PERFORMANCE
DRIVEN,
SUSTAINABILITY
LED
Severn Trent Plc
Annual Report and Accounts 2023
WHAT DO WE MEAN BY
PERFORMANCE DRIVEN,
SUSTAINABILITY LED?
Our Strategy to be ‘performance driven, sustainability led’
acknowledges our relentless drive to deliver the operational
and financial performance that our stakeholders expect, in a
sustainable way, and we believe this is achieved when you
balance the long‑term interests of all stakeholders.
We provide essential services to over
4.8 million households and businesses
in our region. We are two of the eleven
regulated water and waste water
businesses in England and Wales. Our
regulated businesses serve a diverse
region stretching across the heart of the
UK, from the Bristol Channel to the
Humber, and from North and mid‑Wales
to the East Midlands. Our non‑regulated
businesses operate across England,
Scotland and Wales.
We serve a diverse range of customers
with different cultures, interests and
experiences. Our region includes some
of the most affluent areas of the country
as well as some of the most deprived.
We have more urban conurbations than
any other water company, yet we serve
predominantly rural counties and
communities. It’s a region which is
characterised by, and benefits from,
its diversity.
In providing our water and waste water
services, we always look to contribute
social and environmental value for the
long‑term benefit of our stakeholders.
Through the investment and operational
decisions that we have made over time,
and those we are making today, we are
ensuring that our business is
performance driven and sustainability
led, now and in the long term.
Front cover image:
Malvern Hills, Worcestershire
1 REGULATED BUSINESSES
2 NON-REGULATED BUSINESSES
Our regulated water and waste water
businesses are Severn Trent Water
(‘STW’) and Hafren Dyfrdwy (‘HD’).
The primary activities we focus on are:
– providing clean water;
– treating waste water; and
– generating renewable energy.
Business Services operates a UK‑based
portfolio that complements the Group’s
core competencies and is well positioned
to capitalise on market opportunities in
these areas:
Operating Services
Property development
Green Power
Read more on pages 37 to 38.
STWHD GROUP HIGHLIGHTS
Group turnover (£m)
Group profit before interest
and tax (‘PBIT’) (£m)
Shadow regulated capital value
(‘RCV’) gearing (%)1
2022/23
2021/22
2020/21
£2,165.1m
2022/23
£508.8m
2022/23
£1,943.3m
2021/22
£506.2m
2021/22
60.0%
59.2%
£1,827.2m
2020/21
£470.7m
2020/21
64.5%
£2,165.1m
11.4%
Dividend per share (p)
£508.8m
0.5%
60.0%
1.4%
Basic earnings/(loss) per share
(‘EPS’) (p)
Adjusted basic EPS (p)
2022/23
2021/22
2020/21
106.82p
2022/23
2022/23
52.7p
2022/23
58.2p
102.14p
(35.2)p
2021/22
2021/22
101.58p
2020/21
89.1p
2020/21
96.1p
104.5p
106.82p
4.6%
52.7p
249.7%
58.2p
39.4%
1 Shadow regulated capital value (‘RCV’) gearing is defined in note 32 to the Group financial statements.
2 Earnings and the weighted average number of ordinary shares for the purpose of adjusted earnings per share are defined in note 14 to the Group financial statements.
STRATEGIC REPORT
How we bring our ‘performance led,
sustainability driven’ Strategy to life
GOVERNANCE REPORT
How we govern our
business responsibly
FINANCIAL STATEMENTS
Our financial performance
for the year ended 31 March 2023
OTHER INFORMATION
Useful shareholder information
242 Five Year Summary
244 Information for Shareholders
Group Highlights
1
Our Strategy
2
Our Business Model
4
The Water Sector
6
Chair’s Statement
8
11 Chief Executive’s Review
14 Delivering Outcomes our
Customers Care about
18 Running a business that goes
Hand in Hand with Nature
22 Caring for People in our Region
34 A Driver of Positive Change
37 Business Services Performance Review
39 Our Approach to Climate Change
58 Our Net Zero Transition Plan
66 Chief Financial Officer’s Review
73 Our Approach to Risk
75 Our Principal Risks
79 Emerging Risks
80 Viability Statement
84 Stakeholder Engagement
88 Engagement in Action
95 Section 172 Statement
98 Non‑Financial and Sustainability
Information Statement
100 Chair’s Introduction to Governance
102 Culture
104 Board of Directors
108 Governance Framework
121 Nominations Committee Report
127 Audit and Risk Committee Report
135 Treasury Committee Report
137 Corporate Sustainability
Committee Report
141 Directors’ Remuneration Report
145 Remuneration at a Glance
149 Summary of Remuneration Policy
and Implementation
152 Company Remuneration at
Severn Trent
160 Annual Report on Remuneration
164 Directors’ Report
167 Directors’ Responsibility Statement
Independent Auditor’s Report
Group Financial Statements
168
176 Consolidated Income Statement
177 Consolidated Statement of
Comprehensive Income
178 Consolidated Statement of
Changes in Equity
179 Consolidated Balance Sheet
180 Consolidated Cash Flow Statement
181 Notes to the Group Financial
Statements
Company Financial Statements
236 Company Statement of
Comprehensive Income
237 Company Statement of Changes
in Equity
238 Company Balance Sheet
239 Notes to the Company Financial
Statements
For our Sustainability Report,
please scan or click to see online.
For our Cautionary Forward-Looking Statement
information, please see the inside back cover.
For our Glossary,
please see p243.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
1
STRATEGIC REPORT OUR STRATEGY
INTRODUCTION TO OUR STRATEGY
We are guided by our Purpose – ‘taking care of one of life’s essentials’ – which forms the
foundation on which we can build meaningful and long‑standing relationships with our
stakeholders. Our Values – ‘Having Courage’, ‘Embracing Curiosity’, ‘Showing Care’ and
‘Taking Pride’ – underpin our Purpose and reflect the deep connection that we have with
the stakeholders we serve. And our Strategy – ‘performance driven, sustainability led’
drives us in everything we do.
What makes Severn Trent unique is our ability to consistently deliver
sector‑leading operational performance in a way that has a positive
sustainable impact. Our Strategy to be ‘performance driven, sustainability
led’ acknowledges our relentless drive to deliver the operational and
financial performance that our stakeholders expect. We believe this is
achieved when we strike the right long‑term balance between our
customers and communities, the environment we depend on, our
workforce and our investors. Success is not about putting any one outcome
or stakeholder’s need at the heart of our business; success can be found
through striking the right balance between the four strategic pillars
outlined in our Strategy. Our Strategy is an ambitious evolution from an
already successful business position, rather than a revolution. From
Outcome Delivery Incentives (‘ODIs’) delivery to net zero programmes,
catchment management approaches to Get River Positive river pledges
and societal ambitions, our Strategy captures and pushes forward our
ambitions to date.
Read more about how the Board considered stakeholders
when developing our Strategy in our Section 172 Statement
on pages 95 to 97.
OUR
PURPOSE
Taking care of one of life’s essentials
DRIVEN BY
OUR STRATEGY Performance driven, sustainability led
UNDERPINNED BY OUR VALUES
Our courage drives us to set bold ambitions, our curiosity inspires us to try new approaches, our caring culture promotes
fairness and equality for our people, customers and communities, and our pride ensures that we succeed on this journey.
Having Courage
We always do the right thing and have
courage to challenge the norm and speak up
if things aren’t quite right. We are prepared
to step out of our comfort zones and act with
both today and the future in mind.
Embracing Curiosity
We search out safe, better and faster ways
of doing things through innovation and are
always curious and willing to learn.
Showing Care
We keep our promises to customers and
show care by treating everyone fairly and
equally. We try to enhance the environment
around us and spend
every pound wisely.
Taking Pride
We make a difference for our customers every
day, owning problems and working with others
until they are solved. We take pride in what
we do and champion our work in the
communities we work and live in.
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SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
DELIVERING OUTCOMES OUR
CUSTOMERS CARE ABOUT
RUNNING A BUSINESS THAT GOES
HAND-IN-HAND WITH NATURE
WATER ALWAYS THERE
Our services are an essential part of
everyone’s lives and we strive to keep
water flowing for our customers at all
times. Our campaign during the hot
weather period in 2022 proved
successful in delivering and
sustaining demand reduction.
You can read more about our performance
on pages 14 to 17.
O U R PURPOSE
GET RIVER POSITIVE
The health of our rivers is important
to all of us. That’s why in March 2022
we launched Get River Positive, to
help make our region’s rivers the
healthiest they can be. We have
delivered significant improvements
this year.
Read more on pages 20 to 21.
DELIVERIN
CUSTOM
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R
G O
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M
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E C H A N G E
Performance
driven,
sustainability
led
F POSITIV
R O
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V
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D
A
C
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F
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P
E
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P
L
RU N N I N
GOES H A N D
T
A
K
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G C
A
E IN OUR REGIO N
RE OF ONE OF L I F E ’ S E
E
A
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B
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- I N - H AND WIT
G A B USIN
N TIALS
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S
CARING FOR PEOPLE
IN OUR REGION
A DRIVER OF
POSITIVE CHANGE
OUR SOCIETAL STRATEGY
In November 2022, we announced our
ten‑year vision to help change the
lives of 100,000 people through
tackling the underlying causes of
poverty and improving the lives of
people in our communities.
You can read more about our Societal
Strategy and progress on page 32.
GREEN RECOVERY
In July 2021, Ofwat approved our
proposal to invest £566 million
(2017/18 prices) in our ambitious
Green Recovery Programme,
providing a great opportunity to
deliver positive outcomes for our
customers, and long‑term growth
for the Company through these
new investments.
Read about our progress
on pages 35 to 36.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
3
STRATEGIC REPORT
OUR BUSINESS MODEL
WHAT WE DO
We provide clean water and waste water
services and develop renewable energy
solutions through our businesses.
In the course of providing these
services, we create social and
environmental value.
1 Collect raw water
We collect water from reservoirs,
rivers and underground aquifers
across our region.
6
2 Clean raw water
Our groundwater and surface water
treatment works clean raw water to
the highest standards, making it safe
to drink.
3 Distribute clean water
Our network of pipes and our
enclosed storage reservoirs bring a
continuous supply of clean water
direct to our customers’ taps.
7
1
2
Taking care
Taking care
of one of
of one of life’s
life’s
essentials
essentials
4 Customers enjoy our services
4.8 million households and businesses
use our services, delivered by a team
of over 7,600 employees, and
supported by a 24/7 contact centre,
always ready to help.
5 Collect waste water
Our network of sewers and pumping
stations collect waste water from
homes and businesses and take it to
our treatment works.
6 Clean waste water
Waste water is carefully screened,
filtered and treated in our sewage
treatment works to meet stringent
environmental standards. We
generate energy from waste, wind
and solar.
5
4
3
7 Recycle water to the
environment
We safely return treated water
to the rivers and watercourses.
Households and businesses served
Total Group employees (average)
Litres of drinking water supplied each day
Litres of waste water treated each day
4.8m
HOW WE DO IT
7,651
Average during 2022/23.
See Note 8 to The Group Financial Statements
2.0bn
2.8bn
We are a performance driven,
sustainability led business.
What makes Severn Trent unique is our consistent
delivery of sector‑leading performance in a way
that has a positive sustainable impact. Success
is not about putting any one outcome or
stakeholder’s need at the heart of our business.
Instead success can be found through striking
the right balance between multiple objectives,
and for us this means:
– delivering outcomes our customers
care about;
– running a business that goes
hand-in-hand with nature;
– caring for people in our region, and;
– being a driver of positive change
F POSITIV
R O
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V
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D
A
DELIVERIN
CUSTOM
E
R
G O
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C
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C
A
O
R
M
E
E C H A N G E
E
A
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B
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A
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T
S
S
E
- I N - H AND WIT
G A B USIN
C
A
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G
F
O
R
P
E
O
P
Performance
driven,
sustainability
led
RU N N I N
GOES H A N D
L
E IN OUR REGIO N
Delivering on these strategic pillars makes us a
stronger business for the long term. It unlocks
significant additional value creation, whether
that be internally through greater cost efficiency,
asset growth, risk reduction, talent
management, brand reputation and innovation,
or externally through increased prosperity, job
creation, enriched natural environment and
community wellbeing.
Our strategic pillars are designed to reflect all
parts of the Severn Trent Group. They resonate
with people from all teams across our business
and at all levels of seniority. They guide our
direction and support us in our decision making.
WHAT SETS US APART
We set bold ambitions backed by a track record of sector-leading performance with
a clear roadmap for the future. This builds trust, creates opportunities for innovation
and inspires our people and partners to strive to be the best they can be.
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SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
WHY WE DO IT
At Severn Trent, we are driven by our
Purpose – taking care of one of life’s
essentials
When we are united by our clear
social Purpose, we can drive positive
change and deliver positive outcomes
for all our stakeholders – our
customers, colleagues, investors,
the society we live in and the
environment we depend on.
Now, more than ever, we know that
taking care of one of life’s essentials
means that what we do really matters
to the families, businesses and
communities we serve. This is
why our Values of Having Courage,
Embracing Curiosity, Showing Care
and Taking Pride are so important to
us. Being a company that can be
trusted, taking care of the
environment, helping people to thrive
and providing the best value service
means we all need to be
focused on living our Values,
by doing the right thing, every
single day – the Severn Trent way.
OUR VALUES
See page 2
OUR ENABLERS
Physical assets
Technology and innovation
We maintain over 50,500 km of clean water pipes,
over 93,000 km of sewer pipes, and 135 water
and 1,005 waste treatment works.
As a large organisation, we rely on technology in
our business every day to communicate, store
and manage data, operate our assets and
monitor our operations. We are always exploring
innovative technology to deliver efficiencies and
continuously improve our processes.
Principal Risk links: 2, 3
Strategy links:
Principal Risk links: 2, 3, 4, 5, 6
Strategy links:
Natural resources
Our people and culture
We look after some of the UK’s most impressive
natural resources and make them accessible to
support the health and wellbeing of communities.
We look to attract, develop and retain
talented people from all backgrounds.
We directly employ over 7,600 people.
Principal Risk links: 2, 3, 10, 11
Strategy links:
Principal Risk links: 1, 2, 3, 4, 5
Strategy links:
Financial capital
Suppliers and partnerships
We work with c.2,100 direct suppliers. 100%
of contracted suppliers have signed up to our
Sustainable Supply Chain Charter.
Our shadow regulatory capital value (‘RCV’) is in
excess of £11.5 billion. Our net debt represents
60.0% of our shadow RCV, broadly in line with the
notional capital structure that Ofwat assumed for
this AMP. Our strong and prudent financial capital
structure is reflected in our credit ratings.
Principal Risk links: 8, 9
Strategy links:
THE VALUE WE CREATE
FOR ALL STAKEHOLDERS
Our Customers
We serve 4.8 million households and businesses.
We aim to anticipate and meet changing customer
and wider societal needs, as well as improve and
protect the natural environment.
How we measure this
ODI performance (% having met or exceeded target)
2022/23
2021/22
79%
88%
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 be
their best in all that they do.
How we measure this
QUEST score (out of 10) (employee engagement survey)
2022/23
2021/22
8.4
8.2
Our Communities
We create value for the communities we operate in by
providing direct employment to local people, engaging
with local businesses in our supply chain and paying
business rates to local Government.
How we measure this
ST Community Fund (£m)
2022/23
2021/22
2.0
1.8
Our Shareholders and Investors
We create value for equity investors through a reliable,
index‑linked dividend, underpinned by strong operational
performance, and a growing RCV, which will lead to higher
returns in the future.
How we measure this
Return on Regulated Equity (‘RoRE’) (%)
2022/23
2021/22
12.2
8.8
Our Suppliers and Contractors
Strong supplier relationships ensure sustainable,
high‑quality delivery for the benefit of all stakeholders.
Strong supplier relationships support our business
operations in line with our modern slavery commitments.
How we measure this
Average time to pay (days)
2022/23
2021/22
31
28
Regulators, Government and NGOs
The policy framework for our sector is set by the UK and
Welsh governments. Our industry is regulated by Ofwat and
others. Our non‑regulated businesses drive competition in
the market, improving the quality and value in the water
sector supply chain.
Ofwat
Leading performer on both
financial resilience and
performance and expenditure
for second year in a row
Environment
Agency
Highly confident of
receiving EPA1 4* for
fourth year in a row
Principal Risk links:
1, 2, 3, 4, 5, 6, 10, 11
Strategy links:
1 Environmental Performance Assessment – annual rating by
Environment Agency (4* is the highest possible rating)
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
5
STRATEGIC REPORT
THE WATER SECTOR
There are 17 regional businesses supplying water services in
England and Wales. These businesses serve over 50 million
household and non-household customers. Of these, eleven
also provide waste water services, including Severn Trent
Water Limited and Hafren Dyfrdwy Cyfyngedig.
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 84 to 94.
Policy
The Department for the Environment, Food and Rural Affairs (‘Defra’)
in England, and the Welsh Government, 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.
OUR PRICE REVIEW
REGULATORY CYCLE
Every five years, our
economic regulator, Ofwat,
reviews water and waste
water companies’ business
plans. These business plans
cover the following five-year
period and include the
impacts on customer bills.
As part of each price review, companies are
asked to submit their business plans, which
set out their investment proposals,
performance improvement commitments
and the potential impacts on customer bills
for the coming Asset Management Plan
(‘AMP’). Later this year, we will submit
business plans for Severn Trent Water
Limited and Hafren Dyfrdwy Cyfyngedig
for the latest price review (‘PR24’), covering
the period 2025‑30 (‘AMP8’).
Ofwat’s Final Determinations for PR24 will
be issued by the regulator next year. The
final methodology provided us with the
regulator’s guidance on expectations for
our business plans.
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 (‘NRW’) 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 water and waste water 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:
– Health and Safety Executive to ensure that the health and safety of our employees,
customers and visitors is preserved;
– Ofgem, the economic regulator of gas and electricity markets, whose remit extends
to renewable energy generation; and
– Ofsted, the regulator for education, children’s services and skills, since our Academy
became accredited.
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SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
While our PR24 business plans are currently still being developed,
they will lay out our ambitions in the following key areas:
RESILIENCE
Reliable supplies and services depend on a
reliable infrastructure. But to us
‘resilience’ is a broader issue than just
having good‑quality pipes, reservoirs and
treatment works, which we are committed
to investing in already.
It means being operationally resilient, so
our people are sufficiently well trained to
carry out the tasks we need them to do,
both in a steady state and in an emergency.
And it means being financially resilient,
with a stress‑tested capital structure to
maintain an investment‑grade rating for
our regulated business and the appropriate
equity strength to effectively manage risks.
It also means having corporate resilience,
with the right governance processes to
ensure that we are fair and transparent at
all times and recognised as a responsible
and trusted business by society.
We are rightly regarded as a public service
company, and we’ll do everything in our
power to deliver a service that the public
and our people can be proud of.
Responding to customer
needs today
We are not just waiting for the submission
of our business plans to make the tangible
changes our customers and stakeholders
expect. Last year, we announced our Get River
Positive river pledges, Societal Strategy and
Affordability Strategy, and have already
started to make progress on delivering on
our aims. Their continuing delivery will also
be a key part of our overall PR24 and
longer‑term plans.
Through engaging with our stakeholders
through the PR24 process, we are ensuring
that our plans reflect the needs of today’s
customers, and generations of customers
to come.
CUSTOMERS
In developing our business plans for PR24,
we have embarked on our most in‑depth
customer engagement activity and
research programmes to date. As a
provider of one of life’s essentials, we gain
insights from our everyday interactions,
which help give us a rich understanding of
the issues that are most important to our
customers.
For the first time, we have undertaken
open challenge ‘Your water, your say’
sessions on our proposed business plans,
which deepened our understanding of the
issues most pertinent to our customers
and enabled open discussion on our future
ambitions.
We know our customers want us to go
beyond providing a resilient water supply,
balancing supply and demand, providing
clean drinking water and taking waste
water away. Our customers want us to
make a positive impact on their everyday
lives and their communities.
AFFORDABILITY
Households are facing the most acute cost
of living pressures for decades. This is why
ensuring our bills are affordable for all our
customers – including the most vulnerable
– is central to our plans, as well as ensuring
we retain fairness across future generations
for some of our longer‑term plans.
Struggling to pay a water bill can be an
indication of other issues in a customer’s
life, so we are working with partners in local
communities to identify those who may need
some extra help.
In November 2022, we launched our Societal
Strategy – with the aim of helping change the
lives of 100,000 people in our region over the
next ten years. This is part of our
commitment to help tackle the underlying
causes of poverty and improve life chances
for people within our region. We also
announced in May 2022, as part of our
Affordability Strategy, a £30 million package
of additional financial support in response to
the cost of living challenges.
As part of PR24, Ofwat has asked each
company to submit a Long‑Term Delivery
Strategy (‘LTDS’) – out to 2050. The LTDSs for
Severn Trent and Hafren Dyfrdwy will form
part of our overall PR24 proposal and will
outline the path we plan to take in delivering
our long‑term strategic aims, while also
recognising that we will need to adapt our path
to reflect the impact of broader ‘macro’
challenges on reaching our end destination.
Our plans for AMP8 are a key stepping stone
to delivering our longer‑term strategic goals
and ambitions.
Planning for the long term
Long‑term, adaptive planning is an integral
part of how our organisation works. We are
first and foremost driven by our Purpose –
‘taking care of one of life’s essentials’ – and
to continue to deliver outcomes for the benefit
of all our customers, wider society and our
investors, we need to be able to adapt to a
broad range of future trends and challenges.
Demographic, climate, environmental,
societal and economic change can be difficult
to predict, but understanding the potential
impacts of such changes is vital to ensuring
we can continue to deliver resilient, affordable
water and waste water services for
generations to come. We have already issued
a consultation on our draft Water Resource
Management Plan (‘WRMP’) and our final
Drainage and Wastewater Management
Plan (‘DWMP’) was published in March 2023.
These plans set out how we will respond to
these trends and challenges.
What happens next?
Ofwat’s timetable for PR24 is as follows:
Date
Milestone
2 October 2023
Submission of business plans to Ofwat
November 2023
Engagement with the EA, NRW, CCW and the DWI on the submitted
business plans
May/June 2024
Draft Determinations
December 2024
Final Determinations
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
7
STRATEGIC REPORT CHAIR’S STATEMENT
Dividend per share
106.82p
2022: 102.14p
Group PBIT
£508.8m
2022: £506.2m
Group turnover
£2,165.1m
2022: £1,943.3m
OPTIMISM
THROUGH A
CHALLENGING
YEAR
Our Strategy, Purpose and Culture
As outlined in my report last year, our Purpose
– taking care of one of life’s essentials – forms
the foundation on which we can build
meaningful and long-standing relationships
with our stakeholders, to enable us to play our
part in society positively and proactively. Our
Values – Having Courage, Embracing Curiosity,
Showing Care and Taking Pride – underpin our
Purpose and reflect the deep connection that
we have with the stakeholders we serve.
At the heart of our Strategy is a desire to be
performance driven and sustainability led,
reflecting Severn Trent’s ability to deliver
consistently sector-leading performance in a
way that has a positive sustainable impact. Our
Strategy acknowledges our relentless drive to
continue to deliver the financial and operational
performance that our stakeholders expect and
we believe is achieved through balancing the
long-term interests of all stakeholders. Read
more about our Strategy on pages 2 to 3.
The last 18 months have been some
of the most challenging in our history
and many of those challenges are
continuing – with high inflation
driving increases in energy costs for
customers and companies alike, and
the continued impact of geopolitical
events. Our customers and the
communities we serve are not
immune from this and, as such, this
year’s Annual Report will shine a
light on the focus we have applied
to supporting those affected by
affordability pressures both now
and in the long term.
During the last year, the Board spent time
considering the Group’s Strategy, to reflect
where the business is today while clearly
outlining the ambitions we have for the future.
We considered long-term value generation for
our stakeholders – including our customers
and communities, the environment we depend
on, our workforce and our investors – with
a focus on the long term.
DELIVERIN
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Performance
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RU N N I N
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Our Strategy to be ‘performance driven,
sustainability led’ drives us to deliver strong
performance in balance with the long-term
needs of our environment. This isn’t only a
focus for us because we are a good company,
but because we see it as a fundamental
opportunity for innovation, growth and
long-term value creation. And in doing so,
we deliver for our customers, inspire our
people, attract and reward investors, and
generate a positive impact for our customers,
communities and the environment.
8
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Listening to our
stakeholders
Listening to our stakeholders this year, it is clear
that two main issues remain front of their minds
– affordability and river health. We continue to
listen carefully to understand their concerns on
these two important topics in order to review and
refine our approach and deliver maximum
benefits to our stakeholders.
We know that an increasing number of households
in our region are experiencing affordability
pressures, pushing a higher proportion of
households into water poverty (customers who
spend more than 5% of their income, after housing
costs, on water). In last year’s report, I wrote
about our Affordability Strategy, launched in May
2022, and I have been moved and encouraged by
the meaningful support that we have provided to
our customers and communities throughout the
year. You can read about our progress in Liv’s
report and on pages 29 to 30.
We know that we need to do more to address the
long-term drivers that perpetuate poverty in our
society. That’s why we launched our ten-year
Societal Strategy in November 2022, aimed at
helping to change the life chances of 100,000
people in our region. This sector-first initiative
will realise a number of important benefits for all
stakeholders – and particularly our customers.
Our Societal Strategy was developed with an
emphasis on shaping and improving the lives of
people in our communities, by focusing on the
underlying causes of water poverty. Our
ambitious ten-year vision will help tackle poverty
throughout our region, working with hundreds of
schools to offer 300 annual work experience
placements for children, 10,000 hours of free
skills and employability training in communities,
and ‘pop-up’ academies that will reach
thousands of individuals – all supported by a
network of local partnerships. You can read
more on page 32.
River health also remains a critical priority for
our stakeholders. In last year’s report, I wrote
about the way in which we responded to the
heightened focus on this important issue. Both
the Board and Executive Committee remain
committed to making a positive impact on the
environment and the communities we serve, and
recognise that, as a sector, there is more we
need to do to help the region’s rivers be the
healthiest they can be. In March 2022, we
announced our commitment to ‘Get River
Positive’; establishing five river pledges and we
continue to oversee progress against each
of these pledges at every Board meeting.
This year we have delivered significant
improvements in river quality – reducing our
Reasons for Not Achieving Good Status
(‘RNAGS’) from 24% to 16% and average storm
overflow activations to 18 in 2022, ahead of the
regulator’s 2025 target of 20 activations.
We published our first Get River Positive
Annual Report in March 2023 which outlines
the good progress we have made since the
launch of our five river pledges. You can read
more about our progress on pages 20 to 21.
The last year has also seen increased scrutiny
of the environmental performance of the sector
as a whole, and resultant focus on Executive
Director remuneration. We are committed to
making a positive impact on the environment
and the communities we serve, and recognise
that, as a sector leader, we need to take a
proactive role in protecting and enhancing our
environment. Whilst we have consistently
focused on connecting remuneration to
environmental outcomes, we recognise the
strength of external opinion on the performance
of the sector and made further changes to our
Annual Bonus Scheme during the year to
strengthen the focus on environmental
performance – increasing the weighting of
environmental measures within our annual
bonus plan to 20%. For 2023/24 we are going
even further and increasing the weighting to
30%. Three-quarters of our potential Executive
pay is variable in nature, based on stretching
targets that are reviewed annually by the
Remuneration Committee, ensuring that our
Executives are only rewarded for strong
performance. You can read more in the
Directors’ Remuneration Report from page 141.
Looking after
our people
When meeting our people throughout the
year, it is clear that they take the responsibility
that comes with providing our essential service
seriously. Their passion and commitment is
evident, especially when responding to
extreme weather events to limit the impacts on
our customers and adapting to unforseeable
incidents. I would like to convey my thanks
to our people for the passion and dedication
they apply to all they do; their commitment
is inspiring.
The vast majority of our colleagues, their
friends and families, are also our customers
and live in the communities we serve. As such,
some of the challenges experienced by our
customers (such as the effect of increased cost
of living from food, fuel and energy bill rises)
are also felt by our people. We continue to do
everything we can to help support them – and
our range of employee benefits has been
enhanced during the year – including launching
two new benefits to help with childcare costs
and advice and support for those taking care of
an older dependant. We also offer meaningful
contributions to employee healthcare, through
financial support for elective treatments,
access to a 24/7 GP service and our Employee
Assistance Programme. We continue to take
pride in being a real Living Wage Employer,
as well as welcoming 263 graduates and
apprentices during the year. I attended our
annual leadership event at Tittesworth Reservoir
in September 2022, where the range of
benefits available to all employees was
discussed with our leaders and team managers
to ensure these are being used to the greatest
extent possible by our people.
Running a business that goes
hand-in-hand with nature
In addition to the significant progress made on
our Get River Positive river pledges, we have
also made excellent progress on our Great Big
Nature Boost programme during the year. In
May 2023, we announced that we are extending
and accelerating our commitment to improve
biodiversity from 5,000 hectares by 2027 to
10,000 hectares by 2025, at which point our
work will account for 2% of the nation’s 2042
Nature Recovery Network target. You can read
more about this exciting work on page 19.
We were proud to be the Official Nature and
Carbon Neutral partner of the Birmingham
2022 Commonwealth Games held over the
summer – through offering drinking water to
spectators, supplying critical infrastructure to
the Games, providing 40 water bars, saving
almost 500,000 plastic bottles from going to
landfill, and continuing to plant our 2,022 acre
legacy forest. Our people made a meaningful
contribution to the Games and I was humbled
to observe their significant contribution during
my own shifts at a water bar. Our contribution
to the Games is a wonderful example of our
community-focused approach to sustainability.
We were also delighted to be placed 58th by
Corporate Knights as one of the world’s most
sustainable companies and in August 2022 we
received ‘Advancing’ tier status from the
Carbon Trust. We recognise that we are only
partway on our journey. We continue to develop
new ways of delivering our essential services
and identify innovations that support the
delivery of our sustainability ambitions. Read
more about our sustainability highlights on
pages 137 to 140 and in our Sustainability
Report online and the work of the Corporate
Sustainability Committee during the year is set
out on pages 137 to 140.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
9
STRATEGIC REPORT CHAIR’S STATEMENT CONTINUED
A STABLE AND
DIVERSE BOARD
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Maintaining a strong, diverse and value adding
team, with a varied range of professional
backgrounds, skills and perspectives, is
always an area of focus for me. Succession
planning is vital to ensure the Board has the
necessary plans in place for orderly
succession to both the Board and senior
management positions, and can oversee the
development of a diverse pipeline for
succession. The Nominations Committee and
Board have applied particular focus to this
important area over the last 18 months and
the recent internal Executive Committee
appointments announced in February 2023
demonstrate the breadth and depth of the
Executive talent pipeline that has been
developed within the Group, including the
development of senior leaders with potential
to be future Executive Committee members.
You can read more about the evolution of the
Board and Executive Team in my Chair’s
Introduction to Governance on pages 100 to
101 and the Nominations Committee Report
on page 124.
The diversity of our workforce is so
important and I am proud of our progress on
increasing gender and ethnic diversity on the
Board and at senior leadership levels. Above
all, we aim to have an inclusive culture –
where everyone can be themselves at work,
feel valued and contribute their best to make
us more successful in all that we do.
In February 2022, the FTSE Women
Leaders Review announced two new
recommendations for FTSE350 companies to
increase representation of women in senior
leadership positions by 31 December 2025.
We already exceed both of those goals, with a
female Chair, Chief Executive and, Chief
Finance Officer, following Helen’s
appointment as Chief Financial Officer
Designate, and have at least 40% women at
Board and Executive Committee level. The
Board also updated its Diversity Policy during
the year in consideration of the progress
made to date and recommendations of the
FTSE Women Leaders Review and Parker
Review on Ethnic Diversity. Read more in the
Nominations Committee report on page 125.
Resilient performance and
sharing the rewards
Against the background of a changing
environment, it is more important than ever for us
to maintain our sector-leading performance and
continue delivering strong service to our
customers. In December 2022, Ofwat named
Severn Trent in the leading category for both
financial resilience and performance and
expenditure for the second year running. We have
been awarded EPA 4* for three consecutive years
by the EA and are highly confident of achieving it
for the fourth consecutive year for 2022. This
would be a unique accolade in the sector and
something we are incredibly proud of.
Our aim is to deliver exceptional and consistent
services to our customers at all times as well as
being sector-leading in measures. I am pleased
that we have delivered robust operational and
resilient financial performance, and this year has
been no exception, with around 80% of ODI
measures green, including leakage, pollutions
and water quality complaints, resulting in a net
reward1 of £53 million and Group PBIT for the
year of £509 million. Liv and James provide
further detail within their respective reviews.
The Board applied particular focus to the
proposed dividend during the year, in
consideration of our regulated company
1 Our FY23 ODI outturn and percentage meeting or ahead
of regulatory target (or within penalty deadband for
compliance measures) include in year (including C’MeX and
D-MeX) reward earnings of £35.5 million and £17.5 million,
for work and milestones already delivered in relation to end
of AMP ODIs (excluding PCC). ODI values for Customer
Measure of Experience (‘C-MeX’) and Developer Measures
of Experience (‘D-MeX’) are calculated based on published
industry data. A definitive value will be published by Ofwat
later in the year. Value of £53 million is quoted pre-tax and in
2017/18 prices unless otherwise stated.
performance in the round and over time, service
delivery for customers and the environment, the
Company’s long-term investment needs and
financial resilience. In line with our formal
dividend policy, the Board determined that the
proposed dividend would not impact the financial
health of the regulated company, nor its credit
ratings. The Board also considered that the
proposed dividend was supported by the
regulated company performance in the round
and over time. The Board is therefore proposing
a final dividend of 64.09 pence per share, to be
paid on 14 July 2023, taking the total dividend for
the year to 106.82 pence per share.
Given that many small retail shareholders and
Severn Trent pensioners rely on our dividend
payments, we are pleased to be able to sustain
our dividend commitments against a backdrop
of increased costs, which has resulted in a
challenging year for so many shareholders.
I had the pleasure of meeting many shareholders
again this year to discuss our performance. Our
consistent results emphasise that we are well
placed to uphold our high standards of service
delivery for customers and provide a
sustainable platform for investment and growth
in areas that are important to our stakeholders.
Focus on the
long term
We continue to deliver a strong operational
performance for our customers and the Board
is focused on the long-term challenges facing
the sector, ensuring robust risk management,
prioritisation and decision making around the
investment needed to make a positive
sustainable impact.
are inextricably linked to the environment
during the year, such as our Drainage and
Wastewater Management Plan, Water
Resources Management Plan, the Water
Industry National Environment Programme,
and our PR24 submission – including our
Long-Term Delivery Strategy. The Board has
placed particular emphasis on ensuring that
we have resilient long-term plans in place that
consider the impacts of population growth,
drought, our environmental obligations and
climate change uncertainty so we can continue
to deliver our essential services for customers
now and in the long term whilst also
transitioning to a net zero world.
A key area of focus for the period ahead is
positioning the business for success during
the next regulatory period. Our draft business
plans are well advanced, following widespread
customer engagement, rigorous independent
challenge and rich discussion in the
boardroom. Our PR24 plan will be submitted to
Ofwat in October 2023. We are positioned well
to implement our plans over AMP8 and beyond,
safe in the knowledge that our teams have the
talent, skills and, above all, commitment to
enable us to deliver for our customers.
Against a backdrop of rising expectations on
companies both within and outside the water
sector, we are working even harder to drive
further performance improvements through
the rest of this AMP and into the next and, in
doing so, create long-term value for the mutual
benefits of our customers and communities,
shareholders, the environment and our people.
The Board spent a significant amount of time
considering key long-term programmes that
Christine Hodgson
Chair
10
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
CHIEF EXECUTIVE’S REVIEW
Group PBIT
£508.8m
2022: £506.2m
Group turnover
£2,165.1m
2022: £1,943.3m
Net ODI reward
£53m
2022: £79m
WE ARE
DRIVING OUR
PERFORMANCE
FORWARD AND
LEADING WITH
SUSTAINABILITY
IN ALL THAT
WE DO
I’m pleased to present my
Chief Executive’s Review for
2022/23, sharing my personal
highlights for the year and
providing you with an update
on our performance over the
last twelve months.
Whether it’s the growing impact of climate
change, unparalleled energy costs, or broader
macroeconomic uncertainty, this year has been
a true test of our resilience as a company. I’m
incredibly proud of our proven ability to continue
delivering on our promises for our customers
and the environment, alongside a robust
financial performance, in the face of such a
challenging year.
Our resilience and performance provide a
strong foundation from which we can do
even more for the communities we serve
and the environment on which we depend.
I’m pleased to report strong progress against
our commitments in these areas, as well as
setting out a new Societal Strategy, which
I wholeheartedly believe has the ability to
change the life chances of some of the most
vulnerable people in our region.
Our Purpose of ‘taking care of one of life’s
essentials’ forms the foundation of our
relationships with our stakeholders and is
critical to our long-term success. Our people
connect with our Purpose, and our outstanding
engagement scores demonstrate the strength
and depth of this connection. As outlined in
Christine’s report, a key focus for the Board
this year has been reviewing our Strategy and
considering the long-term value generation for
our stakeholders – including our customers
and communities, the environment, our
workforce and our investors – each of whom
want consistency in delivery of our Strategy,
with a focus on the long term.
Our Strategy is to be performance driven,
sustainability led. Consistently executing this
Strategy will deliver outstanding performance
in a way that has a positive, sustainable impact.
You can read more about the development of
our Strategy on pages 2 to 3.
Creating job opportunities,
continuing significant regional
investment, and financially
supporting more customers
than ever before is made
possible by the strong results
we have delivered this year.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
11
STRATEGIC REPORT CHIEF EXECUTIVE’S REVIEW CONTINUED
Delivering for customers
in a changing climate
Our teams work around the clock delivering a
brilliant service for our customers to keep
clean water flowing into homes and
businesses, and take away and recycle waste
water. Quite rightly, our customers expect this
service to continue 24/7, and I’m proud of the
work we’ve achieved to minimise the impact of
climate change experienced by our customers
this year.
We’ve hit or exceeded our targets on c.80% of
our performance commitments, earning an
outperformance reward of £53 million, despite
the weather challenges faced this year which
have impacted a number of measures. As we
look ahead to AMP8, when our comparative
position will be even more important, our whole
business is focused on pushing our
performance even further.
Keeping clean water flowing
We have invested a significant amount of time
and resource into strengthening the resilience
of our water networks over the past few years.
We’ve brought more assets online to
strengthen our network, improved flexibility to
enable us to get water to the right places at the
right time, and created an in-house Network
Response Team – 135 people and 42 tankers
dedicated to getting our customers back on
supply as quickly as possible. All of which
really paid off this year.
The summer of 2022 was one of the hottest and
driest since records began. At its peak, we
were producing an extra 450 million litres of
clean water a day. The resilience of our
network, combined with the incredible support
from our customers in response to our
extensive demand management campaigns,
meant we were able to keep the water flowing,
navigating the summer conditions with no
enforced Temporary Usage Bans (‘TUBs’, also
known as hosepipe bans).
In common with many other companies, we’re
also feeling the effects of climate change in
winter. In December 2022, our region
experienced a sharp cold snap followed by a
rapid thaw. These temperature swings can
have a severe impact on our pipes, causing a
higher number of bursts. The last time we
experienced such an event was the Beast from
the East in 2018 and I’m really pleased that the
work we’ve done since then meant that the
interruption to our customers’ supply was
reduced by 93%.
Never has it been clearer that water is a
precious resource and one that we all need to
take care of, and I’m delighted with the
sustained progress on our leakage journey,
hitting our target for the eleventh year out of
the last twelve, despite the significantly higher
number of bursts we’ve faced following a
challenging winter. We’re fixing over 3,000
leaks a month and we’ve reduced the time it
takes for us to reach a leak by 30% since 2020.
We’ve also accelerated our meter roll-out,
installing over 100,000 meters this year alone,
taking our metering coverage on household
customers to 61%. Alongside reducing bills for
many of our customers, this also gives us
much greater visibility and insight into our
network. This is especially the case for smart
meters, which we’re rolling out in Coventry and
Warwickshire and through which we have
already been able to collect valuable data on
consumption and other trends. Given the
success of our smart meter campaign, I was
particularly pleased to receive approval from
Ofwat to accelerate the roll-out of an additional
250,000 meters ahead of AMP8.
