
points and particular matters to bring to the Board’s attention.
A typical Board meeting will comprise reports on operational and
financial performance, legal and governance updates and one or two
detailed deep dives into areas of strategic importance and areas of
risk. Details of the Directors’ attendance at the scheduled meetings
that took place during the year can be found on page 87.
DEVELOPMENT OF BOARD OBJECTIVES
A set of Board objectives and actions were developed by the Board and agreed in April 2021. The Board agreed that it should discuss its progress
on a six-monthly basis. An update will be provided in the 2021/22 Annual Report and Accounts.
PERFORMANCE
CEO Overview
The CEO led discussions focusing on general
business performance, key strategic initiatives
underway, environmental matters such as
biodiversity, environmental leadership and
climate change, health, safety and wellbeing
and other employee-related matters.
FINANCIAL
CFO Review
The CFO led discussions focusing on financial
performance across the Group.
Discussions included:
• Group financing updates – including
issuance under the Group’s Sustainable
Finance Framework, overseen by the
Treasury Committee.
• Tax updates – including the approval
of the Group’s Tax Strategy. Read more
about our Fair Tax Mark on page 21.
Operational Performance Reviews
Capital and Commercial Services Reports
Received reports detailing performance against
key targets and ODIs, environmental matters
and health and safety.
Reviewed performance of Business Services and
progress on delivering against our ODI targets for
major capital programmes and health and safety.
Group Budget
Green Financing
Considered performance vs the 2020/21 Group
Budget and agreed the 2021/22 Group Budget.
The Group’s financial response to the COVID-19
pandemic was also regularly reviewed, in order
to minimise the impact of the pandemic on
overall financial returns.
On the recommendation of the Treasury Committee,
considered the funding strategy and financing
structures to deliver the Group’s Green
Recovery schemes.
Results and Regulatory Reporting
Viability Statement Updates
Pension Scheme Updates
On the recommendation of the Audit
Committee, reviewed and approved the
half and full year results announcements,
presentations to analysts, Annual Report and
Accounts and Annual Performance Report.
RISK MANAGEMENT
Agreed the Viability Statement period to be
reported in the Annual Report and Accounts.
Read more on pages 47 to 49.
On the recommendation of the Treasury
Committee, considered updates in relation
to the Group’s pension schemes.
Enterprise Risk Management (‘ERM’)
Review of Effectiveness of Risk
Management and Internal Controls
Deep Dives on Risks
Conducted half-yearly reviews of the Group’s
ERM Risk Register, covering core internal
and external risks, risks driven by business
change and emerging risks. During the year,
the Board also took the opportunity to appraise
its approach to ERM, including development
of a Risk Appetite Statement and refreshed
approach to risk scoring. Read more on pages
38 to 39.
Reviewed the risk management and internal
controls in place across the Group and
determined their effectiveness. Read more
on page 111.
Minworth and Curdworth site visit: Members
of the Board attended a site visit to Minworth
and Curdworth lagoons to observe the Group’s
risk management processes and procedures
first-hand.
Cyber risk – Assessed the progress made to
maintain and improve cyber security systems.
Reservoir risk – Scrutinised the processes,
internal controls and resources in place to
effectively manage reservoir risk, extend
asset life and guarantee serviceability.
Supplier risk – Considered the Group’s approach
to managing supply chain risk, including active
management of suppliers through COVID-19
and transitionary periods to mitigate risk.
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Key stakeholder groups considered
Customers
Communities
Shareholders and Investors
Workforce
Suppliers and Contractors
Regulators and Government
Sustainability and ESG
SUSTAINABILITY AND ENVIRONMENTAL
Flood Mitigation Opportunities
Green Gas Strategy
Green Recovery Proposals
Considered how a broader, multi-agency
approach to flooding could facilitate significant
improvements in reducing flood risk at both
a local and national level. Shared learning,
experiences and resources would present
opportunities to reduce both pluvial and
fluvial flooding.
Discussed the Group’s green gas strategy
for the non-regulated business, including
biomethane and green hydrogen. Considered
the contribution of the green gas strategy to
the Group’s 2030 net-zero carbon ambitions
and broader environmental commitments.
Reviewed the business cases to be included
in the Group’s Green Recovery ahead of
submission to the regulators, in consideration
of stakeholder benefits. On 17 May 2021, Ofwat
proposed to award the Company £565 million
(2017/18 prices) across all of its Green Recovery
project proposals. Read more on page 13.
Our Sustainability Agenda
New Strategic Direction Statement
See Strategic Deep Dive section below.
See Strategic Deep Dive section below.
STRATEGIC DEEP DIVES
At each meeting, the Board receives one or two detailed deep dives into areas of particular strategic importance to evaluate progress, provide insight
and, where necessary, decide on appropriate action. Some examples are provided below.
Our Sustainability Agenda and Progressing
Our Social Purpose
New Strategic Direction Statement
Customer Experience
Alongside the regular sustainability updates
discussed at Board meetings, including
progress made in delivering the Group’s
sustainability agenda, the Board also considered
its Social Purpose during the year. The Board
discussed Ofwat’s Public Value consultation and
the Financial Reporting Council’s corporate
reporting reforms.
Discussed and agreed the Group’s long-term
strategic priorities to ensure we meet the
highest resilience and environmental
standards, and at the same time plan
investments more effectively in order
to optimise value creation.
Received an update on the current approach
and future plans to improve the customer
experience, including enhancing digital
channels available to customers.
Community Activity
Addressing Water Poverty
Information Technology Strategy
Received a detailed update on community
activity undertaken, including charitable
causes that had been supported through
the Community Fund and the COVID-19
Emergency Fund, over the last 12 months.
Discussed the wide range of mechanisms in
place to support customers in vulnerable
circumstances in the long and short term,
including the Severn Trent Trust Fund.
Received regular updates on progress made in
implementing the Group’s technology strategy and
plans for further improvement throughout AMP7.
Value Creation Strategy
Demand Management
COVID-19
Considered how the Group can continue to
create value in a regulatory context whilst
maintaining a leading approach to ESG matters.
Received an update on the Company’s
comprehensive peak demand management
programme, including trials undertaken
during the year. Considered tools being
used to reduce demand during peak periods.
Further detail can be found on page 27.
Received regular updates on the Company’s
response to the global pandemic, including
scenario planning, impact assessments
and actions being taken across the Group.
Further detail can be found on pages 15 to 17.
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CORPORATE GOVERNANCE STATEMENT CONTINUED
GOVERNANCE, LEGAL AND REGULATORY
Governance, Regulatory and Legal Updates
Board Succession Planning and Diversity
Board Effectiveness Evaluation
On the recommendation of the Nominations
Committee, considered the arrangements
for Board Succession Planning and approved
the appointment of Sharmila Nebhrajani as
a Non-Executive Director. Read more on
page 102.
Reviewed progress against the Action Plan for
2020/21 and set the Action Plan for 2021/22.
Appointed Independent Board Evaluation to
undertake the external 2020/21 evaluation,
covering the Board’s effectiveness, processes
and ways of working. Read more on pages 98 to 99.
Monitored regulatory and legislative
developments and considered any
potential impact on the Group’s operations.
Regulatory stakeholders attended Board
meetings virtually, including Ofwat, the DWI,
the EA, CCW and Defra. Members of the
Board also attended Ofwat NED events.
Received regular litigation reports from
the Group’s legal team.
Approved arrangements for delegated
financial authority across the Group.
On the recommendation of the Corporate
Sustainability Committee, approved the
Modern Slavery Statement.
WORKFORCE, CULTURE AND VALUES
Our Culture
Reviewed the results of the annual QUEST survey and identified areas for improvement and appropriate courses of action. On the recommendation of
the Remuneration Committee, satisfied itself that workforce policies and practices are consistent with the Company’s Values and culture. Received
updates from Non-Executive Directors following attendance at the Company Forum. Discussed gender pay, the development of women into senior
roles and driving greater diversity and inclusion in terms of gender, ethnicity and social background.
Employee Voice and Engagement
Review of Workforce Policies and Practices Academy
Discussed the Company’s approach to engaging
our workforce, including feedback from the
annual QUEST survey, and received an update
on progress made on embedding our Purpose
and Values.
Reviewed the assessment of the Group’s
workforce policies and practices, ensuring
these are consistent with the Company’s
Values and are supportive of its long-term
sustainable success.
Received regular updates on delivery of the Severn
Trent Academy facility, including a COVID-secure
site visit in April 2021 to observe the training and
development facility first-hand.
SITE VISITS
In response to Government guidance, physical site visits were put on hold for a large proportion of the year. However, during periods where restrictions
were lifted and COVID-secure measures were in place, Board members resumed individual and reduced number group visits to deepen their
understanding of the Group’s operations and the vital role played by our key workers during the pandemic.
Draycote Water and Carsington Reservoir
Operational Site Visits
Minworth and Curdworth Lagoons
Board members visited Draycote Water to see
first-hand the processes and management
in place at one of our largest reservoirs.
Board members attended our COVID-secure
Leadership events held at Carsington
Reservoir. The half day sessions focused
on the role that the Company could play in
the UK’s post-COVID recovery.
Operational sites visited by members
of the Board this year include the following:
• Trimpley Water Treatment Works
• Finham Sewage Treatment Works
and Sludge Treatment Facility
• Offices at Raynesway, Longbridge
and Shelton
Members of the Board visited Minworth
and Curdworth lagoons to observe the
Group’s risk management processes
and procedures first-hand.
CONTINUOUS PROFESSIONAL DEVELOPMENT AND TRAINING
During the year, the Board received dedicated sessions on a wide range of topics and engaged in Group-wide training, including:
Responding to Modern Slavery
within Business
Board CPD Sessions – Climate Change,
Cyber and Diversity
Group-Wide e-Learning
External facilitators provided an update on
modern slavery developments, including
lessons learned from recent modern slavery
investigations in the UK.
Board members receive a suite of CPD
materials via the Board’s Resources
Room to complement their attendance
at a range of externally facilitated virtual
events. This year, Board members attended
sessions on the following topics:
• Climate Change and Sustainability
• Cyber
• Diversity
Read more on page 97.
The Board completed mandatory e-learning
modules applicable to all employees during the
year, demonstrating a strong ‘tone from the top’
in reinforcing the importance that training plays in
mitigating risks faced by the Group. The e-learning
programme included the following topics:
• Doing the Right Thing
• Market Abuse Regulation
• Modern Slavery Awareness
• Anti-Bribery and Corruption
• Data Protection
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Division of Responsibilities
As at the date of this report, our Board comprised the Chair, six
Independent Non-Executive Directors and two Executive Directors.
There is clear division between Executive and Non-Executive
responsibilities which ensures accountability and oversight.
The roles of Chair and Chief Executive are separately held and their
responsibilities are well defined, set out in writing and regularly
reviewed by the Board. The Chair and the other Non-Executive
Directors meet routinely without the Executive Directors, and individual
Directors meet often outside formal Board meetings in order to gain
first-hand experience of our operations and engage with our workforce.
DIRECTOR
RESPONSIBILITY
The Executive Directors meet weekly with the Executive Committee
to attend to the ongoing management of the Group. Any significant
operational and market matters are communicated to the Non-
Executive Directors on a timely basis outside of Board meetings.
The Board is supported by the Company Secretary, to whom all
Directors have access for advice and corporate governance services.
Chair
Christine Hodgson
Senior Independent
Non-Executive
Director (‘SID’)
Kevin Beeston
Independent
Non-Executive
Directors
John Coghlan
Sharmila Nebhrajani
Dominique Reiniche
Philip Remnant
Angela Strank
Chief Executive (‘CEO’)
Liv Garfield
• Leads our unified Board and is responsible for its effectiveness.
• Fosters a culture of inclusivity and transparency by demonstrating the Company’s Values, establishing the right
‘tone from the top’.
• Sets agendas and ensures timely dissemination of information to the Board, to support sound decision making and
allow for constructive discussion, challenge and debate, in consultation with the CEO, CFO and Company Secretary.
• Responsible for scrutinising the performance of the Executive Committee and overseeing the annual Board
Effectiveness evaluation process.
• Facilitates contribution from all Directors and ensures that effective relationships exist between them.
• Ensures that the views of all stakeholders are understood and considered appropriately in Board discussion
and decision making.
• Responsible for the composition and evolution of the Board, together with the Nominations Committee and SID.
In addition to his responsibilities as a Non-Executive Director, the SID also:
• Supports the Chair in the delivery of their objectives.
• Acts as an alternative contact for shareholders should they have a concern that is unresolved by the Chair,
CEO or CFO.
• Leads the appraisal of the Chair’s performance with the Non-Executive Directors.
• Undertakes a key role in succession planning for the Board, together with the Board Committees,
Chair and Non-Executive Directors.
• Promote high standards of integrity and corporate governance, and uphold the cultural tone of the Company.
• Constructively challenge and assist in the development of strategy.
• Monitor the delivery of strategy by the Executive Committee within the risk and control framework set by the Board.
• Satisfy themselves that internal controls are robust and that the External Audit is undertaken properly.
• Engage with internal and external stakeholders and feedback insights to the Board, including in relation to
employees and the culture of the Company.
• Have a key role in succession planning for the Board, together with the Board Committees, Chair and SID.
• Serve on various Committees of the Board.
• Represents Severn Trent externally to all stakeholders, including our employees, the Government, regulators,
customers, suppliers and the communities we serve.
• Develops and implements the Group’s strategy, as approved by the Board.
• Sets the cultural tone of the organisation.
• Facilitates a strong link between the business and the Board to support effective communication.
• Responsible for overall delivery of commercial objectives of the Group.
• Promotes and conducts Group affairs with the highest standards of integrity, probity and corporate governance,
in line with our Strategic Framework and Values. The CEO’s Review can be found on pages 10 to 13.
Chief Financial
Officer (‘CFO’)
James Bowling
• Manages the Group’s financial affairs. The CFO’s Review can be found on pages 31 to 37.
• Supports the CEO in the implementation and achievement of the Group’s strategic objectives.
• Oversees Severn Trent’s relationships with the investment community.
• Represents Severn Trent externally to all stakeholders, including our employees, the Government and regulators,
customers, Pension Trustees for the Company’s defined benefit pension schemes, lenders, suppliers and the
communities we serve.
• Ensures sound information flows to the Board in order for the Board to function effectively and efficiently.
• Advises and keeps the Board updated on Listing and Transparency Rule requirements and on best practice
Company Secretary
corporate governance developments.
Bronagh Kennedy
• Facilitates a comprehensive induction for newly appointed Directors, tailored to their individual requirements.
• Ensures compliance with Board procedures and provides support to the Chair.
• Co-ordinates the effectiveness evaluation of the Board in conjunction with the Chair.
• Provides advice and services to the Board.
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Division of Responsibilities
continued
Composition, Succession
and Evaluation
Board independence
The independence of our Non-Executive Directors is formally
reviewed annually by the Nominations Committee, and as part
of the Board Effectiveness evaluation. Particular focus is applied to the
Directors who have served six years on the Board. The Nominations
Committee and Board consider that there are no business or other
circumstances that are likely to affect the independence of any
Non-Executive Director and that all Non-Executive Directors continue
to demonstrate independence. In accordance with the 2018 Code,
all Directors will retire at this year’s AGM and, with the exception
of Dominique Reiniche, submit themselves for re-appointment by
shareholders. Each of the Non-Executive Directors seeking re-
appointment are considered to be independent in judgment and
character.
Conflicts of interest
Severn Trent Plc has a Conflicts of Interest Policy in place for
all Group companies. Our Board and its Committees consider
potential conflicts at the outset of every meeting and the Board
formally reviews the authorisation of any potential conflicts of
interest every six months with any conflicts being recorded in
the Conflicts of Interest Register. The Conflicts of Interest Register
sets out any actual or potential conflict of interest situations which
a Director has disclosed to the Board in line with their statutory
duties and the practical steps that are to be taken to avoid conflict
situations. When reviewing conflict authorisations, the Board
considers any other appointments held by the Director as well
as the findings of the Board Effectiveness evaluation.
Board members hold external directorships and other outside
business interests and we recognise the significant benefits that
greater boardroom exposure provides for our Directors. However,
we closely monitor the nature and number of external directorships
our Directors hold in order to satisfy ourselves that any additional
appointments will not adversely impact their time commitment
to their role at Severn Trent, and to ensure that all of our Board
members remain compliant with the shareholder advisory groups’
individual guidance on ‘overboarding’. These requirements impose
a limit on the number of directorships both Executive and Independent
Non-Executive Directors are permitted to hold. Our Independent
Non-Executive Directors commit sufficient time to discharging
their responsibilities as Directors of Severn Trent in line with the
requirements set out in our Charter of Expectations. Details of the
Directors’ external directorships can be found in their biographies
on pages 86 to 87.
Before committing to an additional appointment, Directors confirm
the existence of any potential or actual conflicts; that the role will not
breach their overboarding limit; and provide the necessary assurance
that the appointment will not adversely impact their ability to continue
to fulfil their role as a Director. During the year, we strengthened our
internal processes to ensure that Directors do not undertake any new
external appointments without first receiving formal approval from
the Board.
The Conflicts of Interest Policy continues to be applied practically
throughout the year, such as considering the potential conflict
presented by Directors having roles on other Group companies.
Board composition
As at the date of this report, our Board comprised the Chair (who
was independent on appointment), six Independent Non-Executive
Directors and two Executive Directors. The details of their career
backgrounds, relevant skills, Committee membership, tenure
and external appointments can be found within their individual
biographies on pages 86 to 87. Further detail on the role of
the Chair and members of the Board can be found on page 95.
The Chair, Senior Independent Director and Non-Executive
Directors are appointed for a three-year term, subject to annual
re-election by shareholders following consideration of the annual
Board Effectiveness evaluation outputs. This term can be renewed
by mutual agreement, up to a maximum total tenure of nine years.
Directors serving over six years on the Board are subject to a
particularly rigorous review. The current Letters of Appointment
are available on the Severn Trent Plc website. The composition
and effectiveness of the Board is subject to regular review by the
Nominations Committee which, in particular, considers the balance
of skills, tenure, experience and independence of the Board, in
accordance with the Board Diversity Policy, which is available on the
Severn Trent Plc website. Any new appointments to the Board result
from a formal, rigorous and transparent procedure, responsibility
for which is delegated to the Nominations Committee (although
decisions on appointments are a matter reserved for the Board).
The Board and the Nominations Committee have spent a significant
amount of time considering Board succession during the course of the
year to ensure that the Board has the right mix of skills and experience,
as well as the capability to provide effective challenge and promote
diversity.
Further information on the work of the Nominations Committee
can be found on pages 101 to 106.
Board training and development
The environment in which we operate is continually changing. It is
therefore important for our Executive and Non-Executive Directors
to remain aware of recent, and upcoming, developments and keep
their knowledge and skills up to date. Our Board Effectiveness
process includes training discussions with the Company Secretary
and, as required, we invite professional advisers and subject matter
experts to provide in-depth updates. These updates are not solely
reserved for legislative developments but aim to cover a range of
strategic issues including, but not limited to, the economic and
political environment and environmental, technological and social
considerations. Our Company Secretary also provides regular
updates to the Board and its Committees on regulatory and corporate
governance matters. The Board activities schedule on pages 92 to 94
sets out further detail on the topics covered during the year.
The aim of the training sessions is to continually refresh and
expand the Board’s knowledge and skills. In doing so, the Directors
can contribute to discussions on technical and regulatory matters
more effectively. The sessions also serve as an opportunity for the
Board to discuss strategy and risks with management below Executive
Committee level and gain further direct insight into our businesses
and management capability.
During the year, the Board training programme focused on three key
areas as set out on the next page.
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Severn Trent Plc Annual Report and Accounts 2021 Board CPD sessions 2020/21
CLIMATE CHANGE AND SUSTAINABILITY
Value Creation from Zero Waste – June 2020
Green Gas – June 2020 and January 2021
Green Recovery – October 2020 and January 2021
Our Sustainability Agenda – April 2021
CYBER
Cyber Security – October 2020
Cyber Update – April 2021
DIVERSITY AND INCLUSION
Employee Voice – November 2020
Gender Pay – November 2020
Modern Slavery – November 2020
Inclusion – April 2021
In addition to the dedicated sessions at Board meetings, additional
reading materials were also provided via the Directors’ Resource
Room and Directors attended a variety of virtual training events
hosted by external providers.
Informal Board interactions
The Board’s well-established informal interaction programme was
adapted in response to COVID-19 movement restrictions to ensure
that informal Board events could still be held outside of the formal
meeting schedule, to continue building and maintaining successful
relationships and promoting a culture of openness in Board discussions.
Senior management and external stakeholders were also invited
to join the Board members for a number of these sessions.
Further detail can be found on pages 68 to 71.
In response to Government guidance, physical site visits were put on
hold for a large proportion of the year. However, during periods where
restrictions were lifted and COVID-secure measures were in place,
Board members resumed individual and reduced group visits, in
order to thank our key workers for their dedication and commitment
to serving our customers during the pandemic.
Directors’ resources
Directors also have access to our online resource library, which is
continually reviewed and updated. The library includes a Corporate
Governance Manual, tailored training and CPD content, a Results
Centre and Investor Relations section, and briefings on Board training
session topics. It also contains a further reading section which covers
updates and guidance on changes to legislation and corporate
governance best practice.
Directors’ skills and experiences
An effective Board requires the right mix of skills and experience.
Our Board is a diverse and effective team focused on promoting the
long-term success of the Group.
The Board skills matrix below details some of the key skills and
experience that our Board has identified as particularly valuable to
the effective oversight of the Company and execution of our strategy.
The Board skills matrix is reviewed at least annually.
Kevin
Beeston
James
Bowling
John
Coghlan
Olivia
Garfield
Christine
Hodgson
Sharmila
Nebhrajani
Dominique
Reiniche
Philip
Remnant
Angela
Strank
Board Skills Matrix
Topics
Strategy
M&A
Corporate finance/Treasury
Accounting
Regulation
Technology/
Innovation/Cyber
Customer
Brands
Engineering
Utility sector
Science
Sustainability, including
climate change
People management
Commercial procurement
Construction/
Infrastructure delivery
Large capital programmes
Political affairs
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Board evaluation
Our annual Board evaluation provides the Board and its Committees with an opportunity to consider and reflect on the quality and effectiveness of
its decision making, the range and level of discussion and for each member to consider their own contribution and performance. In accordance with
the 2018 Code provision that the Company should undertake an externally facilitated Board Effectiveness evaluation at least every three years, this
year’s review was facilitated by Ffion Hague of Independent Board Evaluation (‘IBE’). The Board’s five Committees were also observed as part of the
review. Neither Ffion Hague nor IBE has any other connection with the Company or individual Directors.
Process
October/November 2020
January – March 2021
Appointment and briefing
Board and Committee
meeting observation
One-to-one interviews
Providers were invited to submit detailed
proposals to a sub-committee of the
Board comprising the Chair and SID,
supported by the Company Secretary.
Following subsequent presentations,
the Board appointed IBE to facilitate
the external Board Effectiveness
review for 2020/21. A comprehensive
brief was provided to IBE by the Chair.
The assessment team observed
the Board and its Committees in
January and March 2021. Access
to Board and Committee papers
was provided through a secure
portal under strict controls.
Detailed interviews were conducted
with each Board member throughout
January and February, as well as with
a number of the Executive Committee
members, the Head of Internal Audit,
external advisers and the External
Auditor. All participants were
interviewed for 1.5 hours in
accordance with a tailored agenda.
March 2021
Evaluation and report
A comprehensive report was compiled
by the evaluation team based on the
information and views supplied by those
interviewed and observations from the
Board and Committee meetings.
Discussion with the Board
and Committee Chairs
Agreed action plans for 2021/22
The key observations were discussed
by the Board and its Committees ahead
of finalising 2021/22 action plans.
The draft conclusions were discussed
with the Chair and subsequently with
the Board in March 2021. Following the
Board discussion, feedback was provided
to each of the Committee Chairs on the
performance of each Committee and the
report on the Chair’s performance was
discussed with the Senior Independent
Director. In addition, the Chair received
a report with feedback on each Director.
Findings
IBE’s independent review concluded that the Board and Committees
perform very well, with positive feedback received from both within
and outside the Board. The review highlighted that it was evident that
the Board feels accountable to all stakeholders and that the Board
places a strong emphasis on ensuring that it considered views from
and issues affecting shareholders, employees, customers, regulators
and other key stakeholders in its discussions and decision making.
The Board was considered to be appropriately diverse, with a culture
of trust between Board members, which encourages open and honest
discussions and leads to constructive challenge of the Executive
Committee and senior management.
The review concluded that, whilst the Board was operating very
effectively, there was scope for small areas of further improvement and
the following recommended next steps were agreed with the Board:
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Severn Trent Plc Annual Report and Accounts 2021 BOARD COMPOSITION AND
SUCCESSION PLANNING
BOARD AGENDA
AND FOCUS
GOVERNANCE
ENHANCEMENTS
Recommendation
Recommendation
Recommendation
The composition of the Board was
considered to be effective. However,
focus should be applied to future
changes to Board membership,
including the loss of experience
and knowledge of the business,
in the context of NED tenure.
Consideration should be given to
agreeing a set of Board objectives
and actions for prioritisation each
year to inform the Board agenda
and create time for discussion of
long-term issues and strategy.
Align membership of the
Treasury Committee and
Corporate Sustainability
Committee to that of other
Board Committees, comprising
Non-Executive Directors only.
Progress
Progress
Progress
One of the key activities for the Board
and Nominations Committee during the
year was the Committee’s plans for the
evolution of the Board. An independent
search firm has been appointed to help
with this over the next two to three
years.
A set of Board objectives and actions
were developed by the Board and
agreed in April 2021 and the Board
agreed that it should discuss its
progress on a six-monthly basis.
An update will be provided in the
2021/22 Annual Report and Accounts.
In line with the recommendations of
the Board Effectiveness evaluation, the
Board refreshed the membership of the
Treasury and Corporate Sustainability
Committees towards the end of the
year, so that the membership of both
Committees comprises Non-Executive
Directors only. You can read more on
page 102.
Recommendation
Recommendation
Recommendation
Induction programmes were
considered to be excellent and
should continue to be tailored to
individual Board members, with
consideration given to establishing
a Board ‘buddy’ scheme.
Alongside the excellent written
reports provided to the Board by
each of its Committees, consideration
should be given to tabling a report
from the Company Forum, the
Company’s selected workforce
engagement mechanism.
Notwithstanding the excellent informal
interaction between the Board and its
Committees throughout the COVID-19
pandemic, consider holding additional
private sessions (without management
present) for the Board and its
Committees during the year.
Progress
Progress
Progress
A Board ‘buddy’ scheme will be used
for all future Board appointments to
complement the Group’s extensive
induction approach.
Reports from Company Forum
meetings are now tabled at all
subsequent Board meetings.
Private sessions are now held at all
Board and Committee meetings at
the discretion of the relevant Chair.
Effectiveness of Board Committees
The Board places significant reliance on its Committees by delegating a
broad range of responsibilities and issues to them. It therefore remains
crucial that effective linkages are in place between the Committees and
the Board as a whole, not least as it is impracticable for all Independent
Non-Executive Directors to be members of all of the Committees.
Chair’s performance
IBE, in conjunction with the Senior Independent Director, Kevin
Beeston, carried out a review of the performance of the Chair
which included meeting with the Non-Executive Directors without
the Chair being present. The consolidated feedback, which was
wholly positive in nature, was discussed with Christine Hodgson.
Mechanisms are in place to facilitate these linkages, including ensuring
that there are no gaps or unnecessary duplications between the remit
of each Committee and overlapping membership between Board
Committees where necessary. The Board also receives a written
summary of each of the Committee’s meetings and oral updates at the
Board, where appropriate. Overall, Board members are fully satisfied
that the governance and controls in place are working well and give
the Board the visibility it needs to carry out its oversight duties.
Further details on each Committee, including their oversight and focus
during the year, can be found in the Committee reports starting
on page 101.
External appointments
As part of the evaluation, full consideration was given to the number
of external positions held by the Non-Executive Directors. Directors’
other appointments were reviewed, including the time commitment
required for each. The Nominations Committee did not identify any
instances of overboarding and confirms that all individual Directors
have sufficient time to commit to their appointment as a Director of
Severn Trent Plc. Approvals were sought during the year for Directors’
additional roles and due consideration was given to any potential
conflicts of interest and ability to devote sufficient time to Severn
Trent Plc before consent was granted. A robust assessment of the
independence of the individual Directors was also conducted and all
of our Non-Executive Directors are considered to be independent.
Read more on page 103.
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Induction
We develop a detailed, tailored induction for each new Non-Executive
Director. This includes one-to-one meetings with the Chair and each
of the existing Non-Executive Directors. One-to-one meetings are also
arranged with the CEO, CFO and the Company Secretary, along with
other members of the Executive Committee. New Directors also meet
members of the operational teams and visit our key sites and capital
projects to ensure they gain a detailed understanding of the water and
waste water businesses and have a chance to experience our unique
culture in person. We provide briefings on the key duties of being
a Director of a regulated water company and proposed appointees
meet with Ofwat as part of the appointment process. We enhance
the Board’s induction programme in light of feedback from new
Directors and the Board Effectiveness evaluation.
Sharmila Nebhrajani’s induction
The Board welcomed Sharmila Nebhrajani during the year and her
extensive induction programme covered a range of areas across the
business, including governance, stakeholder engagement and the
environment. Many of the one-to-one meetings were held virtually
due to the ongoing pandemic. However, Sharmila was able to visit
a number of our operational sites once restrictions were lifted and
COVID-secure measures were in place. One main focus for Sharmila’s
induction was on matters pertinent to her role on the Audit Committee,
including receiving an overview of the current risks faced by the Group,
the regulatory finance model, and our risk management framework
and internal control processes. A summary of Sharmila’s key induction
visits and events is set out below.
“My induction into Severn Trent was both
very comprehensive and professionally
organised. Really impressive was the
innovative way the programme was
adapted to the challenges presented by
the pandemic including not only virtual
meetings but also incredibly insightful video
site tours showing operational aspects.
Once restrictions were lifted, I was able to
immerse myself into the Group’s activities,
going out with crews on their rounds, and
a true highlight was meeting our people,
who show such determined commitment
to serving our customers.”
Sharmila Nebhrajani
Non-Executive Director
June 2020
• Individual meetings with
Non-Executive Directors and
Executive Committee members
100
June – July 2020
Deep dives into:
24 June
• Internal Audit and Risk
Management processes
1 July
• Regulatory finance
3 July
• Social purpose
8 July
July – September 2020
Operational site visits to
understand our key business
areas first-hand:
28 July
• Network control – observing
a team at Severn Trent Centre
• Water distribution – including a site
visit to our Finham depot
• Water treatment – including a
site visit to Campion Hills Water
Treatment Works
• Capital programmes
8 September
16 July
• Company background, strategy
and regulation
17 July
• Bioresources
21 July
• Business Services
• Waste water and sewerage
network – including a site visit to
Spernal Sewage Treatment Works
11 September
• Dams and reservoirs – including
a site visit to Draycote Reservoir
Severn Trent Plc Annual Report and Accounts 2021 Nominations Committee Report
Dear Shareholder
This report details the role of the Nominations Committee and
the important work it has undertaken during the year, including
the matters considered and steps taken by the Committee in the
year ended 31 March 2021.
This has been my first full year as Chair of the Nominations Committee
and our focus has been on maintaining a strong, value-adding and
effective Board, with a broad range of professional backgrounds, skills
and perspectives. To inform this, I commissioned an externally facilitated
Board Effectiveness evaluation during the year, which concluded that the
Board operates very effectively and it was evident that the Board places a
strong emphasis on ensuring that it considered the views of stakeholders
in its discussions and decision making. In line with the recommendations
of the Board Effectiveness evaluation, we refreshed the membership of
the Treasury and Corporate Sustainability Committees towards the end
of the year, so that the membership of both Committees comprises
Independent Non-Executive Directors only. You can read more about
this process on page 102.
During 2021, the Nominations Committee considered plans for
succession to Board roles and an independent search firm, which
is a signatory to the Voluntary Code of Conduct for Executive Search
Firms, has been appointed to help with the evolution of the independent
Non-Executive membership of the Board over the next two to three
years. The Nominations Committee also considered succession
planning for the Executive Committee and other key roles within the
senior leadership team, as well as initiatives underway to develop
talent below that level throughout the organisation. As a result the
Group’s succession readiness has improved during the year and the
Committee considers that all key roles have credible succession
plans in place.
We welcomed Sharmila Nebhrajani to the Board on 1 May 2020 and
the Committee oversaw her extensive induction programme during
the year. Many of the one-to-one meetings were held virtually due to
the ongoing pandemic. However, Sharmila was able to visit a number
of our operational sites once restrictions were lifted and COVID-secure
measures were in place. Further detail can be found on page 100.
As announced on 19 March 2021, Dominique Reiniche intends to retire
from the Board with effect from the end of the AGM in July, having
served on the Board for almost five years. On behalf of the Board,
I would like to thank Dominique for her service to Severn Trent and
valuable contribution to the Board’s work over the last five years.
During the year the Committee also considered the Group Board
Diversity Policy (the ‘Policy’) and reviewed progress made against the
agreed objectives set out in the Policy. We discussed the importance of
the Policy aligning with the diversity of our region, specifically in respect
of gender, social and ethnic backgrounds, skills and experience. You can
read more on pages 105 to 106.
The Committee assists the Board in its consideration of conflicts
of interest and independence issues. No conflicts of interest or
independence issues were identified as a result of this activity.
The Board is mindful that the 2018 UK Corporate Governance Code
(the ‘2018 Code’) indicates that Non-Executive Directors should not
serve for more than nine years and Non-Executive Directors that have
served six years should be subjected to a particularly rigorous review.
101
Committee members
Christine Hodgson
Chair of the Nominations Committee
Kevin Beeston
Senior Independent Non-Executive Director
John Coghlan
Independent Non-Executive Director
Sharmila Nebhrajani
Independent Non-Executive Director
Dominique Reiniche
Independent Non-Executive Director
Philip Remnant
Independent Non-Executive Director
Dame Angela Strank
Independent Non-Executive Director
Quick facts
All members of the Committee in 2020/21 were independent
Non-Executive Directors of the Board, with the exception of
Christine Hodgson (who was independent on appointment).
Only members of the Committee have the right to attend Committee
meetings. Other individuals such as the Chief Executive, the Chief
Financial Officer, the Director of Human Resources, senior
management and external advisers may be invited to attend
meetings as and when appropriate.
The Committee’s Terms of Reference were updated in March 2021.
Quick links
Terms of Reference
Board Diversity Policy
Charter of Expectations
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION NOMINATIONS COMMITTEE REPORT CONTINUED
Given their length of service, this has been undertaken in relation to the
independence and commitment of Angela Strank, John Coghlan and
Philip Remnant in line with the requirements of the 2018 Code and the
Board is satisfied that all three Directors continue to act with utmost
independence and considers that their continued appointments are in
the long-term best interest of shareholders. You can read more about
this process on page 103.
Christine Hodgson
Chair of the Nominations Committee
18 May 2021
Focus areas in 2020/21
The Committee has responsibility for keeping the size, structure and composition of the Board and its Committees under review and
is responsible for ensuring that there are formal plans in place for an orderly succession to both Board and senior leadership positions.
The Committee also oversees the development of a diverse pipeline for succession. The composition of the Board is reviewed and refreshed
on a regular basis and there is a rigorous and transparent procedure for the appointment of Directors. The Committee leads the process for
Board and Board Committee appointments and makes recommendations to the Board. The Committee reports to the Board on its key
areas of focus following each Committee meeting. Some key areas of discussion for the Committee during 2020/21 included:
Key areas of discussion
Considered the composition of the Board and the succession of Non-Executive Directors and the skills, knowledge, experience, diversity and
attributes required of future Non-Executive Directors. In considering Board succession, the Committee takes into account the length of tenure
of the Non-Executive Directors and the importance of regularly refreshing Board membership.
Conducted a review of the search firm providers for the next stage of the Board’s succession planning and engaged the executive search firm
Hedley May1 to review the market.
Oversaw the conduct of the Board Effectiveness evaluation, including the provider selection process, which resulted in Ffion Hague of
Independent Board Evaluation (‘IBE’) being commissioned to facilitate the review.
Discussed the feedback, observations and recommendations from IBE’s Effectiveness review of the Board and Committees, including the 2021
action plan for approval by the Board. Agreed that Committee composition would be considered on an annual basis.
Oversight of the Group Board Diversity Policy and initiatives and reviewed progress made against the agreed objectives set out in the Group
Board Diversity Policy.
Discussed the role of the Group Board Diversity Policy in advancing the composition and effectiveness of the Board and Executive Committee.
Provided oversight of the detailed Executive Committee and senior leadership team succession plans, including diversity.
Approval of revised Terms of Reference, to be applied from 19 March 2021, prior to making a recommendation to the Board. In completing its review, the
Committee concluded that the Terms of Reference remained appropriate and reflected the manner in which the Committee was discharging its duties.
1 Hedley May is a signatory to the Voluntary Code of Conduct for Executive Search Firms and has no other connection with the Company or individual Directors.
Succession planning
The Committee’s consideration of succession plans remained wider than that relating to the Board and its Committees only, with a
considerable amount of time also spent this year on succession readiness and plans for the Executive Directors, the Executive Committee
and other key roles within the senior leadership teams, as well as initiatives underway to develop talent internally. The Group’s succession
readiness has improved during the year and the Committee considers that all key roles have credible succession plans in place.
In line with the recommendations of the Board Effectiveness evaluation, we refreshed the membership of the Treasury and Corporate
Sustainability Committees towards the end of the year, so that the membership of both Committees comprises Independent Non-Executive
Directors only. You can read more about this process on page 99. The following changes to Committee composition were recommended to
the Board in March 2021:
Treasury Committee
Corporate Sustainability Committee
James Bowling (CFO) and Adam Stephens (Head of Treasury) stepped down
as Committee members, with effect from 19 March 2021.
Liv Garfield (CEO) stepped down as a Committee member, with effect from
19 March 2021.
As key contributors to the implementation of the Group’s Treasury Strategy,
the Committee recommended that James and Adam continue to attend all
Treasury Committee meetings on an invitation basis.
As a key contributor to the delivery of the Group’s Sustainability Strategy,
including the Group’s 2030 net-zero carbon ambitions, the Committee
recommended that Liv continues to attend all Corporate Sustainability
Committee meetings on an invitation basis.
Kevin Beeston was appointed as a member of the Treasury Committee,
with effect from 19 March 2021.
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Severn Trent Plc Annual Report and Accounts 2021 Director conflicts and independence
In May 2021, the Committee conducted its annual review of individual
Director conflict authorisations as recorded in our Conflicts of Interest
Register. Additionally, the Board and its Committees consider conflicts
of interest at the beginning of every meeting, and the Board reviews
the authorisation of any potential conflicts of interest every six months.
The Conflicts of Interest Register sets out any actual or potential
conflict of interest situations which a Director has disclosed to the
Board in line with their statutory duties. When reviewing conflict
authorisations, the Committee considers any other appointments
held by the Director as well as the findings of the Board Effectiveness
evaluation. Following the review, the Committee recommended to
the Board that each conflict authorisation remained appropriate.
There were no new potential conflict situations identified during the year.
The Nominations Committee and Board consider that there are
no business or other circumstances that are likely to affect the
independence of any Non-Executive Director and that all Non-
Executive Directors continue to demonstrate independence.
In accordance with the 2018 Code, all the Directors will retire at
this year’s AGM and, with the exception of Dominique Reiniche,
submit themselves for re-appointment by shareholders. Each
of the Non-Executive Directors seeking re-appointment are
considered to be independent in judgment and character.
The independence of our Non-Executive Directors is formally
reviewed annually by the Nominations Committee and as part
of the Board evaluation exercise. Our process for assessing
independence is set out below.
Board independence assessment in action
One of the key activities during the year was the Committee’s role in reviewing the composition of the Board and its Committees and assessing
whether the balance of skills, experience, knowledge and independence is appropriate to enable them to operate effectively. This process included
a robust assessment of the independence of the individual Directors, with a particular focus on those Directors serving on the Board for more than
six years. A summary of our assessment process is set out below.
1
2
3
4
5
Review of the composition
and diversity of the Board
and how effectively
members work together
to achieve objectives in
consideration of the
outputs of the Board
Effectiveness evaluation.
Review of the knowledge,
skills, diversity and
experience of individual
Directors, Board
Committees and the Board
as a whole. The Committee
assessed and updated the
Board skills matrix as part
of this activity.
Review of individual
Director independence
every six months through
the established Conflicts
of Interest and Persons
Closely Associated
declaration process,
developed in line with the
independence criteria
outlined in the 2018
Code and Charter of
Expectations.
The Board participated in
a time apportionment
exercise to establish the
time commitment of
individual Directors on the
Board and its Committees,
with a particular focus on
Committee Chairs, to
ensure this reflected the
time commitment
expectations outlined within
the Charter of Expectations.
At its May meeting, the
Committee considered the
outputs of the review and
concluded that there were
no concerns as regards the
composition of the Board,
the contribution or
commitment of any
Directors and it was
considered that all
Directors were considered
to be independent in
judgment and character.
Talent development
We recognise the importance of developing our people and, as such,
talent management at all levels remains a key topic of Committee
discussion. The Group’s five-year talent plan focuses on building
technical and leadership capability while creating diverse talent
pipelines for the future.
This year we have opened the Severn Trent Academy which is
an exciting part of our long-term succession planning and skills
development capability. It will enable employees to develop with
us, fulfil their potential and perform at their best. You can read
more on page 75.
Our senior leadership population is a source of future Executive
Committee talent, with our most recent Executive Committee
appointments, James Jesic, Bob Stear and Shane Anderson,
progressing through this route. We have strong internal succession
plans and balance these with bringing in new talent through our
graduate, apprenticeship and intern programmes. We currently
have a total of 152 graduates or apprentices in training, with 69
of these places offered in 2020/21. Our graduate and apprentice
opportunities span a whole range of careers including within
the Engineering, Leakage Technician, Technology, Finance and
Visitor Experience teams.
The Committee was delighted with the way in which the Company
embraced the Government Kickstart Scheme with ambitious plans to
support 500 unemployed 16 to 24 year olds with paid work experience
and skills development placements for six months. They will also
receive a comprehensive employability skills programme via the
Severn Trent Academy to support their future career aspirations.
The Committee was fortunate to meet some of our ‘Kickstarters’
in April 2021, during a visit to the Severn Trent Academy.
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Diversity
As highlighted earlier in the report, the Board and Committee continue to drive the agenda of diversity across the Group and are proud
of the progress made. The 2021 Hampton-Alexander Review named Severn Trent as one of the country’s top performers in this area,
ranking second this year. We have a range of programmes in place to increase diversity in our talent pipelines and this year we launched a
new inclusion programme to better enable careers and career progression for colleagues from ethnic minority, LGBTQ+ and disabled groups.
A breakdown by gender of the number of persons who were Directors of the Company, senior managers, as defined in the 2018 Code and
Companies Act 2006, and other employees as at 31 March 2021 is set out below, alongside details of the ethnic minority population of these
same groups.
Employee Diversity as at 31 March 2021
Group
Group
1. Female (2,029)
2. Male
28.6%
71.4%
1. Ethnic minority
9.0%
Senior Manager and Director population
Senior Manager and Director population
1. Female (22)
2. Male
42.3%
57.7%
1. Ethnic minority
7.7%
Apprentices and Graduates
Apprentices and Graduates
1. Female (29)
2. Male
20.7%
79.3%
1. Ethnic minority 15.7%
Board Diversity as at 31 March 2021
Director gender split
Director BAME split
1. Female (5)
2. Male
56.0%
44.0%
1. Ethnic minority 11.0%
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Severn Trent Plc Annual Report and Accounts 2021 Parker Review – ethnic diversity
The Board remains focused on promoting broader diversity and
creating an inclusive culture in line with the recommendations of
the Parker and McGregor-Smith reviews. A diverse organisation
benefits from differences in skills, regional and industry experience,
background, race, gender, sexual orientation, religion, belief and age,
as well as culture and personality. The Committee is focused on
ensuring that the diversity of our employee base reflects the diversity
of our region – including the gender, social and ethnic background,
skills and experience amongst our customers and the communities
that we serve.
The Board Diversity Policy (the ‘Policy’) was reviewed by the
Committee in May 2021, with recommended updates approved by
the Board. As part of Board discussions, recognition was given to
the importance and benefits of greater diversity, including gender
diversity, social and ethnic background, and cognitive and personal
strengths throughout the organisation, including on the Board itself.
The objectives and targets of the Policy, and an update against each
of them, are set out below. A copy of the Policy is available on the
Severn Trent Plc website.
Board Diversity Policy – objectives and progress against targets
When recruiting for new Board members, the Committee ensures that the recruitment processes are in line with our Policy to include diverse
candidates from a wide variety of backgrounds and those with non-listed company experience for the Committee to consider.
Policy objectives
Implementation
Progress against objectives
Ensure the Board comprises
an appropriate balance of skills,
experience and knowledge
required to effectively oversee
and support the management
of the Company.
Ensure consideration is given
to diverse candidates for
Non-Executive Director
Board appointments from a wide
pool, including those with no listed
company Board experience.
Ensure Board appointment
‘longlists’ include candidates
with a diversity of social and
ethnic backgrounds and cognitive
and personal strengths.
Annual review of the Board’s
composition by the Nominations
Committee with particular
consideration being given to
the balance of skills, experience
and independence of the Board.
The Board Effectiveness evaluation
specifically considered the
composition of the Board and
the contribution, commitment
and independence of
individual Directors.
The Board and Nominations
Committee recognise the
importance and benefits of greater
diversity, including gender diversity,
social and ethnic background and
cognitive and personal strengths,
throughout the organisation,
including on the Board itself.
On instruction of an executive
search firm, the specification will
ensure that candidates with no
listed company Board experience
are fully considered.
At its May 2021 meeting, the Committee formally reviewed the
composition of the Board and the performance, contribution and
commitment of individual Directors in the context of the externally
facilitated Board Effectiveness evaluation. No concerns were
raised in relation to the composition of the Board and the balance
of skills, experience and knowledge on the Board as a whole.
The Committee met three times during the year to consider
Board succession planning, and twice following year end.
All Board succession discussions took place in consideration
of the Policy and its aims to increase the ethnic diversity
of the Board in line with the recommendations of the Parker
and McGregor-Smith reviews.
Board appointments were made during the year as follows:
• 1 April 2020: Non-Executive Chair – Christine Hodgson; and
• 1 May 2020: Non-Executive Director – Sharmila Nebhrajani.
The recommendations in respect of these Board appointments
were conducted in full consideration of the Policy, the 2018 Code
and additional relevant guidance.
The Committee ensured that Korn Ferry, the executive search
firm engaged for these appointments, presented a diverse
potential candidate list, including candidates with no listed
company Board experience.
Ensure the Board and Nominations
Committee only engage executive
search firms that have signed up
to the Voluntary Code of Conduct
for Executive Search Firms.
The Company only engages
with executive search firms that
have signed up to the Voluntary
Code of Conduct for Executive
Search Firms.
We continue only to engage with executive search firms that
have signed up to the Voluntary Code of Conduct for Executive
Search Firms.
Ensure focus is given to the
development of a pipeline of
diverse high calibre candidates
for Board level roles and report
annually on the diversity of the
Executive pipeline as well as
the diversity of the Board.
Regular Board and Nominations
Committee consideration of the
importance and benefits of
greater diversity including
gender diversity, social and
ethnic background and cognitive
and personal strengths. This
includes representation of these
cohorts in the Group’s talent
pipeline and on the Board itself.
At its April 2021 meeting, the Board considered diversity and
inclusion within the Group. The Board committed to building
on existing graduate, apprentice and leadership programmes
to embed inclusivity in our succession planning and talent
development work. This included discussion on strengthening
our talent pipeline, with an enhanced focus on ensuring
appropriate representation from ethnic minority candidates,
as well as other relevant diverse cohorts.
This was also an area of specific focus within the Board and
Executive Committee Succession Planning discussions that took
place during the year. The diversity of our Executive pipeline is
disclosed on page 104.
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Policy targets 2020/21
Progress against targets
33% female share of Board Directors by 2020.
56% female representation on our Board as at 31 March 2021.
Minimum of one Board Director from an ethnic minority
background by 2021.
In line with the principles of the Parker Review, the Board actively
seeks diverse candidates. The calibre of the candidates identified
during the most recent recruitment exercise was outstanding and it
was after careful deliberation that the Committee recommended the
appointment of Sharmila Nebhrajani to the Board from 1 May 2020.
Board Diveristy Policy targets – 2021/22 onwards
In May 2021, the Nominations Committee conducted its annual review of the Policy and associated targets. The review recommended
changes to the Group’s Policy and proposed new diversity targets which the Board approved at its meeting on 14 May 2021. The targets
listed below replace the ones that were met or exceeded during 2020/21 and we will disclose our performance against these targets in
our 2021/22 Annual Report.
Policy targets 2021/22 onwards
Progress against targets
Maintain at least 40% female Directors on the Board over
the short to medium term.
Maintain at least 10% Directors from an ethnic minority
background on the Board over the short to medium term.
56% female representation on our Board as at 1 May 2021.
11% ethnic minority representation on our Board as at 1 May 2021.
106
Severn Trent Plc Annual Report and Accounts 2021 AUDIT COMMITTEE REPORT
Audit Committee Report
Dear Shareholder
This report aims to provide shareholders with a clear understanding
of the work we have done as a Committee to provide challenge and
assurance on the integrity of the 2020/21 Annual Report and Accounts
and the Group’s regulatory reporting requirements.
The Committee assists the Board by establishing, reviewing and
monitoring the formal and transparent policies and procedures to
ensure the independence and effectiveness of the Internal and External
Audit functions, the integrity of financial and narrative reporting, the
Company’s internal control framework and the adequacy of the process
that enables the Board to assess the extent of Principal Risks the
Company is willing to take to achieve its long-term strategic objectives.
The Committee, and its individual members, act in a way that we
consider is most likely to promote the success of the Company for the
benefit of its members as a whole, including shareholders, as set out in
s.172 of the Companies Act 2006. This ensures that the interests of our
shareholders, and broader stakeholders, are properly considered and
reflected in our decision-making processes. Additional information on
how the Board, and Audit Committee, have considered stakeholders in
their decision making can be found on pages 68 to 71.
One of our key roles is to advise the Board that we are satisfied that
the Annual Report and Accounts are fair, balanced and understandable
and provide the information necessary for shareholders to assess the
Company’s position, performance, business model and strategy. In doing
so, we ensure that management’s disclosures reflect the supporting
detail or challenge them to explain and justify their interpretation and,
if necessary, re-present the information. The External Auditor supports
this process, in the course of its statutory audit, by auditing the
accounting records of the Company against agreed accounting practices,
relevant laws and regulations. Deloitte’s audit report can be found on
pages 159 to 165. We were pleased to advise the Board that the 2020/21
Annual Report and Accounts are fair, balanced and understandable
and that the Directors have provided the necessary information for our
shareholders to assess the Company’s position, prospects, business
model and strategy. Our review process is described in further detail
on page 109.
During the year the Committee reviewed and agreed with management’s
proposal for the Company’s long-term Viability Statement to continue
to cover a seven-year period (see pages 47 to 49). It was agreed that this
was appropriate given the nature of the regulatory regime in the water
sector and Ofwat’s statutory duty to ensure that companies can finance
the proper carrying out of their functions.
The Committee has spent a considerable amount of time reviewing
the Group’s Enterprise Risk Management (‘ERM’) processes and
procedures, with good progress made in enhancing their effectiveness
during the year. The Committee also reviewed the Group’s Risk Appetite
Statement and recommended this for consideration and approval by the
Board. You can read more about this important work on pages 38 to 39.
You will see that this report contains an overview of the Company’s
whistleblowing arrangements (page 111). The Board carefully
considered the 2018 Code and in 2018/19 implemented many of the
new principles earlier than required, as disclosed in our 2018/19 Annual
Report. As part of this process, the Board agreed that the responsibility
for oversight of whistleblowing arrangements should continue to be
delegated to the Audit Committee and Corporate Sustainability
Committee and not as a matter reserved solely to the Board. However,
the Board as a whole monitors and reviews the effectiveness of the
Group’s whistleblowing arrangements annually, to ensure that it has
sufficient oversight of whistleblowing to support its work on culture,
risk and stakeholder engagement. The Audit Committee and Corporate
Sustainability Committee continue to receive reports on investigations
and all significant whistleblowing matters are reported directly to the
107
Committee members
John Coghlan
Chair of the Audit Committee
Kevin Beeston
Senior Independent Non-Executive Director
Sharmila Nebhrajani
Independent Non-Executive Director
Philip Remnant
Independent Non-Executive Director
Quick facts
All members of the Committee are qualified accountants and are
considered by the Board to have recent and relevant financial
experience and competence relevant to the sector.