Our leakage rate is better than the average for
Europe, but we know that we can, and must, go
further. We have committed to reducing
leakage by 50% by 2045 (from a three-year
rolling average baseline set in 2019/20) and the
work we’re doing now places us firmly on track
to achieve that goal.
Focused on waste to create
a better environment
We have once again met 100% of our environmental
measures and are highly confident that we
will achieve the highest-possible 4* rating
in our annual Environmental Performance
Assessment (‘EPA’) for 2022 by the EA, making
it four consecutive years – something no other
company has ever achieved.
We are proud of our total pollutions
performance, which has seen a year-on-year
improvement of 5.4%, resulting in our best ever
year on serious pollutions. While we’re proud of
our continued improvements in this space, we
recognise that any pollution is unacceptable and
we are striving to halve our total pollutions by
2025. As part of this ambition, we are focused
on reducing asset failure through a rigorous
maintenance programme and improved event
response times, supported by the ongoing
installation of 40,000 sewer sensors and the
establishment of our new in-house Waste
Network Response Team, inspired by learnings
in our water business.
One cause of pollutions is blockages in our
network, and we’ve been successful in driving
these down by 20% compared with the end of
AMP6 through a relentless focus on data,
sewer cleansing and customer education on
the causes and impact of sewer misuse.
While we have met a number of our key waste
measures, we have incurred a penalty this year
on external sewer flooding, where we missed
a stretching target that reflects our historical
sector-leading performance. The extreme
fluctuations in rainfall we’ve experienced this
year have been a key driver of our
performance, with our region experiencing
only 14% less rainfall than average despite the
prolonged dry summer. We have also
experienced a deterioration in some of our key
performance drivers and are reviewing our
delivery model on our waste infrastructure,
including the insourcing of critical teams, such
as planning and scheduling. We expect to
continue to be a strong performer on this
measure compared with the sector, but our
customers rightly expect more of us and we
are working hard to drive the required
improvements to meet our target.
There for our customers when they
need us most
We have delivered c.90% of our customer
performance commitments, and I am
particularly pleased to see a 16% reduction in
customer complaints compared with last year
as we continue to improve our service offering.
We continue to take steps forward in our
Customer Measure of Experience (‘C-MeX’)
and Developer Measure of Experience
(‘D-MeX’) journeys to ensure we can answer
our customers’ queries at point of contact, and
keep customers informed.
This year we launched a new ‘Intelligent
Kickouts’ process, which uses customers’
historical consumption data to track
and identify changes in their water usage and
proactively engage with them, before their bill
is issued. We have designed 30 different
communication journeys to ensure customers
receive the right information, at the right time,
in the right way. In the six months since we
launched our new process, we have proactively
engaged with almost 10,000 customers,
helping them to manage their consumption,
reducing contacts from customers and
identifying an additional 14,000 litres of
private-side leakage a day, with zero
complaints from customers.
Of course, alongside delivering the best
service possible, we want to be there for our
customers when they need us most, and right
now many are struggling with overwhelming
pressures associated with the increased cost
of living. Last year, we announced a package of
financial support worth £30 million to allow us
to support 315,000 customers – the biggest
support scheme any company in our sector
has ever offered.
We’re proud to continue to offer one of the
lowest bills in the country, at an average of
£1.15 per day, and we’ve committed to growing
our bill by less than inflation for 2023/24, as we
don’t want anybody to fear their water bill.
Through our affordability schemes, we can
offer any customer who needs it up to 90%
discount off their bill, taking the water bill off
their worry list. We are financially supporting
over 237,000 customers and are on track to
help 315,000 customers by 2025. While we
don’t wish to see anybody in a situation where
they need our help, we take comfort in knowing
that we still have the capacity to support many
more should they need it.
But financial support is a short-term solution,
and we want to go much further, to make a
genuine difference in the communities we live
and work in. That’s why we announced our
Societal Strategy in November 2022 our
commitment to help support 100,000 people
out of poverty by 2032. This is a huge
commitment and one we don’t take lightly, and
we have robust plans in place to deliver this
support. You can read more about our plans
on page 32.
12
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Get River Positive –
one year on
Although we have long been a sector leader in
environmental performance, as measured by
both Ofwat and the EA, when listening to our
stakeholders it is clear that river quality
remains high on their list of priorities. We fully
recognise that there is more we can do when
it comes to the health of rivers in our region
and I’m delighted to report that, one year on
from the launch of our Get River Positive
river pledges, we’ve made a huge amount
of progress.
We’ve already significantly reduced the impact
of our operations on the rivers in our region,
having reduced our share of the RNAGS in our
region by a third, now down to under 16%. We’ve
committed to reducing that number to zero by
2030, and we still have plenty of work to do, but I
am pleased to see such a strong start.
The permitted operation of Combined Sewer
Overflows (‘CSOs’) is an essential part of
managing our network, and while they
contribute only a small proportion of RNAGS
(around 3%), we nonetheless recognise the
need to reduce the frequency at which they
activate. I’m really pleased to see the average
annual number of activations has reduced from
25 in 2021 to 18 in 2022.
We’ve accelerated the rollout of Event Duration
Monitors (‘EDMs’) across our c.2,400 CSOs
providing us with 300 million data points a year
through which we can better understand our
network and drive the right interventions.
This includes work to improve weir levels,
investment in screens and dedicated teams on
specific assets. In addition, our dedicated team
of River Rangers has carried out thousands of
riverside inspections to provide additional
sampling and monitoring data to better inform
our plans. Read more about our progress on
pages 20 to 21.
Our longer-term projects are also progressing
well. Through our £566 million (2017/18 prices)
Green Recovery Programme, we are improving
50 km of river to move two stretches of river
towards bathing quality by 2025. We have
installed 76 monitors, providing data on river
health. We have carried out climate change
simulations and ground investigations ahead of
us installing infrastructure solutions, and we are
trialling ozone disinfection technology to treat
our waste water to the highest possible
standards.
We know that the quality of the land across our
catchment can make a real difference to river
health, so I am delighted that we have exceeded
our target of improving the biodiversity of 5,000
hectares of land four years early, having already
delivered over 7,700 hectares. We know we can
maintain momentum on this important work, so
we have doubled our target, and now expect to
deliver improvements to the biodiversity of 10,000
hectares of land over the course of AMP7.
Each and every person in our organisation is
playing their part in transforming the rivers in
our region, and we’re passionate about the work
we’re doing. Our Get River Positive river pledges
are now built into our Annual Bonus Scheme,
meaning everybody in the Company is incentivised
on achieving these vitally important targets.
Taking care
of our people
I truly believe that the things that make Severn
Trent special are our culture and our people
– they go above and beyond every day, pushing
our performance further and doing more for
our customers and communities wherever
they can.
The strength of our culture is reflected in our
engagement scores, which are once again in
the top 5% of global utilities, with our overall
score of 8.4 out of 10 in our latest survey in
November 2022 – our best ever.
Diversity and Inclusion also scored highly at
8.9 out of 10, and we were delighted to be
named a top 25 employer by Stonewall this
year. Notwithstanding this fantastic progress,
we know this is an area where we can do even
more, to ensure we create a workplace where
everyone can bring their whole selves to work,
fulfil their potential and perform at their best.
Read more about diversity and inclusion on
pages 25 to 27.
Our commitment to internal development and
progression was evidenced recently when we
announced the planned retirement of James
Bowling, our Chief Financial Officer of eight
years. While really sad to be losing James,
I was incredibly pleased to see that the
strength of our succession planning and talent
management processes resulted in two of my
direct team taking up exciting new roles, plus
an internal promotion to the Severn Trent
Executive Committee – you can read more
on page 124.
Of course, while we’re focused on ensuring
that Severn Trent is a truly brilliant place to
work, with opportunities to develop and
succeed, our people also need to feel
financially secure and taken care of,
particularly in the face of the current economic
climate. Our people benefit from a broad and
thoughtful package of benefits – from help with
childcare costs and advice and support on
taking care of an older dependant, to
meaningful contributions to elective
treatments, and access to a 24/7 GP service
and Employee Assistance Programme.
Our people go above and beyond for Severn
Trent, and we are absolutely committed to
doing the same for them.
Thanks and outlook
I am, as ever, enormously grateful to my
c.7,600 wonderful colleagues who work
tirelessly to take care of one of life’s
essentials, living and breathing our Values –
Having Courage, Embracing Curiosity, Showing
Care and Taking Pride in everything that they
do.
My thanks go to my exceptional management
team for their continued passion, dedication
and leadership, which is absolutely essential to
our continued success. And I am grateful, too,
for the stewardship, support and challenge
from Christine and the Board.
I would like to thank James for everything he’s
done for Severn Trent and all the support he
has given to me personally. His fantastic work
ethic, wise counsel and intellect have been
invaluable. James has been instrumental in
driving the success of Severn Trent since his
appointment in 2015 and he leaves us well
positioned for the future. I am also delighted
that Helen Miles will be his successor. She is
a highly experienced and commercial CFO with
a detailed understanding of the water sector
and a proven track record of exceptional
delivery. I look forward to continuing to
work with her on the opportunities ahead
in her new role.
The past year has once again shown just how
resilient we are as a business, whether
operationally, financially, or indeed culturally.
Through the most challenging times, this
stable platform has provided the foundation
from which we can identify opportunities to
step forward and contribute even more to our
society. But we know we can always do more
and we will continue to listen to our wide range
of stakeholders to understand where we can
push further.
In the year ahead, we’ll be driving forward the
first stage of our ten-year Societal Strategy,
making further sizeable steps towards our
goal of causing no harm to rivers by 2030 and
delivering key milestones towards our net zero
by 2030 commitments. You can read more
about our exciting plans at Strongford on
page 19. We’ll be doing all of this while forming
our plan for the five years to 2030, ensuring
that it enables us to continue to deliver the
right outcomes for all of our stakeholders for
many years to come.
Liv Garfield
Group Chief Executive
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
13
STRATEGIC REPORT OUR PERFORMANCE
AND KEY PERFORMANCE
INDICATORS
Outcome Delivery Incentives (‘ODIs’) provide
financial payments to water companies from
customers for performing beyond their
committed levels of service (‘outperformance
payments’) or from companies to customers
for performing below their commitments
(‘underperformance payments’).
In order to aid stakeholders’ review of this
report, including how our ODIs and other
operational Key Performance Indicators
(‘KPIs’) link to our Strategy, key stakeholders
and remuneration policies – each KPI has
been labelled using the icons below. We
hope this addition enhances the transparency
of our reporting for stakeholders and we
welcome feedback on this new approach.
Both ODIs and KPIs that relate to Severn
Trent Water only as it operates today, not
including Hafren Dyfrdwy (our Wales only
regulated company following
the realignment of the England-Wales
boundary), are indicated by a 1 footnote.
Consistent with previous reporting, some
ODIs do not form part of the suite of KPIs
reported in this report. Performance of all our
ODIs is reported in our separate Severn Trent
Water and Hafren Dyfrdwy Annual Performance
Reports published in July, which can be found
on the respective companies’ website.
STW regulatory
library
HD regulatory
library
Stakeholders
Our Customers
Our Colleagues
Our Communities
Our Shareholders and Investors
Our Suppliers and Contractors
Regulators and Government
Relative performance
Improvement year-on-year/
against target, where provided
Deterioration year-on-year/
against target, where provided
No change year-on-year/
against target, where provided
Remuneration
Included in all employee Annual
Bonus Scheme (‘ABS’) – read more
on page 146
There are additional ODIs that are not KPIs in this report.
For more information on the strategic alignment of
remuneration, see page 145.
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DELIVERING
OUTCOMES OUR
CUSTOMERS
CARE ABOUT
Our services are an essential
part of everyone’s lives. We
take this responsibility seriously
and strive to keep water flowing
and take waste water away,
whilst working with customers
to manage demand. This
commitment is reflected in the
continued positive momentum
in our performance.
The significant investment in
our network has bolstered
our resilience, which is
demonstrated by our ability
to maintain service delivery
for our customers, throughout
the challenging conditions
observed during the year.
c.50%
Reduction in drinking water complaints
since 2016/17
5.65
CRI
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
WATER ALWAYS
THERE
We’ve nearly halved drinking water
quality complaints in six years
Our significant investment over the last few
years has driven sustained improvements in
our water quality complaints performance.
This year marks our sixth year-on-year
improvement – a reduction of 8% on the prior
year and a 48% reduction in complaints since
2016/17. Looking ahead, further investment is
planned for AMP8, including installation of
additional water quality monitors, to provide
greater insight on our network and, where
required, implementation of targeted
interventions to drive further performance
improvements for customers.
Notwithstanding this excellent progress, our
performance on the Compliance Risk Index
(‘CRI’, the DWI’s measure of risk to water
quality) has deteriorated this year. Our
indicative CRI score for 2022 was 5.65
(2021/22: 2.43). Our work to understand
bacteria within our processes, using online
flow cytometry, which provides live data on
water safety, has enabled us to deliver
improvements at our distribution service
reservoirs. We have implemented a dedicated
improvement plan, CRISP (‘Compliance Risk
Index Sustainability Plan’), with the objective of
eradicating high-impacting events in our water
network and addressing bacteriological risk at
water treatment works. We are confident that
we have the right plans in place to improve
performance and have already made a positive
start to the financial year.
Working hard to reduce supply
interruption events
Reducing supply interruptions remains
a priority given the direct impact on our
customers. We are pleased that our
significant investment over the past few
years has helped us deliver our best in-AMP
performance at 9 minutes and 10 seconds;
however, we are disappointed to have missed
our stretching target.
The sector was impacted by a freeze thaw
event in December 2022. Such events have
potential to cause significant customer impact
and it was pleasing that learnings from the
2018 freeze thaw event enabled us to improve
our performance by 93% this year.
Similarly, the significant investment in our water
network and culture of continuous improvement
enabled us to navigate the prolonged hot, dry
weather conditions in 2022 with no enforced
TUBs and improved service delivery for
customers compared with similar events of this
nature.
The growth of our Network Response Team
has been a key driver of our positive performance,
with more teams out in the field, minimising
the time our customers go without supply. Our
Academy facilitates the continual training and
upskilling of our colleagues, improving our
effectiveness and helping us to learn from
each event we resolve. You can read more
about our Academy on page 23.
On track to deliver a 15%
leakage reduction
Alongside our supply interruptions activity,
we have also been working hard on our supply
capacity. We are particularly proud of our
leakage performance, having achieved our
target for eleven out of the last twelve years,
putting us on track to reduce leakage by 15%
by 2025 and 50% by 2045 (from a three-year
rolling average baseline set in 2019/20). We
are pleased to have delivered a c.2% reduction
this year, and a 9% reduction since 2019/20.
To improve leakage performance, we’re fixing
over 3,000 leaks a month and bolstering our
teams to reduce the time taken to fix leaks by a
third. This activity has seen us employ more
gangs and distribution service technicians.
Our leakage activity is supported by our smart
meter programme. Smart meters enable us to
proactively identify potential leaks, mitigating
risks to customers’ properties and crucially
helping customers to save money on their
water bills, all whilst reducing our overall level
of leakage. We have accelerated our activity
this year, with over 293,000 meters installed
already this AMP. Our ongoing work with
customers to reduce their demand also
continues to yield positive results.
Working in partnership with our
customers to reduce demand
Good progress has been made to achieve our
goal of adding 93 Ml/d of additional water
supply at peak capacity (as part of our Green
Recovery Programme), providing increased
resilience to hotter, drier summers and winter
freeze thaw events, and driving further
performance improvements for customers.
We maintain a positive, continuous dialogue
with our customers – directly engaging with
them on demand management through our
water efficiency programme. With the help of
our customers, our aim is to achieve per capita
consumption of 122 litres per day by 2038 and
110 litres per day by 2050 against our current
performance of 138 litres per person, per day.
Our water efficiency programme has delivered
a number of customer benefits this year,
including water efficiency advice through over
18,800 home visits; installing 100,108 water
meters and offering free and subsidised water-
saving devices to customers. Our teams
engage with thousands of customers every
year to make them aware of how they can save
water and reduce their bills, educate them on
the sewage treatment process and share the
way in which we are reducing our carbon
footprint to help protect the environment.
Drinking water quality
(number of complaints)1
2022/23
2021/22
2020/21
7,467
(ODI target: 9,600)
Definition:
The number of
complaints about
taste, odour and
appearance that we
receive
7,467
8,123
9,468
Stakeholders:
Remuneration:
Supply interruptions
(number of minutes)1
2022/23
2021/22
2020/21
9:10
12:39
11:37
9 min 10 sec
(ODI target: 5 min 45 sec)
Definition:
The number of
minutes the average
customer is without
supply in the year
Stakeholders:
Remuneration:
Leakage (three-year average)
(Ml/d)1
2022/23
2021/22
2020/21
405
4112
4302
405 Ml/d
(ODI target: 421 Ml/d)
Definition:
The average volume of
water that leaks from
our water network
each day (measured
as a three-year rolling
average)
Stakeholders:
Remuneration:
1 See footnote on page 14
2 Our baseline has been reset to reflect more up-to-date
information and as such our 2021/22 and 2020/21
performance figures will not be comparable to last
year’s Annual Report.
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
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STRATEGIC REPORTSTRATEGIC REPORT
DELIVERING OUTCOMES OUR CUSTOMERS CARE ABOUT CONTINUED
Alongside this direct customer engagement,
our dedicated schools programme helps
educate children living in our region. Last year,
we continued our programme of school visits,
delivering assemblies, workshops and
classroom sessions, and utilising our
interactive Wonderful Water Tour vehicles. The
‘digi-bus’ and ‘experi-bus’ introduce children
to everything water and waste water related
using virtual reality and hands-on water
activities, such as fixing leaks, water quality
sampling and sewer misuse exercises. At the
end of our sessions, we ask children to pledge
their commitments and we collected over
122,000 behavioural commitments this year.
Customer experience
We have significant focus on our customers’
experience when dealing with us. Our ambition
is to ensure that all customer queries are dealt
with in a timely manner and deliver an
outstanding experience for all.
C-MeX, Ofwat’s measure of customer
experience, 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 in the sector. We recognise there
is more to do ensuring we can answer our
customers’ queries at point of contact, and
keeping customers informed.
We continue to offer our customers a multi-
channel offering and have seen a growth year
on year in customers visiting our website for
information and paying their bills online. Our
digital first strategy focuses on ease, efficiency
and experience. This model helps make sure
our teams are available for customers when
their queries are more complex across other
channels. Our 2023/24 priorities focus on
continuing to make interactions easy for
customers, increasing point of contact
resolution and keeping customers informed
when this is not possible.
We continue to perform well in developer
services, with our D-MeX score ranking third
this year.
Customer Measure of Experience
(‘C-MeX’) (index)1
2022/23
9th
Compliance Risk Index
(‘CRI’) (index)1
2022/23
5.65
2021/22
2020/21
9th
Definition:
An industry standard
view of customers’
experience, measured
through both
quantitative and
qualitative metrics
Stakeholders:
Remuneration:
8th
2021/22
2.43
9th
2020/21
1.53
5.65
(ODI target: 0.00)
Definition:
A standardised
measure of water
quality including our
response to any
issues that arise
Stakeholders:
Remuneration:
Developer Measure of Experience
(‘D-MeX’) (index)1
2022/23
3rd
Education programme
(number of commitments)1
2022/23
122,159
2021/22
2nd
2021/22
80,656
2020/21
1st
2020/21
40,728
3rd
122,159
(ODI target: 31,050)
Definition:
An industry standard
view of developers’
experience, measured
through both
quantitative and
qualitative metrics
Stakeholders:
Remuneration:
Definition:
The number of
commitments made
to change our
behaviours following
our bespoke customer
education programme
Stakeholders:
Remuneration:
REDUCING DEMAND
During the 2022 hot weather period, we
directly engaged with customers across a
range of channels – including text
message, email and social media
channels. We focused on behavioural
change initiatives to deliver and sustain
demand reduction. The incredible support
from our customers meant that we didn’t
need to impose a TUB, otherwise known
as a hosepipe ban, maintaining service
delivery for our customers when they
needed it most.
1 See footnote on page 14
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SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
UPPER QUARTILE
ON WASTE
Internal sewer flooding
(number of incidents)1
2022/23
Pollutions
(number of incidents)1
698
2022/23
677
2021/22
780
2020/21
193
204
190
193
(ODI target: 215)
Definition:
The number of
pollution incidents
that occur from our
waste water activities
Stakeholders:
Remuneration:
Stakeholders:
Remuneration:
2021/22
2020/21
698
(ODI target: 666)
Definition:
The number of sewer
flooding incidents
that occur inside
customers properties
Every day, we take almost 3 billion litres of our
customers’ waste water away, ready to be
made safe to return to the natural
environment. We have invested significantly in
our waste operations over the last 30 years to
deliver the services that our customers rightly
expect and minimise our impact on the
environment. We recognise that there is more
we can do and we have a critical role in driving
the improvements our customers expect.
Our best ever year on serious
pollutions performance
We are proud of our total pollutions
performance, which has seen a year-on-year
improvement of 5.4%, along with an 8% increase
in the proportion of pollutions self-reported this
year. We are highly confident in achieving EPA 4*
status by the EA for a fourth consecutive year.
Reducing sewer flooding
and blockages
We recognise that not all our measures have
performed to the level that both we and our
customers expect. Sewer flooding remains a
key focus, and despite our performance being
one of the best in the sector, we have set
ourselves some really stretching targets which
unfortunately we have not delivered this year.
Early investment in the AMP coupled with our
active approach to maintenance has driven
year-on-year improvements in our hydraulic
flooding performance. However, with the
extremes in weather and some areas of
performance requiring improvement, we
still have room to improve. We are tackling
this challenge head on and have increased
proactive investment during the year,
targeting ‘at risk’ areas.
We have insourced key functions such as our
‘blue light’ Network Response Team, giving
us more resilience and flexibility in-house,
while our work to optimise our planning and
scheduling function has helped improve
our response times, for example reducing
the time taken to fix leaks by a third.
We have also quadrupled the size of our
Network Protection Team, which
communicates directly with customers to
educate on what can and cannot go into
sewers, helping to prevent blockages. We are
continuing to work in partnership with food
service providers in our region to prevent oils,
fats and greases from entering the network.
We firmly believe that our performance led
culture and desire to do the right thing set us
up for success to tackle sewer floodings and
bolster our sector-leading waste performance.
External sewer flooding
(number of incidents)1
2022/23
5,353
Public sewer flooding
(number of incidents)1
2022/23
1,526
2021/22
4,526
2021/22
1,296
2020/21
3,606
2020/21
1,050
5,353
(ODI target: 3,515)
Definition:
The number of sewer
flooding incidents that
occur in customer
gardens, driveways
and external buildings
Stakeholders:
Remuneration:
1,526
(ODI target: 1,945)
Definition:
The number of sewer
flooding incidents that
occur on public open
spaces
Stakeholders:
Remuneration:
OUR ‘BIN THE
WIPE’ CAMPAIGN
In April 2023, we announced our ‘Bin The
Wipe’ initiative in support of a new campaign
led by Water UK. 22% of people in the UK
admit to flushing wet wipes down the toilet.
This is the biggest cause of fatbergs that
block sewage systems.
By joining us on this campaign, our
customers can help us protect the
environment and prevent homes and
businesses being flooded. This work
complements our Get River Positive river
pledge to support legislation to ban wet
wipes that contain plastic and lobby for a
ban on all wet wipes that are not ‘Fine to
Flush’. You can read more on our website
1 See footnote on page 14
Scan or click to read more
SEVERN TRENT PLC
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
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RUNNING A BUSINESS
THAT GOES HAND-IN-HAND
WITH NATURE
Our natural environment
catches, holds, carries, and
helps purify our water. And the
climate drives many of our
critical functions; from the filling
of our reservoirs to the ways in
which our customers use water.
We are delighted that our biodiversity
approach has been recognised
externally, including at the Responsible
Business Awards, where we were the
winners of the Biodiversity Champion
Award. We also won a partnership award
at the Chartered Institute of Ecology and
Environmental Management Awards.
Our environment cannot be taken for granted
and, as such, our Strategy to be ‘performance
driven, sustainability led’ pushes us to deliver
strong performance in balance with the
long-term needs of our environment – not only
because it’s the right thing to do, but because
we see it as a fundamental opportunity to
innovate, grow and create long-term value
for our stakeholders.
This section of our report sets out how our
positive actions will ensure a sustainable
water cycle, enhance the environment,
mitigate climate change and ensure we
are resilient to its impact – in line with our
strategic pillar to run a business that goes
hand-in-hand with nature.
Our Net Zero Transition Plan and Task Force
on Climate-related Financial Disclosures
(‘TCFD’) can be found on pages 39 to 56 and 58
to 61 respectively – and are clearly labelled to
aid readers of this report.
Biodiversity
(number of hectares (‘ha’))1
2022/23
7,728
2021/22
4,696
2020/21
2,632
7,728
(ODI target: 583)
Definition:
The number of
hectares of land with
improved biodiversity
since 2020
Stakeholders:
Remuneration:
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SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
A YEAR ON FROM THE
COMMONWEALTH GAMES
We were proud to be the Official Nature and
Carbon Neutral partner of the Birmingham
2022 Commonwealth Games held in July and
August 2022 – by providing critical
infrastructure to the Games, with 40 water
bar stations, saving almost 500,000 plastic
bottles, and continuing to plant our 2,022
acre legacy forest. This activity supported
the Games’ ambition to be the most
sustainable ever.
Alongside these activities, our people,
customers and communities worked
together to create 72 Tiny Forests, one for
each Commonwealth nation, in urban areas
across our region, delivering a lasting
legacy for the Commonwealth Games and
creating inspiring outdoor classrooms for
children to learn first hand about nature and
the environment for many years to come.
For the Birmingham
2022 Commonwealth
Games Sustainability
Report online
Sustainability
Report
Scan or click to read more
Scan or click to read more
Progress against our
Great Big Nature Boost
In 2020, we announced our Great Big Nature
Boost, one of the biggest nature projects in the UK,
to boost nature across 5,000 hectares of land in
our region by 2027 and to plant 1.3 million trees.
We are proud to have exceeded our biodiversity
target four years early, and in May 2023, we
announced that we will be extending and
accelerating our commitment to improve
biodiversity by doubling our target to 10,000
hectares by 2025. This now means our work will
account for 2% of the nation’s 2042 Nature
Recovery Network target.
Working with the Woodland Trust, we have
planted almost 230,000 trees this year, taking
us over halfway towards our 1.3 million target
by 2030. This is a wonderful example of the
associated benefits of our biodiversity
ambitions, as these trees will also provide
natural protection against the worst effects of
climate change, as well as enriching the natural
environment of the communities we serve.
What is our Great
Big Nature Boost?
Scan or click to read more
WORLD’S FIRST NET
ZERO WASTE WATER
TREATMENT HUB
As part of our investment to develop
the world’s first net zero waste water
treatment hub, working together with
international partners, we were pleased to
be awarded £10 million from the Ofwat
Innovation Fund to deploy innovative new
technologies developed in collaboration
with our global partners. This innovative
and collaborative project will integrate new
technologies and innovations to trial at
scale, providing a carbon neutral blueprint
for all companies within the sector.
Being a net zero sector leader means
we will be able to share our learnings
globally to benefit our sector and our planet.
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
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GET RIVER
POSITIVE
River quality remains a critical priority for our stakeholders.
Our region’s river health is not just essential to the communities
we serve, but also to the success of our business. We are
committed to making a positive impact on the environment
and recognise that, as a sector, there is more we need to do
to help our region’s rivers be the healthiest they can be.
Five industry-leading pledges to make
our region’s rivers the healthiest they
can be, as quickly as possible
We continue to invest £100 million a year
to improve our waste water infrastructure
Severn Trent is currently responsible
for 16% of RNAGS in our region and
this continues to reduce
Storm overflow performance in 2022
already at 2025 target
19 out of a possible 20 EPA stars from
the EA over the last five years
Over £278,000 granted to four regional
community projects benefiting rivers
Our ten full-time River Rangers have
attended over 110 meetings, working with
our partners, environment groups and
the local communities
In March 2022, we announced our commitment
to ‘Get River Positive’; establishing five river
pledges. We provide an update on each of
these pledges on the next page.
Through our significant investment, this year
has seen us deliver significant improvements
in river quality, reducing our share of RNAGS
(Reasons for Not Achieving Good Status) in our
region to 16%. We have reduced the number of
RNAGS that Severn Trent is responsible for
from 960 to 870 this year and we are
committed to driving this down to zero by 2030.
We want our stakeholders to hold us to account
on issues of importance to them and we
published our first Get River Positive Annual
Report this year, which outlines the progress
we have made since the launch of our river
pledges – ensuring that all of our stakeholders
have access to the facts so they can form a
balanced opinion.
Our monitoring is providing us with
300 million data records each year on
how our storm overflows are performing
20
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SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
GET RIVER POSITIVE
VIDEO UPDATE
Scan or click
to read more
PLEDGE ONE
PLEDGE THREE
PLEDGE FIVE
ENSURE STORM OVERFLOWS
AND SEWAGE TREATMENT WORKS
DO NOT HARM RIVERS
SUPPORT OTHERS TO IMPROVE
AND CARE FOR RIVERS
OPEN AND TRANSPARENT
ABOUT OUR PERFORMANCE
AND OUR PLANS
Progress in 2022/23
Progress in 2022/23
Progress in 2022/23
We have delivered significant progress on our
storm overflow performance, reducing storm
overflow activations from an average of 25 to
18 per year. Our share of reasons for rivers in
our region not achieving good ecological status
has fallen from 24% to 16%. While this puts us
well ahead of our plan, we are continuing to
work hard to improve our region’s rivers, both
through our own activity and supporting others
to improve and care for rivers too.
While some of last year’s improvement can be
attributed to 2022’s dry summer, the majority
reflect the significant capital and operational
investments we have made. For example, by
increasing our investment in waste water
treatment screens, which remove debris from
flows into our works, we have been able to
expand storm tank capacity, increasing the
flow through our network. This activity is also
being supported by our new training river at
our Academy. This new experimental asset will
help train more of our teams to respond safely
and effectively to potential pollution events.
We are committed to taking the lead on many
of the issues our region’s rivers face and to
partner with others to make them the
healthiest they can be. Over the last year, we
have delivered a series of community
roadshows, inviting customers to come along
and hear about our Get River Positive plans,
our Green Recovery scheme and the work
we’re doing to create Bathing Rivers in
Warwickshire and Shropshire. To date, we have
delivered eight events, attended by hundreds
of people, with more scheduled in 2023/24.
We have focused on improving the
transparency of our reporting this year and
continue to look at new ways, such as our Get
River Positive Annual Report, to demonstrate
our progress in a transparent way. We have
Event Duration Monitors (‘EDMs’) on 100% of
our storm overflows. These monitors record
data at two or 15 minute intervals, providing us
with over 300 million data records annually
about how our storm overflows are
performing, ensuring we are fulfilling the
permit conditions as defined by the EA.
While we do not own our regions’ rivers, we
recognise that we have an important role to
play in improving river health. Our Community
Fund has supported a number of community
groups and charities that are as passionate as
us about improving our regions’ rivers –
awarding over £278,000 since 2022 to brilliant
projects that will have a positive impact on our
regions’ rivers.
We also launched our new package to promote
regenerative farming practices in May 2022,
with farmers in the Severn Trent region being
offered matched funding of up to £30,000. To
date, the package has supported 84 farmers
across our region, encouraging environmentally
friendly farming practices and protecting
water quality.
In October 2022, we established our Get River
Positive Independent Advisory Panel with the
objective of helping to oversee our progress
against each commitment and ensure we
maximise the benefits our campaigns will
deliver. The Panel meets on a quarterly basis
to support activity around the pledges,
providing advice and recommendations, and
bringing new perspectives as well as feeding
in relevant national plans, programmes and
policies, especially in relation to the wider
environmental agenda.
Scan or click
to read more
GET RIVER POSITIVE
ANNUAL REPORT
MARCH 2023
Our Green Recovery Team has launched an
innovative floating wetland near our Church
Wilne water treatment works in Derbyshire. This
project will help pre-treat the water, whilst also
improving the biodiversity of 46 hectares. Each
floating wetland naturally improves the
surrounding water quality of the site, encourages
habitat regeneration and supports numerous
birds, mammals, invertebrates and aquatic life.
We have created three floating wetlands to date,
with a further 27 set to be launched in 2023/24.
PLEDGE TWO
PLEDGE FOUR
CREATE MORE OPPORTUNITIES
FOR EVERYONE TO ENJOY OUR
REGION’S RIVERS
ENHANCE OUR RIVERS AND CREATE NEW
HABITATS SO WILDLIFE CAN THRIVE
Progress in 2022/23
Progress in 2022/23
We have made significant progress on our
£78 million Bathing Rivers Green Recovery
Programme over the past twelve months. In
2022, we launched our extensive river
monitoring and sampling programmes and
installed 76 water quality monitors on the
rivers Leam and Teme. These monitors are
helping to build the best picture of current
river health and provide the data we need to
develop our forecasting tool for river users. We
have invested in new and upgraded sewer
infrastructure as well as trialling ozone
disinfection technology to ensure that we
continue to clean waste water to the highest
possible standard.
Our dedicated River Ranger Team was
established in January 2022 and since then has
carried out over 3,500 riverside inspections.
These additional sampling and monitoring
activities provide us with further data so we
can better understand the quality of rivers in
our regions and inform any further action that
may be required. Our River Rangers work
closely with local stakeholders to build vital
relationships as we all work towards the goal
of making our region’s rivers the healthiest
they can be. Since January 2022, the Team has
attended over 110 meetings with partners and
environment and community groups on the
subject of river health.
We are also working in partnership with other
stakeholders who impact river health, such as
farmers, through our ‘Test, Protect and
Improve’ programme, with the objective of
educating stakeholders on the impact and
prevention of faecal diseases.
As part of our Community Champions scheme,
every Severn Trent employee can spend two
working days a year doing voluntary work to
further support our Get River Positive
commitments.
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
21
21
STRATEGIC REPORTSTRATEGIC REPORT OUT
C
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CARING FOR PEOPLE
IN OUR REGION
Showing care is one of our
Values and we want that to
shine through whenever we
meet people in our region. We
know that our sector-leading
performance is made possible
thanks to our dedicated people.
The vast majority of our people,
and their friends and families,
are also our customers, who live
in the communities we serve.
This section of our report sets
out how we are taking positive
action to deliver our strategic
pillar to care for people in
our region.
Helping our own people to thrive
Our people are fundamental to taking care of 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 want an environment where everyone
can feel comfortable to bring their whole self to
work. You can read more about how we have
listened to and engaged with our colleagues
on page 89 to 90.
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 total of 16 Lost Time Incidents (‘LTIs’) this
year (2021/22: 19), our best ever performance.
Though 16 of our colleagues getting hurt
while working is still too many, since we
refreshed our strategy in 2018/19, we have
seen consecutive year-on-year improvements,
giving us confidence that our strategy will
continue to drive improvements in our
future performance.
Employee support
We continue to raise awareness of the different
types of support available to employees. Over
the last few years, we have trained over 2,570
of our employees in some form of Mental
Health First Aid, and 36% of our current
workforce have received mental health
training. We now have over 390 active Mental
Health First Aiders and Champions, who wear
a yellow lanyard to be easily identifiable and
available to provide in-the-moment support.
Our series of mental health podcasts have also
kept discussions going and encouraged us
all to keep talking.
We recognise that in-house support may not
be the right answer for everyone, and as such
we continue to promote the support available
via our Employee Assistance Programme
(‘EAP’). This is a service provided by Vita
Health, available 24 hours a day for emotional,
legal or career support. It is also available to
spouses or partners, and any dependants
between the ages of 16 and 25.
We are mindful of the effect that the increasing
cost of living is having on our employees, and
we continue to do everything we can to help
support our people. See our graphic on page
24 for more information. At our annual
leadership event held at Tittesworth Reservoir
22
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
in September, we reminded all of our leaders
and team managers of the extensive range
of free benefits that are available to all
employees. We were delighted to offer two
new all-employee benefits during 2022. The
first, launched in October, was our partnership
with Seniorcare by Lottie, which provides free
support in sourcing care for elderly or disabled
family members.
The second, launched in November, provides
employees with a discount on nursery fees
with Busy Bees nurseries, the UK’s largest
nursery company, where employees can
receive a 10% discount on fees, equating to
a saving of more than £1,000 a year based
on a child in full-time nursery care.
HAWKSLEY PARK
– NEW EXPERIENTIAL
TRAINING ASSETS
In March 2023, the Academy introduced two
new experiential training assets: Hawksley
House and the River Bown. These are a
‘training house’ and ‘training river’ which
represent the assets, customers and
environment we interact with and influence
every day.
Hawksley House enables us to train our
people in a ‘real-life’ environment. We want
learners to increase their curiosity on
detecting leaks, show courage and care
when interacting with customers and take
pride in knowing every potential aspect of
leakage has been investigated and resolved
for our customers.
Training on the River Bown involves a range
of scenarios across water treatment, waste
water recycling and water networks. The
scenarios are based on a range of real-life
experiences with the intention of making
sure learners understand the impact of
their actions, the importance of following
procedures and undertaking problem
solving, all while under the pressure of an
event. The River Bown facility also deepens
employees’ personal connections with the
rivers we protect.
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 we are always looking
for new and different ways for the Board to
engage with employees from across the
business. You can read about how we have
engaged with our employees throughout the
year in our dedicated stakeholder engagement
section entitled ‘Engagement in Action – Our
colleagues’, on pages 89 to 90.
Developing our people
Our Academy opened in February 2021,
supporting 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,
develop and retrain with us in our industry.
During the past year, over 22,700 learners have
passed through its doors and we have hosted 765
learning events generating over 56,000 learning
hours at our Academy. We have delivered over
71,000 hours against our 100,000 free
employability training hours target by face-to-
face and virtual delivery and self serve online
platforms. We have supported 17,900 people in
our community and delivered 583 events.
We recognise that everyone learns in different
ways and that is why the Academy goes beyond
classroom learning, using a combination of the
latest technology, including virtual reality,
simulation and online learning.
As part of our Academy offering, we also
facilitate mentoring and coaching, helping
employees develop or giving them the chance
to help develop others. We remain one of only
three water companies who are fully
accredited as an employer apprenticeship
provider, meaning we can deliver our own
in-house apprenticeship pathways for waste
and water treatment and water networks.
Future Leaders Programme
Our six-month Future Leaders Programme is
designed to help those who do not have line
management experience develop their skills
in a practical way so they can move into their
first manager role within twelve months of
completing the programme. Since its launch in
July 2021, 112 colleagues have completed the
programme, 80 of those having done so this
year, with 38% having already been promoted
to a line management position.
New Manager Induction Pathway
Throughout the year, our wonderful team at
the Academy developed a digital pathway for
new managers, helping to guide them through
their first 100 days. It breaks down all they
need to know into five headings: team; health
safety and wellbeing; systems; performance;
and process. The pathways link together
learning content from across the business so
that new managers have a single point of
reference. The pathway is automatically
assigned to new managers when they start and
is available to all managers regardless of their
tenure with the Company.
Senior Management Development
Having assessed the collective strengths and
development areas of our Senior Management
Team (‘SMT’), we have been hosting a series of
masterclasses as part of our SMT
Development Pathway. These sessions focus
on a range of areas including: regulation;
sustainability; financial management;
coaching; and personal growth and
development. The masterclass approach,
run by SMT members for their peers, has
received positive feedback.
Employee engagement (QUEST)
(score out of 10)
2022/23
2021/22
2020/21
8.4
8.2
8.3
8.4
Top 5% of energy and utility
companies globally
Definition:
Our internal staff
survey
Stakeholders:
Remuneration: N/A
Lost Time Incidents (‘LTIs’)
(per 100,000 hours worked)
2022/23
2021/22
2020/21
0.11
(ABS target: 0.15)
Definition:
The number of
employees unable to
work due to injury or
illness from their job
0.11
0.14
0.16
Stakeholders:
Remuneration:
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
23
STRATEGIC REPORT
CARING FOR PEOPLE IN OUR REGION CONTINUED
Elective Treatment Fund
“I am currently recovering from an
operation where my right hip and
part of my femur were replaced.
After years of hospital visits and
osteopath treatment to address the
rotation problems associated with the
misalignment, I was advised that a hip
replacement and realignment would
be required due to a rapid deterioration
of the joint. The route for treatment
involved a four-year waiting list. I
applied for the elective treatment
fund for private treatment and was
supported by Severn Trent through a
50% contribution to my overall cost of
treatment. Everyone involved was so
supportive throughout, which was a
huge help. I am now pain free and
recovering, so to get this done so
quickly is life changing and will
improve my quality of life and that
of my family no end.”
Benefits include:
– 24/7 Virtual GP Access
– Elective Treatment
Fund
– Physiotherapy
– Musculoskeletal
Rehabilitation
– Eye Tests and Flu
Vaccinations
– Menopause Support
– Second Medical
Opinion Service
– Health and Dental
Cash Plans
Benefits include:
– Employee Assistance
Programme
– Psychotherapy Support
– Mental Health First
Aiders
– Wellbeing Challenges
– Occupational Health
Support
– Elephant Talk Podcasts
– Supportive Guides
– Community
Volunteering Days
Elephant Talk Podcasts
Our Elephant Talk Podcasts have
covered a variety of topics associated
with mental wellbeing, including
recovery, living with someone with
mental ill health and the link
between physical and mental health.
Colleagues have told us how useful
and informative they find these
episodes.
“As an avid podcast listener, this was
brilliant, with fantastic personal
contributions from senior
management. It’s great to know you’re
not alone; there is help and support
available.”
“A really honest and helpful podcast to
help understand signs of mental ill
health and some of the proactive things
we can do to keep well. Thank you.”
P H Y SIC A L
W E L L B EIN G
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SUPPORT FOR
OUR EMPLOYEES
Eldercare Support
My mum had recently been in hospital
after a suspected mini stroke. Mum
lives alone and is assisted with the
support of home adaptations. Mum
had been offered a re-enablement
package, for a set amount of time;
however, I wanted to consider the
possibility of home care support and
care home support after the
re-enablement package had expired.
A big thank you to the team for the
support they have given me and the
speedy advice whenever it was
needed. Without this, I would have
been lost. Many thanks.”
F
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S H O P PIN G
A N D L EIS U R E
Benefits include:
– Severn Trent Money
Hub
– Financial Wellbeing
Webinars
– Pre-retirement Advice
– Will Writing
– Daily Savings Portal
– Life Assurance
– Group Income
Protection
– Eldercare Support
– Sharesave
Benefits include:
– YuLife Wellbeing App
– Holiday Buy/Sell
– Rewarding You –
our flexible benefits
platform
– Daily Savings Portal
– Nursery Discount
– Electric Vehicles
Salary Sacrifice
– Gymflex
YuLife Wellbeing App
YuLife is a great way of driving
wellbeing behaviours while earning
rewards. Whether it’s via steps or
meditation, it’s good for you and you
get rewarded for doing it!
“I’ve really loved the meditation
sessions on YuLife. It’s become part
of my daily routine to the extent that
I actually feel myself relaxing just
opening the app”.
“The other brilliant part of the app
is that I have managed to get three
vouchers to spend on myself by
earning YuCoins for completing daily
challenges, which is a massive benefit
with the current cost of living.”
“I’ve been using the app since it was
launched. I love all the challenges and,
as a keen runner training for the
marathon I use the walking challenges
a lot. I also try to meditate daily and
love how easy it is to access meditation
in the app. My kids often join me in the
morning, and we do a short meditation
which is a nice way to start the day.”
24
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Wonderfully You – providing a diverse
and inclusive place to work
At Severn Trent, we celebrate diversity and
inclusion, and embrace individuals’
contributions, no matter what their age, gender,
race, ethnicity, disability, sexual orientation,
social background, religion or belief. Having
a culture that enables individuals to truly be
themselves is a vital part of our future success.
Our Diversity and Inclusion (‘D&I’) strategy is
included within our Sustainability Framework
under the ‘Helping people to thrive’ pillar. In
September 2021, we launched ‘Wonderfully
You’, our D&I ambition to ensure we continue
to reflect the communities we serve.
Success means we can feel comfortable that
we are tapping into every available talent pool
in our community, and that we can best serve
our customers because we understand their
needs. Our plans to achieve that include
widening our outreach programmes so that
we attract more applications from under-
represented groups, breaking down some of
the historical stereotypes that might prevent
people from considering certain career paths,
and making sure that we have a level playing
field at the selection stage.
Our ambition for inclusion is to develop and
maintain a fair working environment where
everyone can succeed. We measure our
progress through our annual engagement
survey and monitor the parity or disparity
between different ethnicities and genders.
Reverse mentoring and our Employee Advisory
Groups have also helped to give our employees
a voice across the organisation so that we
can educate each other about our differences
and have a say in our company policies
and procedures.
Over the last year, we have continued to
champion the voices of colleagues from
diverse backgrounds, in part through our four
Employee Advisory Groups for LGBTQ+,
Ethnicity, Disability, and Women in STEM and
Operations. You can read more about their
achievements throughout the year on pages
26 to 27.
We are proud of our track record on gender
diversity, and we were delighted that Severn
Trent was recognised as a Top 3 FTSE100
company for representation of women on the
Board in the FTSE Women Leaders Review
2023. Following our announcement that Helen
Miles would succeed James Bowling as CFO
effective 6 July 2023, Severn Trent will become
the first company in the FTSE100 to have a
female Chair, CEO and CFO.
As at 31 March 2023, our Executive Team
comprised three female and six male members
(33% and 67% respectively). 19 members (39%)
of our senior leaders were female and 30 were
male (61%). Female representation in the Group
was 29% (2,290 women), with male
representation at 71% (5,649 men). Five
members of our Board were female (56%) and
four were male (44%). The table below sets out
a gender breakdown of Directors, senior
managers (as defined in the 2018 UK Corporate
Governance Code and Companies Act 2006) and
employees of the Company as at 31 March 2023.
Our November 2022 employee engagement
survey results (8.4) showed that we are still
well ahead of benchmark on both engagement
(+1.0 on global benchmark – putting us in the
top 5% of energy and utilities companies) and
our equality score (9.0) (+1.0 on global
benchmark – putting us in the top 10% of
energy and utilities companies). Females now
score higher than males, at 8.5 compared to
8.4, but we have work to do on minority ethnic
inclusion parity where there is still a gap.
‘WONDERFULLY YOU’ OUR
DIVERSITY AND INCLUSION
STRATEGY
Scan or click to read more
GENDER AND ETHNICITY
PAY GAP REPORT
Scan or click to read more
Gender representation as at 31 March 2023
Male
Female
Directors
Number
4
5
Ethnicity representation as at 31 March 2023
Directors
Number
White British or other White
(including minority-white
groups)
Mixed/Multiple
Ethnic Groups
Asian/Asian British
Black/African/Caribbean/
Black British
Other ethnic group
Not specified/
prefer not to say
7
1
1
-
-
-
Senior Leaders
Graduates and Apprentices
All Employees
Number
30
19
%
61
39
Number
212
51
%
81
19
Number
5,649
2,290
Senior Leaders
Graduates and Apprentices
All Employees
Number
44
%
90
Number
184
%
70
Number
6,450
-
3
-
-
2
-
6
-
-
4
10
35
10
1
21
4
131
13
4
544
151
0.4
32
8
497
%
44
56
%
78
11
11
-
-
-
%
71
29
%
83
2
7
2
0.4
6
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
25
STRATEGIC REPORT CARING FOR PEOPLE IN OUR REGION CONTINUED
DISABILITY
2022/23 Highlights
– Quiet spaces introduced across many
of our most populated sites to benefit
neurodiverse colleagues.
– Neurodiversity Networking Event Hosted
(see case study on the right).
– Neurodiversity Training Course.
– Pan Disability Job Fair with Sense.
– Introduced recruitment ‘super-users’
to ensure candidates who flag that they
have a disability are given appropriate
adjustments through the recruitment
process, producing supportive guides on
a range of topics, including Neurodiversity,
Workplace Adjustment Passports, Being
a Carer and much more.
– Achieved Disability Confident Level Two
in April 2022 and are building a plan to
reach Level Three ‘Disability Leader’
status in 2023.
– Partnership with the Business Disability
Forum, which advises on best practice and
provides an external lens to what we do.
The Disability Advisory Group
has a critical role to play within
Severn Trent. It’s estimated
that 20% of people in the
UK have a disability and
many are unemployed.
We’re looking to build a truly
inclusive culture towards
disability and other health
conditions, removing barriers
to allow every colleague to
fulfil their potential and be
their true, authentic self at
Severn Trent.
Shane Anderson
Director of Strategy and Regulation
NEURODIVERSITY
NETWORKING EVENT
As more and more people become aware
of neurodivergent traits in themselves,
their family, and friends, it’s increasingly
important that we improve our
understanding of neurodiversity, too.
It’s thought that at least 15% of the UK’s
population are neurodivergent.
In 2022, we hosted our first ever
Neurodiversity Networking Event to help
increase the visibility of neurodiversity in
our business and promote a better
understanding of different neurodiverse
conditions. The event was open to all
colleagues as we want everyone to feel
positive, empowered and able to bring
their whole selves to work.
Following the huge success of the event,
led by the Disability Advisory Group, a
neurodiversity training programme was
launched in March 2023, in partnership
with our Academy, and so far over 350
colleagues have attended these sessions.
WOMEN IN STEM AND OPERATIONS
2022/23 Highlights
– Continued to improve our Personal
– Engagement with colleagues to seek
Protective Equipment offer for women in
the business.
– Supported Career Discovery Days for
women to enhance their skills and ‘Mentor
Me’ to utilise the benefits of mentoring to
support technical development and career
growth of women in STEM roles.
– Highlighted topics like menopause,
cervical cancer and endometriosis
through awareness sessions and
educational comms.
WOMEN IN WATER TREATMENT –
SCAN OR CLICK TO READ MORE
feedback on our maternity, paternity and
flexible working policies. Shared
outcomes with our HR policy colleagues to
identify opportunities for improvement,
including introducing new family friendly
policies such as fertility treatment and IVF
support, neonatal care, and emergency
grandparental leave.
– Hosting informative events for
International Women’s Day and
International Women in Engineering Day.
– Introduced ‘The Pathway Podcast’ shining
a light on some of our women colleagues’
career pathways.
– In the FTSE Women Leaders Review, we
ranked 3rd for Women on Boards and 21st
for Senior Leadership.
At Severn Trent, we are
passionate about everybody
bringing their whole selves
to work and particularly
diversity in gender. Through
our Women in STEM and
Ops Advisory Group, we are
absolutely committed to
working together to open up
opportunities and support
our colleagues. We all have
a role to play in encouraging
diversity across our
whole workplace.
Helen Miles
Chief Financial Officer Designate
26
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ETHNICITY
2022/23 Highlights
– New Chair appointed, setting out the
ongoing strategy for the Group.
– Redefined mission statement.
– Focus on Black History Month in October
2022, including interviews with colleagues
across the Group talking all about what
Black History Month means to them and
the business.
– All employees were invited to attend a
Lunch and Learn with the Ethnicity
Advisory Group, discussing ‘Positive
Discrimination’.
– Interviews made available to all
employees on the importance of Black
History Month.
– Broadening our employees’ experience of
different cultures through initiatives such
as expanding the menu choices available
at our canteens.
– Signed Severn Trent up to Race Equality
Matters Race.
– Participated in Race Equality Week.
We are determined to
create a culture where
every colleague trusts
they are equal, respected
and included at Severn
Trent regardless of their
cultural heritage, social
background and beliefs;
and where we don’t get
it right, we are willing
to learn, grow and be
accepting of individual
differences.
James Jesic
Capital and Commercial
Services Director
LGBTQ+
2022/23 Highlights
– Focus on representing Birmingham Pride
and supporting Pride Month across our
sites with activities held at Raynesway,
Pride Park, Shelton, Wrexham and STC.
– We have seen solid and sustainable
progress in our Stonewall ranking, from
414th in 2018 to 23rd this year, which is an
amazing result and means we are now a
top 25 employer.
– Continuation of work with Stonewall to
help Severn Trent become a truly
LGBTQ+ inclusive place to work.
We are pleased to have been
recognised externally in several
indices for the progress that
we have made:
2023 BLOOMBERG
GENDER-EQUALITY INDEX
74%
Ranked 14th on Equality in the Tortoise
Responsibility100 Index
STONEWALL WORKPLACE
EQUALITY INDEX
23rd
(up from 40th in 2022) – highest ranking
water company and utility company
2022/23
23rd
2021/22
40th
2020/21
175th
SOCIAL MOBILITY
EMPLOYER INDEX
5th
Ranked 5th in the
Social Mobility Employer Index
We’re here to let all our LGBTQ+ colleagues and communities
know they’re not alone. We believe we’re stronger united and
want to create real change for the better. We want to be the
most LGBTQ+ diverse and inclusive business, and create a
proud and inclusive culture for our employees, customers
and community.
2022/23
2021/22
2020/21
5th
5th
8th
James Bowling
Chief Financial Officer
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
27
STRATEGIC REPORT
CARING FOR PEOPLE IN OUR REGION CONTINUED
APPRENTICESHIPS
Scan or click to
read more
Applications opened in 2023 for our biggest
ever intake of 210 apprentices, with roles
available right across our region, ranging from
level two (equivalent to GCSEs) to level seven
(equivalent to a degree) apprenticeships
available in Operations, Commercial, HR,
Customer Service, Business Administration
and Engineering.
Once our apprentices have successfully
passed the programme, they’re guaranteed
a permanent role with us. Jade Pearson, our
New Talent Lead, said: “We’re really proud of
the continual growth of our apprenticeship
programme, creating opportunities for people
in our communities to gain the skills and
knowledge that will lead them into a
meaningful career and helping us deliver the
best service and outcome for our customers
and the environment”.
Since 2014, over 590 apprentices have joined
us at Severn Trent and 82% of these individuals
are still with us.
Our #10000BlackInterns programme was a
huge success last year, with 61 placements
and 44% of those gaining employment
following their placement with us.
In 2021, we announced that we had 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. We
are delighted that over 340 individuals chose to
join us, 106 of which went on to gain full time
employment with us. Of those 106 individuals,
69% are still with us at Severn Trent.
CIPD AWARDS
We are proud to have been recognised for
our work by winning last year’s CIPD
People Management Awards for ‘Best
Employee Experience’, which included
entrants from a range of high-profile
organisations in the UK. We are also
pleased to benchmark highly in the Tortoise
Responsibility100 Index across of range of
employee-focused measures, ranking first
in the ‘Good Business’ measures.
Fairly rewarding our people
We have been working hard to create a
consistent framework which includes
transparent pay ranges to support us in
measuring our fair pay processes.
In November 2022, we published our Gender and
Ethnicity Pay Gap Report, highlighting a slight
increase in the median gender pay gap between
women and men, the first increase since we
began publishing our report. The report shows a
median pay gap of 9.4%, up from 9.1% in 2021/22,
as it continues to be positively impacted by a high
proportion of women within our management
and senior management roles.
At the same time, there has been a decrease
in the mean gender pay gap from 3.8% to 2.9%,
mainly due to small changes within our
executive population. Severn Trent is proud
to have such strong female representation
throughout our Senior Management Team. We
believe we have created an environment where
women can thrive, develop their careers and
act as role models to others looking to join
the industry.
Our total number of employees grew by 3.6%,
with the number of women growing by 3.7%, and
men by 3.5%. As the fastest growing quartiles
were upper quartile for women, and the upper
middle quartile for men; this also contributed to
the lower mean gender pay gap this year.
After five years of publishing our gender pay gap
data, we are delighted to have published our
very first combined Gender and Ethnicity Pay
Gap Report in November 2022. Our ethnicity pay
gap information sets out that our median gap is
4.1% and our mean gap is 5.7%. Around 94% of
our employees have shared their ethnicity
information and we continue to actively
encourage all employees to share their data.
The full Gender and Ethnicity Pay Gap Report
can be found on the Severn Trent Plc website
and further information regarding employee
pay can be found in our Directors’
Remuneration Report on pages 141 to 163.
All of our employees have the opportunity to
become part-owners of the Company through
our popular Sharesave Scheme and an
amazing 73.4% (5,710 employees) participate
across all schemes, with 26.1% of participants
saving the maximum of £500 per month
across all schemes.
Remuneration: 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 Executive and
senior management, is transparent in a way
that is meaningful and useful for
stakeholders. You can read more on pages
141 to 163.
Attracting and retaining diverse
talent
An inclusive environment is the foundation of a
truly diverse organisation, with all of the
rewards that brings. Our successful in-house
recruitment model has proven beneficial,
enabling us to continue to attract and retain
quality talent. Our team of in-house recruiters
is able to work directly with candidates,
demonstrating our Purpose and culture first
hand and attracting individuals who embody
our Values. It has also ensured that our D&I
ambitions remain a priority.
Long term, one of our greatest opportunities to
improve diversity is through our New Talent
Programmes. While not all of our graduates
and apprentices come straight from school, our
work in schools and colleges is helping to
improve the diversity of our intakes. 24.5% of
our apprenticeship intake for 2022 were
individuals from an ethnic minority background,
almost double that of our last intake.
WELCOME TO OUR
2022 EMPLOYABILITY
INTERNS!
We are thrilled to have welcomed five new
interns in September from Hereward
College and Derwen College, to gain work
experience and help develop their
employability skills, whilst they complete
their studies at college. These important
partnerships enable us to support students
with Special Educational Needs and
Disabilities, and make a huge difference to
students’ futures. Around 16% of the
working age population have a disability
and the proportion of adults with a learning
disability in paid employment has
decreased over time, from 6.0% in 2014/15
to a low of 5.1% in 2020/21.
28
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
A FORCE
FOR GOOD
FOR CUSTOMERS
To be truly impactful in our
communities, we need to help
more of our customers who
need support today.
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. Even though our bills
are low, some customers have difficulty paying
and we make it clear to our customers that we
don’t want anyone to struggle to pay.
In May 2022, we announced a new £30 million
affordability package allowing us to help a
further 100,000 people to reduce their water
bill by up to 90% through our social tariff. In
August 2022 we simplifying the qualifying
criteria and raised the household income
threshold from £16,480 to £18,278. By 2025,
our financial support schemes will be
supporting about 315,000 or 6% of our
customers, in line with the number of
customers assessed as living in water poverty
in our region. We are on track to support an
additional 315,000 customers with 237,069
customers benefiting from support on their
bills already.
The graphic on page 30 brings to life the
many support initiatives we have in place for
our customers and wider communities.
2022 ESG INITIATIVE OF THE
YEAR’ – CHARTERED
GOVERNANCE INSTITUTE
SUPPORTING
VULNERABLE
CUSTOMERS
We now have more than 7.7% of our
customers signed up to our Priority
Services Register (‘PSR’), an increase of
35% on the prior year. Our PSR ensures
those who need additional support are
prioritised during an incident so we can
provide them with bespoke communication
and a personalised service.
Engaging hard-to-reach,
vulnerable customers
We continue to use innovation to support our
customers who are struggling. We have been
working with the Consumer Council for Water
and three other companies on the Ofwat
Innovation Fund project ‘Supporting customers
in vulnerable circumstances’. The pilot used
behavioural science to improve engagement
and, in December 2022, we launched the
‘Engaging hard-to-reach, vulnerable
customers’ playbook to the sector, setting
out our learnings. This is aimed at those
who might not have the language or capabilities
to contact us in a time of crisis when they
need support.
Scan or click to
read more
Help to Pay When You Need It
(% of customers)1
2022/23
2021/22
2020/21
52%
(ODI target: 42%)
Definition:
Percentage of our
customers who need
our support that are
part of one of our
affordability schemes
52
48
35
Stakeholders:
Remuneration: N/A
We are improving accessibility
We are focused on being there for our
customers – 24 hours a day, seven days a week
– through whatever channel they choose.
Throughout the year, we have continued to
improve our online platform to ensure our
digital offer continues to meet our customers’
changing needs and provide the best
experience possible for them. Earlier in the
year, we introduced the capability to allow our
customers to switch to a meter via our website
and, since October 2022, over 10,000
customers have used this service.
We have continued our focus on improving the
content and the design of our website to make
the customer journey smoother.
Read more: How we engage with our
customers on page 88.
Care Leavers Scheme
Our new Care Leavers Scheme helps young
adults leaving the care system by putting
them directly onto our social tariff for the first
twelve months. We currently offer the Scheme
in eight Local Authorities, and are actively
working to extend it to all Local Authorities
in our region. Our ambition is to broaden
the support we offer to this group beyond
financial support, including offering
employability training.
Value for money
(% score)1
2022/23
2021/22
2020/21
64%
(ODI target: 63.5%)
Definition:
Our customers’ view
of value for money,
measured by a
quarterly survey
64
65
67
Stakeholders:
Remuneration: N/A
Priority Services Register (‘PSR’)
(% of customers)1
2022/23
2021/22
7.7
5.7
2020/21
2.6
7.7%
(ODI target:7.3%)
Definition:
Percentage of our
customers that
require bespoke
support during
incidents that are
signed up to our PSR
Stakeholders:
Remuneration: N/A
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
29
STRATEGIC REPORT
CARING FOR PEOPLE IN OUR REGION CONTINUED
SUPPORT FOR OUR CUSTOMERS
AND COMMUNITIES
Scan or click to
read more
INVESTMENT
AND JOB CREATION
– Real Living Wage for Severn
Trent and supply chain staff
– Green Recovery targeted on
deprived areas
– Over 3,000 Green Recovery jobs
SUPPORTING OUR
COMMUNITIES
– Over £2 million donated through
our Community Fund this year
116
projects supported through our
Community Fund this year
NATIONAL
SUPPORT SCHEMES
– WaterDirect
– WaterSure
– Free meter switching
– Auto-enrolment during
COVID-19
– Water efficiency checks
– Priority Services Register
DIRECT SUPPORT
FOR CUSTOMERS
– Big Difference Scheme
– Free repairs of burst private
pipes for vulnerable customers
– Payment plan concessions
– Payment breaks
– Matching plus arrears support
– New customer journeys for late
payers
– Care Leavers Scheme
132,296
customers
helped this year through our
Big Difference Scheme
WORKING
WITH PARTNERS
– Proactively identifying
customers in need with local
authorities
– Proactively identifying
customers in need with the
Department for Work and
Pensions
– Visiting foodbanks, community
centres and outreach centres
– Bringing together agencies
– Working with Kidney Care UK
– Household Support Fund
SOCIETAL STRATEGY,
TRAINING AND EDUCATION
– 340 Kickstarters since launch
– Pop-up hubs
– Hawksley Park Academy
– Work experience in socially-
deprived areas
– 263 apprentices and graduates
this year
– 61 #10000BlackInterns
placements over the summer
– Lessons in 140 schools
30
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
CREATING OPPORTUNITIES
IN OUR COMMUNITIES
Improving employability
We care deeply about our communities and
as a large employer we have a key role to
play in skills regeneration in our region. We
are now just over a year into our two-year
commitment of offering 100,000 hours of free
employability support in our communities.
Providing a variety of entry routes into our
organisation is an important part of our
employability strategy. For example, our New
Talent Programmes provide an opportunity
and structure for individuals at the start of
their career or who wish to change career to
gain skills for life that will lead them into a
highly skilled, well-paid career. This year we
have created our largest and most diverse
range of programmes, including 210
apprenticeships and 53 graduate roles. This is
reflected in the range of individuals that apply
for our programmes, including our highest
number of under 18s, a broader range of
mature apprentices, and internal colleagues
who wish to pursue a different career.
We recognise the importance of reflecting the
communities we serve and we are really
encouraged to see that 33% of our new talent
has joined us from social mobility cold spots
this year.
We know the main causes of water poverty are
unemployment and low-paid work, both of
which can be prevented through meaningful
work experience. Equipping young people with
work experience reduces the likelihood of a
young person becoming NEET (‘Not in
Education, Employment, or Training’) from
26.1% to 4.3%. This is why it is important for
us, as a large socially purposeful employer, to
continue to create and broaden the types of
work experience placements we offer. We have
revamped our employability offer from school
age through to university. Our overarching
ambition is that as students get closer to the
job market, we transition them through from
inspiration to attraction onto one of our new
talent programmes, building a pipeline of
diverse talent now and for the future.
To date we have delivered
just over:
of training and
40,000
hours
20,000
hours
of employment experience.
A YEAR OF RIVER
RANGERS
Our team of River Rangers celebrated their
first anniversary in their role, dedicated to
protecting rivers in Coventry and
Warwickshire.
The team of ten rangers covers the Severn
Trent region and works closely with
partners to focus on improving river health
and boosting biodiversity along stretches
of the Midlands’ rivers.
As well as educating customers to prevent
wipes and sanitary products from reaching
rivers, the team carries out vital operational,
monitoring and sampling activities that
inform our understanding of the contributors
to river quality and what’s needed to protect
and improve them.
In addition to our River Ranger Team, we
launched our Get River Positive river
pledges in March 2022 to provide a clear
and actionable response to calls for a
revival of rivers in England.
We have committed that, by 2030, our
operations will not be the reason for any
stretch of river in our region to be
classified as unhealthy. Severn Trent is
currently responsible for 16% of reasons
for rivers in our region not achieving good
ecological status. We are working in
partnership with the other parties
contributing to the 84% to address this
important issue.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
31
STRATEGIC REPORT CARING FOR PEOPLE IN OUR REGION CONTINUED
OUR SOCIETAL STRATEGY
On 22 November 2022, we launched our Societal Strategy, with the
objective of helping up to 100,000 people in our region, giving them
improved chances in life and tackling the underlying causes of
poverty. Our ten-year plan is a huge undertaking, and we are
passionate about helping households across our region and will
achieve this by working closely with communities and partner
organisations.
Our Societal Strategy will see us: working with
schools to provide 300 work experience
placements for children and delivering 10,000
hours of free skills training and employability
training in the first year in communities and
schools to support individuals into their first
job, or back in to work; and embedding
ourselves directly within communities through
pop-up learning and support hubs, which will
take over unused retail spaces and community
hubs. Our Societal Strategy is supported by a
network of local partnerships in areas with
high deprivation.
SOCIETAL STRATEGY AMBITION:
By 2032, we want to give 100,000
people in, or at risk of, poverty the
tools to improve their life chances,
through access to high-quality
employment-related training and
career opportunities.
MEANINGFUL
WORK EXPERIENCE
We increased the number of placements to
300 and developed new work experience
opportunities. Young people can choose
between a traditional work experience
week or to join a Discovery Day. Run at our
Academy or Head Office, Discovery Days
allow school groups to come and meet a
range of departments and take part in
workshops and group projects. Working
with new partner schools in East
Birmingham and Derby, meaningful work
experience further consolidates and brings
to life the employability skills training that
the pupils receive in schools as part of our
new schools offer.
EMPLOYABILITY
TRAINING IN
SCHOOLS
We developed a new bespoke schools offer
and set up new partnerships with eight
secondary schools in East Birmingham
and three in Derby.
We go into large, inner city schools and
take over a year group for a day to deliver
employability skills and training sessions
to hundreds of young people. The multi-
year partnerships mean we will be able to
interact with pupils at different stages of
their school career.
ACADEMY POP-UPS
We are working with community groups in
East Birmingham and Derby to ‘pop-up’
with our free employability skills training.
We run training sessions for people out of
work or looking for a change; supporting
people to grow their confidence and
explore career opportunities.
We link the training sessions with access
to advice on available affordability support
and, in Derby, current open roles at Severn
Trent.
MENTORING
YOUNG PEOPLE
IN PRISON
In parallel with our place-based approach
in East Birmingham and Derby, we are
working with a specific group of young
people not in NEET.
In partnership with charity Trailblazers,
Severn Trent staff will mentor young
people weekly for their last six months in
prison and up to twelve months post-
release in the community. This work
complements our existing work with
NEETs, such as our apprentice and
internship offer.
32
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
COMMUNITY FUND
In our 2020-25 business plan, we pledged to create a new Severn
Trent Community Fund that donates 1% of Severn Trent Water’s
annual profits after tax (more than £10 million over five years) to
good causes in our region.
£2m
1m
In 2022/23, the Fund has awarded over £2 million,
benefitting over 1 million Severn Trent customers.
682
£7.6m
Since the Fund’s inception, a total of 682 organisations
have received over £7.6 million
SEVERN TRENT
COMMUNITY FUND
Annual Review
2022/23
Scan or click to
read more
SUPPORTING OUR SUPPLIERS
TO BE THE BEST THEY CAN BE
We believe that businesses with a strong social
purpose can deliver better and more
sustainable outcomes for all stakeholders
over the long term. Valued partnerships and
collaboration with our supply chain are an
essential part of this, and we want everyone
to support us in taking care of our customers,
communities, colleagues and the environment
around us.
Fair pay and working conditions
We are proud to be an accredited Living Wage
Employer. We also contractually require
suppliers to sign up to the real Living Wage.
We are signatories of the Prompt Payment
Code and are committed to paying suppliers on
time and giving clear guidance on payment
terms. We aim to pay 95% of our small
suppliers within 30 days, in line with the
Prompt Payment Code. For the payment
practices reporting period ended 31 March
2023, the average time to pay for Severn Trent
Water Limited was 31 days.
Suppliers: Read more about our
engagement with our suppliers on
page 93
OUR COMMITMENT
TO SUSTAINABLE
PROCUREMENT
In May 2023, we published our first
Sustainable Procurement Statement
setting out our formal commitment to
embedding sustainability through
procurement and supplier management,
outlining our commitments, priorities,
drivers and enablers, and our ambitions
for the year ahead.
OUR COMMITMENT
TO SUSTAINABLE
PROCUREMENT
The first English (Severn Trent Water)
and Welsh (Hafren Dyfrdwy) regulated
water companies to be awarded the
CIPS Procurement
Excellence Standard
Accreditation
Scan or click to
read more
SEVERN TRENT - SUSTAINABLE PROCUREMENT POLICY | 1
CDP
Supplier Engagement Leader for 2022
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
33
STRATEGIC REPORT OUT
C
O
M
E
S
E
R
A TU
N
E
A N G
H
C
P
E
O
P
L
E
A DRIVER OF
POSITIVE CHANGE
The world we operate in and the
needs of our customers and
society continuously change.
We seek to embrace the
challenges and opportunities
this presents, not only driving
change in what we do, but also
acting as a catalyst in our sector,
our region and within the homes
of the people we serve.
This section of our report sets out how we
are taking action to deliver our strategic
pillar to be a driver of positive change,
setting out our progress against our
Green Recovery Programme.
HOW WE ARE DRIVING POSITIVE CHANGE:
CUSTOMER
DEMAND
– Page 16
NET ZERO HUB
CASE STUDY
– Page 19
DIVERSITY AND
INCLUSION
– Page 10
GET RIVER
POSITIVE
– Pages 20 to 21
SOCIETAL
STRATEGY
– Page 32
BIN THE WIPE
CAMPAIGN
– Page 17
34
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
GREEN RECOVERY PROGRAMME
PROGRESS UPDATE
In July 2021, Ofwat approved our
proposal to invest £566 million (2017/18
prices) in our ambitious Green Recovery
programme, providing a great
opportunity to support our sustainability
ambitions. Two years on, our Green
Recovery projects are progressing well.
As well as delivering fantastic benefits
for customers and the environment, this
activity is also informing our future
plans – particularly on scale deployment
of innovative schemes, which are being
shared with the wider sector.
GREEN RECOVERY REPORT
Our dedicated Green
Recovery Report will be
available on our website
stwater.co.uk/regulatory-
library in July 2023.
Scan or click to
read more
1. BATHING RIVERS
Our Goal
Install ozone effluent disinfection at three sewage
treatment works, and build new storage and sewer
capacity to reduce the environmental impact of around
25 storm overflows in order to:
– improve the water quality on stretches of the River
Leam and River Teme;
– pass on what we learn to other organisations as part
of our efforts to understand what it takes to achieve,
and to ensure the UK’s rivers can achieve, ‘good
ecological status’; and
– create more leisure opportunities and improve
wellbeing, and deliver environmental benefits,
which includes enhanced biodiversity and healthier
aquatic life.
We will also develop new ways of communicating with
river users so that they understand river water quality
in real time.
Our progress
We have installed 76 monitors along the River Leam
and Teme, providing an accurate and detailed picture of
wider river health. Alongside this activity, we have
engaged with more than 180 community stakeholders,
held four focus groups, delivered two roadshows and
published two bathing rivers newsletters.
We’re working on establishing our UK-first ozone
treatment processes at three of our waste water
treatment works. Ozone is a proven technology in
drinking water treatment, helping remove micro-
pollutants; pesticides, and breaking down heavy metals
such as iron.
To understand the best mix of solutions, we’ve also
revived the drainage catchments. This helps us identify
what combination of sewer separation, sustainable
draining, network capacity and tank storage will give
the best outcome in the round for river health.
Bathing Rivers Virtual Room
We launched our Bathing Rivers Virtual Room. This is a
page for the public to get project information and activity
updates. Since launch, it has had over 1,200 views.
https://creatingbathingrivers.co.uk/
2. SECURING OUR WATER
3. OUR GREENER, CLEANER
FUTURE FOR MANSFIELD
Our Goal
Our Goal
Increase water supplies by up to 93 Ml/d – enough to
serve a city the size of Derby. We’ll do this with a
reduced carbon impact, and let other companies
know how we’re doing it, supporting the water
sector’s aim to be net zero by 2030.
All this extra water supply will increase our
resilience to hotter, drier summers and wetter
winters, securing water resources for future
generations. Plus, our work will increase the
biodiversity of 46 hectares of habitat at our Witches
Oak site.
Our progress
We have made brilliant progress on several key
elements linked to securing water supplies for our
customers in a carbon efficient way.
Floating wetlands
The floating wetlands are a series of structures that are
pre-assembled on the shoreline and floated out onto
specific positions within each lake. These are planted
with specialised media and high root density plants,
designed to capture and biologically remove key
pollutants found within the river. They have strong yet
dynamic anchoring systems, allowing them to have
long life spans while withstanding the rigours of a high
water table site.
The first three of our floating wetlands were installed
and floated in December 2022. We have been using
these as a trial before launching the remaining 27
structures during 2023.
Pilot plant
During the year we have constructed our pilot plant
using innovative ceramic membrane. One of the key
purposes of the pilot plant is to optimise the
operation of the works in real time, including
chemical optimisation so that we can operate the
new Witches Oak site in the most low-carbon way.
This will also enable us to test the limits of the
system prior to the mains works putting water into
supply from the new treatment works.
Witches Oak water treatment works
Our construction of the new Witches Oak water
treatment works is well underway. Planning
permission has been granted, and the site has been set
up. The piling and pouring of concrete for the ceramic
membrane has started and is progressing well.
Ceramic membranes have a smaller construction
footprint than using multiple stages of conventional
treatment. The pore size means that they are a crypto
barrier and enable ultraviolet technology to be used for
disinfection rather than conventional contact tanks.
They are more robust and therefore have a longer asset
life than conventional polymeric membranes, which
reduces the long-term carbon impact.
Non-household audits
We are carrying out audits of 3,000 of our non-
household customers to help business users
understand how and where they are using water
and make changes to improve water efficiency. This
should reduce the amount of additional water that
needs to be put into the network. We have completed
522 audits with an estimated saving of 0.137 Ml/d.
Create the UK’s first catchment-scale flood-resilient
community, using an innovative nature-based
approach to reduce surface flooding risk. The trial
is centred around the Mansfield district of
Nottinghamshire, where we aim to store the
equivalent of 58,000m3 of surface water in
‘blue-green’ infrastructure – a range of natural
surface-flood defences, such as rain gardens,
detention basins, grassed bioswales and permeable
paving. This also reduces the broader harm flooding
brings to communities and creates a more pleasant
natural environment for local communities to enjoy.
The project will provide the additional benefit of
reducing the volume and frequency of activations
from the storm overflows within the town’s
sewerage network.
Our progress
SuDS are Sustainable Drainage Systems, and we’re
putting thousands of them across Mansfield. They
work like giant sponges, providing additional storage
capacity and slowing surface water down – helping
our drains and sewers to cope.
SuDS combine some of the latest water drainage
technology with mother nature, helping to reduce
flood risk, cutting pollution and bringing more plant
and animal species into the places where we live.
Working with Mansfield District Council and
Nottinghamshire County Council, this is the largest
project of its kind ever to be attempted in the country.
Rain gardens
The first verge rain gardens have been completed at
Court House and Patterson Place. These capture
rainwater to support plant life and give an estimated
34m3 of ‘storage’ which prevents rain water from
entering the sewers.
Permeable paving
Permeable paving allows rainwater to soak through
to the water table rather than running into sewers.
The first sites have been installed in Ravensdale
Avenue, Patterson Place and Sandy Lane, delivering
an estimated 203m3 of ‘storage’.
These interventions are the first of many. We’ve
developed a digital site selection tool to ensure the
areas we’ve identified are suitable for the solutions
we’re proposing. We’ve already been through desktop
concept work and have started the design of
solutions for over 50% of the volume we’re aiming
to deliver.
Basins, planters and swales
We have identified locations of open public space that
could be suitable for detention basins, to deliver an
anticipated 20% of the required volumes on individual
large sites. Detention basins are constructed planted
depressions that can receive a large volume of surface
water and store it in a natural way that complements
the landscape. We are maximising the opportunity to
use detention basins and bioswales, to provide the most
cost-effective interventions and also transform existing
underused green space to deliver community and
biodiversity benefits.
Collaborative working
We are collaborating with the University of Sheffield
to provide independent monitoring and evaluation of
the programme. Our partnership will help monitor
each scheme, and develop testing processes to
assess future SuDS projects across the UK
and globally.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
35
STRATEGIC REPORT A DRIVER OF POSITIVE CHANGE CONTINUED
4. PROTECTING CUSTOMER
SUPPLY PIPES
5. A SMARTER WAY
TO USE WATER
6. IMPROVING OUR
REGION’S RIVERS
Our Goal
Support environmental improvements to 500 km of rivers,
by fulfilling our Water Framework Directive statutory
obligations more quickly and accelerating improvements
to storm overflows. We’ll do this by taking the rivers to
improved quality status in collaboration with the EA by
lowering the amount of phosphorus in the rivers. In
particular, we’ll see aquatic wildlife thrive.
Undertake Storm Overflow Assessments (‘SOAFs’)
to prioritise investment solutions in the future.
Our Goal
Our Goal
Our progress
Replace up to a maximum of 26,000 customer supply
pipes that are made of lead or leaking in Coventry and
Bomere Heath, reducing leaks by around a million litres
a day, as around 25% of leaks come from customer-
owned pipes.
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 pipe,
and up to half of all pipes could contain lead.
Bomere Heath is an area where removing the lead
pipes also means that we can eliminate the need to
chemically dose the water, reducing the carbon
impact of mining and transporting those chemicals.
Our progress
We want to maximise coverage and at the same time
bring wider economic benefits to local businesses
through this programme, and are therefore working
in partnership with other companies to help deliver
installations. We are focused on finding companies
with the right mix of skills to complete highways,
external and internal plumbing work. To meet this
challenge, we designed multiple delivery models so
contractors could sign up in the way that suited their
capabilities. This also gives customers the
opportunity to choose between getting a grant for
their own plumber to do the work or having us (or our
contractors) complete the job for them.
This innovative approach to working with third
parties, instead of a traditional framework contract,
means we can be more flexible in getting more
resource working on the scheme to deliver positive
customer outcomes.
Our programme has made good progress since last
year and has delivered 1,522 supply pipe
replacements to date.
Our Bomere Heath programme is now underway, and
we have issued tenders for contractors to support us
with this roll-out. We aim to begin phosphate
disengagement trial works here in April 2023. We
have had a fantastic response from the customers
in the area, with more than 380 signed up by
31 March 2023.
Technology
We have also been trialling and researching some
fantastic new technology, including sounding
technology which is allowing us to accurately identify
the material and location of supply pipes without
digging. We are very excited about the opportunities
these bring for future asset programmes.