Other regular attendees at meetings at the invitation of the Committee
included the Chair of the Board, the CEO, the CFO, the Company Secretary,
the Head of Internal Audit, the Group Financial Controller, other members
of senior management, representatives from the External Auditor,
Deloitte, and non-financial regulatory performance and data assurers,
Jacobs. None of these attendees are members of the Committee.
The Committee regularly holds private discussions with the Head
of Internal Audit and the External Auditor separately, without
management present.
The Committee Chair regularly holds separate one-to-one meetings
with the CFO, the Head of Internal Audit, the External Auditor and with
Committee members outside the meetings to better understand any
issues or areas for concern.
The Committee is authorised to seek external legal or other independent
professional advice as it sees fit, but did not need to do so during the year.
The Committee’s Terms of Reference were updated in May 2021.
Quick links
Terms of Reference
Non-Audit Services Policy
Anti-Bribery Policy
Charter of Expectations
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION AUDIT COMMITTEE REPORT CONTINUED
Board. The Board continues to receive regular updates from the
Committees and completes an assessment of the effectiveness of the
Group’s whistleblowing procedures. The Board has reviewed these
arrangements again this year and is satisfied that they are effective,
facilitate the proportionate and independent investigation of reported
matters and allow appropriate follow-up action to be taken.
Much of the Committee’s work relates to the regulated activities of
Severn Trent Water and Hafren Dyfrdwy, which together represent
over 92% of Group revenues. This reflects our continued commitment
to our shareholders and other stakeholders, particularly our customers
and regulators.
Board takes assurance from the quality of our work. The Board is
satisfied that the Committee members bring a wide range and depth
of recent and relevant financial and commercial experience across
various industries and all members have competence relevant to
our sector. You can read more on pages 86 to 87.
I would like to thank the members of the Committee, the management
team, Internal Audit, Deloitte and Jacobs for their continued commitment
throughout the year, for the open discussions that take place at our
meetings, and for the contribution they all provide in support of our work.
John Coghlan
Chair of the Audit Committee
The Group undertook an externally facilitated Board effectiveness
evaluation this year, which assessed our performance as a Committee.
I am pleased that this concluded that we operate effectively and that the
18 May 2021
Focus areas in 2020/21
The Committee has an extensive agenda focusing on the audit, risk and assurance processes within the business which it deals with in
conjunction with management, the External Auditor, Internal Audit and the Finance and Regulatory Compliance and Assurance teams.
Some key areas of discussion for the Committee during 2020/21 included:
Key areas of discussion
Internal Audit
• Considered Internal Audit reports presented to the Committee and satisfied itself that management had resolved or was
in the process of resolving any outstanding issues or actions.
• Reviewed and approved the Internal Audit plan and approach for 2021/22.
• Reviewed the quality and effectiveness of Internal Audit and the effectiveness of the current co-source arrangements.
External Auditor
• Reviewed the proposed audit plan for the 2020/21 statutory audit, including the key audit risks and level of materiality applied by
Deloitte, audit reports from Deloitte on the financial statements and the areas of particular focus for the 2020/21 audit.
• Assessed the effectiveness of the External Auditor and made a recommendation to the Board on the reappointment of Deloitte
as the External Auditor.
• Agreed the statutory audit fee for the year ended 31 March 2021.
• Reviewed and approved the non-audit services, and related fees, provided by the External Auditor for 2021/22.
Reviewed and discussed reports from the Chief Financial Officer on the financial statements, considered management’s significant
accounting judgments and the policies being applied, and assessed the findings of the statutory audit in respect of the integrity of the
financial reporting of full and half year results.
Reviewed the integrity of the regulatory reporting process relating to the Annual Performance Reports, and other regulatory
submissions, for Severn Trent Water and Hafren Dyfrdwy as required to be submitted to Ofwat.
Reviewed the 2020/21 Annual Report and Accounts and provided a recommendation to the Board that, as a whole, they complied with
the 2018 Code principle to be ‘fair, balanced and understandable and provide the information necessary for shareholders to assess the
Company’s position, performance, business model and strategy’.
Reviewed the effectiveness of the Group’s Enterprise Risk Management processes and procedures and internal control systems,
prior to making a recommendation to the Board. The Committee also reviewed the Group’s Risk Appetite Statement prior to making
a recommendation to the Board. Management continues to make continual improvements to the Group’s internal controls and risk
management systems.
Monitored fraud reporting and incidents of whistleblowing, including a review of the adequacy of the Group’s whistleblowing processes
and procedures, prior to reporting to the Board on this activity.
Oversight and monitoring of the Group’s compliance with the Bribery Act 2010, including a review of the adequacy of the anti-bribery,
corruption and fraud processes and procedures (and associated policies).
Review and approval of the Committee’s Terms of Reference, to be applied from 14 May 2021, prior to making a recommendation to the
Board. In completing its review, the Committee concluded that the Terms of Reference remained appropriate and reflected the manner
in which the Committee was discharging its duties.
108
Severn Trent Plc Annual Report and Accounts 2021 Fair, Balanced and Understandable (‘FBU’) reporting
At the request of the Board, the Committee has considered whether, in its opinion, this Annual Report and Accounts, taken as a whole, is
fair, balanced and understandable and whether it provides the information necessary for shareholders to assess the Company’s position,
performance, business model and strategy.
The following process was followed by the Committee in making its assessment:
1
2
3
4
5
The Committee reviewed the Annual Report at an early
stage, and throughout the process, to enable sufficient
time for comment and review and ensure overall balance
and consistency.
Internal Audit reviewed the Annual Report and oversaw a
verification process for all factual content and reported back
to the Audit Committee on its assessment and findings.
The Committee reviewed and approved the process in place to
support the FBU assessment and reviewed the findings of this
process. We were satisfied that all the key events and issues
reported to the Board by management (both positive and
negative) had been adequately referenced or reflected within
the Annual Report.
The External Auditor presented the results of its audit work.
The significant issues we considered as a Committee were
consistent with those identified by the External Auditor in
its report (see pages 159 to 165 for more detail).
The Board approved the Committee’s recommendation that
the FBU statement could be made, which can be found in
the Directors’ Responsibility Statement on page 158 of
this report.
External Auditor
The Committee has primary responsibility for overseeing the
relationship with the External Auditor, including assessing its
performance, effectiveness and independence annually and
making a recommendation to the Board in respect of its
reappointment or removal.
Following a formal tender process in 2015/16, Deloitte LLP was
reappointed as External Auditor at the 2016 AGM. The senior Statutory
Auditor, Kari Hale, oversaw the audit of the Severn Trent Group from
2015/16 until, under independence rules, Kari stepped down following
completion of the 2019/20 statutory audit. Jacqueline Holden became
the senior Statutory Auditor and oversaw the audit for 2020/21.
The Committee anticipates that the next competitive tender will be
conducted no later than 2025 in accordance with current regulation
that requires a tender every 10 years. Deloitte will not be able to
participate. The proposed tender date is in the best interests of
members and the Company as Deloitte has a detailed knowledge
of our business, an understanding of our industry and continues
to demonstrate that it has the necessary expertise and capability
to undertake the audit.
The Company has complied with the provisions of the Competition
and Markets Authority’s Order for the financial year under review
in respect to audit tendering and the provision of non-audit services.
Effectiveness of the External Auditor
The Committee considers the effectiveness of the External Auditor
annually and a full effectiveness review was conducted this year.
This involved assessment of the Auditor by the Committee, key
Executives and relevant senior management including an evaluation
of whether the Auditor met the minimum standards of qualification,
independence, expertise, effectiveness and communication.
All members of the Committee, as well as key members of
5
Recommendation
to Board
4
External Auditor
Review
1
Regular Audit
Committee
Review
3
FBU
Assessment
2
Internal Audit
Verification and
Oversight
management and those who have regular contact with the
External Auditor, completed a feedback questionnaire focusing
on the following areas:
• Robustness of the External Audit process and degree of
challenge to matters of significant audit risk and areas of
management subjectivity.
• Appropriateness of the scope of the audit and the planning
process for the delivery of an effective and efficient audit.
• Quality of the delivery of the audit, the service provided by
the External Auditor and its knowledge and understanding
of the Group’s business.
• Expertise of the audit team conducting the audit.
• Degree of independence applied by the External Auditor
and that policies and procedures were consistently applied.
• Views on the quality of the interaction between the audit partner
and senior members of the audit team and the Company.
• Whether the statutory audit contributed to the integrity of the
Group’s financial reporting.
Feedback was collated and presented to the Committee in March 2021,
without Deloitte present. We discussed the conclusions and any
opportunities for improvement, which were brought to the attention
of the External Auditor. No significant issues were reported as part
of this process, and we concluded that the External Audit process
and services provided by Deloitte were satisfactory and effective.
The feedback was shared with Deloitte and an action plan has been
drawn up with them and built into the 2021/22 audit programme.
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Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION AUDIT COMMITTEE REPORT CONTINUED
External Auditor independence and non-audit services
To preserve objectivity and independence, the External Auditor is
not asked to provide other services unless it is in the best interests
of the Company that these are provided by Deloitte rather than
another supplier, in accordance with our Non-Audit Services Policy
(the ‘Policy’). We reviewed and updated the Policy during 2019/20 to
reflect the Financial Reporting Council’s (‘FRC’) new Ethical Standard
and the more restrictive list of services that are now permitted and
the Policy was subject to a further review during the year. The Policy
requires Committee approval for all such non-audit services. The
Policy also prohibits aggregate fees for non-audit services in excess
of 70% of the average audit fee for the previous three financial years.
Non-audit services for which the External Auditor may be used
include: audit-related services required by statute or regulation and
other audit or assurance services as set out in the Ethical Standard.
During the year, Deloitte received £852,000 in fees for work relating
to the audit services it provides to the Group. Non-audit related work
undertaken by Deloitte amounted to fees of £239,000 this year, which
amounts to 21.9% of the total audit fees paid to it (as shown in the chart
below). The more significant non-audit services provided by Deloitte
were the audits of the financial information contained within the Severn
Trent Water and Hafren Dyfrdwy Annual Performance Reports and the
independent review of the Company’s half-yearly financial report.
Audit and non-audit fees paid to Deloitte are set out in note 7 to the
financial statements on page 186. In approving these non-audit fees,
we 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. Where Deloitte was chosen, this was as a result of its
detailed knowledge of our business and understanding of our industry,
as well as demonstrating that it had the necessary expertise and
capability to undertake the work cost effectively.
Audit and Non-Audit Fees 2020/21
Statutory audit – the Company
Regulatory audit services provided by the statutory auditor
Statutory audit – subsidiaries
Other non-audit services
0.2
0.4
0.1
0.1
Total fees
£0.8m
2018/19
0.2
0.1
0.1
Total fees
£0.9m
2019/20
Details of significant non-audit work undertaken is set out below.
0.5
0.6
0.3
0.1
0.1
Total fees
£1.1m
2020/21
Nature of service
Reason for Deloitte’s appointment
Fees (£’000)
Audit-related assurance services
Interim review
Assurance of regulatory returns
Subtotal
Other assurance services
This work is akin to an audit and is expected
to be performed by the External Auditor.
Audit of sections 1 and 2 of the Severn
Trent Water and Hafren Dyfrdwy Annual
Performance Reports is closely related
to the External Auditor’s statutory audit
work and the two assignments are
performed in parallel.
Reporting under Group financing documents These documents require reports and it is
normal practice for the External Auditor
to provide these.
Other assurance
Subtotal
Total 2020/21 non-audit fees
110
75
75
150
85
4
89
239
Severn Trent Plc Annual Report and Accounts 2021 Internal Audit and internal controls
Internal Audit is an independent assurance function available to the
Board, Audit Committee and all levels of management and is supported
by three main co-sourcing partners, PricewaterhouseCoopers, Ernst
and Young and BDO. These arrangements are reviewed annually and
we believe this structure adds value, through greater access to specific
areas of expertise, increased ability to flex resources, and the ability
to challenge management independently. Co-source specialists
continue to bring expertise to support the team and delivery of
the audit plan where relevant.
The role of Internal Audit is to provide assurance that the Group’s
risk management and internal control systems are well designed
and operate effectively and that any corrective action is taken in a
timely manner. Each year Internal Audit develops an annual risk-based
audit plan for approval by the Audit Committee; this is supported
by regular reporting that enables the Committee to monitor delivery
of the audit plan. The Committee’s role is to challenge the plan,
specifically whether the key risk areas identified as part of our ERM
process are being audited with appropriate frequency and depth.
Individual Committee members also bring an external view of risks
the Company may be exposed to.
Following the completion of each planned audit, Internal Audit
seeks feedback from management and reports to the Committee
on the findings of the audit, including any action that may be required.
Where any failings or weaknesses are identified in the course of the
review of internal control systems, management puts in place robust
actions to address these on a timely basis. Action closure is reported to,
and monitored by, the Committee and we are pleased to confirm that
our review established that management places a strong focus on
closing audit actions and ensuring timely completion.
An internal control system can provide reasonable but 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. To ensure continued efficiency, we carried out a review
of the effectiveness of the Internal Audit function in March 2021 in
consideration of guidance outlined within the Chartered Institute of
Internal Auditors (‘CIIA’) Internal Audit Code of Practice and the FRC
Guidance on Audit Committees. The review concluded that the Internal
Audit function is operating efficiently and effectively, and in line with
good practice. The CIIA guidance states that Audit Committees should
obtain an independent and objective external quality assessment at
least every five years. The last independent external review was
undertaken in February 2019 and concluded that the Internal Audit
function was fit for purpose, and had a clear remit and a desire to
support the business. We consider it prudent to carry out external
effectiveness reviews every three years and as such the next
independent review is planned for February 2022.
Risk management
The Group has a risk management process in place through which
our Principal Risks and related controls are identified and assessed.
The Board has overall responsibility for setting the Group’s risk
appetite and ensuring that there is an effective risk management
framework in place and has delegated responsibility for review of the
risk management methodology and effectiveness of internal controls
to the Audit Committee. The Committee reviews the processes for,
and outputs from, the Group’s ERM process, through which our
Principal Risks and related controls are identified. It also reviews
the effectiveness of the risk management system on behalf of the
Board and keeps under review ways in which the control and assurance
arrangements can be enhanced.
This year, the Committee spent a considerable amount of time
reviewing the Group’s ERM processes and procedures with good
progress made in enhancing its effectiveness during the year.
The Committee also reviewed the Group’s Risk Appetite Statement
and recommended this for consideration and approval by the Board.
You can read more about this important work on pages 38 to 39.
The Committee received half-yearly reports from the Head of Risk,
detailing the significant risks and uncertainties faced by the Group.
Each risk submitted for review includes an assessment of the
overall risk status, status of the control environment and a summary
of the risk mitigation plan to take the risk to the target risk position,
which needs to be in line with the risk appetite. The risk mitigation
plan covers action plans to improve controls where this has been
assessed as necessary and assesses whether actions are on target,
with the correct prioritisation in place. Further details of the Group’s
risk management systems and controls and Principal Risks can be
found in the Strategic Report on pages 2 to 79.
Whistleblowing
The Group has established procedures by which all employees
may, in confidence, report any concerns. Our Whistleblowing Policy,
‘Speak Up’, sets out the ethical standards expected of everyone that
works for, and with, us and includes the procedure for raising concerns
in strict confidence. Our workforce can raise concerns through their
line manager, senior management and through our confidential and
independent whistleblowing helpline, ‘Safecall’. All investigations are
carried out independently with findings being reported directly to both
the Audit and Corporate Sustainability Committees.
The Board as a whole monitors and reviews the effectiveness of the
Group’s whistleblowing arrangements annually, to ensure that it has
sufficient oversight of whistleblowing to support its work on culture,
risk and stakeholder engagement. The Audit Committee receives
reports on investigations and all significant whistleblowing matters
are reported directly to the Board. The Board also receives regular
updates from the Committee and the Board completes an assessment
of the effectiveness of the Group’s whistleblowing procedures.
The Board has reviewed these arrangements again this year and
is satisfied that they are effective, facilitate the proportionate and
independent investigation of reported matters and allow appropriate
follow-up action to be taken.
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Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION AUDIT COMMITTEE REPORT CONTINUED
Significant issues considered and addressed in relation to the financial statements
The Committee looked carefully at those aspects of the financial statements that required significant accounting judgments or where there is
estimation uncertainty. These areas are explained in note 4 to the Group financial statements. The Committee also considered the accounting
treatment for revenue and accrued income. It received detailed reports from both the CFO and the External Auditor on these areas and on any
other matters which they believed should be drawn to the Committee’s attention. The draft External Auditor’s report on the financial statements
was also reviewed, with particular reference to those matters reported as carrying risks of material misstatement.
The Committee discussed the range of possible treatments both with management and with the External Auditor confirming that the
judgments made by management were robust and supportable. For all of the matters described below the Committee concluded that
the treatment adopted in the Group financial statements was appropriate.
Significant issue
How the issue was addressed by the Committee
Going concern basis for the financial statements and long-term
Viability Statement.
Determination of the provision for impairment of trade receivables
in Severn Trent Water Limited.
At 31 March 2021, the provision in the Group’s financial statements
was £137.1 million and the charge for the year was £40.0 million.
Severn Trent Water Limited has a statutory obligation to continue to
supply water and waste water services to customers even when their
bills are unpaid. This increases the risk of bad debts. In addition, it
has a large and diverse customer base which requires impairments
against trade receivables to be assessed on a systematic basis.
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 statements in the Strategic Report on going
concern and long-term viability.
In particular, the Committee considered the scenarios modelled
in relation to the impact of the COVID-19 outbreak on the Group’s
financial position and prospects, noting the stress tests performed
by management and the potential mitigating actions identified.
Our business model can be found on pages 6 to 7. Principal Risks and
uncertainties can be found on pages 38 to 46. The Viability Statement
can be found on page 47 to 49 and the Going Concern Statement
on page 49.
The Committee challenged management’s assumptions regarding the
impact of the COVID-19 outbreak on the expected credit losses for trade
receivables existing at 31 March 2021, noting the independent forecasts of
the likely economic impacts and the historical evidence of a link between
macroeconomic conditions and the Group’s bad debt experience.
The Committee considered the work performed by the External Auditor
and the conclusions they reached regarding the adequacy of the provision.
The Committee determined that no adjustment to the amounts
recorded was required.
The proposed classification of costs between operating expenditure
and capital expenditure in Severn Trent Water Limited.
Severn Trent Water Limited has a significant capital programme that
includes projects made up of combinations of expenditure and activities,
some of which are recognised as property, plant and equipment and
some of which are recognised as operating costs. For most of the
expenditure this distinction is clear but there is an element where
subjective judgments are required to determine the appropriate
accounting treatment.
The Committee considered the application of the Group’s accounting
policies in relation to capital expenditure during the year.
The Committee enquired of management whether the policies
had been applied consistently from year-to-year while noting the
expected reduction in amounts capitalised in the first year of a new
AMP. The Committee considered the results of the External Auditor’s
work and discussed the conclusions with the External Auditor.
The Committee determined that no adjustment to the amounts
recorded was required.
Determination of the amount of the Group’s retirement benefit obligations.
At 31 March 2021, net retirement benefit obligations amounting to
£367.7 million were recognised. The net obligation recognised on the
balance sheet is the difference between the fair value of the schemes’
assets at the balance sheet date and the present value of the benefits
expected to be paid to members of the schemes. This requires
assumptions to be made for the expected age of retirement and
longevity of members, future inflation rates and increases to benefits.
It is also necessary to determine an appropriate discount rate to
calculate the present value of the estimated gross obligations.
Management takes advice from external qualified actuaries who
perform the calculation of the present value of the benefits based
on the assumptions set by management.
The Committee scrutinised the assumptions underlying the valuation
of the obligations and obtained explanations for the significant increase
in the deficit recorded. The Committee considered whether the
assumptions, taken as a whole, were appropriate, taking into account
the work of the External Auditor and the benchmark information
provided. The Committee paid particular attention to the ‘w2020 factor’
applied to the mortality assumptions, which adjusts historical
experience for the expected impact of COVID-19.
The Committee also scrutinised the methodologies applied in
assessing the fair values of the schemes’ assets and considered the
estimation techniques used for assets for which an up-to-date
valuation was not available.
The Committee considered that the assumptions and methodologies
were reasonable, and that no adjustment was required to the draft
Group financial statements.
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Severn Trent Plc Annual Report and Accounts 2021 Significant issue
How the issue was addressed by the Committee
Consideration of whether the Group’s loans to its joint venture,
Water Plus, should be classified as long-term interests that in
substance form part of the Group’s net investment in the joint venture.
At 31 March 2021 the Group had loans receivable from the joint venture
amounting to £100.0 million comprising two revolving credit facilities of
£100 million and £32.5 million, of which £67.5 million and £32.5 million
respectively was drawn at year end. On 23 April 2021, the £32.5 million
revolving credit facility was exchanged for equity shares in Water Plus.
In the previous year, the Group’s share of the joint venture’s accumulated
losses after tax exceeded the Group’s long-term investment by
£4.9 million and these losses had not been recognised by the Group.
In the current year, the Group’s share of the joint venture’s loss after tax
was £8.9 million.
The Group has classified the £32.5 million revolving credit facility as part
of its long-term investment in Water Plus at the balance sheet date and
has accordingly recognised: the losses that were not recognised in the
previous year; and its share of the joint venture’s loss after tax in the
current year against the carrying value of this investment.
The Group has not classified the £100 million revolving credit facility
as part of its long-term investment in the joint venture.
Classification of the Group’s share of Water Plus loss as an exceptional item.
In the year ended 31 March 2021 the Group has not recorded its share of
the current year loss from its joint venture, Water Plus, as an exceptional
item. The loss recognised was £8.9 million. The Group has recorded the
losses not recognised in the previous year, amounting to £4.9 million, as
an exceptional item. The Group’s accounting policy defining exceptional
items is set out in note 2 to the financial statements. Further details of
the components of this loss are set out in the CFO’s Review on page 34.
FRC thematic review of the application of IFRS 15.
The Company was selected as part of the FRC’s thematic review
related to the application of IFRS 15 ‘Revenue from Contracts with
Customers’. The FRC reviewed the financial statements for the year
ended 31 March 2020; only the disclosures relating to revenue
recognition were reviewed.
As a result of its review, the FRC requested additional information
about deferred income balances disclosed within the accounts, and
for clarification as to whether they were considered to be contract
liabilities under IFRS 15.
The review conducted by the FRC was based solely on the Group’s
published Annual Report and Accounts and provides no assurance
that the report and accounts are correct in all material respects.
The review and the FRC role is not to verify the information provided
but to consider compliance with reporting requirements. The FRC
accepts no liability for any reliance on their review by the company or
any third party, including but not limited to investors and shareholders.
The Committee challenged management’s dissimilar treatment
of the two revolving credit facilities and considered management’s
explanation that:
• The conversion of the £32.5 million revolving credit facility to
a long-term investment had been approved by the Treasury
Committee before the year end, subject only to determining the
most appropriate form of investment. The actual conversion to
equity confirmed management’s intention at the balance sheet
date that this facility should form part of its long-term investment
in Water Plus.
• The £100 million revolving credit facility had been renegotiated
shortly before the year end. The terms for the renewed facility had
been market tested against external benchmarks and management
had taken advice from its debt advisers on the terms and pricing that
would be expected for this instrument. The term of the facility is in
line with the joint venture’s external funding. The joint venture’s
business plan indicates substantial reductions on the amount
drawn under this facility in the next two years.
The Committee noted these explanations and considered that the
dissimilar treatment of the revolving credit facilities was appropriate.
The Committee further challenged management on whether the
conversion of the £32.5 million revolving credit facility should be
treated as an adjusting post balance sheet event with regard to the
presentation of the asset on the Group’s balance sheet at
31 March 2021.
Management confirmed that, in its view, the conversion of the revolving
credit facility to equity in April 2021 did not provide evidence of a
condition that existed at 31 March 2021 with regard to the classification
of the asset, particularly as approval for the form of the investment as
equity was not confirmed by both joint venture partners until after the
balance sheet date. Therefore the asset should be recorded as a loan
receivable at 31 March 2021.
The Committee considered this explanation and concurred
with the conclusion.
The Committee noted the accounting policy and management’s
analysis of the Group’s share of the loss incurred by Water Plus.
The Committee noted that £4.9 million of the loss recorded in the
year had been incurred by Water Plus in the previous year, when
the Group’s share of Water Plus’s loss had been recorded as an
exceptional item, but had not been recognised by the Group in
that year because the joint venture’s accumulated losses after
tax exceeded the Group’s long-term investment.
The Committee noted management’s explanation that the losses
incurred in 2020 and in 2021 were separate transactions. The losses
incurred by Water Plus in 2020 were considered to be exceptional for
the reasons set out at the time. Since management was unable to
specifically identify the impacts of COVID-19 on Water Plus in 2021,
this loss was not classified as exceptional.
Having considered the explanations provided by management, the
accounting requirements of IAS 28 and the views of the External
Auditor, the Committee concluded that presentation of the share
of loss from its joint ventures was appropriate.
The Committee considered the Company’s response to the FRC’s
enquiries, which was as follows.
The Company confirmed that the deferred income balances should
be classified as contract liabilities under IFRS 15, as they represented
consideration received in return for performance obligations that were
yet to be satisfied. As they had not been accounted for as such, the
Company agreed to amend its accounting policy.
The Company explained that the change in policy will result in the
liabilities being released to revenue, rather than operating costs,
over the life of the associated assets. The change has been made
prospectively given that, historically, the amounts involved have been
immaterial. The Company also agreed to provide additional disclosures
about contract liabilities going forward, and to disclose the recognition
of amounts received as deferred income rather than as in-period
revenue as a significant judgement under IAS 1 ‘Presentation of
Financial Statements’.
No changes were required to prior year financial statements.
The FRC was satisfied with this response and closed its enquiries.
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Treasury Committee Report
Committee members
John Coghlan
Chair of the Treasury Committee
Kevin Beeston
Senior Independent Non-Executive Director (appointed 19 March 2021)
Philip Remnant
Independent Non-Executive Director
Quick facts
All members of the Committee are Non-Executive Directors of
the Board. During 2020/21, the Chief Financial Officer and the
two individuals who held the position of Group Treasurer were
also members of the Committee but their membership had
ceased by the end of March 2021. You can read more about
these changes on page 102.
Regular attendees at meetings at the invitation of the Committee include
the Chair of the Board, the Chief Financial Officer, the Group Treasurer,
the Group Financial Controller, and representatives from the Group’s
financial advisers, Rothschild & Co. None of these attendees are
members of the Committee.
The Committee is authorised to seek external legal or other
independent professional advice as it sees fit, but did not need
to do so during the year.
The Committee’s Terms of Reference were updated in March 2021.
Quick links
Terms of Reference
Sustainable Finance Framework
Charter of Expectations
114
Dear Shareholder
I am pleased to introduce this report which details the role of
the Treasury Committee and the key activities it has undertaken
during the year.
The Committee continues to play a key role in supporting the Board
in monitoring performance against the Group’s approved Treasury
Policy and Annual Treasury Plan, reviewing in detail the Group’s
funding requirements and providing oversight of the Group’s key
financing risks and opportunities.
The Committee, and its individual members, act in a way that we
consider is most likely to promote the success of the Company for the
benefit of its members as a whole, as set out in s.172 of the Companies
Act 2006. This ensures that the interests of our shareholders, and
broader stakeholders, are properly considered and reflected in our
decision-making processes. The Committee’s Terms of Reference,
available on our website, reflect our continued commitment to this
and you can read more about our approach to s.172 on pages 76 to 78.
The focus the Committee gives to the Group’s financing strategy is
instrumental in ensuring that the Group remains in a strong financing
position throughout the AMP7 regulatory period and beyond. During
the year, the Committee has carefully considered and closely monitored
the potential economic impacts of COVID-19, in particular on financing
and maintaining at least 18 months’ liquidity. During 2020/21, the Group
issued £400 million of new debt and extended £900 million of bank
facilities by a further year, ensuring it remained in a strong liquidity
position and in compliance with its liquidity policy. At the balance sheet
date, the Group had sufficient liquidity to meet its forecast cash flow
requirements to the end of 2022. In addition, the Group is focused
on ensuring that it develops and maintains a diverse range of funding
sources and in April 2021, the Group renewed its £1 billion revolving
credit facility, extending its maturity to 2026.
Future funding is an important part of our normal business planning
process and the Committee provides regular updates to the Board
in respect of funding, solvency and liquidity matters so that the Group
can respond quickly to any changes in our ability to secure financing.
Sustainable Finance is a core element of the Group’s funding strategy.
In June 2020, Severn Trent Water Limited successfully completed its
inaugural Sustainable GBP Bond raising £300 million for 20 years at
a coupon of 2.0%. The proceeds from the bond issue will be used to
finance green and social projects undertaken by Severn Trent Water.
This is the second sustainable debt issue undertaken by the Group
and follows a Sustainable US Private Placement completed by Severn
Trent Plc in March 2020. The Group closely monitors developments
in sustainable finance through its Sustainable Finance Committee,
which reports to the Treasury Committee.
The Treasury Committee spent time considering the funding strategy and
financing structures to deliver the Group’s Green Recovery schemes.
The Board and Treasury Committee were delighted that Ofwat proposed
to award the Company £565 million (2017/18 prices) across all of the
Green Recovery project proposals. Six projects will strengthen the
Group’s capabilities and network, and will lead to RCV growth, on which
the Company will earn future economic returns. You can read more
about the Green Recovery projects on page 13.
Severn Trent Plc Annual Report and Accounts 2021 The Treasury Committee closely monitors the Group’s debt mix.
For AMP7, Ofwat introduced a new inflation index, with CPIH used in
pricing and a proportion of RCV indexation. I am delighted to report
that Severn Trent Water Limited completed the UK’s first CPIH-linked
bond in December 2020, raising £100 million with a maturity of 35 years.
The Treasury Committee has also reviewed the Group’s plans for
LIBOR transition and ensured these are well progressed. During the
year, Group Treasury assessed LIBOR exposures within the business
and developed robust plans to enable a smooth transition to alternative
benchmark rates ahead of the cessation of LIBOR at the end of 2021.
This activity included the agreement of a small uncommitted SONIA-
based ‘test’ facility with a relationship bank and commencement of
dialogue with lenders and derivative counterparties to agree
transition plans.
The annual Board Effectiveness evaluation assessed our performance
as a Committee and I am pleased that this concluded that we operate
effectively and that the Board takes assurance from the quality of our
work. In line with the recommendation from this year’s externally
facilitated review, the Chief Financial Officer and the Group Treasurer
stood down from the Committee after the meeting in March 2021.
You can read more on the Board Effectiveness evaluation on pages 98
to 99. The Board is satisfied that the Committee members bring a wide
range of financial experience across various industries and all members
have competence relevant to our sector with significant recent and
relevant financial experience.
I would like to thank the members of the Committee, the management
team and our financial advisers, Rothschild & Co, for their continued
commitment throughout the year, for the open discussions that take
place at our meetings, and for the contribution they all provide in
support of our work.
John Coghlan
Chair of the Treasury Committee
18 May 2021
Focus areas in 2020/21
The Committee provides Board oversight of the Group’s key financing risks and opportunities. Some key areas of discussion for the Committee
during 2020/21 included:
Key areas of discussion
Review of the Group’s European Medium Term Note Programme and approval for bonds to be issued pursuant to that Programme
during the year.
Consideration of the Group’s AMP7 funding strategy, in relation to the Group’s funding position and priorities for the new regulatory
period, latest discussions with credit rating agencies and management of exposure to financial risks including COVID-19, energy
prices and interest rate transition.
Consideration of the Group’s interest rate strategy.
Deliberation of funding options for the Group’s Green Recovery submission.
Review of the Group’s debt investor relations strategy.
Discussion of interest rate hedging levels within the Severn Trent Pension Scheme.
Review and approval of the Committee’s Terms of Reference, to be applied from 19 March 2021, prior to making a recommendation to the
Board. In completing its review, the Committee concluded that the Terms of Reference remained appropriate and reflected the manner
in which the Committee was discharging its duties.
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Corporate Sustainability Committee Report
Dear Shareholder
As Chair of the Corporate Sustainability Committee, I am pleased
to introduce this report which details the work undertaken by the
Committee during the year, as well as the role it plays in developing
the Group’s Social Purpose and Sustainability Framework (see page
50). The following pages describe the activities of the Committee
and provide an overview of the topics discussed during the year.
As outlined on page 59, sustainability is embedded throughout
the Company and the Board and its Committees are no exception.
The Corporate Sustainability Committee has a key role in supporting
the Board within the Governance Framework, by providing guidance
and direction on the Company’s sustainability and corporate
responsibility ambitions. Sitting alongside myself, the Committee
is composed of the Chair of the Board and two other Non-Executive
Directors. Following the recommendations of the externally facilitated
Board Effectiveness evaluation (read more on pages 98 to 99), the Chief
Executive ceased membership of the Committee in March 2021 but
will still continue to attend each meeting with an open invitation
to bring the benefit of her expertise in sustainability matters. Our
collective experience and capability lead to knowledgeable and
passionate debate around a wide range of existing and emerging
sustainability topics, and the Committee’s discussion on such
subjects is presented in detail to the Board at the beginning of
every meeting to ensure that its overall oversight of ESG matters
remains strategic, current and effective.
It has now been over five years since the Paris Agreement on Climate
Change was adopted and it is abundantly clear that this will remain
top of the global agenda for the foreseeable future. In recent years,
Severn Trent has increasingly considered how it can both mitigate its
own carbon emissions and bring more sustainable services to our
customers. The Committee has spent a significant proportion of its
time focusing on Severn Trent’s role as an environmental leader.
We have made a number of key commitments which lie at the heart
of our climate change plans, and the Committee has considered our
approach to carbon emissions abatement across the following areas:
• Our Triple Carbon Pledge – Committing to net-zero carbon
emissions, 100% renewable energy and an all-electric vehicle
fleet by 2030, where available. On our Net-Zero Pledge, we are
proud to have been accredited by the Carbon Trust since 2009,
and during that time we have consistently reduced greenhouse
gas (‘GHG’) emissions from our operations, leading to a total
reduction of 57% to the end of 2019/20.
• Biodiversity – To support our climate change plan and broader
sustainability agenda, we announced £1.2 billion of investment by
2025 in environmental initiatives, including our Great Big Nature
Boost to plant 1.3 million trees, revive 12,000 acres of land and
restore over 2,000 km of rivers.
• Climate targets – We submitted our proposed Scope 1, 2 and 3
emissions targets to the Science Based Targets initiative,
committing us to deliver significant reductions in our GHG
emissions by 2030, and we look forward to finalising these
targets in the coming months.
• Climate-related reporting – This year we have made disclosures
in line with the requirements of the Task Force on Climate-related
Financial Disclosures (‘TCFD’), which you can read more about on
pages 54 to 67.
We believe it is important that shareholders have the opportunity
to engage with the plans we have developed and that is why, during
the year, we announced our intention to put our climate change action
plan before shareholders and seek an advisory vote on our approach
at the AGM on 8 July 2021.
Committee members
Dame Angela Strank
Chair of the Corporate Sustainability Committee
Christine Hodgson
Chair, Severn Trent Plc
Sharmila Nebhrajani
Independent Non-Executive Director
Dominique Reiniche
Independent Non-Executive Director
Quick facts
All members of the Committee in 2020/21 were Non-Executive
Directors of the Board, plus the Chief Executive. To comply
with good practice, the Chief Executive stepped down from
the Committee after the meeting in March 2021, but retains
a standing invite to meetings.
Only members of the Committee have the right to attend Committee
meetings. Other individuals such as the Director of Human Resources,
senior management and external advisers may be invited to attend
meetings, as and when appropriate.
The Committee’s Terms of Reference were updated in March 2021.
Quick links
Terms of Reference
Sustainability Report
Anti-Slavery and Human
Trafficking Statement
Whistleblowing Policy
Charter of Expectations
116
Severn Trent Plc Annual Report and Accounts 2021 Sadly, the year continued to be disrupted by the COVID-19 pandemic
and, as a result, the Committee has considered a wide range of
topics to support our stakeholders. The health and wellbeing of our
customers and colleagues have been at the forefront of our response,
from supporting customers who have been struggling to pay their
bills as a result of the pandemic, to providing our key workers with
the personal protective equipment they need to deliver our essential
services. A £1 million COVID-19 Emergency Fund was established
to support community projects and charities in our region that
were directly affected by the pandemic, supporting 339 local charities.
We have donated c.£7 million to charitable organisations this year.
Further information about our response to the COVID-19 pandemic
can be found on pages 15 to 17. Alongside this, the Committee was
pleased that the first grants from the Severn Trent Community Fund
were made available to excellent causes in our region during the year.
Read more about our Community Fund on page 23.
We are pleased to report that the Sustainability Framework is well
embedded as part of our culture in Severn Trent and the entire
workforce participates in delivering on our agenda. The feedback
from our all-employee events shows that colleagues want to be
ambassadors for sustainability at home as well as at work, so the
Group has introduced a personal salary sacrifice scheme to lease
an electric car, which has been very well received. We also continue
to hold regular Supplier Summits, which provide a forum to engage
with over 50 of our suppliers on how we can work collaboratively
to achieve shared sustainability outcomes, resulting in greater
impact for society.
The Committee is delighted that our sustainability ambitions are deeply
rooted and owned across the whole of the Company and placed right at
the heart of our governance. We are pleased and proud that both our
ESG-themed Capital Markets Day and our overall approach to ESG
reporting, including our first standalone Sustainability Report, won
awards from prestigious Investor Relations organisations. In April 2021,
we achieved 6th place in the Tortoise Responsibility100 Index, and, in
February 2021, Morgan Stanley Capital International (‘MSCI’) rated
us A, improving on our previous rating of BBB (scale AAA to CCC);
these achievements spur us on to continue to deliver excellence on
our sustainability agenda. The Committee has a clear view of the focus
areas for continuing our sustainability journey, and both the Committee
and the Board are confident that we have the right agenda in place.
Finally, the Committee is thrilled about our partnership with the
Birmingham 2022 Commonwealth Games, to support its ambition
to create the most sustainable games yet. We are proud to lead on
making it the first carbon neutral games, through a range of nature-
enhancing offset initiatives, including planting 2,022 acres of forest
in the Midlands and creating 72 mini forests, representing each
competing nation. Like us, the Commonwealth Games has an ambition
to leave a lasting legacy for future generations and we look forward
to working with the organising committee in the months to come.
Details on key matters that the Committee has considered during
the year in relation to each of our sustainability ambitions are set
out overleaf. More information on the Sustainability Framework can
be found on page 50 and within our Sustainability Report, available
on the Severn Trent Plc website.
The Committee remains extremely proud of the Company’s many
achievements over the last year, described on pages 2 to 79, and the
work we have undertaken to positively impact communities within
our region.
I should like to thank the members of the Corporate Sustainability
Committee for the open, constructive, ambitious and progressive
discussions that take place at our meetings, and for their passion
and personal commitment to our wide-ranging and purposeful agenda.
Dame Angela Strank
Chair of the Corporate Sustainability Committee
18 May 2021
The Committee visited Newfield Farm in Long Itchington
Catchment management and biodiversity
During September 2020, under COVID-secure conditions, the
Committee visited Newfields Farm in Long Itchington to meet
local farmers and understand how our catchment management
plans work in practice. The Committee also saw first-hand the
farm infrastructure improvements made as a result of one of
Severn Trent’s Environment Protection Scheme (‘STEPS’)
grants, to help conserve and protect local water resources.
Our catchment management activities involve us working with
landowners to deliver catchment-specific advice campaigns.
The aim is to reduce pollution from agriculture, thereby
minimising risks to water quality through proactive catchment
management, providing more resilience in the face of a changing
climate and growth in demand.
Catchment management schemes provide cost-beneficial solutions
to water quality risks, addressing issues at source rather than relying
on unsustainable and expensive end-of-pipe treatment solutions.
It is also regarded as a more sustainable and environmentally
friendly option compared with conventional processes.
STEPS offers an annual opportunity for farmers and land
managers to make significant improvements to their land
management and infrastructure through a match-funded
grant. The grant offers both financial and technical support,
including devising tailored solutions to tackle water pollution,
through changing practices or improving facilities.
Newfields is a large arable farm which produces 2,100 tonnes of
wheat annually, as well as growing other crops such as oilseed
rape for margarine. In 2017, the farmer installed a pesticide
washdown facility on his farm, which has eradicated the risk of
point source pollution from filling and washing down the pesticide
sprayer. The bunded shed has a 700 litre holding capacity, as well
as having a base-drain and underground tank with a capacity of
3,000 litres. The sprayer is both filled and washed down in this
facility, and the pesticide washings are pumped from the drain
to a biobed, which was funded through the STEPS grant. Biobeds
use soil and plants to filter the chemicals from the water. Once
the water has filtered through the biobed, it can safely be released
into the environment as any pesticides will have been naturally
attenuated by the biomix (which, at Newfields, is made from 25%
top soil, 25% peat-free compost and 50% straw).
The Committee also saw areas of wildflower mini-meadow,
funded through a Severn Trent biodiversity grant. These field
border meadows will increase pollinators and predatory insects
which naturally pollinate and protect the crops, as well as being
habitats for wildlife, and a vital food source for farmland birds
during the winter months.
The Committee plans to undertake more site visits in the future
to deepen its appreciation of the fantastic sustainability work
undertaken by the business.
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Sustainability in our culture
Acting in a responsible manner is integral to our Purpose of taking
care of one of life’s essentials and having a socially purposeful culture
throughout the Company. We hold ourselves to account against our
Sustainability Framework. Our Corporate Sustainability performance
is deeply embedded within the organisation, with ODIs linked to
the majority of our metrics, enabling the Company to focus on issues
important to our customers.
Performance against the Sustainability Framework is reported on a
quarterly basis to the Committee, in our Annual Report and Accounts,
on our website and through selected Environmental, Social and
Governance (‘ESG’) indices. You can read more in our standalone
Sustainability Report, available on the Severn Trent Plc website.
Employee rewards for performance are directly linked to our
Corporate Sustainability performance, with ODIs, health and safety
and other key targets contributing to a third of all-employee annual
bonus. We believe the concentrating on the issues most important to
our customers, gives our Sustainability Framework the right focus.
We have also introduced a second sustainability-focused performance
measure in the Group’s Long Term Incentive Plan. You can read more
about how our Sustainability Framework and employee rewards are
linked on page 122 of the Directors’ Remuneration Report.
The Committee ensures that, in considering the matters before them,
the Severn Trent Purpose and Values, and alignment with Doing the
Right Thing, are taken into account. You can read more on page 82.
Whistleblowing
Our employees and wider workforce know they can raise concerns
and issues to their line manager or by contacting a member of
the Executive, the HR, Legal and Internal Audit teams or through
our independent whistleblowing helpline, ‘Safecall’. Every single
allegation is independently investigated and reported to the
Corporate Sustainability Committee and the Audit Committee.
In our most recent survey employees were asked if they felt
confident that something would be done if they raised a concern.
The Committee is pleased to report that our score on this question
put us in the top 5% of utility companies worldwide.
Focus areas in 2020/21
The Committee provides Board oversight for the promotion of our Values and standards that relate to the social and economic community in
which the Company operates, in accordance with the Company’s Sustainability Framework, ensuring the Company can demonstrate that it lives
through these Values and acts responsibly in its engagement with all stakeholders. The Committee also oversees the approach of environmental
standards, particularly those where Severn Trent has the most significant impacts, for example: energy management and climate change, water
quality, resource productivity (including leakage and waste) and, biodiversity and land use. Key areas of discussion for the Committee during
2020/21 are set out below, alongside our sustainability ambitions and some of our main sustainability achievements over the last year.
Being socially purposeful: Our Sustainability Framework
Taking care of the environment
Ensuring a sustainable
water cycle
Enhancing our
natural environment
Making the most
of our resources
Mitigating climate change
Helping people to thrive
Delivering an affordable
service for everyone
Providing a fair,
inclusive and
safe place to work
Investing in skills
and knowledge
Making a positive difference
in the community
Committee activities during 2020/21
Review of progress against our Great Big
Nature Boost – including a COVID-secure
farm visit to see our catchment management
and biodiversity commitments in action,
highlighting how working with landowners
can improve both biodiversity
and water quality.
Oversight of environmental leadership
including mitigating climate change through
our Triple Carbon Pledge, Green Fleet and
Science Based Targets.
Agreed the approach to the Group’s Task
Force on Climate-related Financial
Disclosures (‘TCFD’) reporting.
Committee activities during 2020/21
Discussion of our diversity and inclusion
ambition and priorities for the next part
of our journey.
Consideration of the Severn Trent
Community Fund’s progress since its
launch in early 2020, including the charity
initiatives put in place as a response to
the COVID-19 pandemic.
Input into Severn Trent’s approach for
supporting customers who were in need,
both financially and non-financially.
Sustainability achievements during 2020/21
Delivered over 2,600 hectares
of biodiversity improvements
Planted more than 290,000 trees
Launched our employee electric vehicle scheme
Partnership with the Birmingham 2022
Commonwealth Games as official Nature
and Carbon Neutral Supporter
Submitted our Scope 1, 2 and 3 Science Based Targets
to the Science Based Targets initiative
On track to deliver a 50% reduction in pollutions by 2025
Sustainability achievements during 2020/21
Awarded £1.5 million to 93 projects through the
Community Fund since March 2020
35% of our customers supported financially through
our Help When You Need It schemes
Best ever year-on-year health and safety performance
– 20% improvement
Opened our purpose-built Severn Trent Academy
in February 2021
Launched our £1 million COVID-19 Emergency Fund
and have donated to 339 local charities to help them
deal with the effects of the pandemic
You can read more about our response to COVID-19
and how we ensured the health and safety of our
workforce on pages 15 to 17.
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Severn Trent Plc Annual Report and Accounts 2021
Human rights and modern slavery
We are committed to protecting the human rights of our employees
and contractors as we have clearly set out in our Code of Conduct,
Doing the Right Thing. We have a responsibility to understand our
potential impact on human rights and to mitigate potentially negative
impacts. Whilst not having a specific human rights policy, we have
Group policies on Human Resources, Anti-Bribery and Anti-Fraud,
Whistleblowing (‘Speak Up’) and Procurement, and a separate
Anti-Slavery and Human Trafficking Statement.
We will always treat people in our business and supply chain
fairly and have a clear zero-tolerance approach to modern
slavery. To date we have had no instances of or concerns raised
about modern slavery, but we are not at all complacent and are
fully committed to protect against modern slavery in our business
and supply chain. We know modern slavery is a growing global issue
and our customers and stakeholders share our concern. Our highest
risk is through our supply chain. Therefore, we work with our suppliers
to ensure they operate to the same standards we set ourselves, so
we have been working closely with them to ensure the risks involved
in their own supply chains are understood. All suppliers are required
to sign up and operate in line with our Code of Conduct which clearly
states zero tolerance, and this is built into our procurement tender
process. This year we have focused on improving our approach to
risk assessment in our supply chain and developing an in-depth
assurance process.
Our full Anti-Slavery and Human Trafficking Statement can be found
on the Severn Trent Plc website. We welcome the Government’s
proposal to introduce strengthened reporting requirements under
section 54 of the Modern Slavery Act 2015, in response to the recent
Transparency in Supply Chains consultation. We will continue to report
in line with the requirements.
Freedom of association and collective bargaining
We recognise the right of all employees to Freedom of Association
and Collective Bargaining. We seek to promote co-operation 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 mutual benefit in sharing information with our
colleagues and seek their feedback and suggestions. We believe
this fosters a common understanding of business needs and helps
to deliver joint solutions aimed at making our business successful.
The Company Forum also provides an invaluable opportunity for
engagement with the whole workforce to ensure workforce views
are taken into account.
Responsible business practices are an integral part of our
business strategy. Performance against our Corporate
Sustainability commitments is reported throughout our Annual
Report and Accounts, reflecting their embedded nature in our
Governance Framework. You can read more in our Sustainability
Report and on our dedicated Sustainability webpages, on the
Severn Trent Plc website.
Being socially purposeful: Our Sustainability Framework
Review of progress against our Great Big
Delivered over 2,600 hectares
Nature Boost – including a COVID-secure
of biodiversity improvements
Planted more than 290,000 trees
Ensuring a sustainable
water cycle
Enhancing our
natural environment
Making the most
of our resources
farm visit to see our catchment management
and biodiversity commitments in action,
highlighting how working with landowners
can improve both biodiversity
and water quality.
Oversight of environmental leadership
including mitigating climate change through
our Triple Carbon Pledge, Green Fleet and
Science Based Targets.
Mitigating climate change
Agreed the approach to the Group’s Task
Force on Climate-related Financial
Disclosures (‘TCFD’) reporting.
Partnership with the Birmingham 2022
Commonwealth Games as official Nature
and Carbon Neutral Supporter
Submitted our Scope 1, 2 and 3 Science Based Targets
to the Science Based Targets initiative
On track to deliver a 50% reduction in pollutions by 2025
Helping people to thrive
Committee activities during 2020/21
Sustainability achievements during 2020/21
Discussion of our diversity and inclusion
Awarded £1.5 million to 93 projects through the
ambition and priorities for the next part
Community Fund since March 2020
Delivering an affordable
service for everyone
of our journey.
Consideration of the Severn Trent
Community Fund’s progress since its
launch in early 2020, including the charity
initiatives put in place as a response to
the COVID-19 pandemic.
Input into Severn Trent’s approach for
supporting customers who were in need,
both financially and non-financially.
Providing a fair,
inclusive and
safe place to work
Investing in skills
and knowledge
Making a positive difference
in the community
35% of our customers supported financially through
our Help When You Need It schemes
Best ever year-on-year health and safety performance
– 20% improvement
Opened our purpose-built Severn Trent Academy
in February 2021
Launched our £1 million COVID-19 Emergency Fund
and have donated to 339 local charities to help them
deal with the effects of the pandemic
You can read more about our response to COVID-19
and how we ensured the health and safety of our
workforce on pages 15 to 17.
Taking care of the environment
Committee activities during 2020/21
Sustainability achievements during 2020/21
Being a company you can trust
Committee activities during 2020/21
Sustainability achievements during 2020/21
Launched our employee electric vehicle scheme
Living our Values
Balancing the interests
of all our stakeholders
Running our company
for the long term
Being open about what
we do and sharing
what we know
Engaged with Morgan Stanley Capital Investment
(‘MSCI’) who provided an external insight into
emerging ESG challenges and trends.
Improved our MSCI rating from BBB to A
98% of supplier payments paid within 60 days
Reviewed sustainability performance reports –
quarterly update on all strategic elements to
monitor our progress.
Over 1,000 of our current contracted suppliers
are signed up to our Sustainable Supply
Chain Charter
Oversaw the Sustainability Framework and the
external sustainability landscape to ensure
sustainability-related risks are identified and
appropriately mitigated. Read more about our
Principal Risks on pages 40 to 45.
Approved the approach to sustainability reporting
to ensure that the sustainability ambitions we have
embedded in our wider organisation strategy are
shared with stakeholders.
Reviewed progress made in engaging responsibly
with our supply chain and discussed future strategy.
Reviewed the Anti-Slavery and Human
Trafficking Statement.
Reviewed whistleblowing reports, with quarterly
updates on issues raised and reporting trends.
Reviewed and approved the Committee’s Terms
of Reference, to be applied from 19 March 2021,
prior to making a recommendation to the Board.
In completing its review, the Committee concluded
that the Terms of Reference remained appropriate
and reflected the manner in which the Committee
was discharging its duties.
Awarded the CIPS Corporate Ethics Mark for
ethical sourcing and supplier management
Raised £300 million through our Sustainable
Finance Framework with a GBP bond issue
completed in June 2020. The proceeds of the
bond issue have been used to finance green
and social projects completed by Severn Trent
Water Limited
Published our first standalone
Sustainability Report
Recognised by the Investor Relations Society
as the best communication of ESG within
the FTSE100
Became a signatory to Prince Charles’ Terra
Carta, affirming our support for the objectives
of the 10 articles which provide a roadmap
for businesses to move towards a more
sustainable future
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Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION
DIRECTORS’ REMUNERATION REPORT
Directors’ Remuneration Report
Dear Shareholder
On behalf of the Remuneration Committee (the ‘Committee’),
I am pleased to provide an overview of both Executive Director and
wider workforce remuneration for the year ended 31 March 2021.
As a socially purposeful company, we take pride in our balanced
approach to creating long-term, sustainable value for investors
while delivering a high-quality service for our customers, a great
place to work for our people and having a meaningful, positive impact
on the communities we serve. The first year of the five-year Asset
Management Period (‘AMP7’) cycle coincided with a period of
prolonged uncertainty as we sought to ensure the resilience of our
essential service during the COVID-19 pandemic. We did this without
furloughing, making any redundancies or accessing Government
support. In the course of an exceptional year, we learned a good
deal about how to keep our people engaged and safe, as well as
how our ways of working can quickly adapt to the circumstances.
We will continue to evolve the support provided to our colleagues,
customers and local communities.