Roll out over 157,000 smart water meters to individual
household properties and give customers instant access
to their usage information to:
– raise awareness of water efficiency, making
customers more conscious of the environmental
impact of their usage and of unchecked leaks;
– help customers save water and also save money on
their water bills;
– target high users during periods of high demand,
reducing interruptions for all customers;
– improve our data capture, giving us a better
understanding of our water balance; and
– reduce the need for future investment in water
resources – a UK Government objective.
Our progress
We have accelerated our meter installation programme to
contract early and obtain meters at a lower cost. We’re on
track to complete our meter deployment ahead of
schedule. Working with our Network partner Connex in
phase one of the communication network roll-out focused
on Coventry. During phase one we’ve installed 270
gateways. The network now covers over 55% of household
properties within our smart metering trial areas. So far,
we’ve installed 71,089 smart meters in Coventry and have
32% of meters online transmitting data every day.
The data this metering is providing is proving hugely
valuable. Being able to understand usage across the time
of day can influence our resilience planning for extreme
weather events, such as hot weather and potential freeze
thaw events.
Leakage savings
Our leakage and per capita consumption (‘PCC’) savings
have been in excess of what we predicted at the start of the
programme. Savings are mainly gained by identifying the
waste of water more than three times quicker than it
would with a non-smart meter.
We have also had great success identifying voids, with
32% of properties with a meter brought back into charge.
This is also supporting our leakage activity.
My Smart Tracker
In September, we launched our ‘My Smart Tracker’ online
service. Since then, we’ve enrolled 20,540 customers onto
the platform and this continues to grow as we bring more
meters online. We’ve been pleased with the uptake and
over 4,400 unique customers have interacted with this
new journey online. As well as giving customers views
of their hourly usage, it provides comparisons with
neighbours’ usage, graphics to show average use of
appliances and water saving tips.
We are progressing ahead of schedule and aim to have
more sites completed this AMP than originally forecast,
which means earlier delivery of the Water Framework
Directive obligations.
In order to remove phosphorus from the discharges, we
are creating more chemical dosing systems and
reedbeds, and installing mechanical filters to remove
solids at the front end of the treatment process.
The first seven projects are in construction phase with the
remainder of the programme on track. This will deliver
the majority of our 2025 obligations and will have a
significant benefit on the watercourse which those works
discharge into.
We have also completed 130 Stage 1 SOAFs to inform our
AMP8 investment planning.
Improving CSOs
We’ve already assessed and identified opportunities for
improvement at more than 100 CSOs. Our aim is to find
those locations, where we can, through tactical asset
improvements, rapidly lower the number of storm
overflow activations. We already have 18 projects
underway as a result and hope these will be in place as
soon as summer 2023. Concurrently, we are developing a
bespoke delivery model, utilising internal teams to give us
a fast, nimble, flexible approach.
We are building a storm event generator at our Spernal
test facility so we can trial different CSO treatment
technologies. These allow us to treat storm overflow
activations to reduce the impact on rivers. So in an
emergency, if we can’t stop the activation, we can treat it.
Reactive reedbeds
The ARMphos reactive media reedbed we are installing
at two sites in this programme is a chemical-free,
nature-based solution. It passively removes phosphorous,
by absorbing it on to its media with no need for coagulant
dosing. As it is gravity-fed, there are very few moving
parts, and it blends in with natural surroundings while
providing a habitat for wild species. We have run
small-scale benchtop trials in the lab and at our testbed in
Spernal to inform full-scale build and installation. Our first
full project is beginning construction later this year and
will go into operation at Dalbury Lees. Our second project
– at Hungerton – is already in design.
Looking ahead, we are working with our core business
programmes to find new sites for ARMphos across AMP7
and AMP8 and it will form a key part of our rural waste
water treatment strategy moving forwards.
36
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
BUSINESS SERVICES PERFORMANCE REVIEW
Business Services operates a UK-based portfolio that
complements the Group’s core competencies and is well
positioned to capitalise on market opportunities in three areas:
Operating Services, Property Development and Green Power.
Operating Services
Operating Services provides a variety of
operational water and waste water services
to private clients across the UK. The main
customers are the Ministry of Defence (‘MoD’),
The Coal Authority (‘TCA’), a variety of clients
requiring legionella monitoring and internal
water treatment services (including several
large facilities-management companies,
universities and government departments),
regulated water companies and New
Appointments and Variations (‘NAV’). We
also have a reports-based service which
produces water and drainage search
reports for conveyancing solicitors with
clients that are buying both domestic and
commercial properties.
This year, Operating Services’ businesses
generated £98.5 million revenue (12% year on
year improvement) and £25.9 million PBIT
(23% year-on-year improvement), despite the
property search business being impacted by a
slow down in the property market.
In addition, all businesses produced
year-on-year improvements in their key
operational metrics.
The MoD contract achieved its best ever Net
Promoter Score (a top quartile score in the
UK), the lowest ever number of blockages and
floodings, leakage and its lowest ever number
of water supply interruptions.
Additionally, TCA achieved its best ever
customer services scores, with KPIs scoring
above 99% during the year.
We were delighted that Aqualytix, the
Legionella monitoring and water treatment
business within the Group, delivered £1 million
PBIT per annum for the first time, reflecting its
fourth successive year of growth.
The newly created Oren Environmental, our
reedbed refurbishment and natural capital
solution business, continues to win work and
is on track to make a profit in 2023/24.
Severn Trent Searches maintained its
world-class Net Promoter Scores of +90,
despite the challenging financial environment.
Operating Services EBITDA
2022/23
2021/22
2020/21
£28.1m
£22.5m
£22.9m
Property Development EBITDA
2022/23
£2.0m
2021/22
£13.2m
2020/21
£2.3m
Green Power EBITDA
2022/23
£35.7m
2021/22
£17.5m
2020/21
£14.1m
£98.5m
revenue (12% year-on-year
improvement) and £25.9m PBIT,
(23% improvement) in
Operating Services
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
37
STRATEGIC REPORT BUSINESS SERVICES PERFORMANCE REVIEW CONTINUED
Property Development
Innovation has enabled us to reduce our
operational footprint, freeing up land that we
no longer need for new homes and businesses
in our region. In 2017 we announced a ten-year,
£100 million property PBIT target and,
following our strong performance to date, in
November 2022 we announced the increase
of our property PBIT guidance by a further
£50 million, with planned PBIT from sales of
surplus land now £150 million between 2017
and 2032.
Currently, we are actively promoting over
1,282 acres of land for redevelopment, having
previously enabled the creation of 1,650 new
homes and over 2,000 new jobs over the past
six years. For example, our planning
application submitted last year at Hayden
seeks to deliver 1,100 new homes on a site to
the west of Cheltenham, delivering a mix of
high-quality, well-designed sustainable
housing to meet local and regional needs.
Alongside this, the application includes
affordable housing as well as a flexible
mixed-use area with a community hub, a
primary school and green recreational space
for community engagement. Our application
at Longbridge in Warwick will deliver a further
344,000 ft2 of sustainable industrial space
that could generate up to 1,100 jobs for
the community.
Green Power
As the UK’s largest producer of renewable
energy from food waste in the UK, we provide
cost-effective and sustainable recycling
solutions through our award winning network
of facilities across the Midlands, South Wales,
and London. We then turn that waste into
renewable energy to power UK homes and
businesses and produce a nutrient-rich liquid
bio-fertiliser for farmland to help grow new
crops. The green energy produced from food
waste contributes to meeting our net zero
targets and keeping our energy costs down.
We operate a high-quality portfolio of assets
including nine Anaerobic Digestion facilities
and five composting sites that recycle over
400,000 tonnes of food waste and more than
120,000 tonnes of green waste every year. In
addition, we operate a diverse portfolio of
renewable energy production facilities,
including 33 solar parks, six wind turbines, and
three hydro-electric turbines.
In 2022/23, we generated 272 GWh of green
energy, a 0.5% year-on-year growth from the
same operating assets. This has been achieved
by delivering an average 96% plant efficiency
across our portfolio, commissioning our plant
expansion at Stoke Bardolph, recycling
400,000 tonnes of food waste during the year
(enough to power 80,000 homes) and winning
more local authority contracts totalling 28,000
tonnes of additional secured feedstock.
Looking forward, our refurbished Anaerobic
Digestion site in Derby will be re-commissioned
during the autumn, bringing an additional 30
GWh of energy generation.
In February 2023, we also announced the
acquisition of Andigestion, subject to approval
by the Competition and Markets Authority,
which will bring an additional 45 GWh of energy
generation output every year and will give
Green Power new reach into South West
England, covering cities like Bristol, Gloucester
and Exeter, helping more businesses to
process and recycle their food waste into
renewable energy. In addition, the acquisition
will help bolster the energy resilience of
Severn Trent and will play a key role in
delivering its Triple Carbon Pledge by 2030.
Plant efficiency
96%
across our Green Power portfolio
Recycle over
tonnes of food waste and over
400,000
120,000
tonnes of green waste every year
NET ZERO RECOGNITION
We were delighted to win the Net Zero
Award at the 2022 Anaerobic Digestion &
Biogas Industry Awards for our Biochar
initiative, a joint venture with Nottingham
University and CPL Industries. The award
recognises success in innovation across all
sectors of the Anaerobic Digestion and
Biogas industries, and we are proud to be
recognised for our commitment in
innovation and sustainability.
This innovative project utilises new
technologies to tackle carbon emissions
in Anaerobic Digestion operations, so
we can continue to grow our business in
a sustainable way. You can read more
about the project on our website at
stgreenpower.co.uk.
Generated
272 GWh
of green energy, a 0.5% year-on-year growth
from the same operating assets
38
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
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 transparent information
on climate-related risks and
opportunities that are relevant
to our business. This is our
fifth TCFD disclosure, and
provides an update on what
we have published previously.
This section of the report sets out our
climate-related financial disclosures
consistent with all of the TCFD
recommendations, in compliance with the
requirement of LR 9.8.6R. By this, we mean the
four TCFD recommendations and the eleven
recommended disclosures set out in Figure 4
of Section C of the report entitled
‘Recommendations of the Task Force on
Climate-related Financial Disclosures’
published in June 2017 by the TCFD and the
supplementary guidance entitled
‘Implementing the Recommendations of the
TCFD’ published in October 2021. In preparing
our TCFD disclosure, we also take into account
the wider guidance issued by TCFD, and the
work of the International Sustainability
Standards Board (‘ISSB’).
It continues to evolve, providing greater
granularity where possible, supported by
financial information to give greater insight into
how we identify, assess and manage our
climate-related risks and opportunities, and
embed them into our strategy. This report also
sets out the metrics and targets we have set
ourselves over the next several years. A
summary of progress and relevant information
presented elsewhere in this Annual Report is
cross referenced within each section, and we
welcome feedback on our approach.
Our TCFD disclosure is supported by our
separate Sustainability Report (to be published
in June), which includes wider detail on the
progress we are making on our journey. Our
Sustainability Framework (see page 140) is
fully embedded into our overall strategy and
draws together our Environmental, Social
and Governance (‘ESG’) ambitions which
are delivered as part of our business plan
and strategy.
Biomethane Upgrading Plant at Minworth
When we launched our Sustainability Framework in March 2020, we committed to invest £1.2 billion in sustainability and report on our progress in a
transparent and genuine way. The table below provides further detail on where we have invested and outlines our future investment plans to 2025.
Our ambitions
Our priorities
Carbon and Climate Change
Enhancing Nature
Triple Carbon Pledge
Science-Based Targets
Climate adaptation
Biodiversity
Where to find more
on our progress
Page 57 in the Annual Report
See our Sustainability Report
Investment
to date
£164m
Pages 20 to 21 in the Annual Report
£231m
Pollutions reductions
See our Sustainability Report
River water improvements
Catchment management
Water Resources for the Future
Leakage reduction
Pages 15 and 16 in the Annual Report
£432m
Per capita consumption reduction
See our Sustainability Report
Meter installations
Interconnector investment
Affordability and Accessibility
Reducing water poverty
Pages 31 and 35 in the Annual Report
£96m
Building our Academy
See our Sustainability Report
Creating a Community Fund
Increasing conservation
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
39
STRATEGIC REPORT OUR APPROACH TO CLIMATE CHANGE CONTINUED
CLIMATE CHANGE
GOVERNANCE
Governance
Robust governance underpins everything we
do. Climate change and its associated risks,
opportunities and organisational implications
are overseen by the Severn Trent Plc, Severn
Trent Water Limited and Hafren Dyfrdwy
Cyfyngedig Boards, Board Committees,
Executive Committee, Senior Management
Team and Group Subsidiary Company Boards.
Sustainability Governance Framework
Our governance processes are aligned with the
Group’s Sustainability Governance 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 and
climate-related risk oversight activity to its
Committees to support the continued delivery
of the Group’s Sustainability Framework. The
Sustainability Governance Framework is also
subject to periodic review to ensure that it
remains appropriate.
The Chief Executive and the Severn Trent
Executive Committee (‘STEC’) have day-to-day
responsibility for climate change and
environmental matters and are responsible for
the development of the Group’s Strategy,
including in relation to sustainability-related
matters, as demonstrated in the Sustainability
Governance Framework on the next page.
STEC delegates certain climate-related risk and
opportunity oversight matters to its approach to
Committees. To facilitate effective delegation,
the Group Authorisation Arrangements (‘GAA’)
are the mechanism by which the Severn Trent
Plc Board delegates its financial authority, which
authorises our people to be involved in the
decision-making processes that commit the
Company to financial obligations, rather than
every decision having to be approved by the
Board. The GAA are reviewed annually to ensure
that limits remain appropriate.
Governance
TCFD recommendation
Progress this year
Disclose the organisation’s governance
around climate-related risks and
opportunities.
Severn Trent has reported against the
Governance TCFD recommendations in
full within the 2022/23 Annual Report.
Full biography and skills of Board
members – pages 104 and 105.
Board and Senior Management Team
succession planning – pages 123 to 124.
Board effectiveness and Board evaluation
– pages 118 to 119
Sustainability and climate-related Board
CPD sessions held during the year – pages
112 to 113
Performance targets/milestones for
the 2023 award in the Directors’
Remuneration Report – pages 141 to 163.
Strategic Report on pages 1 to 99.
Board Strategy Day – page 111.
Board composition
The operation of our Board is supported by the collective experience of the Directors and the diverse skills and
experience they possess. Our succession planning complements the composition of the Board, with an emphasis
on sustainability and climate-related topics to ensure that we continue to build upon the excellent progress we
have made in this regard.
On 1 November 2022, the Board announced the appointment of Sarah Legg as an Independent Non-Executive
Director both to the Board and as a member of the Corporate Sustainability Committee. She brings extensive
corporate finance and significant audit and risk experience to the Company and offers financial expertise to
enhance the Committee’s already effective oversight of ESG-related risks and opportunities.
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. As part of this evaluation, knowledge and experience with
regard to sustainability and climate-related matters are considered, and in 2023 the evaluation process was
revised to include sustainability-specific elements for discussion.
Board meetings and effective reporting from management
The Board has oversight of all ESG responsibilities and performance as well as approval of ESG strategies and
investment decisions relating to climate change. Sustainability matters are included as a standing agenda item at
regular Board meetings and during the year the Board held 17 sessions dedicated to climate-related risks and
opportunities, monitoring of progress against goals and targets and sustainability-related topics.
The Board receives detailed management reports on ESG matters at each Board meeting, and senior leaders
within the Group and external guest speakers are regularly invited to offer independent expertise and insight at
Board and Committee meetings.
Remuneration
Our transparent remuneration framework aligns reward and incentive structures throughout our business from our
frontline operatives through to our Executive Team, ensuring that every employee is incentivised and rewarded to
deliver the same objectives. This is in addition to ESG measures which already form part of the Annual Bonus Scheme
metrics. In 2021, the Remuneration Committee agreed the inclusion of a sustainability performance measure in the
Long-Term Incentive Plan (‘LTIP’) with a weighting of 20%. In March 2022, we announced our commitment to Get River
Positive and directly linked our river pledges to our remuneration structures through including them as measures in
our annual bonus plan for 2022/23. This year, the Board approved four new equally-weighted carbon measures for the
2023-26 LTIP aligning more closely to internationally recognised mechanisms such as the Science-Based Targets
initiative (‘SBTi’) for Scope 1, 2 and 3. The two new measures are ‘Direct Contributors to Carbon Reduction’ and
‘Innovation and Engagement for Carbon Reduction’.
Strategy
Our approach to sustainability is being increasingly integrated into our operational and commercial strategies,
whilst ensuring best value for customers and wider socio-environmental benefits. In October 2022, the Board held
its annual Board Strategy Day, with time spent exploring opportunities relating to ESG matters and the future
resilience of the business in this regard. Our Strategic Direction Statement published in 2022 sets out a clear line
of sight between the Severn Trent Water Limited and Hafren Dyfrdwy Cyfyngedig business plans and the
longer-term priorities of the Company.
Climate change commitments
The Board put its long-term approach to climate change before shareholders at the Company’s Annual General
Meeting (‘AGM’) on 8 July 2021 which received over 99% approval.
40
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Our Climate Change Governance Framework
Strong governance of sustainability issues, including climate-related risks
and opportunities specifically, extends below the Board to a number of Board and
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.
Our Board, led by Chair Christine Hodgson, has ultimate responsibility for
sustainability. Oversight of the Group’s sustainability strategy is a matter
reserved for the Board. The Chief Financial Officer is responsible for how market
risks connected to our investments (including climate-related risks) are
identified, considered and managed.
The Board’s responsibilities include:
– overseeing the Group’s sustainability strategy;
– providing rigorous challenge to management on progress against goals
and targets;
– ensuring the maintenance of an effective risk management and internal
control system, review of six monthly Enterprise Risk Management (‘ERM’)
updates and annual approval of the Principal Risks;
– approval of the Board’s risk appetite and Policy;
– inclusion of sustainability-related discussion at each Board meeting
through a standing agenda item as tabled by the Chair of the Corporate
Sustainability Committee; and
– maintaining a high level of sustainability expertise on the Board as a whole
(see Board skills matrix on page 106.
Informing
Reporting
THE BOARD DELEGATES CERTAIN SUSTAINABILITY OVERSIGHT MATTERS TO ITS PRINCIPAL COMMITTEES.
ALL COMMITTEES MEET AT LEAST FOUR TIMES PER YEAR.
Audit and Risk
Committee
Corporate Sustainability
Committee
Nominations
Committee
Remuneration
Committee
Treasury
Committee
Ensures that risks and
opportunities, including
sustainability and
climate-related risks and
opportunities, are
effectively managed
across the Group. The
Committee is also
responsible for
overseeing the production
of Group’s financial
statements, including the
TCFD disclosure.
Scrutinises and provides
guidance and direction on
the Sustainability
Framework. Reviews
sustainability and
climate-related risks and
opportunities. Four
Directors of the Board sit
on the Committee,
including the Chair, and the
CEO has a standing
invitation to attend
meetings.
Monitors the Board’s
overall size, composition
and balance of skills, and
ensures sustainability
expertise is given
sufficient prominence in
Board and Executive
succession and
recruitment activity.
Ensures alignment of the
Group’s remuneration
policies and procedures
to achievement of
sustainability aims by
incorporating ESG
measures into bonus
scheme requirements
and carbon reduction
measures within the LTIP.
Ensures incorporation of
sustainability into the
Group’s financing
strategy, with a key area
of focus on introduction
and monitoring of the
Sustainable Finance
Framework under which
the Group can raise debt
to support the financing
or refinancing of
sustainable projects.
Further detail of the work
of the Committee can be
found from page 127
Further detail of the work
of the Committee can be
found from page 137
Further detail of the work
of the Committee can be
found from page 121
Further detail of the work
of the Committee can be
found from page 141
Further detail of the work of
the Committee can be found
from page 135
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, which meets weekly.
Sustainability Framework – page 140
STEC Members – page 107
STEC DELEGATES CERTAIN CLIMATE-RELATED RISK AND OPPORTUNITY OVERSIGHT MATTERS TO ITS MANAGEMENT COMMITTEES
Sustainability Steering
Committee
Carbon and Energy
Steering Committee
Strategic Risk Forum
(‘SRF’)
Disclosure Committee
TCFD Working Group
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.
Sets the Group’s overall
carbon and 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.
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
Disclosure Committee
and the Corporate
Sustainability Committee.
It includes representatives
from business areas
including strategy, risk,
finance, treasury and
compliance.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
41
STRATEGIC REPORT OUR APPROACH TO CLIMATE CHANGE CONTINUED
Strategy and Risk Management – climate-related considerations
Strategy and Risk Management
TCFD recommendation
Progress this year
How processes for identifying, assessing and
managing climate-related risks are
integrated into the organisation’s overall risk
management
See pages 44 to 46
This year, we have made improvements linking our Principal Risks and ERM risks into our
business model and our value chain by linking climate drivers with risk causes, enabling
greater reporting options and better risk coverage. We have also linked the risks we have
published in our Climate Change Adaptation Report to our ERM risks within our risk
management system. We consider both existing and emerging regulatory requirements on
climate change.
The impact of climate-related risks and
opportunities on the organisation’s
businesses, strategy, and financial planning.
See the following reports on our website,
severntrent.com:
– Strategic Direction Statement (‘SDS’)
– Draft Water Resources Management Plan
(‘WRMP’)
– Drainage and Wastewater Management Plan
(‘DWMP’)
– Drought Management Plan
– Climate Change Adaptation Report
The potential impact of different scenarios,
such as 1.5°C, 2°C, and 4°C scenarios, are
incorporated into businesses, strategy, and
financial planning.
See pages 47 to 52
In May 2022, we published our Strategic Direction Statement (‘SDS’) which sets out our
thinking around key trends and the resultant challenges that will shape the next 30 years and
how we, as a leading water and waste water company, might look to respond. The SDS has
informed our strategy and investment choices in the plans we have published this year.
We published the draft version of our next WRMP for consultation in November 2022 and the
final version of our DWMP in March 2023. The impacts from climate change are a key part of
the underlying analysis behind these documents, which are used to set and evidence our
five-year regulatory business plans.
We are developing our next price review plan (PR24) to consider all recommended
warming scenarios, from 1.5ºC to 4ºC, to provide flexibility for later business cycle AMPs
in line with requirements and circumstances at that time. To develop our plans, we have
utilised the best available data to model the most optimal investment pathways, taking
into account required outcomes, cost and delivery lead times.
Modelling is underway using eight future scenarios (as set out by Ofwat), which include
assumptions for climate change to build evidence and inform our long-term evidence plans.
The outputs will be used to develop our Long-Term Delivery Strategy and business plans for
the regulatory period 2025-30, AMP8. The Met Office undertook a review of these methods to
ensure they are robust and align with the Ofwat PR24 guidance.
The draft WRMP and final DWMP incorporated the latest climate projection datasets
(UKCP18) into scenario modelling to build our view of climate-related risks and opportunities
for these key documents.
Vocal advocacy for action on climate change
and collaboration with peers and other
stakeholders to achieve change.
See our Sustainability Report online.
We continue to be involved with many sector and cross sector working groups, such as the
Water UK Net Zero Carbon Technical Group.
In September 2022, we announced our tri-party collaboration with Aarhus Vand and
Melbourne Water to share knowledge and expertise and to develop solutions to reduce the
carbon footprint of waste water treatment sites.
In May 2023, we announced our intention to build the world’s first Net Zero hub at one of our
waste water treatment works, supported by partial funding through Ofwat’s Innovation Fund.
More information can be found in the case study on page 139. The results of the project will be
shared across the industry.
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OUR CLIMATE
CHANGE STRATEGY
We do not reference our land and property
strategy in this disclosure as it is not a public
document, but it provides a forward-looking
view of how we intend to use our land
portfolio most effectively, be that for
operational purposes, renewable energy
deployment, biodiversity and habitat
enhancement, carbon sequestration or
supporting local housing or economic
development. Our land and property strategy
is not prescriptive, but provides a framework
for assessing the best use of any individual
piece of land. It also considers how we can
work with partners to improve biodiversity
across our region to both benefit nature and
access carbon credits.
We have been investing significantly in both
saving energy and generating our own
renewable energy, which is more important
than ever and bolsters our resilience to
increasing energy prices. For example, we
generate over half of the electricity we use
from our renewables, with the remainder
purchased from renewable backed sources,
and this year we delivered record levels of
generation — 548 GWh of renewable energy
from nine anaerobic digestion sites as well
as our wind, solar and hydro plants. Our
Severn Trent Green Power business
recycles over 500,000 tonnes of green and
mixed food waste each year. The green
energy produced from food waste helps to
meet our net zero targets and keep our
energy costs down. In addition, our
non-regulated businesses, principally
Severn Trent Green Power and Severn Trent
Operating Services, contribute towards the
Group’s net zero journey. You can read
more about their performance over the year
on pages 37 to 38.
Mitigating and adapting to climate change
remains a critical priority for us and, as such,
forms a common theme through all of our
strategic documents and plans, from our
Corporate Strategy downwards. This
ensures that every part of our organisation
is focused on reducing our environmental
impact and improving the sustainability and
underlying resilience of our business.
Given the complexity of our business and the
requirements of our regulators, there are
multiple documents which describe the risks
we face. These detail the outputs from the
risks we have assessed, the potential
responses to those risks, the investment
options available, and the wider considerations
that need to be taken into account when
making decisions. These include affordability,
nature and climate, and alignment to our
strategic objectives, customer outcomes and
statutory obligations.
Ultimately, which investments are progressed
is decided through the industry price review
process. The water industry operates to
five-year business planning cycles, as part of a
framework for economic regulation overseen
by Ofwat. As part of these five-year periodic (or
price) reviews, Ofwat reviews company
investment proposals and sets revenue
allowances sufficient to finance them. This
statutory process therefore has an important
bearing on companies’ investment plans, with
many elements contingent on a successful
submission to Ofwat.
Throughout this disclosure, we signpost key
documents that set out our plans on how we
manage key areas that will be affected by
climate change, and will affect our mitigation
strategy. The following are of particular note:
– Net Zero Transition Plan (‘NZTP’) – which
considers and plans our approach to
delivering against our reduction targets
(from page 58).
– Our Water Resources Management Plan
(‘WRMP’) and Drainage and Wastewater
Management Plan (‘DWMP’) – which set out
how we intend to provide supplies of water to
our customers over the next 25 years and
how we plan to deal with the associated
waste water and surface drainage
respectively.
– Our Strategic Direction Statement (‘SDS’)
– which identifies the key future priorities for
our business to 2050.
– Our Climate Change Adaptation Report
– which provides a summary overview of
risks arising from climate change.
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ANNUAL REPORT AND ACCOUNTS 2023
43
STRATEGIC REPORT OUR APPROACH TO CLIMATE CHANGE CONTINUED
HOW WE IDENTIFY AND UNDERSTAND
RISKS OF CLIMATE CHANGE
As a company that depends on
supporting, and interacting with, the
natural capital within our region, we
have an important role to understand,
prepare for and respond to a changing
climate. We know that climate change,
along with other factors such as
population growth and urban creep, will
increase the pressure on delivering our
essential services.
Our approach to managing climate-related
risks is outlined in the table below, highlighting
how we consider climate-related risks over
different time horizons (i.e. the short, medium
and long term). The method by which we
assess, monitor and manage risks and
opportunities differs depending on the size and
type of risk. Alongside likelihood and impact, we
use financial thresholds defined within our ERM
policies and systems. These thresholds are
used to measure the materiality of each risk to
our business and the level to which the risks are
reported within our organisation. For example,
we operate levels of reporting for all risks
valued at over £10 million, they are captured
within our ERM system and rigorous
management processes put in place. We have
four further levels of risk above this, with the
highest being valued at over £75 million, and the
risks in this bracket are required to be reported
at Board level. Risks valued at below £10 million
are managed by the business. All climate-
related risks are assessed in the same way and
have been concluded to be below this
£10 million threshold this year. We have a
dedicated risk network made up of risk
coordinators and risk champions who are
coached and supported by our central ERM
Team, to support the ongoing risk assessment
process throughout the year. Our ERM level
risks are managed through our ‘Our Approach
to Risk’ section on pages 73 to 74 for more
information. We recognise the rising pressure
that climate change will place on our existing
risks, such as an increase in storm frequency
and severity that will challenge our ability to
deliver water and wastewater services to our
customers. Climate risks are assessed through
key documents like the DWMP, WRMP, and
Drought Management Plan (see table below).
We dynamically assess potential changes in the
risk environment through our investment plans,
which means we plan for and invest based on
the climate we expect Severn Trent to be
operating in over the next 25 years. These plans
form the key basis for our five-year investment
plans that we submit to Ofwat.
Time horizons
0 – 2 years
Short term
Up to 5 years
Medium term
Up to 25 years
Long term
Summary
– Implementing tactical response
plans for delivery of our annual
performance targets in the face of
acute physical risks
– Evaluate and make
recommendations for future
improvement
Approach to
management
– Incident management plans and
process-driven response plans
– Drought Management Plan
– Root cause analysis outputs
– Localised response strategies
– ERM framework uses tools,
practices and methodologies to
ensure consistency across the
Severn Trent Group, and embedding
of climate-related risks in our
business as usual processes
– Our Drought Management Plan
(2022–2027) sets out how we
will manage our resources and
supply system during dry and
drought years. It sets out the
demand and supply actions we
will take, triggered by drought
conditions of 2–3 months
Key
documents
– Our business plan describes the
– Long-term plans exploring and accounting for
improvements that we will commit to
deliver in the next AMP cycle
future potential risks we may face, including climate
change uncertainty
– How we will meet future challenges, and the steps
that need to be considered
– Regulator-approved AMP investment
approach
– Rolling five-year business planning
approach
– ERM framework
– Adaptation Report (summary of
overview of risks)
– The WRMP sets out our strategy to
address risks relating to water
availability and security of supply, taking
into account a changing climate and
population demands
– The DWMP sets out our approach to
ensuring an effective waste water
network which treats and removes
waste from properties, the risk levels
for sewer flood risk, storm overflow
performance and waste water treatment
works capacity
– The WRMP and DWMP inform PR24
investment plans
– Drought Management Plan
– WRMP produced every five years and the draft
version of our next WRMP published November
2022
– The first full publication of our DWMP was on
31 March 2023
– Our SDS published in May 2022
– ERM framework
– Our LTDS will be submitted to Ofwat later this year,
and uses adaptive planning approaches to test
future scenarios
– Our SDS outlines the key trends and challenges
that we believe will be important in shaping the
next 30 years and is used to inform and guide our
future strategy and long-term investment plans
– Adaptation Report (summary of overview of
risks)
– The WRMP sets out our long-term strategy for
the next 25 years and looks ahead to 2085 to
help us understand and prepare for the future.
Our plan considers potential risks to our supply
due to extreme drought, climate change and
changes in population and industry
– The DWMP sets out our long-term strategy for
waste water and the impacts of severe weather
modelled over the next 25 years to help us
prepare for the future
– The WRMP and DWMP inform our PR24
investment plans and our LTDS, which we submit
to Ofwat later this year
– Biodiversity Strategy and Action Plan sets out
how we protect habitats and species and drive
nature recovery
– Protecting and Enhancing Site of Special
Scientific Interest (‘SSSIs’) document sets out
our approach for protecting and enhancing
SSSIs that we own, or which might otherwise be
impacted by our work
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SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Time horizons
0 – 2 years
Short term
Up to 5 years
Medium term
Up to 25 years
Long term
Key
elements
– Undertake a granular and
– Engagement with key stakeholders to
– Considers the potential long-term impacts of
dynamic appraisal of the health
of our assets
– Data collection to drive
longer-term approach
– Assess operational tasks/
agree response plans including the EA,
Ofwat, DWI, Natural England, NRW and
local communities
– Modelling of scenarios to determine
response strategies
operation and maintenance of
assets
– Capital investment and promotions for
delivery of large-scale capital upgrades
– Localised delivery of
improvement plans
– Small-scale opex and capex
spending
– Asset Health Dashboard
climate change on our essential services
– Identifies and assesses the most significant and
influential trends and the biggest challenges
that we will face based on the trajectory of those
trends
– Analysis of longer-term trends utilising UKCP18
datasets combined with internal modelling
– Data-focused review through technical
assessments and modelling
– Risk strategies
Risk Management via our ERM
We operate a well-established ERM
framework, underpinned by standardised
tools, practices and risk management
methodologies to ensure consistency across
the Severn Trent Group. Our ERM framework
is embedded throughout the business, with
different groups exploring and examining risks
through different lenses, as described
throughout the section.
Our risk management system incorporates
important climate-related risks identified
through business as usual processes. We
have built additional capabilities within our
corporate risk system enabling climate drivers
to be linked with risk causes where the
likelihood could be exacerbated by climate
change drivers. We have also assigned TCFD
typology to our ERM risks.
The Board has overall responsibility for
ensuring that risk is managed effectively
across the Group and that there is an effective
risk management framework in place (see
page 74 for more information). The Executive
Committee has specific responsibilities and
accountabilities for topics connected to climate
considerations, including our strategy,
operations and regulatory requirements. See
the Internal Controls and Risk Management
disclosure in the Audit and Risk Committee
Report from page 127 for more information.
The risks we have already recognised inform
and help mitigate against the predicted
impacts caused by 2°C of warming. Our risk
response plans are based on a risk bow tie
analysis whereby ‘risk causes’ are considered
in relation to ‘climate drivers’ to help quantify
the controls that we should consider and
execute.
Our three-tiered system shown below helps
ensure appropriate actions given the relative
risk to the organisation and we provide an
update on our modelled risks from page 46.
TCFD TYPOLOGY
Physical
Transition
WHAT THIS MEANS
Risks caused by physical shocks
and stressors to infrastructure
and natural systems, e.g.
extreme temperatures
• Acute physical
• Chronic physical
Risks that arise as a result of
economic and regulatory
transition toward a low-carbon
future, e.g. changing consumer
behaviour and preferences.
Modelled
• Policy/legal
• Technology
• Market
• Reputational
Focused
Monitored
• We complete holistic system modelling to help identify key risk
themes, for example through our DWMP and WRMP
• Risk factors are considered ‘in the round’ by utilising combined
impact factors that are driven by climate change
• Modelling considers the Met Office’s UKCP18 climate scenarios,
which are based on the IPCC’s RCP climate scenarios, to assess
the potential size and scope of climate-related issues
• We are developing high-level summaries of how these risks may
increase over time
• Risk mitigation strategies and controls are reviewed and updated
as part of the annual ERM process
• Specific climate change related updates have been included as
part of our reporting process
• ERM risks are reviewed and categorised as either climate change
mitigation or climate change adaptation as part of the annual
review to capture new risks to the risk register
• Climate change mitigation or climate change adaptation risks
are flagged in the corporate risk system
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ANNUAL REPORT AND ACCOUNTS 2023
45
STRATEGIC REPORT OUR APPROACH TO CLIMATE CHANGE CONTINUED
What are our key climate-related risks and opportunities?
The key risks and opportunities we have identified are summarised below and relate to our value chain.
Transition risk
Physical risk * Denotes a Principal Risk
REGULATION/POLICY
AFFORDABILITY
CLIMATE CHANGE STRATEGY
Key Risk*:
Changing societal expectations, resulting
in stricter legal and environmental
obligations, commitments and/or
enforcements, increase the risk of
non-compliance.
Key Risk:
The investment required to improve
resilience and meet long-term targets
will impact customer bills and affect
affordability for some.
Key Risk*:
Severn Trent’s climate change strategy
does not enable us to respond to the
shifting natural climatic environment
and maintain our essential services.
SAFE AND SECURE SUPPLY OF
DRINKING WATER
TRANSPORT AND TREATMENT OF
WASTE WATER
NATURAL CAPITAL
Key Risks*:
We do not provide a safe and secure
supply of drinking water to our customers.
Demand for water will increase as
a result of population growth and
changing weather conditions.
Key Risk*:
We do not transport and treat waste water
effectively, impacting our ability to return
clean water to the environment.
Key Risk*:
We fail to positively influence natural
capital in our region.
For more information on our Principal Risks see ‘Our Approach To Risk’ section starting on page 73
CLIMATE RISKS ALONG OUR VALUE CHAIN
COLLECT RAW WATER
CLEAN RAW WATER
DISTRIBUTE CLEAN WATER
CUSTOMERS ENJOY OUR SERVICE
1
2
3
4
CLIMATE DRIVERS ALONG OUR VALUE CHAIN
Hotter, drier summers impact
our reservoir supplies
Hotter, drier summers and rainfall
impact the quantity and quality of
water available to abstract from
the environment
Performance of pipes is threatened by
extreme weather
Customer demand for water
increases on hotter days, putting
our supply under stress
CLIMATE RISKS ALONG OUR VALUE CHAIN
COLLECT WASTE WATER
CLEAN WASTE WATER
5
6
7
RECYCLE WATER
TO THE ENVIRONMENT
Increased storminess and extreme
weather events cause power failures,
impacting on our ability to deliver our
essential services.
CLIMATE DRIVERS ALONG OUR VALUE CHAIN
Capacity of our sewers is impacted
by both extended dry periods and
extreme rainfall events
Wetter winters and increased
storminess can overwhelm
waste treatment works
Increased rainfall reduces the
effectiveness of our biosolids storage
and disposal operation
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ANNUAL REPORT AND ACCOUNTS 2023
The following table details the drivers, impacts and mitigation methods associated with each risk and opportunity. In identifying the significant
climate-related risks and opportunities outlined below, we note the disclosure topics noted in the ISSB’s draft Climate Disclosure requirements
(industry-based disclosure requirements for the water utilities and services sector, as outlined here: Volume B39—Water Utilities & Services (ifrs.
org)), see page 63 for more detail on how we report against the standards.