Our approach to COVID-19
Before I turn to the 2021 Remuneration Policy review, I would like
to recognise the ongoing efforts undertaken by our employees in
relation to the pandemic. The pace and credibility of our response
was made possible by the way in which the fantastic Severn Trent
culture, and our societal purpose, are underpinned by our Values
and Doing the Right Thing (our Code of Conduct). These were all key
elements which played a role in defining our four ‘COVID’ principles:
• Protect colleagues’ health and wellbeing, including financial wellbeing;
• Create demonstrable long-term value for our investors;
• Maintain our culture which is derived from our people, our social
purpose, community and Doing the Right Thing; and
• Continue to provide all our services without the need for
Government support or regulatory intervention.
These principles have been evident through the actions we have
taken during the pandemic to support stakeholders, some of which
are illustrated in the table on the next page. Further detail is set out
on pages 15 to 17 in ‘Our COVID-19 Response: Engaging at Every Stage’.
Other people initiatives
I attended the Company Forum in March 2021 and provided an
overview of topics discussed by the Board and Remuneration
Committee during this year, providing some insight to the proposed
development of the Remuneration Policy and the discussion held on
pay frameworks and total reward for the entire workforce. I am also
immensely proud to share some other initiatives which we have taken,
and are continuing to take, to support our people:
• We are continuing to train the entire workforce on the importance
of safety and wellbeing;
• We offered a wide range of wellbeing tools with a campaign
dedicated to ‘Caring for Colleagues’ that offered mental health
support, defined personal support plans for vulnerable employees,
provided access to financial wellbeing tools and created new
partnerships with charities, one being The Haven that offers
help in situations of domestic abuse; and
• We launched the Academy, our purpose-built training facility
offering state-of-the-art experiential learning which simulates
our live network using virtual reality. Opening this facility has
helped us to enhance the practical workplace experience of
500 Kickstart placements across our region.
More information on our work in these areas can be found in the
Our People section, on pages 72 to 75 of the Strategic Report.
Committee members
Philip Remnant
Chairman of the Remuneration Committee
Kevin Beeston
Senior Independent Non-Executive Director
Christine Hodgson
Chair, Severn Trent Plc
Dame Angela Strank
Independent Non-Executive Director
Quick facts
The Committee’s Terms of Reference were updated in March 2021
and are available on the Severn Trent website, alongside the current
Remuneration Policy which was approved at the Annual General
Meeting on 18 July 2018.
All Committee members are Independent Non-Executive Directors,
as defined under the 2018 UK Corporate Governance Code, with the
exception of the Company Chair who was independent on appointment.
Full biographies of the Committee members can be found on
pages 86 to 87.
The Committee members have no personal financial interest, other
than as shareholders, in the matters considered by the Committee.
Committee attendance during the year can be seen on page 87.
Quick links
Chairman’s Letter
Remuneration at a Glance
Summary of Remuneration
Policy and Implementation
Company Remuneration
at Severn Trent
Annual Report
on Remuneration
2021 Remuneration Policy
120
126
129
132
142
145
120
Severn Trent Plc Annual Report and Accounts 2021 Our remuneration response during COVID-19 to support stakeholders
Employees
Customers
Society
We made a commitment early on not
to make any redundancies or furlough
staff. We paid our planned 2019/20 bonus
to all employees and agreed a three-year
salary deal for our front-line teams.
At their request, we reduced the fee
of our Chair, Christine Hodgson, and our
Executive Directors’ salaries by 25% for
the first quarter of 2020/21 and donated
the equivalent amount to local charities
supporting the response to COVID-19
in our region.
We decided that the maximum amount of bonus capable
of being paid under the Group PBIT element of the
2020/21 bonus (49% of the maximum award) would
be capped at target, even if the actual performance
exceeded target. Therefore, for our Executive Directors
the maximum achievable bonus potential for 2020/21
was 91%, rather than 120%, of salary.
We offered financial support to over
100,000 customers through a number of
schemes, including offering bill discounts
or capping bills for those struggling to
pay. More detail on how we supported our
customers can be found on page 23.
We supported local communities and
charities in our region with donations of
approximately £7 million, to help with the
impact of, and recovery from, COVID-19.
We supported our vulnerable
customers with targeted
communications and assistance
through our Priority Services Register.
In October 2020 we launched ‘Back-on-Track’, a
one-year programme designed to help customers
who have suffered financial hardship due to the
impact of COVID-19.
We supported our supply chain by moving
to immediate processing of payments for
our smaller suppliers to ensure they could
focus on day-to-day operations with
minimal financial uncertainty.
We paid a final dividend in line with our AMP6 dividend
policy, recognising the critical role that dividends
play in providing income for pensioners and savers,
including a significant number of employees and
former employee investors.
In a year of uncertainty as a result of the pandemic, we were delighted
to see our employee engagement outcome continuing to place us in
the top 5% of utilities globally and are confident that these initiatives
have been a contributory factor.
Our approach to remuneration in 2020/21
The Directors’ Remuneration Report sets out details of the 2021
Remuneration Policy (the ‘Policy’) review, which has taken full
account of the 2018 UK Corporate Governance Code (the ‘2018 Code’).
The Company Remuneration section on pages 132 to 141 illustrates
our continuing commitment to best practice reporting, disclosure and
consistent treatment of executive and wider workforce remuneration,
and brings to life some of the steps we take to make sure that our pay
and reward framework is transparent and fair for all our employees.
Remuneration for the year under review
Decisions on Directors’ remuneration in the year were taken within
the framework of the Policy approved by shareholders in 2018, which
can be found on the Severn Trent Plc website and on pages 120 to
128 in the 2018 Directors’ Remuneration Report. When considering
remuneration outcomes this year, the Committee considered the
experience of its wider stakeholders and in particular the actions
taken by the Company in the context of COVID-19. Further comment
on our overall performance during the 2020/21 financial year is
set out in the CEO’s Review on pages 10 to 12 and highlighted in the
At a Glance and Annual Report on Remuneration sections later in
this report.
The Committee believes that the outcomes of the annual bonus and
Long Term Incentive Plan (‘LTIP’) accurately reflect the performance of
the Company over this period. No discretion has been exercised by the
Committee to override the formulaic outcomes of either the 2018 LTIP
or the 2020/21 annual bonus.
Base salaries and fees
As set out earlier, we reduced the fee of our Chair, Christine Hodgson,
and our Executive Directors’ salaries by 25% for the first quarter
of 2020/21 and donated the equivalent amount to local charities
supporting the response to COVID-19 in our region.
2020/21 bonus outcome
When implementing the 2020/21 all-employee annual bonus scheme
the Committee determined that it would continue to use the elements
and weightings agreed with shareholders. However, given the wider
societal impact of COVID-19, the Committee decided that in relation
to the Group PBIT measure the maximum amount of bonus capable
of being paid would be capped at the target level, even if performance
exceeded target.
In reviewing the formulaic outcome of bonus measures against
the targets set for Executive Directors, the Committee took into
account several broader aspects of the Company’s performance
during the year:
• Overall business performance – the Company demonstrated strong
progress against its strategic objectives throughout this period of
prolonged uncertainty;
• Shareholder experience – the Company’s share price has been
relatively stable from the start of the first lockdown; the Company
also paid its final dividend to shareholders for 2019/20 and its
interim dividend for 2020/21, and will pay a dividend for 2020/21;
• Decisions in respect of the wider workforce – in addition to the
decisions around furlough and redundancies referred to above, all
eligible employees will receive their bonus for 2020/21, and the other
initiatives taken by the Company to support wellbeing demonstrate
the importance of the employee experience to Severn Trent; and
• Government support – the Company has not utilised any
Government assistance.
The annual bonus will pay out at 63.8% of maximum opportunity,
equivalent to 76.5% of salary for both the CEO and CFO.
2018 LTIP vesting
The LTIP granted in 2018 was the first LTIP award which included a
stretch measure relative to the Upper Quartile (‘UQ’) performance of
the other Water and Sewerage Companies (‘WaSCs’). This UQ element
cannot be measured, and so the associated vesting will not be known,
until the end of July 2021 when comparable statistics for the other
WaSCs are published and provided to Ofwat; such vesting, if any, will
therefore be disclosed in the 2021/22 Directors’ Remuneration Report.
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Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION DIRECTORS’ REMUNERATION REPORT CONTINUED
As in previous years, the Remuneration Committee has assessed
the standard proportion of the total potential LTIP vesting, as this
measures the Company’s performance against the Return on
Regulated Equity (‘RoRE’) set by Ofwat’s Final Determination (‘FD’).
Over the three-year period the Company achieved a RoRE of 1.37x,
as against the target that we set of 1.39x, the base RoRE return. This
results in a vesting equivalent to 144.2% of salary for the CEO and 96.2%
of salary for the CFO. Pages 127 and 131 provide further details.
Electric vehicle salary sacrifice
As part of our commitment to enhance the link between sustainability
and our remuneration framework, acknowledging our company-wide
commitment to net-zero carbon by 2030, in January we launched an
electric vehicle salary sacrifice scheme, thereby giving employees
the opportunity to reduce their carbon footprint. We are delighted
with the uptake across the organisation and our Executive Directors
are also participating in the scheme.
Wider workforce pay
The Committee is regularly informed of pay and employment conditions
throughout the Company and we focus on pay fairness across the
organisation. This year, the organisation further demonstrated the
Company’s commitment to equality of opportunity by reviewing
our reward policies and frameworks. Having already become an
accredited real Living Wage employer, and published our gender
pay gap and CEO to employee pay ratio, we are pleased with the
progress made across our equal and inclusive pay indicators.
We are satisfied that the outcome shows that our reward policies
and frameworks are working fairly and effectively. More information
can be found on page 136.
2021 Remuneration Policy review
Our current Policy was approved at our 2018 AGM and is due for
renewal at our 2021 AGM. At Severn Trent we are committed to a
transparent remuneration framework which embeds our Values
across the Company. We are also mindful of the wider public debate
around executive pay and the Committee aims to ensure that our
executive remuneration arrangements can be clearly articulated
and justified to internal and external stakeholders. With this in mind,
the objectives of the 2021 Policy review were to:
• Continue our focus on managing strong and long-term sustainable
financial and operational performance;
• Recognise and embed our commitments and ambitions around
sustainability within both our short and our long-term reward
framework, in order to complement the work that has already
been done to link the Company’s strategy with its Corporate
Sustainability Framework;
• Ensure that the remuneration framework for Executive Directors
aligns fully with the 2018 Code; and
• Maintain high levels of stakeholder engagement and support.
We believe that the current remuneration framework, which has had
overwhelming support from stakeholders, remains appropriate having
successfully supported the delivery of the Company’s strategy and
driven high levels of Company performance over the last three years.
Therefore, the proposed new Policy will continue to operate in a similar
manner, with two key changes relating to:
• The introduction of a second LTIP performance measure related
to sustainability, specifically our net-zero carbon ambitions; and
• The introduction of a post-employment shareholding
requirement (‘PESR’) for the Executive Directors.
Aspects of our Sustainability Framework
Link to ESG
Link to reward
Taking care
of the
environment
Enhancing our natural
environment
Making the most
of our resources
Providing a fair, inclusive
and safe place to work
Helping
people
to thrive
Investing in skills
and knowledge
Making a positive difference
in the community
Living our values
Balancing the interests
of all our stakeholders
Running our company
for the long term
Being open about what we do
and sharing what we know
Being a
company you
can trust
122
E
E
S
S
S
G
G
G
G
Annual Bonus Scheme
includes C-MeX/ODIs
Electric vehicle salary sacrifice scheme
Financing/Totex/ODI within RoRE in the LTIP
Response to COVID-19
Accredited real Living Wage employer
Alignment of executive pension contributions
Focus on creating a safe environment
for all employees
All employee bonus scheme
Learning and development opportunities
Flexible benefits programme
Employee recognition
Sharesave scheme
Gender pay gap reporting
Volunteering (community
champion events)
Purpose and Values co-created
with employees
Holding periods on LTIPs for
Executive Directors
Rewarding for UQ RoRE performance
in the LTIP
Shareholding requirements for
Executive Directors/Executive Committee
Linking bonus and LTIP (RoRE) measures
directly to Ofwat definitions
Visible and transparent pay bands
Deferral of annual bonus into shares
Malus/clawback provisions within
variable pay
Market leading remuneration
reporting
Severn Trent Plc Annual Report and Accounts 2021
Introduction of a second LTIP performance measure related
to sustainability
RoRE, as the sole measure within the LTIP, has served us well
over the past three years as it provides a holistic measurement
of performance, requiring management to focus on performance
across a range of long-term measures (such as Totex, ODIs and
financing). Performance is assessed independently by Ofwat each
year on a comparative basis.
We know, however, that the resilience of our business is intrinsically
linked to the resilience of the natural environment. Climate change is
one of the greatest challenges facing the world today. It is a key risk for
Severn Trent, as everything we do is impacted by the weather, from the
quality and quantity of water we abstract, to the performance of our
industrial assets, as well as the demand from customers for our water.
As a result, in 2019 we established our Triple Carbon Pledge, which
focuses on reducing our carbon emissions, stating that by 2030 we
will achieve:
• Net-zero carbon emissions across the business;
• 100% of our energy from renewable resources; and
• 100% electric vehicles, availability of vehicles permitting.
Fleet
Self–generation
Innovation trials
Delivering 58% of the total car fleet and 16%
of the total light commercial fleet as electric
vehicles by 31 March 2024
Achieving an outturn of 50 GWh additional
generation from the 2019/20 baseline of 486
GWh, enabling a minimum total renewable
generation of 536 GWh by 31 March 2024
The delivery of innovation trials where the
combined, verified, scaled opportunity is
greater than 7.5 ktCO2e Carbon, with a
signed-off plan for delivery
Process emissions
To have established effective monitoring on
operational waste treatment sites responsible
for 40% of our total N2O and CH4 gas emissions
RoRE, which captures a range of long-term measures such as Totex,
financing and Customer Operational Delivery Incentives, will continue
to be our major LTIP measure, with its weighting reduced from 100%
to 80% of maximum for 2021.
We are committed to ensuring that our employees are motivated to
deliver our sustainability ambitions, from climate and biodiversity to
supporting our customers, across all our incentives. Therefore, as part
of the 2021 Policy review, the Committee looked at how to recognise
and embed our Sustainability Framework within reward at Severn
Trent. The Committee recognises that there are already extensive links
to sustainability-related measures through the all-employee annual
bonus scheme and other areas of reward policies and programmes.
In the context of the Company’s remuneration framework, the
Committee decided that there was an opportunity to incorporate the
delivery of Severn Trent’s longer-term sustainability commitments
within the LTIP. A sustainability-based performance measure has,
therefore, been introduced this year with a weighting of 20%.
This sustainability measure will focus on our public commitment to
net-zero carbon emissions by 2030 as part of our Triple Carbon Pledge
and gives us the opportunity to align the LTIP more closely with the
Company’s long-term strategy. It will focus on two equally weighted
areas, ‘Direct Contributors to Carbon Reduction’ and ‘Innovation for
Carbon Reduction’. Each of these measures will have two components:
It is the Committee’s view that the specific targets/milestones which
have been set are suitably challenging and the approach that we
have adopted by setting a target is aligned with the business plan.
The Committee will assess the value of the 2021 LTIP awards at
vesting and will ensure that the final outturn reflects all relevant
factors, including consideration of underlying business performance
and progress towards achievement of our Triple Carbon Pledge.
Continued alignment with the 2018 Code
Most of the features of the 2018 Code are already embedded in our
Policy. However, the proposed Policy will also see:
• The implementation of a requirement that Executive Directors
continue to hold shares beyond leaving employment;
• Formalisation of the alignment of pension contributions with the
wider workforce, which commenced last year and will be complete
by April 2022; and
• Alignment of malus and clawback provisions with corporate
governance best practice.
Direct Contributors
to Carbon Reduction
(10%)
Fleet – successful roll-out of our electric fleet.
Self-generation – growth in our ability to self-
generate renewable energy.
Innovation for
Carbon Reduction
(10%)
Innovation trials – conducting and concluding
a series of innovation trials that enhance our
ability to save carbon.
Process emissions – establishing an effective
system to measure our baseline emissions
and to monitor future reductions.
The two Innovation for Carbon Reduction components have
been chosen for their importance in making significant progress
towards our goal of achieving net-zero carbon emissions by 2030.
The Committee intends to focus them on the achievement of specific
and targeted emissions reductions as soon as it is feasible to do so.
The sustainability measure, in combination with RoRE, will ensure
that management continues to focus both on sustainable financial
performance and operating the business in an environmentally and
socially conscious way. The performance targets/milestones for the
2021 award will be as follows:
The requirement to hold shares after employment will apply from the
date of the approval of the Policy to all future equity awards granted
under the Policy. Executive Directors will be required to maintain
their in-employment minimum shareholding requirement (or actual
shareholding, if lower) for two years following cessation of employment.
In line with the Board Effectiveness Guidance issued by the Financial
Reporting Council in July 2018, corporate failure is being added as a
trigger for malus and clawback in the Company’s incentive plans and
we have ensured that all incentive scheme rules are aligned.
Engagement with shareholders to understand their views
on the proposed Remuneration Policy
In early 2021 we conducted an extensive consultation exercise with
our 30 largest shareholders representing over 50% of our issued
share capital, as well as Glass Lewis, the Investment Association
and Institutional Shareholder Services, to understand their views on
our proposed new Policy. In summary, they were pleased to see the
overarching principles of the Policy retained, whilst welcoming the
Company’s commitment to the introduction of a second, sustainability-
focused, performance measure in the LTIP and the introduction of a
PESR. No changes were, therefore, made to the original Policy proposals.
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Remuneration for the year ahead
Looking ahead to 2021/22, on page 129 we explain in detail how the Policy will be implemented for the Executive Directors. The table below sets
out the Committee’s decision-making processes for 2021/22.
Element of
remuneration Committee decision
Rationale
2021/22
salary rises
To increase the level of base salaries for the Executive Directors in
line with the average rise made to all employees. The salary
increase will be 2.3%.
• The Company previously announced its commitment for all
eligible employees to receive a salary increase in the 2021/22
financial year, as part of a three-year pay deal.
2021/22 bonus
The Committee has determined, in relation to the Group PBIT
measure, that the maximum amount of bonus capable of being
paid for this element will return to its normal level. Therefore, the
maximum achievable bonus potential will be 120% of salary for
the Executive Directors.
2018 LTIP
vesting
The Committee intends to allow the standard proportion of the
2018 LTIP award to vest without adjustment in July 2021.
This is the first year where full vesting will be determined by
UQ performance compared with a WaSC peer group. This will
not be known, and therefore cannot be measured, until the end
of July 2021. The UQ element will, therefore, be disclosed in
the 2021/22 Directors’ Remuneration Report.
• The Company performance conditions continue to be the same
for employees and Executive Directors.
• The 2018 LTIP measures performance over three years and one
year out of the three has been impacted by COVID-19, but the
impact has not been significant.
• The value of the shares on vesting will reflect the share price
experience of our shareholders.
2021 LTIP
grant
The Committee has determined to make the grant on the normal
timetable and to retain the performance conditions and targets
agreed with shareholders, including the proposed introduction
of a second sustainability-based performance measure.
The Company will follow its normal practice of using the three-day
average share price immediately prior to the date of grant to
determine the number of shares awarded.
• The performance conditions have been reviewed as part of
the Policy review and, as set out above, are aligned with the
Company’s long-term strategy.
• The Committee will assess the value of the 2021 LTIP award at
vesting and will ensure that the final outturn reflects all relevant
factors, including consideration of underlying performance and
progress towards the achievement of our Triple Carbon Pledge.
Committee performance
The Committee’s performance was assessed as part of the annual
Board evaluation. I am pleased to report that the Committee is
regarded as operating effectively and that the Board takes assurance
from the quality of the Committee’s work.
I am grateful for the time and input shareholders and their representative
bodies have given us throughout the engagement process. I trust that we
can rely on your vote in support of our approach to remuneration and the
proposed Remuneration Policy. If you would like to discuss any aspect of
this Report, I would be happy to hear from you. You can contact me
through Bronagh Kennedy, Group General Counsel and Company
Secretary.
2020 AGM shareholder voting
Resolution
Votes for
Votes
against
Votes
withheld
Approve Directors’
Remuneration Report
173,538,547
1,267,563
741,886
(99.27%)
(0.73%)
2018 AGM shareholder voting
Philip Remnant
Chairman of the Remuneration Committee
Resolution
Votes for
Votes
against
Votes
withheld
Approve Directors’
Remuneration Policy
165,243,866
1,369,398
266,854
(99.18%)
(0.82%)
The 2020/21 Directors’ Remuneration Report has been prepared
in line with the 2018 Remuneration Policy.
124
Severn Trent Plc Annual Report and Accounts 2021
Key areas of Remuneration Committee focus in 2020/21
A summary of the matters considered at each meeting is set out below:
Our workforce
Considered impact of COVID-19
on all remuneration elements.
Executive and senior management
Remuneration
Committee governance
Reviewed and approved the 2021
Remuneration Policy proposals, including
the introduction of a second sustainability-
focused performance condition for the 2021
LTIP and the introduction of a post-
employment shareholding requirement.
Reviewed and approved the 2019/20 Directors’
Remuneration Report and agreed the
framework for the 2020/21 Report.
Approved the outturn of the 2019/20
all-employee annual bonus scheme.
Approved the outturn of the LTIP awards
granted in June 2017.
Considered Severn Trent Plc’s 2020 gender
pay gap statistics.
Reviewed and approved the LTIP awards
granted in June 2020.
Reviewed and approved the 2020/21
all-employee Annual Bonus Scheme
structure and targets.
Conducted its annual assessment of the
Company’s workforce policies and practices,
and satisfied itself that these support its
long-term sustainable success. The Committee
reported to the Board on this matter.
Considered Severn Trent Plc’s approach to
sustainable travel and colleague feedback
on reward.
Considered Severn Trent’s 2019/20 reward
and performance alignment compared with
our WaSC peers.
Considered an independent update, provided
by PwC, on current market practice and future
remuneration trends.
Considered the 2021/22 all-employee
Annual Bonus Scheme structure.
Considered the structure of the LTIP
award to be granted in 2021, including
the introduction of a second sustainability-
focused performance measure.
Reviewed the expenses claim procedure
for the Chair and CEO.
Approved revised Terms of Reference to
be applied from 1 April 2021, prior to making
a recommendation to the Board.
Who supports the Committee?
To ensure that the Company’s remuneration practices are in line
with best practice, the Committee has appointed independent
external remuneration advisers, PricewaterhouseCoopers LLP
(‘PwC’). This appointment in 2017 followed a selection process.
PwC attends meetings of the Committee. The CEO, CFO, Director
of Human Resources and the Head of HR Operations also attend
meetings, by invitation, 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.
PwC is one of the founding members of the Remuneration Consultants
Group Code of Conduct and adheres to this Code in its dealings with
the Committee. The Committee reviews the appointment of its
advisers annually and is satisfied that the advice it receives is objective
and independent. Fees, on a time-spent basis, for the advice provided
by PwC to the Committee during the year were £131,000 excluding
VAT (2019/20: £98,643). Separate teams within PwC also provided
unrelated tax consulting, pensions, and other assurance and advisory
services during the year. There are no connections between PwC and
individual Directors to be disclosed.
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Remuneration at a Glance
The following section sets out our remuneration
framework, a summary of how the Policy was applied
in 2020/21 in the context of our business performance
and, from page 129, details of how the Committee
intends to implement the Policy in 2021/22. The full
2021 Remuneration Policy, which will be presented
for shareholder approval at the 2021 AGM, can be
found on page 145.
Strategic alignment of remuneration
The Committee believes it is important that, for Executive Directors
and senior management, a significant proportion of the remuneration
package should be performance-related, and that performance
conditions applying to incentive arrangements support the delivery
of the Company’s strategy. The 2021 Policy review strengthens
the alignment of Severn Trent’s strategy to focus management
on superior financial performance together with long-term
sustainability and operating the business in an environmentally
and socially conscious way.
2020/21 single figure outcomes £’000
The graphs show how the successful delivery of our strategy has flowed through to the rewards provided to our Executive Directors.
The full explanatory notes for each element of remuneration are detailed on page 142 in the Annual Report on Remuneration.
CEO (Liv Garfield)
CFO (James Bowling)
Minimum
918
Minimum
557
On-target
Maximum
Single figure
2020/21
Single figure
2019/20
2,283
On-target
1,240
4,016
Maximum
2,091
2,808
2,765
Single figure
2020/21
Single figure
2019/20
1,429
1,431
0
1,000
2,000
3,000
4,000
5,000
0
1,000
2,000
3,000
4,000
5,000
Salary
Pension
Benefits
Other
Salary
Pension
Benefits
Other
Annual bonus
LTIP
Share price growth
Annual bonus
LTIP
Share price growth
• Minimum pay is fixed pay only (i.e. salary + benefits + pension).
• On-target pay includes fixed pay, 50% of the maximum bonus (equal to 60% of salary for both the CEO and the CFO) and 50% vesting of the
LTIP awards (with grant levels of 200% of salary for the CEO and 150% of salary for the CFO), and illustrating 25% increase in share price
on LTIP shares over the vesting period.
• Maximum pay includes fixed pay and assumes 100% vesting of both the annual bonus and the LTIP awards, and illustrating 50% share
price increase on LTIP shares over the vesting period.
• All amounts have been rounded to the nearest £1,000. Both Executive Directors asked the Company to reduce their salaries by 25%
for the first quarter of 2020/21 and to donate the equivalent amount to charities in our region which helped the response to COVID-19.
Salary levels (which are the base on which other elements of the package are calculated) are based on the salary earned during the
financial year ended 31 March 2021 before the voluntary reduction.
• The value of taxable benefits is the cost of providing those benefits in the year ended 31 March 2021.
• The Executive Directors are also permitted to participate in the all-employee Sharesave scheme, on the same terms as other eligible
employees, but they have been excluded from the above graph for simplicity.
126
Severn Trent Plc Annual Report and Accounts 2021 Annual bonus 2020/21 outturn
A summary of performance is set out from pages 20 to 30 within the Strategic Report.
Bonus element
Group PBIT(i)
Customer and Environment ODIs(ii)
Health and Safety(iii)
Customer Experience(iv)
Total
Threshold
(0% payable)
£452m
£8m
0.20
10
Target
(50% payable)
Actual £472.8
£472m
£15.8m
Actual 0.16
0.16
Actual 9
9
Maximum
(100% payable)
Weighting
Outcome
achieved
Actual £79.0m
£24.1m
35%
31.3%
49%
24.5%
0.12
8
8%
8%
4.0%
4.0%
100%
63.8%
(i) The Group PBIT element of the 2020/21 annual bonus was capped at target level.
(ii)
Our ODIs are grouped into categories as detailed on page 130. This outturn represents significant outperformance in two categories and above target performance in the third category.
(iii) Measured as number of Lost Time Incidents divided by number of hours worked multiplied by 100,000.
(iv) Measured as ranking in C-MeX, the industry-wide performance measure.
Bonus opportunity and outcome
Name of holder
CEO
CFO
2020/21
salary
(£’000)(i)
Bonus
opportunity
(% salary)(ii)
Bonus
outcome
(% max)
741.7
447.0
120%
120%
63.8%
63.8%
Annual
bonus
(£’000)
567.4
342.0
Value
of cash
bonus
(£’000)
283.7
171.0
Value of
deferred
shares
(£’000)
2020/21
front-line
bonus outturn
(£’000)(iii)
2020/21 team
manager/technical
expert bonus
outturn (£’000)
283.7
171.0
1.0
1.5
(i) Bonus calculated using salary at 31 March 2021.
(ii) Group PBIT was capped at target level meaning the maximum achievable bonus potential for 2020/21 was 91% of salary.
(iii) Includes operational/administrative/advisory roles.
2018 LTIP
The chart shows the outcome of the 2018 LTIP awards, for which the performance period ended on 31 March 2021. The LTIP granted in 2018
was the first LTIP award which included a stretch measure relative to the UQ performance of the other WaSCs. The value in the table below
is based on the Remuneration Committee’s assessment of the standard proportion of the total potential LTIP vesting. This results in a
vesting equivalent to 144.2% of salary for the CEO and 96.2% of salary for the CFO. Page 143 provides further details.
The UQ element cannot be measured until the end of July 2021 when comparable statistics for the other WaSCs are published and provided
to Ofwat; such vesting, if any, will therefore be disclosed in the 2021/22 Directors’ Remuneration Report. Further detail is set out on page 143.
Threshold FD
1.39x FD
UQ RoRE performance relative to WaSCs
RoRE – measured against
multiple of Ofwat FD
Actual 1.37x
Vesting not known until end July 2021
LTIP award vesting for performance levels (as a % of salary)
Threshold FD
37.5%
25.0%
1.39x FD
UQ RoRE performance relative to WaSCs
150.0%
100.0%
200.0%
150.0%
Standard proportion of award (up to 1.39x FD)
Total number of
shares granted
Standard proportion
of award vesting
(% max)
Face value of
shares vesting
(£’000)(i)
Value attributable
to share price
movement
(£’000)
Value of dividend
equivalents due
(£’000)(ii)
Value of
resultant award
(£’000)
72,880
32,941
72.1%
64.1%
1,206.1
484.8
210.0
84.4
125.8
50.6
1,331.9
535.4
CEO
CFO
CEO
CFO
(i) Based on three month average share price as at 31 March 2021 of £22.95.
(ii) Based on dividends paid in the period since date of grant to 31 March 2021.
127
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION REMUNERATION AT A GLANCE CONTINUED
Executive Director shareholdings
The CEO and CFO have exceeded the shareholding requirements
applicable in 2020/21 of 300% and 200% of salary, respectively.
Shareholding requirement
The Executive Directors have built significant shareholdings during
their employment with the Company and have retained (except in
the case of statutory tax and national insurance deductions) all
Company shares acquired as a result of discretionary awards
vesting or options being exercised under the Company’s share plans.
The minimum shareholding requirement for Executive Directors,
and the current share interests of the Executive Directors, take
into account shares which are owned outright or vested, shares
which are unvested and shares which are subject to performance.
The chart on the right sets out the minimum shareholding
requirements and the shareholdings of the Executive Directors.
The shareholding requirement must be built up over five years
and then subsequently maintained.
All calculations in the chart to the right use a closing share price
on 31 March 2021 of £23.06.
Further detail regarding the Executive Directors’ outstanding
share awards can be found on page 144. Shares counting towards
the 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 requirements are met.
Executive Director shareholdings % of base salary
CEO
CFO
%
salary
768%
230%
404%
437%
176%
303%
0
200%
400%
600%
800%
1,000%
1,200%
1,400%
Shareholding requirement
Unvested subject to
continued employment(ii)
Shares counting towards
shareholding requirement(i)
Unvested subject to performance(iii)
(i)
(ii)
Represents beneficially owned shares as well as shares held in trust as part of the annual
bonus deferred share awards (of which 47% are deducted to cover statutory deductions).
Represents 2018 LTIP shares which are subject to an ongoing vesting period and a
two-year holding period post vesting, plus shares held as part of the Sharesave scheme.
(iii) Represents the 2019 and 2020 LTIP awards which are subject to ongoing performance.
Overall link to remuneration and equity of the Executive Directors
As a Committee, we want to incentivise Executive Directors to take a long-term, sustainable view of the performance of the Company.
This is why, when we look at the remuneration paid in the year, we also look at the total equity they hold and its value based on the
performance of the Company.
The table sets out the number of shares beneficially owned by the Executive Directors at the beginning and end of the financial year,
and the impact on the value of these shares taking the opening and closing price for the year.
2020/21 single figure
(£’000)
Shares held at the
start of the year
Shares held at the
end of the year
Value of shares at
start of year (£’000)(i)
Value of shares at
end of year (£’000)(ii)
Difference
(£’000)
CEO
CFO
2,807.8
1,428.5
180,738
49,826
226,316
72,176
4,120.8
1,136.0
5,218.8
1,664.4
1,098.0
528.4
(i) Based on a closing share price on 31 March 2020 of £22.80.
(ii) Based on a closing share price on 31 March 2021 of £23.06.
128
Severn Trent Plc Annual Report and Accounts 2021 SUMMARY OF REMUNERATION POLICY AND IMPLEMENTATION
Summary of Remuneration Policy
and Implementation
The Company’s Policy remains to attract, retain and motivate its leaders and to ensure they are focused on delivering business priorities
within a framework designed to promote the long-term success of Severn Trent and aligned with shareholder interests.
The tables below illustrate the balance of pay and time period of each element of the Policy for Executive Directors and sets out key changes
between the current and proposed Policy. Full detail of the proposed 2021 Policy can be found on page 145.
Total pay over five years
Year 1
Year 2
Year 3
Year 4
Year 5
Fixed pay
Fixed pay
Salary
£
Benefits,
pension
+
Annual bonus
(Malus and clawback provisions apply)
50% in cash
50% in shares
Three-year deferral period
No further performance conditions
LTIP
(Malus and clawback provisions apply)
Shareholding requirement
(Not a monetary value)
Up to 200% of salary
Three-year performance period
%
Two-year holding period
No further performance conditions
-
Executive Directors’ minimum shareholding requirement
Base salary
To recruit and reward Executive Directors of a suitable calibre for the role and duties required.
Element and link to strategy
Key features of
the current Policy
Fixed pay
Salary
£
Y1 Y2 Y3 Y4 Y5
Salaries for individual Executive
Directors are reviewed annually
by the Committee and increases
normally take effect from 1 July.
To the extent that increases
are proposed, these will not
be higher than the average
increase for employees.
Policy change
No change.
How we plan to implement
the Policy in 2021/22
A salary increase of 2.3% will be
applied at the salary review date.
From 1 July 2021, Executive
Director salaries will be:
• CEO – £758,800
• CFO – £457,300
These rises are in line with the
general employee salary increase.
Benefits
To provide competitive benefits in the market to enable the recruitment and retention of Executive Directors.
Element and link to strategy
Key features of
the current Policy
Policy change
Fixed pay
Benefits
+
Y1 Y2 Y3 Y4 Y5
The value of benefits is based on
the cost to the Company and there is
no pre-determined maximum limit.
The range and value of the benefits
offered are reviewed periodically.
Replacement of a car allowance with a
green travel allowance to recognise the
use of public transport and introduction
of our electric vehicle car scheme.
How we plan to implement
the Policy in 2021/22
Normal company benefit provision.
Pension
To provide pension arrangements comparable with similar companies in the market to enable the recruitment and retention
of Executive Directors.
Element and link to strategy
Key features of
the current Policy
Policy change
Fixed pay
Pension
A defined contribution
scheme and/or cash
supplement in lieu of pension.
+
Y1 Y2 Y3 Y4 Y5
No change for new appointments.
Current Executive Director pensions will
be reduced in stages from 25% of salary
in 2019 to 15% of salary by April 2022.
This change aligns pension contribution
quantum for the Executive Directors
with the maximum 15% contribution
available to members of the Severn Trent
Group Pension Plan (the majority of the
wider workforce).
How we plan to implement
the Policy in 2021/22
Executive Director pension
arrangements for 2021/22
are as follows:
• CEO – 18.3% of salary
• CFO – 18.3% of salary
129
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION SUMMARY OF REMUNERATION POLICY AND IMPLEMENTATION CONTINUED
Annual bonus
To encourage improved financial and operational performance and align the interests of Executive Directors with shareholders through
the partial deferral of payment into shares.
Policy change
No change.
Element and link to strategy
Key features of
the current Policy
Annual bonus
50% in cash
Y1 Y2 Y3 Y4 Y5
50% in shares
Y1 Y2 Y3 Y4 Y5
Maximum award of 120% of salary.
There will be no payment made
for threshold performance.
50% of total bonus deferred
into shares for three years (with
the value of any dividends to be
rolled up and paid on vesting).
50% of maximum will be paid for
target performance and 100%
of maximum will be paid for
stretch performance.
Malus and clawback
provisions apply.
How we plan to implement
the Policy in 2021/22
The following maximum
opportunities will apply in 2021/22:
• CEO – 120% of salary
• CFO – 120% of salary
Performance measures
(as a % of maximum):
Group PBIT – 49%
Customer and Environment
ODIs – 35%:
• Minimise disruption to
customers – 12%
• Prevent failure in our network
and our sites – 11%
• Improve the environment we live
in – 12%
Customer Experience – 8%
Health and Safety – 8%
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 the year’s Remuneration
Report setting out the bonus outcome.
LTIP
To encourage strong and sustained improvements in financial performance, in line with the Company’s strategy and long-term
shareholder returns.
Element and link to strategy
Key features of
the current Policy
LTIP
Up to 200% of salary
%
Y1 Y2 Y3 Y4 Y5
Two-year holding period
-
Y1 Y2 Y3 Y4 Y5
Maximum award of 200% of salary.
Up to 25% of an award may vest for
threshold performance.
Awards are granted annually
and are subject to a three-year
performance period.
RoRE remains the primary
performance condition, with a stretch
target based on UQ performance.
Awards made to Executive Directors
are subject to a two-year holding period
post-vesting which continues to operate
post-cessation of employment.
Malus and clawback provisions apply.
Policy change
Introduction of a second
performance measure
alongside RoRE. A portion
of awards, as determined
annually by the Committee,
will be based on a sustainability
measure, equivalent to 20% of
the maximum award opportunity.
How we plan to implement
the Policy in 2021/22
The maximum LTIP Award will
be based on:
• 80% RoRE
• 20% sustainability measure
See pages 123 and 131 for details
on LTIP awards to be granted.
Shareholding requirement
To encourage strong shareholder alignment both during and after employment with the Company.
Element and link to strategy
Key features of
the current Policy
Executive Directors’
share ownership
-
Y1 Y2 Y3 Y4 Y5
130
The CEO is expected to build and
maintain a holding of shares to the
value of 300% of salary, and other
Executive Directors 200% 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 requirement
has been met.
How we plan to implement
the Policy in 2021/22
The post-employment
shareholding requirement
will apply to all awards made post
the approval of the 2021 Policy.
Policy change
Introduction of a post-employment
shareholding requirement to
encourage strong alignment
between Executive Directors
and the long-term interests
of shareholders, as well
as alignment with the 2018 UK
Corporate Governance Code.
Severn Trent Plc Annual Report and Accounts 2021
LTIP awards to be granted in 2021
The table below describes how the LTIP will be implemented in 2021. As mentioned on page 123, 80% of the maximum LTIP opportunity
will be based on RoRE and 20% will be based on a sustainability measure. The CEO’s and CFO’s awards will remain unchanged at 200% and
150% of salary respectively. Both the RoRE and sustainability performance conditions will be measured over three years, to 31 March 2024,
and corresponding vesting (as a % of salary) will be:
RoRE measure
Operation
Vesting for
performance
Award
2021 LTIP
CEO
CFO
Threshold FD
(% salary)
1.39x FD
(% salary)
37.5%
25%
120%
80%
UQ RoRE
performance
relative to
WaSCs
(% salary)
160%
120%
Sustainability
performance
measure
(% salary)
40%
30%
Max outturn
(% salary)
200%
150%
The table below breaks the sustainability performance measure down into two equally weighted areas, ‘Direct Contributors to Carbon
Reduction’ and ‘Innovation for Carbon Reduction’, setting out the four components and corresponding vesting (as a % of salary). See page
123 for details of performance targets/milestones.
Direct Contributors to
Carbon Reduction
Innovation for
Carbon Reduction
Fleet
(% salary)
Self-generation
(% salary)
Innovation trials
(% salary)
Process emissions
(% salary)
CEO
CFO
10%
7.5%
10%
7.5%
10%
7.5%
10%
7.5%
The Committee will assess the value of the 2021 LTIP awards at vesting and will ensure that the final outturn reflects all relevant factors,
including consideration of underlying performance and progress towards the achievement of our Triple Carbon Pledge.
Chair and Non-Executive Directors’ fees (audited)
From 1 July 2021, the Chair’s fee will be increased by 2.3% from £300,000 to £306,900, in line with the general employee salary increase.
The Chair asked the Company to reduce her fee by 25% for the first quarter of 2020/21.
No decision has yet been made on increases for the Non-Executive Directors, any changes will be disclosed in the 2021/22 Directors’
Remuneration Report.
The current fee levels are set out in the table below.
The Chair, Senior Independent Director and Non-Executive Directors are appointed for a three-year term, subject to annual re-election
by shareholders following the annual Board Effectiveness evaluation process.
This term can be renewed by mutual agreement, up to a maximum total tenure of nine years. The current Letters of Appointment are
available on the Severn Trent Plc website.
Operation
Chair’s fee
Fee paid to all Non-Executive Directors
Supplementary fees:
• Senior Independent Director
• Audit Committee Chair
• Remuneration Committee Chairman
• Corporate Sustainability Committee Chair
• Treasury Committee Chair
Fees 2020/21
£300,000
£57,750
£10,000
£15,000
£15,000
£13,000
£15,000
131
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION COMPANY REMUNERATION AT SEVERN TRENT
Company Remuneration at Severn Trent
This section of the report covers
Pay and alignment across the business
Our Remuneration principles
What the Remuneration Committee
has looked at in the last 12 months
Pay comparisons:
• Alignment with Group performance;
• CEO pay ratios; and
• Gender pay gap reporting
This section sets out the steps we take to make sure that our pay
and reward framework is transparent and fair, beyond executives
and senior management, in a way that is meaningful and useful.
Further detail on all aspects of the Company’s response to the pandemic
and our employee experience is set out on pages 15 and 72 respectively.
This highlights that the pace and credibility of our response was made
possible by the way in which the fantastic Severn Trent culture, and our
societal purpose, is underpinned by our Values and Doing the Right Thing.
Eligibility
Number of
employees covered
Remuneration
element
Details
All employees
7,087
(as at 31 March 2021)
Salary
Benefits
Pension
Annual bonus
Sharesave
Management
and senior
management
356
LTIP
A proportion of this
population participate
in the LTIP by annual
invitation
£
+
Salaries are set to reflect the market value of the role, and to aid recruitment and retention.
Employees who are not on a training rate of pay (such as apprentices) receive at least the voluntary
Living Wage. We also monitor closely the rates of pay of people who are training with us to make
sure they remain fair and competitive.
All employees are eligible to participate in our flexible benefits scheme which we believe is
one of the best in the industry and which is designed to support a positive work-life balance.
42% of our employees choose to tailor their benefits via our flexible benefits scheme.
They have also saved over £109,000 through our employee discount partnerships since
the scheme was launched.
+ We offer a market leading defined contribution pension scheme and double any contributions
that employees make (up to a maximum of 15% of salary).
When colleagues get closer to retirement, we provide education and support to help plan for
the next stage of their lives.
We are proud that 99% of our employees are members of the pension scheme and 62%
pay contributions above the minimum of 3%.
All of our people share in our success by participating in our all-employee bonus plan,
ensuring all employees are aligned with the same measures and rewarded for achieving
our key objectives.
For this year the bonus paid out £1,029 to our front-line employees in Severn Trent Water Limited and
Hafren Dyfrdwy Cyfyngedig. New starters, post 4 January 2021, were not eligible to receive a bonus.
Offering the opportunity to participate in our Sharesave scheme encourages employee engagement
and reinforces our strong performance culture, enabling all colleagues to share in the long-term
success of the Company whilst also aligning participants with shareholder interests.
Our Sharesave scheme gives employees an opportunity to save up to £500 per month over three to
five years, with the option to buy Severn Trent Plc shares at a discounted rate at the end of the period.
% The LTIP reinforces delivery of long-term creation of value and sector outperformance and
progress towards our net-zero ambitions. The retention of shares by Executive Directors
for the longer-term also supports a shared ownership culture in the Group.
Executive
Committee
and Executive
Directors
9
Our supply
chain
132
Supports alignment of Executives’ interests with shareholders.
Shareholding requirement
as a % of salary
• CEO – 300%
• CFO – 200%
• Exec Co – 100%
All colleagues across Severn Trent are paid in line with the real Living Wage,
for which we hold accreditation.
We expect this of all new contracts within our supply chain and detail this
within our Sustainable Supply Chain Charter.
Committee focus areas
Implementation at Severn Trent
• Date of annual increase across all
• Salary increases were on average 2.3% across the workforce in 2020/21.
employee groups;
• Wider workforce increases versus
the senior executive population; and
• Differences across employee groups.
• Types of benefits; and
• Eligibility across levels.
• Annual pay reviews are effective in July for all employee groups.
• The Company has real Living Wage employer accreditation and reviews salaries in this context.
• Enhanced visibility on salary ranges within the organisation to enable fairness and transparency.
• A consistent approach is applied across the business for benefits.
• Employer pension contributions
• The majority of employees are eligible to participate in the Severn Trent Group Pension Plan.
across the workforce; and
• The process of aligning employer pension contributions for incumbent Executive Directors with the maximum 15%
• Comparisons of wider workforce
contribution available to members of the Severn Trent Group Pension Plan (the majority of the workforce) will be
pension to executive pensions.
achieved by April 2022.
• Bonus design across
different populations;
• Details of performance
measures and targets; and
• Outturn during the year.
• A consistent design is operated throughout the business.
• At all levels performance outcomes are measured against the same metrics (see page 137).
• An individual performance multiplier is in place across management grades informed by our
Inspiring Great Performance (‘IGP’) outcomes.
• Our front-line colleagues and team managers benefit from an all-company fixed bonus payment.
• Bonus opportunities vary by grade.
• We also operate some sub-schemes in Business Services, to reflect specific business needs.
• Malus and clawback provisions are in place.
• Take-up rates.
• All Severn Trent Plc employees can participate in the Save As You Earn scheme – Sharesave.
• There is a significant take-up of this benefit with 74% of employees actively participating.
• Eligibility;
• Cost;
• Dilution; and
• Details of performance
measures and targets.
• Eligibility is reviewed annually.
• The LTIP is available to Executive Directors, the Executive Committee and some members of senior management.
• The performance period is three years. The Executive Directors are subject to an additional two-year post-vesting
holding period for awards granted from 2018 onwards.
• LTIP opportunities vary by role from 200% of salary to 25% of salary.
• Executive Directors have a UQ stretch performance target.
Remuneration Policy.
• Malus and clawback provisions are in place.
• A second sustainability performance measure is being introduced and will operate alongside RoRE under the 2021
• Eligibility; and
• Requirements versus
actual shareholdings.
• Shareholding requirements are in place for the Executive Directors and Executive Committee.
• A post-employment shareholding requirement is being introduced for Executive Directors as part
of the 2021 Remuneration Policy.
Severn Trent Plc Annual Report and Accounts 2021 The table below sets out details of how the cascade of the reward
framework applies across different levels within the organisation
combined with a summary of the information which the Committee
has received as part of its annual review process.
Pay and alignment across the business
Alongside our thriving culture and inclusive working environment,
our reward framework is designed to attract, motivate and retain
people who are inspired by Severn Trent’s Purpose, and live our
Values every day.
Our reward package recognises the great performance of our
employees, as we deliver our essential service to customers across
the region, and is designed to reward all colleagues fairly throughout
the organisation. The terms and conditions from which our employees
benefit evolve in line with external practice and new initiatives from
within Severn Trent. We pride ourselves on keeping pace with the focus
on the future of work, talent management and acquisition, to motivate,
develop and retain a positive working environment and culture.
Committee focus areas
Implementation at Severn Trent
• Date of annual increase across all
employee groups;
• Wider workforce increases versus
the senior executive population; and
• Differences across employee groups.
• Types of benefits; and
• Eligibility across levels.
• Salary increases were on average 2.3% across the workforce in 2020/21.
• Annual pay reviews are effective in July for all employee groups.
• The Company has real Living Wage employer accreditation and reviews salaries in this context.
• Enhanced visibility on salary ranges within the organisation to enable fairness and transparency.
• A consistent approach is applied across the business for benefits.
• Employer pension contributions
across the workforce; and
• Comparisons of wider workforce
pension to executive pensions.
• The majority of employees are eligible to participate in the Severn Trent Group Pension Plan.
• The process of aligning employer pension contributions for incumbent Executive Directors with the maximum 15%
contribution available to members of the Severn Trent Group Pension Plan (the majority of the workforce) will be
achieved by April 2022.
All of our people share in our success by participating in our all-employee bonus plan,
ensuring all employees are aligned with the same measures and rewarded for achieving
our key objectives.
Annual bonus
Hafren Dyfrdwy Cyfyngedig. New starters, post 4 January 2021, were not eligible to receive a bonus.
For this year the bonus paid out £1,029 to our front-line employees in Severn Trent Water Limited and
• Bonus design across
different populations;
• Details of performance
measures and targets; and
• Outturn during the year.
• A consistent design is operated throughout the business.
• At all levels performance outcomes are measured against the same metrics (see page 137).
• An individual performance multiplier is in place across management grades informed by our
Inspiring Great Performance (‘IGP’) outcomes.
• Our front-line colleagues and team managers benefit from an all-company fixed bonus payment.
• Bonus opportunities vary by grade.
• We also operate some sub-schemes in Business Services, to reflect specific business needs.
• Malus and clawback provisions are in place.
Offering the opportunity to participate in our Sharesave scheme encourages employee engagement
and reinforces our strong performance culture, enabling all colleagues to share in the long-term
• Take-up rates.
• All Severn Trent Plc employees can participate in the Save As You Earn scheme – Sharesave.
• There is a significant take-up of this benefit with 74% of employees actively participating.
• Eligibility;
• Cost;
• Dilution; and
• Details of performance
measures and targets.
• Eligibility is reviewed annually.
• The LTIP is available to Executive Directors, the Executive Committee and some members of senior management.
• The performance period is three years. The Executive Directors are subject to an additional two-year post-vesting
holding period for awards granted from 2018 onwards.
• LTIP opportunities vary by role from 200% of salary to 25% of salary.
• Executive Directors have a UQ stretch performance target.
• A second sustainability performance measure is being introduced and will operate alongside RoRE under the 2021
Remuneration Policy.
• Malus and clawback provisions are in place.
• Eligibility; and
• Requirements versus
actual shareholdings.
• Shareholding requirements are in place for the Executive Directors and Executive Committee.
• A post-employment shareholding requirement is being introduced for Executive Directors as part
of the 2021 Remuneration Policy.
133
Eligibility
employees covered
element
Details
Number of
Remuneration
£
+
Salary
Salaries are set to reflect the market value of the role, and to aid recruitment and retention.
Employees who are not on a training rate of pay (such as apprentices) receive at least the voluntary
Living Wage. We also monitor closely the rates of pay of people who are training with us to make
sure they remain fair and competitive.
All employees are eligible to participate in our flexible benefits scheme which we believe is
one of the best in the industry and which is designed to support a positive work-life balance.
Benefits
42% of our employees choose to tailor their benefits via our flexible benefits scheme.
They have also saved over £109,000 through our employee discount partnerships since
the scheme was launched.
+ We offer a market leading defined contribution pension scheme and double any contributions
that employees make (up to a maximum of 15% of salary).
When colleagues get closer to retirement, we provide education and support to help plan for
Pension
the next stage of their lives.
All employees
7,087
(as at 31 March 2021)
We are proud that 99% of our employees are members of the pension scheme and 62%
pay contributions above the minimum of 3%.
Sharesave
success of the Company whilst also aligning participants with shareholder interests.
Our Sharesave scheme gives employees an opportunity to save up to £500 per month over three to
five years, with the option to buy Severn Trent Plc shares at a discounted rate at the end of the period.
% The LTIP reinforces delivery of long-term creation of value and sector outperformance and
progress towards our net-zero ambitions. The retention of shares by Executive Directors
for the longer-term also supports a shared ownership culture in the Group.
LTIP
A proportion of this
population participate
in the LTIP by annual
invitation
as a % of salary
• CEO – 300%
• CFO – 200%
• Exec Co – 100%
Management
and senior
management
356
Executive
Committee
and Executive
Directors
9
Our supply
chain
Shareholding requirement
Supports alignment of Executives’ interests with shareholders.
All colleagues across Severn Trent are paid in line with the real Living Wage,
for which we hold accreditation.
We expect this of all new contracts within our supply chain and detail this
within our Sustainable Supply Chain Charter.
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION COMPANY REMUNERATION AT SEVERN TRENT CONTINUED
Remuneration principles
We strongly believe in fair and transparent reward throughout the organisation and when making decisions on executive remuneration the
Committee considers the context of wider workforce remuneration. This section shows how the 2018 Code is embedded in our remuneration
principles and how they are cascaded throughout the organisation. The diagram below shows how the Policy is aligned with the factors set out
in Provision 40, and how our principles and Policy are aligned with the 2018 Code.
OUR PURPOSE: TAKING CARE OF ONE OF LIFE’S ESSENTIALS
HOW DO WE EMBED OUR PURPOSE AND VISION IN OUR REMUNERATION GUIDING PRINCIPLES?
Support our Purpose,
Values and our wider
business goals
Drive long-term
sustainable
performance
for the benefit of
all our customers,
shareholders and
wider stakeholders
Be simple,
transparent and
easily understood
by internal and
external stakeholders
Encourage our
employees to think
and act like owners
in the business
Attract, motivate
and retain all our
employees with
diverse backgrounds,
skills and capabilities
HOW DOES THE COMMITTEE ADDRESS THE REQUIREMENTS UNDER PROVISION 40?
Cultural alignment
and proportionality
Proportionality
and risk
Simplicity, clarity
and predictability
• The Committee
• A significant proportion
• The Committee
ensures that the overall
reward framework
embeds our
Purpose and Values
• The Committee reviews
the executive reward
framework regularly to
ensure it supports the
Company’s strategy
of remuneration is
delivered in variable
pay linked to corporate
performance
• Performance
measures/targets
for incentives are
objectively determined
• Outcomes under
incentive plans are
based on holistic
assessment of
performance
ensures the highest
standards of disclosure
to our internal and
external stakeholders
• The Committee makes
decisions on executive
pay in the context of
all employees and the
external environment
Cultural alignment
and risk
• The Committee
ensures that a
significant portion of
reward is equity-based
and thereby linked to
shareholder return
• Executives are required
to build significant
personal shareholdings
in the Company and this
is regularly monitored
by the Committee
Clarity
• The Committee
ensures that Executives
are provided with a
remuneration
opportunity which is
competitive against
companies of a similar
size and complexity,
with a strong emphasis
on the variable elements
Alignment of the Policy to the Provisions of the 2018 Code
Clarity
The Company’s performance remuneration is based on supporting the implementation of the Company’s strategy measured
through KPIs which are used for the annual bonus and LTIP. This provides clarity to all stakeholders on the relationship between
the successful implementation of the Company’s strategy, including its Sustainability Framework, and the remuneration paid.
Simplicity
The Policy includes the following:
• Setting defined limits on the maximum awards which can be earned;
• Requiring the deferral of a substantial proportion of the incentives in shares for a material period of time, helping to ensure
that the performance earning the award was sustainable, and thereby discouraging short-term behaviours;
• Aligning the performance conditions with the agreed strategy of the Company as well as our sustainability and net-zero
carbon ambitions;
• Ensuring a focus on long-term sustainable performance through the LTIP; and
• Ensuring there is sufficient flexibility to adjust payments through malus and clawback and an overriding discretion to depart
from formulaic outcomes, especially if it appears that the behaviours giving rise to the awards are inappropriate or that the
criteria on which the award was based do not reflect the underlying performance of the Company.
Predictability
Shareholders are given full information on the potential values which can be earned under the annual bonus and LTIP plans on their
approval. In addition, all the checks and balances set out above under ‘Risk’ are disclosed at the time of shareholder approval.
Proportionality
The Company’s incentive plans clearly reward the successful implementation of the strategy and our environmental ambitions, and
through deferral and measurement of performance over a number of years ensure that the Executives have a strong drive to ensure
that the performance is sustainable over the long term. Poor performance cannot be rewarded due to the Committee’s overriding
discretion to depart from the formulaic outcomes under the incentive plans if they do not reflect underlying business performance.
Alignment to culture
A key principle of the Company’s culture is a focus on customers and their experience; this is reflected directly in the type of
performance conditions used for the bonus. The focus on ownership and long-term sustainable performance is also a key part
of the Company’s culture. In addition, the measures used for the incentive plans are measures used to determine the success
of the implementation of the strategy.
134
Severn Trent Plc Annual Report and Accounts 2021 What the Remuneration Committee has looked at in the
past 12 months
The Committee carries out an annual review of remuneration
elements, policies and processes. This process was introduced for
the Committee to expand its responsibility to oversee and review the
wider workforce pay and policies, and to ensure they are designed
to support the Company’s desired culture and Values.
The Committee believes that the context and knowledge shared is
a useful underpin to ensure that our future decision making around
executive’s and senior management’s pay supports fair and equal
remuneration throughout the entire workforce.
The Committee’s process
Each year the Committee is presented with interim and annual
updates that set out developments in Severn Trent’s wider workforce
pay policies and practices. The provision of these reports meets the
requirements of the 2018 Code. The Committee continues to be
engaged on the mechanisms for how the reward framework is applied
across different levels within the organisation, which in turn has been
shared with shareholders in this report. This year we have developed
further our disclosure on all employee reward to include a summary of
the information reported to the Committee as part of its annual review
process. This is shown in the table on pages 132 and 133.
What has the Committee looked at over the past 12 months?
Activity
Implementation at Severn Trent
Focus areas
Severn Trent
response to
COVID-19
Ensuring that the
impact of COVID-19 is
considered across all
remuneration related
decisions made by
the Committee
• All eligible employees will receive their 2020/21 annual bonus.
• The Committee decided it was appropriate to cap the PBIT element of the bonus at target level for the
2020/21 financial year. In practice, this means the maximum achievable bonus potential for Executive
Directors was 91%, rather than 120%, of salary. We applied this principle for all levels below the
Executive Directors.
• The Committee will assess the value of the 2020 LTIP award at vesting and will ensure that the final
outturn reflects all relevant factors, including consideration of any windfall gains.
Purpose
and Values
Reflection on wider
workforce policies
and practices
• The launch of the Company’s new Values in 2019/20 was received with overwhelmingly positive feedback.
• New joiners into the business are assessed against a suite of interview questions encompassing our
new Purpose and Values.
• The recognition platform has been refreshed to give recognition for colleagues against the new Values.
• The new Values were embedded into the 2020 Awesome Award categories and shortlisting process.
• Our induction materials ensure employees are familiar with the Company’s Purpose and Values from
the outset of their careers.
Engagement
Sharing our guiding
remuneration
principles with the
Company Forum
• In September 2020, Angela Strank attended the Company Forum where a summary of the Directors’
Remuneration Report was positively received by an employee representative group. The content and
discussion also demonstrated how the actions taken align with requirements of the 2018 Code.
• Attendees were signposted to the availability of further information within the 2020 Annual Report
and Accounts, which reinforced the Company’s commitments to its employees.
• This is an annual standing item on the Company Forum’s September agenda, and a Board member
continues to attend each meeting.
• In March 2021, I attended the Company Forum and provided an overview of topics discussed
by the Board and Remuneration Committee during this year, providing some insight to the
proposed Remuneration Policy and the discussion held on pay frameworks and total reward
for the entire workforce.
Alignment
of pension
contributions
Response to the 2018
Code requirement
• In the 2019/20 Remuneration cycle, the Committee approved the principle that employer pension
contributions for both Executive Directors and members of the Severn Trent Executive Committee
would be aligned with the maximum 15% contribution available to members of the Severn Trent Group
Pension Plan (the majority of the wider workforce) by 1 April 2022.
• The second reduction for the Executive Directors, from 21.6% to 18.3% of salary, was implemented
on 1 April 2021.
• The alignment of pension contributions for members of the Severn Trent Executive Committee was
completed during the year.
Focus on ESG
measures
Bringing to life how
sustainability is
embedded in our
remuneration
framework
• The Committee considered the importance of aligning the Company’s strategy with its Corporate
Sustainability Framework, to bring to life where there is already a clear link between our
environmental, social and governance ambitions and reward.
• The schematic on page 122 showcases all the areas where we have already embedded links to
sustainability e.g. the Annual Bonus Scheme, and identified areas where we have the opportunity
to integrate sustainability and reward in the future e.g. in terms of the LTIP from 2021 onwards.
• For the second year we have been accredited by the real Living Wage Foundation and continue
to work with our supply chain to sponsor this in all our new and renewed contracts.
2021 Policy
review
Review of the current
Policy and ensuring
compliance with
the 2018 Code
• The Committee considered four key objectives ahead of the 2021 Policy review: continue our focus
on managing strong and long-term sustainable financial and operational performance; recognise and
embed our commitments and ambitions around sustainability within both our short and long-term
reward framework; ensure that the remuneration framework for the Executive Directors aligns fully
with the 2018 Code, and maintain high levels of stakeholder engagement and support.
135
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION COMPANY REMUNERATION AT SEVERN TRENT CONTINUED
Case study
Developing our pay framework
In last year’s report the Remuneration Committee committed
to looking further at our remuneration principles and how they
shape our ongoing commitment to fair pay. This year, in addition
to the remuneration elements set out on pages 132 to 133, the
Committee’s consideration of wider workforce pay initiatives
was set in the context of the Company’s progress on inclusive
and equal pay since 2017.
Whilst equal pay legislation has been in place in the UK for 50
years, the last five years have seen a broader focus on ‘fairness’ in
pay and progression frameworks. Over the past four years we have
developed our pay framework to create a better understanding of
our total reward and to deliver more meaningful pay transparency
with this broader focus. The objective was to have a clearer position
on the ‘fairness’ agenda as informed by our business drivers and the
added lenses of equality and inclusivity. Our position in terms of our
real Living Wage accreditation, Gender pay gaps and CEO employee
equity has been published, and the development of our pay
frameworks and processes have evolved to reinforce equal and
inclusive reviews and practices. On testing the outcomes we are
confident that our pay policies and frameworks are largely working
fairly and effectively, giving us confidence our transparent approach
continues to impact our ‘fairness’ agenda.
Over the four year period we have worked, in partnership with our
line managers and employees, to bring to life the principles and
drivers of Severn Trent’s total reward framework.
Our pay structure is positioned at the heart of our reward strategy;
we have ensured we invest time to provide our line managers
and business leaders with the necessary tools to have informed
conversations on this topic. We will continue to educate, inform
and enable well-informed pay decisions to be made in the holistic
context of pay visibility, equity and inclusivity.
Stages of change in our pay framework over recent years
Phase 1
Delivered 2017 to 2020
Publish bonus/
budgets
Establish
reward
principles
Phase 2
Focus areas 2021 to 2022
Pay bands
by level
Pay bands by job
A trusted pay
framework
1 Job Evaluation
2 Pay Ranges
3
Transparency
on pay positions
4
Additional pay/
benefit options
5
Equal and
inclusive review
6
“ Fairness”
is BAU
Pay Framework Architecture stages
Pay initiative examples
Area
We have a robust job
evaluation methodology
Our approach
Enables the consistent and accurate sizing of job requirements by considering a range of factors
such as knowledge, specialist skills and strategic thinking across the business, ensuring appropriate
relativities within and across functions
We are facilitating a better
understanding of pay practices
Greater transparency of our pay practices through enhanced visibility of salary ranges, showing
ranges in both internal and external job adverts, enabling individuals to access bespoke total
reward statements and establishing operational and technical pay frameworks in support of
career progression
We take a consistent approach
to setting salaries
Salaries for new employees are based on the candidate’s skills and potential alongside the internal
and external market within the context of our reward framework. Any exceptions to the framework
are documented via an established process
We operate robust processes for
pay reviews and pay progression
We agree a pay award through negotiation and collective bargaining detailed in our Trade Union
partnership. We operate clear salary bands within our pay framework; ensuring that people are
paid at least at the minimum of their band
We provide personalised
information
Every employee has access to a personalised total reward statement where each element of their
remuneration is broken down into the following: their salary, the company contribution to their
pension fund, the value of the all-employee bonus and their elected benefits
136
Severn Trent Plc Annual Report and Accounts 2021 The Committee’s key findings and conclusions for 2020/21
Element
Implementation at Severn Trent
Embedding
new Purpose
and Values
The Committee is satisfied that the Group’s workforce policies and practices are consistent with the Company’s Values and support
its long-term sustainable success.
As the Company continues to evolve its policies, the Committee is confident that our Purpose and Values will continue to be embedded
in ways which bring them to life for employees.
Listen to and
respond to
colleague
feedback focus
Enhancing pay
fairness
Policy review
Several papers were presented during 2020/21 which enabled the Committee to carry out a deep dive into Severn Trent’s pay
framework and reward principles and to understand how feedback from the annual engagement survey (‘QUEST’) has informed
the Company’s remuneration thinking over the past four years.
The Committee is satisfied that the Company has robust measures in place to seek and act on employee feedback and that the work
undertaken to develop the reward strategy over the past few years has resulted in employees having a better understanding and
appreciation of their pay and total reward.
The Committee is encouraged by the work being undertaken to close the gender pay gap and is proud to have launched the Academy.
Opening this facility has helped us to enhance the practical workplace experience of 500 Kickstart placements across our region.
The broadening of workforce reporting, once the Government publishes its ethnicity pay gap reporting requirements, is welcomed
and will complement and stand alongside the Company’s established gender pay gap analysis.
Having considered wider workforce pay initiatives this year, in the context of the equal and inclusive pay review, the Committee
commends the Company on its application of transparency and fairness.
The objectives of the 2021 Policy review were to continue the Company’s focus on managing strong and long-term sustainable
financial and operational performance, and to recognise and embed commitments and ambitions around sustainability within
both the short and long-term reward framework, ensuring that the remuneration framework for Executive Directors aligns fully
with the 2018 Code and maintains high levels of stakeholder engagement and support.
The Committee is satisfied that the Policy review has achieved its objectives and looks forward to presenting the 2021 Policy for
shareholder approval at the AGM on 8 July 2021.
Alignment with
remuneration
principles
Overall, the Committee is satisfied that the approach to remuneration across the business is aligned with the Company’s
remuneration principles and longer-term sustainability ambitions.
The approach to executive remuneration aligns with wider company pay policy and ensures that there are no anomalies specific
to the Executive Directors. Further details on the cascade of the reward framework can be found on page 132.
What will the Remuneration Committee look at in 2021/22?
IMPLEMENTATION
OF THE 2021 POLICY
OUR SUSTAINABILITY
JOURNEY
EMBEDDING OUR
PURPOSE AND VALUES
Oversee the implementation of the
new Policy, including the introduction
of a post-employment shareholding
requirement and the second
performance measure in the LTIP
relating to sustainability, specifically
our net-zero carbon ambition.
Ensure that all aspects of remuneration
are reviewed through a sustainability
lens, not only for Executive Directors
but across the entire workforce, and
as our journey evolves we will look to
ensure that all aspects of our reward
package, including pay and benefits,
embed our sustainability aspirations,
namely taking care of the environment,
helping people to thrive and being a
company you can trust.
Support the review of Group policies
aligned to Doing the Right Thing to
ensure that our wider workforce
policies and practices are consistent
with the Company’s Values and support
long-term success.
Pay comparisons
Our philosophy of transparent reporting is evident in the information we display in this section of the report, including our CEO pay ratios
on page 139 and gender pay gap reporting on page 141. We believe that these disclosures are essential to promoting action and driving real
change in the workplace.
We operate a consistent core bonus design across the organisation
Employee group
Bonus elements
Executive Directors
Executive Committee
Strategic Leader
Business Leader
Team Manager/Technical Expert
Front-line – operational/administrative/advisory
PBIT (49%)
Customer and Environment ODIs (35%)
Customer Experience (8%)
Health and Safety (8%)
137
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION COMPANY REMUNERATION AT SEVERN TRENT CONTINUED
Our policy quantum compared with peers
When we set the remuneration for the Executive Directors, one of
the factors the Committee considers is the relevant markets for the
Executive Directors, which we believe is the FTSE51-150, and the size
of the Company compared with these peers. The table below shows
the relative position of target total compensation under the Policy
in comparison with the FTSE51-150.
Relative position of target total compensation
CEO
CFO
Total shareholder return
The chart below shows the value at 31 March 2021 of £100
invested in Severn Trent Plc in the beginning of AMP6.
160
140
120
100
80
60
40
20
)
£
(
n
r
u
t
e
r
r
e
d
l
o
h
e
r
a
h
s
l
a
t
o
T
Positioning of target total
compensation of the Company
relative to market benchmarks
Bottom quartile
3rd quartile
2nd quartile
Top quartile
0
2015
2016
2017
2018
2019
2020
2021
Severn Trent Plc TSR
CEO remuneration vs returns to shareholders
The graph on the right shows the value at 31 March 2021 of £100
invested in Severn Trent Plc on 1 April 2011 compared with the
value of £100 invested in the FTSE100. The FTSE100 was chosen
as the comparator index because the Company is a constituent
of that index. The intermediate points show the value of the
intervening financial year ends.
Total shareholder return and total remuneration
400
350
300
250
200
150
100
50
)
£
(
n
r
u
t
e
r
r
e
d
l
o
h
e
r
a
h
s
l
a
t
o
T
3,000
2,500
2,000
1,500
1,000
500
'
)
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
t
O
E
C
0
2011 2012
2013 2014
2015 2016
2017 2018
2019
2020
2021
0
Severn Trent Plc TSR
FTSE 100 TSR
CEO total remuneration (£’000)
Remuneration of the CEO
The figure of remuneration for the CEO over the last ten 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.
Year ended 31 March
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
CEO
Tony
Wray
Tony
Wray
Tony
Wray
Liv
Garfield
Liv
Garfield
Liv
Garfield
Liv
Garfield
Liv
Garfield
Liv
Garfield
Liv
Garfield
Total remuneration (£’000)(i)
1,244.1
1,635.3
1,818.4
2,197.6
2,493.6
2,424.0
2,193.5
2,478.8
2,733.4
2,807.8
Annual bonus
(% of maximum)
48.1%
82.4%
78.7%
52.0%
88.2%
75.8%
60.4%
58.5%
74.0%
63.8%
LTIP vesting (% of maximum) (ii)
28.4%
57.5% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
72.1%
SMP vesting (% of maximum)
N/A
78.0%
64.3%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
(i) 2018 onwards includes any SAYE grants made during the year as well as dividend equivalents in respect of vested LTIP shares.
(ii)
The value of the 2018 LTIP award for 2020/21 is based on the Remuneration Committee’s assessment of the standard proportion of the total potential LTIP vesting, as this measures
the Company’s performance against the RoRE set by its FD. The UQ element cannot be measured until the end of July 2021; such vesting, if any, will therefore be disclosed in the
2021/22 Directors’ Remuneration Report.
138
Severn Trent Plc Annual Report and Accounts 2021
The relationship between the remuneration of the CEO
and all employees
The Company’s approach to remuneration is consistent for
all employees, as outlined on page 132 and in our Remuneration
Policy which can be found on the Severn Trent Plc website.
This is our second year of disclosing CEO pay ratios; however, we
have chosen to publish three years’ worth of information covering
2018/19, 2019/20 and 2020/21. The table below shows how the
CEO’s single total figure of remuneration compares with the
equivalent figures for UK employees occupying the 25th
percentile, median and 75th percentile quartiles.
We have chosen Option A under the Regulations for the calculation,
which takes into consideration the full-time equivalent basis of all
UK employees and provides a representative result of employee
pay conditions across the Company.
Total pay and benefits for all have been calculated as at financial
year-end in accordance with the single figure methodology and
are based on full-time equivalent pay and benefits. We have not
omitted any pay elements from the calculation.
CEO pay ratio
CEO
2019
2020
2021
Total single figure (£’000)(i)
2,478.8
2,765.1
2,807.8
Annual bonus payment
level achieved (% of
maximum opportunity)
LTIP vesting level achieved
(% of maximum opportunity)(ii)
Ratio of CEO’s single total
remuneration figure shown:(i)
• To employee at the 25th percentile
• To employee at the 50th percentile
• To employee at the 75th percentile
Ratio of CEO’s single total
remuneration figure shown
to the median Executive
Committee member:
58.5%
74.0%
63.8%
100%
100%
72.1%
80.8
61.1
48.8
84.5
65.7
53.9
84.5
65.8
54.4
2.9
(i)
(ii)
Figures for 2019/20 have been restated to reflect the updated 2017 LTIP value based
on the share price at the date of vesting and include dividend equivalents in respect
of vested shares.
The value of the 2018 LTIP award for 2020/21 is based on the Remuneration
Committee’s assessment of the standard proportion of the total potential LTIP
vesting, as this measures the Company’s performance against the RoRE set by
its FD. The UQ element cannot be measured until the end of July 2021; such vesting,
if any, will therefore be disclosed in the 2021/22 Directors’ Remuneration Report.
The table below sets out the base salary and total pay and
benefits details for the CEO and the employees at the 25th,
50th and 75th percentiles.
CEO
Base salary (£’000)
Total pay and benefits (£’000)
Employees
Base salary (£’000)
• Employee at the 25th percentile
• Employee at the 50th percentile
• Employee at the 75th percentile
Total pay and benefits (£’000)
• Employee at the 25th percentile
• Employee at the 50th percentile
• Employee at the 75th percentile
2021
737.5
2,807.8
30.5
36.6
50.1
33.2
42.6
51.6
The CEO pay ratio remains broadly unchanged year-on-year.
The Committee is satisfied that the individuals identified within
each relevant percentile appropriately reflect the employee pay
profiles at those quartiles and that the overall picture presented
by the ratios is consistent with our pay, reward and progression
policies. Over the long term, it is reasonable to expect there to
be a degree of volatility in the CEO pay ratio and this could be
caused by the following:
• Our CEO’s single figure is made up of a higher proportion of
incentive-based pay than that of our employees, in line with
the expectations of our shareholders and the Company’s
remuneration approach. This introduces a higher degree
of variability each year which affects the ratio. It should be
noted that all employees in the Company who meet the service
requirement are eligible to receive a bonus based on the same
broad Company performance conditions. This ensures all
employees share in the success of the Company.
• From 2021/22 onwards, the value of long-term incentives
will reflect the UQ element (if any) for the LTIP vesting in
the previous financial year, plus the standard proportion
of the total potential LTIP vesting for the award in the then
current year e.g. the LTIP value in the 2021/22 single figure
table will comprise the UQ element of the 2018 LTIP award
plus the standard proportion of the 2019 LTIP award.
• Long-term incentives are provided in shares, and therefore
any increase in share price over the three years, as has been
observed when previous LTIP awards have vested, can magnify
the impact of a long-term incentive award vesting in a year.
• None of the lower quartile, median or upper quartile employees
identified this year are participants in the LTIP. If the value of
the LTIP is excluded from the CEO total remuneration pay ratio
calculation, the ratios would be as follows:
• To employee at the 25th percentile: 44.4
• To employee at the 50th percentile: 34.6
• To employee at the 75th percentile: 28.6
The ratio is therefore driven by the variable nature of the
remuneration elements of our CEO versus that of our employees,
and what is important to us is that the fluctuations in the ratio
are influenced only by differences in the structure of remuneration,
which for the CEO reflect the weighting towards long-term value
creation and alignment with shareholder interests.
The CEO pay ratio is just one of many factors that we take into
consideration in ensuring a just and fair reward framework for
all our colleagues.
139
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION COMPANY REMUNERATION AT SEVERN TRENT CONTINUED
Percentage change in the remuneration of the
Executive Directors and Non-Executive Directors
The Committee looks to ensure that the approach to fair pay is
implemented in practice throughout the Group, and monitors year-on-
year changes between the movement in salary, benefits and annual
bonus for the CEO between the current and previous financial year
compared with that of the average employee. As required under
the EU Shareholder Rights Directive II, last year we early adopted
the requirement to expand this disclosure to cover all Directors in
addition to the CEO. Over time this information will build to display
a five-year history.
The Committee has elected to use the average earnings per employee
as this avoids the distortions that can occur to the Group’s total wage
bill as a result of the movements in the number of employees.
The comparator group used is Severn Trent employees in the UK.
The Committee monitors this information carefully to ensure that
there is consistency in the fixed pay of the Executive Directors and
Non-Executive Directors compared with the wider workforce. Also,
this information demonstrates the Company’s approach to having an
all-employee bonus throughout the organisation with employees and
the CEO benefiting when the Company does well.
Executive Directors
Liv Garfield
James Bowling
Non-Executive Directors(iv)
Christine Hodgson(v)
Kevin Beeston
John Coghlan(vi)
Sharmila Nebhrajani(vii)
Dominique Reiniche(viii)
Philip Remnant
Angela Strank
Average per employee(ix)
% change on last year for 2019/20
% change on last year for 2020/21
Salary/Fees(i)
Benefits(ii)
Bonus(iii)
Salary/Fees(i)
Benefits(ii)
Bonus(iii)
2.4%
2.4%
N/A
2.2%
13.3%
N/A
2.4%
1.9%
2.0%
3.7%
0.6%
0.0%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
29.5%
29.5%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
(5.5%)
21.8%
2.3%
2.3%
431.4%
1.5%
1.0%
N/A
1.7%
1.4%
1.4%
2.2%
(1.2)%
0.0%
(11.8)%
(11.8)%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
(7.1)%
(13.7)%
(i)
The salary figures shown are based on full-time equivalent comparisons.
(ii) The benefits figures include green travel allowance and family level private medical insurance for senior and middle managers.
(iii) The figures shown are reflective of any bonus earned during the respective financial year. Bonuses are paid in the following June.
(iv) Non-Executive Directors receive fees only and do not receive any additional benefits or bonus payments.
(v) Reflects a change in role from Non-Executive Director to Chair of the Board on 1 April 2020.
(vi)
Inclusive of an additional fee of £10,000 in relation to his Hafren Dyfrdwy Chairman responsibilities in 2020/21 and 2019/20.
(vii) Appointed to the Board on 1 May 2020.
(viii) Resigned from the Board effective 8 July 2021.
(ix) The average pay increase for the wider workforce during the year was 2.3%.
140
Severn Trent Plc Annual Report and Accounts 2021 Gender pay gap reporting
Gender pay gap reporting legislation came into force in April 2017
and requires all UK employers with 250 or more employees to
publish annual information illustrating pay differences between
male and female employees. As Severn Trent continuously evolves,
so does our approach to celebrating and embracing diversity in all
its forms, of which gender is one. Our goal is to recruit and employ
the best people possible, regardless of their backgrounds.
We reported our Gender Pay Gap in November 2020 in line with
statutory requirements. The data was based on figures from 5 April
2020 and showed a median gap of 9.3% (last year: 9.8%) and a mean
gap of 2.3% (last year: 3.6%). The decrease in our median continues
to be positively impacted by a high proportion of women within our
management and senior management roles, and the decrease in
our mean gender pay gap reflects a greater weighting towards
higher-earning women and a shift in our overall quartile distribution.
Our mean gender bonus gap of -57.1% is as a result of the
high percentage of women in our executive and senior
management population.
Male and female pay quartile distribution
71.7%
80.4%
78.7%
55.4%
Top
quartile
Upper middle
quartile
Lower middle
quartile
Lower
quartile
28.3%
19.6%
21.3%
44.6%
Difference in hourly pay between men and women
Read more on Severn Trent’s diversity in the Our People section p73.
1
2
3
1
4
5
2.3%
Mean
9.3%
The full Gender Pay Gap report can be found on the Severn Trent Plc
website, detailing the methodology and definitions, including case
studies showcasing how we have raised awareness and celebrated
our successes in attracting and retaining women in our senior roles
by making them visible role models and championing their help and
support as we challenge and change perceptions.
We recognise that diversity of talent brings different ideas and
perspectives which improve how we work together collaboratively
as a company and want our colleagues to feel they can be
themselves, safe in the knowledge that their workplace is fair
and inclusive. We look forward to sharing our ethnicity gender
pay gap once Government legislation is published, to ensure
that our reporting is consistent with best practice.
Difference in annual bonus pay between men and women
1
2
3
1
4
5
0.0%
-57.1%
Mean
141
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION ANNUAL REPORT ON REMUNERATION
Annual Report on Remuneration
The Annual Report on Remuneration and the Annual Statement will
be put to an advisory shareholder vote at the AGM on 8 July 2021.
The information on pages 142 to 144 is audited.
The 2021 Remuneration Policy, which is set out on pages 145 to 153,
will also be submitted to shareholders for approval at the AGM.
Total single figure of remuneration (audited)
The tables below and on the next page set out the total single figure
of remuneration received by the Executive Directors for 2020/21 (or
for performance periods ending in 2020/21 in respect of long-term
incentives) and 2019/20 for comparison, and total fees received by
Non-Executive Directors for 2020/21 and 2019/20.
Where necessary, further explanations of the values provided
are included below. The tables and the explanatory notes have
been audited.
Executive Directors
Financial
year ended
31 March
Salary
(£’000)(i)
Benefits
(£’000)(ii)
Pension
(£’000)(iii)
Other
(£’000)(iv)
Fixed pay
and benefits
sub-total
(£’000)
Annual
bonus
(£’000)(v)
LTIP
(£’000)(vi)
Variable
remuneration
sub-total
(£’000)
Total
Total
remuneration
(£’000)
Liv Garfield
2020/21
737.5
17.0
149.5
2019/20
720.8
17.2
180.2
James Bowling
2020/21
2019/20
444.5
434.3
16.5
90.1
16.5
108.6
4.5
0.0
0.0
0.0
908.5
567.4
1,331.9
1,899.3
2,807.8
918.2
643.5
1,203.4
1,846.9
2,765.1
551.1
342.0
535.4
559.4
387.8
483.4
877.4
871.2
1,428.5
1,430.6
(i)
Both Executive Directors asked the Company to reduce their salaries by 25% for the first quarter of 2020/21 and to donate the equivalent amount to charities in our region which
helped the local response to COVID-19. The salaries shown are based on salary earned during the financial year before the 25% reduction. Salaries are shown before the deductions
of benefits purchased through the Company’s salary sacrifice scheme, such as pension contributions.
(ii)
Benefits include a green travel allowance of £15,000 p.a., family level private medical insurance, life assurance worth six times salary and participation in an incapacity benefits scheme.
(iii)
The Executive Directors’ pension provision was equal to 21.6% of salary in 2020/21; details of the future phased reduction to 15% by 1 April 2022 are set out earlier in the report.
Neither Executive Director accrued benefits under any defined contribution pension plans during the year or has participated in a defined benefits scheme while an Executive Director.
(iv)
This figure relates to the difference between the market price and the discounted option price relating to an SAYE option granted during the financial year.
(v)
The annual bonus is paid 50% in cash and 50% in shares with the portion deferred into shares subject to continued employment for three years but with no further performance
conditions attached. See page 127 for further details of the annual bonus outturn for 2020/21.
(vi)
The value of the 2018 LTIP award for 2020/21 is based on the Remuneration Committee’s assessment of the standard proportion of the total potential LTIP vesting. Further explanation
is set out on pages 127 and 143. The prior year LTIP figure has been restated using the share price at the date of vesting and includes dividend equivalents in respect of vested shares.
Total Non-Executive Directors’ fees (audited)
2020/21
2019/20
Non-Executive
Directors
Fees
Total
(£’000)
Fees
Total
(£’000)
Christine
Hodgson(i)
Kevin Beeston
John Coghlan(ii)
Sharmila
Nebhrajani(iii)
Dominique
Reiniche (iv)
Philip Remnant
Angela Strank
300.0
300.0
67.4
97.4
67.4
97.4
14.1
66.5
96.5
14.1
66.5
96.5
52.7
52.7
0.0
0.0
57.4
72.4
70.4
57.4
72.4
70.4
56.4
71.4
69.5
56.4
71.4
69.5
(i)
The Chair asked the Company to reduce her fees by 25% for the first quarter
of 2020/21 and to donate the equivalent amount to charities in our region which
helped the local response to COVID-19. The fees shown are based on fees earned
during the financial year before the 25% reduction.
(ii)
Inclusive of an additional fee of £10,000 in relation to his Hafren Dyfrdwy Chairman
responsibilities in 2020/21 and 2019/20.
(iii) Appointed to the Board on 1 May 2020.
(iv) Resigned from the Board effective 8 July 2021.
Relative importance of 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.
Relative importance
of the spend on pay
Staff costs
Dividends
2021
£m
350.7
240.2
2020
£m % change
343.9
228.4
2.0%
5.2%
Annual bonus outturn for 2020/21 (audited)
Our all-employee annual bonus scheme ensures that all of our people,
from Executive Directors to our front-line employees, are aligned with
the same measures and rewarded appropriately for achieving key
objectives. Full detail on the Company’s performance during the
financial year can be found in the Strategic Report.
The performance outcomes in respect of financial performance
conditions, and the overall bonus awarded to each Executive
Director and our front-line employees, is set out in the At a Glance
section on page 127.
142
Severn Trent Plc Annual Report and Accounts 2021 Benefits for 2020/21 (audited)
The value of benefits is based on the cost to the Company and there is no pre-determined maximum limit. The range and value of the
benefits offered are reviewed periodically. In line with the Policy outlined on page 129, we show below the benefits received by the individual
Executive Directors in the year, and their typical annual value where possible.
Benefits for 2020/21 (audited)
Typical annual value 2020/21
Typical annual value 2019/20
Travel allowance
Private medical insurance
£15,000
£1,412
£15,000
£1,447
Life assurance
Up to 6x salary
Up to 6x salary
Personal accident cover
As per the Group-wide policy
As per the Group-wide policy
Biennial health screening
£610 per health screen
£581 per health screen
Incapacity benefits
Worth 75% of salary for a period of five
years (subject to qualifying criteria)
Worth 75% of salary for a period of five
years (subject to qualifying criteria)
Percentage
increase/(decrease)
0%
(2.4%)
0%
0%
5.0%
0%
LTIP awards vesting in relation to performance in 2020/21 (audited)
Under the 2018 Remuneration Policy, which received strong shareholder support, we implemented a UQ comparison against other WaSCs
under the RoRE performance measure for all future LTIP awards made to the Executive Directors. This ensures full vesting is only achieved
for UQ comparative performance and it aligns with the Company’s aspirations to be an upper quartile performer.
The outcome of the 2018 LTIP is based on performance over the three-year period from 1 April 2018 to 31 March 2021. This is the first LTIP
award vesting that includes a stretch measure relative to the UQ performance of the other WaSCs. The value set out below is based on
performance of the standard proportion of the total potential LTIP vesting, as this measures the Company’s performance against the RoRE
set by its FD. Performance under the standard proportion was 1.37x and this was measured against the target that we set of 1.39x the base
RoRE return. This results in a vesting equivalent to 144.2% of salary for the CEO and 96.2% of salary for the CFO. Full details are set out in
the table below.
The UQ element cannot be measured, and so the associated vesting will not be known, until the end of July 2021 when comparable statistics
for the other WaSCs are published and provided to Ofwat; such vesting, if any, will therefore be disclosed in the 2021/22 Directors’ Remuneration
Report. The LTIP value in the 2021/22 single figure table will comprise the UQ element of the 2018 LTIP award (if any) plus the standard
proportion of the 2019 LTIP award.
Standard proportion of award (up to 1.39x FD)
Number of
shares
granted
Value of
award at
grant
(£’000)
End of
performance
period
Standard
proportion
of award
vesting
(% max)
Numbers of
share
vesting
Vesting
date
Value
attributable
to share
price
movement
(£’000)
Value
of LTIP
shares
vesting(i)
(£’000)
Value of
dividend
equivalents
due(ii)
(£’000)
Value of
standard
proportion
of LTIP
(single
figure)
(‘£000)
72,880
32,941
1,381.2
31/03/2021
624.3
31/03/2021
72.1%
64.1%
52,559 24/07/2021
21,127 24/07/2021
210.0
84.4
1,206.1
484.8
125.8
50.6
1,331.9
535.4
Executive
CEO
CFO
(i) Based on the average share price over the final three months of the performance period of £22.95 as the awards will not be released until after the end of the closed period.
(ii) Based on dividends paid in the period since the date of grant to 31 March 2021.
For full transparency, we set out below the maximum number of additional shares that could vest if UQ performance relative to other WaSCs is
achieved, given that a UQ position would represent exceptional performance, and notwithstanding the fact that the Company’s achieved RoRE
for the period was 1.37x, compared with the target of 1.39x. The value of the awards has been estimated using the above average share price.
• Maximum number of shares that could vest under UQ element:
CEO: 20,321 shares
CFO: 11,814 shares
• Value of UQ element at grant (£’000):
CEO: 385.1
CFO: 223.9
• Value of UQ element attributable to share price movement (£’000):
CEO: 81.2
CFO: 47.2
Payments for loss of office (audited)
There were no payments for loss of office in the year.
• Value of UQ element based on average share price of £22.95 (£’000):
Payments to past Directors (audited)
There were no payments made to past Directors in the year.
CEO: 514.9
CFO: 299.4
143
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION
ANNUAL REPORT ON REMUNERATION CONTINUED
2020 LTIP award (awards granted during the year)
Award
2020 LTIP
Grant date
16/06/20
Threshold vesting FD
(baseline)
1.39x FD
Full vesting
(outperformance)
3 day average share price used
for grant calculations
3.91% Equal to 5.44% UQ RoRE compared to WaSCs
£23.97
Deferred shares under the annual bonus scheme (including awards granted during the year)
Relating to FY
Award
Grant date
3 day average share price used for grant calculations
2020 annual bonus scheme
2019/20
18/06/20
£23.98
Directors’ shareholdings and summary of outstanding share
interests (audited)
Page 128 in the At a Glance section summarises the shareholding
requirements under which Executive Directors are expected to build
and maintain a shareholding in the Company, and whether Executive
Directors have met the shareholding requirements. The shareholding
requirements for the CEO and CFO remained unchanged in 2020/21.
The Committee believes that it is an essential part of the Policy that
Executive Directors become material shareholders, and this is
evidenced by the number of shares held by both Executive Directors.
The retention and build-up of equity is important in a long-term
business such as Severn Trent as it encourages decisions to be
made on a long-term, sustainable basis for the benefit of customers
and shareholders.
There has been no change in the Directors’ interests in the Ordinary
Share capital of the Company between those set out below and
18 May 2021.
Interests in shares as at 31 March 2021
Directors
Liv Garfield
James Bowling
Beneficially
owned
LTIP
shares(i) (ii)
226,316
72,176
202,774
91,644
Annual
bonus
shares(iii)
38,971
23,484
Shareholding
requirement
as a % of
salary
300%
200%
SAYE
options
2,056
1,221
Current
shareholding
as a % of salary
% shareholding
requirement
achieved(iv)
768%
437%
256%
218%
Non-Executive Directors:
Christine Hodgson
Kevin Beeston
John Coghlan
Sharmila Nebhrajani(v)
Dominique Reiniche(vi)
Philip Remnant
Angela Strank
2,020
3,053
2,670
101
400
1,969
459
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(i) LTIP awards are conditional share awards subject to ongoing performance conditions.
(ii) Additional dividend equivalent shares may be released where provided in the rules.
(iii) Annual bonus shares are deferred shares which are not subject to further performance conditions.
(iv)
The share price used to calculate the percentage of the shareholding guideline achieved was £23.06 (as at 31 March 2021). The guideline figures include unvested annual bonus shares
(47% deducted to cover statutory deductions).
(v) Appointed to the Board on 1 May 2020.
(vi) Resigned from the Board effective 8 July 2021.
External directorships
Liv Garfield was appointed a member of the Takeover Panel in
November 2017. In respect of her appointment for the year ended
31 March 2021, she was paid fees of £12,000 which she retained.
Full details of the Directors’ external appointments can be found
in the Board Directors’ biography spread on page 86.
Service contracts for Executive Directors
Copies of the service contracts of the Executive Directors and
the Letters of Appointment of the Non-Executive Directors are
available for inspection at the Company’s registered office during
normal business hours.
All Directors will retire at this year’s AGM and, with the exception
of Dominique Reiniche, submit themselves for re-election by
shareholders at the AGM on 8 July 2021. Liv Garfield and James
Bowling have service contracts which provide for a notice period
of one year. Non-Executive Directors do not have service contracts.
Name
Date of service contract
Nature of contract
Notice period Termination payments
Liv Garfield
10.04.14
James Bowling
01.04.15
Rolling
12 months
Payments for loss of office comprise a maximum
of 12 months’ salary and benefits only
Philip Remnant
Chairman of the Remuneration Committee
18 May 2021
144
Severn Trent Plc Annual Report and Accounts 2021 REMUNERATION POLICY
Remuneration Policy
This section contains Severn Trent Plc’s
proposed Directors’ Remuneration
Policy (the ‘Remuneration Policy’) that
will govern and guide the Company’s
future remuneration payments. The
Remuneration Policy described in this
section is intended to apply for three
years and will be applicable from date
of approval by shareholders at the
Company’s 2021 Annual General Meeting.
Contents
Development of Policy report 145
Linkage to all-employee pay 145
Shareholder views
2021 Directors’
Remuneration Policy table
145
146
• Salary
• Benefits
• Pension
• Annual bonus
• LTIP
• All-employee share plans
• Shareholding requirements
External directorships
150
Approach to recruitment
and promotion
Service contracts and
Letters of Appointment
for Executives
Policy on Payments
for Loss of Office
150
151
151
Policy on Change of control
152
Chair and
Non-Executive Directors
Application of the
Remuneration Policy
153
153
Development of Policy report
The Committee sets the Remuneration Policy for Executive Directors
and other senior executives, taking into account the Company’s
strategic objectives over both 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 plans are appropriately managed and that the choice of
performance measures and targets does not encourage undue risk
taking by the Executives so that the long-term performance of the
business is not compromised by the pursuit of short-term value.
The plans 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.
In order to manage conflicts of interest, no Director or employee
participates in discussions pertaining to their own remuneration.
The Committee reviews the performance of its external advisers
on an annual basis to ensure that the advice provided is independent
of any support provided to management.
Linkage to all-employee pay
The Committee reviews changes in remuneration arrangements
in the workforce generally as we recognise that all our people play
an important role in the success of the Company. Severn Trent is
committed to creating an inclusive working environment and to
rewarding our employees throughout the organisation in a fair
manner. While employees are not formally consulted in respect of
the Remuneration Policy, when making decisions on executive pay the
Committee considers wider workforce remuneration and conditions
to ensure that they are aligned on an ongoing basis. In particular,
the Committee considers wider workforce salary increases when
determining those for Executive Directors. We believe that employees
throughout the Company should be able to share in the success
of the Company. Therefore, the annual bonus scheme is cascaded
throughout the organisation and all employees may participate
in the HMRC tax advantaged Save As You Earn (‘SAYE’) scheme.
As part of our commitment to fairness, we have a section in this
report about ‘Company remuneration at Severn Trent’ (see pages 132
to 141). This section sets out the steps we take to make sure that our
pay and reward framework, below executives and senior management,
is transparent in a way that is meaningful and useful. This section
also includes more information on our wider workforce pay conditions,
our Gender Pay statistics and our CEO pay ratio disclosure.
Shareholder views
In preparing the 2021 Policy, the Company carried out an extensive
shareholder consultation exercise with our largest shareholders and
representative bodies to seek feedback on the main changes proposed.
The Remuneration Committee was pleased with the support
of our largest shareholders for the new Remuneration Policy.
Shareholders were pleased to see the overarching principles of
the Policy retained, whilst welcoming the Company’s commitment
to a second, sustainability-focused performance measure in the
LTIP as well as a post employment shareholding requirement.
No changes were, therefore, made to the original Policy proposals.
The Committee engages proactively with the Company’s major
shareholders and is committed to maintaining an open dialogue.
The Committee reviews any feedback received from shareholders
as a result of the AGM process. Committee members are available
to answer questions at the AGM and throughout the rest of the year.
The Committee takes into consideration the latest views of investor
bodies and their representatives, including the Investment Association,
the Pension and Lifetime Savings Association and proxy advice
agencies such as Institutional Shareholder Services.
145
Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION REMUNERATION POLICY CONTINUED
2021 Directors’ Remuneration Policy table
The following table sets out the key elements of the remuneration for the Executive Directors.
Salary
Purpose and link to strategy: To recruit and reward Executive Directors of a suitable calibre for the role and duties.
Operation (including performance metrics) Maximum opportunity
Substantive changes from Policy
agreed at 2018 AGM and rationale
• Salaries for individual Executive Directors
are reviewed annually by the Committee
and normally take effect from 1 July.
• 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), Company performance,
affordability, the wider economic environment
and internal relativities.
• In addition, when the Committee determines
a benchmarking exercise is appropriate it will
also consider salaries within the ranges paid
by the companies in the comparator groups
used for remuneration benchmarking.
• The Committee intends to review the
comparators periodically and may add or
remove companies from the Group as it
considers appropriate. Any changes to the
comparator groups will be set out in the section
headed Implementation of Remuneration Policy,
in the following financial year.
• Details of the current salary levels for the
No changes.
Executive Directors are set out in the Annual
Report on Remuneration on page 142.
• Any increase to Executive 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.
• The Company, where appropriate, may set
salary levels below the market reference
salary at the time of appointment, with
the intention of bringing the salary levels
in line with the market as the individual
gains the relevant experience. In such
cases, subsequent increases in salary
may be higher than the general rises
for employees until the target positioning
is achieved.
Benefits
Purpose and link to strategy: To provide competitive benefits in the market to enable the recruitment and retention of Executive Directors.
Operation (including performance metrics) Maximum opportunity
Substantive changes from Policy
agreed at 2018 AGM and rationale
• A green travel allowance (formerly car
• The value of benefits is based on the cost to
No changes.
the Company and there is no pre-determined
maximum limit. The range and value of the
benefits offered are reviewed periodically.
allowance, changed to recognise the use
of public transport and introduction of our
electric vehicle car scheme), family level
private medical insurance, life assurance,
personal accident insurance, health
screening, an incapacity benefits scheme
and other incidental benefits and expenses.
• The Committee recognises the need to
maintain suitable flexibility in the benefits
provided to ensure it is able to support
the objective of attracting and retaining
personnel in order to deliver the Group
strategy. Therefore, additional benefits
such as 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.
146
Severn Trent Plc Annual Report and Accounts 2021 Pension
Purpose and link to strategy: To provide pension arrangements comparable with similar companies in the market to enable the recruitment
and retention of Executive Directors.
Operation (including performance metrics) Maximum opportunity
• The Company maintains a defined
contribution scheme and/or cash
supplement in lieu of pension.
• For current Executive Directors, the company
contribution to a pension scheme and/or cash
allowance will be reduced in stages from a
maximum of 25% of salary to 15% of salary
by 1 April 2022.
• For any new appointment, the contribution
will be up to a maximum of 15% of salary.
Substantive changes from Policy
agreed at 2018 AGM and rationale
• No change for new appointments.
• Current Executive Director pensions will
be reduced in stages from 25% of salary
in 2019 to 15% of salary by April 2022.
• This change aligns pension contribution
quantum for all Executive Directors with
the maximum 15% contribution available to
members of the Severn Trent Group Pension
Plan (the majority of the wider workforce).
Annual bonus
Purpose and link to strategy: To encourage improved financial and operational performance, and to align the interests of Executive
Directors with shareholders through the partial deferral of payment in shares.
Substantive changes from Policy
agreed at 2018 AGM and rationale
No changes other than the enhancement
of malus and clawback provisions.
Operation (including performance metrics) Maximum opportunity
• The maximum annual bonus payment
will equal 120% of salary for maximum
performance. For threshold performance,
0% of maximum opportunity will be paid.
For target performance 50% of maximum
opportunity will be paid.
• 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, 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.
• In exceptional circumstances the Committee
retains the discretion to:
a) Change the performance measures and
targets and the weighting attached to the
performance measures and targets part
way through a performance year if there
is a significant and material event which
causes the Committee to believe the
original measures, weightings and
targets are no longer appropriate; and
b) Make downward or upward adjustments
to the amount of bonus earned resulting
from the application of the performance
measures, if the Committee believe that the
bonus outcomes are not a fair and accurate
reflection of business performance.
• Bonuses are based on financial, operational,
customer and personal performance over a
performance period of one financial year.
• 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). There are no further performance
targets on the deferred amount.
• 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. However, no more than 20% of the
bonus will relate to personal contribution
(where applicable) for any Executive Director.
Robust and demanding targets are set taking
into account the operating environment and
priorities, market expectations and the
business plan for the year ahead.
• The Committee is of the opinion that given
the commercial sensitivity arising in relation
to the detailed financial targets used for the
bonus, disclosing precise targets for the
Plan in advance would not be in shareholder
interests. Therefore, performance targets
and performance achieved will be published
at the end of the performance period so
shareholders can fully assess the basis for
any pay outs under the Plan.
• Malus and clawback mechanisms also apply
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, errors in calculation,
misconduct, reputational damage, regulatory
censure or corporate failure of the Company.
• Any exercise of discretion by the Committee
will be communicated to shareholders in full
in the following year’s Directors’
Remuneration Report.
• Cessation of employment and change of
control provisions apply as set out in the
notes to the Policy table.
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LTIP
Purpose and link to strategy: To encourage strong and sustained improvements in financial performance, in line with the Company’s
strategy and long-term shareholder returns.
Substantive changes from Policy
agreed at 2018 AGM and rationale
• Enhancement of malus and clawback provisions.
• Introduction of second performance measure
alongside RoRE. A portion of awards, as
determined annually by the Committee,
will be based on a sustainability measure.
• The Committee’s rationale for introducing
an additional sustainability measure is
as follows:
• It aligns with Severn Trent’s strategy to
focus management on superior financial
performance together with a focus on
long-term sustainability and operating
the business in an environmentally and
socially conscious way.
• It will provide a clear link between
remuneration and the Company’s social
purpose and Sustainability Framework
including its commitments on matters
such as climate change, specifically,
reducing the Company’s carbon footprint
as evidenced through the Company’s
Triple Carbon Pledge commitment.
• It is consistent with the concept of
‘responsible investing’, whereby
shareholders are increasingly seeking
investments that reflect their core values
and the Company is mindful of the
increasing importance of this for other
stakeholders too.
Operation (including performance metrics) Maximum opportunity
• Awards are granted annually and will be
subject to one or more performance conditions
which will be assessed over three years.
• Maximum limit is 200% of salary. Up to
25% of an award may vest for threshold
performance, as applicable.
• The Committee will review the measures,
weightings and targets before each grant
to ensure they remain appropriate. The
Committee may change the weighting of
the measure, or use different measures
for subsequent awards, as appropriate.
• 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,
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.
• In exceptional circumstances the Committee
retains the discretion to:
a) Change the performance measures and
targets and the weighting attached to the
performance measures and targets part
way through a performance year if there
is a significant and material event which
causes the Committee to believe the
original measures, weightings and targets
are no longer appropriate; and
b) Make downward or upward adjustments
to the amount earned resulting from the
application of the performance measures,
if the Committee believes that the LTIP
outcomes are not a fair and accurate
reflection of business performance.
• 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%).
• A two-year holding period will apply following
the three-year vesting period for LTIP Awards
granted to the Executive Directors.
• For the first LTIP Awards under this Policy,
the following will apply:
• 80% of the maximum LTIP Award will
be based on RoRE and will require the
Company’s RoRE to outperform the target
set out in Ofwat’s Final Determination and,
for full vesting, to deliver upper quartile
relative performance compared with other
water companies. This reflects the greater
focus of Ofwat on the relative performance
of water companies and the tougher
regulatory context during AMP7.
• 20% of the maximum LTIP award will be
based on a sustainability measure. The
measure will be based on the Company’s
Sustainability Framework.
• Using RoRE to assess long-term performance
reflects the focus of Ofwat in AMP7 and is
consistent with our aim to deliver efficient
returns to shareholders. RoRE measures the
returns (after tax and interest) that companies
have earned by reference to the notional
regulated equity, where regulated equity
is calculated from the RCV and notional net
debt. 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.
• The Committee believes that including
sustainability within the long-term incentive
framework is important given the Company’s
ambitious long-term sustainability
commitments.
• The structure of the sustainability measure
and targets will vary based on the nature of
the target set (e.g. for milestone targets it may
not always be practicable to set such targets
using a graduated scale and so vesting may
take place in full for strategic targets if the
criteria are met in full). Full disclosure of
targets and the verification process for
measures will be disclosed in the Directors’
Remuneration Report.
• Different performance measures, targets
and/or weightings may be set for future LTIP
Awards to reflect the business strategy and
regulatory framework operating at that time.
• No material change will be made to the type
of performance measure without prior
shareholder consultation.
• Dividend enhancement may be applied to
vesting awards and dividend equivalent shares
transferred based on the dividends that could
have been acquired on the vested shares
during the vesting period. Awards may also
be settled in cash in certain circumstances.
(continued on next page)
148
Severn Trent Plc Annual Report and Accounts 2021 LTIP continued
Operation (including performance metrics)
continued
• Malus and clawback mechanisms apply to
allow the recoupment of incentive awards
within three years of vesting in the event of
financial misstatement, errors in calculation,
misconduct, reputational damage, regulatory
censure or corporate failure of the Company.
• Cessation of employment and change of
control provisions apply as set out in the
notes to the Policy table.
All-employee share plans
Purpose and link to strategy: 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.
Operation (including performance metrics) Maximum opportunity
Substantive changes from Policy
agreed at 2018 AGM and rationale
• The Executive Directors are able to
participate in HMRC tax advantaged
all-employee share plans on the same
terms as other eligible employees.
• The maximum limits under the plans are as
No changes.
set by HMRC.
Shareholding requirements
Purpose and link to strategy: To encourage strong shareholder alignment both during and after employment with the Company.
Operation (including performance metrics) Maximum opportunity
N/A
• The Company operates shareholding
requirements under which Executive
Directors are expected to build and
maintain a shareholding in the Company.
• The CEO is expected to build and maintain
a holding of shares to the value of 300% of salary,
and other Executive Directors 200% 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 requirements have been met.
• The Committee retains the discretion to increase
the shareholding requirements as appropriate.
• In addition, a post-employment shareholding
requirement will apply to Executive Directors
who leave the Company. Leavers will have a
requirement to maintain their in-employment
shareholding requirement (or actual
shareholding, if lower) for two years following
cessation of employment. This requirement will
apply to shares acquired under share plan
awards granted following approval of this Policy.