Principal risk
Drivers and causes
TRANSITION RISKS AND OPPORTUNITIES
Impact on business
(risk consequences)
Mitigations and opportunities
Key Risk 1:
Changing societal expectations, resulting in stricter legal and environmental obligations, commitments, and/or enforcements, increase the risk of non-compliance
Short, medium and long term (focused)
– Increased activism and media coverage
around climate change and the level of
environmental pollution may raise public
awareness and strengthen calls for policy
makers to act
– More will be demanded of businesses: to be
more sustainable in their operations, to pay
for the damage they cause, and with greater
scrutiny over environmental performance
– Our ODI penalty/reward position could
– Increased focus on environmental
change
– Operational costs associated with taxes on
carbon emissions could increase
protection and achievement of mitigation
targets could change Government policy
and regulators’ target-setting approach
– National regulatory changes may
implement costs of carbon (our operations
are energy intensive and the waste we deal
with has a high greenhouse gas (‘GHG’)
impact)
– Increased regulatory scrutiny and
accelerated regulatory change will drive
behaviour from businesses to protect
the environment
– We have strong engagement with our supply chain to drive
environmental leadership
– Regular engagement with the UK Government, the Welsh
Government, regulators and other stakeholders helps us to shape
the direction of the water sector and address the impacts of
climate change
– Opportunities exist to fast track positive changes, alongside
regulatory change, for our communities and the environment
– Our established governance framework, policies and training
ensure our ongoing compliance with all applicable laws and
regulations
– We use external legal advisers to complete detailed reviews in
respect of upcoming legislation that may affect the Group
Key Risk 2: The investment required will impact customer bills and affect affordability for some
Short, medium and long term (modelled)
– High levels of investment will be required to
meet more stringent environmental
standards, improve our resilience, adapt to
climate change, and meet long-term
targets
– Our regulatory model means that such
investments are ultimately funded through
customer bills
– Higher levels of investment will result in
higher bills for our customers and will
affect affordability for those who are
struggling financially
– Analysis published in March 2021 by Water
UK showed that water poverty in the Severn
Trent Water region was 6.1% based on
2019/20 data
– We talk to our customers and take customer affordability into
account as part of our planning and investment processes
– Targeted investment allows us to continue to deliver essential
services for our customers, even under more challenging
circumstances
– Impacts to customer bills are modelled and tested with customers
ahead of submission
– To mitigate the impact for the most vulnerable, we also offer a
range of affordability packages
Key Risk 3:
Severn Trent’s climate change strategy does not enable us to respond to the shifting natural climatic environment and maintain essential services
Mitigating climate change will require rapid decarbonisation
Short, medium and long term (focused)
– Through to 2050, we anticipate that
Government will need to assume a larger
role to overcome barriers that are
hindering consumers, business, and wider
societal change
– Potential Government policy interventions
are likely to be focused on speeding up
decarbonisation efforts but currently are
not always co-ordinated
– Existing technologies won’t be capable of
delivering the improvements required
– More stringent standards may be enforced
alongside increased expectations for
reporting requirements
– As the water sector contributes 1% of UK
emissions, we will be required to reduce
emissions in line with the Government
interim targets of 78% reduction (since
1990) by 2035, reducing our Scope 1, 2 and
then Scope 3 emissions
– The need for greater understanding,
visibility and transparency increases the
need for more granular data collection
and reporting
– We use scenario modelling to understand the impacts of climate
change and identify opportunities for investment through
resilience planning
– Our Innovation Team actively seeks investment in new
technologies to improve performance
– We regularly analyse our performance to understand
opportunities for improvements to operational effectiveness
– New opportunities may emerge to participate in new markets,
such as green hydrogen or ammonia
– Better data will lead to improved understanding of performance
– We target a reduction in water usage alongside a reduction in
leakage to improve our ability to manage demand in a resource-
stretched world
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STRATEGIC REPORT OUR APPROACH TO CLIMATE CHANGE CONTINUED
Drivers and causes
Impact on business
(risk consequences)
Mitigations and opportunities
PHYSICAL RISKS AND OPPORTUNITIES
Key Risk 4:
We do not provide a safe and secure supply of drinking water to our customers
Demand for water will increase as a result of population growth and changing weather conditions
Short, medium and long term (focused)
– Hotter, drier summers will reduce water
– Hot weather causes an increase in
– We use strategic modelling to assess potential changes to supply
availability and increase demand
– Acute physical risks such as storms and
floods may impact upon our infrastructure,
or increase the risk of water contamination
– A reduction in the water available in the
environment, caused by increasing
temperatures, will restrict the amount we
can abstract and supply
– Performance of pipes is threatened by
extreme weather
short-term peak demand and impacts our
ability to supply enough water
– Additional operational costs could be
required to ensure delivery
– Additional infrastructure investment could be
required to adapt to a changing climate and to
secure supply
and demand on our water network and to model the known
impacts of climate change
– Comprehensive resilience plans that consider climate change in
scenario modelling, such as our WRMP and DWMP, feed into our
capital investment programme and business plan
– Investment in early leak detection technologies and effective
response processes will reduce leakage levels
– Increased investment to increase headroom will help us meet
increased water demand
– By increasing resilience and flexibility of our supply network and
better preparing for incidents, we are constantly working to
ensure continuous supply to our customers
– Increased awareness of the value of water in an increasingly
resource-stretched world may improve the effectiveness of
customer engagement programmes to reduce water usage
Key Risk 5:
We do not transport and treat waste water effectively, impacting our ability to return clean water to the environment
Short, medium and long term (modelled)
– Extreme rainfall and wetter weather will
increase the risk of flooding
– Increased population and land cover will
increase run-off
– Extended dry periods and extreme rainfall
events affect the capacity of our sewers –
for example, more intense bursts of heavy
rainfall increase the volumes of water
entering our waste water systems
– Damage could be caused to infrastructure,
increasing the risk of flooding to our waste
water treatment works
– Alternative reactive steps will be required
to ensure the safety of waste water removal
– Additional infrastructure investment will be
required to ensure adequate systems and
resilience
– Environmental penalties could increase
– Failure to safely treat waste water impacts
our financial penalty/reward position
– Comprehensive resilience plans, such as our DWMP, feed into our
capital investment programme and business plan. Targeted
investment will increase waste water network resilience
– We use strategic modelling to assess potential changes to
population and climate change on our waste water network
– We have a strong compliance culture and effective management
systems
– Increased awareness of the value of water in an increasingly
resource-stretched world may improve the effectiveness of
customer engagement programmes to promote the safe use of
the waste water system, including reduced use of wet wipes and
non-flushables
– The implementation of new technologies and innovation to
improve our waste water treatment processes and network
operations will enable us to meet or exceed targets
– Increasing the use of nature-based solutions to build resilience
provides the advantage of additional co-benefits
– Wider surface water management options such as SuDS have
associated co-benefits and increase future flexibility for capacity
Key Risk 6:
We fail to positively influence natural capital in our region
Medium and long term (focused)
– Hotter, drier summers cause changes to
– Resilience to climate change and extreme
– We have made public commitments to protect our local
habitat composition and distribution, along
with biodiversity loss on land and in rivers
– Increased urbanisation, which extends hard
impermeable surfaces against the
backdrop of increasing rainfall, increases
the risk and speed of urban run-off and
sewer overflows, leading to pollution of
waterways
– A growing population and per capita
consumption, and increased pressure on
natural resources, negatively impact upon
biodiversity and our ability to manage
natural resources effectively
weather events decreases
– Raw water quality deteriorates
– Failure to manage pollutions impacts our
financial penalty/reward position
– Changes to the valuation of natural capital
may have financial impacts in future
– Delaying the investment required for
climate resilient or adaptation solutions
may increase future costs
environment – for example, targeting 15% biodiversity net gain for
our capital projects
– We use modelling to estimate the impact of increasing pressures
on nature, such as water abstraction and environmental pollution,
as part of our WRMP and DWMP
– We are investing in habitat restoration which can help reduce
pressure on our assets and lower asset failure rates
– Management plans and controls mitigate damage to SSSIs and
enhance them through our operations
– Our Green Recovery Programme consists of six schemes that will
deliver a host of benefits for customers, communities and the
environment
– Adopting a catchment management approach in partnership with
landowners in our region will mitigate the effect of pesticides,
fertilisers and organic nutrients, will be more inclusive, will
reduce costs, and will reduce the need for additional investment
– We have strong engagement from both our supply chain and our
customers to promote biodiversity via our Commonwealth Games
targets (72 Tiny Forests and Legacy Forest), our Great Big Nature
Boost for Biodiversity (enhancing it on 5,000 ha of land) and by
restoring 2,000 acres of peatland in England and Wales. This will
enhance ecosystems, improving resilience through decreased
flood risk and improving water quality
– Our reputation will benefit from acting as a steward of natural
capital and taking this responsibility seriously
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CLIMATE-RELATED SCENARIO ANALYSIS
The impact of climate variations is critical to the way Severn Trent operates. As such, we have an advanced and nuanced
approach to the way we integrate climate into our business processes and risk management approach. As a business, we look
at a wide range of temperature and climate forcing alignments, from a 1.5°C Paris-aligned scenario, to a 4°C ‘business as usual’
scenario to inform our strategy for investment in future resilience. The specific assumptions, parameters and scenarios
applicable are set out below, and more information can be found in the corresponding reports.
Our approach to scenario analysis
Scenario analysis is a key component of assessing both the likelihood and consequence of our major climate-related risks. Stress testing our
ability to deliver customer outcomes against a range of variables highlights our resilience and informs our long-term strategy and investment
plans. These are outlined through our PR24 plan, and also in our WRMP, DWMP and SDS.
Key documents that utilise the modelling work
WRMP AND DWMP
STRATEGIC DIRECTION STATEMENT
Our WRMP and DWMP will focus on
Ofwat’s base scenarios for AMP8, which
include changes to demand forecasts
arising from building regulations and
water device labelling, varying the data
inputs for abstraction regulations and
population growth, and including changes
to assumptions made around technology.
Our SDS provides context for our PR24
submissions and shows how our AMP8
plans fit into our longer-term goals.
DRAFT WATER RESOURCES
MANAGEMENT PLAN
(‘WRMP’)
DRAINAGE AND WASTEWATER
MANAGEMENT PLAN (‘DWMP’)
For more details see page 51 for key
examples and case studies or scan or click
the QR codes to read more
STRATEGIC DIRECTION
STATEMENT (‘SDS’)
LTDS
As part of out submission to Ofwat later this
year, we are documenting our Long Term
Delivery Strategy which sets out the
long-term risks, ambitions and investments
beyond PR24 and into the future. It uses
adaptive planning alongside the findings
of the WRMP and DWMP to test demand and
climate-change scenarios that may occur.
PR24 INVESTMENT PLANS
For the upcoming price review process
(‘PR24’), Ofwat has set out guidelines for how
water companies should develop and present
their long-term delivery strategies, including
a requirement to use an adaptive planning
approach. Following these guidelines, we are
using a scenario-based methodology,
considering climate change, technology,
water demand, and environmental ambition.
For each parameter, Ofwat have prescribed
assumptions for low and high risk scenarios.
The underlying analysis behind these
documents is used to set and evidence our
five-year regulatory business plans. PR24
covers our financial investment needs from
2025-30 and will be submitted to Ofwat in
October 2023, with the Final Determination
expected in December 2024. A key role of
PR24 is for us to balance long-term financial
investment needs for a resilient and
sustainable business, with ensuring
customers’ bills are affordable.
The Met Office undertook a review of the
methods, datasets and scenarios used to
ensure these are robust given the latest
climate science, and that they align with the
requirements stipulated in the Ofwat PR24
guidance. We are using the findings and
recommendations to inform the next phase
of our investment plans for PR24.
The key risks we model
We do not provide a safe and secure supply
of drinking water to our customers
We do not transport and treat waste water effectively,
impacting our ability to return clean water to
the environment
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ANNUAL REPORT AND ACCOUNTS 2023
49
STRATEGIC REPORT
OUR APPROACH TO CLIMATE CHANGE CONTINUED
Water always there
Good to drink
Risk
Opportunity
Climate driver
Hotter, drier summers and changes to precipitation
will reduce water resources availability, which drives
future supply/demand balance deficit challenges
Climate model
Use UKCP18 RCP2.6, RCP6.0 and RCP8.5 in our scenario
analysis
Twelve Regional Climate Model (‘RCM’) scenarios and 20
probabilistic datasets are included in our water resource
systems climate change analysis
RCMs provide comparable outputs across regions due to their
better representation of spatial coherence of climate change
Regulatory commitments and funding to reduce leakage
and reduce demand from a 2019/20 baseline
We have made a commitment to reduce household demand by 15% by 2050 and to
reduce leakage by 50% by 2045. In addition, we have a number of water use
minimisation programmes which are incorporated into our future modelling, to
ensure we understand how the benefits of these programmes may protect us
against climate-related risks
Timeframe
assessed
Current modelling is to the 2070s and then extrapolated to
2085 to cover the WRMP24 planning period
Current modelling is to the 2070s and then extrapolated to 2100
Key outputs from
modelling work
Modelling indicates a reduction in the amount of water
available for distribution (Deployable Output, ‘DO’). In 2050,
the expected reduction of DO is:
– 4% in a RCP6.0 climate scenario; and
– 9% in a RCP8.5 climate scenario
Our water demand mitigation proposals will help reduce the total amount of
water we abstract. Our two key programmes (customer demand and leakage
reduction) are expected, by 2050, to:
– Reduce demand by 6%; and
– Reduce leakage by 50% by 2045
Key impacts
Key financial impacts include increased remediation and
investment needs, and enhanced capital spend, which will be
outlined in detail in our WRMP
Key financial impacts include an increased overhead in the water available for
distribution, reducing the amount of investment and capital required to ensure a
consistent supply of water
Key inputs and
assumptions (in
combination with
the climate
change scenarios)
Population growth, environmental sustainability reduction
on our abstraction licences, land use change, property
occupancy
Deployable Output, regulatory requirements, customer intervention
expectations
Waste water safely taken away
Risk
Opportunity
Climate driver
Increased frequency and intensity of rainfall may
increase risk of sewer flooding, impact the
performance of storm overflows and affect the
amount of waste water needing treatment
Increased investment in our commitments to reduce public and
external flooding and the activation of CSOs
Climate model
RCP2.6, RCP6.0 and RCP8.5, including industry derived
rainfall uplifts for 2050
The SDS used climate model assumptions from the WRMP and DWMP, where
relevant. No specific quantitative modelling was carried out for the SDS
Within our DWMP we have modelled present day flood risk
during a 1 in 50-year rainfall event (i.e. a rainfall event with a 2%
probability of occurring in a year). We then use rainfall uplifts
derived from climate change projections to understand how the
future climate is likely to affect rainfall intensities
Timeframe
assessed
Current modelling is to 2050. The below impact looks at a
2050 snapshot
The SDS covers the period out to 2050
Key outputs from
modelling work
Modelling indicates that, by 2050, increased frequency and
intensity of rainfall events would result in 61% more flood
water escaping from the sewer network in a 1 in 50-year
rainfall event. This will result in 44,000 properties being
affected by internal sewer flooding and a 14% increase in
storm overflow activations by 2050
Key impacts
Key financial impacts include increased remediation and
investment needs, and enhanced capital spend, which are
outlined in detail in our DWMP
Key inputs and
assumptions (in
combination with
the climate
change scenarios)
Low and high demand projections assume future growth
remains in line with population projections indicated by the
Office of National Statistics (low demand), with higher
forecasts assuming all Local Plan development allocations
are built
50
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Eight future priority areas which we feel are critical in addressing the challenges
we have highlighted
– Increase our abilities to source and deliver water to guarantee future water supplies
– Help our customers to be more water conscious to ensure the waste water
system is used wisely
– Leverage data and technology to deliver a high-quality, affordable service
– Improve the resilience of our network to lower the risk of flooding and pollution
– Adopt more sustainable practices to protect and enhance our environment
– Harness the value in our waste to support a more circular economy
– Work with our communities to make a positive social difference
– Invest in our high-performing culture to maintain a safe, inclusive and fair workplace
The outputs of the SDS guided internal thinking and informed our strategy and
investment planning
A mix of internal and external sources were used to inform analysis and
conclusions
CASE STUDY
OVERVIEW OF SCENARIO ANALYSIS OUTPUTS
Our Drainage and Wastewater Management Plan
The graph below summarises the number of properties at risk from
internal flooding in a 1 in 50-year storm (i.e. a rainfall event with a 2%
probability of occurring in a year).
Properties at risk of internal sewer flooding in a 1 in 50-year storm
s
e
i
t
r
e
p
o
r
p
f
o
r
e
b
m
u
N
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
( R C P 8 . 5 )
i m a t e s c e n a r i o
2 ° C c l i m a t e s c e n a r i o ( R C P 6 . 0 )
4 ° C c l
0°C climate scenario (RCP2.6)
111,956
177,397
173,199
164,673
155,998
125,744
118,455
0°C + High Growth
2°C + High Growth
4°C + High Growth
0°C + Low Growth
2°C + Low Growth
4°C + Low Growth
2025
2030
2035
2040
2045
2050
Across the Severn Trent region, our modelling indicates that around
112,000 properties could currently be at risk of sewer flooding from a 1
in 50-year storm. By 2050, assuming no upgrades were undertaken,
this would increase by 39% to around 156,000 properties. At present,
there are no governmental targets relating to what is an acceptable
level of sewer flood risk. In our DWMP, our core best value plan is
informed by customer choices in line with Ofwat requirements, but we
have also set out investment scenarios to maintain current risk levels
and to meet our long-term aspiration to get to zero flood risk. The level
of investment set out in our DWMP (aligned to Ofwat best value
principles) will not be sufficient to mitigate the future risk from
internal flooding from the waste water network. The graph below
summarises the different investment scenarios and the residual
property risk associated with each.
Flooding investment vs 2050 residual property risk
i
g
n
d
o
o
l
f
r
e
w
e
s
f
o
k
s
i
r
t
a
s
e
i
t
r
e
p
o
r
P
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
155,998
136,002
111,956
111,956
£2,125
£12,000
£9,883
£10,000
£8,000
£6,000
£4,000
£2,000
)
n
o
i
l
l
i
m
£
(
t
s
o
c
0
5
-
5
2
0
2
£0
£542
0
£0
Baseline risk
Properties
No
Interventions
£m
Best value plan
Maintain
Zero risk
Within our best value plan analysis, we have included optimisation of
traditional ‘grey’ interventions compared with blue/green nature-
based solutions that can support delivery of wider benefits.
Subsequently, our DWMP indicates that, based on our best value plan,
the percentage of properties at risk would reduce from 2.58% to 2.52%
by 2050 (under a 2°C and low-demand scenario). However, the
underlying number of properties at risk is expected to increase from
around 112,000 to around 136,000 properties, despite investment to
alleviate risk to 20,000 properties over 25 years.
The challenge associated with managing sewer flood risk is balancing
affordability of customers’ bills in light of other statutory obligations
within the Government’s Storm Overflows Discharge Reduction Plan
(‘SODRP’) and ensuring permit compliance at our waste water
treatment works (‘WwTWs’). In terms of overall investment levels set
out in our final DWMP, the figures below summarise our best value
2°C core pathway and 4°C alternative pathway scenarios, across the
25-year planning horizon.
Total cost (2022/23 prices) of our DWMP best value plan broken down in WwTWs,
flooding and storm overflows (2°C)
)
m
£
(
t
s
o
c
x
e
t
o
T
£1,600
£1,400
£1,200
£1,000
£800
£600
£400
£200
£0
AMP8
AMP9
AMP10
AMP11
AMP12
Storm overflow
Flooding
WwTW
Total cost (2022/23 prices) of our DWMP best value plan broken down in WwTWs,
flooding and storm overflows (4°C)
)
m
£
(
t
s
o
c
x
e
t
o
T
£1,600
£1,400
£1,200
£1,000
£800
£600
£400
£200
£0
AMP8
AMP9
AMP10
AMP11
AMP12
Storm overflow
Flooding
WwTW
PR24 aims to balance the wide variety of other priorities, whilst
ensuring sewer flooding investment plans are supported by
customers. In light of this, whilst DWMP provides visibility of future
pressures, the level of investment informed by the best value will not
be sufficient to maintain current risk levels.
Our Water Resources Management Plan
The scenario analysis that feeds into the WRMP looks at how
population growth, drought, regulation and environmental ambition,
and wider climate change pressures will impact upon the future
demand for water over the next 25 years, taking into account scenarios
to 2085 to understand and prepare for more extreme risk. Our WRMP
then sets out how we propose to meet that demand.
Since our last WRMP was published in 2019, we have seen significant
differences in the way that water is consumed in domestic settings,
whilst at the same time seeing new governmental ambition to reduce
water consumption. There has also been an increase in environmental
focus and changes to the classification of some areas as ‘water
stressed’, which means that demand can outstrip supply in those
areas. In addition, our customers are facing a cost of living crisis,
meaning that more needs to be done to protect our customers.
Overall, future pressures mean that our draft plan (to be released in
full in 2023) describes a likely future supply/demand deficit of 244 Ml/d
by plan year 2040/41 growing to 540 Ml/d by 2050/51. Our WRMP will
set out how we anticipate to meet this increased level of demand.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
51
STRATEGIC REPORT
CASE STUDY
DROUGHT IN SUMMER 2022
Conditions across the whole of the UK in 2022 were extreme, with
the Severn Trent region being no exception. For large parts of our
region, we experienced the driest seven-month period since 1891.
At the same time, temperature records were set in England with
the first ever Red Extreme Heat warning. These extremes
combined to drive very high levels of customer demand and place
our water resources under significant pressure.
To help tackle this problem, we increased our demand
management activities, finding and fixing more leaks as well
as proactively engaging our customers on how they can help
reduce demand.
We also delivered our largest ever programme of encouraging
behavioural change by customers, providing advice and messaging
throughout the summer to help minimise demand and then
continuing into the winter with the first ever winter demand
reduction programme to drive long-term sustained change, rather
than short-term restrictions on use. This is key because climate
change means we are likely to experience more extreme weather
in the future.
At the heart of our demand management approach is working with
our customers as partners, giving them the motivation and means
to make sustainable demand reductions, rather than shorter-term
restrictions. Our extended customer engagement, promoting
positive actions to help reduce demand, is in contrast to prohibitive
restrictions and resulted in significant customer recognition and
commitment to reduce water use, as illustrated below. The
majority of our customers have said they are likely or very likely to
change their water use as a result of behaviour campaigns.
OUR APPROACH TO CLIMATE CHANGE CONTINUED
Deployable Output
Hotter, drier summers
Hotter, drier summers will have a significant impact on future water
availability when compared with 2021 (see below graph for an
indication of how water availability (Deployable Output) will reduce in
RCP6.0 and RCP8.5 to 2085).
Changes to Deployable Output in different scenarios against 2021 baseline
1,800
1,700
1,600
d
/
l
M
1,500
1,400
2030
2040
2050
2060
2085
Baseline
Impact of RCP6.0
Impact of RCP8.5
Different regions may also have particular attributes that make them
more or less sensitive to climate change, therefore we carry out
sensitivity analysis (on central estimates of climate change) looking
at the impacts of the wettest and driest weather on climate impacted
Deployable Output. As you can see in the graph below, our region will
become progressively more sensitive to the driest weather conditions
over time.
Sensitivity analysis on the impacts of the wettest and driest weather
on baseline Deployable Output
4
0
)
%
(
-4
-8
-12
2030
2040
2050
2060
2085
Wettest weather sensitivity
Driest weather sensitivity
Our regulatory commitments to reduce leakage and water
consumption do, however, help to provide us with additional
headroom to increase water available for supply.
In addition, we plan to deliver a range of schemes to ensure water
supplies can cope with a 1 in 500-year return period drought by 2039,
whilst keeping pace with climate change and the requirements set
out by the Environment Agency by 2050. Plans incorporated in
WRMP24 include increased capacity for reservoirs and treatment
plants, new reservoirs and treatment plants, transfers to areas of
need and changes to import/export arrangements. Details of the
individual schemes are outlined in WRMP24.
52
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
METRICS
AND TARGETS
We measure and manage a wide range of
metrics, which help us assess how well we
are doing to minimise our risks in a
changing future. These include a range of
metrics that measure our ability to provide
and take away water, our influence and
impact on natural capital, our adaptation
measures and any changes in the
regulatory environment. These are
reported annually in our Annual
Performance Report to Ofwat which
provides a transparent assessment
of our performance.
This section of our TCFD disclosure sets out
the industry and cross industry metrics and
targets against which we have reported. We
have incorporated metrics used by the Board
and management to measure progress
towards our targets, and the impact this has
had in terms of financial investment. These
meet the ISSB and FCA guidance and our
metrics go above and beyond what the
Sustainability Accounting Standards Board
(‘SASB’) recommends. The table on page 63
shows how measures map across. More detail
around how our reporting maps to the
recommendations of SASB can be found within
our Sustainability Report.
METRICS AND TARGETS
TCFD recommendation
Progress this year
Disclose the metrics and targets used to assess and
manage relevant climate-related risks and
opportunities where such information is material.
We were awarded an A- for 2021/22 from the Carbon Disclosure Project (‘CDP’). The CDP requests
information from companies about climate change and scores each company on the quality and
completeness of responses. Our climate change information is publicly accessible.
Severn Trent has reported against the Metrics and
Targets TCFD recommendations in full within the
2022/23 Annual Report.
This year we are expanding on this disclosure to incorporate financial information for the first time,
as we recognise the importance of this in providing greater transparency over the impact climate
change has on our investment decisions.
More detail can be found on the following pages:
– Our key targets and milestones page 54
– Measuring our progress page 62
– Our Net Zero Transition Plan pages 58 to 65
Or in the following reports,
on our website severntrent.com:
– Sustainability Report
– Annual Performance Report
– Adaptation Report
The organisation’s internal carbon pricing strategy
This table sets out the cross industry metrics
and targets against which we have reported.
We have also assessed our processes to
understand where to focus on developing our
reporting in future.
We implemented an internal carbon tax at the beginning of the financial year, at a rate of £18/tonne
CO 2e, across all directorates. This raised funds of £5.2 million that are being invested in our Net
Zero Transition Plan, including new research and development innovations, and £2 million to pay
for the people needed to support the transition, both across the business and in a central team.
We achieved the Advancing Tier for the Carbon Trust Route to Net Zero Standard, this certification
recognises the progress of an organisation on its route to net zero.
Following the updates to our ERM system and the commitments we have made to net zero by 2030,
we have adapted our financial planning – both this AMP and for PR24 – to incorporate carbon
prices. These are now integrated into both our annual processes and our investment objectives for
our ambitious transition plan over the next AMP.
CROSS INDUSTRY METRICS AND TARGETS
REFERENCE
GHG emissions
See table on page 60
Transition risks – the amount and percentage of
assets or business activities vulnerable to transition
risks
See sections 1 – 3 of Key
Metrics and Investment table
on pages 55 to 56
Physical risks – the amount and percentage of assets
or business activities vulnerable to physical risks
See sections 4 – 6 of Key
Metrics and Investment table
on pages 55 to 56
Climate-related opportunities – the amount and
percentage of assets or business activities aligned
with climate-related opportunities
See Key Metrics and
Investment table on pages 55
to 56
Capital deployment – the amount of capital
expenditure, financing or investment deployed
towards climate-related risks and opportunities
See Key Metrics and
Investment table on pages 55
to 56
Internal carbon prices (amount and explanation of
how it is used)
Remuneration (% remuneration recognised in current
period that is linked to climate-related
considerations, and how these are factored in)
See section 1 of Key Metrics
and Investment table on
pages 55 to 56
See section 3b of Key Metrics
and Investment table on
pages 55 to 56, and further
detail on page 141
PROCESS
MATURITY*
3
2
2
2
3
3
3
* We have rated our disclosure by referencing to the maturity of our processes and readiness to disclose the required level
of detail against the above cross industry metrics:
3 = we have incorporated the required detail within this disclosure across the subsequent pages.
2 = we have sought to provide detail on some of the required information while we establish more mature processes
to improve the level of information available in future.
1 = we are working to establish new processes that support our work to provide a more detailed disclosure in future.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
53
STRATEGIC REPORT
OUR APPROACH TO CLIMATE CHANGE CONTINUED
Our key targets and milestones
In our business, we appreciate that water is a precious natural resource that we can’t take for granted. It is also one of the first impacted by
climate change, so we have set ourselves ambitious targets towards net zero and taken action to build resilience against the effects of climate
change on our business and our communities, as outlined below.
Our plan
Triple Carbon Pledge commitment to
Net zero operational
emissions, including
offsets, by 2030 from a
2019/20 baseline
100% energy
from renewable
sources by 2030
100%
Electric Vehicles
by 2030, where
possible
SBT targets:
46% reduction in Scope 1 and 2 by 2031 from a 2019/20 baseline
Protecting our environment
Launch of our
Green Recovery
programme in 2021
target of 58,000m3 of
blue-green infrastructure
for surface water storage
Launch of our
Great Big Nature
Boost
exceeding our 2020 targets
to enhance the biodiversity
of 5,000 ha of land, and
restore 2,000 acres of
peatland in England and
Wales by 2025
River pledges
delivering against our
pledges announced in
March 2022, including
support for farmers,
better data and reduced
CSO discharges,
alongside nature-based
solutions
Expansion of
our catchment
management
programme
923 STEPS grants
awarded to date
Our
operations
Managing demand
65%
of customers onto a
water meter by 2024
4%
reduction in Per Capita
Consumption by 2024/25
15%
reduction in leakage
by 2024/25
Managing supply
Feasibility started on
North/South
water interconnector
Our value
chain and
the
communities
we serve
AMP7
commitment
we have spent £923m
of our commitment
to spend £1.2 bn on
sustainability, including
our Triple Carbon Pledge
Launch of £10m
Community Fund
and a £30m affordability
package supporting
customers who struggle
to pay
Official Nature
and Carbon
Neutral partner
for 2022
Commonwealth
Games
Launch of
Societal Strategy
Science Based Targets
13.5% reduction in emissions from sold products by 2026 from a
2019/20 baseline
70% of supply chain (by emissions) to set SBT by 2026
Launched EcoVadis
to assess supplier environmental and social performance
Governance,
resource and
reporting
Continued
commitment to meet
TCFD requirements
Established
net zero governance
and resources
Climate
performance
linked to Executive
remuneration
External
third party assurance
of TCFD and LTIP
measures
Ongoing disclosure
via CDP
Launch of an internal
carbon tax
for FY23
Sustainability
LTIP launched in
2021 and adapted
targets each year
Carbon Trust
Route to Net Zero
Standard
(Advancing Tier)
Key planning documents
WRMP
DWMP
SDS
PR24
LTDS
54
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
MEASURING OUR PROGRESS
Key metrics and investment table
Outlined in the table below are the key metrics and targets that align with the transition (purple) and physical (green) risks and opportunities, as
covered in the Risk Management section from page 46. These are outlined alongside the financial investment we have made this year to
demonstrate the financial impact of climate change on our investment programme and planning processes. We have identified both climate risks
and climate opportunities in our strategy and capital deployment approach, within both mitigation and adaptation objectives.
1
1a
Target
Investment update
REGULATION/POLICY:
Changing societal expectations resulting in stricter legal and environmental obligations,
commitments and/or enforcements, increase the risk of non-compliance
Carbon tax
To prepare ourselves for a future of potential carbon taxes, in
2022/23 we applied our first internal carbon tax.
This year, we allocated all of the £5.2 million of carbon tax funds
raised to trials and new projects aimed solely at driving down our
operational emissions. We utilised the resourcing fund that we
set aside, of £2 million, to hire new people across internal teams
focusing on carbon reduction, giving us opportunities to do more,
faster.
1b
Carbon pricing
We set ourselves a goal to adapt our internal processes before
the end of this AMP, in order to begin considering external
carbon prices when appraising capital projects.
Starting this year, we incorporated a price of £248 per tonne from
Government Green Book shadow prices for carbon into our
process for capital investment appraisal. We have used these
prices for project assessment in preparation for PR24.
2
2a
AFFORDABILITY:
The investment required will impact customer bills and affect affordability for some
Financial support
Although we have one of the lowest bills in the country, we know
that 6% households in our region are in water poverty. In May
2022, we launched our Affordability Strategy, a £30 million
package of additional financial support to additional 100,000
customers. For more information, refer to our Sustainability
Report.
This year, we have supported 132,296 customers through our Big
Difference Scheme, and will continue to support customers who
struggle to pay their bill.
2b
Community Fund
From 2020 to 2025, we will be giving away more than £10 million
to support new projects run by local charities and community
groups in the Severn Trent region.
We have invested £2 million this year in 116 projects approved
through the Community Fund, facilitating investment in nature
and the environment across our communities.
3
CLIMATE CHANGE STRATEGY:
Severn Trent’s climate change strategy does not enable us to respond to the shifting natural climatic environment
and maintain essential services
Mitigating climate change will require rapid decarbonisation
3a
Net Zero Transition Plan
In 2019, we made a commitment to be net zero by the end of 2030.
We set out our targets within our Triple Carbon Pledge. We have
since committed to SBTs for Scope 1 and 2 emissions, our supply
chain, and sold products. These are outlined on page 57.
This year, we invested £2.3 million in our Net Zero Transition
Plan and progression against our SBTs. We have also invested
£1.1 million this year to begin transforming one of our sites into
our first ever Net Zero hub.
3b
Executive remuneration
In 2021, we restructured our Executive remuneration to
incorporate a sustainability element to the LTIP. Twenty
percent of the bonus paid under this plan is based on
sustainability performance measures and targets for both
innovation and actual carbon reduction.
The sustainability element of the LTIP will vest in FY24, when we
will report on the bonus amounts and criteria. More information
on our current remuneration structure is on page 145.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
55
STRATEGIC REPORT OUR APPROACH TO CLIMATE CHANGE CONTINUED
4
4a
A SAFE AND SECURE SUPPLY OF DRINKING WATER:
Demand for water will increase as a result of population growth and changing weather conditions
Customer meters
We need our customers to help save water, and giving them more
insight on usage helps them and us to focus in the right areas.
We set a target to get 65% of customers onto a water meter by
2025, which equates to 1.1 million new smart meters and
1.4 million upgrades.
In 2022/23, we invested £8.6 million to install 72,000 new smart
meters. We are on track to meet our AMP target for 2024/25.
4b
Per Capita Consumption
We have committed to an ambitious target to reduce
consumption by 4% by the end of 2024/25. This equates to a
target of 122.7 litres per person per day, and 124.5 litres per
person per day by 31 March 2023.
This year we invested £1.4 million in reducing PCC through
customer engagement projects. We are working with customers
directly to change behaviours around water usage, and provide
quick and easy ways to report leaks to us. Our PCC figure for this
year is 137.6 litres per person per day.
4c
Interconnector
We are collaborating with others in the water industry to investigate
and plan for an interconnector pipeline that will move water from
areas of water surplus in the North to areas of water scarcity in the
South. Our target by the end of 2024/25 is to have a plan approved by
Ofwat to begin construction in AMP8 of relevant schemes.
We have invested £7.2 million this year on interconnector
projects, including investigating the feasibility of using the Grand
Union Canal as an alternative resilient water source, and
expanding reservoir capacity in our region. Our first four options
have been submitted to Ofwat for consideration ahead of AMP8.
4d
Leakage reduction
We need to stop water leaking from our network. This will help to
engage customers to preserve water and avoids energy and
chemicals waste. We have set an ambitious leakage reduction
target of 15% by the end of AMP7 (averaged over 3 years at
14.3%), and 50% by 2045 (since 2019/20).
This year, we deployed capital investment of £44.6 million in both
proactive and reactive repairs to our pipes alongside proactive
management of our network. We have so far delivered a 3.5%
reduction since 2019/20.
TRANSPORT AND TREATMENT OF WASTE WATER:
We do not transport and treat waste water effectively, impacting our ability to return clean water to the environment
5
5a
Public sewer flooding
In 2020 we committed to 7.4% reduction in public sewer flooding
– the only company in the industry to have such a measure for
AMP7.
5b
External sewer flooding
We set ourselves a highly ambitious target at the beginning of
AMP7 to reduce external sewer flooding incidents by 8%. We
know how important it is to our customers to see performance in
this measure improve, and to our business to build resilience to
the effects of climate change.
5c
Combined Sewer Overflows
This year we invested £80 million to prevent sewer flooding. We
have outperformed on our public sewer flooding target by 34%
and we are outperforming this measure by 40% on average
across the AMP. Unfortunately we missed this year’s challenging
target for external sewer flooding by 26%. Storm events over the
winter had a significant impact on our network, and some areas
experienced more than 200% of the average monthly rainfall. We
are working to get back on track and improve performance
significantly, as we have ambitions to demonstrate great
outcomes here.
As part of our Get River Positive river pledges, we set a target to
reduce spills from storm overflows to an average of 20 per year
by 2025.
We have deployed capital investment of £13.7 million in
improving the data we have on CSOs, creating new processes to
manage and monitor triggers, and have reduced the number of
storm overflow activations from an average of 25 to 18 this year.
6
6a
NATURAL CAPITAL:
We fail to positively influence natural capital in our region
Green Recovery
In July 2021, Ofwat awarded us £566 million (2017/18 prices) to
invest in our ambitious Green Recovery Programme. Projects
include collaborative flood resilience, via which we set a target to
store 58,000m3 of surface water to reduce flooding risk to homes.
You can read more about this and our progress on page 35.
This year we invested £3.3 million in collaborative flood
resilience as part of our project in Mansfield to store more
surface water and prevent flooding. We also invested £7.6 million
to support environmental improvements to rivers, through our
Bathing Rivers programme.
6b
Biodiversity
In 2020, we launched our Great Big Nature Boost, committing to
enhance the biodiversity of 5,000 hectares of land, plant
1.3 million trees and restore 2,000 km of rivers by 2027. We also
committed to improve rivers in 44 catchments covering 432,000
hectares through our Farming for Water programme by working
with two thirds of all farmers in our region. 381 hectares of our
land will be managed using an approved biodiversity action plan.
This year we have invested £1.5 million to plant 227,999 trees,
reaching a total of 694,144 to date. We have already exceeded our
target of enhancing the biodiversity of 5,000 hectares, four years
early. 923 STEPS grants have been awarded since 2020, with a total
investment applied for of £5.6 million. You can read more about
these initiatives on pages 18 to 19 and on our dedicated website
pages: stwater.co.uk/about-us/environment/biodiversity/
56
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
OUR TRIPLE CARBON PLEDGE AND
SCIENCE-BASED TARGETS COMMITMENT
The following outlines performance against our existing targets and highlights of the last year’s activities, see pages 60 to 62 and our dedicated
Sustainability Report online for more information
OUR TRIPLE CARBON PLEDGE
OUR SCIENCE-BASED TARGETS
Net zero
46% reduction
operational carbon emissions Scope 1 and 2 across our
business by 2030 (offsets included) from a 2019/20 baseline
in Scope 1 and Scope 2 emissions by 2031 from
a 2019/20 baseline
100%
Baseline
-46%
Baseline
– Improving our data, particularly in monitoring actual process emissions
– Investing in national and international partnerships
15%
24%
– Working on a portfolio of innovations to test individual technologies and designing plans for a world’s first Net Zero hub at a waste water
treatment site to trial and test technologies that minimise our operational emissions
– Stepping up our operational focus on energy use, using energy more flexibly and promoting behavioural change to reduce wasted energy
– Building net zero into our business plans for the next regulatory cycle
– Investing further in peatland restoration and tree planting
100%
70% of our supply chain
of energy from renewable sources by 2030
(by emissions) having set a SBT by 2026
0%
100%
0%
70%
– We continue to procure 100% renewable-backed electricity
– Starting to align incentivisation to environmental outcomes
53%
44%
via our suppliers
– Engaging with and supporting our supply chain to understand,
– We continue to invest in energy efficiency to offset the
report and set their own Science-Based Targets (‘SBTs’)
upward drivers we face from drought and improving water quality
– Increasing data maturity with others in the sector to capture
– We’ve increased our total renewable energy generation and
actual data and drive consistency in data capture and reporting
generated a record 548 GWh this year
100%
electric vehicles, where available, by 2030
– Assessing high-impact suppliers through EcoVadis
– Secured place on CDP Supplier Engagement Leaders board
13.5% reduction
in emissions from the use of sold products by 2031
against a 2019/20 baseline)
0%
100%
-13.5%
Baseline
36%
– 146 company electric vehicles now in use
– Ran Hydrogenated Vegetable Oil trials in place of diesel for some
vehicles
– Increased number of home charging points installed
– We work with manufacturers, suppliers and professional bodies
to understand and influence the roadmap of EV development
+13%
– The change stems largely from utilisation of propane when
injecting biomethane into the National Gas Grid to meet energy
criteria regulations
– We have explored ways to mitigate this and use of alternatives
e.g. biopropane, so we can continue to increase our renewable
generation from sludge
SCOPE ONE
Direct emissions
from owned or
controlled sources.
SCOPE TWO
Indirect emissions
from the generation
of purchased
electricity, steam,
heating and cooling
consumed.
SCOPE THREE
Includes all other
indirect emissions
that occur in a
company’s value
chain.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
57
STRATEGIC REPORT OUR NET ZERO
TRANSITION PLAN
Our approach
Achieving our plan is requiring us to
re-think every aspect of our business
processes and adopt new ways of
working. Our approach is to follow the
carbon hierarchy to achieve our 2030
targets:
SCOPE ONE
Since introducing more advanced process
emission measurement systems, we have
been able to capture more accurate data,
resulting in a significant perceived
increase in Scope 1 emissions that
reflects the change in reporting
REDUCE
Reduce our emissions
REPLACE
Replace fossil fuels such as
natural gas with green energy
REMOVE
Remove carbon emissions such as
through carbon sequestration
OFFSET
Only then we will offset where we
can’t remove any residual
emissions through high quality
and accredited schemes
SCOPE TWO
We have committed to purchase
renewable-backed electricity for all our
import supply, which reduced our
market-based Scope 2 emissions to zero,
effective from 2021
SCOPE THREE
Scope 3 is a major source of emissions,
which we are working on with our
suppliers
What are we aiming for?
Our Net Zero Transition Plan brings
together our Triple Carbon Pledge
(which we set in 2019) and our SBTs,
approved in 2021. We need to achieve
these targets whilst continuing to
provide the high-quality service our
customers expect, at a price they
can afford.