• The enforcement mechanism for the post-
employment shareholding requirement will be
facilitated through the Employee Benefit Trust
(‘EBT’). On LTIP vesting, shares will be
transferred to the EBT (net of tax and national
insurance liabilities) to be held on behalf of the
Executive Directors for two years following
cessation of employment. Shares purchased
by Executive Directors utilising their own funds
will not be included in the post-employment
shareholding requirement.
Substantive changes from Policy
agreed at 2018 AGM and rationale
• Introduction of a post-employment
shareholding requirement.
• A post-employment shareholding
requirement will support alignment
between Executive Directors and the
long-term interests of shareholders.
• This will also align the Company with
the latest provisions of the 2018 UK
Corporate Governance Code.
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Notes to the Policy tables
Legacy arrangements – for the avoidance of doubt, the Committee may
approve payments to satisfy commitments agreed prior to the approval
of this Remuneration Policy, for example, those outstanding and
unvested incentive awards which have been disclosed to shareholders
in previous Remuneration Reports.
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 such appointments.
Approach to recruitment and promotion
The Company’s approach is for the remuneration of any new Director to be assessed in line with the principles applied to the Executive
Directors. The Committee is mindful that it wishes to avoid paying more than it considers necessary to secure a preferred candidate with
the appropriate calibre and experience needed for the role. In setting the remuneration for new recruits, the Committee will have regard
to guidelines and shareholder sentiment regarding one-off or enhanced short-term or long-term incentive payments as well as giving
consideration to the appropriateness of any performance measures associated with an award.
Item
Policy
Salary, benefits and pension
• These will be set in line with the Policy for existing Executive Directors.
Annual bonus
• Maximum annual participation will be set in line with the Company’s Policy for existing
Executive Directors and will not exceed 120% of salary.
LTIP
• Maximum annual participation will be set in line with the Company’s Policy for existing
Executive Directors and will not exceed 200% of salary.
Maximum variable remuneration
• The maximum variable remuneration which may be granted is 320% of salary
(excluding any buy outs).
‘Buyout’ of incentives forfeited
on cessation of employment
• Where the Committee determines that the individual circumstances of recruitment
justifies the provision of a buyout, the equivalent value of any incentives that will be
forfeited on cessation of an Executive Director’s previous employment will be calculated
taking into account the following: the proportion of the performance period completed on
the date of the Executive Director’s cessation of employment; the performance conditions
attached to the vesting of these incentives and the likelihood of them being satisfied; and
any other terms and condition having a material effect on their value (‘lapsed value’).
• The Committee may then grant up to the same value as the lapsed value, where possible,
under the Company’s incentive plans. To the extent that it was not possible or practical to
provide the buyout within the terms of the Company’s existing incentive plans, a bespoke
arrangement would be used.
Relocation policies
• In instances where the new Executive Director is required to relocate or spend significant
Internal promotions
time away from his/her normal residence, the Company may provide one-off compensation
to reflect the cost of relocation for the Executive Director. The level of the relocation
package will be assessed on a case-by-case basis but will take into consideration any cost
of living differences/ housing allowance, disturbance allowances and schooling.
• 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. These would be disclosed to shareholders in the Remuneration Report for the
relevant financial year. Otherwise their remuneration would be set applying the principles
set out above.
The Company’s Policy when setting fees for the appointment of new Non-Executive Directors is to apply the policy which applies to current
Non-Executive Directors, which is set out on page 153.
150
Severn Trent Plc Annual Report and Accounts 2021 Service contracts and Letters of Appointment for Executives
Name
Date of service contract
Nature of contract
Notice period Termination payments
Liv Garfield
10.04.14
James Bowling 01.04.15
Rolling
12 months
Payments for loss of office comprise a maximum
of 12 months’ salary and benefits only
Copies of the service contracts of the Executive Directors and the Letters of Appointment of the Non-Executive Directors are available for
inspection at the Company’s registered office during normal business hours.
Policy on Payments for Loss of Office
When determining any loss of office payment for a departing Executive Director, the Remuneration Committee will always seek to minimise
the cost to the Group while complying with the contractual terms agreed and seeking to reflect the circumstances in place at the time.
The remuneration related elements of the current contracts for Executive Directors are shown in the table below, together with details
of the treatment on cessation of employment. No changes from the 2018 Policy are proposed.
Element
General
Treatment on cessation of employment
The Committee will honour Executive Directors’ contractual entitlements. Service contracts do not
contain liquidated damages clauses. If a contract is to be terminated, the Committee will determine such
mitigation as it considers fair and reasonable in each case. There are no contractual arrangements that
would guarantee a pension with limited or no abatement on severance or early retirement. There is no
agreement between the Company and its Directors or employees providing for compensation for loss of
office or employment that occurs because of a takeover bid. The Committee reserves the right to make
additional payments where such payments are made in good faith in discharge of an existing legal
obligation (or by way of damages for breach of such an obligation); or by way of settlement or compromise
of any claim arising in connection with the termination of an Executive Director’s office or employment.
Salary, benefits and pension
These will be paid over the notice period. The Company has discretion to make a lump sum payment in lieu.
Annual bonus cash awards
Good leaver reason(i)
Other reason
Performance conditions will be measured
at the bonus measurement date. Bonus will
normally be pro-rated for the period worked
during the financial year.
Discretion
No bonus will be payable for year of cessation.
The Committee has the following elements of discretion:
• To determine that an Executive Director should be treated as a good leaver and receive a bonus
for the year of cessation; it is the Committee’s intention to use this discretion only in circumstances
where there is an appropriate business case which will be explained in full to shareholders.
• To determine whether to pro-rate the bonus for time; the Remuneration Committee’s normal
policy is to pro-rate for time. It is the Committee’s intention only to use discretion not to pro-rate
in circumstances where there is an appropriate business case, based on the circumstances of
the Executive Director’s departure. Use of discretion will be explained in full to shareholders.
• The bonus would be paid at the same time as for the other Executive Directors and, if the Executive
has left employment by that date, it may be paid solely in cash.
Good leaver reason(i)
Other reason
All subsisting deferred share awards will
vest on cessation.
All subsisting deferred share awards will vest on
cessation with the exception of summary dismissal of the
participant, when any deferred share award held by the
individual shall lapse immediately on such termination.
Discretion
The Committee has the following elements of discretion:
• To determine whether deferred shares should vest at the end of the original deferral period or at the
date of cessation; the Committee will make this determination depending on the reason for cessation.
• To determine whether to pro-rate the maximum number of shares for time from the date of grant to
the date of cessation; the Committee’s normal policy is not to pro-rate awards for time. The Committee
will determine whether to pro-rate based on the reason for cessation.
Annual bonus deferred
share awards
(continued on next page)
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Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION REMUNERATION POLICY CONTINUED
Policy on Payments for Loss of Office continued
Element
Treatment on cessation of employment
LTIP
Good leaver reason(i)
Other reason
Subsisting awards continue to be capable
of vesting on a pro-rated time and
performance basis.
Discretion
All subsisting awards will lapse on cessation.
The Committee has the following elements of discretion:
• To determine that the Executive Director should be treated as a good leaver such that LTIP
awards continue to be capable of vesting; it is the Committee’s intention to use this discretion
only in circumstances where there is an appropriate business case which will be explained in
full to shareholders.
• To allow awards to vest, and to measure, at the date of cessation. The Committee will make this
determination depending on the reason for cessation.
• To determine whether to pro-rate for time; the Committee’s normal policy is to pro-rate awards
based on the proportion of the performance period which has elapsed to the date of cessation.
In circumstances where there is an appropriate business case based on the circumstances of
the Executive Director’s departure, the Committee may use discretion and not pro-rate. Use
of discretion will be explained in full to shareholders.
Where cessation of employment occurs during any holding period the LTIP award will continue as
normal. However, the Committee retains discretion to allow the award to vest when cessation of
employment occurs in certain circumstances, such as:
• Where the reason for departure is death, disability or ill-health;
• Where there are extenuating factors which impact at the time of departure (such as unforeseen
changes to personal circumstances); or
• Any other reason, permitted by the Committee in its absolute discretion in any particular case,
except where termination is for dishonesty, fraud, misconduct or other circumstances justifying
summary dismissal (in which cases it is very likely any outstanding LTIP awards would lapse
on cessation regardless).
Holding periods
Other
The Company is adopting replacement share plans (the annual bonus scheme and Long Term Incentive
Plan, which is subject to approval from shareholders at the AGM) in 2021. As described above, the
Company retains the ability to satisfy outstanding and unvested incentive awards under the legacy
incentive plans as described in the previous Remuneration Policy.
(i)
Good leaver reasons include injury, ill-health or disability, redundancy or retirement (in each case, as determined by the Committee) and death. The Committee also retains an overall
discretion to determine that an individual be treated as a good leaver.
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 would be transferred in accordance with the terms of the plans as approved by HMRC.
Policy on change of control
The change of control provisions applying to incentive awards are set out in the relevant plan rules and are summarised below.
Element
Operation
Discretion
Annual bonus cash awards
for the year in which a
change of control occurs
Pro-rated for time and performance
to the date of the change of control.
Annual bonus
deferred share awards
Subsisting deferred share awards
will vest on a change of control.
Subsisting LTIP awards will vest on a
change of control, pro-rated for time
and performance. The holding period
will not apply on change of control.
LTIP
152
The Committee has discretion regarding whether to pro-rate
the bonus for time; the Committee’s normal policy is that it
will pro-rate the bonus for time. In circumstances where
there is an appropriate business case, the Committee may
use discretion and not pro-rate. Use of discretion will be
explained in full to shareholders.
The Committee has discretion regarding whether to pro-rate
the awards for time; the Committee’s normal policy is that it
will not pro-rate awards for time. The Committee will make
this determination depending on the circumstances of the
change of control.
The Committee has discretion regarding whether to pro-rate
the LTIP awards for time; the Committee’s normal policy is
that it will pro-rate the LTIP awards for time. In circumstances
where there is an appropriate business case, the Committee
may use discretion and not pro-rate. Use of discretion will be
explained in full to shareholders.
Severn Trent Plc Annual Report and Accounts 2021 Chair and Non-Executive Directors
The Remuneration Policy for Non-Executive Directors, other than the Chair, is determined by the Chair and Executive Directors. The fee for
the Chair is determined by the Remuneration Committee (without the Chair present). No changes to the 2018 Policy are proposed.
Element Purpose and link to strategy Operation
Fee
To recruit and retain
Non-Executive Directors
of a suitable calibre for the
role and duties required.
Board fee with additional fees paid for the Senior Independent Director
and for chairing the Board Committees. The Chair receives a total fee
in respect of 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 Chair 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) effective from 1 July.
The Company retains the flexibility to pay fees for the membership
of committees.
In exceptional circumstances, fees may also be paid for additional
time spent on the Company’s business outside normal duties.
Non-Executive Directors do not participate in any variable
remuneration or receive any other benefits.
Maximum opportunity
Details of the current
fee levels for the
Non-Executive
Directors are set
out on page 131.
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, Non-Executive Directors 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. The Company follows the 2018 UK Corporate Governance Code’s recommendation
that all directors of FTSE350 companies be subject to annual appointment or reappointment at the AGM.
Application of the Remuneration Policy
The charts below provide an illustration of what could be received by
each of the Executive Directors under the new Remuneration Policy for
2021/22. These charts are illustrative as the actual value will depend on
business performance in the year 2021/22 (for the annual bonus) and in
the three year period to 2023/2024 (for the LTIP), as well as share price
performance to the date of the vesting of LTIP awards in 2024.
The maximum scenario also includes an additional bar which shows
the impact of 50% share price growth on the LTIP outcome over
the relevant performance period to show how the package value is
aligned to shareholders. It is a key part of our Remuneration Policy to
align interests of the Executive Directors and shareholders through
the provision of a substantial element of remuneration in shares.
Increases in the value of remuneration through an increase in share
price are evidence of the direct link between the interests of the two.
Remuneration scenarios
)
0
0
0
’
£
(
n
o
i
t
a
r
e
n
u
m
e
R
4500
4000
3500
3000
2500
2000
1500
1000
500
0
4,102
759
3,343
1,518
1,518
911
156
759
911
156
759
2,129
759
455
156
759
915
156
759
Minimum
On-target
Maximum
Chief Executive Officer
Maximum with
50% share
price growth
557
100
457
Minimum
1,175
343
274
100
457
On-target
1,792
686
549
100
457
Maximum
Chief Financial Officer
2,135
343
686
549
100
457
Maximum with
50% share
price growth
Salary
Benefit and Pensions
Annual Bonus
Long-term share awards
Share price appreciation
Note: Minimum pay is fixed pay only (i.e. salary + benefits + pension). On-target pay includes fixed pay, 50% of the maximum bonus (equal to 60% of salary for both the CEO and the CFO)
and 50% vesting of the LTIP awards (with grant levels of 200% of salary for the CEO and 150% of salary for the CFO). Maximum pay includes fixed pay and assumes 100% vesting of both
the annual bonus and the LTIP awards. Salary levels (which are the base on which other elements of the package are calculated) are based on those applying at 1 July 2021. The value of
taxable benefits is the cost of providing those benefits in the year ended 31 March 2021. The Executive Directors are also permitted to participate in HMRC tax advantaged all-employee
share plans, on the same terms as other eligible employees, but they have been excluded from the above graph for simplicity.
Philip Remnant
Chairman of the
Remuneration Committee
18 May 2021
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Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION
DIRECTORS’ REPORT
Directors’ Report
The Directors’ Report for the year ended 31 March 2021 comprises
pages 154 to 157 of this report, together with the sections of the
Annual Report incorporated by reference. The Governance Report
set out on pages 80 to 153 is incorporated by reference into this
report and, accordingly, should be read as part of this report.
As permitted by legislation, some of the matters required to be
included in the Directors’ Report have instead been included in
the Strategic Report on pages 2 to 79, as the Board considers
them to be of strategic importance.
Principal activity
The principal activity of the Group is to treat and provide water and
remove waste water in the UK. Details of the principal joint ventures,
associated and subsidiary undertakings of the Group as at 31 March
2021 are shown in notes 11 and 44 to the Group financial statements.
Areas of operation
During the course of 2020/21, the Group had activities and operations
in the UK.
Specifically, these are:
• The Performance Review on pages 20 to 30 provides detailed
information relating to the Group, its business model and strategy,
operation of its businesses, future developments and the results
and financial position for the year ended 31 March 2021;
• Future business developments (throughout the Strategic Report);
• Details of the Group’s policy on addressing the Principal Risks and
uncertainties facing the Group, which are set out in the Strategic
Report on pages 40 to 45;
• Information on the Group’s greenhouse gas (‘GHG’) emissions for
the year ended 31 March 2021, contained within Our Taskforce on
Climate-related Financial Disclosures (‘TCFD’) on pages 54 to 67;
• How we have engaged with our people and stakeholders on
pages 68 to 71;
• Business relationships (throughout the Strategic Report);
• Section 172 Statement on pages 76 to 78.
Directors and their interests
Biographies of the Directors currently serving on the Board are set
out on pages 86 to 87.
As set out in the Notice of Meeting, all the Directors will retire at this
year’s Annual General Meeting (‘AGM’) and those seeking re-election
will submit themselves for reappointment by shareholders. All Directors
seeking reappointment were subject to a formal and rigorous performance
evaluation, further details of which can be found on pages 98 to 99.
Details of Directors’ service contracts are set out in the Directors’
Remuneration Report on page 144. The interests of the Directors in
the shares of the Company are also shown on page 144 of that report.
The Board has a documented process in place in respect of conflicts.
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 indemnities were in force throughout the tenure of each
Director during the last financial year and are currently in force.
Severn Trent Plc does not have in place any indemnities for the benefit
of the External Auditor.
Disclosures required under Listing Rule 9.8.4R
The information required to be disclosed in accordance with Listing Rule 9.8.4R of the Financial Conduct Authority’s Listing Rules
can be located in the following pages of this Annual Report and Accounts:
Section
(1)
(4)
Information to be included
A statement of the amount of interest capitalised
Details of long-term incentive schemes
Location
Page 187
Page 130
(2), (5), (6), (7), (8)-(14)
Not applicable
Not applicable
The Strategic Report and the Directors’ Report together form the Management Report for the purposes of the Disclosure Guidance and
Transparency Rules (DTR) 4.1.8R. Information relating to financial instruments can be found on pages 210 to 214 and is incorporated by
reference. For information on our approach to social, environmental and ethical matters, please refer to Our TCFD Disclosures on pages 54
to 67 and our separately published Sustainability Report, available at severntrent.co.uk.
154
Severn Trent Plc Annual Report and Accounts 2021 Business relationships
Pages 68 and 71 demonstrate how the Directors have had regard
to key stakeholders and how the effect of that regard had influenced
the principal decisions taken by the Company during the financial
year. The Board considers its Section 172 Statement to be of strategic
importance and is therefore incorporated into the Directors’
Report by cross-reference.
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 for the year totalled
£3.3 million.
Internal controls
Further details of our internal control framework can be found in
the Audit Committee Report on page 111.
Treasury management
Details on our Treasury Policy and management are set out in the
Chief Financial Officer’s Review on pages 31 to 37.
Post balance sheet events
Details of post balance sheet events are set out in note 41 to the
Group financial statements.
Dividends
An interim dividend of 40.63 pence per Ordinary Share was paid on
6 January 2021. The Directors recommend a final dividend of 60.95
pence per Ordinary Share to be paid on 16 July 2021 to shareholders
on the register on 28 May 2021. This would bring the total dividend for
2020/21 to 101.58 pence per Ordinary Share (2019/20: 100.08 pence).
The payment of the final dividend is subject to shareholder approval
at the Annual General Meeting (‘AGM’).
Dividend policy
Following publication of the Final Determination by Ofwat, in
2019/20 the Board approved its Dividend Policy for the period 2020-
25. Dividends during the AMP7 period will increase by at least CPIH.
This replaced the previous Dividend Policy of growth of at least RPI
+4% each year.
The Dividend Policy reflects our strong operational delivery and
financial performance, the Final Determination and our robust
balance sheet and financial resilience. 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.
Employees
The average number of employees within the Group is shown in note 9
to the Group financial statements.
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 do not discriminate in any way – we want to create and
maintain an inclusive culture which reflects a diverse population.
Severn Trent believes that no one should be hurt or made unwell
by what we do. We did not experience any major safety incidents
and there were no fatalities during the year.
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 them in employment with us.
All our training, promotion and career development processes
are in place for all our employees to access, regardless of their
gender, ethnicity, age or disability. The provision of occupational
health programmes is of crucial importance to Severn Trent with
the aim of keeping our employees fit, healthy and well. We also
provide expert counselling support across a wide range of issues
through our employee assistance programme.
Additional information on our diversity aims and progress can be
found on page 73.
Employee engagement
Due to our commitment to transparent and best practice reporting,
we have included the section on Our People on page 72 of the Strategic
Report as the Board considers these disclosures to be of strategic
importance and they are therefore incorporated into the Directors’
Report by cross-reference. Pages 68 to 71 demonstrate how the
Directors have engaged with employees and how they have had
regard to employee interests and the effect of that regard including
the principal decisions by the Company during the financial year.
The Company is also 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.
73.9% of Severn Trent’s employees now participate in Sharesave,
with 26.3% of participants saving the maximum of £500 per month.
We are delighted that 77% of our employees are also shareholders
in the Company.
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.
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Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION DIRECTORS’ REPORT CONTINUED
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. 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 or 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 Group
financial statements. 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 2018 UK Corporate
Governance Code (the ‘2018 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 Matters Reserved to the Board document and the
Articles, both of which can be found on our website.
Under the Articles, the Directors have authority to allot Ordinary
Shares, subject to the aggregate nominal amount limit set at
the 2020 AGM.
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 because of a takeover bid.
Authority to purchase shares
The Company was given authority at its AGM in 2020 to make
market purchases of Ordinary Shares up to a maximum number
of 23,834,985 Ordinary Shares. During the year, no Ordinary Shares
have been repurchased.
Authority will again be sought from shareholders at this year’s
AGM to purchase up to a maximum of 23,937,475 Ordinary Shares.
The Directors believe that it is desirable to have the general
authority to buy back the Company’s Ordinary Shares in order
to provide maximum flexibility in the management of the Group’s
capital resources. However, the authority would only be used if
the Board was satisfied at the time that to do so would be in the
best interests of shareholders.
Contributions for political and charitable purposes
Donations to charitable organisations during the year amounted
to £6,916,014 (2020: £3,518,470). Donations are principally 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. You can read more about the work
of our Community Fund on page 22.
Substantial shareholdings
As at 31 March 2021, the Company had been notified in accordance with Chapter 5 of the Disclosure Guidance and Transparency Rules
of the following major shareholdings:
Name of Holder
BlackRock
Lazard Asset Management
Qatar Investment Authority
Vanguard Group
Legal & General Investment Management
Aviva Investors
SSGA
Number of Ordinary Shares
Voting rights held (%)
20,929,807
18,227,029
11,599,565
10,037,336
9,229,390
8,062,013
7,518,099
8.76
7.63
4.86
4.20
3.86
3.37
3.15
As at 18 May 2021, the company had been notified of the following holdings of voting rights in the Ordinary Share capital of the Company:
BlackRock 21,983,498 shares (9.20%), Lazard Asset Management 18,311,501 shares (7.67%), Qatar Investment Authority 11,599,565 shares
(4.86%), Vanguard Group 9,782,797 shares (4.1%), Legal & General Investment Management 9,309,590 shares (3.90%), SSGA 7,420,748
shares (3.11%), Aviva Investors 7,409,130 shares (3.10%).
The percentage of voting rights detailed above was calculated at the time of the relevant disclosures were made in accordance with Rule
5 of the Disclosure Guidance and Transparency Rules.
156
Severn Trent Plc Annual Report and Accounts 2021 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.
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’) and,
as such, prompt payment policies are reviewed on a regular basis.
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.
Throughout the year, as part of our response to the COVID-19
pandemic, we have been supporting small and medium enterprises
in our region by accelerating payments to our supply chain. You
can read more about how we have worked with our suppliers and
contractors during this difficult time on page 70.
For the payment practices reporting period ended 31 March 2021,
the average time to pay for Severn Trent Water Limited was 26 days.
Relevant audit information
The Directors confirm that:
• So far as each of them is aware, there is no relevant audit
information of which the Company’s Auditor is unaware; and
• Each of them has taken all the steps that they ought to have
taken as a Director to make themselves aware of any relevant
audit information and to establish that the Company’s Auditor
is aware of that information.
This confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Companies Act 2006.
External Auditor
Having carried out a review of its effectiveness during the year, details
of which can be found in the Audit Committee Report on page 109, 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 2021 AGM. Deloitte LLP indicated its
willingness to continue as Auditor. The Audit Committee will also be
responsible for determining the audit fee on behalf of the Board.
Carbon footprint
We play a leading role in reducing our greenhouse gas emissions.
We have committed to achieving net-zero operational carbon
emissions by 2030, building on our long track record of making
year-on-year reductions in our emissions. We also committed to
generating or procuring 100% renewable energy and moving our
fleet to 100% electric vehicles by 2030, where available.
The Board considers environmental matters to be of strategic
importance and therefore relevant information contained in
Our TCFD Disclosures on pages 54 to 67 of the Strategic Report
is incorporated into the Directors’ Report by cross-reference.
The TCFD Disclosure includes our annual report on greenhouse
gas emissions along with details of our energy consumption across
the Group and how we manage energy use.
Accounts of Severn Trent Water Limited and
Hafren Dyfrdwy Cyfyngedig
Separate Annual Reports for each of Severn Trent Water Limited and
Hafren Dyfrdwy Cyfyngedig will be made available on their respective
websites in due course.
Additionally, Annual Performance Reports for each of Severn Trent
Water Limited and Hafren Dyfrdwy Cyfyngedig are prepared and
provided to Ofwat. Copies will be made available on their respective
websites in due course.
Annual General Meeting
A copy of the Notice of Meeting can be found on the Severn Trent
Plc website.
By order of the Board
Bronagh Kennedy
Group General Counsel and
Company Secretary
18 May 2021
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Severn Trent Plc Annual Report and Accounts 2021STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATION DIRECTORS’ RESPONSIBILITY STATEMENT
Directors’ Responsibility 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 accounting standards in conformity with the
requirements of the Companies Act 2006 and International Financial
Reporting Standards (‘IFRSs’) adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union, and have elected
to prepare the Company financial statements in accordance with
United Kingdom Generally Accepted Practice (United Kingdom
Accounting Standards and applicable law) including FRS 101
Reduced Disclosure Framework.
Under company law the Directors must not approve the accounts
unless they are satisfied that they give a true and fair view of the state
of affairs of the Company and of the profit or loss of the Company
for the year.
In preparing the parent company financial statements, the Directors
are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgments and accounting estimates that are reasonable
and prudent;
• State whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
• Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
In preparing the Group financial statements, International Accounting
Standard 1 requires that Directors:
• Properly select and apply accounting policies;
• Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
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.
Each of the Directors confirm that to the best of their knowledge:
• The financial statements, prepared in accordance with the relevant
financial reporting framework, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company
and the undertakings included in the consolidation taken as a whole;
• The Strategic Report includes a fair review of the development and
performance of the business and the position of the Company and
the undertakings included in the consolidations taken as a whole,
together with a description of the Principal Risks and uncertainties
that they face; and
• The Annual Report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company’s position and
performance, business model and strategy.
This responsibility statement was approved by the Board of Directors
on 18 May 2021 and is signed on its behalf by:
By order of the Board
• 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
Olivia Garfield
Chief Executive
18 May 2021
• Make an assessment of the Company’s ability to continue as a
going concern.
James Bowling
Chief Financial Officer
18 May 2021
158
Severn Trent Plc Annual Report and Accounts 2021 Independent Auditor’s Report
to the Members of Severn Trent Plc
Report on the audit of the financial statements
1.
Opinion
In our opinion:
• the financial statements of Severn Trent Plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of the state
of the group’s and of the parent company’s affairs as at 31 March 2021 and of the group’s profit for the year then ended;
• the group financial statements have been properly prepared in accordance with international accounting standards in conformity with
the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRSs) as adopted by the European Union;
• 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
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated and parent company statements of
comprehensive income;
• the consolidated and parent company balance sheets;
• the consolidated and parent company statements of changes
in equity;
• the consolidated cash flow statement; and
• the related notes to the consolidated financial statements 1 to 44 and
the related notes to the parent company financial statements 1 to 19.
The financial reporting framework that has been applied in the
preparation of the group financial statements is applicable law
and international accounting standards in conformity with the
requirements of the Companies Act 2006 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, including FRS 101 “Reduced Disclosure Framework”
(United Kingdom Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the auditor’s responsibilities
for the audit of the financial statements section of our report.
We are independent of the group and the parent company in
accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the Financial
Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to
listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. The non-audit
services provided to the group and parent company for the year are
disclosed in note 7 to the financial statements. We confirm that the
non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
3.
Summary of our audit approach
Key audit
matters
The key audit matters that we identified in the current year were:
• valuation of the provision for household trade receivables in Severn Trent Water Limited;
• valuation of accrued income for measured customers in Severn Trent Water Limited; and
• classification of capital programme expenditure in Severn Trent Water Limited.
Within this report, key audit matters are identified as follows:
! Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
Scoping
The materiality that we used for the group financial statements was £13.5 million which was determined on the basis of profit
before tax adjusted for gains/losses on financial instruments and exceptional items.
Our scoping has resulted in over 95% of the group’s net operating assets and 97% of profit before tax adjusted for gains/losses
on financial instruments and exceptional items being subject to audit testing.
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STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SEVERN TRENT PLC
Significant
changes in
our approach
COVID-19 has significantly impacted the water consumption by customers. The increased consumption by households
and lower consumption by non-household customers has increased the level of unpredictability of water consumption.
This unpredictability of water consumption has increased the potential level of volatility for accrued income for measured
customers in Severn Trent Water Limited, which has been identified as a new key audit matter for the year ended
31 March 2021.
As at 31 March 2020, the investment balance in the group’s joint venture, Water Plus was reduced to nil, following the group’s
recognition of £46.8 million for its share of losses from the joint venture. Due to the reduction in the value of the group’s
investment in the joint venture, the risk of a material misstatement has reduced, and therefore Accounting for the joint venture
investment is no longer a key audit matter.
As at 31 March 2020 we identified a key audit matter that was focused on the valuations of pension assets with an increased
risk of estimation uncertainty, specifically property funds where the investment managers reported a ‘material valuation
uncertainty’ in their valuation reports. As no property fund valuations have been issued with a material valuation uncertainty
at 31 March 2021, and the range of estimation uncertainty has reduced, this has been removed as a key audit matter.
For the year ended 31 March 2020 we also identified a key audit matter that was focused on the valuations of the liabilities of
the retirement benefit obligations due to the volatility of certain assumptions at the start of the COVID-19 pandemic. As the
volatility has reduced, so has the associated audit effort, and therefore this has been removed as a key audit matter.
Conclusions relating to going concern
4.
In auditing the financial statements, we have concluded that
the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the group’s and
parent company’s ability to continue to adopt the going concern
basis of accounting included:
• reviewing the group’s borrowing arrangements, in particular
the £1.0 billion revolving credit facility, including the sufficiency
of headroom available in the forecasts (cash and covenants);
• assessing the assumptions used in the cash flow forecasts for
consistency with Board approved budgets and future plans for AMP7
and performing sensitivity analysis relating to these assumptions;
• assessing the impact of risks and uncertainties on the business
model and medium-term risks including where relevant the impact
of COVID-19; and
• reviewing the appropriateness of the disclosures provided in the
financial statements.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group’s
and parent company’s ability to continue as a going concern for a
period of at least twelve months from when the financial statements
are authorised for issue.
In relation to the reporting on how the group has applied the UK
Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the directors’ statement in the
financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with
respect to going concern are described in the relevant sections
of this report.
5. Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team.
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.
As noted in section 3, one additional key audit matter was identified
this year.
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Severn Trent Plc Annual Report and Accounts 2021 5.1. Valuation of the provision for household trade receivables in Severn Trent Water Limited
Key audit
matter
description
A portion of household customers do not, or cannot, pay their bills which results in the need for provisions to be made for
non-payment of the related receivables. Management makes estimates regarding the expected future loss rate for current
receivables when calculating the appropriate level of bad debt provision.
The bad debt provision recorded as at 31 March 2021 was £130.8 million (31 March 2020: £134.3 million), which incorporates
management’s estimate of the future impact of COVID-19 on customers’ ability to pay their outstanding bills to Severn Trent
Water Limited.
Provisions are made against Severn Trent Water Limited’s trade receivables based on historical cash collection rates of
debt invoiced seven to nine years ago, which is considered by management to be representative of collection risk on the
whole population of household debtors. An overlay adjustment has been recorded to reflect anticipated changes to cash
collection as a result of COVID-19. The adjustment is based on the historical correlation between unemployment and cash
collection and is impacted by the level of decline and length of the impact on the UK economy.
The key audit matter, which is also a potential fraud risk, has been focused on the valuation of the household bad debt
provision, and specifically whether the experience of debt invoiced seven to nine years ago provides an appropriate
expectation of lifetime expected credit losses under IFRS 9 Financial Instruments, and whether the assumptions used
in determining the COVID-19 adjustment are appropriate.
The Audit Committee also considered this as a significant issue as discussed in the Audit Committee Report on page 112.
The bad debt provision is discussed in note 2p) and note 22 to the financial statements. Management has included this
as a key source of estimation uncertainty in note 4b) to the financial statements.
Our procedures included the following:
• understanding and testing the relevant controls over the base bad debt and COVID-19 overlay models, including
for the supporting data and assumptions;
• testing the completeness and accuracy of the data included within the base bad debt and COVID-19 overlay models;
• testing the allocation of cash received in the current year to debt aged between seven and nine years;
• reconciling the debtor ageing for each debt category used in the bad debt provision model using source data from the
billing system;
• challenging management’s assumptions applied to the COVID-19 overlay, including the estimated correlation between
the unemployment rate and cash collection trends; our procedures included evaluating the reasonableness of economic
data (both forecast and historical) used within the calculation, and performing sensitivity analysis; and
• evaluating management’s assumptions applied to the bad debt provision and challenging whether this represents lifetime
expected credit loss, including review of cash collection data and historical trends.
How the scope
of our audit
responded
to the key
audit matter
Key
observations
We are satisfied that the assumptions applied in assessing the impairment of trade receivables, including the impact of
COVID-19, are reasonable and that Severn Trent Water Limited’s bad debt provision has been properly calculated using
appropriate relevant data and in accordance with IFRS 9.
5.2. Valuation of accrued income for measured customers in Severn Trent Water Limited
!
Key audit
matter
description
For customers with water meters, the revenue recognised depends on the volume of water consumed between the date
of the last meter reading and the year end (accrued income). The accrued income for measured household customers was
£140.1 million (2020: £127.3 million) and non-household customers was £19.9 million (2020: £50.2 million).
The method of estimating accrued income requires assumptions for both estimated water consumption and the related value.
The estimated water consumption for measured customers is based on historical consumption data. The impact of COVID-19
and related lockdown restrictions has introduced a level of volatility into consumption trends for household and non-household
customers compared to historical periods, which has increased the level of judgement required to estimate consumption
between a customer’s last meter read and the year-end. Incorrect estimates of water consumption could lead to a
misstatement of revenue recognised for the year.
The key audit matter, which is also a potential fraud risk, has been focussed on the judgments made by management in
estimating actual consumption when compared to historical consumption patterns, and the resulting manual adjustments
applied to the accrued income estimate.
The Audit Committee also considered this as discussed in the Audit Committee Report on page 112. Accrued income is
referred to in note 2p) and note 22 to the financial statements.
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STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SEVERN TRENT PLC
How the scope
of our audit
responded
to the key
audit matter
Our procedures included the following:
• obtaining an understanding of, and testing, relevant controls within the household and non-household revenue processes,
including review controls addressing the valuation of accrued income;
• for household customers, performing a retrospective review of bills raised during 2020/21 related to the 2019/20 accrued
income balance to assess management’s forecast accuracy;
• performing a recalculation of the household accrued income by using data analytics;
• challenging management’s assumptions applied for non-household and household consumption by comparing to available
market data;
• challenging management’s assumptions regarding the impact of COVID-19 to accrued income by considering contradictory
evidence including operational data regarding water production, household consumption, and the operational status of
business premises; and
• testing the accuracy of the data utilised by management in assessing the valuation adjustments to accrued income.
Key
observations
We are satisfied that management’s estimates in relation to the recognition of Severn Trent Water Limited’s accrued income
for measured household and non-household customers is appropriate.
5.3. Classification of capital programme expenditure in Severn Trent Water Limited
Key audit
matter
description
Severn Trent Water Limited has a substantial capital programme 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.
During the year, Severn Trent Water Limited has invested £540.7 million (2020: £830.0 million) in capital expenditure projects
out of the total group additions of £659.4 million (2020: £956.0 million) disclosed in Note 18. Severn Trent Water Limited spent
a further £147.3 million (2020: £144.5 million) on Infrastructure maintenance expenditure (total group £151.0 million
(2020: £149.6 million) as disclosed in Note 7).
As the determination of whether expenditure is capitalised or expensed in the period directly affects the group’s reported
financial performance, we identified a key audit matter relating to the overstatement of capital expenditure, whether caused
by changes to the group’s capital expenditure policy implementation guidance or by incorrect application of this guidance.
Due to the level of judgement involved, we have determined that there was a potential for fraud through possible manipulation
of this balance.
The Audit Committee also considered this a significant issue as discussed in the Audit Committee Report on page 112.
Management has included this as a critical accounting judgement in note 4a) to the financial statements.
Our procedures included the following:
• reviewing Severn Trent Water Limited’s capitalisation policy and implementation guidance to understand any changes
in the current year and to determine compliance with the relevant accounting standards;
• obtaining an understanding of, and testing, relevant controls over the application of the policy to expenditure incurred
on projects within the group’s capital programme during the year; and
• for a sample of capital projects, assessing the application of the capitalisation policy to the costs incurred by evaluating
the business cases and invoices.
How the scope
of our audit
responded
to the key
audit matter
Key
observations
Management’s capitalisation policy and implementation guidance is consistent with the prior year. We are satisfied that
management has appropriately applied their capitalisation policy and implementation guidance in determining the
expenditures capitalised.
6. Our application of materiality
6.1. 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.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Materiality
£13.5 million (2020: £16.4 million)
Parent company financial statements
£12.8 million (2020: £15.1 million)
Approximately 5% of profit before tax, gains/losses on derivative financial instruments
and exceptional items.
3.0% of net assets (2020: 3.0%)
capped at 95% of group materiality.
Basis for
determining
materiality
162
Severn Trent Plc Annual Report and Accounts 2021
Rationale
for the
benchmark
applied
Profit before tax, gains/losses on financial instruments and exceptional items has
been used in order to focus on the group’s underlying trading performance consistent
with the group’s internal and external reporting. This is consistent with the benchmark
for the year ended 31 March 2019.
The parent company does not
trade or exist for profit generating
purposes so materiality has been
determined using net assets.
For the year ended 31 March 2020, the benchmark included exceptional items which
reflected the increased level of risk and volatility arising from the COVID-19 pandemic
and the significance of the exceptional items on the overall result. The exceptional
items for the current year are much less significant to the overall result and have
been excluded from the benchmark.
Profit before tax, adjusted
for gains/losses on financial
instruments and
exceptional items £278m
Profit before tax, gains/losses
on financial instruments and
exceptional items
Group materiality
Group materiality
£13.5m
Component materiality
range of £0.1m to
£12.8m
Audit Committee
reporting threshold
£0.68m
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.
Group financial statements
70% (2020: 70%) of group materiality
Parent company financial statements
70% (2020: 70%) of parent
company materiality
Group performance materiality was set at 70% of group materiality for the 2021 audit (2020: 70%). In determining performance
materiality, we considered our assessment of the control environment, considering the potential reduction in the effectiveness
of the internal control environment as a result of changes in working patterns since March 2020, as well as the continuity of the
business year on year. We also considered the value of uncorrected misstatements identified in previous years.
Performance
materiality
Basis and
rationale for
determining
performance
materiality
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of £675,000 (2020: £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
Identification and scoping of components
7.
7.1.
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 a group level.
The Regulated Water and Waste Water segment is primarily comprised
of Severn Trent Water Limited which was subject to a full scope audit
using materiality of £12.5 million, (2020: £14.3 million). We have audited
a further seven components using statutory materiality which range
from £0.1 million to £12.8 million (2020: seven components using
statutory materiality which range from £0.5 million to £15.1 million).
Audit work to respond to the risks of material misstatement was
performed directly by the group audit engagement team.
This represents over 95% of the group’s net operating assets (2020:
over 95%) and over 97% of profit before tax adjusted for gains/losses
on financial instruments and exceptional items (2020: over 95%).
At the group 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 full scope
audit procedures.
7.2. Our consideration of the control environment
The group uses SAP, a financial accounting software platform, in all
of the eight components where we have performed a full scope audit.
With the involvement of our Information Technology specialists,
we obtained an understanding of, and relied on, relevant General
Information Technology Controls within the group’s financial
accounting software platform, including access controls, change
management controls and controls around segregation of duties.
We also relied on the relevant controls in respect of household
and non-household revenue, classification of capital programme
expenditure and operating expenditure business processes, which
are supported by the group’s financial accounting software platform.
We tested the operating effectiveness on a sample basis by either
observing or performing each step of the control and obtaining the
relevant evidence to support that it operated as designed.
163
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SEVERN TRENT PLC
8. Other information
The other information comprises the information included in
the annual report, other than the financial statements and our
auditor’s report thereon. The directors are responsible for the
other information contained within the annual report. Our opinion
on the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our report,
we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the course
of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise
to a material misstatement in the financial statements themselves.
If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required
to report that fact.
We have nothing to report in this regard.
Responsibilities of directors
9.
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,
and for such internal control as the directors determine is necessary
to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible
for assessing the group’s and the parent company’s ability to continue
as a going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company
or to cease operations, or have no realistic alternative but to do so.
10.
Auditor’s responsibilities for the audit
of the financial statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken
on the basis of these financial statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
11.
Extent to which the audit was considered capable
of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud
is detailed below.
11.1. Identifying and assessing potential risks related
to irregularities
In identifying and assessing risks of material misstatement in respect
of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
• the nature of the industry and sector, control environment and
business performance including the design of the group’s
164
remuneration policies, key drivers for directors’ remuneration,
bonus levels and performance targets;
• results of our enquiries with management, internal audit and the
Audit Committee, about their own identification and assessment
of the risks of irregularities;
• any matters we identified having obtained and reviewed supporting
documentation, concerning the group’s policies and procedures
relating to:
– identifying, evaluating and complying with laws and regulations
and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they
have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud
or non-compliance with laws and regulations; and
• the matters discussed among the audit engagement team
and relevant internal specialists, including tax, pensions, IT, and
industry specialists regarding how and where fraud might occur
in the financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities
and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following areas:
• valuation of the provision for trade receivables in Severn Trent
Water Limited;
• classification of capital programme expenditure in Severn Trent
Water Limited; and
• valuation of accrued income for household and non-household
measured customers in Severn Trent Water Limited.
In common with all audits under ISAs (UK), we are also required
to perform specific procedures to respond to the risk of
management override.
We obtained an understanding of the legal and regulatory framework
that the group operates in, focusing on those laws and regulations
that had a direct effect on the financial statements or that had a
fundamental effect on the operations of the group. The key laws and
regulations we considered in this context included the UK Companies
Act, Listing Rules, pensions legislation and tax legislation.
In addition, we considered provisions of other laws and regulations that
do not have a direct effect on the financial statements but compliance
with which may be fundamental to the group’s ability to operate or
to avoid a material penalty. These included the licence conditions
imposed by The Water Services Regulation Authority (Ofwat).
11.2. Audit response to risks identified
As a result of performing the above, we identified the valuation of
the provision for household trade receivables in Severn Trent Water
Limited, the classification of capital programme expenditure as
property, plant and equipment in Severn Trent Water Limited, and
the valuation of accrued income for measured customers in Severn
Trent Water Limited as key audit matters related to the potential risk
of fraud. The key audit matters section of our report explains the
matters in more detail and also describes the specific procedures
we performed in response to those key audit matters.
Our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions
of relevant laws and regulations described as having a direct effect
on the financial statements;
• enquiring of management, the audit committee and in-house legal
counsel concerning actual and potential litigation and claims;
Severn Trent Plc Annual Report and Accounts 2021 • performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance,
the Audit Committee, reviewing internal audit reports and
reviewing correspondence with HMRC, Ofwat and other
regulatory authorities; and
• in addressing the risk of fraud through management override of
controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and
potential fraud risks to all engagement team members including
internal specialists, and remained alert to any indications of fraud
or non-compliance with laws and regulations throughout the audit.
Report on other legal and regulatory requirements
12.
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion the part of the directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• 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; and
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• we have not received all the information and explanations
we require for our audit; or
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the parent company financial statements are not in agreement
with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2. 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 in respect of these matters.
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the audit committee, we were
appointed by the Company’s members at its Annual General Meeting
on 26 July 2005 to audit the financial statements for the year ending
31 March 2006 and subsequent financial periods. The period of total
uninterrupted engagement including previous renewals and
reappointments of the firm is 16 years, covering the years ended
31 March 2006 to 31 March 2021.
• the strategic report and the directors’ report have been prepared
15.2. Consistency of the audit report with the additional report
in accordance with applicable legal requirements.
to the audit committee
Our audit opinion is consistent with the additional report to the audit
committee we are required to provide in accordance with ISAs (UK).
16. Use of our report
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.
Jacqueline Holden FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
18 May 2021
In the light of the knowledge and understanding of the group and
the parent company and their environment obtained in the course
of the audit, we have not identified any material misstatements in
the Strategic Report or the Directors’ Report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in
relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the group’s compliance
with the provisions of the UK Corporate Governance Code specified
for our review.
Based on the work undertaken as part of our audit, we have concluded
that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements
and our knowledge obtained during the audit:
• the directors’ statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material
uncertainties identified set out on page 49;
• the directors’ explanation as to its assessment of the group’s
prospects, the period this assessment covers and why the period
is appropriate set out on pages 47 to 49;
• the directors’ statement on fair, balanced and understandable
set out on page 158;
• the board’s confirmation that it has carried out a robust assessment
of the emerging and principal risks set out on pages 40 to 46;
• the section of the annual report that describes the review of
effectiveness of risk management and internal control systems
set out on page 92; and
• the section describing the work of the audit committee set out on
pages 107 to 113.
165
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2021
Consolidated Income Statement
For the year ended 31 March 2021
Turnover
Other income
Operating costs before charge
for bad and doubtful debts
Charge for bad and doubtful debts
Total operating costs
Profit before interest and tax
Finance income
Finance costs
Net finance costs
Gain/(loss) on impairment of loans
receivable
Net losses on financial instruments
Share of net loss of joint venture accounted
for using the equity method
Profit on ordinary activities before
taxation
Current tax
Deferred tax
Taxation on profit on ordinary activities
Profit for the year
Earnings per share (pence)
Basic
Diluted
Note
5,6
7
7
10
11
12
20
13
13
13
Adjusted
£m
1,827.2
–
(1,314.4)
(40.0)
(1,354.4)
472.8
59.8
(246.9)
(187.1)
3.6
(6.2)
(8.9)
274.2
(26.8)
(28.2)
(55.0)
219.2
2021
Adjusting
items
£m
–
–
Total
£m
1,827.2
–
Adjusted
£m
1,843.5
6.9
2020
Adjusting
items
£m
–
–
Total
£m
1,843.5
6.9
(2.1)
(1,316.5)
(1,237.2)
(2.1)
(1,239.3)
–
(2.1)
(2.1)
–
–
–
–
–
(40.0)
(42.9)
(1,356.5)
(1,280.1)
470.7
59.8
(246.9)
(187.1)
3.6
(6.2)
570.3
59.9
(248.3)
(188.4)
–
(17.4)
–
(2.1)
(2.1)
–
–
–
(4.9)
–
(42.9)
(1,282.2)
568.2
59.9
(248.3)
(188.4)
(4.9)
(17.4)
(4.9)
(13.8)
–
(46.8)
(46.8)
(7.0)
267.2
–
–
–
(26.8)
(28.2)
(55.0)
(7.0)
212.2
364.5
(30.1)
(29.1)
(59.2)
305.3
Note
15
15
(53.8)
(0.9)
(91.8)
(92.7)
(146.5)
2021
89.1
88.6
310.7
(31.0)
(120.9)
(151.9)
158.8
2020
66.7
66.3
166
Severn Trent Plc Annual Report and Accounts 2021 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2021
Consolidated Statement of
Comprehensive Income
For the year ended 31 March 2021
Profit for the year
Other comprehensive (loss)/income
Items that will not be reclassified to the income statement:
Net actuarial (losses)/gains
Deferred tax on net actuarial losses/gains
Current tax on pension contributions in prior periods
Deferred tax on pension contributions in prior periods
Deferred tax arising on rate change
Items that may be reclassified to the income statement:
Gains/(losses) on cash flow hedges
Deferred tax on gains/losses on cash flow hedges
Amounts on cash flow hedges transferred to the income statement
Deferred tax on transfer to the income statement
Other comprehensive (loss)/income for the year
Total comprehensive income for the year
Note
28
13
13
13
13
13
12
13
2021
£m
212.2
(162.0)
30.8
–
–
–
2020
£m
158.8
187.4
(32.9)
9.5
(9.5)
2.7
(131.2)
157.2
33.5
(6.3)
8.2
(1.6)
33.8
(97.4)
114.8
(38.9)
7.4
8.2
(1.6)
(24.9)
132.3
291.1
167
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2021
Consolidated Statement of Changes in Equity
For the year ended 31 March 2021
Equity attributable to owners of the Company
Share capital
£m
Note
Share
premium
£m
Other
reserves
£m
235.9
128.0
–
–
–
–
–
–
–
–
–
–
–
0.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9.0
–
–
–
236.5
137.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13
12
13
28
13
13
13
13
30,31
37
13
14
13
12
13
28
13
30,31
0.7
11.1
37
13
13
14
–
–
–
–
–
–
–
–
(24.9)
316.0
291.1
Retained
earnings
£m
705.8
158.8
–
–
–
–
187.4
(32.9)
9.5
(9.5)
2.7
Total
£m
1,162.5
158.8
(38.9)
7.4
8.2
(1.6)
187.4
(32.9)
9.5
(9.5)
2.7
–
8.1
0.8
(228.4)
802.3
212.2
–
–
–
–
(162.0)
30.8
81.0
–
7.8
0.4
0.4
9.6
8.1
0.8
(228.4)
1,243.7
212.2
33.5
(6.3)
8.2
(1.6)
(162.0)
30.8
114.8
11.8
7.8
0.4
0.4
(240.2)
651.7
(240.2)
1,138.7
92.8
–
(38.9)
7.4
8.2
(1.6)
–
–
–
–
–
–
–
–
–
67.9
–
33.5
(6.3)
8.2
(1.6)
–
–
33.8
–
–
–
–
–
237.2
148.1
101.7
At 1 April 2019
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 transfer to the income statement
Net actuarial gains
Deferred tax on net actuarial gains
Current tax on pension contributions in prior periods
Deferred tax on pension contributions in prior periods
Deferred tax arising from rate change
Total comprehensive income for the year
Share options and LTIPs
– proceeds from shares issued
– value of employees’ services
Deferred tax on share based payments
Dividends paid
At 31 March 2020
Profit for the year
Gains on cash flow hedges
Deferred tax on gains on cash flow hedges
Amounts on cash flow hedges transferred
to the income statement
Deferred tax on transfer to the income statement
Net actuarial losses
Deferred tax on net actuarial losses
Total comprehensive income for the year
Share options and LTIPs
– proceeds from shares issued
– value of employees' services
Current tax on share based payments
Deferred tax on share based payments
Dividends paid
At 31 March 2021
168
Severn Trent Plc Annual Report and Accounts 2021 CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2021
Consolidated Balance Sheet
As at 31 March 2021
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
Derivative financial instruments
Trade and other receivables
Retirement benefit surplus
Current assets
Inventory
Trade and other receivables
Current tax receivable
Derivative financial instruments
Cash and cash equivalents
Current liabilities
Borrowings
Derivative financial instruments
Trade and other payables
Current tax payable
Provisions for liabilities
Net-current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Trade and other payables
Deferred tax
Retirement benefit obligations
Provisions for liabilities
Net assets
Equity
Called up share capital
Share premium account
Other reserves
Retained earnings
Total equity
Signed on behalf of the Board who approved the accounts on 18 May 2021.
Christine Hodgson
Chair
James Bowling
Chief Financial Officer
Company Number 02366619
Note
16
17
18
19
21
22
28
22
21
23
24
25
26
29
24
25
26
27
28
29
30
31
32
2021
£m
91.4
164.0
2020
£m
91.4
153.8
9,875.2
9,580.8
130.8
37.1
101.5
17.1
128.8
65.5
117.8
21.3
10,417.1
10,159.4
30.8
515.2
–
3.8
56.2
606.0
(503.1)
–
(557.1)
(0.2)
(18.0)
29.2
561.4
3.1
–
48.6
642.3
(475.4)
(4.4)
(573.6)
–
(18.9)
(1,078.4)
(1,072.3)
(472.4)
(430.0)
(6,112.8)
(5,957.7)
(126.9)
(159.2)
(1,250.3)
(1,187.3)
(906.0)
(384.8)
(25.2)
(901.1)
(255.3)
(25.1)
(8,806.0)
(8,485.7)
1,138.7
1,243.7
237.2
148.1
101.7
651.7
236.5
137.0
67.9
802.3
1,138.7
1,243.7
169
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2021
Consolidated Cash Flow Statement
For the year ended 31 March 2021
Cash generated from operations
Tax received
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Purchases of intangible assets
Payments to acquire right-of-use assets
Proceeds on disposal of property, plant and equipment
Proceeds on disposal of subsidiary net of cash disposed
Net loans (advanced to)/repaid by joint venture
Interest received
Net cash outflow from investing activities
Cash flow from financing activities
Interest paid
Interest element of lease payments
Dividends paid to shareholders of the parent
Repayments of borrowings
Principal elements of lease payments
New loans raised
Issues of shares
Payments for swap terminations
Proceeds from swap terminations
Net cash flow from financing activities
Net movement in cash and cash equivalents
Net cash and cash equivalents at the beginning of the year
Net cash and cash equivalents at end of year
Cash at bank and in hand
Short term deposits
Overdraft
170
Note
39
39
39
2021
£m
901.7
–
(23.2)
878.5
(613.7)
(22.2)
(0.7)
2.0
0.7
(1.0)
3.7
2020
£m
928.1
0.4
(34.3)
894.2
(777.2)
(74.8)
–
12.9
–
35.6
2.0
(631.2)
(801.5)
(185.6)
(4.3)
(240.2)
(242.9)
(5.6)
415.1
11.8
(1.1)
0.9
(251.9)
(4.6)
48.6
44.0
56.2
–
(12.2)
44.0
(181.9)
(4.3)
(228.4)
(3.0)
(5.5)
330.1
9.6
(16.8)
16.5
(83.7)
9.0
39.6
48.6
37.3
11.3
–
48.6
Severn Trent Plc Annual Report and Accounts 2021
NOTES TO THE GROUP FINANCIAL STATEMENTS
Notes to the Group Financial Statements
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 49 which sets out the Group’s considerations relating to viability
and going concern) under the historical cost convention, except for
the revaluation of financial instruments including derivatives (refer
to accounting policy notes (t) and (u)), and accounting for the transfer
of assets from customers (refer to accounting policy note (i)).