What do we mean by net zero?
Net zero means achieving a balance between
the amount of emissions produced and those
removed from the atmosphere in order to limit
the impact from climate change.
Our target is to achieve net zero operational
emissions (our Scope 1 and 2, and some
outsourced Scope 3) by 2030. We will prioritise
our net zero investment to achieve this without
purchased offsets, but if we do need them, we
will only use high-quality offsets to meet our
2030 target.
Our glidepath and future strategy
Our strategy considers the best operational,
technological and economic route to meeting
our climate goals. We constantly review this as
part of our net zero programme to ensure
decisions reflect latest advancements and
best practice.
ktCO2e
800
700
600
500
400
300
200
100
0
-100
-200
2010/11
2019/20
Scope 1
SBTi baseline
97% forecast
reduction
since 2010
Business as
usual (net)
SBT Scope 1+2 Target
94% forecast
reduction against
SBT baseline
Net emissions
2020/21
2021/22
Scope 2 (market based)
2022/23
2023/24
2024/25
Operational Scope 3
2025/26
2026/27
Energy exports
2027/28
2028/29
2029/30
2030/31
58
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
The chart on the previous page shows the
significant progress we have already made on
carbon reduction journey delivering 59% since
2010/11 and 24% reduction against our SBT
target of 46% by 2031 (against our baseline in
2019/20). Based on internal projections, linked
to our transition and investment plans, we
believe it will be possible to significantly
outperform our SBT reduction target for Scope
1 and 2 operational emissions by 2030/31 and
in turn set the roadmap for others to follow.
Despite being confident in our plan to deliver the
net zero programme, it will not be a linear
journey. The step change in effort and investment
required between now and 2030 to deliver the
next phase of reduction will require innovation at
scale in the next 18 months, followed by a strong
delivery programme in the second half of the
decade. The additional challenge we will face
along the way is implementing the required
reduction interventions that not only cope with
today’s demand, but the incremental demand on
our business that comes from population
growth, increased water quality standards and
resilience of water supply.
As such, we are currently focused on investing
in research and development to trial and test
new technologies and ways of working that will
enable us to make reductions that address
these competing demands. Not all of the
technologies we’ve tested are suitable and our
innovation portfolio enables us to quickly adapt
our approach in view of learnings.
The emphasis on transparent and rigorous
reporting remains a key priority to ensure that
we invest in the right areas. As the science and
requirements of reporting standards and
frameworks evolve, it’s important to
distinguish between method changes and
actual changes such as our process emissions.
We continue to improve the granularity and
confidence of our data as we move from
estimates to actual data as much as possible
across all our scope emissions.
This means our emissions are going up in the
short term, before we can start to realise
reductions again.
Building our programme
We are confident that the investment we are making now will ensure we meet our targets. Our
current estimates to achieve our reduction targets are outlined below. This will be updated with
more detailed and costed plans as part of our next business planning cycle, PR24, which is
currently being developed.
OUR SCOPE 1 AND 2 NET ZERO PROGRAMME
NET ZERO HUB —
INNOVATING
FOR THE FUTURE
In order to make significant headway with
our reductions, we will need to implement
new technologies on a wider scale across
our waste water treatment sites. Work on
our portfolio of innovations has
progressed significantly over the last
twelve months through a combination of
testing and trialling individual
technologies for feasibility and viability at
our Resource and Recovery Centre, as
well as drawing on the learnings of trials
undertaken by other companies. We have
brought these together and are designing
a whole system of technologies that can
be retrofitted onto an existing waste water
treatment site, as outlined in the Net Zero
hub case study, and is a pivotal part of the
programme to reduce our Scope 1 and
Scope 2 emissions. See our Sustainability
Report for the case study.
(kt)
600
500
400
300
200
100
0
547
110
-130
Upwards pressures
Reduction
Base
181
-21
SBTi Scope 1 and 2 baseline
-177
-208
SBTi Scope 1 and 2 Target
374
-197
-210
-30
94% reduction in
Scope 1 and 2
by 2030
26
-360
-26
-2
SBT Baseline
(market based)
Current
Performance
Reduce
Replace
Remove
-29
Offset
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
59
STRATEGIC REPORT OUR NET ZERO TRANSITION PLAN CONTINUED
The following table shows our annual greenhouse gas performance and accounts. Our reporting method is documented overleaf along with a summary
of this year’s performance, with supporting technical detail to ensure full transparency reflecting the complexity and growing granularity of our data.
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 – CAW1
Scope 1 Emissions – Process emissions – Revised methodology2
Scope 1 Emissions – Transport fleet
Scope 1 Total Emissions3
Scope 2 Emissions (Electricity purchased for own use) – Location Based3
Scope 2 Emissions (Electricity purchased for own use) – Market Based3
Scope 1 and 2 Total Emissions – Location Based
Scope 1 and 2 Total Emissions – Market Based
Scope 3 Emissions (Business Travel)
Scope 3 Emissions (Outsourced bioresource activities)
Scope 3 Emissions (Electricity Transmission and Distribution)
Total Annual Gross Operational Emissions3 – Location Based
Total Annual Gross Operational Emissions3 – Market Based
ST Plc 2019/20
baseline
ST Plc 2020/21
ST Plc 2021/22
ST Plc 2022/23
18,2154
150,2664
348,052
17,6394
383,906
199,635
163,581
583,541
547,487
1,447
3,187
16,985
605,160
569,106
29,669
155,4414
351,601
17,914
399,184
182,768
1
581,952
399,185
343
3,340
15,718
601,353
418,586
48,716
149,5154
350,481
18,968
418,165
159,638
–
577,803
418,165
620
2,424
14,127
594,974
435,336
51,167
138,7244
346,508
19,656
417,330
149,964
8
567,294
417,338
958
2,463
13,719
584,434
434,478
Annual GHG intensity ratio (tCO2/unit)3
ST Plc 2019/20
baseline
ST Plc 2020/21
ST Plc 2021/22
ST Plc 2022/23
Gross Location Based Operational GHG emissions per £m turnover
328
329
306
270
These values use the revised process emissions numbers.
The CAW has been our historical and industry standard reporting method for process emissions, so it is provided for transparency and comparison.
1
2 Process emissions based on our trial and monitoring data, see page 61 for more details.
3
4 Historic process emissions have been updated to reflect revised data and emissions factors. Historic emissions for combustion of fossil fuels have been revised to reflect changes to
biomethane production methodology and 2019/20 fleet data has been updated to capture fleet in our Green Power business. Intensity factors have been updated to reflect these
adjustments
Avoided emissions
Our generation of energy from anaerobic digestion within our Severn Trent Water and Green Power businesses provide us with the opportunity to
export renewable energy to the grid. This energy displaces natural gas and electricity that might have come from other sources. We estimate the
benefit of these avoided emissions below versus average grid emissions factors for electricity and natural gas in the UK.
Avoided emissions (tCO2e)
Estimated emissions benefit of the renewable electricity we export
Estimated emissions benefit of the renewable biomethane we export1
Total avoided emissions
1 Benefits calculated using the latest UK grid emissions factors.
ST Plc 2019/20
baseline
ST Plc 2020/21
ST Plc 2021/22
ST Plc 2022/23
46,954
32,926
79,880
40,648
45,006
85,654
33,961
54,032
87,993
29,547
73,393
102,940
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 Science-Based Targets. We will be disclosing improved data on these areas in future, as explained in our Sustainability Report.
Scope 3 Emissions
1) Purchased goods and services
2) Capital goods
3) Fuel and energy-related activities – transmission and distribution
3) Fuel and energy-related activities – upstream well to tank emissions
4) Upstream transportation and distribution
5) Waste generated in operations
6) Business travel
7) Employee commuting
8) Upstream leased assets
9) Downstream transportation and distribution
10) Processing of sold products
11) Use of sold products
12) End of life treatment of sold products
13) Downstream leased assets
14) Franchises
15) Investments
Total Scope 3
1 Benefits calculated using the latest UK grid emissions factors.
60
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ST Plc 2019/20
baseline
ST Plc 2020/21
ST Plc 2021/22
ST Plc 2022/23
161,171
250,546
21,148
17,140
6,440
1,121
3,471
NA
1,823
NA
32,332
NA
10,469
NA
NA
505,661
160,710
250,546
15,718
8,715
17,140
6,084
343
3,471
NA
3,340
NA
32,995
NA
10,469
NA
NA
509,491
219,777
197,376
14,127
13,909
16,682
10,280
620
5,250
NA
2,348
NA
36,821
NA
15,104
NA
NA
532,295
248,231
183,702
13,719
13,714
12,766
10,380
958
4,907
NA
2,463
NA
36,439
NA
14,493
NA
NA
541,772
Also shown in our avoided emissions table, is
the carbon benefit of the renewable electricity
which we export and biomethane we export to
the grid. We generate renewable energy in
both our regulated and non-regulated
businesses and continue to see growth in both
these areas. We use the proceeds to invest in
our research and development programme to
reduce Scope 1 emissions.
We have seen an increase in our use of sold
product and associated emissions, due to
changing how we account for our propane
usage to inject biomethane into the national
gas grid. The propane is required to ensure our
renewable gas meets energy standards within
the grid for metering purposes and we are
seeking ways to reduce/replace the propane
and improve our performance.
Our total Scope 3 footprint has increased by 2%
from 2021/22 driven mainly by increased
expenditure on goods and services, and capital
goods. See our Sustainability Report for wider
reporting on our Scope 3 journey.
Greenhouse gas reporting method
2022/23 is the tenth year Severn Trent has
reported GHG emissions. For Severn Trent
Water, which accounts for 98% of our total
Group emissions, we have been publicly
reporting our emissions since 2002. We also
continue to report our energy use and
generation data to 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 2022
to 31 March 2023. We report our location-
based and market-based emissions separately
and report on ten Scope 3 categories. We
report using a financial control boundary and
follow the practices set out by the Greenhouse
Gas Protocol.
Method for calculating process
emissions
We used the UK Water Industry Research
(‘UKWIR’) standardised methodology for
estimating operational GHGs, Carbon
Accounting Workbook (‘CAW’), to calculate our
2019/20 baseline. However, deeper insights led
us to enhance our measurement practices, and
over the last three years we’ve been running
an industry-leading monitoring programme
that shows our process emissions are
substantially higher than the previous CAW
estimations. Our method for estimating
process emissions reflects guidance from the
International Panel for Climate Change (‘IPCC’)
which highlights the need to improve on broad
emission factors by taking measurements at
the facility-specific level. We are targeting
effective monitoring at sites responsible for
40% of N2O and 40% of CH4 emissions and have
met this target for N2O emissions. This data
will give us an insight into long term seasonal
and diurnal profiles as well as any variation
caused by processes on site. This is the second
year we are reporting our process emissions
based on our own measured data, rather than
a crude emission factor estimate.
The emissions factors across our process
emissions have increased as a result of our
wider monitoring (to just below IPCC factors),
which continues to confirm that emissions
factors are substantially higher than the
previous UKWIR CAW calculations. This
method has been applied to our historical
emissions. In addition, our monitoring has
allowed us to capture new sources which were
previously unreported.
Assuring our data
The GHG data we report is tracked internally
during the year through the Corporate
Sustainability Committee and shared with the
Board. We have subjected our GHG data and
processes to external assurance by Jacobs.
They completed a full audit of our Scope 1, 2
and 3 data in line with the principals of the IS0
14064 International standard for GHG
emissions and found our processes for
reporting are consistent with reporting
requirements the GHG Protocol.
In addition, we achieved the Advancing Tier for
the Carbon Trust pilot Route to Net Zero
Standard – this certification recognises the
progress of an organisation on its journey to
net zero. This included assurance to the
principles of IS0 14064-3 International
standard for GHG emissions for our Scope 1
and 2 and a small portion of our Scope 3 data.
We are in the process of verifying our 2022/23
footprint with the Carbon Trust to maintain
our accreditation.
Summary of performance
Our emissions have fallen by 24% against a
2019/20 baseline for our SBT of 46% reduction
by 2031 on a 2019/20 baseline, driven
predominantly by moving to 100% renewable
electricity from our suppliers.
Our Scope 1 emissions are broadly flat from
last year. As we capture more data, you see
this reflected in some areas such as our fleet,
which now include emissions from HD that
were not previously calculated. Our use of
natural gas is higher due to the deployment of
Thermal Hydrolysis sludge treatment process
at an increasing number of sites, which
produces better quality sludge digestate and
more renewable energy, but requires high
temperatures. This is balanced by a reduction
in our process emissions, which continue to
make up the majority of our Scope 1 emissions
at 83%. Even though we are processing higher
volumes of sludge, approximately 60% of our
sludge is now being treated using advanced
digestion (‘THP’, ‘APD’) which has
approximately half the emission factor of
traditional anaerobic digestion.
For Scope 2, whilst we have used more
electricity, we have benefitted from reduced
grid emissions factors for location based
factors. We also report the benefit of our 100%
renewable green tariff as reflected in the
market based emissions.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
61
STRATEGIC REPORT REPORT
ON ENERGY
Below is data on our energy consumption
and generation for the last five 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 2022 to 31 March 2023.
All energy is used in the UK.
Energy efficiency
Energy became an even more important focus
for us this year as prices rose to record levels.
Our energy management policy and dedicated
team and investment programme have
enabled us to manage these pressures
effectively during the year. We also established
new communication campaigns focused on
energy use management and expanded our
flexibility approach to participate in the world’s
first National Grid Demand Flexibility Scheme
to mitigate price rises.
This year we invested an additional £4.3 million
in energy efficiency schemes and we have
invested a total of £36 million over the last
eight years. This includes proactive
maintenance of our energy-intensive assets,
such as pumps and air blowers, and
investment in improved controls and
monitoring to reduce energy use. Our energy
management policy and programme reflects
best practice outlined in ISO 50001, the
international energy management standard.
To reduce our operational emissions further,
we continue to focus on improving our energy
efficiency to offset the additional demands of
a growing population and greater treatment
to improve water quality. Our long-term
energy strategy is to increase the amount of
renewable energy we generate and procure,
to continue to focus on energy efficiency and
to take advantage of incentives to use
energy flexibly.
Our total use of electricity rose this year, driven
primarily by the drought conditions during
summer, which required more water into supply,
abstraction restrictions on our cheapest gravity
sources and intensive reservoir recovery pumping
over the winter period to prepare for the year
ahead. This rise was mitigated by our energy
efficiency activity and our like-for-like year end
position on total electricity use is 2% lower, when
removing the impacts of drought conditions.
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. Our import of gas has increased over the
last three years, driven by the commissioning
of new heat-intensive sludge treatment
processes and our deployment of combined
heat and power (‘CHP’) generation fed by
imported gas to mitigate high electricity costs.
We have also increased our export of
biomethane into the gas grid and decreased
the amount of biogas we combust in CHP.
We generated more renewable energy this
year than ever before, a total of 548 GWh. Our
aim is that, by 2030, all energy that we use will
come from a renewable source. That means it
is either directly renewable or covered by a
renewable-backed source of gas or electricity
such as a Renewable Energy Guarantee of
Origin (‘REGO’) or green gas certificate.
Achieving this target will require
electrification, which will result in an increase
in our use of electricity in order to phase out
the use of fossil fuels in our business. It will
also mean an increase in use of biofuels and
green hydrogen to replace diesel.
Energy type
Source
Electricity
Electricity imported
Electricity generated from renewable sources and used on
site
Units
GWh
GWh
Electricity generated from renewable sources and exported GWh
Electricity generated from fossil gas and used on site
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)
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)
Totals
Normalised
Metrics
2018/19
2019/20
2020/21
2021/22
2022/23
771
198
114
0
52
745
166
20
62
7
780
194
184
0
44
922
181
20
70
6
784
184
174
12
120
872
245
23
77
4
752
170
160
43
208
801
3361
31
71
2
775
153
153
48
233
733
403
31
74
2
GWh
GWh
GWh
GWh
GWh
GWh
GWh
GWh
1,855
2,037
2,064
2,035
2,002
GWh
912
921
1,008
1,064
1,116
Total energy per unit of revenue
Energy imported per unit of revenue
Clean water electricity use per unit treated
GWh/£m
GWh/£m
kWh/Ml
1.05
0.52
714
1.11
0.50
698
1.13
0.55
718
1.05
0.55
7261
0.92
0.52
744
1 We have restated gas export volume for 2021/22 which is now higher than reported last year. Some gas export volume was not included at year end last year as it was not accredited in time
for annual reporting. It is included here in the restated 2021/22 gas export number.
62
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
DISCLOSURE UNDER SUSTAINABILITY
ACCOUNTING STANDARDS BOARD
Companies in the Water Utilities and Services industries are recommended to report against the following metrics and topics for SASB standards
in the draft IFRS S2 (Climate-related Disclosures).
SASB standards
Equivalent
reporting
1) Total energy consumed
1) Total energy used
2) Percentage grid electricity
2) Electricity imported
Energy
management
3) Percentage renewable
Water main replacement rate
3) Electricity generated from
renewable sources and used on
site; biogas generated and
combusted on site
Length of new mains
requisitions, length of
new mains – Self Lay Providers
Location of
reporting
Annual Report and
Accounts page 62
Description of reporting
We report on the change in energy
usage expressed in GWh over three
years from 2018/19 baseline
Annual Performance
Report1
We report on our water main
replacement rates expressed as a
percentage
Distribution
network efficiency
Volume of non-revenue real water
losses
Leakage
Annual Performance
Report1
Mains bursts
Annual Performance
Report1
Speed of response
to visible leaks
Annual Performance
Report1
Our reporting considers the percentage
reduction of three-year average leakage
in megalitres per day (Ml/d) from the
2019/20 baseline
Our reporting considers the number of
mains bursts per thousand kilometres
of total length of mains
We report the time taken to fix
customers’ reported significant visible
leaks on Severn Trent Water’s network
Percentage of water utility revenues
from rate structures that are designed to
promote conservation and revenue
resilience
Number of water
meters installed
Annual Performance
Report1
Our reports outline the number of
customer water meters installed
We report the number of people who
have agreed to change their behaviour
as a result of our educational activities
Our reporting outlines the average
amount of water used by each person that
lives in a household property (litres per
head per day), reported as a three-year
average
Our reporting on sourcing from
high-stress regions is outlined within
the WSSR
We do not currently report on the
volume of recycled water delivered to
customers
End-use efficiency
Customer water savings from
efficiency measures, by market
Inspiring our customers
to use water wisely
Annual Performance
Report1
Per Capita Consumption
Annual Performance
Report1
Total water sourced from regions with
High or Extremely High Baseline Water
Stress, percentage purchased from a
third party
Reported in the EA Water
Scarcity Status report (‘WSSR’)
EA Water Scarcity
Strategy2
Water supply
resilience
Volume of recycled water
Not reported
Discussion of strategies to manage risks
associated with the quality and availability
of water resources
Waste water treatment capacity located
in 100-year flood zones
(1) Number and (2) volume of sanitary
sewer overflows (‘SSO’) and (3)
percentage of volume recovered
(1) Number of unplanned disruptions,
and (2) customers affected, each by
duration category
Description of efforts to identify and
manage risks and opportunities related
to the impact of climate change on
distribution and waste water
infrastructure
Not reported
Supply interruptions
Water Resources
Management Plan
Drainage and
Wastewater
Management Plan
Annual Performance
Report1
Water Resources
Management Plan /
Drainage and
Wastewater
Management Plan
Network resiliency
and impacts of
climate change
1 Read our Severn Trent Water and Hafren Dyfrdwy Annual Performance Reports online at www.stwater.co.uk/regulatory-library/regulatory-library-documents/ and
www.hdcymru.co.uk/regulatory-library/regulatory-library/ respectively.
2 Read the EA Water Scarcity Strategy online at www.gov.uk/government/publications/water-stressed-areas-2021-classification.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
63
STRATEGIC REPORT OUR EU
TAXONOMY
DISCLOSURE
As we look forward to the development of a
UK green taxonomy, we have voluntarily
disclosed now our eligible activities under
EU Taxonomy guidance. We look forward to
undertaking a full alignment review for the
next iteration of our disclosure. This has
enabled us to report ‘green’ revenues,
operating costs and capital expenditure of
over 95%, increasing visibility of the scale
of our commitment to run a business that
goes hand-in-hand with nature, and drives
positive change.
Application of the EU Green
Taxonomy to the economic activities
of Severn Trent
Severn Trent is committed to protecting and
enhancing the environment in a way that has a
positive sustainable impact. Robust disclosure is
crucial in evidencing our delivery of that
commitment, and we welcome the regulatory
progress being made by both the EU and UK in
developing standardised corporate sustainability
reporting frameworks for ESG activities. Whilst
we look forward to the expected establishment
of an interoperable UK Taxonomy, we have
decided to accelerate the enhancement of our
sustainability disclosures by making a voluntary
disclosure under the EU Taxonomy framework.
By reporting our activities against the EU
Taxonomy, we hope to provide greater
transparency for all stakeholders and decision-
useful information for both investors and
lenders. More detail on our Principal Adverse
Impact (‘PAI’) assessment can be found in our
ESG data book on our website severntrent.com/
sustainability-strategy/.
Our approach
We have begun to adapt our processes to enable
Severn Trent to prepare a preliminary analysis
of eligible economic activities under the EU
Taxonomy. Our approach for this disclosure is
based on guidance and interpretation, and has
been subject to external third-line assurance.
However, this is not a full disclosure, and we will
be developing our approach over the coming
months to enable a full review of alignment to
the EU Taxonomy.
We have established a ‘Taxonomy’ working
group tasked with embedding a new process
for taxonomy reporting within the ST Group,
including an initial activity review using data
available from existing financial systems and
application of the EU Taxonomy to our
economic activities. The working group
consists of finance and sustainability
professionals, co-ordinating with subject
matter experts across the wider business to
input into the activity review as required.
As part of this review, we have performed a
detailed analysis of our economic activities,
allowing us to make an initial assessment of
their eligibility under the EU Taxonomy.
The analysis was based on the EU Taxonomy
Regulation, which includes its associated
legislative acts (the ‘Delegated Acts’) described
below and any additional guidance released,
such as FAQs, up to the date of reporting:
– The Climate Delegated Act – establishes
the technical screening criteria (‘TSC’) for
determining the conditions under which an
economic activity qualifies as contributing
substantially to climate change mitigation
(Annex 1) or climate change adaptation (Annex
2), and for determining whether that economic
activity does no significant harm, in line with
the Do No Significant Harm (‘DNSH’) principle,
to any of the other environmental objectives.
– The Disclosure Delegated Act – specifies the
content and presentation of information to be
disclosed, concerning environmentally
sustainable economic activities, and
specifying the methodology to perform that
assessment.
We will expand on our initial analysis to include
a full review of the significant contribution
criteria, including the assessment of our
economic activities against the Do No
Significant Harm (‘DNSH’) principles and
minimum safeguard requirements. Through
this process, we will establish the evaluation
methodology that will apply in future periods,
with the aim of reporting against all alignment
criteria in the next iteration of our disclosure.
Initial disclosure – eligibility review
We have disclosed the eligibility of our
business activities against the two objectives
that have so far been published (climate
change mitigation and climate change
adaptation), alongside the proportion of
revenue, operating costs and capital
expenditure associated with each. The table
below provides a summary of our taxonomy-
eligible activities, which are broadly the same
for both objectives. When we review full
alignment, we expect there to be more marked
differences between the values against the two
objectives, and to be able to disclose with more
granularity the allocation within our existing
activities. We also expect to be able to report
against the remaining four objectives when the
relevant legislation is published.
Methodology
Within the regulated entities of Severn Trent
Water and Hafren Dyfrdwy we report to Ofwat
under price controls (Water Resources, Water
Network +, Waste Network +, Bioresources).
To comply with regulatory accounting
guidelines, we apply cost allocations and
recharges between business areas across the
Group. These include centralised costs such as
HR, Finance, and other support functions,
whilst our Retail price control incorporates
costs associated with ensuring we provide a
continued service for our customers, such as
managing bills and running our customer
contact centres. As these services are vital for
the eligible activities to take place, we have
allocated the associated costs to the eligible
activities mapped out in this disclosure under
the Water Resources, Water Network + and
Waste Network + price controls on a pro-
rata basis.
The figures taken to report our activities
against the EU Taxonomy are based on the
same cost allocation approach we use for both
entity and regulatory reporting, as a
percentage of the totals presented in the
Balance Sheet and Income Statement here in
our Annual Report and Accounts to 31 March
2023. We have made an assumption that all
costs allocated to our Bioresources price
control are eligible, whilst further work is
needed to establish eligibility of some of the
separate activities within this area. Based on
EU Taxonomy guidance published to date, we
have excluded depreciation and amortisation
costs from operating expenditure in
calculating the level of eligible costs, as well
as the charge for bad and doubtful debts.
64
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Climate change mitigation and climate change adaptation objectives
Allocation in the
Severn Trent Group
Eligible Economic Activity in accordance with the EU Taxonomy
NACE Code
Revenue %
Operating costs
%
Capital
expenditure %
Water Resources
and Water Network +
Construction, extension and operation of water collection,
treatment and supply systems
E36.00, F42.21,
F42.99
45%
52%
55%
Renewal of water collection, treatment and supply systems
E36.00, F42.99
Waste Water
Network +
Construction, extension and operation of waste water
collection and treatment
E37.00, F42.21,
F42.99
43%
39%
38%
Bioresources
Anaerobic digestion of sewage sludge
E37.00, F42.99
4%
1%
5%
Renewal of waste water collection and treatment
E37.00
Severn Trent Green
Power
Electricity generation using solar photovoltaic technology
D35.11, F42.22
Electricity generation from wind power
Electricity generation from hydropower
Electricity generation from renewable non-fossil gaseous
and liquid fuels
D35.11, F42.22
D35.11, F42.22
D35.11, F42.22
Electricity generation from bioenergy
D35.11
Installation, maintenance and repair of renewable
energy technologies
E36.00, F42.99
3%
3%
1%
The following graphs depict the proportion of revenue (Fig.1), operating costs (Fig.2) and capital expenditure (Fig.3) that we have assessed as
eligible against the EU Taxonomy (as detailed previously):
REVENUE
OPERATING COSTS
CAPITAL EXPENDITURE
Total
95%
95%
99%
5%
95%
5%
95%
1%
99%
Eligible
Not eligible
Eligible
Not eligible
Eligible
Not eligible
Fig. 1
Fig. 2
Fig. 3
Incorporated within the costs allocated to the
above categories are costs associated with the
activities listed here, also eligible within the EU
Taxonomy. We may seek to extract and report on
costs within these activities separately in a future
iteration of our disclosure.
It is expected that the UK Taxonomy, when
established, will be interoperable with the EU
Taxonomy, so that the UK model does not deviate
significantly from that of the EU. We expect our
assessment of our taxonomy-eligible activities
disclosed here to be consistent with the future UK
framework. We also note that the future
introduction of the remaining four objectives of the
EU Taxonomy (sustainable use and protection of
water and marine resources, transition to a
circular economy, pollution prevention and
control, and protection and restoration of
biodiversity and ecosystem) will include
environmental objectives relevant to Severn Trent.
Based on an initial review of the proposals, we
believe there will be additional activities eligible
under the criteria recently published for
consultation.
Other eligible activities within Severn Trent
Afforestation
Forest management
Restoration of wetlands
Co-generation of heat/cool and power from bioenergy
Co-generation of heat/cool and power from renewable non-fossil gaseous and liquid fuels
Production of heat/cool from bioenergy
Anaerobic digestion of bio-waste
Composting of bio-waste
Renovation of existing buildings
Installation, maintenance and repair of energy efficiency equipment
Installation, maintenance and repair of charging stations for electric vehicles in buildings
(and parking spaces attached to buildings)
Installation, maintenance and repair of instruments and devices for measuring,
regulation and controlling energy performance of buildings
Acquisition and ownership of buildings
Data processing, hosting and related activities
Close to market research, development and innovation (adaptation only)
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
65
STRATEGIC REPORT
CHIEF FINANCIAL OFFICER’S REVIEW
We have delivered strong
financial performance this year
in the face of challenging
external factors including:
– unprecedented wholesale
energy prices
– cost pressures on chemicals,
other materials and licence fees
– additional operating costs
during the exceptionally
hot and dry summer and
the freeze thaw event
in December
The regulatory model set the inflationary uplift in this year’s tariffs from CPIH in November
2021. This lag meant our regulated revenue for the year included an increase of only 4.6% while
inflation on key operating costs was significantly higher than this.
Despite these challenges we have delivered Group PBIT of £508.8 million (2021/22
£506.2 million). A summary of our financial performance for the year is set out below:
Change
2023
£m
2022
£m
Turnover
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
2,165.1
1,943.3
508.8
(362.6)
21.7
167.9
(35.7)
132.2
506.2
(269.4)
37.3
274.1
(361.3)
(87.2)
£m
221.8
2.6
(93.2)
(15.6)
(106.2)
325.6
219.4
%
11.4
0.5
(34.6)
(41.8)
(38.7)
90.1
251.6
Turnover in Regulated Water and Waste Water
increased year on year by £191 million, which
was in the middle of our expected range.
Business Services turnover increased by
£34 million as a result of growth in our
Operating Services business and the benefit
of higher generation and energy prices in our
Green Power business.
Net labour and hired and contracted costs
increased by £21.4 million (4.9%). Gross costs
increased due to hired staff providing leakage
reduction support and other short-term labour
requirements. Increased activity on our
capital programme was offset by higher
capitalised labour.
Higher energy prices reduced Group PBIT by
around £43 million year-on-year as the higher
costs of energy consumed exceeded the
benefit from our energy revenues. The impact
on totex in our regulated business was around
£23 million higher as this does not include the
benefit of revenue from energy generated in
our Green Power business. We expect totex
and RoRE to be impacted by higher energy
costs for the remainder of the AMP but this
impact will be offset to deliver a broadly
neutral Group return on equity across the five-
year period. Across the Group, we generate
the equivalent of around 53% of our energy
requirements. This provides an effective
energy price hedge for our group return on
equity because our power costs mainly arise
in parts of our regulated business in which
Severn Trent Water’s RoRE for the
year was 12.2%, 830 bps above the
base return of 3.9%. Outperformance
came mainly from our customer ODI
rewards of £53 million, with around
80% of our measures in reward, and
financing, reflecting our continued low
cash interest cost and the impact of
higher inflation in the year compared
to Ofwat’s Final Determination
assumption.
66
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
over or under spend is shared with customers,
whereas revenues are earned in the non-
regulated business or areas where
performance variances are not shared.
We also saw a sharp increase in the cost of
energy intensive products. Chemical costs
increased by £21.3 million, of which
£20.5 million arose in our Regulated Water
and Waste Water business.
Net finance costs rose as higher inflation in the
period increased the cost of our index-linked
debt. Our effective interest cost was 150 bps
higher at 6.2% (2021/22: 4.7%); our effective
cash cost of interest (which excludes the
inflation uplift on index-linked debt) was
unchanged at 3.0% (2021/22: 3.0%).
We continued to benefit from the super deduction,
which gives a 130% tax allowance in the year for
qualifying capital expenditure. This, together with
the higher finance costs, resulted in an adjusted
effective tax rate of nil% (unchanged from nil% in
2021/22) and, as expected, no current tax payable
relating to the year.
In his 2023 Budget, the Chancellor introduced
100% first year capital allowances for
qualifying plant and machinery for a three-
year period from 1 April 2023. As a result, we
expect our adjusted effective tax rate to remain
around nil while the allowance is in place.
The tax charge of £35.7 million reflects our full
effective tax rate this year of 21.3%
(2021/22: 24.4% before exceptional deferred
tax). In the previous year, the increase in the
corporation tax rate to 25% from FY24 was
reflected in our deferred tax provision and in
an exceptional deferred tax charge to the
income statement of £294.4 million.
Financial KPIs
Group profit after tax was £132.2 million (2021/22:
a loss of £87.2 million as a result of the exceptional
deferred tax charge) and our adjusted basic EPS
was 58.2 pence (2021/22: 96.1 pence) reflecting
higher net finance costs from the impact of
inflation on the cost of our index-linked debt. Basic
EPS was 52.7 pence (2021/22: loss of 35.2 pence
due to the exceptional deferred tax from the
change of corporation tax rate).
Our balance sheet remains strong. At
31 March 2023 our net debt was £7,160.5 million
(2022: £6,507.8 million) and our shadow RCV
gearing, taking into account amounts that will be
included in the RCV at the end of the AMP but
which we have already incurred, is 60.0%
(2022: 59.2%). Our regulatory gearing is 60.7%
(2022: 59.5%), well below the sector average
and close to Ofwat’s notional capital structure
for AMP7.
Our net pension deficit on an IAS 19 basis is
£279.4 million (2022: £128.0 million). Gross
liabilities decreased as the discount rate, which
is based on the yield observed on high-quality
corporate bonds, increased and inflation
expectations over the life of the liabilities
decreased. Hedging assets moved broadly in line
with the fall in liabilities, with other asset values
affected by the higher yield environment in the
second half of the year. The 2022 triennial
actuarial valuation was agreed in November 2022,
with an unchanged future funding plan.
Operational cash flow was £713.1 million,
(2021/22: £848.9 million). EBITDA increased by
£18.3 million but pension contributions increased
by £38.6 million as we paid two years’ deficit
reduction contributions in the year and changes
in working capital increased cash outflows by
£100 million more than the previous year. Cash
capex was £686.6 million, up £92.3 million due
to the increasing capital programme. Net
cash outflow before changes in net debt was
£440.4 million (2021/22: inflow of £76.7 million).
This year we have published in our Annual Report
our first disclosure consistent with the EU
Taxonomy. We are committed to protecting and
enhancing the environment and transparent
disclosures are an important part of
demonstrating that commitment. We have
accelerated the enhancement of our sustainability
disclosures by making a voluntary disclosure
under the EU Taxonomy framework. We have
completed an initial eligibility-only review and are
working towards a full alignment review. Our
initial assessment is that eligible activities make
up 95% of our revenues, 95% of our operating
costs and 99% of our capital expenditure.
Severn Trent Water’s RoRE for the year was
12.2%, 830 bps above the base return of 3.9%.
Outperformance came mainly from our customer
ODI rewards of £53 million, with around 80% of
our measures in reward, and financing, reflecting
our continued low cash interest cost and the
impact of higher inflation in the year compared
to Ofwat’s Final Determination assumption.
Although in the current year we have seen an
adverse impact from higher inflation on our
operating and finance costs, in the longer term we
expect to see the benefits through indexation of
our RCV, revenue growth and lower gearing, all
of which underpin our inflation-linked AMP7
dividend policy.
Our proposed final dividend of 64.09 pence
(2021/22: 61.28 pence), is in line with our
inflation-linked dividend policy and payable
on 14 July 2023.
.
Group PBIT (£m)
Shadow RCV Gearing (%)
Adjusted basic EPS (p)
RoRE outperformance
(basis points)
2022/23
2021/22
2020/21
£508.8m
2022/23
60.0%
2022/23
58.2p
2022/23
830
£506.2m
2021/22
59.2%
2021/22
96.1p
2021/22
480
£470.7m
2020/21
64.5%
2020/21
104.5p
2020/21
190
Group PBIT is a measure of the profit
generated by the Group’s operations.
Commentary on the performance in the
year is set out in this CFO Review.
Shadow RCV gearing is calculated as set
out in note 32 Ofwat’s regulatory model,
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.
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 this CFO’s Review and
the calculation of adjusted EPS is set out
in note 14 to the financial statements.
Commentary on the performance in the
year compared to the previous year is set
out in this CFO’s Review.
RoRE outperformance 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 ODI reward earned or
penalty incurred; and
– financing performance is measured by
performance against Ofwat’s expected
cost of debt set in the AMP7 Final
Determination.
Commentary on the performance in the
year compared to the previous year is set
out in this CFO Review.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
67
STRATEGIC REPORT CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
Regulated Water and Waste Water
Turnover for our Regulated Water and Waste Water (‘RWWW’) business was £1,995.4 million (2021/22: £1,804.4 million) and PBIT was £467.5 million
(2021/22: £476.3 million).
Turnover
Net labour costs
Net hired and contracted costs
Power
Bad debts
Other costs
Infrastructure renewals expenditure
Depreciation
PBIT
Turnover increased by £191.0 million with the
main movements being:
– an increase of £78.0 million for the annual
CPIH uplift in tariffs, partially offset by
reductions of £15.1 million from the
‘K’ factor for the year;
– a £66.9 million increase representing the
recovery, under the RFI mechanism, of lower
than allowed revenue in 2020/21;
– £35.0 million of in-year fast money
allowance for the Green Recovery
Programme;
– £24.4 million additional energy generation
revenue in our Bioresources business
driven by higher wholesale energy prices;
– an increase of £18.7 million in diversions
income largely due to the increase in activity
related to HS2 as guided. This represents a
recovery of costs incurred and is offset by
an increase in infrastructure renewals
expenditure;
– lower revenue from the Voids and Gaps
Incentives Scheme (£4.7 million lower); and
– lower revenues billed by other water
companies on our behalf and other small
differences (£12.2 million).
Net labour costs of £158.2 million were 4.3%
lower year-on-year. Gross employee costs
increased due to the annual pay award of 2.3%
and an increase in FTE from the step up in the
capital programme. This was offset by higher
capitalisation of employee costs and an
£8.3 million credit related to a change in
defined benefit scheme options developed with
the Trustee. The new bridging pension option
allows members who retire early to bridge the
gap between their retirement date and the date
when the state pension becomes payable, by
taking more of their occupational pension up
front, which has a positive effect on expected
pension liabilities.
2023
£m
2022
£m
1,995.4
1,804.4
(158.2)
(217.2)
(204.6)
(24.5)
(284.6)
(889.1)
(238.4)
(400.4)
467.5
(165.3)
(190.0)
(114.1)
(24.8)
(250.7)
(744.9)
(198.2)
(385.0)
476.3
Increase/(decrease)
£m
191.0
7.1
(27.2)
(90.5)
0.3
(33.9)
(144.2)
(40.2)
(15.4)
(8.8)
%
10.6
4.3
(14.3)
(79.3)
1.2
(13.5)
(19.4)
(20.3)
(4.0)
(1.8)
Net hired and contracted costs increased by
£27.2 million (14.3%). The increase is driven
by higher tankering and jetting activity, more
hired staff to support leakage reduction and
improve operational performance, third party
technology consultants and other contract
management cost increases.
Our economic energy hedge effectively limits
the impact of higher energy prices on the
Group’s return on equity. Power costs were
£90.5 million (79.3%) higher than the previous
period although our weighted wholesale
average price was about 30% less than the
average market wholesale energy price. We
benefited from self-generation and favourable
energy export in Bioresources, as well as
internal hedges between our regulated
business (a net consumer of energy) and
our non-regulated Green Power business
(a net generator).
Bad debt charges decreased by £0.3 million
and represented 1.7% of household revenue.
Our cash collection in the year was lower as
households felt the impact of cost of living
increases. However, this impact was not as
high as we provided for at the previous year
end, leaving the overall charge broadly flat.
Other costs increased by £33.9 million,
including £20.5 million higher chemical costs
and higher Environment Agency abstraction
and discharge consent fees of £3.7 million.
The remaining increase was due to higher
costs of materials and consumables, fuel
and insurance costs.
Infrastructure renewals expenditure was
£40.2 million higher in the period, reflecting
the planned step up in the programme and
activity related to HS2 referred to above.
Depreciation of £400.4 million was
£15.4 million higher year-on-year due to new
assets coming into service as part of our
Water Framework Directive programme
as well as a full year of depreciation on
the advanced digestion and biogas-to-grid
plants at Finham and Stoke Bardolph.
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 compared to the base return allowed
in the AMP7 Final Determination.
Severn Trent Water’s RoRE for the year ended
31 March 2023 and for the three years ended
on that date is set out in the following table:
Base return
Enhanced RoRE
reward1
ODI outperformance2
Wholesale totex
performance
Retail cost
performance
Financing
outperformance3
Return on
Regulatory Equity4
2022/23
%
AMP7 to date
%
3.9
–
0.7
–
3.9
0.2
1.3
–
(0.1)
(0.2)
7.7
12.2
3.7
8.9
1 Fast track reward taken over the first two years of AMP7.
2 ODI performance includes in year ODI reward, PCC and
3
forecast C-MeX and D-MeX outturn.
Includes 0.7% for the variance on tax from the benefit
of super deduction capital allowances.
4 Calculated in accordance with Ofwat guidance set out in RAG
4.11, which excludes Ofwat’s AMP7 tax true-up mechanism.
We have delivered RoRE of 12.2% in the year,
outperforming the base return by 8.3% as a
result of:
– ODI performance of 0.7%, driven by strong
performance across the majority of
measures, with c.80% meeting or exceeding
regulatory targets;
– our neutral totex position reflecting good
cost control and efficient spend over a
challenging year; and
– financing performance of 7.7%, driven by our
AMP7 financing strategy that includes a
relatively low level of index-linked debt,
and the tax benefit of super deduction
capital allowances.
68
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Business Services
Turnover
Operating Services and Other
Green Power
Total
EBITDA
Operating Services and Other
Green Power
Property Development
Total PBIT
Business Services turnover was £177.1 million
(up 23.3%) and EBITDA was £65.8 million
(up 23.7%).
In our Operating Services and Other businesses,
turnover increased by £10.4 million due to
increased activity on the Ministry of Defense
(‘MoD’) and Coal Authority contracts as well as
sales growth in our water hygiene business,
Aqualytix. EBITDA was £5.6 million higher
mainly due to improved margins on these
contracts.
In Green Power, turnover increased by
£23.1 million, largely due to significantly higher
energy prices over the last year which helped
offset increased power consumption costs in
RWWW, through the Group’s natural energy
hedge. EBITDA was up £18.2 million due to
the higher revenue, partially offset by
increased costs of food waste, sileage and
haulage as well as a £2.2 million charge for
the government energy generator levy in the
final quarter of the financial year. We do not
expect to incur the levy in FY24 based on
latest forecast prices.
Profits from Property Development were
£11.2 million lower than the prior year mainly
due to timing of significant disposals and
delays in the planning process. However,
we remain on track for our 15-year plan of
£150 million profit by 2032, having generated
c.£52 million since setting the target in 2017.
2023
£m
98.5
78.6
177.1
28.1
35.7
2.0
65.8
2022
£m
88.1
55.5
143.6
22.5
17.5
13.2
53.2
Increase/(decrease)
£m
10.4
23.1
33.5
5.6
18.2
(11.2)
12.6
%
11.8
41.6
23.3
24.9
104.0
(84.8)
23.7
We hold interest rate swaps with a net notional
principal of £448.4 million floating to fixed,
which economically act to hedge exchange rate
risk on certain foreign currency borrowings.
We also hold cross currency swaps with a
sterling principal of £98.3 million, that swap
foreign currency fixed interest debt to sterling
floating interest rate.
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 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 gain of £35.7 million
(2021/22: £51.5 million) in relation to
these instruments.
Note 11 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 the wholesale price
for more than 95% of our estimated wholesale
energy usage for 2023/24 through physical
hedges with suppliers and natural hedges
from the export of self-generated energy.
Share of loss of joint venture
Water Plus’s performance continues to
improve and it achieved break even in the
year. Our share of Water Plus’s result for the
year was therefore £ – million (2021/22: loss
of £2.2 million).
Corporate and other
Corporate costs were £8.7 million
(2021/22: £8.2 million) including directors’
bonuses charged to Severn Trent Plc this year
rather than Severn Trent Water. Our other
businesses generated PBIT of £0.7 million
(2021/22: £1.3 million).
Net finance costs
Net finance costs for the year were
£93.2 million (34.6%) higher than the prior year
at £362.6 million. During the year we issued
£1,351 million of new debt at rates consistently
below the iBoxx index and our effective cash
cost of interest (excluding the RPI uplift on
index-linked debt and pensions-related
charges) was unchanged at 3.0%
(2021/22: 3.0%).
Average net debt was up 6.8% at
£6,720.6 million (2021/22: £6,292.2 million),
with higher inflation in the year increasing the
cost of our index-linked debt by £100.9 million.
Our effective interest cost was 6.2%
(2021/22: 4.7%).
Capitalised interest of £56.6 million was
£22.1 million higher year-on-year, due to the
higher effective interest cost and increased
capital work in progress compared to the
previous year.
Our earnings before interest, tax, depreciation
and amortisation (‘EBITDA’) interest cover was
2.6 times (2021/22: 3.5 times) and PBIT interest
cover was 1.4 times (2021/22: 1.9 times). See
note 42 for further details.
Gains/losses on financial
instruments
We use financial derivatives solely to hedge
risks associated with our normal business
activities including:
– exchange rate exposure on foreign currency
borrowings;
– interest rate exposures on floating rate
borrowings;
– exposures to increases in electricity prices;
and
– changes in the regulatory model from RPI
to CPIH.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
69
STRATEGIC REPORT CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
Taxation
We are committed to paying the right amount of tax at the right time. We pay a range of taxes,
including business rates, employer’s 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.
Tax incurred:
Corporation tax
Business rates and property taxes
Employer’s National Insurance
Environmental taxes
Other taxes
2023
£m
2022
£m
–
84.4
35.3
6.6
6.0
1.2
83.4
30.5
6.1
5.9
132.3
127.1
Further details on the taxes and levies that we pay can be found in our report “Explaining our
Tax Contribution 2022/23”, 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 was £35.7 million
(2021/22: £66.9 million before exceptional taxes) and we made net corporation tax payments of
£4.0 million in the year (2021/22: £1.2 million). The difference between the tax charged and the
tax paid is summarised below:
Tax on profit on ordinary activities
Tax effect of timing differences
Impact of deferred tax provided at 25%
Overprovisions in previous years
Corporation tax payable for the year
(Receipts from)/payments to Water Plus re consortium relief
Payments to HMRC for consortium relief disclaimed
Payments in respect of prior years
Net tax paid in the year
2023
£m
35.7
(28.3)
(7.7)
0.3
–
(6.1)
6.1
4.0
4.0
2022
£m
66.9
(50.8)
(15.9)
(0.2)
–
1.2
–
–
1.2
No tax was paid relating to the year as the
allowances available from the super deduction
resulted in a loss for tax purposes
(2021/22: £1.2 million paid to Water Plus).
Note 12 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
£0.2 million, which arose from adjustments to
tax provisions from previous years (2021/22:
credit of £4.8 million). The deferred tax charge
was £35.5 million (2021/22: £71.7 million
before the exceptional charge arising from
the change of rate).
Our effective tax rate excluding the exceptional
deferred tax charge this year was 21.3%
(2021/22: 24.4%), which is higher than the
UK rate of corporation tax in both years (19%),
mainly due to deferred tax on temporary
differences arising during the year charged at
25%, partly offset by the permanent difference
that arises mainly from the additional 30%
deduction included in the super deduction.
.
Our adjusted effective current tax rate was nil
(2021/22: nil%) (see note 42).
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. In the current and previous
years, this was enhanced by the super
deduction for certain capital expenditure,
which gave a 100% tax deduction in the year
of spend plus an additional allowance of 30%.
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. Accounting standards
require that we make a provision for the tax
that we would pay in future periods, if the
depreciation charge arising on expenditure for
which tax relief has already been received is
not offset by further tax allowances in those
periods. However, the nature of our business,
including a significant rolling capital
programme and the long lives of our assets,
means we do not expect these timing
differences to reverse for the foreseeable
future, and they may never do so. This is the
most significant component of our deferred
tax position.
Profit for the year and earnings
per share
Total profit for the year was £132.2 million
(2021/22 loss: £87.2 million).
Basic earnings per share was 52.7 pence
(2021/22: loss of 35.2 pence). Adjusted
basic earnings per share was 58.2 pence
(2021/22: 96.1 pence). For further details
see note 14.
70
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Cash flow
Operational cashflow
Cash capex
Net interest paid
Purchase of subsidiary net of cash acquired
Net (payments)/receipts for swap terminations
Net tax paid
Free cash flow
Dividends
Issue of shares
Purchase of own 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 ventures
Net debt
Operational cash flow was £713.1 million
(2021/22: £848.9 million). PBIT was broadly
flat year on year but higher depreciation and
amortisation were more than offset by
increased pension contributions and
working capital movements.
Net cash capex increased to £686.6 million
(2021/22: £594.3 million), reflecting our progress
against our £2.9 billion core capital programme.
Our net interest payments of £203.5 million
(2021/22: £185.0 million) were higher than the
previous year due to the impact of higher net debt,
with the effective cash cost of interest (which
excludes the non–cash indexation charge on index
linked debt) in line with the previous year.
The benefits of the super deduction capital
allowance and the impact of higher interest
costs meant that we had no taxable profit in
the year and therefore paid no corporation tax
in relation to the year. Our net tax payments of
£4.0 million related to previous years. In the
previous year we paid Water Plus £1.2 million
for consortium relief.
We received £13.5 million net from the exercise
of options under the employee Save As You Earn
share scheme and purchase of shares for other
share schemes. In the prior year we received
£11.9 million from option exercises and raised
net proceeds of £245.3 million from the May 2021
equity placing. Our dividends paid increased in
line with our policy to increase by CPIH each year
during AMP7.
2023
£m
713.1
(686.6)
(203.5)
(0.4)
(11.2)
(4.0)
(192.6)
(261.3)
15.3
(1.8)
(440.4)
(212.3)
(652.7)
(6,507.8)
(7,160.5)
2023
£m
(713.0)
2022
£m
848.9
(594.3)
(185.0)
–
5.6
(1.2)
74.0
(254.5)
257.2
–
76.7
(140.7)
(64.0)
(6,443.8)
(6,507.8)
2022
£m
(782.5)
(6,474.2)
(5,823.5)
(110.9)
28.7
33.6
75.3
(117.4)
107.7
28.3
79.6
(7,160.5)
(6,507.8)
These cash flows, together with accounting
adjustments to the carrying value of debt,
resulted in an increase in debt of £652.7 million
(2021/22: £64.0 million).
At 31 March 2023 we held £28.7 million
(2022: £107.7 million) in net cash and cash
equivalents. Average debt maturity was around
14 years (2022: 13 years). Including committed
facilities, our cash flow requirements are
funded until November 2024.
Net debt at 31 March 2023 was £7,160.5 million
(2022: £6,507.8 million) and balance sheet
gearing (net debt/net debt plus equity) was
88.1% (2022: 83.7%). Regulatory gearing (net
debt of our regulated businesses, expressed
as a percentage of estimated RCV) was 60.7%
at 31 March 2023 (2022: 59.5%). Shadow
regulatory gearing was 60.0% (2022: 59.2%).
The estimated fair value of debt at 31 March
2023 was £366.2 million lower than book value
(2022: £1,075.8 million higher). The change in
the difference between book and fair value is
largely due to the impact of higher inflation
expectations on the fair value of our index-
linked debt.
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 2023
interest rates for 67% (2022: 66%) of our gross
debt of £7,261.2 million were fixed; 5% were
floating and 28% were index linked. We
continue to carefully monitor market
conditions and our interest rate exposure.
.
Our long-term credit ratings are:
Long-term ratings
Moody’s
Standard and Poor’s
Fitch
Severn Trent Plc Severn Trent Water
Baa2
BBB
BBB
Baa1
BBB+
BBB+
Outlook
Stable
Stable
Stable
We invest cash in deposits with highly rated banks and liquidity funds. We regularly review the
list of counterparties and report this to the Treasury Committee.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
71
STRATEGIC REPORT CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
The movements in the net deficit during the year were:
At start of the period
Amounts credited/(charged) to income statement
Actuarial gains/(losses) taken to reserves
Net contributions received and benefits paid
At end of the period
The income statement includes:
– current service costs of £0.1 million on the
DVWS, which remains open to further
accrual but is closed to new members;
– a past service credit of £8.3 million following
a change in the STPS’s rules to allow
members to take a higher initial pension on
retirement in exchange for a lower pension
from state pension age;
– scheme administration costs of £4.3 million;
and
– interest on scheme liabilities and expected
return on the scheme assets – together a net
cost of £3.6 million.
Higher interest rate expectations increased
the discount rate, which is derived from yields
on high-quality corporate bonds, by 200bps.
Inflation expectations decreased by around
30bps since the previous year end. The
impacts of these changes resulted in a net
decrease in the scheme liabilities of around
£745 million.
Changes to demographic assumptions to align
with the 2022 funding valuation increased
scheme liabilities by around £30 million. This
was partly offset by an update to the most
recent CMI data tables and also a weighting to
allow for higher mortality experienced in 2021.
The actual outturn in the year for inflation
and other assumptions increased scheme
liabilities by £58.7 million.
Fair value of
scheme assets
£m
Defined benefit
obligations
£m
Net deficit
£m
2,659.4
(2,787.4)
74.3
(922.0)
(26.4)
(74.0)
669.8
126.9
1,785.3
(2,064.7)
(128.0)
0.3
(252.2)
100.5
(279.4)
Higher bond yields impacted the value of
scheme assets, which decreased in value by
£922.0 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 (£26.9 million); and
– a deficit reduction payment of £34.7 million
that was deferred from March 2022 to April
2022 and the payment due for the year ended
31 March 2023 of £37.8 million.
There were also contributions of £0.2 million to
the DVWS, a payment of £0.4 million for MIPS
running costs and payments of benefits under
the unfunded scheme amounting to
£0.5 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
64.09 pence per share for 2022/23
(2021/22: 61.28 pence per share). This gives
a total ordinary dividend for the year of
106.82 pence (2021/22: 102.14 pence).
The final ordinary dividend is payable on
14 July 2023 to shareholders on the register
at 2 June 2023.
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 valuation for
the Severn Trent Pension Scheme (‘STPS’),
which is by far the largest of the schemes, was
completed as at 31 March 2022. The future
funding plan agreed with the Trustee was
unchanged from the 2019 valuation (save for
inflationary uplifts where applicable) and
includes:
– annual deficit reduction payments to be
made until the year ending 31 March 2027,
with a forecast1 payment of c.£40 million in
the year ending 31 March 2024, increasing
thereafter in line with November CPI.
– payments under an asset-backed funding
arrangement of £8.2 million per annum to
31 March 2032, which will only continue
beyond 31 March 2025 if the Scheme’s assets
are less than the Scheme’s Technical
Provisions; and
– inflation-linked payments under an
asset-backed funding arrangement, with a
forecast1 payment of c.£28 million in the year
ending 31 March 2024, potentially continuing
to 31 March 2031, although these
contributions will cease earlier should a
subsequent valuation of the STPS show that
these contributions are no longer needed.
In June 2021 we executed a bulk annuity buy-in
for the Severn Trent Mirror Image Pension
Scheme, which represents around 4% of the
Group’s defined benefit liabilities. Under the
buy-in, the liabilities of this scheme will be
met by an insurance policy and as a result
the Group’s risk is substantially reduced.
Hafren Dyfrdwy participates in the Dee Valley
Water Limited Section (‘DVWS’) of the Water
Companies Pension Scheme. DVWS funds are
administered by trustees and held separately
from the assets of the Group. DVWS is closed
to new entrants. The most recent formal
actuarial valuation of DVWS was completed
as at 31 March 2020 and no deficit reduction
contributions are required. In March 2023, the
DVWS also entered into a bulk annuity buy-in
insurance policy that covers the majority of
the scheme obligations.
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
£279.4 million (2022: £128.0 million).
Calculation of the pension deficit for
accounting purposes uses corporate bond
yields as the basis for the discount rate of
our long-term liabilities, irrespective of the
nature of the scheme’s assets or their
expected returns.
On an IAS 19 basis, the funding level decreased
to 86% (31 March 2022: 95%).
72
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
1
Index linked payment forecasts based on the Oxford Economics forecast
CPI for the twelve month period to November 2023
OUR APPROACH TO RISK
Severn Trent has a robust risk
management framework in
place to effectively identify,
assess and mitigate risk. Our
risk management framework
enables us to meet our
strategic priorities and
optimise our risk exposure
within our risk appetite.
2022/23 risk positioning
Since 2020/21, we have provided a risk update
highlighting the challenges and opportunities
we face as a business, with a greater focus on
global events and effects of those events, both
economically and on society, and geopolitical
instability, including the conflict in Ukraine.
Another key area of focus for this year has
been the ‘cost of living crisis’ which has
impacted many UK households as real
disposable incomes fall. Inflation has soared,
with a key driver being the rapid increase in
energy costs, caused by a rise in the wholesale
price of gas. Furthermore, the Bank of England
has raised the base rate several times over the
last year in an effort to control inflation. We
recognise that it is a difficult time and it can be
a real struggle for some of our customers and
we have a number of customer support
schemes that are helping customers who are
struggling with the cost of living (see pages 29
to 30 for more information).
Risk appetite statement
No business is free of risk and to achieve our
strategic priorities we often need to take
calculated risks. We will, however, only take
risks that are consistent with our Purpose,
Values and Strategy, and are well understood,
so that they can be managed 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. The
sector is also 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 regulated water and waste
water 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.
Our risk priorities
The Board has overall responsibility for
determining the nature and extent of the risks
Severn Trent takes and for ensuring that risks
are managed effectively across the Group. 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 and
maintaining our essential operational
services are our top priorities, 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.
– Adherence to laws and regulations is a
fundamental requirement and we are
committed to ensuring compliance with all
UK water regulations and to operate within
our licence permits; therefore, we have no
appetite for compliance-related risks.
– Our approach to financing is to take
measured risk consistent with providing
resilience and delivering sustainable
outperformance for the best long-term
value for our customers and shareholders.
– We are determined to play a leading role
Top down
The Board has overall responsibility for the
oversight of risk and for maintaining a robust
risk management and internal control system.
The Board recognises the importance of
identifying and actively monitoring all types of
risk (e.g. strategic, reputational, financial, and
operational risks) in the short, and longer
term. The Board regularly receives updates
on the threats, trends and challenges facing
the business.
The Audit and Risk Committee supports
the Board in the management of risk and is
responsible for reviewing the effectiveness
of the risk management and internal control
framework during the year.
The Executive Committee reviews strategic
priorities and assesses the level of risk taken
in achieving these objectives.
The Strategic Risk Forum (‘SRF’) assists the
Executive Committee, the Board, and the Audit
and Risk Committee to effectively oversee the
risk framework and its processes of risk
identification, risk assessment and risk
mitigation to ensure that the Company meets
its strategic priorities.
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.
in addressing the impact of climate change
through mitigating our own impact and that
of our supply chain, and adapting to the
challenges that climate change may bring
in the future.
Our strong continuous improvement culture
ensures that risk discussions happen at all
levels of the business, resulting in risks being
identified, categorised, assessed and entered
into the ERM system.
Risk reporting
The ERM process is operated by the Central
ERM Team and underpinned by a standardised
methodology and policies to ensure
consistency.
ERM Champions and Co-ordinators operate
throughout the business, with support and
challenge from the Central 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.
Overseeing risk
Our approach to risk management is designed
to enable the business to deliver its strategic
priorities. We have an established Enterprise
Risk Management (‘ERM’) process and internal
control framework that help us to identify,
evaluate and manage risks to influence
decision making. 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
take risks that are within our risk appetite.
We operate a top-down and bottom-up model
of risk management in line with the three lines
of defence approach that ensures both a clear
articulation of risk appetite, and a
comprehensive and structured process of risk
identification, assessment and management.
Our risk management framework on the next
page shows the parties involved in risk across
Severn Trent.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
73
STRATEGIC REPORT OUR APPROACH TO RISK CONTINUED
RISK MANAGEMENT FRAMEWORK
Risk governance and oversight
Board:
– Sets the risk culture.
– Defines and regularly reviews risk appetite.
– 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.
Risk management and oversight
Audit and Risk Committee:
– Supports the Board in monitoring significant risks and tracking
progress against risk mitigation plans.
– Signs off the risk management framework.
Executive Committee:
– Supports the Board in the management and oversight of risk.
– Assesses the level of risk taken in achieving objectives by challenging the AMP7 business plan and the forthcoming AMP8 business
plan.
– Approves risk mitigation strategies of significant risks – assigned to the individual members of the Executive Committee.
– Sets and evaluates risk tolerances.
– Identifies and assesses Principal and Emerging Risks.
3rd line of defence
Internal Audit:
– Provides assurance for
significant risk mitigation
strategies.
– Assesses effectiveness
of the risk programmes
by analysis of key
controls.
– Evaluates internal
control environment.
p
u
-
m
o
t
t
o
B
Risk ownership, management and oversight
1st line of defence
2nd line of defence
n
w
o
d
-
p
o
T
Strategic planning:
– Longer-term, holistic risk response plans,
e.g. WRMP, our AMP7 business plan and
forthcoming AMP8 business plan.
– Establishes critical controls for ensuring
the operational effectiveness
of essential services.
Service Area Boards:
– Capital investment
programme management.
– Implement strategic risk management
processes, such as WRMP.
– Identify and monitor Emerging
Risks and opportunities.
– Assess all categories of risk
at an operational level.
Business Unit and Risk Champions:
– Day-to-day risk and incident management,
e.g. Severn Trent Operational Risk
Management and Drinking Water
Safety Plans.
– Identify, assess and respond to risks
at a local level.
– Continual monitoring of risks assigned
within the business unit.
– Produce risk response plans and strategies.
– Develop, implement and monitor key
controls.
– Follow risk management framework.
Strategic Risk Forum:
– Assesses the Business Units’ (‘BU’) reported risks
(Bottom-up BU Risks) and mitigation plans, and
challenges any ERM information or deliverables as
required.
– Reviews and validates all ERM reporting and
risk-related information prior to Board and Audit
and Risk Committee meetings.
– Reviews the Company’s Principal Risks and
proposes amendments to the Board for the Annual
Report and Accounts.
– Ensures the efficient and effective delivery of the risk
management programme carried out by the Central
ERM Team.
– Monitors compliance across the organisation
with the Company’s risk management framework
and processes.
Central ERM Team:
– Applies the risk management framework.
– Owns the corporate ERM 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 processes.
The potential causes, impacts and mitigating
controls related to each risk are well
documented. This assessment allows us to
put in place effective risk response strategies
to mitigate the risk to an acceptable level and,
following governance checks, to remediate
any defective controls or implement additional
controls as required.
Risk information from our Business Units 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 and SRF for review and
challenge. This is then reported to the Audit
and Risk 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.
Our recognised ERM risks are linked with our
Licence to Operate process. This helps create
a dynamic link and improves our risk reporting
to the Board and Audit and Risk Committee.
Additionally, our ERM risks have been mapped
against our business model and we have linked
risk causes with recognised climate drivers
where the likelihood could be exacerbated by
a different climatic future.
74
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
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 and 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
Infrastructure failure and
asset resilience
Risk 2
We do not provide a safe and secure supply
of drinking water to our customers
– impede achievement of the Group’s strategic
objectives and financial targets; and/or
Strategic
pillars
Stakeholders
Strategic
pillars
Stakeholders
– 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 are updated each
year to reflect the changing risk landscape.
There may be additional risks that emerge
in the future, and we undertake regular
horizon scanning to identify and report
these to the Board.
Our Principal Risks reported in 2022/23 are
detailed on pages 75 to 78 and each individual
Principal Risk includes:
– examples of risk mitigation (these mitigation
examples are not exhaustive, opportunities
have been consolidated within this section);
– the risk exposure level movement at year end;
– a risk update; and
– key risk indicators are used as a metric for
measuring the probability of an event and its
consequences. They reflect the level of risk
exposure, and the effectiveness of key controls.
Key risk indicators play an important role in the
Severn Trent ERM function, providing advance
notice of potential risks that could harm Severn
Trent, insight into possible weaknesses in the
monitoring and control tools, and ongoing risk
monitoring between the formal risk
assessments and reporting.
Strategic
pillars
OUT
C
O
M
E
S
E
R
A TU
N
E
A N G
H
C
P
E
O
P
L
E
Stakeholders
Change in year
Increase in risk
exposure
Decrease in risk
exposure
No change in risk
exposure
New risk
Our customers
Our colleagues
Our communities
Shareholders and
investors
Suppliers and
contractors
Regulators and
Government
Examples of risk mitigation
– The Group’s Goal Zero policy clearly sets
out our target that no one should be
injured or made unwell by what we do.
– We have 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.
– We employ a competency framework and
compliance with mandatory training is
regularly monitored.
– Monitoring of our supply chain through
site manager forums and on site
inspections, including Health and Safety
reviews to ensure compliance.
Examples of risk mitigation
– We have developed comprehensive
resilience plans, such as our WRMP
and Drought Plan to inform our capital
investment programme and business
plan.
– Key operational employees are required
to complete mandatory Water Quality
Competency training.
– We have invested in our in-house
capability to bolster repair teams and
facilitate accelerated response times.
– Our 24/7 control centre monitors our
operations and assets, including real-time
telemetry coverage from our loggers.
– We run strategic modelling to assess
potential changes to supply and demand
on our water network and the impact of
climate change. See Principal Risk 10.
– Health and Safety bulletins are cascaded
– We regularly review and update
throughout the Group, including the
supply chain.
– A dedicated Health, Safety and Wellbeing
toolkit, called Safety Net, 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.
– We monitor and investigate relevant
Health and Safety incidents from other
sectors.
Change in year
– This year we have completed reviews of
electrical safety across the estate and
chemical safety management, including
the design, build, operation and
decommissioning of chemical related
assets.
– We have upskilled key senior stakeholders
in the principles of process safety and
have started a gap analysis on the key
components/controls of the framework.
processes, standards, and operational
procedures.
Change in year
– Our final 2022 CRI score was outside of the
target, driven mainly by water treatment
works performance.
– We launched a more detailed initiative
assessing compliance with our operating
standards which are based on regulations
and industry best practices. Since starting
the initiative, our compliance against the
standard has increased to over 88%.
KPIs
– Lost Time Incident (‘LTI’) rate target, see
KPIs
– Supply interruptions (no. of minutes),
page 23
see page 15
– Leakage % (Ml/d) target, see page 15
– CRI (Index), see page 16
– % Water Quality Competency training
competed target
– Priority Services Register (%), see page 29
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
75
STRATEGIC REPORT
OUR PRINCIPAL RISKS CONTINUED
Infrastructure failure and
asset resilience
Customer service and
experience
Supply chain and capital
project delivery
Risk 3
We do not transport and treat waste water
effectively, impacting our ability to return
clean water to the environment
Risk 4
We do not meet the needs of our
customers or anticipate changing
expectations through the level of customer
experience we provide
Risk 5
Key suppliers cannot meet contractual
obligations causing disruption to capital
delivery (cost and quality) and/or critical
operational services
Strategic
pillars
Stakeholders
Strategic
pillars
Stakeholders
Strategic
pillars
Stakeholders
Examples of risk mitigation
– Service Level Agreements (‘SLA’s) in place
and communicated to our customers that
require assistance.
– We have a specialist digital team that
monitors activity and allow us to engage with
and respond to customers digitally, whether
on social media or WhatsApp, informing
customers of planned and reactive work.
– The Priority Service Register (‘PSR’)
supports customers with special
requirements to give them a better, more
personalised service.
Examples of risk mitigation
– We have framework agreements covering
multiple contractual partners, to provide a
flexible and diverse supply chain.
– We use a gated capital process to provide
assurance around design and delivery.
– We have dedicated quality and assurance
teams who perform in-depth quality
reviews.
– We review contracts regularly and run
contract performance meetings, including
KPI reviews and proactive supplier and
market assessments.
– Our retail transformation plan and customer
– Appropriate regular training for contract
management teams.
– We regularly check the stability of the
Severn Trent supply chain; we have a
methodology in place to assess financial
stability with lead measures.
– We have regular management reviews
with our strategically material suppliers
through to CEO level where needed.
experience steering group helps drive
further improvements of our customers’
journeys on an end-to-end basis.
– Our Developer Services Team proactively
engages with local new-build developers,
to ensure the appropriateness of supply
planning and connection.
– We have an incident management
processes and procedures for vulnerable
customers in the event of operational
events impacting services.
– A dedicated Non-Household (‘NHH’)
customer team engages and responds to
market retailers.
Change in year
– We made an additional £30 million support
fund available for our customers facing
difficult circumstances through cost of
living pressures, offering up to a 90%
reduction on their water bill.
– We have made improvements in our
customer-facing processes and the digital
experience we offer to our customers.
Change in year
– We have experienced cost pressures due
to the economic climate which have led to
multiple rounds of re-scoping and
re-designing to reach affordable prices for
some of our capital programmes for the
benefit of our customers.
– We are refreshing and updating our
Standard Operating Procedures (‘SOPs’).
KPIs
– C-MeX (index), see page 16
– D-MeX (index), see page 16
KPIs
– Number of project milestones completed
on time (no. of projects)
– Ratio of critical single source supplier (%)
Examples of risk mitigation
– We run strategic modelling, such as the
DWMP, to assess potential changes to
supply and demand on our waste water
network, to reduce service issues and
potential damage to the environment. See
Principal Risk 10.
– Our 24/7 control centre monitors our
asset performance, including real-time
telemetry coverage. We operate an
in-house Waste Water Network
Response Team.
– Key operational employees are required to
complete mandatory training programmes
to ensure continued competence with
evolving standards.
– We run educational programmes for
customers promoting safe use of the
waste water system, including appropriate
disposal of wet wipes and cooking fat.
– We monitor all sites with Flow to Full
Treatment (‘FFT’) permit requirements
with a dedicated Flow Performance Team.
Change in year
– We monitor 100% of CSOs with EDM
monitors that can provide 300 million data
points on operation of storm overflows.
– We have successfully insourced our Wet
Well Cleansing Team enabling greater
flexibility with our planning and delivery of
cleaning activities.
– Performance of our sites is being
monitored closely through MCERTS, the
Environment Agency’s Monitoring
Certification Scheme For Equipment, and
we are promoting additional MCERTS
monitoring equipment where necessary.
KPIs
– Internal sewer flooding (no. of incidents),
see page 17
– External sewer flooding (no. of incidents),
see page 17
– Public sewer flooding (no. incidents),
see page 17
– Pollutions incidents (no. of incidents),
see page 17
– Customer written complaints
76
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Cyber security and
technology resilience
Political, legal and
regulatory
Financial liabilities
Risk 6
Our critical technology capabilities are not
maintained due to cyber threats or system
failures, impacting the services we deliver
through our key infrastructure assets or
core systems
Risk 7
Changing societal expectations, resulting in
stricter legal and environmental obligations,
commitments and/or enforcements,
increase the risk of non-compliance
Risk 8
We fail to fund our Severn Trent defined
benefit pension scheme sustainably
Strategic
pillars
Stakeholders
Strategic
pillars
Stakeholders
Strategic
pillars
Stakeholders
Examples of risk mitigation
– Dedicated Information Security Team and Data
Privacy Officer responsible for monitoring
information security and cyber threats.
– Mandatory annual cyber security training
Examples of risk mitigation
– Delivery of our AMP7 plan, which was
based on customer research, and
developing our AMP8 plan, which will be
submitted later in 2023.
for all employees.
– 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.
– We work 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.
– We actively engage 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.
– We operate an established Governance
Framework, policies and training ensuring
our ongoing compliance with all applicable
laws and regulations, including
Competition Law and General Data
Protection Regulations (‘GDPR’), for the
operation of separate wholesale and retail
business and between our Group
businesses. This is subject to regular
review.
– Investment plans are subject to regular
review, on at least an annual basis, to take
account of changes to legislation,
regulation and our business.
– All operational and office sites have
– External legal advisers provide detailed
Examples of risk mitigation
– Our deficit recovery plans are agreed by
the Trustees and the Company setting out
the cash contributions required from
Severn Trent to the Scheme.
– In November 2022, the Company agreed
the triennial actuarial valuation as at
31 March 2022, including repair payments
of c.£65 million per annum.
– 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.
– The Company is represented on the
Investment Committee of the Scheme and
the investment policy is formally approved
by the CFO.
business continuity and crisis
management plans in place, which are
tested on a regular basis.
– We have disaster recovery plans that are
stress tested and updated annually.
Change in year
– We have delivered 13 Contributing
Outcomes (‘CO’s) this year (29 since
2021/22) for Network and Information
Systems Regulations (‘NIS-R’) compliance
ahead of the DWI’s expectation of the end
of April 2023.
– We have improved our internal structure
to delivery, bringing all workstreams
under one programme manager with a
focus on delivering to the Sector Specific
Profile (‘SSP’) for each CO.
– We are supplementing our NIS-R
regulatory requirements with best
practices for security using the National
Institute of Standards and Technology
(‘NIST’) framework.
KPIs
– Number of high- and medium-priority
incidents (no. of incidents)
reviews in respect of upcoming legislation
that may affect the Group.
– As part of our Licence to Operate process,
we ask relevant managers, strategic
leaders and Directors to complete a
self-declaration twice a year.
Change in year
– We are actively developing an ambitious
PR24 business plan, with high levels of
customer engagement and feedback,
which will set out what we aim to achieve
in the next AMP (2025-30).
Change in year
– We agreed the 2022 triennial valuation in
November 2022, confirming an unchanged
contribution schedule which is locked in
for three years.
KPIs
– Pension deficit (£m)
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
77
STRATEGIC REPORT
OUR PRINCIPAL RISKS CONTINUED
Financial liabilities
Climate change, environment
and biodiversity
Climate change, environment
and biodiversity
Risk 9
We are unable to ensure sufficient liquidity
to meet our funding requirements
Risk 10
Severn Trent’s climate change strategy does
not enable us to respond to the shifting
natural climatic environment and maintain
our essential services
Risk 11
We fail to influence positively the natural
capital in our region
Strategic
pillars
Stakeholders
Strategic
pillars
Stakeholders
Strategic
pillars
Stakeholders
Examples of risk mitigation
– The Group’s treasury activity is overseen
by our Treasury Committee with support
from dedicated advisers.
– The Group has a diversified capital
structure, in terms of both tenor and
access to global debt capital markets to
mitigate risks.
– The Group maintains liquidity headroom
of at least 15 months.
Examples of risk mitigation
– We utilise scenario modelling and data
modelling, to understand the impact
climate change could have on our
essential services (see Principal Risks
2 and 3).
– The Water Resources Management Plan
and Drainage and Wastewater Management
Plan provides a 25 year, longer-term
planning approach to future challenges.
– The Group has committed credit facilities
– Our AMP7 business plan supports
for five years.
– The Group cash balances are deposited
across a range of investment-grade
counterparties to spread and mitigate
risk.
increased resilience against the potential
impacts of climate change through capital
scheme delivery. See Principal Risk 5.
– Our climate change strategy (described in
more detail on pages 43 to 48).
– The proportion of the Group’s debt
– Our Triple Carbon Pledge commits us to
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.
net zero carbon emissions, 100%
renewable energy and an all-electric fleet
(where available) by 2030. Read more on
page 54.
– We have committed to significantly
reducing our greenhouse gas emissions
by 2030. Read more on page 57.
Change in year
– We are in a strong liquidity position
supported by our £1.3 billion committed
facilities, providing liquidity until
November 2024.
– We have been active in the debt markets
during the year raising £1,351 million new
debt from a range of diverse sources.
– We have issued a further £450 million
after the year end through a £400 million
GBP bond, which we priced in March 2023,
and a £50 million private placement.
– Our strong balance sheet and ESG
credentials provides a level of resilience
during periods of higher interest rates and
rising inflation as a result of the gilt crisis.
Change in year
– We’re working with our high-impact
suppliers to help them set one SBT for
their organisation as the majority of our
total Company carbon footprint is made up
of emissions associated with our value
chain (also known as Scope 3 emissions).
– We’ve made an ambitious public
commitment to ensure 70% of suppliers,
by emissions, set an SBT by 2026. We
are in regularly in conversations with
our suppliers to make sure we meet
this target.
Examples of risk mitigation
– We support the Get Nature Positive
journey in our region working to protect
biodiversity by working in partnership with
regulators and other stakeholders.
– Strategic plans to enhance biodiversity in
our region and a number of ODI
commitments to protect our local
environment, including 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, including,
drought or extreme weather events (see
Principal Risk 10) and biodiversity loss
that has potential to impact ecosystems.
– Using our in-house ecology expertise to
enhance the Group’s capability to work
towards enhancing biodiversity.
Change in year
– Doubled our biodiversity target to
10,000 hectares by 2025.
– In Mansfield, we’re trialling a nature-based
approach to reduce flooding, while creating
a green environment to protect people from
flooding, improving river quality, and
creating green environments to be enjoyed.
– Our WINEP project is helping accelerate
our environmental commitments by
improving 500 km of river, five years earlier
than planned; allowing communities and
wildlife to benefit sooner.
– Our Green Recovery Bathing Rivers
Programme is helping to create bathing-
quality stretches of river along the River
Leam in Warwickshire and the River Teme
in Shropshire.
KPIs
– Months of liquidity
KPIs
– See metrics and targets section that
forms part of our approach to Climate
Change onpages 54 to 57
KPIs
– Biodiversity (no. of hectares improved) (ha),
see page 18
78
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
EMERGING RISKS
We define Emerging Risks
as upcoming events which
present uncertainty but that
we currently are unable to
fully quantify.
Emerging Risk management ensures potential
risks are identified, with budget plans
evaluated and stress tested as if they were
to materialise. Our processes aim to identify
new and changing risks at an early stage and
analyse them thoroughly to deduce the
potential exposure to Severn Trent.
We closely monitor Emerging Risks that may,
with time, become either complete ERM risks,
incorporated into the existing corporate risk
reporting process, have potential to be
superseded by new Emerging Risks, or cease
to be relevant as the internal and external
environments in which we operate evolve.
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.
We continually identify and monitor Emerging
Risks using our top-down and bottom-up
processes. 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 and Risk Committee
and Board.
Title
Detail
Energy infrastructure
stability
Geopolitical tensions
Supply chain disruption
We are reliant on the stability of the energy grid and are
susceptible to power disruptions, brownouts, partial
outages, blackouts and complete shutdown of electricity due
to problems with the local, or national, energy grid. We are
focused on delivering our longer-term energy strategy.
Ongoing conflict in Ukraine and resulting sanctions could
further increase commodity prices and could result in an
economic slowdown.
The cyber threat environment has increased globally
following the Russian invasion of Ukraine in 2022.
Dynamic market conditions can cause supply chain
shortages and resource security pressures, increasing
commodity prices globally.
We are dependent on our supply chains, including foreign
suppliers, which could be impacted by ongoing global
matters.
Area/Factor
Time horizon
Operational
Short-Medium
Economic
Short-Medium
Operational
Short-Medium
Evolving research and
understanding around ‘forever
chemicals’
Increasing research into the impact of Per- and
Polyfluorinated Substances (‘PFAS’), known as ‘forever
chemicals’, results in changes to existing regulations
and alters testing and treatment processes.
Operational
Short-medium
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
79
STRATEGIC REPORT VIABILITY STATEMENT
Assessment of current position
and long-term prospects
The Directors’ assessment of the Group’s
financial position at 31 March 2023 is set out in
the Chief Financial Officer’s review on pages
66 to 72. Important aspects of that assessment
that are most relevant to the assessment of
viability are:
– The Group’s shadow RCV Gearing is 60.0%,
equal to Ofwat’s assumed gearing of 60%
for the notional company on which the
regulatory allowances for this AMP
are based;
– The Group has sufficient cash and available
facilities to fund its financial commitments,
including returns to debt and equity
investors, operating and capital expenditure
until November 2024;
– The Group’s credit ratings from two agencies
(S&P and Moody’s) are above the investment
grade base level and are stable; and
– The defined benefit pension deficit increased
to £279 million in the year. The triennial
valuation as at 31 March 2022 was completed
during the year and the contributions
remained unchanged.
Severn Trent Water, the Group’s principal
subsidiary, 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 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 determination. We have based our
assessment of prospects for the next
two years on these plans.
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
– 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. Our Treasury
Policy requires us to maintain sufficient
liquidity to cover cash flow requirements for
a rolling period of at least 15 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 14 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.
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 uncertain
geopolitical and macroeconomic outlook
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
73 to 74, and from the key assumptions in
the financial model.
While we have estimated the size of each of
the severe but plausible scenarios described
below, we have grouped scenarios with similar
impact types together and performed stress
testing for the scenario with the greatest
impact. Where the scenario occurs at a point
in time, we have assumed that it occurs at the
point in the plan with the lowest headroom.