(i) Consolidated financial statements
The consolidated financial statements have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union.
(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 Application of Financial
Reporting Requirements, accordingly the Company has elected to
apply FRS 101 ‘Reduced Disclosure Framework’.
Therefore the recognition and measurement requirements of
International Financial Reporting Standards adopted pursuant to
Regulation (EC) No. 1606/2002 as it applies in the European Union
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
statement of cash flows, share based payment, financial instruments,
capital management, presentation of comparative information in
respect of certain assets, standards not yet effective and related party
transactions. Where required, equivalent disclosures are given in the
consolidated financial statements.
As permitted by Section 408 of the Companies Act 2006, no profit
or loss account or cash flow statement is presented for the parent
company. The profit for the year is disclosed in the statement of
comprehensive income, the statement of changes in equity and
the balance sheet.
Severn Trent Plc is a partner in Severn Trent Limited Partnership
and Severn Trent 2017 Limited Partnership (the ‘partnerships’),
which are registered in Scotland. As the partnerships are 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 except where
indicated. Where policies are specific to the Group or to the Company
this is set out in the relevant policy.
(iii) Changes in accounting presentation
Contract asset ageing
A prior period adjustment has been made to reflect a change in
presentation for the ageing of contract assets. The new presentation
allocates future cash receipts to contract assets on a first-in-first-out
basis. When assessing whether contract assets were current or
non-current assets, cash receipts were previously allocated first to
performance obligations satisfied in the year and then to performance
obligations satisfied in previous years. As there is no contractual basis
for the allocation of cash receipts to performance obligations, the
directors believe it is more appropriate to allocate cash to performance
obligations on a first-in-first-out basis, i.e. matching the first cash
receipts to the first performance obligations satisfied.
The table below shows the effect of the change in accounting policy
for the balance sheet position at 31 March 2020:
Balance sheet extract
As previously
reported
2020
£m
Restatement
2020
£m
Restated
2020
£m
525.5
35.9
561.4
153.7
(35.9)
117.8
Current trade and
other receivables
Non-current trade and
other receivables
A third balance sheet has not been presented as the reclassification
does not have a material effect on the information in the balance
sheet at the beginning of the preceding period.
Segmental presentation
A change in segmental presentation is set out in note 5. This has
resulted in a change to the analysis of revenue by segment, which
is shown in note 6.
Deferred income and income from diversions
Previously deferred income released to the income statement,
and income from diversions, were credited to operating costs.
Under the new presentation, the deferred income and income
from diversions are recognised as turnover. In the year ended
31 March 2021 the release of deferred income amounted to
£15.5 million (2020: £14.5 million) and income from diversions
amounted to £17.5 million (2020: £6.8 million). This presentational
change has been applied beginning in the year; however, as the
impact in the prior year is not considered material to the amounts
recorded in turnover or operating costs, prior years have not been
restated. This reclassification has no impact on profits or cash
flows recorded in the year or prior years.
(iv) Change in accounting estimate
In the current financial year the Group has applied a change
in the estimate of useful lives applicable to certain mechanical
and engineering assets, included within the fixed plant and
equipment asset category. The average estimated useful lives
across £825.0 million net book value of assets at 31 March 2021
has been increased from 20 years to 22 years. The average
estimated remaining useful lives across these assets has been
increased from 14 years to 16 years. The change is required
following updated engineering data, and has resulted in a
£9.8 million decrease in the depreciation expense in the current
year. The impact over the next four years is expected to be a
£7.8 million decrease in depreciation expense per year.
171
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 2 Accounting policies (continued)
b) Basis of consolidation
The consolidated financial statements include the results of Severn
Trent Plc and its subsidiaries and joint venture. Results are included
from the date of acquisition or incorporation and excluded from the
date of disposal.
Exceptional items
d)
Exceptional items are income or expenditure, which individually or in
aggregate, if of a similar type, 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.
Taxation
e)
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.
Current and deferred tax are recognised in profit or loss, except
where they relate to items that are recognised in other comprehensive
income or directly in equity, in which case, the current and deferred
tax are also recognised in other comprehensive income or directly
in equity, respectively. Where current tax or deferred tax arises from
the initial accounting for a business combination, the tax effect is
included in the accounting for the business combination.
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.
Goodwill
f)
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 interests 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.
Following the disposal of the US Operating Services business on
30 June 2017, all acquisitions prior to 1 April 1998 that were included
in goodwill have now been sold. Purchased goodwill arising on
acquisitions of subsidiaries after 31 March 1998 is treated as an
intangible fixed asset.
Goodwill and indefinite-life intangibles are tested for impairment
in accordance with the policy set out in note 2 l) 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.
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.
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.
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 gains and losses on exchange arising during the year are dealt with
through the income statement.
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.
Water and waste water revenue is recognised when the service is
provided and includes an estimate of the amount of mains water
and waste water charges unbilled at the year end. The accrual is
estimated using a defined methodology based upon a measure
of unbilled water consumed by tariff, which is calculated from
historical billing information.
Operating services revenue is recognised in line with the delivery
of each performance obligation. Further details of the performance
obligations are detailed in note 6. The expected turnover over the life
of a contract is allocated to each performance obligation based on
the stand alone selling price of each performance obligation, which
is based on the forecast costs incurred and expected margin for
each obligation. Any changes to the revenue relating to performance
obligations already delivered are recognised in the period in which they
are identified. Differences between amounts recognised as revenue
and amounts billed are recognised as contract assets or liabilities.
Renewable energy revenue includes sales of electricity and gas and
the related green energy incentives. Revenue from energy sales is
recognised when the electricity or gas is delivered to the national grid.
Green energy incentives are recognised when the Group becomes
entitled to them.
Interest income is accrued on a time basis by reference to the principal
outstanding and at the effective interest rate applicable.
172
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 2 Accounting policies (continued)
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 intangible 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, using the straight-line
method, to its estimated residual value over its estimated useful life,
with the exception of freehold land, which is not depreciated. Assets in
the course of construction are not depreciated until commissioned.
The estimated useful lives are:
Years
3-10
15-25
Amortisation charged on intangible assets is taken to the income
statement through operating costs.
Finite-life intangible assets are reviewed for impairment where
indicators of impairment exist (see 2 l) below).
Intangible assets with indefinite useful lives are carried at cost
less accumulated impairment losses. Such assets are reviewed
for impairment at least annually and where indications of
impairment exist.
Development expenditure is capitalised as an intangible asset and
written off over its expected useful economic life where the following
criteria are met:
• it is technically feasible to create and make the asset available
for use or sale;
• there are adequate resources available to complete the
development and to use or sell the asset;
• there is the intention and ability to use or sell the asset;
• it is probable that the asset created will generate future
economic benefits; and
• the development costs can be measured reliably.
Research expenditure is expensed when it is incurred.
h) Pre-contract costs
Incremental costs incurred in obtaining contracts with customers
are recognised as a prepayment and written off to the income
statement over the life of the contract where it is expected that
the costs will be recovered.
All other costs of obtaining contracts are written off to the income
statement as incurred.
Property, plant and equipment
i)
Property, plant and equipment is held at cost (or at deemed cost
for infrastructure assets on transition to IFRS) less accumulated
depreciation and impairment. 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 turnover over the
expected useful lives of the related assets.
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
Leased assets
j)
Where the Group enters into a contract that contains a lease, it
recognises a right-of-use asset and a lease liability. The right-of-use
asset is measured at cost, which includes: the amount of the initial
measurement of the lease liability (see below); any lease payments
made at or before the commencement date less any lease incentives
received; any initial direct costs incurred by the Group; and an estimate
of any remediation or similar costs required by the lease contract.
At the commencement date, the lease liability is measured at the
present value of the future lease payments discounted using the
interest rate implicit in the lease or, if that cannot be readily
determined, the Group’s incremental borrowing rate.
Lease liabilities are included in borrowings.
Lease payments are treated as consisting of a capital element and a
finance charge; the capital element reduces the lease liability and the
finance charge is written off to the income statement at a constant
rate over the period of the lease in proportion to the capital amount
outstanding. Depreciation of the right-of-use asset is charged over
the shorter of the estimated useful life and the lease period unless
ownership is expected to transfer to the Group at the end of the lease,
in which case the right-of-use asset is depreciated to the end of the
useful life of the underlying asset.
Extension and termination options are included in a number of
property and equipment leases across the Group. These terms are
used to maximise operational flexibility in managing contracts.
The majority of extension and termination options held are exercisable
only by the Group and not by the respective lessor. In determining the
lease term, the Group considers all facts and circumstances that
create an economic incentive to exercise an extension option, or not
exercise a termination option. Extension options (or periods after
termination options) are only included in the lease term if the
lease is reasonably certain to be extended (or not terminated).
The assessment is reviewed if a significant event or a significant
change in circumstances occurs which affects this assessment
and is within the control of the Group.
Where the lease term is less than one year or the underlying asset is
low value, the Group does not recognise a right-of-use asset or lease
liability. Payments under such leases are charged to operating costs.
173
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021
2 Accounting policies (continued)
k) Grants and contributions
Grants and contributions received in respect of non-current assets,
including certain charges made as a result of new connections to
the water and sewerage networks, are treated as deferred income
and released to turnover 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 turnover in the period that they become receivable.
Impairment of non-current assets
l)
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 adjusting
for the risk profiles of individual businesses. For regulated businesses
we use the WACC from Ofwat’s latest price review adjusting for market
changes since this date where appropriate.
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.
Impairment losses are recognised in the income statement.
m) Parent company investments
The parent company recognises investments in subsidiary
undertakings at historical cost. Impairment losses are recognised
in line with policy set out in l) above.
Inventories
n)
Inventories are stated at the lower of cost and net realisable value.
For properties held for resale, the cost includes the cost of acquiring
and developing the sites.
Net realisable value is the estimated selling price less all estimated
costs of completion and costs to be incurred in selling and distribution.
Loans receivable
o)
Loans receivable are measured at fair value on initial recognition,
less issue fee income received where the fee is integral to the yield
on the loan. All loan receivables are held for collection of contractual
cash flows, which represent solely payments of principal and interest.
After initial recognition, loans receivable are subsequently measured
at amortised cost using the effective interest rate method whereby
interest and issue fee income are credited to the income statement
and added to the carrying value of loans receivable at a constant rate
in proportion to the loan amount outstanding.
The Group recognises a loss allowance for expected credit losses
(‘ECL’) on its loans receivable from joint venture. The amount of
expected credit losses is updated at each reporting date to reflect
changes in credit risk since initial recognition.
The Group recognises lifetime ECL when there has been a significant
increase in credit risk since initial recognition. If the credit risk has not
increased significantly since initial recognition, the Group measures
the loss allowance at an amount equal to the 12 month ECL.
Lifetime ECL represents the expected credit losses that will result
from all possible default events over the expected life of the loans.
In contrast, 12 month ECL represents the portion of lifetime ECL that
is expected to result from default events that are possible within
12 months after the reporting date.
Significant increase in credit risk
In assessing whether the credit risk has increased significantly since
initial recognition, the Group compares the risk of default over the
remaining life of the asset at the reporting date with the risk of default
for the same period at initial recognition. In making this assessment,
the Group considers both quantitative and qualitative information
about the risk of default that is reasonable and supportable, including
forward-looking information that is available. This includes assessment
of a deterioration in: actual or expected business; financial or economic
conditions of the borrower; actual or expected operating results, cash
flows and financial position of the borrower; and the regulatory,
economic, or technological environment faced by the borrower.
Irrespective of the outcome of the above assessment, the Group
presumes that the credit risk on a financial asset has increased
significantly since initial recognition when contractual payments
are more than 30 days past due, unless the Group has reasonable
and supportable information that demonstrates otherwise.
Definition of default
The Group considers that a default has taken place where information
developed internally indicates that the borrower is unlikely to pay its
creditors, including the Group, in full.
Irrespective of the above analysis, the Group considers that default has
occurred when a financial asset is more than 90 days past due unless
the Group has reasonable and supportable information to demonstrate
that a more lagging default criterion is more appropriate.
Trade receivables and accrued income
p)
Trade receivables and accrued income 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.
The Group applies the simplified approach permitted by IFRS 9 for
estimating expected credit losses on trade and other receivables.
For trade receivables that are assessed not to be impaired individually,
expected credit losses are estimated based on the Group’s historical
experience of trade receivable write-offs and reasonable, supportable
forward-looking information which is available without undue cost
or effort.
174
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 2 Accounting policies (continued)
q) Retirement benefits
(i) Defined benefit schemes
The difference between the value of defined benefit pension scheme
assets and defined benefit pension scheme liabilities is recorded on
the balance sheet as a retirement benefit asset or obligation.
Defined benefit pension scheme assets are measured at fair value
using bid price for assets with quoted prices. For scheme assets with
no quoted price, the fair value is derived by using quotations from
independent third parties or by using applicable valuation techniques
at the end of each reporting period. 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 year, is
included in operating costs. Net finance cost is calculated by applying
the discount rate used for the scheme liabilities to the net obligation.
Changes in the retirement benefit obligation that arise from:
• differences between the return on scheme assets and interest
income included in the income statement;
• actuarial gains and losses from experience adjustments; and
• changes in demographic or financial assumptions,
are classified as remeasurements, charged or credited to other
comprehensive income 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 income statement which is equal
to the contributions payable in the year. The net defined benefit cost for
these schemes is recognised by the sponsoring employers, Severn
Trent Water Limited and Hafren Dyfrdwy Cyfyngedig.
(ii) Defined contribution schemes
Contributions to defined contribution pension schemes are charged
to the income statement in the period in which they fall due.
Provisions
r)
Provisions are recognised where:
• there is a present obligation as a result of a past event;
• it is probable that there will be an outflow of economic benefits
to settle this obligation; and
• a reliable estimate of this amount can be made.
Borrowings
t)
The accounting policy for borrowings that are the hedged item in a fair
value hedge is set out in note 2 u) and the accounting policy for lease
liabilities is set out in note 2 j).
All other borrowings are initially recognised at fair value less issue
costs. After initial recognition, borrowings are subsequently measured
at amortised cost using the effective interest rate method whereby
interest and issue costs are charged to the income statement and
added to the carrying value of borrowings at a constant rate in
proportion to the capital amount outstanding.
Index-linked debt is adjusted for changes in the relevant inflation index
and changes in value are charged to finance costs.
Borrowings denominated in foreign currency are translated to
sterling at the spot rate on the balance sheet date. Exchange gains
or losses resulting from this are credited or charged to gains/losses
on financial instruments.
u) Derivative financial instruments
Derivative financial instruments are stated at fair value, including
accrued interest. Fair value is determined using the methodology
described in note 34 a). The accounting policy for changes in fair
value depends on whether the derivative is designated as a hedging
instrument. The various accounting policies are described below.
Interest receivable or payable in respect of derivative financial
instruments is included in finance income or costs.
Derivatives not designated as hedging instruments
Gains or losses arising on remeasurement of derivative
financial instruments that are not designated as hedging
instruments are recognised in gains/losses on financial
instruments in the income statement.
Derivatives designated as hedging instruments
The Group uses derivative financial instruments such as cross
currency swaps, forward currency contracts and interest rate
swaps to hedge its risks associated with foreign currency and
interest rate fluctuations.
At the inception of each hedge relationship, the Group documents:
• the economic relationship between the hedging instrument
and the hedged item;
• its risk management objectives and strategy for undertaking
the hedge transaction; and
• whether changes in fair value or the cash flows of the hedging
instrument are expected to offset changes in fair values or cash
flows (as appropriate) of the hedged item.
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.
Hedge accounting is discontinued when the hedging instrument
expires, is sold, terminated or exercised, or no longer qualifies
for hedge accounting.
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.
Purchase of own shares
s)
Where market purchases of Severn Trent ordinary shares are
made through an obligating contract, a liability for the present value
of the redemption amount is recognised and charged to retained
earnings. Payments for the purchase of shares are charged to the
liability when made.
Shares held by the Severn Trent Employee Share Ownership Trust that
have not vested unconditionally by the balance sheet date are deducted
from shareholders’ funds until such time as they vest.
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.
175
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 2 Accounting policies (continued)
u) Derivative financial instruments (continued)
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. From this
point the derivative is accounted for in the same way as derivatives
not designated as hedging instruments. If the hedging instrument
is terminated, the gains and losses previously recognised in equity
are held in equity until either the forecast transaction occurs or the
forecast transaction is no longer expected to occur.
Embedded derivatives
Where a contract includes terms that cause some of its cash flows
to vary in a similar way to a derivative financial instrument, that part
of the contract is considered to be an embedded derivative.
Embedded derivatives are separated from the contract and measured
at fair value with gains and losses taken to the income statement if the
host contract is not an asset within the scope of IFRS 9 and:
• the risks and characteristics of the embedded derivative are not
closely related to those of the contract;
• a separate instrument with the same terms as the embedded
derivative would meet the definition of a derivative; and
• the contract is not carried at fair value with gains and losses
reported in the income statement.
In all other cases embedded derivatives are accounted for in line
with the accounting policy for the contract as a whole.
Share based payment
v)
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.
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 and amounts drawn under the Group’s revolving credit facility.
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) Business combinations
Acquisitions of subsidiaries and businesses are accounted for using
the acquisition method. The consideration transferred in a business
combination is measured at fair value. The identifiable assets acquired
and the liabilities assumed are recognised at their fair value at the
acquisition date except that:
• deferred tax assets or liabilities and retirement benefit assets or
obligations are recognised and measured in accordance with the
policies set out under notes 2 e) and 2 q) above; and
• assets or disposal groups that are classified as held for sale are
measured in accordance with the policy set out below.
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 the fair value less costs to sell. Depreciation is not charged on
such assets.
Where the initial accounting for a business combination is incomplete
at the end of the reporting period, the Group reports provisional
amounts and finalises these within one year of the acquisition date
(the ‘measurement period’).
Goodwill is measured as the excess of the sum of the consideration
transferred, the amount of any non-controlling interest in the acquiree
and the fair value of any interest in the acquiree previously held by the
Group over the net of the amounts of the assets and liabilities acquired.
If the amount of the assets and liabilities acquired exceeds the amount
of the consideration, this is immediately recognised in the income
statement as a bargain purchase gain.
Contingent consideration is measured at fair value at the acquisition date.
During the measurement period, changes in provisional fair values
of assets and liabilities acquired, or of contingent consideration, are
recognised as adjustments to goodwill or bargain purchase gain.
Outside the measurement period, changes in fair value of contingent
consideration that is not classified as equity are recognised in
profit or loss.
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.
3
New accounting policies and
future requirements
At the balance sheet date, no Standards or Interpretations were
in issue but not yet effective that are expected to have a material
impact on the Group’s financial position.
176
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 (iii)
Classification of loans to Water Plus for the purpose of
determining the share of joint venture losses to be recognised
At 1 April 2020 the Group’s equity investment in Water Plus was nil,
having been written down in full during the year ending 31 March 2020
by the losses in the year. Unrecognised losses at 1 April 2020 were
£4.9 million. The Group has advanced loans to Water Plus under
varying terms. Assessing whether any of these loans form part of the
Group’s net investment in Water Plus under IAS 28 requires judgments
to be made. The Group has made available two revolving credit
facilities (‘RCFs’) from Severn Trent Plc in the sums of £32.5 million
and £100.0 million respectively. The RCFs bear interest at LIBOR plus
2.1% and 3.25%, and, at the balance sheet date, were repayable in
September 2021 and December 2023 respectively.
The amounts drawn down under both facilities fluctuate with Water
Plus’s working capital requirements. The Group considers that the
£100.0 million facility has been advanced on arm’s length commercial
terms and that it does not form part of the Group’s net investment in
Water Plus. None of Water Plus’s losses have been written off against
the amount receivable on the £100.0 million RCF.
The Group’s intention at 31 March 2021 was to extinguish
the £32.5 million facility and replace with a long-term capital
investment, either in the form of an equity investment or new
zero-coupon shareholder loan notes. Following the year end the
Board approved the injection of a £32.5 million equity investment
and this has been implemented. The approval during the post balance
sheet event period acts as confirmation of the Group’s documented
intention at 31 March 2021, and therefore as evidence supporting
the existence of these conditions at the reporting date. As such the
full balance drawn at 31 March 2021 on the £32.5 million facility is
presented within non-current loans receivable, and forms part of
the Group’s net investment in Water Plus. A total of £13.8 million has
been written off against the carrying value of the non-current loan
receivable, consisting of £4.9 million unrecognised exceptional losses
from the prior period, and the Group’s share of Water Plus’s losses
after tax for the year ended 31 March 2021 of £8.9 million.
(iv) Classification of share of joint venture losses as exceptional
The Group’s accounting policy defining exceptional items is set out
in note 2 above.
In the previous year the Group recognised £46.8 million of Water Plus’s
losses after tax as an exceptional item, reducing the carrying value of
the Group’s investment in Water Plus to nil. This left £4.9 million of
exceptional losses unrecognised. These losses have been recognised
in the current year as an exceptional item in line with the treatment
adopted in the previous year.
In the current year Water Plus has been significantly affected
by the economic impacts of the lockdowns imposed as a result
of the COVID-19 pandemic. However, it is not possible accurately
to determine how much of Water Plus’s loss in the current year is
attributable to the impacts of COVID-19 and how much is due to normal
trading factors. Therefore the Group’s share of Water Plus’s losses in
the current year has not been classified as an exceptional item.
4
Critical 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.
a)
(i)
Critical accounting judgments
Classification of costs between operating expenditure
and capital expenditure
Severn Trent Water’s business involves significant construction and
engineering projects. Assessing the classification of costs incurred on
such projects between capital expenditure and operating expenditure
requires judgments to be made. The judgments are made based on
objective criteria that that Group has developed to facilitate the
consistent application of its accounting policies. The costs of like-for-
like replacement of infrastructure components are recognised in the
income statement as they arise. Total infrastructure renewal
expenditure during the year was £151.0 million (2020: £149.6 million).
Expenditure which results in quality or capacity enhancements to the
operating capability of the infrastructure networks is capitalised and
amounted to £681.6 million (2020: £1,018.5 million).
(ii)
Income from connections to the water and waste
water networks
The Group receives income from developers and domestic customers
for new connections to the water and waste water networks either in
the form of infrastructure assets or cash. The more significant
examples of these transactions are:
• Developers transfer to the Group infrastructure assets that they
have installed in a new development. Usually there is no monetary
consideration exchanged when the Group adopts assets in
this manner.
• When new properties are connected to the network, the Group is
permitted, under the Water Industry Act, to obtain a contribution
from the developer towards the cost of reinforcing its network to
meet the additional demands arising from the new connections.
These are referred to as Infrastructure charges and the charges
are a standard amount per property and are not linked to specific
reinforcement expenditure.
• When developers require properties to be connected to the
Group’s network, the Group installs a meter and connection
to each property but retains ownership of the assets and
responsibility for their maintenance.
Assessing whether this income is received in relation to the provision
of the connection to the Group’s infrastructure networks or is to
facilitate the ongoing provision of water and waste water services to
the properties in question requires judgment about the nature of the
ongoing relationship between the Group and the customer. During the
period the Group received infrastructure assets with a fair value of
£44.9 million (2020: £71.1 million), infrastructure charges amounting
to £20.0 million (2020: £30.0 million) and other charges relating
to the provision of infrastructure amounting to £22.0 million
(2020: £9.6 million).
The Group considers that the purpose of these transactions is to
facilitate the ongoing provision of water and waste water services
to the properties in question and they are inextricably linked to that
ongoing service. There is a transferable right to receive an ongoing
water and waste water service that passes from customer to
customer when the property is bought and sold during the life of
the property and, without the ongoing water and waste water service,
the transactions have no value. Therefore, in line with our accounting
policies the amounts received are held on the balance sheet and
released to turnover in the income statement over the life of the
related assets.
177
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 The gross carrying amounts and expected credit loss allowances
for trade receivables and accrued income were as follows:
Gross carrying amount
Provision for bad and doubtful debts
Net carrying amount
2021
£m
563.9
(137.1)
426.8
2020
£m
603.6
(141.7)
461.9
Movements in the expected credit loss allowance are as follows:
At 1 April
Charge for bad and doubtful debts
Amounts written off during the period
At 31 March
2021
£m
141.7
40.0
(44.6)
137.1
2020
£m
120.2
42.9
(21.4)
141.7
On 6 May, the Bank of England published its latest Monetary Policy
Report. This revised the forecast for unemployment to show a peak
level of 5.4% in the third quarter of calendar year 2021 and an earlier
recovery to the pre-COVID level in the first quarter of calendar
year 2023.
If our assessment of future unemployment trends had been based
on this forecast, the expected credit loss in the period would have
been £7.7 million lower.
4
b)
i)
Critical accounting judgments and key
sources of estimation uncertainty
(continued)
Sources of estimation uncertainty
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
2 i). The average useful life of property, plant and equipment is around
43 years. A five year change in the average useful lives would result
in a £36 million change in the depreciation charge.
The climate change scenarios that we have modelled have not
indicated a requirement to amend the estimated useful life of our
assets. During the year the Group has reassessed the useful economic
lives of its mechanical and engineering assets. The average estimated
useful lives across £825.0 million net book value of assets at 31 March
2021 has been increased from 20 years to 22 years. The change is
required following identification of updated engineering data, and has
resulted in a £9.8 million decrease in the depreciation expense in the
current year. The impact over the next four years is expected to be
a £7.8 million decrease in depreciation expense per year.
ii) 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 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 and associated
sensitivities are set out in note 28 to the financial statements.
iii) Expected credit losses on trade receivables
Expected credit losses for trade receivables are based on the
historical credit losses experienced over the last nine years and
reasonable forecasts of the future impact of the COVID-19 pandemic
on unemployment levels and hence on the Group’s collection of
trade receivables. In the current period, the forecast peak level of
unemployment has increased and the period to return to current
levels has lengthened in consensus economic forecasts.
We based our assessment of future unemployment trends on
the Bank of England’s most recent Monetary Policy Report at the
balance sheet date, for February 2021, which forecasted a peak rate
of unemployment for the UK of 7.8% in the third quarter of calendar
year 2021 with a return to the pre-COVID level of unemployment
4% in 2024.
178
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 5 Segmental analysis
a) Background
The Group is organised into two main business segments:
Regulated Water and Waste Water includes the wholesale water and waste water activities of Severn Trent Water Limited, its retail services
to domestic customers, and Hafren Dyfrdwy Cyfyngedig.
Business Services includes the Group’s Operating Services businesses, the Green Power business, the Property Development business
and our other non-regulated businesses including affinity products and searches.
In 2019/20 the Bioresources and Developer Services businesses were managed by, and included in, Business Services. These activities are
now managed by Regulated Water and Waste Water and we have amended our segmental presentation to reflect the new structure. We have
provided a reconciliation of the prior year segmental information from the old basis to the new basis below.
The tables below show the changes from the old to the new segmentation for turnover and PBIT for the year ended 31 March 2020:
Turnover
Profit before interest and tax
External turnover
Inter-segment turnover
Total turnover
Adjusted PBIT
Amortisation of acquired intangible assets
Profit before interest and tax
Regulated
Water and
Waste Water
(old basis)
£m
1,620.7
511.5
Business
Services
(old basis)
£m
222.8
17.6
240.4
64.9
(2.1)
62.8
Bioresources
£m
Developer
Services
£m
Regulated
Water and
Waste Water
(new basis)
£m
87.3
29.3
0.1
(0.4)
1,708.1
540.4
Bioresources
£m
Developer
Services
£m
Business
Services
(new basis)
£m
(87.3)
(15.1)
(102.4)
(29.3)
–
(29.3)
(0.1)
–
(0.1)
0.4
–
0.4
135.4
2.5
137.9
36.0
(2.1)
33.9
The tables below show the changes from the old to the new segmentation for capital employed at 31 March 2020:
Operating assets
Goodwill
Segment assets
Segment operating liabilities
Capital employed
Operating assets
Goodwill
Segment assets
Segment operating liabilities
Capital employed
Regulated
Water and
Waste Water
(old basis)
£m
9,883.0
63.5
9,946.5
(1,991.8)
7,954.7
Business
services
(old basis)
£m
626.3
29.2
655.5
(42.4)
613.1
Bioresources
£m
Developer
Services
£m
Consolidation
adjustments
£m
Regulated
Water and
Waste Water
(new basis)
£m
293.6
–
293.6
(12.5)
281.1
12.7
–
12.7
(4.0)
8.7
(12.1)
10,177.2
–
63.5
(12.1)
10,240.7
17.6
5.5
(1,990.7)
8,250.0
Bioresources
£m
Developer
Services
£m
Consolidation
adjustments
£m
(293.6)
–
(293.6)
12.5
(281.1)
(12.7)
–
(12.7)
4.0
(8.7)
12.1
–
12.1
(17.6)
(5.5)
Business
Services
(new basis)
£m
332.1
29.2
361.3
(43.5)
317.8
179
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 Segmental results
5 Segmental analysis (continued)
b)
The Severn Trent Executive Committee (‘STEC’) is considered to be the Group’s chief operating decision maker. The reports provided to STEC
include segmental information prepared on the basis described above.
Results from interests in our joint venture are not included in the segmental reports reviewed by STEC.
Goodwill is allocated and monitored at the segment level.
Transactions between reportable segments are included within segmental results, assets and liabilities in accordance with Group accounting
policies. These are eliminated on consolidation.
The measure of profit or loss that is reported to STEC for the segments is adjusted PBIT. A segmental analysis of turnover and adjusted PBIT
is presented below.
The following table shows the segmental turnover and PBIT:
External turnover
Inter-segment turnover
Total turnover
Adjusted PBIT
Amortisation of acquired intangible assets
Profit before interest and tax
Profit before interest, tax and exceptional items is stated after:
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of intangible assets
Profit/(loss) on disposal of fixed assets
The reportable segments’ turnover is reconciled to Group turnover as follows:
Regulated Water and Waste Water
Business Services
Corporate and other
Consolidation adjustments
2021
2020
(restated)
Regulated
Water and
Waste Water
£m
Business
Services
£m
Regulated
Water and
Waste Water
£m
Business
Services
£m
1,693.9
–
1,693.9
452.1
–
452.1
132.9
1.8
134.7
25.8
(2.1)
23.7
1,708.1
–
1,708.1
539.6
–
539.6
135.4
2.5
137.9
36.0
(2.1)
33.9
2021
2020
Regulated
Water and
Waste Water
£m
Business
Services
£m
Regulated
Water and
Waste Water
£m
331.3
1.4
31.3
0.1
10.7
2.0
0.8
(2.3)
317.1
5.4
30.3
1.3
2021
£m
1,693.9
134.7
0.9
(2.3)
Business
Services
£m
10.2
1.5
0.5
(7.0)
2020
(restated)
£m
1,708.1
137.9
0.7
(2.0)
Included in the revenues of Regulated Water and Waste Water of £1,693.9 million (2020: £1,708.1 million) is £216.1 million (2020: £306.6 million)
which arose from sales to Water Plus Select Limited. No other single customer contributed 10% or more to the Group’s revenue for either
2021 or 2020.
1,827.2
1,843.5
180
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 5 Segmental analysis (continued)
b)
Segmental adjusted PBIT is reconciled to the Group’s profit before tax as follows:
Segmental results (continued)
Regulated Water and Waste Water
Business Services
Corporate and other
Consolidation adjustments
Adjusted PBIT
Amortisation of acquired intangible assets (in Business Services)
Net finance costs
Gain/(loss) on impairment of loans receivable
Net losses on financial instruments
Share of net loss of joint venture accounted for using the equity method
Profit on ordinary activities before taxation
2021
£m
452.1
25.8
(5.1)
–
472.8
(2.1)
(187.1)
3.6
(6.2)
(13.8)
267.2
2020
(restated)
£m
540.4
36.0
(5.6)
(0.5)
570.3
(2.1)
(188.4)
(4.9)
(17.4)
(46.8)
310.7
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.
Segmental capital employed
c)
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.
Operating assets
Goodwill
Segment assets
Segment operating liabilities
Capital employed
2021
2020 (restated)
Regulated
Water and
Waste Water
£m
10,433.4
63.5
10,496.9
(2,174.4)
8,322.5
Business
Services
£m
331.0
29.2
360.2
(40.0)
320.2
Regulated
Water and
Waste Water
£m
10,177.2
–
10,240.7
(1,990.7)
8,250.0
Business
Services
£m
332.1
–
361.3
(43.5)
317.8
Operating assets comprise other intangible assets, property, plant and equipment, right-of-use assets, retirement benefit surpluses, inventory
and trade and other receivables.
Operating liabilities comprise trade and other payables, retirement benefit obligations and provisions.
181
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 5 Segmental analysis (continued)
c)
The reportable segments’ assets are reconciled to the Group’s total assets as follows:
Capital employed (continued)
Segment assets
Regulated Water and Waste Water
Business Services
Corporate and other
Other financial assets
Loan receivable from joint venture
Current tax receivable
Consolidation adjustments
Total assets
The consolidation adjustments comprise elimination of intra-group debtors and unrealised profits on fixed assets.
The reportable segments’ liabilities are reconciled to the Group’s total liabilities as follows:
Segment liabilities
Regulated Water and Waste Water
Business Services
Corporate and other
Other financial liabilities
Current tax
Deferred tax
Consolidation adjustments
Total liabilities
2021
£m
2020
(restated)
£m
10,496.9
10,240.7
360.2
3.5
97.1
84.0
–
361.3
3.7
114.1
92.6
3.1
(18.6)
(13.8)
11,023.1
10,801.7
2021
£m
2020
(restated)
£m
(2,174.4)
(1,990.7)
(40.0)
(46.0)
(43.5)
(42.5)
(6,742.8)
(6,596.8)
(0.2)
(906.0)
25.0
–
(901.1)
14.8
(9,884.4)
(9,558.0)
The consolidation adjustments comprise elimination of intra-group creditors.
The following table shows the additions to other intangible assets, property, plant and equipment and right-of-use assets:
Other intangible assets
Property, plant and equipment
Right-of-use assets
d) Geographical areas
The Group’s sales were derived from the following countries:
UK
Other
2021
2020
Regulated
Water and
Waste Water
£m
Business
Services
£m
Regulated
Water and
Waste Water
£m
21.7
652.1
0.5
0.5
8.3
5.1
60.7
946.8
–
Business
Services
£m
1.8
9.4
0.3
2021
£m
2020
£m
1,825.4
1,838.9
0.3
4.6
1,825.7
1,843.5
The Group’s non-current assets (excluding financial instruments, deferred tax assets and post-employment benefit assets) were located in the
UK in 2021 and 2020.
182
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021
6 Revenue from contracts with customers
Revenue recognised from contracts with customers is analysed by type of revenue and by business segment below:
Following the changes in the segmental presentation described in note 5, the Bioresources and Developer Services businesses previously
included in Business Services and are now included within Regulated Water and Waste Water.
Revenue classification by business segment for the year ended 31 March 2020 has been restated in line with the change in the basis of
segmentation as shown below:
1,708.1
137.9
2021
Water and waste water services
Operating services
Renewable energy
Other sales
2020 (restated)
Water and waste water services
Operating services
Renewable energy
Other sales
Water and waste water services
Renewable energy
Other sales
Water and waste water services
Operating services
Renewable energy
Other sales
Business
Services
£m
Corporate
and other
£m
Consolidation
adjustments
£m
–
–
–
0.9
0.9
–
–
(1.8)
(0.5)
(2.3)
–
–
–
0.7
0.7
–
–
(2.5)
(0.7)
(3.2)
Group
£m
1,664.8
70.3
77.5
14.6
1,827.2
Group
£m
1,673.5
70.7
81.2
18.1
1,843.5
1,693.9
134.7
Business
Services
£m
Corporate
and other
£m
Consolidation
adjustments
£m
Regulated
Water and
Waste Water
£m
1,664.8
–
27.4
1.7
Regulated
Water and
Waste Water
£m
1,673.5
–
30.2
4.4
Regulated
Water and
Waste Water
(old basis)
£m
1,616.4
–
4.3
–
70.3
51.9
12.5
–
70.7
53.5
13.7
57.1
45.3
–
Bioresources
£m
Developer
Services
£m
Consolidation
adjustments
£m
Regulated
Water and
Waste Water
(new basis)
£m
–
–
0.1
0.1
–
1,673.5
(15.1)
–
30.2
4.4
(15.1)
1,708.1
1,620.7
102.4
Business
Services
(old basis)
£m
Bioresources
£m
Developer
Services
£m
Business
Services
(new basis)
£m
57.1
70.7
98.8
13.8
(57.1)
–
(45.3)
–
240.4
(102.4)
–
–
–
(0.1)
(0.1)
–
70.7
53.5
13.7
137.9
Revenue from water and waste water services provided to customers with meters is recognised when the service is provided and is measured
based on actual meter readings and estimated consumption for the period between the last meter reading and the year end. For customers who
are not metered, the performance obligation is to stand ready to provide water and waste water services throughout the period. Such customers
are charged on an annual basis, coterminous with the financial year and revenue is recognised on a straight line basis over the financial year.
183
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 6 Revenue from contracts with customers (continued)
The Operating Services business includes a material 25-year contract with multiple performance obligations. Under this contract with the
Ministry of Defence (‘MOD’), the Group bills the customer based on an inflation-linked volumetric tariff and invoices are payable on normal
commercial terms. The performance obligations, which are satisfied as the services are performed, are: operating and maintaining the
customer’s infrastructure assets; upgrading the customer’s infrastructure assets; administrating the services received from statutory
water and sewerage undertakers; and administrating billing services of the customer’s commercial and Non Base Dependent customers.
Revenue has been allocated to each performance obligation based on the stand-alone selling price of each performance obligation, which
is based on the forecast costs incurred and expected margin for each obligation. Changes to projected margins are adjusted on a cumulative
basis in the period that they are identified.
Other than the provision of water and waste water services, there is no direct correlation between the satisfaction of the performance
obligations and the timing of billing and customer payments. The estimated transaction price for the contract is derived from estimates of the
customer’s consumption at the contract tariff rate, adjusted for inflation. This estimate is updated on an annual basis. There was no significant
change in the estimated transaction price in the year. At 31 March 2021 the aggregate amount of the estimated transaction price allocated
to performance obligations that were not satisfied was £416.1 million (2020: £459.3 million). This amount is expected to be recognised as
revenue as follows:
In the next year
Between one and five years
After more than five years
2021
£m
46.2
184.4
185.5
416.1
2020
£m
43.6
177.6
238.1
459.3
The assumptions and other sources of estimation uncertainty in relation to this contract do not present a significant risk of a material adjustment
to the carrying amounts of assets and liabilities in the next financial year and therefore are not included as a source of estimation uncertainty in
note 4 b).
Revenue recognised in excess of amounts billed is recorded as a contract asset and amounts billed in excess of revenue recognised is recorded
as a contract liability. Changes in contract assets in the year were as follows:
Contract asset at 1 April
Amounts billed
Revenue recognised
Contract asset at 31 March
2021
£m
36.6
(49.0)
50.6
38.2
2020
£m
35.1
(47.6)
49.1
36.6
No contract liabilities arose from the Group’s Operating Services contract with the MOD.
Deferred income arising from connections to the Group’s water and waste water networks represents a contract liability and is recognised in
line with the Group’s accounting policy set out in note 2 and the judgment described in note 4. Changes in the Group’s contract liabilities from
deferred income were as follows:
At 1 April
Contributions and grants received
Assets transferred at no cost
Amounts released to income statement
At 31 March
2021
£m
2020
£m
1,188.3
1093.0
41.4
44.9
(15.5)
39.6
71.1
(15.4)
1,259.1
1,188.3
Revenue amounting to £15.5 million (2020: £15.4 million) that was included in the opening balance of the contract liability was recognised in the
income statement during the year. No revenue was recognised in the year from performance obligations relating to connections to the Group’s
water and waste water networks that were satisfied or partially satisfied in previous years (2020: nil).
Payments for infrastructure charges and other charges relating to connection to the networks occur when the connections are made.
The performance obligations, including provision of an ongoing water and waste water service, are provided over the life of the relevant property.
184
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 6 Revenue from contracts with customers (continued)
Revenue from the remaining performance obligations is expected to be recognised as follows:
In the next year
Between one and five years
After more than five years
7 Net operating costs
Wages and salaries
Social security costs
Pension costs
Share based payments
Total employee costs
Power
Raw materials and consumables
Rates
Charge for bad and doubtful debts
Services charges
Depreciation of tangible fixed assets
Depreciation of right-of-use assets
Amortisation of intangible fixed assets
Hired and contracted services
Rental charges
– land and buildings
– other
Hire of plant and machinery
(Profit)/loss on disposal of tangible fixed assets
Exchange losses/(gains)
Infrastructure maintenance expenditure1
Ofwat licence fees
Other operating costs
Other operating income
Release from deferred credits1
Own work capitalised
2021
£m
15.1
60.4
2020
£m
16.3
65.2
1,183.6
1,259.1
1,106.8
1,188.3
2021
2020
Before
adjusting and
exceptional
costs
£m
Adjusting and
exceptional
costs
£m
Before
adjusting and
exceptional
costs
£m
Adjusting and
exceptional
costs
£m
287.8
28.0
27.1
7.8
350.7
99.3
75.6
83.6
40.0
38.6
342.0
3.6
32.1
246.7
0.4
1.0
7.7
(2.2)
0.2
151.0
4.5
60.9
(2.3)
–
–
–
–
–
–
–
–
–
–
–
–
2.1
–
–
–
–
–
–
–
–
–
–
Total
£m
287.8
28.0
27.1
7.8
350.7
99.3
75.6
83.6
40.0
38.6
342.0
3.6
34.2
246.7
0.4
1.0
7.7
(2.2)
0.2
151.0
4.5
60.9
(2.3)
281.1
28.9
25.8
8.1
343.9
94.5
68.4
81.6
42.9
39.4
327.4
6.6
30.8
237.8
0.6
1.3
7.4
1.2
(0.6)
149.6
5.1
42.1
(3.0)
1,533.4
2.1
1,535.5
1,477.0
–
(179.0)
1,354.4
–
–
–
(179.0)
(15.4)
(181.5)
2.1
1,356.5
1,280.1
–
–
–
–
–
–
–
–
–
–
–
–
2.1
–
–
–
–
–
–
–
–
–
–
2.1
–
–
2.1
Total
£m
281.1
28.9
25.8
8.1
343.9
94.5
68.4
81.6
42.9
39.4
327.4
6.6
32.9
237.8
0.6
1.3
7.4
1.2
(0.6)
149.6
5.1
42.1
(3.0)
1,479.1
(15.4)
(181.5)
1,282.2
185
1. Refer to note 2a (iii) Changes in accounting presentation for details of the change in presentation for release from deferred credits and income from diversions.
Further details of exceptional costs are given in note 8. Other adjusting costs are amortisation of acquired intangible assets.
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 7 Net operating costs (continued)
During the year the following fees were charged by the auditor:
Fees payable to the Company's auditor 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 auditor and its associates for other services to the Group:
– audit related assurance services
– other assurance services
Total non-audit fees
2021
£m
2020
£m
0.3
0.6
0.9
0.1
0.1
0.2
0.2
0.5
0.7
0.1
0.1
0.2
Other assurance services also include certain agreed upon procedures performed by Deloitte in connection with Severn Trent Water’s
regulatory reporting requirements to Ofwat.
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 107 and 113. No services were provided pursuant to contingent fee arrangements.
Details of Directors’ remuneration are set out in the Directors’ Remuneration Report on pages 142 to 144.
8 Exceptional items before tax
Loss on impairment of loans due from joint venture (see note 20)
Share of net losses of joint venture (see note 20)
9 Employee numbers
Average number of employees (including Executive Directors) during the year:
By business segment
Regulated Water and Waste Water
Business Services
Corporate and other
The prior year has been restated to reflect the changes in the segmental presentation as described in note 5.
10 Finance income
Interest income earned on bank deposits
Other financial income
Total interest receivable
Interest income on defined benefit scheme assets
2021
£m
–
(4.9)
(4.9)
2021
6,536
486
11
7,033
2021
£m
0.1
2.4
2.5
57.3
59.8
2020
£m
(4.9)
(46.8)
(51.7)
2020
(restated)
6,345
441
10
6,796
2020
£m
0.4
1.3
1.7
58.2
59.9
186
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 11 Finance costs
Interest expense charged on:
Bank loans and overdrafts
Other loans
Lease liabilities
Total borrowing costs
Other financial expenses
Interest cost on defined benefit scheme liabilities
2021
£m
11.4
166.1
4.3
181.8
2.4
62.7
246.9
2020
£m
21.6
150.5
4.3
176.4
2.6
69.3
248.3
Borrowing costs of £30.4 million (2020: £44.2 million) incurred funding eligible capital projects have been capitalised at an interest rate of 2.44%
(2020: 2.68%). Tax relief of £5.8 million (2020: £8.4 million) was claimed on these costs which was credited to the income statement, offset by a
related deferred tax charge of £5.8 million (2020: £8.4 million).
12 Net (losses)/gains on financial instruments
(Loss)/gain on swaps used as hedging instruments in fair value hedges
Gain/(loss) arising on debt in fair value hedges
Exchange gain/(loss) on other loans
Loss on cash flow hedges transferred from equity
Hedge ineffectiveness on cash flow hedges
Loss arising on swaps where hedge accounting is not applied
Amortisation of fair value adjustment on debt
Gain on swap termination
2021
£m
(8.1)
4.2
14.8
(8.2)
(2.0)
(8.2)
1.2
0.1
(6.2)
2020
£m
5.1
(1.6)
(6.7)
(8.2)
2.7
(9.8)
1.1
–
(17.4)
The loss from financial assets and liabilities mandatorily measured at fair value through profit or loss was £16.3 million (2020: loss of £4.7 million).
There were no financial assets or liabilities designated as at fair value through the profit or loss (2020: nil).
The Group’s hedge accounting arrangements are described in note 36.
13 Taxation
a) Analysis of tax charge in the year
Current tax
Current year at 19% (2020: 19%)
Prior years
Total current tax
Deferred tax
Origination and reversal of temporary differences:
Current year
Prior years
Exceptional charge on rate change
Total deferred tax
2021
£m
30.4
(3.6)
26.8
23.7
4.5
–
28.2
55.0
2020
£m
36.2
(5.2)
31.0
29.8
(0.7)
91.8
120.9
151.9
187
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 Factors affecting the tax charge in the year
13 Taxation (continued)
b)
The tax expense for the year is higher (2020: higher) than the standard rate of corporation tax in the UK of 19% (2020: 19%). The differences are
explained below:
Profit before taxation
Tax at standard rate of corporation tax in the UK 19% (2020: 19%)
Tax effect of depreciation on non-qualifying assets
Other permanent differences
Adjustments in respect of prior years
Exceptional deferred tax arising from rate change
Total tax charge
Profit before taxation
Tax at standard rate of corporation tax in the UK 19% (2020: 19%)
Tax effect of depreciation on non-qualifying assets
Other permanent differences
Tax effect of accelerated capital allowances
Other timing differences
Adjustments in respect of prior years
Total current tax charge
2021
£m
267.2
50.8
4.0
(0.7)
0.9
–
55.0
2021
£m
267.2
50.8
4.0
(0.7)
(21.1)
(2.6)
(3.6)
26.8
2020
£m
310.7
59.0
1.3
5.7
(5.9)
91.8
151.9
2020
£m
310.7
59.0
1.3
5.7
(26.2)
(3.6)
(5.2)
31.0
The most significant factor impacting the Group’s current tax charge is the difference between the depreciation charged on property, plant and
equipment in the financial statements and the amount deductible from taxable profits in the form of capital allowances. Where the assets qualify
for capital allowances this creates a temporary difference and deferred tax is recognised on the difference between the carrying amount of the
asset and the amount that will be deductible for tax purposes in future years. Changes in the amount of deferred tax recognised on these assets
are charged or credited to deferred tax in the income statement. Where the amount of the capital allowances received is greater than the
depreciation charged this is referred to as accelerated capital allowances.
Certain of the Group’s property, plant and equipment assets are not eligible for capital allowances under current legislation. Therefore there
is no tax deduction that corresponds to the depreciation charged on these assets and deferred tax is not recognised in respect of this
permanent difference.
Other permanent differences comprise expenditure that is not deductible for tax purposes or income that is not taxable.
Deferred tax is provided at 19%, being the corporation tax rate applicable at the balance sheet date. The impact of the UK Government’s
announcement of its intention to increase the rate of corporate tax to 25% with effect from 1 April 2023 is set out in note 27.
Other timing differences comprise items other than depreciation of property, plant and equipment where the amount is included in the tax
computation in a different period from when it is recognised in the income statement. Deferred tax is provided on these items.
The amounts included for tax liabilities in the financial statements include estimates and judgments relating to uncertain tax positions. If the
computations subsequently submitted to HMRC include different amounts then these differences are reflected as an adjustment in respect
of prior years in the subsequent financial statements.
188
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 Tax (credited)/charged directly to other comprehensive income or equity
13 Taxation (continued)
c)
In addition to the amount (credited)/charged to the income statement, the following amounts of tax have been (credited)/charged to other
comprehensive income or equity:
Current tax on:
Pension contributions in prior periods
Share based payments
Total current tax credited to other comprehensive income or equity
Deferred tax on:
Actuarial gains
Cash flow hedges
Share based payments
Transfers to the income statement
Pension contributions in prior periods
Effect of change in tax rate
Total deferred tax (credited)/charged to other comprehensive income or equity
14 Dividends
Amounts recognised as distributions to owners of the Company in the year:
2021
£m
–
(0.4)
(0.4)
(30.8)
6.3
(0.4)
1.6
–
–
(23.7)
2020
£m
(9.5)
–
(9.5)
32.9
(7.4)
(0.8)
1.6
9.5
(2.7)
33.1
Final dividend for the year ended 31 March 2020 (2019)
Interim dividend for the year ended 31 March 2021 (2020)
Total dividends paid
2021
2020
Pence per
share
60.05
40.63
100.68
£m
143.1
97.1
240.2
Pence per
share
56.02
40.03
96.05
£m
133.1
95.3
228.4
Proposed final dividend for the year ended 31 March 2021
60.95
147.6
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these
financial statements.
189
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 15 Earnings per share
a) Basic and diluted earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the year, excluding treasury shares and 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 dilutive potential
ordinary shares. These represent share options granted to employees where the exercise price is less than the average market price of the
Company’s shares during the period.
Basic and diluted earnings per share are calculated on the basis of profit attributable to the owners of the Company.
The calculation of basic and diluted earnings per share is based on the following:
i)
Earnings for the purpose of basic and diluted earnings per share
Profit for the year
ii) Number of shares
Weighted average number of ordinary shares for the purpose of basic earnings per share
Effect of dilutive potential ordinary shares:
– share options and LTIPs
Weighted average number of ordinary shares for the purpose of diluted earnings per share
b) Adjusted earnings per share
Adjusted basic earnings per share
Adjusted diluted earnings per share
2021
£m
212.2
2021
m
238.1
1.3
239.4
2021
pence
105.4
104.8
2020
£m
158.8
2020
m
238.0
1.4
239.4
2020
pence
146.0
145.1
Adjusted earnings per share figures exclude the effects of deferred tax, exceptional tax, losses/gains on financial instruments, current tax
related to losses/gains on financial instruments, amortisation of acquired intangible assets, exceptional items and current tax related to
exceptional items. The Directors consider that the adjusted figures provide a useful additional indicator of performance. The denominators
used in the calculations of adjusted basic and diluted earnings per share are the same as those used in the unadjusted figures set out above.
The adjustments to earnings that are made in calculating adjusted earnings per share are as follows:
Earnings for the purpose of basic and diluted earnings per share
Adjustments for:
– exceptional items before tax
– current tax on exceptional items
– amortisation of acquired intangible assets
– net losses on financial instruments
– current tax on net losses/gains on financial instruments
– deferred tax
Earnings for the purpose of adjusted basic and diluted earnings per share
2021
£m
212.2
4.9
–
2.1
6.2
(2.6)
28.2
251.0
2020
£m
158.8
51.7
(0.9)
2.1
17.4
(2.6)
120.9
347.4
190
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 16 Goodwill
Cost
At 1 April
Adjustment to provisional fair values on acquisition
At 31 March
2021
£m
91.4
–
91.4
2020
£m
90.9
0.5
91.4
Goodwill relates to specific cash-generating units (‘CGUs’) hence no allocation of goodwill is required. A summary of the carrying amount of
goodwill by CGU is presented below.
Regulated Water and Waste Water
Green Power South (formerly Agrivert)
2021
£m
62.2
29.2
91.4
2020
£m
62.2
29.2
91.4
a) Regulated Water and Waste Water
Regulated Water and Waste Water also has an intangible asset with indefinite useful life amounting to £4.3 million (2020: £4.3 million).
On 1 July 2018 Instruments of appointment of Severn Trent Water Limited and Hafren Dyfrdwy Cyfyngedig (formerly Dee Valley Water Limited)
were amended to align the areas for which the appointments were made with the national border of England and Wales. As a result, the business
that the goodwill relates to is now partly in Severn Trent Water and partly Hafren Dyfrdwy consequently this goodwill is allocated to the
Regulated Water and Waste Water cash-generating unit.
The Group has reviewed the carrying value of goodwill for impairment in accordance with the policy stated in note 2. The carrying value of the
Regulated Water and Waste Water CGU was determined on the basis of fair value, through a Level 3 valuation, less costs to sell.
The fair value, determined using a discounted cash flow calculation for the Regulated Water and Waste Water segment is based on the most
recent financial projections available for the business, which cover the four year period to 31 March 2025.
The key assumptions underlying these projections are the cash flows in the projections and the following:
Key assumption
Discount rate
RPI inflation
CPI inflation
Growth rate in the period beyond the detailed projections
%
5.9
2.7
2.0
1.5
The discount rate is an estimate for the weighted average cost of capital at the year end date based on the post-tax WACC detailed in the OFWAT
PR19 Final Determination. The rate disclosed above is the equivalent pre-tax nominal rate.
Inflation has been included in the detailed projections at 2.7% and 2.0% for RPI and CPI respectively based on the Bank of England’s target
rate for CPI.
Cash flows beyond the end of the five-year period are extrapolated using an assumed real growth rate of 1.5% in the Group’s regulatory capital
base, based on past experience.
The fair value less costs to sell for the CGU exceeded its carrying value by £3,725 million. An increase in the discount rate to 6.8% or a reduction
in the growth rate in the period beyond the detailed projections to 1.0% would reduce the recoverable amount to the carrying amount of the CGU.
191
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 16 Goodwill (continued)
b) Green Power South (formerly Agrivert)
On 30 November 2018, the Group acquired Agrivert Holdings and its subsidiary undertakings resulting in goodwill of £28.7 million.
Adjustments to the provisional fair value of the assets and liabilities acquired in the prior year increased the goodwill to £29.2 million.
This goodwill has been allocated to the Green Power South cash-generating unit which is determined to be the lowest level of independent
cash flows relating to the goodwill. Green Power South is included within the Green Power part of the Business Services segment.
The Group has reviewed the carrying value of goodwill for impairment in accordance with the policy stated in note 2. The carrying value
of the Green Power South CGU was determined on the basis of a value in use calculation.
The value in use determined using a discounted cash flow calculation for the Green Power South CGU is based on the most recent financial
projections available for the business to 2026.
The key assumptions underlying these projections are the cash flows in the projections and:
Key assumption
Discount rate
Growth rate in the period beyond the detailed projections
%
6.0
2.0
The discount rate was based on a review of a range of external sources of information about the cost of capital for the Severn Trent energy
business. This rate was then converted to the equivalent pre-tax discount rate disclosed above.
Cash flows beyond the end of the five-year period are extrapolated using an assumed growth of 2.0% in the Group’s free cash flows, informed
through external market trends.
The value in use for the CGU exceeded its carrying value by £59 million. An increase in the discount rate to 7.8% or reduction in the growth rate
in the period beyond the detailed projections to negative 0.2% would reduce the recoverable amount to the carrying amount of the CGU.
17 Other intangible assets
Cost
At 1 April 2019
Additions
At 1 April 2020
Additions
Disposals
Transfers from property, plant and equipment
At 31 March 2021
Amortisation
At 1 April 2019
Amortisation for the year
At 1 April 2020
Amortisation for the year
Disposals
At 31 March 2021
Net book value
At 31 March 2021
At 31 March 2020
Computer software
Internally
generated
£m
Purchased
£m
Capitalised
development
costs and
patents
£m
Other
intangible
assets
£m
235.2
44.6
279.8
10.8
(8.9)
22.2
135.0
17.9
152.9
11.4
(1.8)
–
12.8
–
12.8
–
–
–
35.8
–
35.8
–
–
–
303.9
162.5
12.8
35.8
(187.9)
(17.4)
(205.3)
(20.0)
8.9
(93.2)
(13.4)
(106.6)
(12.1)
1.8
(12.8)
–
(12.8)
–
–
(216.4)
(116.9)
(12.8)
87.5
74.5
45.6
46.3
–
–
(0.7)
(2.1)
(2.8)
(2.1)
–
(4.9)
30.9
33.0
Total
£m
418.8
62.5
481.3
22.2
(10.7)
22.2
515.0
(294.6)
(32.9)
(327.5)
(34.2)
10.7
(351.0)
164.0
153.8
Other intangible assets include the instrument of appointment acquired with Dee Valley Water and customer contracts and energy subsidy
contracts both acquired with Agrivert. The instrument of appointment has an indefinite useful life and as such the carrying value has been
included in the impairment assessment performed for the Regulated Water and Waste Water CGU described in note 16. As at 31 March 2021
no impairment was recorded (2020: nil).
192
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 18 Property, plant and equipment
Cost
At 1 April 2019
Additions
Transfers on commissioning
Disposals
At 1 April 2020
Additions
Transfers on commissioning
Transfers to intangible assets
Disposals
At 31 March 2021
Depreciation
At 1 April 2019
Charge for the year
Disposals
Impairment
At 1 April 2020
Charge for the year
Disposals
At 31 March 2021
Net book value
At 31 March 2021
At 31 March 2020
Land and
buildings
£m
Infrastructure
assets
£m
Fixed plant
and
equipment
£m
Moveable
plant
£m
Assets under
construction
£m
Total
£m
3,581.1
5,277.9
4,023.4
90.1
95.1
(12.2)
162.9
56.9
–
170.7
152.0
(5.4)
3,754.1
5,497.7
4,340.7
121.6
144.4
–
(5.1)
108.9
166.6
–
–
226.0
258.1
–
(32.0)
4,015.0
5,773.2
4,792.8
(1,370.8)
(1,354.3)
(2,503.1)
(89.7)
9.5
(0.5)
(39.3)
(192.6)
–
–
5.1
–
(1,451.5)
(1,393.6)
(2,690.6)
(95.7)
5.0
(41.1)
–
(199.5)
32.0
(1,542.2)
(1,434.7)
(2,858.1)
2,472.8
2,302.6
4,338.5
4,104.1
1,934.7
1,650.1
66.1
7.9
1.1
(7.9)
67.2
6.4
2.5
–
(3.8)
72.3
(37.5)
(5.8)
7.3
–
(36.0)
(5.7)
3.3
(38.4)
33.9
31.2
1,284.0
14,232.5
524.4
(305.1)
(10.5)
956.0
–
(36.0)
1,492.8
15,152.5
196.5
(571.6)
(22.2)
(0.2)
659.4
–
(22.2)
(41.1)
1,095.3
15,748.6
–
–
–
–
–
–
–
–
(5,265.7)
(327.4)
21.9
(0.5)
(5,571.7)
(342.0)
40.3
(5,873.4)
1,095.3
1,492.8
9,875.2
9,580.8
Additions include assets transferred from developers at no cost, which have been recognised at their fair value of £44.9 million (2020: £71.1 million).
The net book value of land and buildings is analysed as follows:
Freehold
Short leasehold
2021
£m
2020
£m
2,472.5
2,302.3
0.3
0.3
2,472.8
2,302.6
193
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021
The Group’s leasing activities
19 Leases
a)
The Group leases various properties, equipment and vehicles. Lease agreements are typically made for fixed periods of up to 999 years but may
have extension options as described in note 2 j).
During the year the Group negotiated an option to extend the lease relating to its West London anaerobic digestion plant for a further 25 years
from 2038. The Group assessed that it was reasonably certain that the option would be exercised and has adjusted the right-of-use asset and
lease liability accordingly. The Group also reconsidered its assessment of its options to extend its leases relating to the Wallingford, Cassington
and North London sites and determined that it was now reasonably certain that these options would be exercised. Accordingly the Group has
also adjusted these right-of-use assets and lease liabilities to reflect the extension periods.
The inclusion of these extension periods in the lease terms increased the right-of-use assets by £1.6 million and the lease liabilities by
£1.6 million. The impact on amounts charged to the income statement was not material.
Lease contracts are negotiated on an individual basis and include a wide range of terms and conditions. The contracts do not include covenants
other than security interests in the leased assets that are held by the lessor and leased assets may not be used as security for other borrowing.
The contracts do not impose any restrictions on dividend payment, additional debt or further leasing. There were no sale and leaseback
transactions in the period.
Income statement
b)
The income statement includes the following amounts relating to leases:
Depreciation charge of right-of-use assets:
Land and buildings
Infrastructure assets
Fixed plant and equipment
Moveable plant
Total depreciation of right-of-use assets
Interest expense included in finance cost
Expense relating to short-term leases included in operating costs
Expense relating to leases of low value assets included in operating costs
c) Balance sheet
The balance sheet includes the following amounts relating to leases:
Right-of-use assets:
Land and buildings
Infrastructure assets
Fixed plant and equipment
Moveable plant
Additions to right-of-use assets were £5.6 million.
Lease liabilities:
Current
Non-current
194
2021
£m
2020
£m
1.3
1.2
0.4
0.7
3.6
4.3
1.0
0.4
2021
£m
11.8
112.6
4.3
2.1
1.4
1.0
3.6
0.6
6.6
4.3
1.1
0.1
2020
£m
10.4
113.8
4.2
0.4
130.8
128.8
2021
£m
7.7
113.6
121.3
2020
£m
5.8
116.9
122.7
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 19 Leases (continued)
c) Balance sheet (continued)
Obligations under lease liabilities were as follows:
Within 1 year
1 – 2 years
2 – 5 years
After more than 5 years
Gross obligations under leases
Less future finance charges
Present value of lease obligations
Net obligations under leases were as follows:
Within 1 year
1 – 2 years
2 – 5 years
After more than 5 years
Included in non-current liabilities
2021
£m
13.2
9.8
32.4
100.7
156.1
(34.8)
121.3
2021
£m
7.6
6.3
22.9
84.5
113.7
121.3
2020
£m
10.1
10.0
31.2
112.7
164.0
(41.3)
122.7
2020
£m
5.8
5.7
20.9
90.3
116.9
122.7
d) Cash flow
The total cash outflow for leases in the year was £9.9 million (2020: £9.8 million) which consists of £4.3 million (2020: £4.3 million) payments
of interest and £5.6 million (2020: £5.5 million) repayment of principal elements. This is included in financing cash flows.
195
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 20 Interests in joint venture
Particulars of the Group’s principal joint venture undertaking at 31 March 2021 were:
Name
Water Plus Group Limited
Type
Country of
incorporation
Class of share
capital held
Proportion of
ownership
interest
Joint venture
Great Britain
Ordinary B
50%
Water Plus is the largest business retailer in the non-household retail water market in England and Scotland with close to 1 in 3 businesses in
England as customers. Its principal activities are core retail services including billing, meter reading, call centre support and water efficiency
advice as well as key account management services and value added solutions.
Water Plus competes in England and Scotland for customers ranging from small and medium-sized enterprises through to large corporate
entities in both the private and public sectors.
Movements in the investment were as follows:
Carrying value of joint venture investment at 1 April
Zero coupon loan note classified as part of net investment
RCF reclassified as additional long-term investment
Group’s unrecognised losses after tax from prior year
Group's share of loss after tax and comprehensive loss
As at 31 March
Amount included in long-term loans and receivables
Carrying value of joint venture investment at 31 March
2021
£m
–
–
32.5
(4.9)
(8.9)
18.7
(18.7)
–
2020
£m
37.0
9.8
–
–
(46.8)
–
–
–
In common with other non-household retailers, Water Plus has been significantly impacted by the COVID-19 pandemic. The resulting lockdown
significantly reduced business customers’ water consumption, and Water Plus’s revenues and profits after tax. Water Plus also expects to see
increases in business customer failures as a result of lower economic activity in the past year.
At the previous year end (31 March 2020) we wrote down our investment in Water Plus to nil. Given that the Group’s intention at 31 March 2021
was to extinguish the existing £32.5 million Revolving Credit Facility (‘RCF’) extended to Water Plus and replace it with a long-term capital
investment, this amount has been classified as part of the Group’s net investment in Water Plus. Details are provided in note 4. A total loss
of £13.8 million (2020: loss of £46.8 million) has been recorded in the current period in the income statement, consisting of £4.9 million
unrecognised losses from the prior period recorded as an exceptional item, and the Group’s share of Water Plus’s losses after tax for
the year ended 31 March 2021 of £8.9 million recorded in adjusted results.
The Group has no accumulated unrecognised losses in Water Plus at 31 March 2021 (2020: £4.9 million).
As at 31 March 2021 and 2020 the joint venture did not have any significant contingent liabilities to which the Group was exposed and, other
than those set out below, the Group did not have any significant contingent liabilities in relation to its interests in the joint venture. The Group
had no capital commitments in relation to its interests in the joint venture at 31 March 2021 or 2020.
The Company has given guarantees in favour of Water Plus Limited in respect of the joint venture’s liabilities to wholesalers in the Open Water
market. The guarantee is capped at £54.1 million (2020: £54.1 million).
The registered office of Water Plus Group Limited is Two Smithfield, Leonard Coates Way, Stoke-On-Trent ST1 4FD.
At 31 March 2021 Water Plus had current assets of £263.6 million, non-current assets of £27.6 million, current liabilities of £55.2 million and
non-current liabilities of £284.4 million. Included in these amounts were cash of £20.3 million, current financial liabilities (excluding trade and
other payables and provisions) of nil and non-current financial liabilities of £282.9 million.
Its revenue for the year then ended was £722.6 million and it recorded a loss for the year and total comprehensive loss of £17.7 million after
depreciation and amortisation of £5.3 million, finance income of £3.2 million, finance costs of £8.5 million and a tax credit of £2.2 million.
196
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 21 Categories of financial assets
Fair value through profit and loss
Cross currency swaps – not hedge accounted
Interest rate swaps – not hedge accounted
Derivatives designated as hedging instruments
Cross currency swaps – fair value hedges
Energy hedges – cash flow hedges
Total derivative financial assets
Financial assets at amortised cost
Trade receivables
Accrued income
Other amounts receivable
Loan receivable from joint venture
Short term deposits
Cash at bank and in hand
Total financial assets at amortised cost
Total financial assets
Disclosed in the balance sheet as:
Non-current assets
Derivative financial assets
Trade and other receivables
Current assets
Derivative financial assets
Trade and other receivables
Loan receivable from joint venture
Cash and cash equivalents
Note
22
22
22
22
23
23
2021
£m
16.0
–
16.0
16.5
8.4
24.9
40.9
207.8
219.0
45.9
84.0
–
56.2
612.9
653.8
37.1
94.6
131.7
3.8
462.1
–
56.2
522.1
653.8
2020
£m
36.7
4.9
41.6
23.7
0.2
23.9
65.5
220.1
241.8
58.0
92.6
11.3
37.3
661.1
726.6
65.5
103.7
169.2
–
508.8
–
48.6
557.4
726.6
197
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 22 Trade and other assets
Current assets
Net trade receivables
Other amounts receivable
Contract assets
Prepayments
Net accrued income
Non-current assets
Other amounts receivable
Prepayments
Loan receivable from joint venture
2021
£m
2020
(restated)
£m
207.8
220.1
35.3
38.2
14.9
219.0
515.2
10.6
6.9
84.0
101.5
616.7
46.9
36.6
16.0
241.8
561.4
11.1
14.1
92.6
117.8
679.2
A prior period adjustment has been made to reflect a change in presentation for the ageing of contract assets. See note 2 a (iii).
Prepayments includes unamortised success fees paid as a result of winning the MOD contract (see note 6) amounting to £5.3 million (2020: £5.9 million).
The costs are being amortised on a straight line basis over the life of the contract.
The carrying values of trade and other receivables are reasonable approximations of their fair values.
Trade receivables and accrued income
a) Credit risk
i)
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 92% of Group turnover and 93% of net trade receivables. Severn Trent Water has a statutory
obligation to provide water and waste water services to domestic customers within its region. Therefore there is no concentration of credit risk
with respect to its trade receivables from these services and the credit quality of its customer base reflects the wealth and prosperity of all of
the domestic households within its region.
In the current and prior year, the Group’s joint venture, Water Plus, was the largest retailer for non-domestic customers in the Severn Trent
region. The trade receivables and amounts shown as loans receivable from joint venture are disclosed within note 43, Related party
transactions. Credit risk is considered separately for trade receivables due from Water Plus and is considered immaterial as amounts
outstanding are paid within 30 days.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses, which uses a lifetime expected credit loss allowance for
all trade receivables, contract assets and accrued income.
A collective provision is recorded for expected credit losses against assets for which no specific provision has been made. Expected credit losses
for trade receivables are based on the historical credit losses experienced over the last nine years and reasonable supportable information on
the future impact of the COVID-19 outbreak on unemployment levels and hence on the Group’s collection of trade receivables.
Debts are written off when there is no realistic expectation of further collection and enforcement activity has ceased. There were no amounts
outstanding on receivables written off and still subject to enforcement activity (2020: nil).
ii) Contract assets
The contract assets represent the Group’s right to receive consideration from the Ministry of Defence for services provided. On that basis the
Group considers that the credit risk in relation to these assets is immaterial and therefore no provision for expected credit losses has been
recognised (2020: nil).
iii) Loan receivable from joint venture
As well as trade receivables from Water Plus the Group has advanced loans to its joint venture. These loans are assessed for impairment under
the two-stage impairment model in IFRS 9.
198
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 Expected credit loss allowance
Trade receivables and accrued income
22 Trade and other receivables (continued)
b)
i)
The expected credit loss at 31 March 2021 and 2020 was as set out below. The expected loss rate disclosed is calculated as the expected loss on
the total amount originally billed for each age category.
2021
Not past due
Up to 1 year past due
1 – 2 years past due
2 – 3 years past due
3 – 4 years past due
4 – 5 years past due
5 – 6 years past due
6 – 7 years past due
7 – 8 years past due
8 – 9 years past due
More than 9 years past due
2020
Not past due
Up to 1 year past due
1 – 2 years past due
2 – 3 years past due
3 – 4 years past due
4 – 5 years past due
5 – 6 years past due
6 – 7 years past due
7 – 8 years past due
8 – 9 years past due
More than 9 years past due
Movements on the expected credit loss allowance were as follows:
At 1 April
Charge for bad and doubtful debts
Amounts written off during the year
At 31 March
Expected loss
rate
%
5
29
45
49
47
49
62
62
61
64
100
Gross
carrying
amount
£m
285.1
85.1
57.4
43.2
32.9
22.1
16.2
10.6
4.9
2.8
3.6
Loss
allowance
£m
Net carrying
amount
£m
(14.4)
(24.6)
(25.7)
(21.2)
(15.4)
(10.8)
(10.0)
(6.6)
(3.0)
(1.8)
(3.6)
270.7
60.5
31.7
22.0
17.5
11.3
6.2
4.0
1.9
1.0
–
563.9
(137.1)
426.8
Expected loss
rate
%
Gross carrying
amount
£m
Loss
allowance
£m
Net carrying
amount
£m
8
33
42
47
48
61
64
48
46
50
100
349.8
60.0
67.4
43.5
30.4
22.3
15.7
8.3
4.1
1.0
1.1
(27.4)
(19.7)
(28.4)
(20.3)
(14.6)
(13.7)
(10.1)
(4.0)
(1.9)
(0.5)
(1.1)
322.4
40.3
39.0
23.2
15.8
8.6
5.6
4.3
2.2
0.5
–
603.6
(141.7)
461.9
2021
£m
141.7
40.0
(44.6)
137.1
2020
£m
120.2
42.9
(21.4)
141.7
Loan receivable from joint venture
ii)
In the previous year, the Group determined that there had been a significant increase in the credit risk since inception relating to its
loans receivable of £85.3 million (2020: £97.5 million) from Water Plus, in the light of a significant increase in losses incurred by Water Plus.
Following continued losses from Water Plus in the current year, the Group determines that there continues to be a significant increase
in credit risk since inception on the loan receivable balance from Water Plus, albeit at a reduced level to the prior year. The Group has therefore
assessed the lifetime expected credit loss of its loans to Water Plus at 31 March 2021 (2020: lifetime expected credit loss) based on Water Plus’s
financial projections, taking into account the expected impact of COVID-19 in more than one scenario, as this is considered to be reasonable
and supportable forward-looking information. The Group has reduced the expected credit loss provision to £1.3 million (2020: £4.9 million)
resulting in a net loan receivable of £84.0 million (2020: £92.6 million).
199
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 23 Cash and cash equivalents
Cash at bank and in hand
Short term deposits
2021
£m
56.2
–
56.2
2020
£m
37.3
11.3
48.6
Short term bank deposits are held as security deposits for insurance obligations, which are not available for use by the Group. In addition,
£22.1 million (2020: £17.5 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.
24 Borrowings
Current liabilities
Bank loans
Other loans
Lease liabilities
Overdraft
Non-current liabilities
Bank loans
Other loans
Lease liabilities
See note 35 for details of interest rates payable and maturity of borrowings.
2021
£m
232.0
251.2
7.7
12.2
503.1
779.1
5,220.1
113.6
6,112.8
6,615.9
2020
£m
469.5
0.1
5.8
–
475.4
782.4
5,058.4
116.9
5,957.7
6,433.1
200
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 25 Categories of financial liabilities
Fair value through profit and loss
Interest rate swaps – not hedge accounted
Inflation swaps – not hedge accounted
Derivatives designated as hedging instruments
Cross currency swaps – fair value hedges
Interest rate swaps – cash flow hedges
Energy hedges – cash flow hedges
Total derivative financial liabilities
Other financial liabilities
Borrowings
Trade payables
Other payables
Total other financial liabilities
Total financial liabilities
Disclosed in the balance sheet as:
Non-current liabilities
Derivative financial liabilities
Borrowings
Other payables
Current liabilities
Derivative financial liabilities
Borrowings
Trade payables
Other payables
Note
24
26
26
2021
£m
64.0
32.1
96.1
0.6
30.2
–
30.8
126.9
2020
£m
78.5
27.7
106.2
–
50.2
7.2
57.4
163.6
6,615.9
6,433.1
40.8
8.7
6,665.4
6,792.3
126.9
6,112.8
–
45.4
23.1
6,501.6
6,665.2
159.2
5,957.7
6.5
6,239.7
6,123.4
–
503.1
40.8
8.7
552.6
6,792.3
4.4
475.4
45.4
16.6
541.8
6,665.2
201
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 26 Trade and other payables
Current liabilities
Trade payables
Social security and other taxes
Other payables
Accruals
Deferred income
Non-current liabilities
Other payables
Accruals
Deferred income
Movements in the deferred income balance are set out in note 6 to the 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 2019
Charge/(credit) to income
Charge/(credit) to income arising from rate change
Charge/(credit) to equity
Charge/(credit) to equity arising from rate change
At 1 April 2020
Charge/(credit) to income
Charge/(credit) to equity
At 31 March 2021
Accelerated
tax
depreciation
£m
Retirement
benefit
obligations
£m
Fair value of
financial
instruments
£m
823.6
29.8
96.9
–
–
950.3
21.8
–
972.1
(42.7)
(37.1)
1.3
(1.6)
42.4
(2.3)
(2.9)
5.9
(30.8)
(27.8)
(1.0)
(4.0)
(5.8)
(0.4)
(48.3)
1.4
7.9
(39.0)
2021
£m
40.8
7.6
8.7
484.9
15.1
557.1
–
6.3
1,244.0
1,250.3
1,807.4
Other
£m
3.3
(1.0)
0.5
(0.8)
–
2.0
(0.9)
(0.4)
0.7
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
2021
£m
(66.8)
972.8
906.0
2020
£m
45.4
7.7
16.6
487.6
16.3
573.6
6.5
8.8
1,172.0
1,187.3
1,760.9
Total
£m
747.1
29.1
91.8
35.8
(2.7)
901.1
28.2
(23.3)
906.0
2020
£m
(51.2)
952.3
901.1
In March 2021 the UK Government announced its intention to increase the rate of corporation tax to 25% with effect from 1 April 2023. If this rate
had applied at the balance sheet date the deferred tax liability would have been £286 million higher.
202
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 28 Retirement benefit schemes
a) Defined benefit pension schemes
(i) Background
The Group operates a number of defined benefit pension schemes. The Severn Trent Pension Scheme and the Severn Trent Mirror Image
Pension Scheme closed to future accrual on 31 March 2015, while the Dee Valley Water Limited Section of the Water Companies Pension
Scheme, which is a sectionalised scheme, currently remains open to accrual. The defined benefit pension schemes cover increases in accrued
benefits arising from inflation and 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 by reference to their pensionable service and pensionable salary history, with inflationary pension
increases applied in line with the scheme rules.
The defined benefit pension schemes and the dates of their last completed formal actuarial valuations as at the accounting date are as follows:
Severn Trent Pension Scheme (‘STPS’)*
Severn Trent Mirror Image Pension Scheme (‘STMIPS’)
Water Companies Pension Scheme – Dee Valley Water Limited Section (‘DVWS’)
Date of last formal actuarial valuation
31 March 2019
31 March 2019
31 March 2020
* The STPS is by far the largest of the Group’s UK defined benefit schemes, comprising over 90% of the Group’s overall defined benefit obligations.
(ii) Amount included in the balance sheet arising from the Group’s obligations under the defined benefit pension schemes
2021
£m
2020
£m
Fair value of assets
Present value of the defined benefit obligations
Presented on the balance sheet as:
Retirement benefit obligation – funded schemes in surplus
Retirement benefit obligation – funded schemes in deficit
Retirement benefit obligation – unfunded schemes
Retirement benefit obligation – total
Net retirement benefit obligation
STPS, STMIPS, and DVWS
Fair value of scheme assets
Equities
Corporate bonds
Liability-driven investment funds ('LDIs’)
Property
High-yield bonds
Cash
2,600.4
2,414.1
(2,968.1)
(2,648.1)
(367.7)
(234.0)
17.1
(376.5)
(8.3)
(384.8)
(367.7)
2021
£m
493.3
1,047.5
629.9
255.1
28.4
146.2
21.3
(247.4)
(7.9)
(255.3)
(234.0)
2020
£m
275.6
925.7
720.4
261.9
28.2
202.3
2,600.4
2,414.1
Most of the assets have quoted prices in active markets, but there are equities, corporate bonds and LDI investments which are unquoted
amounting to £544.6 million.
203
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021
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 the defined benefit pension schemes (continued)
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 demographic assumptions
Actuarial (losses)/gains arising from changes in financial assumptions
Actuarial gains arising from experience adjustments
Benefits paid
Present value at 31 March
2021
£m
2020
£m
2,414.1
2,418.9
57.3
38.1
–
212.7
(3.9)
(117.9)
58.2
46.2
0.1
(0.4)
(3.4)
(105.5)
2,600.4
2,414.1
2021
£m
2020
£m
(2,648.1)
(2,871.8)
(0.2)
(0.3)
(62.7)
–
33.9
(439.7)
31.1
117.9
(0.2)
–
(69.3)
(0.1)
(49.0)
222.5
14.3
105.5
(2,968.1)
(2,648.1)
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 £8.3 million (2020: £7.9 million) is included as an unfunded scheme
within the retirement benefit obligation.
The Group has assessed that is has an unconditional right to a refund of any surplus assets in each of the schemes following settlement of all
obligations to scheme members and therefore the surplus in DVWS has been recognised in full.
(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
204
2021
£m
(0.2)
(0.3)
(3.9)
(4.4)
2020
£m
(0.2)
–
(3.4)
(3.6)
(62.7)
(69.3)
57.3
(9.8)
58.2
(14.7)
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 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 (continued)
The actual return on scheme assets was a gain of £270.0 million (2020: £57.8 million).
Actuarial gains and losses have been reported in the statement of comprehensive income.
On 20 November 2020 the High Court issued a judgment in relation to the application of gender equality in Guaranteed Minimum Pension rights
as far as it relates to historical transfer values paid that may have an impact on the Group’s defined benefit pension liabilities. The Group has
estimated the cost of equalising these further benefits, and has allowed for this cost within the past service cost item over 2020/21 (£0.3 million).
(iv) Actuarial risk factors
The schemes typically expose the Group 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 may need to make additional
contributions to the schemes in order to fund the payment of accrued benefits.
Each scheme’s investment strategy seeks to balance the level of investment return sought with the aim of reducing volatility and risk.
In undertaking this approach reference is made to both the maturity of liabilities and the funding level of that scheme. A number of further
strategies are employed to manage underlying risks, including liability-matching asset strategies, diversification of asset portfolios and
interest rate hedging.
Currently the schemes have a balanced approach to investment in equity securities, debt instruments and real estate. Due to the long-term
nature of the scheme liabilities, we consider it appropriate to invest a portion of the scheme assets in equity securities and in real estate to
leverage the return generated by the fund.
Inflation risk
The benefits payable to members of the schemes are linked to inflation measured by the RPI or CPI, subject to caps. 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 may need to make additional contributions to the schemes in order to fund the payment of accrued benefits.
The schemes use LDIs within the asset portfolios to hedge against the value of liabilities changing as a result of movements in long-term interest
rate and inflation expectations. This structure allows the schemes to both hedge against these risks and retain capital investment in assets that
are expected to generate higher returns.
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 may need to make additional contributions to the schemes in
order to fund the payment of accrued benefits.
(v) Actuarial assumptions
The major financial assumptions used in the accounting valuation of the obligations for the STPS which represents by far the largest defined
benefit obligation for the Group were as follows:
Price inflation – RPI
Price inflation – CPI
Discount rate
Pension increases in payment
Pension increases in deferment
2021
% pa
3.2
2.4
2.0
3.2
3.2
2020
% pa
2.5
1.7
2.4
2.5
2.5
The assumption for RPI price inflation is derived from the difference between the yields on longer term fixed rate gilts and on index-linked gilts.
In setting our discount rate, we construct a yield curve. Short dated yields are taken from market rates for AA corporate bonds. Long dated
yields for the curve are based on the average yield available on all long dated AA corporate bonds. We project the expected cash flows of the
schemes and adopt a single equivalent cash flow weighted discount rate taking account of the constructed yield curve.
205
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 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 latest triennial funding valuations. The mortality assumptions adopted at the year end
for accounting purposes and the life expectancies at age 65 implied by the assumptions are as follows for the STPS:
Mortality table used
Mortality table compared with standard table
Mortality projections
Long-term rate of future improvement per annum
Weighting factor given to data for 2020
Remaining life expectancy for members currently aged 65 (years)
Remaining life expectancy at age 65 for members currently aged 45 (years)
2021
2020
Men
Women
Men
Women
S3PMA_L
S3PFA_M
S3PMA_L
S3PFA_M
112%
95%
112%
95%
CMI 2020
CMI 2020
CMI 2019
CMI 2019
1.0%
20%
21.8
22.7
1.0%
20%
23.6
24.8
1.0%
n/a
22.2
23.1
1.0%
n/a
23.9
25.1
The calculation of the scheme obligations is sensitive to the actuarial assumptions and in particular to the assumptions relating to the discount
rate, price inflation (capped, where relevant) and mortality. The following table summarises the estimated impact on the Group’s obligations
from changes to key actuarial assumptions whilst holding all other assumptions constant.
Assumption
Discount rate1
Price inflation2
Mortality3
Change in assumption
Impact on disclosed obligations
Increase/decrease by 0.1% pa
Decrease/increase by £48/£50 million
Increase/decrease by 0.1% pa
Increase/decrease by £42/£41 million
Increase/decrease in life expectancy by 1 year
Increase/decrease by £125 million
1. A change in discount rate is likely to occur as a result of changes in bond yields and as such would be expected to be offset to a significant degree by a change in the value of the bond
assets held by the schemes.
2. The projected impact resulting from a change in RPI reflects the adjusted effect on pensions in payment, pensions in deferment and resultant pension increases.
3. The change in this assumption is based on triennial valuations and reflect the fact that life expectancy rates might increase.
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. Also, in practice any movement in obligations arising from assumption changes are
likely to be accompanied by movements in asset values – and so the impact on the accounting deficit may be lower than the impact on the
obligations shown above.
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 trustee for each scheme and each participating employer.
The average duration of the benefit obligation at the end of the year is 17 years for STPS and STMIPS (2020: 16 years) and 15 years for DVWS
(2020: 14 years).
The most recent completed formal triennial actuarial valuations and funding agreements were carried out as at 31 March 2019 for the STPS and
STMIPS schemes and 31 March 2020 for DVWS. As a result of the STPS and STMIPS actuarial valuations, annual deficit reduction contributions
of £32.4 million, increasing in line with CPI inflation until 31 March 2027, were agreed for the STPS. During the financial year ended 31 March
2021, £12.7 million of these payments were made. With the approval of the scheme Trustee, the remaining scheduled contributions in respect
of the financial year ending 31 March 2021 have been paid in April 2021.
Payments of £8.2 million per annum through an asset backed funding arrangement will also continue to 31 March 2032 for the STPS.
Further inflation linked payments of £15.0 million per annum are being made through an additional asset backed funding arrangement, with
payments having started in the financial year ended 31 March 2018 and continuing to 31 March 2031. These contributions will cease earlier
should a subsequent valuation of the STPS show that these contributions are no longer needed.
b) Defined contribution pension schemes
The Group also operates the Severn Trent Group Personal Pension, a defined contribution scheme, for its UK employees.
The total cost charged to operating costs of £26.3 million (2020: £25.6 million) represents contributions payable to these schemes by the Group
at rates specified in the rules of the scheme. As at 31 March 2021, no contributions (2020: nil) in respect of the current reporting period were
owed to the schemes.
Hafren Dyfrdwy operates two defined contribution pension schemes, neither of which were material in either the current or prior year.
206
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 29 Provisions
At 1 April 2020
Charged to income statement
Other net additions
Utilisation of provision
Unwinding of discount
At 31 March 2021
Included in:
Current liabilities
Non-current liabilities
Insurance
£m
21.5
4.3
–
(6.9)
–
18.9
Other
£m
22.5
0.6
6.3
(5.3)
0.2
24.3
2021
£m
18.0
25.2
43.2
Total
£m
44.0
4.9
6.3
(12.2)
0.2
43.2
2020
£m
18.9
25.1
44.0
Other net additions to provisions comprise mainly provisions for capital works.
Insurance includes provisions in respect of Lyra Insurance Guernsey Limited, a captive insurance company and 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.
Other provisions include provisions for dilapidations, commercial disputes, either from continuing or discontinued operations, and potential
environmental claims. The associated outflows are estimated to arise over a period up to ten years from the balance sheet date.
30 Share capital
Total issued and fully paid share capital
242,259,862 ordinary shares of 9717/19p (2020: 241,537,324)
2021
£m
2020
£m
237.2
236.5
At 31 March 2021, 3,376,054 treasury shares (2020: 3,581,338) were held at a nominal value of £3,304,979 (2020: £3,505,941).
Changes in share capital were as follows:
Ordinary shares of 9717/19p
At 1 April 2019
Shares issued under the Employee Sharesave Scheme
At 1 April 2020
Shares issued under the Employee Sharesave Scheme
At 31 March 2021
31 Share premium
At 1 April
Share premium arising on issue of shares for Employee Sharesave Scheme
At 31 March
Number
£m
240,943,929
593,395
241,537,324
722,538
242,259,862
2021
£m
137.0
11.1
148.1
235.9
0.6
236.5
0.7
237.2
2020
£m
128.0
9.0
137.0
207
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 32 Other reserves
At 1 April 2019
Total comprehensive income for the year
At 1 April 2020
Total comprehensive income for the year
At 31 March 2021
Capital
redemption
reserve
£m
157.1
–
157.1
–
157.1
Hedging
reserve
£m
(64.3)
(24.9)
(89.2)
33.8
(55.4)
Total
£m
92.8
(24.9)
67.9
33.8
101.7
The capital redemption reserve arose on the redemption of B shares.
The hedging reserve arises from gains or losses on interest rate swaps and energy swaps taken directly to equity under the hedge accounting
provisions of IFRS 9 and the transition rules of IFRS 1.
33 Capital management
The Group’s principal objectives in managing capital are:
• to maintain a flexible and sustainable balance sheet structure;
• to maintain an investment grade credit rating;
• to access a broad range of sources of finance to obtain both the quantum required and lowest cost compatible with the need for continued
availability;
• to manage exposure to movements in interest rates to provide an appropriate degree of certainty as to its cost of funds;
• to minimise exposure to counterparty credit risk; and
• to provide the Group with an appropriate degree of certainty as to its foreign exchange exposure.
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.
The Group has continued to monitor market conditions and reduce its exposure to floating interest rates debt, which comprises 8% (2020: 12%)
of our gross debt portfolio at the balance sheet date, with a further 25% (2020: 24%) of index linked debt and 67% (2020: 64%) of fixed rate debt.
Exposure to credit risk (excluding credit risk relating to amounts receivable from contracts with customers) is set out in note 35 b).
Foreign exchange risk is set out in not 35 a) (ii).
At 31 March 2021 the Group had the following credit ratings:
Severn Trent Plc
Severn Trent Water
The ratings were stable.
Moody’s
Standard and Poor’s
Baa2
Baa1
BBB
BBB+
A key metric in measuring financial sustainability and capital efficiency for companies in the water sector is RCV gearing. This is measured as
net debt divided by Regulatory Capital Value (‘RCV’). The Group aims to maintain its RCV gearing ratio close to the Ofwat assumption at the Price
Review (60% for AMP7). At 31 March 2021 the Group’s RCV gearing ratio was 67.5% (2020: 64.9%) and for Severn Trent Water Group it was 64.5%
(2020: 64.4%).
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 2020/21 dividend at 101.58 pence, an increase of 1.5%
compared to the total dividend for 2019/20 of 100.08 pence. Our policy is to grow the dividend annually at no less than CPIH until March 2025.
208
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 33 Capital management (continued)
The Group’s capital at 31 March was:
Net cash and cash equivalents
Bank loans
Other loans
Lease liabilities
Cross currency swaps
Loans receivable from joint venture
Net debt
Equity attributable to owners of the Company
Total capital
2021
£m
44.0
2020
£m
48.6
(1,011.1)
(1,251.9)
(5,471.3)
(5,058.5)
(121.3)
(122.7)
31.9
84.0
60.4
92.6
(6,443.8)
(6,231.5)
(1,138.7)
(1,243.7)
(7,582.5)
(7,475.2)
Fair value measurements
34 Fair values of financial instruments
a)
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. The Group’s valuation techniques are Level 2 unless otherwise stated below:
Cross currency swaps
Assets
Liabilities
Interest rate swaps
Assets
Liabilities
Energy swaps
Assets
Liabilities
Inflation swaps
Liabilities
2021
£m
32.5
(0.6)
–
(94.2)
8.4
–
2020
£m Valuation techniques and key inputs
Discounted cash flow
60.4
–
Future cash flows are estimated based on forward interest rates from observable yield
curves at the period end and contract interest rates discounted at a rate that reflects the
credit risk of counterparties. The currency cash flows are translated at spot rate.
Discounted cash flow
4.9
(128.7)
Future cash flows are estimated based on forward interest rates from observable yield
curves at the period end and contract interest rates discounted at a rate that reflects the
credit risk of counterparties.
Discounted cash flow
0.2
(7.2)
Future cash flows are estimated based on forward electricity prices from observable
indices at the period end and contract prices discounted at a rate that reflects the credit
risk of counterparties.
Discounted cash flow
(32.1)
(27.7) Future cash flows on the RPI leg of the instrument are estimated based on observable
forward inflation indices.
Future cash flows on the CPI leg of the instrument are estimated based on the future
expected differential between RPI and CPI.
Both legs are discounted using observable swap rates at the period end, at a rate that reflects
the credit risk of counterparties. This is considered to be a Level 3 valuation technique.
209
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 34 Fair value of financial instruments (continued)
a)
Changes in the carrying values of instruments that are measured using a Level 3 technique were as follows:
Fair value measurements (continued)
At 1 April 2019
Losses recognised in profit or loss
At 1 April 2020
Amounts paid
Losses recognised in profit or loss
At 31 March 2021
Inflation
swaps
£m
Contingent
consideration
£m
(6.2)
(21.5)
(27.7)
–
(4.4)
(32.1)
(3.0)
–
(3.0)
3.0
–
–
These Level 3 instruments are valued using unobservable inputs. In valuing the inflation swaps, we have identified the unobservable input
as the CPI wedge. A change of 10bps in the CPI wedge would result in a change in the carrying value of £7.0 million.
b) Comparison of fair value of financial instruments with their carrying amounts
The Directors consider that the carrying amounts of all financial instruments, except those disclosed in the table below, approximate to their
fair values. The carrying values and estimated fair values of other financial instruments are set out below:
Floating rate debt
Bank loans
Other loans
Overdraft
Fixed rate debt
Bank loans
Other loans
Lease liabilities
Index-linked debt
Bank loans
Other loans
31 March 2021
31 March 2020
Carrying
value
£m
Fair value
£m
Carrying
value
£m
Fair value
£m
858.4
183.1
12.2
860.0
190.8
12.2
948.9
187.2
–
947.1
180.9
–
1,053.7
1,063.0
1,136.1
1,128.0
30.4
30.7
3,751.2
4,201.3
121.3
134.1
3,902.9
4,366.1
122.3
1,537.0
1,659.3
6,615.9
146.2
2,490.1
2,636.3
8,065.4
182.2
3,472.8
122.7
3,777.7
120.8
1,398.5
1,519.3
6,433.1
182.1
3,903.1
129.5
4,214.7
138.0
1,904.2
2,042.2
7,384.9
The above classification does not take into account the impact of unhedged interest rate swaps or cross currency swaps.
Fixed rate loans are valued using market prices for similar instruments, which is a Level 2 valuation technique.
Index-linked loans are rarely traded and therefore quoted prices are not considered a reliable indicator of fair value. Therefore, these loans are
valued using discounted cash flow models with discount rates derived from observed market prices for a sample of bonds, which is a Level 2
valuation technique.
Fair values of the other debt instruments are also calculated using discounted cash flow models with discount rates derived from observed
market prices, which is a Level 2 valuation technique.
210
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021
35 Risks arising from financial instruments
The Group’s activities expose it to a variety of financial risks:
• market risk (including interest rate risk, exchange rate risk and other price risk);
• credit risk;
• liquidity risk; and
• inflation risk.
The Group’s overall risk management programme addresses the unpredictability of financial markets and seeks to reduce potential adverse
effects on the Group’s financial performance or position.
Financial risks are managed by a central treasury department (‘Group Treasury’) under policies approved by the Board of Directors. The Board
has established a Treasury Committee to monitor treasury activities and to facilitate timely responses to changes in market conditions when
necessary. Group Treasury operates under the Group’s Treasury Procedures Manual and Policy Statement and 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 section a) (i) and
note 36 b) (i).
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 note 36 a) (i).
Energy swaps are held to mitigate the Group’s exposure to changes in electricity prices. Further details are provided in note 36 b) (ii).
Severn Trent Water, the Group’s most significant business unit, operates under a regulatory environment where its prices are linked to inflation
measured by CPIH. In order to mitigate the risks to cash flow and earnings arising from fluctuations in CPIH, the Group holds debt instruments
where the principal repayable and interest cost is linked to RPI and the Group holds RPI/CPI swaps to mitigate the risk of divergence between
RPI and CPIH.
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.
Interest rate risk
(i)
The Group’s annual 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 AMP 7. 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 38)
Cash and cash equivalents
Loans receivable from joint venture
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
2021
£m
2020
£m
6,443.8
6,231.5
56.2
84.0
31.9
(23.9)
(8.4)
48.6
92.6
60.4
(29.3)
(23.1)
6,583.6
6,380.7
The Group manages its cash flow interest rate risk by borrowing at fixed or index-linked rates or by using interest rate swaps. Under these
swaps the Group receives variable rate interest and pays fixed rate interest calculated by reference to the agreed notional principal amounts.
In practice the swaps are settled by transferring the net amount. These swaps have the economic effect of converting borrowings from variable
rates to fixed rates. The Group has entered into a series of these interest rate swaps to hedge future interest payments beyond 2030.
211
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 Interest rate risk (continued)
35 Risks arising from financial instruments (continued)
a) Market risk (continued)
(i)
The following tables show analyses of the Group’s interest bearing financial liabilities by type of interest. Debt raised in foreign currencies has
been included at the 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 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.
2021
Overdraft
Bank loans
Other loans
Lease liabilities
Floating
rate
£m
(12.2)
(858.4)
(183.1)
Fixed
rate
£m
–
Index- linked
£m
–
Total
£m
(12.2)
(30.4)
(122.3)
(1,011.1)
(3,718.9)
(1,537.0)
(5,439.0)
–
(121.3)
–
(121.3)
(1,053.7)
(3,870.6)
(1,659.3)
(6,583.6)
Impact of swaps not matched against specific debt instruments
524.6
(524.6)
–
–
Interest bearing financial liabilities
(529.1)
(4,395.2)
(1,659.3)
(6,583.6)
Proportion of interest bearing financial liabilities that are fixed
Weighted average interest rate of fixed debt
Weighted average period for which interest is fixed (years)
2020
Bank loans
Other loans
Lease liabilities
67%
3.81%
7.2
Fixed
rate
£m
Index-
linked
£m
Total
£m
(182.2)
(120.8)
(1,251.9)
(3,420.4)
(1,398.5)
(5,006.1)
Floating
rate
£m
(948.9)
(187.2)
–
(122.7)
–
(122.7)
(1,136.1)
(3,725.3)
(1,519.3)
(6,380.7)
Impact of swaps not matched against specific debt instruments
126.6
(126.6)
–
–
Interest bearing financial liabilities
(1,009.5)
(3,851.9)
(1,519.3)
(6,380.7)
Proportion of interest bearing financial liabilities that are fixed
Weighted average interest rate of fixed debt
Weighted average period for which interest is fixed (years)
60%
4.07%
8.6
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. This has led to a credit of
£17.0 million (2020: £7.0 million) in the income statement.
Average contract fixed
interest rate
2021
%
5.10
5.52
5.41
5.20
2020
%
5.10
–
5.46
5.20
–
2.75
Notional principal amount
2021
£m
2020
£m
(200.0)
(200.0)
(35.0)
(40.0)
(275.0)
–
(275.0)
–
(75.0)
(275.0)
50.0
(225.0)
Fair value
2020
£m
(41.4)
–
(37.1)
(78.5)
4.9
(73.6)
2021
£m
(33.3)
(13.9)
(16.8)
(64.0)
–
(64.0)
Pay fixed rate interest
2-5 years
5-10 years
10-20 years
Receive fixed rate interest
10-20 years
212
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 35 Risks arising from financial instruments (continued)
a) Market risk (continued)
(i)
In addition to the above the Group has cross currency swaps that also swap fixed rate interest to floating (see below).
Interest rate risk (continued)
Interest rate sensitivity analysis
The sensitivity after tax of the Group’s profits, cash flow and equity, including the impact on derivative financial instruments, to changes in
interest rates at 31 March is as follows:
Profit or loss
Cash flow
Equity
2021
2020
+1.0%
£m
9.6
(6.7)
9.6
-1.0%
£m
(10.8)
6.7
(10.8)
+1.0%
£m
6.2
(7.8)
6.2
-1.0%
£m
(7.0)
7.8
(7.0)
(ii) Exchange rate risk
Except for debt raised in foreign currency, which is hedged, the Group’s business does not involve significant exposure to foreign exchange
transactions. 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 no charge (2020: nil) in the income statement.
The Group has raised debt denominated in currencies other than sterling to meet its objective of accessing a broad range of sources of finance.
The Group mitigated its exposure to exchange rate fluctuations by entering into cross currency swaps 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 adjusted 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 36 a) (i).
The Group also has cross currency swaps with a sterling notional value of £98.3 million (2020: £98.3 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 and also swap the interest from fixed rate to floating, but they are not designated hedges under IFRS 9. This has led to a debit of
£19.7 million (2020: credit of £18.6 million) in the income statement, which is partly offset by the exchange gain of £12.3 million (2020: loss
of £5.6 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.
2021
Borrowings by currency
Cross currency swaps – hedge accounted
Cross currency swaps – not hedge accounted
Net currency exposure
2020
Borrowings by currency
Cross currency swaps – hedge accounted
Cross currency swaps – not hedge accounted
Net currency exposure
Euro
€m
(19.9)
19.9
–
–
Euro
€m
(19.9)
19.9
–
–
US Dollar
$m
(180.0)
30.0
150.0
–
US Dollar
$m
(180.0)
30.0
150.0
–
Yen
¥bn
(2.0)
2.0
–
–
Yen
¥bn
(2.0)
2.0
–
–
213
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021
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 and Hafren Dyfrdwy Cyfyngedig, whose operating
licences oblige them 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 22.
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:
Double A range
Single A range
Below single A range
Credit limit
Amount deposited
2021
£m
–
890.5
10.0
900.5
2020
£m
15.0
800.0
–
815.0
2021
£m
–
–
–
–
The fair values of derivative assets analysed by credit ratings of counterparties were as follows:
Double A range
Single A range
Derivative assets
2021
£m
–
40.9
40.9
2020
£m
–
11.3
–
11.3
2020
£m
4.9
60.6
65.5
c)
Liquidity risk
(i) Committed facilities
Prudent liquidity management requires sufficient cash balances to be maintained; adequate committed facilities to be available; and the ability
to close out market positions. Group Treasury manages liquidity and flexibility in funding by monitoring forecast and actual cash flows and the
maturity profile of financial assets and liabilities, and by keeping committed credit lines available.
At the balance sheet date the Group had committed undrawn borrowing facilities expiring as follows:
2021
£m
55.8
789.2
845.0
2020
£m
–
755.0
755.0
Within 1 year
1 – 2 years
214
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021
Liquidity risk (continued)
35 Risks arising from financial instruments (continued)
c)
(ii) Cash flows from non-derivative financial instruments
The following tables show the estimated cash flows that will arise from the Group’s non-derivative net financial liabilities. The information presented
is based on the earliest date on which the Group can be required to pay and represents the undiscounted cash flows including principal and interest.
Interest and inflation assumptions are based on prevailing market conditions at the year end date.
2021
Undiscounted amounts payable:
Floating rate
£m
Fixed rate
£m
Index-linked
£m
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
Total
Undiscounted amounts receivable:
Within 1 year
1 – 2 years
2 – 5 years
5 – 10 years
Total
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
Total
Undiscounted amounts receivable:
Within 1 year
1 – 2 years
Total
(247.8)
(11.0)
(661.5)
(172.0)
–
–
–
–
–
–
–
–
(1,092.3)
(396.3)
(390.9)
(1,194.3)
(1,395.7)
(752.7)
(735.0)
(367.1)
–
–
–
–
–
(5,232.0)
(28.1)
(124.3)
(129.8)
(187.0)
(221.1)
(153.8)
(181.0)
(210.8)
(918.8)
(2,950.8)
(20.2)
(257.8)
(5,383.5)
(330.1)
(10.8)
(662.6)
(128.2)
(49.0)
–
–
–
–
–
–
–
(1,180.7)
(287.8)
(383.2)
(918.6)
(1,936.5)
(752.3)
(309.9)
(487.5)
–
–
–
–
–
(5,075.8)
(27.6)
(28.3)
(226.8)
(510.3)
(213.0)
(146.5)
(177.4)
(210.6)
(642.8)
(3,181.2)
(21.6)
(280.3)
(5,666.4)
Trade and
other
payables
£m
Payments on
financial
liabilities
£m
(53.8)
–
–
–
–
–
–
–
–
–
–
–
(53.8)
(726.0)
(526.2)
(1,985.6)
(1,754.7)
(973.8)
(888.8)
(548.1)
(210.8)
(918.8)
(2,950.8)
(20.2)
(257.8)
(11,761.6)
56.2
–
–
–
56.2
553.1
12.9
69.2
12.5
647.7
Trade and
other
payables
£m
Payments on
financial
liabilities
£m
(62.0)
(6.5)
–
–
–
–
–
–
–
–
–
–
(68.5)
(707.5)
(428.8)
(1,808.0)
(2,575.0)
(1,014.3)
(456.4)
(664.9)
(210.6)
(642.8)
(3,181.2)
(21.6)
(280.3)
(11,991.4)
Loans due
from joint
ventures
£m
Trade and
other
receivables
£m
Cash and
short term
deposits
£m
Receipts from
financial
assets
£m
34.8
2.3
69.2
12.5
118.8
462.1
10.6
–
–
472.7
Loans due
from joint
ventures
£m
Trade and
other
receivables
£m
Cash and
short term
deposits
£m
Receipts from
financial
assets
£m
2.9
99.4
102.3
508.8
11.1
519.9
48.6
–
48.6
560.3
110.5
670.8
215
2020
Undiscounted amounts payable:
Floating rate
£m
Fixed rate
£m
Index-linked
£m
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 Liquidity risk (continued)
35 Risks arising from financial instruments (continued)
c)
(ii) Cash flows from non-derivative financial instruments (continued)
Index-linked debt includes loans with maturities up to 50 years. The principal is revalued at fixed intervals and is linked to movements in
the RPI. Interest payments are made biannually based on the revalued principal. The principal repayment equals the revalued amount at
maturity. The payments included in the table above are estimates based on the forward inflation rates published by the Bank of England
at the balance sheet date.
(iii) Cash flows from derivative financial instruments
The following tables show the estimated cash flows that will arise from the Group’s derivative financial instruments. The tables are based on the
undiscounted net cash inflows/(outflows) on the derivative financial instruments that settle on a net basis and the undiscounted gross inflows/
(outflows) on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been
determined by reference to the projected interest and foreign currency rates derived from the forward curves existing at the balance sheet date.
Actual amounts may be significantly different from those indicated below.
2021
Within 1 year
1 – 2 years
2 – 5 years
5 – 10 years
10 – 15 years
15 – 20 years
2020
Within 1 year
1 – 2 years
2 – 5 years
5 – 10 years
10 – 15 years
15 – 20 years
Derivative liabilities
Derivative assets
Cross currency swaps
Interest rate
swaps
£m
Inflation
swaps
£m
Energy swaps
£m
Cash
receipts
£m
Cash
payments
£m
(20.7)
(19.6)
(36.5)
(20.4)
(0.8)
–
(98.0)
0.1
0.1
0.6
(5.2)
2.0
(37.3)
(39.7)
7.7
3.9
0.5
–
–
–
6.0
6.0
35.5
147.8
–
–
(2.2)
(2.6)
(21.0)
(135.1)
–
–
12.1
195.3
(160.9)
Derivative liabilities
Derivative assets
Cross currency swaps
Interest rate
swaps
£m
Inflation
swaps
£m
Energy swaps
£m
Interest rate
swaps
£m
Energy swaps
£m
Cash
receipts
£m
Cash
payments
£m
(16.2)
(20.1)
(54.1)
(39.8)
(5.7)
–
(135.9)
–
0.1
0.6
(2.8)
2.3
(28.7)
(28.5)
(2.8)
(2.6)
(1.9)
–
–
–
(7.3)
0.3
0.5
1.5
2.1
0.8
–
5.2
–
–
0.2
–
–
–
6.6
6.6
19.9
196.0
–
–
(2.8)
(2.6)
(8.1)
(148.6)
–
–
0.2
229.1
(162.1)
Total
£m
(9.1)
(12.2)
(20.9)
(12.9)
1.2
(37.3)
(91.2)
Total
£m
(14.9)
(18.1)
(41.9)
6.9
(2.6)
(28.7)
(99.3)
Inflation risk
d)
The Group’s principal operating subsidiary, Severn Trent Water, operates under a regulatory environment where its prices are linked to
inflation (for the period to 31 March 2021 as measured by CPIH). Its operating profits and cash flows are therefore exposed to changes in
inflation. 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 inflation 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.
Ofwat is moving the measure of inflation used in the economic regulatory model from RPI to CPIH over a period of time. In anticipation of this
the Group has entered into CPI/RPI swaps with a notional value of £350 million (2020: £350 million) in order to mitigate the risk of divergence
between inflation measured by CPIH and that measured by RPI.
216
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021
35 Risks arising from financial instruments (continued)
d)
Inflation risk (continued)
Inflation rate sensitivity analysis
The finance cost of the Group’s index-linked debt instruments varies with changes in CPI/RPI rather than interest rates. The sensitivity at
31 March of the Group’s profit and equity to changes in CPI/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 Regulatory Capital Value, or accounting for defined benefit pension schemes.
Profit or loss
Equity
2021
2020
+1.0%
£m
(13.4)
(13.4)
-1.0%
£m
13.4
13.4
+1.0%
£m
(12.3)
(12.3)
-1.0%
£m
12.3
12.3
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 IFRS 9 are met. Hedge ineffectiveness arises from credit risk, which is not hedged.
a)
Fair value hedges
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 adjusted debt, the swaps are expected
tobe effective hedges.
At the year end the amounts of cross currency swaps designated as fair value hedges were as follows:
Euro
US dollar
Yen
Notional principal amount
Fair value
2021
£m
11.4
23.2
8.5
43.1
2020
£m
11.4
23.2
8.5
43.1
2021
£m
9.1
7.4
(0.6)
15.9
2020
£m
10.1
3.4
10.2
23.7
217
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021
Interest rate swaps
36 Hedge accounting (continued)
b) Cash flow hedges
(i)
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
5 – 10 years
10 – 20 years
Average contract
fixed interest rate
Notional principal amount
Fair value
2021
%
2.53
1.83
2.07
2020
%
2.57
1.83
2.06
2021
£m
130.4
248.0
378.4
2020
£m
132.2
298.0
430.2
2021
£m
(11.1)
(19.2)
(30.2)
2020
£m
(15.3)
(34.9)
(50.2)
The Group recognised a loss on hedge ineffectiveness of £2.0 million (2020: gain of £2.7 million) in losses/gains on financial instruments in the
income statement in relation to interest rate swaps.
(ii) Energy swaps
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 2025.
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
Notional contracted amount
Fair value
2021
£/MWh
2020
£/MWh
43.2
38.6
48.3
44.0
44.7
43.1
44.6
44.2
2021
MWh
306,360
175,680
284,040
2020
MWh
372,240
372,240
459,720
766,080
1,204,200
2021
£m
3.8
2.0
2.6
8.4
2020
£m
(4.4)
(1.6)
(1.0)
(7.0)
At the year end the cumulative fair value adjustments arising from the corresponding continuing hedge relationships were as follows:
2021
Cross currency swaps
Interest rate swaps
2020
Cross currency swaps
Interest rate swaps
Carrying amount of hedged items
Cumulative amount of fair value
adjustments on the hedged items
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
–
–
–
(58.7)
(377.9)
(436.6)
–
–
–
(15.3)
–
(15.3)
Carrying amount of hedged items
Cumulative amount of fair value
adjustments on the hedged items
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
–
–
–
(65.4)
(180.0)
(245.4)
–
–
–
(19.5)
–
(19.5)
£58.7 million (2020: £65.4 million) of the carrying amount of hedged items and £15.3 million (2020: £19.5 million) of the cumulative amount of fair
value adjustments on the hedged items relate to fair value hedges. The remainder relates to cash flow hedges.
218
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021
36 Hedge accounting (continued)
b) Cash flow hedges (continued)
(ii) Energy swaps (continued)
Amendments to IFRS 9
From 1 April 2019, the Group early adopted the amendments to IFRS 7 and IFRS 9 introduced to provide temporary relief from applying specific
hedge accounting requirements to hedging relationships directly affected by the planned replacement of benchmark interest rates
such as LIBOR.
The Group is exposed to GBP LIBOR, which is subject to interest rate benchmark reform within its hedge accounting relationships. The hedged
items include issued sterling, Euro and Yen denominated fixed rate debt and issued sterling denominated floating rate debt.
As well as the benchmark interest rate exposures described in note 35, the Group has derivative financial instruments that are not included in
hedge accounting relationships. Given hedge accounting is not applied, there is no accounting relief. The fair value of these financial assets and
liabilities reflects the uncertainties arising from the interest rate benchmark reforms.
The Group has closely monitored the market and the output from the various industry working groups managing the transition to new
benchmark interest rates. This includes announcements made by LIBOR regulators (including the Financial Conduct Authority (‘FCA’) to
the Sterling Overnight Index Average Rate (‘SONIA’). On 5 March 2021, the FCA announced that all panel bank LIBOR settings will cease
at the end of 2021.
In response to the announcements, the Group has established a LIBOR transition group within Group Treasury with an objective of identifying
and assessing LIBOR exposures within the business and developing and delivering an action plan to enable a smooth transition to alternative
risk-free rates ahead of 31 December 2021.
The Group has commenced transitioning its floating rate debt. In April 2021 Severn Trent Water refinanced its committed bank facilities,
agreeing a £1 billion Revolving Credit Facility which uses SONIA as its reference rate. The Group is in dialogue with our other lenders,
comprising bank lenders and USPP noteholders to agree amendments to the fall back provisions to move from GBP LIBOR to SONIA.
For the Group’s derivatives, the Group plans to transition its swap book ahead of 31 December 2021 through adoption of the International
Swaps and Derivatives Association (‘ISDA’) IBOR Fall Back protocol, or through bilateral agreement of the transition of individual swaps
with its counterparties.
Below are details of the hedging instruments and hedged items in scope of the IFRS 9/IAS 39 amendments due to interest rate benchmark
reform, by hedge type. The terms of the hedged items listed match those of the corresponding hedging instruments.
Below are the details of the cash flow hedging instruments and hedged items:
Instrument type
Instrument details
Maturing in
£m Hedged item
Nominal
Interest rate swaps Pay sterling fixed, receive 6m GBP LIBOR
Pay sterling fixed, receive 6m GBP LIBOR
Pay sterling fixed, receive 6m GBP LIBOR
Pay sterling fixed, receive 6m GBP LIBOR
Pay sterling fixed, receive 6m GBP LIBOR
Pay sterling fixed, receive 6m GBP LIBOR
2027
2027
2028
2031
2030
2030
30.4
50.0
50.0
48.0
50.0
150.0
Below are the details of the fair value hedging instruments and hedged items:
6m GBP LIBOR debt with same
maturity and nominal of the swap
Instrument type
Instrument details
Maturing in
Nominal Hedged item
Cross currency
swaps
Receive JPY fixed, pay 6m GBP LIBOR
Receive EUR fixed, pay 6m GBP LIBOR
2029
2025
¥2bn
Fixed JPY debt with same maturity
and nominal of the swap
€19.9m Fixed EUR debt with same maturity
and nominal of the swap
219
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 36 Hedge accounting (continued)
b) Cash flow hedges (continued)
(ii) Energy swaps (continued)
The Group will continue to apply the amendments to IFRS 9/IAS 39 until the uncertainty arising from the interest rate benchmark reforms with
respect to the timing and the amount of the adjusted cash flows that the Group is exposed ends. The Group has assumed that this uncertainty
will not end until the Group’s contracts that reference IBORs are amended to specify: the date on which the interest rate benchmark will be
replaced; the cash flows of the alternative benchmark rate; and the relevant spread adjustment. This will, in part, be dependent on the
introduction of fall-back clauses which have yet to be added to the Group’s contracts and the negotiation with lenders and bondholders.
37 Share based payment
The Group operates a number of share based remuneration schemes for employees. During the year, the Group recognised total expenses
of £7.8 million (2020: £8.1 million) related to equity settled share based payment transactions.
The weighted average share price during the period was £23.86 (2020: £22.07).
At 31 March 2021, there were no options exercisable (2020: none) under any of the share based remuneration schemes.
Long Term Incentive Plan
a)
Under the Long Term Incentive Plan (‘LTIP’), 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.
(i) Awards made under the LTIP
The 2017, 2018, 2019 and 2020 LTIP awards are subject to Severn Trent Water’s achievement of Return on Regulated Equity in excess of the level
included in the Severn Trent Water business plans over a three year vesting period. It has been assumed that performance against the LTIP
non-market conditions will be 100% (2020: 100%).
220
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 Long Term Incentive Plan (continued)
37 Share based payment (continued)
a)
(ii) Awards outstanding
Details of changes in the number of awards outstanding during the year are set out below:
Outstanding at 1 April 2019
Granted during the year
Vested during the year
Lapsed during the year
Outstanding at 1 April 2020
Granted during the year
Vested during the year
Lapsed during the year
Outstanding at 31 March 2020
Details of LTIP awards outstanding at 31 March were as follows:
Date of grant
July 2017
July 2018
July 2019
July 2020
Number of
awards
625,423
281,905
(174,445)
(14,732)
718,151
221,997
(171,326)
(76,633)
692,189
Normal date
of vesting
2020
2021
2022
2023
Number of awards
2021
–
237,003
237,863
217,323
692,189
2020
181,070
266,178
270,903
–
718,151
The awards outstanding at 31 March 2021 had a weighted average remaining contractual life of 1.3 years (2020: 1.4 years).
Details of the basis of the LTIP scheme are set out in the Directors’ Remuneration Report on pages 123 and 131.
Employee Sharesave Scheme
b)
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 2019
Granted during the year
Forfeited during the year
Cancelled during the year
Exercised during the year
Lapsed during the year
Outstanding at 1 April 2020
Granted during the year
Forfeited during the year
Cancelled during the year
Exercised during the year
Lapsed during the year
Number of
share options
Weighted
average
exercise price
3,714,517
1,042,857
(46,040)
(152,843)
(593,395)
(9,074)
3,956,022
1,046,301
(56,751)
(117,426)
(722,538)
(2,848)
1,585p
1,787p
1,586p
1,564p
1,621p
1,623p
1,633p
1,860p
1,607p
1,689p
1,640p
1,652p
Outstanding at 31 March 2021
4,102,760
1,688p
221
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021
37 Share based payment (continued)
b)
Employee Sharesave Scheme (continued)
Sharesave options outstanding at 31 March were as follows:
Date of grant
January 2015
January 2016
January 2017
January 2018
January 2019
January 2020
January 2021
Normal date
of exercise
Option price
2020
2021
2020 or 2022
2021 or 2023
1,584p
1,724p
1,633p
1,652p
Number of awards
2021
–
113,104
129,788
710,275
2020
215,914
117,428
625,429
740,496
2022 or 2024
1,474p
1,155,083
1,219,105
2023 or 2025
1,787p
956,427
1,037,650
2024 or 2026
1,860p
1,038,083
–
4,102,760
3,956,022
The options outstanding at 31 March 2021 had a weighted average remaining contractual life of 2.0 years (2020: 2.0 years).
Fair value calculations
c)
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:
2021
2020
LTIP
SAYE
LTIP
SAYE
3-year scheme 5-year scheme
3-year scheme 5-year scheme
Share price at grant date (pence)
2,460
2,336
2,336
2,026
2,515
2,515
Option life (years)
Vesting period (years)
Expected volatility (%)
Expected dividend yield (%)
Risk free rate (%)
Fair value per share (pence)
3
3
18.2
4.2
N/A
2,443
3.5
3
18.2
4.3
(0.1)
342
5.5
5
18.2
4.3
(0.1)
302
3
3
18.2
5.0
N/A
2,007
3.5
3
18.2
5.0
0.5
489
5.5
5
18.2
5.0
0.6
416
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.
222
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 38 Cash flow statement
a) Reconciliation of operating profit to operating cash flows
Profit before interest and tax
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of intangible assets
Amortisation of acquired intangible assets
Impairment of property, plant and equipment
Pension service cost
Defined benefit pension scheme administration costs
Defined benefit pension scheme contributions
Share based payment charge
Profit on sale of property, plant and equipment and intangible assets
Profit on disposal of subsidiary undertaking
Release from deferred credits
Contributions and grants received
Provisions charged to the income statement
Utilisation of provisions for liabilities
Operating cash flows before movements in working capital
Increase in inventory
Decrease/(increase) in amounts receivable
Increase in amounts payable
Cash generated from operations
Tax received
Tax paid
Net cash generated from operating activities
2021
£m
470.7
342.0
3.6
32.1
2.1
–
0.5
3.9
2020
£m
568.2
327.4
6.6
30.8
2.1
0.5
0.2
3.4
(38.1)
(46.2)
7.8
(2.2)
(0.2)
(15.5)
41.4
4.9
(12.2)
840.8
(1.6)
51.6
10.9
901.7
–
(23.2)
878.5
8.1
1.2
–
(15.4)
39.6
3.3
(13.1)
916.7
(8.4)
(12.8)
32.6
928.1
0.4
(34.3)
894.2
b) Non-cash transactions
Non cash investing and financing cash flows disclosed in other notes were:
• Acquisition of right-of-use assets (note 19).
• Acquisition of infrastructure assets from developers at no cost (note 18).
• Shares issued to employees for no cash consideration under the LTIP (note 37).
Exceptional cash flows
c)
There were no cash flows from items classified as exceptional in the income statement (2020: nil).
d) Reconciliation of movement in cash and cash equivalents to movement in net debt
Net cash and
cash
equivalents
£m
Bank loans
£m
Other loans
£m
Lease
liabilities
£m
Cross
currency
swaps
£m
Loans due
from joint
venture
£m
At 1 April 2020
Cash flow
Fair value adjustments
Inflation uplift on index-linked debt
Foreign exchange
Other non-cash movements
At 31 March 2021
(1,251.9)
(5,058.5)
(122.7)
60.4
48.6
(4.6)
–
–
–
–
243.3
(415.5)
–
(1.0)
–
(1.5)
5.4
(18.2)
14.8
0.7
5.6
–
–
–
(4.2)
44.0
(1,011.1)
(5,471.3)
(121.3)
–
–
–
–
(28.5)
31.9
92.6
1.0
–
–
–
(9.6)
84.0
Net debt
£m
(6,231.5)
(170.2)
5.4
(19.2)
14.8
(43.1)
(6,443.8)
223
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 38 Cash flow statement (continued)
e)
Liabilities from financing activities
At 1 April 2020
Cash flow
Fair value adjustments
Inflation adjustment on index-linked debt
Foreign exchange
Other non-cash movements
Overdraft
£m
Bank
loans
£m
Other
loans
£m
Lease
liabilities
£m
Total
£m
–
(1,251.9)
(5,058.5)
(122.7)
(6,433.1)
(12.2)
243.3
(415.5)
5.6
(178.8)
–
–
–
–
–
(1.0)
–
(1.5)
5.4
(18.2)
14.8
0.7
–
–
–
(4.2)
5.4
(19.2)
14.8
(5.0)
(12.2)
(1,011.1)
(5,471.3)
(121.3)
(6,615.9)
39 Contingent liabilities
a) Bonds and guarantees
Group undertakings have entered into bonds and guarantees in the normal course of business. No liability (2020: nil) is expected to arise
in respect of either bonds or guarantees.
b) Claims under the Environmental Information Regulations 2004 regarding property searches
Since 2016, the Group has received letters of claim from a number of groups of personal search companies (‘PSCs’) which allege that the
information held by Severn Trent Water Limited (‘STW’) used to produce the CON29DW residential reports and also the commercial water
and drainage search reports sold by Severn Trent Property Solutions Limited (‘STPS’), is disclosable under the Environmental Information
Regulations. In April 2020, a group of over 100 PSCs commenced litigation against all water and sewerage undertakers in England and Wales,
including STW and STPS. The claimants are seeking damages, on the basis that STW and STPS charged for information which should have
been made available either free, or for a limited charge, under the Environmental Information Regulations. STW and STPS are defending this
claim. This is an industry-wide issue and the litigation is in progress. A timetable for the claim has recently been set by the court leading up
to a stage 1 trial on the EIR legal issues only (not the other issues or amount of damages) which could be held in late 2021 or early 2022.
40 Financial and other commitments
Investment expenditure commitments
Property, plant and equipment contracted for but not provided for in the financial statements
2021
£m
236.4
2020
£m
287.6
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.
41 Post balance sheet events
Water Plus equity investment
On 23 April, the Group extinguished the £32.5 million RCF previously extended to Water Plus, and subscribed for £32.5 million of equity shares.
This confirms the Group’s documented intention at 31 March 2021 to replace the RCF with a long-term capital investment. Refer to note 4 for
further details.
Refinancing
On 22 April the Group completed the refinancing of Severn Trent Water’s £900 million revolving credit facility (‘RCF’) and £75 million of bilateral
loan arrangements, with a new £1.0 billion RCF. The new syndicated RCF provides equal financing from twelve banks, and extends the maturity
date to April 2026 (plus two one-year extension options).
Dividends
On 18 May, the Board of Directors approved a final dividend of 60.95 pence per share. Further details of this are shown in note 14.
42 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 joint venture Water Plus are disclosed below.
Sale of services
Net interest income
224
2021
£m
216.1
2.3
218.4
2020
£m
306.6
3.2
309.8
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021
42 Related party transactions (continued)
Outstanding balances between the Group and the joint venture as at 31 March were as follows:
Amounts due (to)/from related parties
Loans receivable from joint venture
2021
£m
(2.4)
84.0
81.6
2020
£m
12.1
92.6
104.7
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.
Short term employee benefits
Share based payments
2021
£m
7.3
4.9
12.2
2020
£m
7.4
4.2
11.6
43 Alternative performance measures
Financial measures or metrics used in this report that are not defined by IFRS are alternative performance measures (‘APMs’). The Group
uses such measures for performance analysis because they provide additional useful information on the performance and position of the Group.
Since the Group defines its own APMs, these might not be directly comparable with other companies’ APMs. These measures are not intended
to be a substitute for, or superior to, IFRS measurements.
Exceptional items
a)
Exceptional items are income or expenditure which individually or, in aggregate if of a similar type, 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.
b) Adjusted PBIT
Adjusted profit before interest and tax is profit before interest and tax excluding exceptional items as recorded in the income statement and
amortisation of intangible assets recognised on acquisition of subsidiaries. This provides a consistent measure of operating performance
excluding distortions caused by exceptional items and reflecting the operational performance of the acquired subsidiaries. The calculation
of this APM is shown on the face of the income statement and in note 5 for reportable segments.
Adjusted earnings per share
c)
Adjusted earnings per share figures exclude the effects of exceptional items, amortisation of intangible assets recognised on the acquisition
of subsidiaries, net losses/gains on financial instruments, current tax on exceptional items and on net losses/gains on financial instruments
and deferred tax. The Directors consider that the adjusted figures provide a useful additional indicator of performance and remove non-
performance related distortions. See note 15.
d) Net debt
Net debt comprises borrowings including remeasurements for changes in fair value of amounts in fair value hedging relationships, cross
currency swaps that are used to fix the sterling liability of foreign currency borrowings (whether hedge accounted or not), net cash and cash
equivalents, and loans to joint ventures. See note 38.
Effective interest cost
e)
The effective interest cost is calculated as net finance costs, excluding net finance costs from pensions, plus capitalised finance costs divided
by the monthly average net debt during the year.
225
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021
43 Alternative performance measures (continued)
e)
Effective interest cost (continued)
(net finance costs – net finance costs from pensions + capitalised finance costs)
(monthly average net debt)
Net finance costs
Net finance costs from pensions
Capitalised finance costs
Average net debt
Effective interest cost
2021
£m
187.1
(5.4)
30.4
212.1
2020
£m
188.4
(11.1)
44.2
221.5
6,263.6
5,972.2
3.4%
3.7%
This APM is used as it shows the average finance cost for the net debt of the business.
Effective cash cost of interest
f)
The effective cash cost of interest is calculated on the same basis as the effective interest cost except that it excludes finance costs that are not
paid in cash but are accreted to the carrying value of the debt (principally indexation adjustments on index-linked debt).
(net finance costs – net finance costs from pensions – indexation adjustments + capitalised finance costs)
(monthly average net debt)
Net finance costs
Net finance costs from pensions
Indexation adjustments
Capitalised finance costs
Average net debt
Effective cash cost of interest
This is used as it shows the average finance cost that is paid in cash.
g) Adjusted PBIT interest cover
The ratio of adjusted PBIT (see (b) above) to net finance costs excluding net finance costs from pensions.
Adjusted PBIT
(net finance costs – net finance costs from pensions)
Adjusted PBIT
Net finance costs
Net finance costs from pensions
Net finance costs excluding net finance costs from pensions
Adjusted PBIT interest cover ratio
2021
£m
187.1
(5.4)
(19.2)
30.4
192.9
2020
£m
188.4
(11.1)
(34.0)
44.2
187.5
6,263.6
5,972.2
3.1%
3.1%
2021
£m
472.8
187.1
(5.4)
181.7
ratio
2.6
2020
£m
570.3
188.4
(11.1)
177.3
ratio
3.2
This is used to show how the adjusted PBIT of the business covers the financing costs associated only with net debt on a consistent basis.
226
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 43 Alternative performance measures (continued)
h) EBITDA and EBITDA interest cover
The ratio of profit before interest, tax, exceptional items, depreciation and amortisation to net finance costs excluding net finance costs from pensions.
(adjusted PBIT + depreciation + amortisation)
(net finance costs – net finance costs from pensions)
Adjusted PBIT
Depreciation (including right-of-use assets)
Amortisation (excluding amortisation of intangible assets recognised on acquisition of subsidiaries)
EBITDA
Net finance costs
Net finance costs from pensions
Net finance costs excluding finance costs from pensions
EBITDA interest cover ratio
2021
£m
472.8
345.6
32.1
850.5
187.1
(5.4)
181.7
ratio
4.7
2020
£m
570.3
334.0
30.8
935.1
188.4
(11.1)
177.3
ratio
5.3
This is used to show how the EBITDA of the business covers the financing costs associated only with net debt on a consistent basis.
Adjusted effective current tax rate
i)
The current tax charge for the year, excluding prior year charges, exceptional current tax, and current tax on exceptional items and on financial
instruments, divided by profit before tax, net losses/gains on financial instruments, exceptional items, amortisation of intangible assets
recognised on acquisition of subsidiaries, and share of net loss of joint ventures accounted for using the equity method.
(Current year current tax charge in the income statement – current tax on exceptional items – current tax on financial instruments
– current tax on amortisation of acquired intangible assets)
(PBT – share of net loss of JVs – exceptional items – net losses/gains on financial instruments – amortisation of acquired intangible assets)
Profit before tax
Adjustments
Share of net loss of joint venture
Amortisation of acquired intangible assets
Exceptional items
Net losses on financial instruments
Adjusted effective current tax rate
2021
2020
£m
267.2
13.8
2.1
–
6.2
289.3
Current tax
thereon
£m
(30.4)
–
–
–
(2.6)
(33.0)
11.4%
£m
310.7
46.8
2.1
4.9
17.4
381.9
Current tax
thereon
£m
(36.2)
–
–
(0.9)
(2.6)
(39.7)
10.4%
This APM is used to remove distortions in the tax charge and create a metric consistent with the calculation of adjusted earnings per share in
note 15. Share of net loss of joint venture is excluded from the calculation because the loss is included after tax and so the tax on joint venture
profits is not included in the current tax charge.
227
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 43 Alternative performance measures (continued)
j)
Cash generated from operations less contributions and grants received.
Operational cashflow
Cash generated from operations
Contributions and grants received
Operational cashflow
2021
£m
901.7
(41.4)
860.3
2020
£m
928.1
(39.6)
888.5
This APM is used to show operational cash excluding the effect of contributions and grants received as part of capital programmes.
k) Cash capex
Cash paid to acquire property, plant and equipment and intangible fixed assets less contributions and grants received and proceeds on disposal
of property, plant and equipment and intangible fixed assets.
Purchase of property, plant and equipment
Purchase of intangible assets
Payments to acquire right-of-use assets
Contributions and grants received
Proceeds on disposal of property, plant and equipment
Cash capex
This APM is used to show the cash impact of the Group’s capital programmes.
2021
£m
613.7
22.2
0.7
(41.4)
(2.0)
593.2
2020
£m
777.2
74.8
–
(39.6)
(12.9)
799.5
228
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 44 Subsidiary undertakings
Details of all subsidiary undertakings as at 31 March 2021 are given below. Details of the joint venture are set out in note 20. All subsidiary
undertakings have been included in the consolidation.
Owned directly by Severn Trent Plc
Country of operation and incorporation Percentage of share capital held
Class of share capital held
Athena Holdings Limited
Hong Kong
100%
Ordinary
The following subsidiary undertakings all operate and are incorporated in the United Kingdom. The percentage of share capital held is 100%
and the class of share capital held is ordinary.
All subsidiary undertakings
Aqua Deva Limited
Chester Water Limited
Debeo Debt Recovery Limited
Dee Valley Group Limited
Dee Valley Limited
Dee Valley Services Limited
Dee Valley Water (Holdings) Limited
East Worcester Water Limited
Etwall Land Limited
Hafren Dyfrdwy Cyfyngedig
Midlands Land Portfolio Limited
North Wales Gas Limited
Northern Gas Supplies Limited
Severn Trent (W&S) Limited
Severn Trent Data Portal Limited
Severn Trent Draycote Limited
Severn Trent Green Power Group Limited
Severn Trent Green Power Holdings Limited
Severn Trent Green Power 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 MIS Trustees Limited
Severn Trent Overseas Holdings Limited
Severn Trent Pension Scheme Trustees Limited
Severn Trent PIF Trustees Limited
Severn Trent Property Solutions Limited
Severn Trent Reservoirs Limited
Severn Trent Retail and Utility Services Limited
Severn Trent Services (Water and Sewerage) Limited
Severn Trent Finance Holdings Limited
Severn Trent Services Defence Holdings Limited
Severn Trent Finance Limited
Severn Trent Services Defence Limited
Severn Trent General Partnership Limited
Severn Trent Services Holdings Limited
Severn Trent Green Power (Ardley) Limited
Severn Trent Services International (Overseas Holdings) Limited
Severn Trent Green Power (Bridgend) Limited
Severn Trent Services International Limited
Severn Trent Green Power (Cassington) Limited
Severn Trent Services Operations UK Limited
Severn Trent Green Power (CW) Limited
Severn Trent Services UK Limited
Severn Trent Green Power (Hertfordshire) Limited
Severn Trent SSPS Trustees Limited
Severn Trent Green Power (North London) Limited
Severn Trent Trimpley Limited
Severn Trent Green Power (RBWM) Limited
Severn Trent Utilities Finance Plc
Severn Trent Green Power (Wallingford) Limited
Severn Trent Water Limited
Severn Trent Green Power (West London) Limited
Severn Trent Wind Power Limited
Severn Trent Green Power Biogas Limited
Severn Trent Green Power Composting Limited
Severn Trent WWIF Limited
Wrexham Water Limited
The Group owns 100% of the share capital of the following subsidiary undertakings.
All subsidiary undertakings
Country of operation and incorporation Percentage of share capital held
Class of share capital held
Energy Supplies UK Limited
United Kingdom
Lyra Insurance Guernsey Limited
Severn Trent Africa (Pty) Ltd
Guernsey
South Africa
Severn Trent Carsington Limited
United Kingdom
100%
100%
100%
100%
A and B Ordinary
Ordinary
Ordinary
A and B Ordinary
Unless stated below, the registered office of the aforementioned entities is Severn Trent Centre, 2 St John’s Street, Coventry, CV1 2LZ, United Kingdom.
229
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 44 Subsidiary undertakings (continued)
Company
Registered office
Athena Holdings Limited
Dee Valley Limited
Hafren Dyfrdwy Cyfyngedig
Lyra Insurance Guernsey Limited
Severn Trent Africa (Pty) Ltd
One 33, Hysan Avenue, Causeway Bay, Hong Kong
Packsaddle, Wrexham Road, Rhostyllen, Wrexham, LL14 4EH
Packsaddle, Wrexham Road, Rhostyllen, Wrexham, LL14 4EH
St Martin’s House, Le Bordage, St Peter Port, GY1 4AU, Guernsey
2 Elgin Road, Sunninghill, Johannesburg, South Africa
Severn Trent General Partnership Limited
50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ
Severn Trent Green Power (Ardley) Limited
The Stables, Radford, Chipping Norton, Oxfordshire, OX7 4EB
Severn Trent Green Power (Bridgend) Limited
The Stables, Radford, Chipping Norton, Oxfordshire, OX7 4EB
Severn Trent Green Power (Cassington) Limited
The Stables, Radford, Chipping Norton, Oxfordshire, OX7 4EB
Severn Trent Green Power (CW) Limited
The Stables, Radford, Chipping Norton, Oxfordshire, OX7 4EB
Severn Trent Green Power (Hertfordshire) Limited
The Stables, Radford, Chipping Norton, Oxfordshire, OX7 4EB
Severn Trent Green Power (North London) Limited
The Stables, Radford, Chipping Norton, Oxfordshire, OX7 4EB
Severn Trent Green Power (RBWM) Limited
The Stables, Radford, Chipping Norton, Oxfordshire, OX7 4EB
Severn Trent Green Power (Wallingford) Limited
The Stables, Radford, Chipping Norton, Oxfordshire, OX7 4EB
Severn Trent Green Power (West London) Limited
The Stables, Radford, Chipping Norton, Oxfordshire, OX7 4EB
Severn Trent Green Power Biogas Limited
The Stables, Radford, Chipping Norton, Oxfordshire, OX7 4EB
Severn Trent Green Power Composting Limited
The Stables, Radford, Chipping Norton, Oxfordshire, OX7 4EB
Severn Trent Green Power Group Limited
The Stables, Radford, Chipping Norton, Oxfordshire, OX7 4EB
Severn Trent Green Power Holdings Limited
The Stables, Radford, Chipping Norton, Oxfordshire, OX7 4EB
230
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDSevern Trent Plc Annual Report and Accounts 2021 44 Subsidiary undertakings (continued)
Subsidiary audit exemptions
Severn Trent Plc has issued guarantees over the liabilities of the following companies at 31 March 2021 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
Chester Water Limited
Dee Valley Group Limited
Dee Valley Limited
Dee Valley Water (Holdings) Limited
East Worcester Water Limited
Etwall Land Limited
Severn Trent (W&S) Limited
Severn Trent Carsington Limited
Severn Trent Data Portal Limited
Severn Trent Draycote Limited
Severn Trent Finance Holdings Limited
Severn Trent Finance Limited
Severn Trent General Partnership Limited
Severn Trent Green Power (Ardley) Limited
Severn Trent Green Power (Hertfordshire) Limited
Severn Trent Green Power (North London) Limited
Severn Trent Green Power (West London) Limited
Severn Trent Green Power Composting 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 Reservoirs Limited
Severn Trent Retail and Utility Services Limited
Severn Trent Services Holdings Limited
Severn Trent Services International (Overseas Holdings) Limited
Severn Trent Services International Limited
Severn Trent Trimpley Limited
Severn Trent WWIF Limited
Company number
2888872
4316684
2902525
4421854
2757948
7559793
3995023
7570384
8181048
7681784
6044159
6294618
SC416614
5807721
6771560
9689098
8308321
4927756
5656363
7560050
7943556
6810163
2569703
2455508
3115315
2562471
4395572
3125131
2387816
10690056
11966722
231
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 COMPANY STATEMENT OF COMPREHENSIVE INCOME/COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2021
Company Statement of Comprehensive Income
For the year ended 31 March 2021
Profit for the year
Other comprehensive (loss)/income
Items that will not be reclassified to the income statement:
Net actuarial (losses)/gains
Deferred tax on net actuarial losses/gains
Deferred tax arising on change of rate
Other comprehensive (loss)/income for the year
Total comprehensive income for the year
Company Statement of Changes in Equity
For the year ended 31 March 2021
Note
15
6
6
Other
reserves
£m
2021
£m
55.9
(0.7)
0.1
–
(0.6)
55.3
2020
£m
237.8
0.5
(0.1)
0.2
0.6
238.4
Retained
earnings
£m
2,970.1
237.8
0.5
(0.1)
0.2
Total
£m
3,494.7
237.8
0.5
(0.1)
0.2
238.4
238.4
–
8.1
9.6
8.1
(228.4)
(228.4)
Share
capital
£m
Share
premium
£m
235.9
128.0
160.7
–
–
–
–
–
0.6
–
–
–
–
–
–
–
9.0
–
–
–
–
–
–
–
–
–
–
Note
15
6
6
11,12
19
15
6
236.5
137.0
160.7
2,988.2
3,522.4
–
–
–
–
–
–
–
–
11,12
0.7
11.1
–
–
–
–
–
–
19
–
–
–
–
–
–
(3.6)
–
55.9
(0.7)
0.1
55.3
–
7.8
3.6
55.9
(0.7)
0.1
55.3
11.8
7.8
–
(240.2)
(240.2)
237.2
148.1
157.1
2,814.7
3,357.1
At 1 April 2019
Profit for the year
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
Dividends paid
At 31 March 2020
Profit for the year
Net actuarial losses
Deferred tax on net actuarial losses
Total comprehensive income for the year
Share options and LTIPs
– proceeds from shares issued
– value of employees' services
Transfer
Dividends paid
At 31 March 2021
Included in retained earnings are profits of £1,221.2 million that arose from group restructuring arrangements in previous years and are
therefore not distributable. Distributable reserves are therefore £1,593.5 million.
232
Severn Trent Plc Annual Report and Accounts 2021
COMPANY BALANCE SHEET FOR THE YEAR ENDED 31 MARCH 2021
Company Balance Sheet
For the year ended 31 March 2021
Non-current assets
Intangible fixed assets
Tangible fixed assets
Right-of-use assets
Investments in subsidiaries
Deferred tax asset
Trade and other receivables
Current assets
Trade and other receivables
Current tax receivable
Cash and cash equivalents
Current liabilities
Borrowings
Trade and other payables
Current tax payable
Provisions for liabilities
Net current liabilities
Total assets less current liabilities
Non-current liabilities
Borrowings
Trade and other payables
Retirement benefit obligations
Provisions for liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Other reserves
Retained earnings
Total capital and reserves
The profit for the year is £55.9 million (2020: £237.8 million).
Signed on behalf of the Board who approved the accounts on 18 May 2021.
Christine Hodgson
Chair
James Bowling
Chief Financial Officer
Company number: 02366619
Note
2
3
4
5
6
7
7
8
9
10
8
9
15
10
11
12
13
2021
£m
–
0.4
0.9
2020
£m
0.1
0.6
1.0
3,353.8
3,346.0
1.5
846.3
1.5
855.5
4,202.9
4,204.7
21.3
–
–
21.3
(28.3)
(95.9)
(47.4)
(1.8)
(173.4)
(152.1)
27.3
2.6
7.7
37.6
(35.1)
(95.5)
–
(5.3)
(135.9)
(98.3)
4,050.8
4,106.4
(684.6)
(571.4)
(0.1)
(8.3)
(0.7)
(1.5)
(7.9)
(3.2)
(693.7)
(584.0)
3,357.1
3,522.4
237.2
148.1
157.1
2,814.7
3,357.1
236.5
137.0
160.7
2,988.2
3,522.4
233
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021
NOTES TO THE COMPANY FINANCIAL STATEMENTS
Notes to the Company Financial Statements
1 Employee numbers
The average number of employees during the year was 11 (2020: 10).
2
Intangible fixed assets
Cost
At 1 April 2020 and 31 March 2021
Amortisation
At 1 April 2020
Amortisation for the year
At 31 March 2021
Net book value
At 31 March 2021
At 31 March 2020
3 Tangible fixed assets
Cost
At 1 April 2020
Transfers on commissioning
Disposals
At 31 March 2021
Depreciation
At 1 April 2020
Charge for the year
At 31 March 2021
Net book value
At 31 March 2021
At 31 March 2020
Purchased
software
£m
0.2
(0.1)
(0.1)
(0.2)
–
0.1
Total
£m
0.6
–
(0.1)
0.5
–
(0.1)
(0.1)
0.4
0.6
Office fixtures
and
equipment
£m
Assets under
construction
£m
–
0.5
–
0.5
–
(0.1)
(0.1)
0.4
–
0.6
(0.5)
(0.1)
–
–
–
–
–
0.6
4 Right-of-use assets
a)
The Company leases property with the lease agreement covering a fixed period of 10 years.
The Company’s leasing activities
The contract does not include covenants other than security interests in the leased assets that are held by the lessor and leased assets may not
be used as security for other borrowing. The contract does not impose any restrictions on dividend payment, additional debt or further leasing.
There were no sale and leaseback transactions in the period.
Income statement
b)
The income statement includes the following amounts relating to leases for the year ended 31 March 2021:
Depreciation charge of right-of-use assets:
Property
Interest expense included in finance cost
There were no expenses for leases that are classified under the short-term or low-value exemption.
2021
£m
0.1
–
2020
£m
0.1
0.1
234
Severn Trent Plc Annual Report and Accounts 2021 4 Right-of-use assets (continued)
b) Balance sheet
The balance sheet includes the following amounts relating to leases:
Right-of-use assets:
Property
There were no additions to right-of-use assets.
Lease liabilities:
Current
Non-current
Net lease obligations were as follows:
Within 1 year
1 – 2 years
2 – 5 years
After more than 5 years
Included in non-current liabilities
5
Investments in subsidiaries
At 1 April 2020
Additions
At 31 March 2021
Details of principal subsidiaries of the Company are given in note 44 to the Group financial statements.
6 Deferred tax
At 1 April 2019
Credit to income
Charge to equity
Credit to equity arising from rate change
At 1 April 2020
Charge to income
Credit to equity
At 31 March 2021
2021
£m
2020
£m
0.9
1.0
2021
£m
0.1
0.9
1.0
2021
£m
0.1
0.1
0.4
0.4
0.9
1.0
Accelerated
tax
depreciation
£m
Retirement
benefit
obligations
£m
0.1
(0.1)
–
–
–
–
–
–
1.5
(0.1)
(0.1)
0.2
1.5
(0.1)
0.1
1.5
2020
£m
0.1
1.0
1.1
2020
£m
0.1
0.1
0.3
0.6
1.0
1.1
£m
3,346.0
7.8
3,353.8
Total
£m
1.6
(0.2)
(0.1)
0.2
1.5
(0.1)
0.1
1.5
235
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
7 Trade and other receivables
Current assets
Other amounts receivable
Prepayments
Amounts owed by group undertakings
Non-current assets
Other amounts receivable
Loan receivable
Amounts owed by group undertakings under loan agreements
8 Borrowings
Current liabilities
Bank overdraft
Amounts due to group undertakings under loan agreements
Lease liabilities
Non-current liabilities
Amounts due to group undertakings under loan agreements
Other loans
Lease liabilities
At the balance sheet date the Company had £100 million (2020: £100 million) undrawn borrowing facilities.
9 Trade and other payables
Current liabilities
Trade payables
Social security and other taxes
Other payables
Accruals
Amounts due to group undertakings
Non-current liabilities
Accruals
236
2021
£m
0.5
0.2
20.6
21.3
2.9
97.6
745.8
846.3
867.6
2021
£m
12.2
16.0
0.1
28.3
392.0
291.7
0.9
684.6
712.9
2021
£m
0.1
0.1
2.8
2.4
90.5
95.9
0.1
96.0
2020
£m
6.9
–
20.4
27.3
–
–
855.5
855.5
882.8
2020
£m
9.8
25.2
0.1
35.1
279.4
291.0
1.0
571.4
606.5
2020
£m
0.1
0.1
4.6
1.1
89.6
95.5
1.5
97.0
Severn Trent Plc Annual Report and Accounts 2021 10 Provisions
At 1 April 2020
Charged to income statement
Utilisation of provision
Other
At 31 March 2021
Included in:
Current liabilities
Non-current liabilities
Insurance
£m
3.1
(1.5)
(1.2)
–
0.4
Other
£m
5.4
(1.3)
(0.5)
(1.5)
2.1
2021
£m
1.8
0.7
2.5
Total
£m
8.5
(2.8)
(1.7)
(1.5)
2.5
2020
£m
5.3
3.2
8.5
The claim outflows associated with insurance provisions are estimated to arise over a period of up to five years from the balance sheet date.
Other provisions include provisions for dilapidations and commercial disputes. The associated outflows are estimated to arise over a period
up to five years from the balance sheet date.
11 Share capital
Total issued and fully paid share capital
242,259,862 ordinary shares of 9717/19p (2020: 241,537,324)
2021
£m
2020
£m
237.2
236.5
At 31 March 2021 3,376,054 (2020: 3,581,338) treasury shares were held at a nominal value of £3,304,979 (2020: £3,505,941).
Changes in share capital were as follows:
Ordinary shares of 9717/19p
At 1 April 2019
Shares issued under the Employee Sharesave Scheme
At 1 April 2020
Shares issued under the Employee Sharesave Scheme
At 31 March 2021
12 Share premium
At 1 April 2020
Share premium arising on issue of shares for Employee Sharesave Scheme
At 31 March 2021
Number
£m
240,943,929
593,395
241,537,324
722,538
242,259,862
2021
£m
137.0
11.1
148.1
235.9
0.6
236.5
0.7
237.2
2020
£m
128.0
9.0
137.0
237
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021 NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
13 Other reserves
At 1 April 2019 and 31 March 2020
Transfer to retained earnings
At 31 March 2021
Capital
redemption
reserve
£m
157.1
–
157.1
Hedging
reserve
£m
3.6
(3.6)
–
Total
160.7
(3.6)
157.1
The capital redemption reserve arose on the redemption of B shares.
The hedging reserve arose from gains or losses on interest rate swaps taken directly to equity under the hedge accounting provisions of IFRS 9
and the transition rules of IFRS 1. The hedging reserve has been transferred to retained earnings during the current year.
14 Share based payment
For details of employee share schemes and options granted over the shares of the Company, see note 37 of the Group financial statements.
Details of options exercised and awards vesting during the year and of the weighted average share price of the Company during the year are
also disclosed in that note.
15 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 scheme is recognised in the financial statements of the sponsoring employer, Severn Trent Water Limited. The scheme closed to
future accrual on 31 March 2015. The cost of contributions to the Group schemes amount to £0.4 million (2020: £0.4 million). There were no amounts
outstanding for contributions to the defined benefit schemes (2020: nil).
The Company 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. This unfunded scheme is part of the Severn Trent Pension Scheme.
Information about the schemes as a whole is disclosed in note 28 to the Group financial statements.
16 Related party transactions
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 to the Group financial statements.
The Company has given guarantees in favour of Water Plus Group Limited in respect of the joint venture’s liabilities to wholesalers in the Open
Water market. The guarantee in respect of liabilities to wholesalers is capped at £54.1 million (2020: £54.1 million).
The Company has two revolving credit facilities available to Water Plus totalling £132.5 million. The facility of £32.5 million was terminated
on 23 April 2021. At 31 March 2021 the amount drawn was £100 million (2020: nil).
17 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 other’s overdrawn balances to the extent of their credit balances, which can be offset against balances
of participating companies. As at 31 March 2021, the Company had no contingent liabilities (2020: nil).
18 Post balance sheet events
Following the year end the Board of Directors has proposed a final dividend of 60.95 pence per share.
19 Dividends
For details of the dividends paid in the years ended 31 March 2021 and 31 March 2020 see note 14 in the Group financial statements.
238
Severn Trent Plc Annual Report and Accounts 2021 FIVE YEAR SUMMARY
Five-year Summary
Continuing operations
Turnover
Profit before interest, tax, amortisation of acquired intangible assets
and exceptional items
Gain on impairment of loans receivable
Net exceptional items before tax
Amortisation of acquired intangible assets
Net interest payable before gains/(losses) on financial instruments
and exceptional finance costs
(Losses)/gains on financial instruments
Results of associates and joint venture1
Profit on ordinary activities before taxation
Current taxation on profit on ordinary activities
Deferred taxation
Exceptional tax
Profit on ordinary activities after taxation
Results from discontinued operations
Profit for the year
Net assets employed
Fixed assets
Other net liabilities excluding net debt, retirement benefit obligation,
provisions and deferred tax
Derivative financial instruments2
Net retirement benefit obligation
Provisions for liabilities and deferred tax
Financed by
Called up share capital
Reserves
Total shareholders' funds
Non-controlling interests
Net debt3
Statistics
Earnings per share (continuing) – pence
Adjusted earnings per share – pence
Dividends per share (excluding special dividend) – pence
Dividend cover (before exceptional items and deferred tax)
Gearing4 – %
2021
£m
2020
£m
2019
£m
2018
£m
2017
£m
1,827.2
1,843.5
1,767.4
1,696.4
1,638.0
472.8
3.6
(4.9)
(2.1)
(187.1)
(6.2)
(8.9)
267.2
(26.8)
(28.2)
–
212.2
–
212.2
570.3
–
(51.7)
(2.1)
(188.4)
(17.4)
–
310.7
(30.1)
(29.1)
(92.7)
158.8
–
158.8
573.6
–
(9.6)
(0.7)
539.8
–
(12.6)
–
520.1
–
16.6
–
(194.2)
(219.5)
(205.1)
16.0
(0.4)
384.7
(31.8)
(39.4)
1.8
315.3
–
315.3
(6.7)
0.2
301.2
(32.9)
(28.7)
–
239.6
13.2
252.8
(1.8)
(1.8)
328.0
(36.3)
(22.4)
52.2
321.5
21.1
342.6
10,261.4
9,954.8
9,337.7
8,660.1
8,315.7
(1,276.0)
(1,142.0)
(86.0)
(367.7)
(949.2)
(158.5)
(234.0)
(945.1)
(992.6)
(95.1)
(452.9)
(798.9)
(956.0)
(104.3)
(519.8)
(726.5)
(916.8)
(161.1)
(574.6)
(657.5)
7,582.5
7,475.2
6,998.2
6,353.5
6,005.7
237.2
901.5
1,138.7
–
6,443.8
7,582.5
89.1
105.4
101.6
1.0
85.0
236.5
1,007.2
1,243.7
–
6,231.5
7,475.2
66.7
146.0
100.1
1.5
83.4
235.9
928.2
1,164.1
–
5,834.1
6,998.2
133.4
145.8
93.4
1.6
83.3
235.1
761.8
996.9
–
5,356.6
6,353.5
101.8
120.5
86.6
1.4
84.4
234.7
688.6
923.3
–
5,082.4
6,005.7
136.8
115.7
81.5
1.4
84.6
Ordinary share price at 31 March – pence
2,306.0
2,280.0
1,976.0
1,844.0
2,382.0
Average number of employees
– Regulated Water and Waste Water
– Other
1. Excludes exceptional share of net losses of joint venture.
2. Excludes instruments hedging foreign currency debt.
3.
Includes instruments hedging foreign currency debt.
4. Gearing has been calculated as net debt divided by the sum of equity and net debt.
6,536
497
6,345
451
5,680
900
5,660
605
5,273
596
239
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSCOMPANY FINANCIAL STATEMENTSOTHER INFORMATIONSevern Trent Plc Annual Report and Accounts 2021
Information for Shareholders
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:
– Company news and information;
– links to our operational businesses’ websites;
– details of our governance arrangements;
– details of our strategy;
– details of the Group’s business models and business plan; and
– the Company’s approach to sustainability and innovation.
Electronic communications
By registering to receive shareholder documentation from Severn
Trent Plc electronically, shareholders can benefit from being able to:
– view the Annual Report and Accounts on the day it is published;
– receive an email alert when shareholder documents are available;
– cast their AGM vote electronically; and
– manage their shareholding quickly and securely online,
through Shareview.
Electronic shareholder communications also enable the Company
to reduce its impact on the environment and benefit from savings
associated with reduced printing and mailing costs.
For further information and to register for electronic shareholder
communications, visit www.shareview.co.uk
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:
– receive cleared funds in your bank account on the payment date;
– avoid postal delays; and
– remove the risk of your cheques getting lost in the post.
There is also a dedicated investors’ section on the website which
contains up to date information for shareholders including:
To take advantage of this service or for further details, contact
Equiniti or visit www.shareview.co.uk
– comprehensive share price information;
– financial results;
– a history of dividend payment dates and amounts; and
– access to current and historical shareholder documents
such as the Annual Report and Accounts.
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
240
Severn Trent Plc Annual Report and Accounts 2021 Other information
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:
– Keep in mind that firms authorised by the Financial Conduct
Authority (‘FCA’) are unlikely to contact you out of the blue with
an offer to buy or sell shares.
– Do not get into a conversation, note the name of the person and
firm contacting you and then end the call.
– Check the Financial Services Register at www.fca.org.uk to see
if the person and firm contacting you is authorised by the FCA.
– Beware of fraudsters claiming to be from an authorised firm,
copying its website or giving you false contact details.
– Use the firm’s contact details listed on the Register if you want
to call it back.
– Call the Freephone FCA Consumer helpline on 0800 111 6768
if the firm does not have contact details on the Register or you
are told they are out of date.
– Search the list of unauthorised firms to avoid at
www.fca.org.uk/scams
– Consider that if you buy or sell shares from an unauthorised
firm you will not have access to the Financial Ombudsman
Service or Financial Services Compensation Scheme.
– Think about getting independent financial and professional
advice before you hand over any money.
– Remember, if it sounds too good to be true, it probably is.
If you are approached by fraudsters please tell the FCA using
the share fraud reporting form at www.fca.org.uk/scams,
where you can find out more about investment scams.
You can also call the Freephone 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 0345 0700 705.
American Depositary Receipts (‘ADRs’)
Severn Trent has a sponsored Level 1 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 one 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
* Lines are open Monday to Friday, 9.00am to 5.00pm (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 (excluding public holidays in England
and Wales).
Financial calendar
Ex dividend date – final dividend
Record date to be eligible for the final dividend
AGM
Final dividend payment date
Capital Markets Day
27 May 2021
28 May 2021
8 July 2021
16 July 2021
24 September 2021
All dates are indicative and may be subject to change.
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Consultancy, design and production
www.luminous.co.uk
Design and production
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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