80
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
The risks and scenarios tested are described below:
Risk assessed
Severe but plausible scenario
Stress test applied
Due to the nature of our operations we could
endanger the health and safety of our people,
contractors and members of the public.
Serious injury, ill health or death of employees,
contractors or members of the public as a result of what
we do.
An extreme one-off event.
We do not provide a safe and secure supply of
drinking water to our customers.
Catastrophic breach of a large raised reservoir (>25,000
cubic metres).
We do not transport and treat waste water
effectively, impacting our ability to return
clean water to the environment.
We do not meet the needs of our customers or
anticipate changing societal expectations with
the level of customer service we provide.
Service failure leads to increased operating expenditure
or failure to meet performance commitment targets.
An extreme breach in a sludge lagoon at a large sewage
treatment works.
Service failure leads to increased operating expenditure
or failure to meet performance commitment targets.
Our performance is well below customers’ expectations
across a range of measures.
Key suppliers cannot meet contractual
obligations causing disruption to capital
delivery and/or critical operational services.
Significant increase in capital programme costs.
Service failure leads to increased operating expenditure
or failure to meet performance commitment targets.
A cyber attack results in a critical loss of personal data
leading to regulatory action.
An extreme one-off event.
Totex underperformance in
each year of the forecast.
ODI penalty in a single year.
An extreme one-off event.
Totex underperformance in
each year of the forecast.
ODI penalty in a single year.
ODI penalty in a single year.
Totex underperformance in
each year of the forecast.
ODI penalty in a single year.
An extreme one-off event.
Our critical technology capabilities are not
maintained due to cyber threats or system
failures, impacting the services we deliver
through our key infrastructure assets or core
systems.
Changing societal expectations, resulting in
stricter legal and environmental obligations,
commitments and/or enforcements, increase
the risk of non-compliance.
A breach of law or regulations results in a significant
one-off penalty.
A financial penalty.
We fail to fund our defined benefit pension
obligations sustainably.
Increasing pension deficit leading to higher deficit
reduction contributions.
Increased pension
contributions.
We also applied stress tests relating to economic factors: higher and lower inflation (including deflation); and higher interest rates, and a
combined scenario taking into consideration totex underperformance, ODI penalties and a financial penalty.
The amounts of the stress tests applied were:
Stress test applied
Amount modelled
An extreme one-off event
Totex underperformance
ODI penalty
Financial penalty
A one-off impact of £250 million at the point in the forecast with the lowest headroom.
An increase in totex of £250 million in each year of the forecast.
A penalty of £275 million in a single year.
A penalty of £160 million in a single year (c.6% of turnover).
Increased pension contributions
Contributions increase by £34 million per annum.
Combined scenario
An increase in totex of £250 million in each year, an ODI penalty of 1.5% in one year, and
a financial penalty of £250 million in one year.
Higher inflation for three years
10% spike in CPIH followed by two years at 5%.
Lower inflation in each year
Decrease of 2% in CPIH.
Deflation for two years
Higher interest rates
CPIH of -1%.
New debt financed at 2% above the iBoxx index.
We assessed the impacts of the scenarios on our financial metrics, credit metrics and debt covenants. Where the result of the stress test indicated
more than a limited impact, a risk of a downgrade of credit rating or a breach of a bank covenant, we considered what mitigating actions would be
available and whether they would be sufficient to mitigate the potential impact of the stress test.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
81
STRATEGIC REPORT VIABILITY STATEMENT CONTINUED
The table below sets out the potential impacts of the stress tests and the mitigating actions that would be available to address the impacts.
Stress test applied
Potential impacts on viability without mitigating action
Mitigation available
An extreme
one-off event
Increased gearing and deterioration in credit metrics that, without
mitigating action, might lead to a downgrade in ratings although
still at investment grade.
Engage with ratings agencies to discuss the short-term nature of
the impacts.
Manage liquidity by temporarily reducing working capital.
Close out derivative financial instruments in asset positions to generate cash.
Consider new sources of funding, including hybrid debt.
Reprofile capital programme to ease short-term pressure on ratings.
Consider reducing dividend in the year or downgrading the dividend policy.
Totex
underperformance
Earnings in the year are lower than the dividend indicated by
our policy.
Cost reduction programme focused on reducing discretionary
expenditure to support profitability.
ODI penalty
Increased gearing and deterioration in credit metrics that, without
mitigating action might lead to a downgrade in ratings although
still at investment grade.
Headroom against debt covenants significantly reduced.
Manage liquidity by temporarily reducing working capital.
Close out derivative financial instruments in asset positions to generate cash.
Consider new sources of funding, including hybrid debt.
Consider reducing dividend in the year or downgrading the dividend policy.
The penalty would flow through revenue two years after the
performance commitment was breached.
Earnings in the year are lower than the dividend indicated by
our policy.
Increased gearing and deterioration in credit metrics that, without
mitigating action, might lead to a downgrade in ratings although
still at investment grade.
Accelerate recognition of accumulated ODI rewards not yet taken.
Engage with ratings agencies to discuss the short-term nature of
the impacts.
Manage liquidity by temporarily reducing working capital.
Consider reducing dividend in the year.
Financial penalty
Lower profits lead to dividend cover less than one.
Deterioration in credit metrics that, without mitigating action,
might lead to a downgrade in ratings although still at
investment grade.
Increased pension
contributions
Deterioration in credit metrics that, without mitigating action,
might lead to a downgrade in ratings although still at investment
grade.
Combined scenario
Significant reduction in profitability and cash flow.
Earnings in the year are lower than the dividend indicated by
our policy.
Significant increase in gearing leading to risk of downgrade below
investment grade in credit rating and breach of covenants.
Engage with ratings agencies to discuss the short-term nature of the
impacts.
Manage liquidity by temporarily reducing working capital.
Consider reducing dividend in the year.
Manage liquidity by temporarily reducing working capital.
Close out derivative financial instruments in asset positions to generate cash.
Consider new sources of funding, including hybrid debt.
Engage with ratings agencies and banks to discuss the impacts on ratings
and covenants.
Manage liquidity by temporarily reducing working capital.
Close out derivative financial instruments in asset positions to generate cash.
Cost reduction programme focused on reducing discretionary
expenditure to support profitability.
Reprofile capital programme.
Consider downgrading the dividend policy.
Higher inflation
in one year
Short term adverse impact to profit, dividend cover and cash.
However, in the longer-term higher inflation increases revenue
and RCV leading to higher profits and lower gearing.
Engage with ratings agencies to discuss the short-term nature of the
impacts.
Manage liquidity by temporarily reducing working capital.
Close out derivative financial instruments in asset positions to generate cash.
Lower inflation in
one year
Pressure on PBIT and cash in the year following the low inflation
year (that may sustain in future years).
Engage with ratings agencies to discuss the short-term nature of
the impacts.
Increased gearing and deterioration in credit metrics that, without
mitigating action might lead to a downgrade in ratings although
still at investment grade.
Pressure on gearing covenants.
Cost reduction programme focused on reducing discretionary
expenditure to support profitability.
Our dividend policy is index-linked and therefore low inflation would
reduce the dividend payable. We would also consider downgrading the
dividend policy if necessary.
Deflation for two
years
Pressure on PBIT and cash in the year following the low inflation
year (that may sustain in future years).
Engage with ratings agencies to discuss the short-term nature of
the impacts.
Higher interest
rates
Increased gearing and deterioration in credit metrics that, without
mitigating action might lead to a downgrade in ratings although
still at investment grade.
Pressure on gearing covenants.
Reduction in profitability.
Deterioration in credit metrics that, without mitigating action,
might lead to a downgrade in ratings although still at
investment grade.
Consider new sources of funding, including hybrid debt.
Cost reduction programme.
Consider reducing dividend in the year or downgrading the dividend policy.
Engage with ratings agencies to discuss the impacts and the
regulatory true-up mechanism that would mitigate the impacts in the
longer term.
Cost reduction programme focused on reducing discretionary
expenditure to support profitability.
Manage liquidity by temporarily reducing working capital.
Consider reducing dividend in the year or downgrading the dividend policy.
The mitigating actions available are described in more detail below:
82
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Mitigating action
Details
Engage with ratings agencies and banks
While ratings agencies and banks apply formulaic calculations as part of their ratings and
covenant assessments, judgment is also applied. Where a threshold for a particular rating is
breached or a covenant ratio not met, a downgrade might not be applied or a temporary
covenant waiver might be granted if the agency/bank considers the situation to be temporary
and likely to reverse in the near future.
Manage liquidity by temporarily reducing
working capital
We would seek to accelerate collection of amounts receivable with particular focus on
overdue accounts. We would work with our suppliers to negotiate longer credit terms
where appropriate.
Cost reduction programme
Reprofile capital programme
We would review discretionary expenditure to identify costs that could be avoided or reduced
without a detrimental impact to customer service.
By deferring elements of capital expenditure, we could mitigate the impact of significant
events on our cash flow and smooth the effect on key ratios over a number of years, reducing
the size of the impact in any one year.
Close out derivative financial instruments in
asset positions
Derivative financial assets such as swaps can be closed out with the agreement of the
counterparty, generating cash in the short term.
Consider new sources of funding, including
hybrid debt
Consider reducing dividend in the year
The Group has access to a wide range of capital markets and maintains a diverse range of
funding sources. However, there are instruments that we do not currently use that would be
available when more traditional funding is not. Hybrid debt instruments are a form of debt
that has some of the characteristics of equity, for example a bond that features an option to
convert to equity.
Our dividend policy for AMP7 is to grow the dividend by CPIH each year. If necessary, we
would consider diverging from this policy to deal with short term pressure on credit metrics
or ratings.
Consider downgrading the dividend policy
In circumstances where the pressure on metrics, ratings or covenants was sustained, we
would consider amending our dividend policy for the AMP to relieve the pressure while giving
investors a basis to set their expectations for returns.
In selecting which mitigating actions to
apply, we would seek to balance the
interests of all stakeholders and, in particular,
would prioritise mitigating actions that would
not lead to a breach of our commitments
to customers.
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 15-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 15 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.
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 and Risk Committee supports the Board
in performing this review. Details of the Audit
and Risk Committee’s activity in relation to the
Viability Statement are set out in the Audit and
Risk Committee report in the Severn Trent Plc
Annual Report.
This statement is subject to review by Deloitte,
our External Auditor. Their audit report is set
out on page 168.
Assessment of Viability
The Board has assessed the viability of the
Company over a seven-year period to March
2030, 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 2030.
Going Concern
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.
The Directors have reviewed the cash and
committed facilities available to the Group
alongside a cash flow forecast extending
beyond the period considered for this
Going Concern Statement. The Directors
have considered the potential impacts, in
the period of one year from the date of this
report, resulting from the scenarios
described in the Viability Statement set
out above.
The Directors are satisfied that the Group
will have sufficient funds to continue to
meet its liabilities as they fall due for at
least twelve months from the date of
approval of the financial statements, and
that the severe but plausible downside
scenarios considered indicate that the
Group will be able to operate within the
amount and terms (including relevant
covenants) of existing facilities.
On this basis the Directors considered it
appropriate to adopt the going concern
basis in preparing the financial statements.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
83
STRATEGIC REPORT STAKEHOLDER ENGAGEMENT
We are focused on driving long-term sustainable
performance for the benefit of our customers,
shareholders, and wider stakeholders.
This section provides 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
(‘s.172’) on pages 95 to 97, which sets out our
approach to s.172 and provides examples of
Stakeholder
How we engage
at Board Level
– Customer-shareholders engage with the
Board and submit questions in advance of
our Annual General Meeting (‘AGM’).
How we engage
across the Company
– Quarterly meetings with CCW at
management level.
What matters
to them
How we delivered on feedback
this year
Outcomes from
engagement
Link to KPIs
– Customer service and
– Societal Strategy launched
– Hit or exceeded our targets on c.80% of our
– Value for money
performance
– 2022 Demand Reduction
performance commitments, earning an
– Help to Pay When You Need
– Frequent discussion and consultation with
– Leakage and supply
Campaign
outperformance of £53 million.
It
– Service delivery for customers is discussed
our online customer community.
– New technology services
– Supported 132,296 customers through our
– Priority Services Register
at every Board meeting.
– Customer perceptions of value for money
reported to our Corporate Sustainability
Committee.
– Our Board approved extensive customer
engagement to shape our Strategy and
business plan.
– ‘Your water, your say’ event held in
April 2023.
– Quarterly tracking of customer perceptions
against key indicators including trust and
satisfaction.
– 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.
– Customers can contact us 24/7 including
through two-way messaging functionality
through SMS, WhatsApp, TapChat and Apple
Business Chat channels.
Our Customers
In serving our customers, we want to provide
strong service delivery over the long term.
Our consultation with customers helped our
Severn Trent Water Limited 2020-25 business
plan to be fast-tracked by Ofwat and we have
engaged with our customers in development
of our PR24 business plan.
– Affordability and value for
– Good progress on our
Big Difference Scheme this year.
Affordability Strategy
– 17,178 customers supported this year
– Assistance in times of need
– First Get River Positive
through our WaterSure scheme.
– C-MeX
– D-MeX
– CRI
– Responsible investment
annual report on progress
– 7.7% of our customers signed up to our
– Drinking water quality
– Environment, river quality
against our river pledges
Priority Services Register.
reliability
money
and climate change
complaints
– Supply interruptions
– Leakage
– Internal sewer flooding
– External sewer flooding
– A dedicated virtual employee engagement
event, ‘Ask Our Board’, was held in May
2023.
– 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.
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.
– Employees are invited to attend the ‘Ask Our
– Health, Safety and Wellbeing
– Well-developed employee
– Our employee engagement survey score
– Employee Engagement
Board’ and ‘Ask Liv’ events.
– In addition to Board attendance, our
Company Forum brings together employee
representatives at quarterly meetings,
including Trade Union representatives.
– Continual communication to employees on
mental and physical health awareness.
– Employees are invited to attend the all
company roadshows held throughout
the year.
– Diverse and inclusive
advisory groups
of 8.4 out of 10 ranked us in the top 5% of
– Lost Time Incidents
– Opportunities to reach full
– YuLife wellbeing app
– 16 LTIs compared to 19 in 2021/22, our best
– 2022 Leadership event
utility companies globally.
workplace
potential
– Open and honest
environment
– Fair pay and reward
– Continued to narrow our
ever performance this year.
gender pay gap
– 5th on Social Mobility Index.
– Improved all-employee
– 23rd in Stonewall Workplace Equality Index.
benefits including discounted
– 4th year in Bloomberg Gender Equality.
childcare and support for
Index with our highest ever score.
elderly dependants
– Refreshed Strategy
– 14th on Equality in the Tortoise.
Responsibility 100 Index.
– 900 attendees at our Leadership event.
– 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 2023.
– Corporate responsibility, community
activities and volunteering programmes
are discussed at Board meetings.
– Environmental matters, including progress
on our Get River Positive river pledges, are
considered by the Board at every meeting.
– 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.
– Regular community workshops and drop-in
sessions held across our region.
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.
– Operational impact and
– Societal Strategy launched
– Financial support was given to care leavers
– Education programme
disruption
– Welcomed 263 new
through our Big Difference Scheme.
– External sewer flooding
– Local employment
apprentices and graduates
– Over £2 million awarded to 116 projects
– Public sewer flooding
– Economic contribution
– Welcomed 5 new Hereford
through our Community Fund this year.
– Protection of the
environment
and Derwen College interns
– 7,728 hectares of land improved during
– Work experience
the year.
– Pollutions
– Biodiversity
– Cost of living pressures
opportunities
– Over 340 ‘Kickstarters’ across the business
– Employee volunteering days
as part of our Kickstart Programme since
– Education sessions
its launch.
– New Care Leavers Scheme
– 71,259 hours delivered as part of our
– Improved the biodiversity of
100,000 employability hours scheme.
5,000 hectares of land, four
– Over £270,000 donated to our Get River
years early
Positive Community Fund this year.
84
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
decisions taken by the Board, including how
stakeholder views and inputs have been
considered in its decision making. 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 100. You
can also read more in our separately published
Sustainability Report which can be found on
our website. Our Engagement in Action section
showcases some of the exciting opportunities
we have had throughout the year to engage
with our key stakeholders. 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
Outcomes from
engagement
– Customer-shareholders engage with the
– Quarterly meetings with CCW at
Board and submit questions in advance of
management level.
– Customer service and
performance
– Societal Strategy launched
– 2022 Demand Reduction
our Annual General Meeting (‘AGM’).
– Frequent discussion and consultation with
– Leakage and supply
Campaign
– Service delivery for customers is discussed
our online customer community.
at every Board meeting.
– Quarterly tracking of customer perceptions
– Customer perceptions of value for money
against key indicators including trust and
reported to our Corporate Sustainability
satisfaction.
Committee.
– Online self-service options for customers
– Our Board approved extensive customer
and made it easier to check for and report
engagement to shape our Strategy and
problems through our ‘Check My Area’ app
Our Customers
In serving our customers, we want to provide
business plan.
and ‘Report a Problem’ services.
strong service delivery over the long term.
– ‘Your water, your say’ event held in
– Customers can contact us 24/7 including
Our consultation with customers helped our
April 2023.
Severn Trent Water Limited 2020-25 business
plan to be fast-tracked by Ofwat and we have
engaged with our customers in development
of our PR24 business plan.
through two-way messaging functionality
through SMS, WhatsApp, TapChat and Apple
Business Chat channels.
reliability
– Affordability and value for
money
– Assistance in times of need
– Responsible investment
– Environment, river quality
and climate change
– New technology services
– Good progress on our
Affordability Strategy
– First Get River Positive
annual report on progress
against our river pledges
– Hit or exceeded our targets on c.80% of our
performance commitments, earning an
outperformance of £53 million.
– Supported 132,296 customers through our
Big Difference Scheme this year.
– 17,178 customers supported this year
through our WaterSure scheme.
– 7.7% of our customers signed up to our
Priority Services Register.
– A dedicated virtual employee engagement
– Employees are invited to attend the ‘Ask Our
event, ‘Ask Our Board’, was held in May
Board’ and ‘Ask Liv’ events.
2023.
– In addition to Board attendance, our
– Employee-shareholders have the
Company Forum brings together employee
opportunity to meet the Board and submit
representatives at quarterly meetings,
questions to the AGM.
including Trade Union representatives.
– The Chair, Non-Executive and Executive
– Continual communication to employees on
Directors attend Company Forum meetings
mental and physical health awareness.
and provide feedback at Board meetings.
– Employees are invited to attend the all
– Company Purpose and culture, talent
company roadshows held throughout
development and our People Strategy are
the year.
discussed at Board meetings.
– Health, Safety and Wellbeing
– Diverse and inclusive
workplace
– Opportunities to reach full
potential
– Open and honest
environment
– Fair pay and reward
– Well-developed employee
advisory groups
– 2022 Leadership event
– YuLife wellbeing app
– Continued to narrow our
gender pay gap
– Improved all-employee
benefits including discounted
childcare and support for
elderly dependants
– Refreshed Strategy
– Our employee engagement survey score
of 8.4 out of 10 ranked us in the top 5% of
utility companies globally.
– 16 LTIs compared to 19 in 2021/22, our best
ever performance this year.
– 5th on Social Mobility Index.
– 23rd in Stonewall Workplace Equality Index.
– 4th year in Bloomberg Gender Equality.
Index with our highest ever score.
– 14th on Equality in the Tortoise.
Responsibility 100 Index.
– 900 attendees at our Leadership event.
Link to KPIs
– Value for money
– Help to Pay When You Need
It
– Priority Services Register
– C-MeX
– D-MeX
– CRI
– Drinking water quality
complaints
– Supply interruptions
– Leakage
– Internal sewer flooding
– External sewer flooding
– Employee Engagement
– Lost Time Incidents
Our Colleagues
Our greatest asset is our experienced,
diverse, and dedicated workforce. Our
relationship with them is open and honest,
– The Remuneration Committee reviews
and they are appropriately supported,
workforce policies and practices and
developed and rewarded to encourage them
makes recommendations to the Board.
to do their best in all that they do.
– The Board considers our employee
engagement – QUEST – survey results
and steps taken to address feedback.
– Employees who live and work in our
– Our employability scheme inspires our
communities ‘meet’ the Board at the
people and makes a real difference to
Employee Forum, AGM, and site visits.
people’s lives.
– Employees who live and work in our
– Regular engagement with Government
communities could also engage with the
officials and elected representatives on
Board through the employee engagement
water and environment-related issues.
virtual event, ‘Ask Our Board’, held in
– Our people volunteer, when safe to do so,
May 2023.
– Corporate responsibility, community
through our Community Champions
programme, working to improve our
activities and volunteering programmes
communities and environment.
are discussed at Board meetings.
– Regular community workshops and drop-in
– Environmental matters, including progress
sessions held across our region.
on our Get River Positive river pledges, are
considered by the Board at every meeting.
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.
– Operational impact and
disruption
– Local employment
– Economic contribution
– Protection of the
environment
– Cost of living pressures
– Societal Strategy launched
– Welcomed 263 new
apprentices and graduates
– Welcomed 5 new Hereford
and Derwen College interns
– Financial support was given to care leavers
through our Big Difference Scheme.
– Over £2 million awarded to 116 projects
through our Community Fund this year.
– 7,728 hectares of land improved during
– Education programme
– External sewer flooding
– Public sewer flooding
– Pollutions
– Biodiversity
– Work experience
opportunities
– Employee volunteering days
– Education sessions
– New Care Leavers Scheme
– Improved the biodiversity of
5,000 hectares of land, four
years early
the year.
– Over 340 ‘Kickstarters’ across the business
as part of our Kickstart Programme since
its launch.
– 71,259 hours delivered as part of our
100,000 employability hours scheme.
– Over £270,000 donated to our Get River
Positive Community Fund this year.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
85
STRATEGIC REPORT STAKEHOLDER ENGAGEMENT CONTINUED
Stakeholder
How we engage
at Board Level
How we engage
across the Company
What matters
to them
How we delivered on feedback this year
Outcomes from
engagement
– The Board approves the full and half-year
– We have a comprehensive programme of
– Strategy and business model
– Interim dividend of 42.73 for 2022/23
– Total Shareholder Return
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 research analysts
have a strong understanding of our Strategy,
performance, ambition and culture.
Many of our shareholders are also
customers, employees and pensioners.
results, Annual Report and Annual
Performance Report.
– The Board receives quarterly trading
updates.
– The Chair, Senior Independent Director
(‘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.
– Regular meetings between Investor
Relations and the Chair to discuss feedback
from investors and strategy.
– Annual Chair governance roadshow to meet
with shareholders, hear views and answer
questions.
investor engagement including investor site
visits, so that shareholders can experience
our operations and culture first hand.
– Regular dialogue with shareholders to
support them in their investments.
– Q&A Sessions held with the Executive
Committee bi-annually.
– Financial performance and returns
– Final dividend for 2023/24 of 64.09
– AMP7 dividend policy with a growth rate of at
– Disclosures under EU taxonomy
least CPIH – 2022/23 final dividend of 64.09
– Delivery against our Get River Positive river
– £737 million invested this year in our capital
– Financial and climate-related risk
pledges, Societal Strategy and Affordability
programmes with 84% of capital prices
Strategy
– Reputation
– ESG performance
management
– Strong leadership
– Company culture
– Energy pricing risk management
– Executive remuneration
agreed for the remainder of AMP7
– All resolutions received over 95% of votes at
– Investment into our Green Recovery
our 2022 AGM
Programme
– Commercial performance is discussed at
every Board meeting, including an update
on relationships with suppliers.
– Supplier representatives attend the Capital
Markets Day and the Company Forum
alongside Executive Directors and
Non-Executive Directors.
– Our Corporate Sustainability Committee
regularly monitors progress on
sustainability in our supply chain.
– Board has oversight of our Supply Chain
Charter and approval of our Modern
Slavery Statement.
– Meetings with suppliers at the outset of the
relationship to agree on performance
metrics and ensure continual monitoring of
performance; supplier questionnaires and
satisfaction surveys/stakeholder
materiality surveys.
– Regular meetings with our suppliers,
including training on Modern Slavery, and
our Code of Conduct, Doing the Right Thing.
– Audits and inspections of suppliers.
– Periodic performance and commercial
reviews.
– Supplier whistleblowing hotline.
– To deepen Board level understanding of our
Regulators, our Chair and Non-Executive
Directors formally met with Ofwat during
the year.
– Regular 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.
– Regulatory matters are regularly
considered by the Board, including
business plans, the 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.
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 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 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.
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– Fair engagement and payment terms
– Net zero engagement with supply chain
– 89 suppliers assessed through EcoVadis this
– AMP8 Supplier Engagement Event
– Supply Chain Sustainability School
year
– Collaboration
– Responsible supply chain
– Sustainable procurement
– Reputation
– CDP Supplier Engagement Leader 2022
– CIPS Procurement Excellence Standard
Accreditation
– 14.9 score by Sustainalytics (top 4% of
utilities companies)
– Ranked 12th in Tortoise Responsibility 100
Index
– Carbon Disclosure Project Advanced Rating
– Outcomes for customers, the environment
– Ensuring resilient supply chain
– December 2022 named by Ofwat in the top
and long-term resilience
– Sharing knowledge and expertise to find
categories for both performance and
– Performance against regulatory targets
solutions and opportunities for innovation
expenditure for the second year running.
– Trust and transparency
– Governance and compliance
– Environmental impact
– Sustainable procurement
– Developing responsible business strategies
– Highly confident of achieving EPA 4* status
and achieving continuous sustainable
for the fourth consecutive year, a unique
– Meeting shared targets for growth and
– Awarded London Stock Exchange’s Green
development
development
accolade in the sector.
Economy mark.
Stakeholder
How we engage
at Board Level
How we engage
across the Company
What matters
to them
How we delivered on feedback this year
Outcomes from
engagement
– The Board approves the full and half-year
– We have a comprehensive programme of
results, Annual Report and Annual
Performance Report.
investor engagement including investor site
visits, so that shareholders can experience
– The Board receives quarterly trading
our operations and culture first hand.
updates.
– Regular dialogue with shareholders to
– The Chair, Senior Independent Director
support them in their investments.
(‘SID’), Chief Executive, CFO and Non-
– Q&A Sessions held with the Executive
Executive Directors attend investor
Committee bi-annually.
– Strategy and business model
– Financial performance and returns
– Reputation
– ESG performance
– Financial and climate-related risk
management
– Strong leadership
– Company culture
– Energy pricing risk management
– Executive remuneration
– Interim dividend of 42.73 for 2022/23
– Final dividend for 2023/24 of 64.09
– Disclosures under EU taxonomy
– Delivery against our Get River Positive river
pledges, Societal Strategy and Affordability
Strategy
– Total Shareholder Return
– AMP7 dividend policy with a growth rate of at
least CPIH – 2022/23 final dividend of 64.09
– £737 million invested this year in our capital
programmes with 84% of capital prices
agreed for the remainder of AMP7
– All resolutions received over 95% of votes at
our 2022 AGM
– Investment into our Green Recovery
Programme
– Fair engagement and payment terms
– Collaboration
– Responsible supply chain
– Sustainable procurement
– Reputation
– Net zero engagement with supply chain
– AMP8 Supplier Engagement Event
– Supply Chain Sustainability School
– 89 suppliers assessed through EcoVadis this
year
– CDP Supplier Engagement Leader 2022
– CIPS Procurement Excellence Standard
Accreditation
– 14.9 score by Sustainalytics (top 4% of
utilities companies)
– Ranked 12th in Tortoise Responsibility 100
Index
– Carbon Disclosure Project Advanced Rating
– To deepen Board level understanding of our
– Regular meetings with our regulators at
Regulators, our Chair and Non-Executive
management level including, the EA,
Directors formally met with Ofwat during
Natural Resources Wales, Natural England,
the year.
Ofwat, the DWI and Defra.
– Regulatory matters are regularly
– Regular engagement with Government
considered by the Board, including
officials and elected representatives on
business plans, the Water Resources
water and environment-related issues.
– Outcomes for customers, the environment
and long-term resilience
– Performance against regulatory targets
– Trust and transparency
– Governance and compliance
– Environmental impact
– Sustainable procurement
– Ensuring resilient supply chain
– Sharing knowledge and expertise to find
solutions and opportunities for innovation
– Developing responsible business strategies
and achieving continuous sustainable
development
– December 2022 named by Ofwat in the top
categories for both performance and
expenditure for the second year running.
– Highly confident of achieving EPA 4* status
for the fourth consecutive year, a unique
accolade in the sector.
– Meeting shared targets for growth and
– Awarded London Stock Exchange’s Green
development
Economy mark.
meetings and feedback is reported to the
Shareholders and Investors
Board.
Continued access to capital is vital to the
– The Head of Investor Relations gives an
long-term performance of our business. We
update to the Board on a regular basis and
work to ensure that our shareholders,
the Investor Relations Strategy is discussed
investors and investment research analysts
by the Board.
have a strong understanding of our Strategy,
– The Chair attends the Capital Markets Day.
performance, ambition and culture.
– Regular meetings between Investor
Many of our shareholders are also
customers, employees and pensioners.
Relations and the Chair to discuss feedback
from investors and strategy.
– Annual Chair governance roadshow to meet
with shareholders, hear views and answer
questions.
– Commercial performance is discussed at
– Meetings with suppliers at the outset of the
every Board meeting, including an update
relationship to agree on performance
on relationships with suppliers.
metrics and ensure continual monitoring of
– Supplier representatives attend the Capital
performance; supplier questionnaires and
Markets Day and the Company Forum
satisfaction surveys/stakeholder
alongside Executive Directors and
materiality surveys.
Non-Executive Directors.
– Regular meetings with our suppliers,
– Our Corporate Sustainability Committee
including training on Modern Slavery, and
regularly monitors progress on
sustainability in our supply chain.
our Code of Conduct, Doing the Right Thing.
– Audits and inspections of suppliers.
Along with our employees, our suppliers
– Board has oversight of our Supply Chain
– Periodic performance and commercial
support us in delivering for our customers.
Charter and approval of our Modern
reviews.
Slavery Statement.
– Supplier whistleblowing hotline.
Suppliers and Contractors
Strong supplier relationships ensure
sustainable, high-quality delivery for the
benefit of all stakeholders.
Management Plan and Scheme of
Wholesale Charges.
– Regulatory stakeholders attend Board
Regulators and Government
The policy framework for the water sector in
meetings, including from Ofwat, the
England and Wales is set by the English and
Drinking Water Inspectorate (‘DWI’), the
Welsh Governments, respectively. We seek
Environment Agency (‘EA’), the Consumer
to engage constructively to achieve the best
Council for Water (‘CCW’) and Defra.
outcomes for customers and the
– Regulatory consultation updates are
environment. Below the policy framework,
considered by the Board.
our industry is regulated by Ofwat and
others. We agree commitments with our
regulators and 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.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
87
STRATEGIC REPORT Understanding and supporting
customers’ diverse needs
We greatly value customer insights and have a
programme of continuous customer research
to monitor and understand customer views and
perceptions. We conduct customer surveys
and a six-monthly social barometer survey
exploring customers’ societal concerns and
their priorities for the future. In addition, we
use TapChat, an online research panel of
around 7,000 customers, to undertake regular
ad hoc surveys, discussions and
communications tests. As part of our research,
we also commission ad hoc quantitative and
qualitative research, including that specifically
for price reviews.
Our PR24 research comprises a mix of
surveys, focus groups, deliberative workshops
and in-depth interviews. This includes
research with those in vulnerable
circumstances and those without internet
access. This research is focused on answering
the following questions:
– What are our customers’ needs and
priorities?
– How can we ensure that our service is
affordable and accessible for everyone?
– How, where and when should we invest to
meet customers’ and communities’
long-term needs?
– What value do customers place on service
improvements?
– Is our plan acceptable and affordable?
ENGAGEMENT IN ACTION
OUR CUSTOMERS
We have a relentless focus on improving service delivery for
customers. Our continuous engagement with them ensures
that we are truly able to understand what matters to them
and deliver further improvements in service.
Combining insights from our programme of engagement, the below
section outlines issues of importance to our customers and signposts
where you can read more about the steps we have taken to address them:
Customer Priorities
Providing clean, safe drinking water and
an affordable service, alongside supply
reliability, customer education and
protecting the environment.
Environmental concerns: around seven in
ten customers agree climate change is
already having an impact and customers
expect us to have plans in place to meet
these challenges and prevent disruption
to their service. Informed customers are
willing to invest in resilience, climate
change and protecting and improving the
environment. However, in a less informed
setting, customers are increasingly likely to
prioritise low bills over PR24
investments.
Read more: page 15.
Read more: from page 39.
The increasing cost of living, with
financial anxiety evident even amongst
those who are not financially vulnerable.
New categories of vulnerable customers
are emerging, and whilst we are a leader
in affordability support, we recognise
there is more to do to increase
awareness of these schemes and remove
psychological barriers to seeking
support.
The majority of customers are satisfied
with their water company and consider
that the company has a good reputation.
Customers want increasing honesty and
transparency, and reassurance that we
are focusing on, and investing sufficiently
in, those areas in which we are performing
less well. Customers welcome more
information about how the way we are
funded, investment and how customers’
interests are protected by regulators.
Read more: page 157.
Read more: pages 6 and 7.
Understanding customers’ views
In April 2023, we hosted our first ‘Your
water, your say’ session, allowing our
customers and other stakeholders to pose
questions about issues that are important to
them, including priorities for the future, in a
public environment.
We were delighted to have over 100
attendees, including customers, regional
stakeholders, other water companies,
Expert Challenge Panel members and our
regulators, join us virtually for the event.
You can read more about the outcomes of
the session on our website.
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OUR COLLEAGUES
We are immensely proud of
our culture; it is something
we work on every day and is
demonstrated by every
colleague across the business.
We reinforce our culture
through the initiatives and
interventions that we put
in place as a company.
Employee voice means different
things to different people and, as
such, multiple initiatives are needed
to achieve effective outcomes.
We have a combination of collective and
direct employee feedback mechanisms that
focus on two-way inclusive dialogue across
the business.
All of these communication and engagement
mechanisms are well established, well utilised
and cover the full breadth of the organisation.
Our collective and direct
employee feedback mechanisms
Collective Voice
– Company, business and local
Trade Union forums
– Departmental meetings
– Annual leadership events
– OnTap news and Weekly ‘News
Splash’ updates
– Monthly Team Talk
– Wonderfully you
– Diversity and Inclusion Advisory
Groups
Direct Voice
– QUEST survey
– Comm cells
– Whistleblowing
– Employee/manager meetings
– AskLiv
– Yammer
– Safety Net Reporting
Engagement with our
Company Forum
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. Our Company Forum
facilitates this in a structured way. According
to a recent survey by Tortoise, we are one of
only 38% of organisations in the FTSE100 who
have this in place.
The Company Forum meets four times a year
and attendees are invited from Trade Unions,
all leadership levels, the Executive Committee
and Board. Through this Forum, we engage
with employees on all ways of working. It is
jointly chaired by the Director of Customer
Operations and the Joint Secretaries of our two
main Trade Unions (Unison and GMB). Board
Directors are invited to attend and participate
at meetings and, over the last twelve months,
Christine Hodgson, Sharmila Nebhrajani,
Gillian Sheldon and John Coghlan, as well as
Liv Garfield, have attended meetings, to listen
to the discussions and to talk about their areas
of responsibility and interests.
The agenda is wide-ranging and topics for
discussion this year have included working
time and fatigue, an overview of the
occupational health contract tender and
ongoing dialogue on company-wide initiatives
such as our Societal Strategy, diversity and
inclusion, and new talent. There are also
regular updates on company performance,
year end results, and all large change
programmes.
The Company Forum consistently feeds back
on the value it gets from Board member
attendance and the Trade Union national
officers highlight how different this is to the
experience that they have in other
organisations.
Engagement with Business
Forums and Local Forums
In order to reach all parts of the business and
tailor conversations relevant to those areas,
we hold local forums chaired by area business
leaders to discuss performance, health and
safety, successes and areas of concern. To act
as a bridge between the Company Forum and
Local Forums, there are Operational and
Customer Business Forums. They meet to
discuss business updates and to resolve
matters that cannot be solved at a local level.
There is also a separate Health and Safety
Company Forum and Severn Trent Services
has its own non-unionised employee forum.
Engagement with all employees
Creating, developing and growing the right
communication and engagement channels for
our employees is kept under continual review.
Some forms of communication, such as line
manager relationships, are well established;
however, we continue to run regular line
manager training, especially for new
managers, as we recognise the crucial role
that manager behaviours, in particular
visibility and trust, play in encouraging an
active employee voice. Likewise, the approach
and format of local team meetings is an
important factor in creating an open dialogue
with the team. The monthly Team Talks
encourage this discussion and provide
consistency and structure as part of a wider
team agenda.
Yammer is well used across the business,
particularly in operational areas, allowing
employees to showcase work and start
discussions on work-related topics. AskLiv
provides a route for individuals to raise
questions to the CEO and Senior Management
Team that colleagues are unable to find an
answer to elsewhere. The encouragement of
open dialogue is complemented by top-down
communications in the form of the OnTap
intranet news and the Weekly ‘News Splash’
magazine-style round-up of key news articles.
All employee engagement events
We know that coming together and taking time
to connect to our Strategy and ambitions is
important to our colleagues, and drives
engagement and curiosity amongst our teams.
We take pride in delivering engaging
collaborative leadership events year on year,
bringing our leaders together to build
networks and make links to our performance
opportunities.
In September 2022, we held our leadership
events at Tittesworth Water, with over 900
attendees from across the business. Sessions
focused on PR24, the launch of our Societal
Strategy and the promotion of our Company
benefits offering. The event was hugely
engaging, with over 95% of colleagues saying
that it was a positive use of their time, and that
they were confident of being able to
communicate the messages to their teams. To
ensure that the messages reached across the
whole organisation, a cascade ‘Team Talk’
pack was provided for managers to use with
their employees.
We also hold Long Service Awards and annual
‘Awesome Awards’ to celebrate individual and
team achievements.
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ANNUAL REPORT AND ACCOUNTS 2023
89
STRATEGIC REPORT All employees have access to independent
psychological support and legal advice through
our Employee Assistant Programme, and we
regularly communicate and increase awareness
of all whistleblowing routes, including our
confidential Safecall ‘Speak Up’ line.
Read more: about our ‘Speak Up’
arrangements on page 139.
It would be great to have more
spaces for conversations and
collaboration when working in
the office.”
How can we prevent rooms being
booked and not ultimately used?”
Technology could be provided
in all meetings rooms, including
small single office spaces.”
I would like to see more meeting
spaces available, outside of
ordinary meeting rooms, for more
informal discussions.”
STAKEHOLDER ENGAGEMENT CONTINUED
Doing the Right Thing (‘DTRT’) and
our ‘Speak Up’ approach
It is important that our colleagues have the
right processes in place to raise concerns
should they need to. Whistleblowing
procedures are in place for all Group
companies to deal with any allegations of
breaches of DTRT.
We remain committed to providing an open
and transparent ‘Speak Up’ environment to
foster a culture where employees have the
confidence to speak out about issues that
concern them.
QUEST in action –
collaboration spaces
Collaboration space and environment were
identified as key topics of focus by our
employees this year. Following an in-depth
assessment, we identified that the primary
feedback was around collaboration space and
technology.
With the return to office environments
following COVID-19, many colleagues told us
they felt frustrated with the lack of physical
spaces and technology available for meetings
and collaboration. And some, colleagues felt
that improvements could be made to the
technology available to facilitate continued
use of online meetings.
QUEST performance
2022/23
2021/22
2020/21
8.4
8.2
8.3
Ask HR Roadshows
During the year, our Ask HR Roadshows visited
and attended multiple sites and team meetings
to help our colleagues get their questions
answered in a more convenient way which can
often help resolve their queries quicker. The
sessions allow us to listen and give employees
and teams an opportunity to air any issues or
concerns they have while building deeper
relationships across sites.
QUEST engagement survey
Our annual employee engagement survey,
QUEST, helps us to understand what is going
well and where we can improve. QUEST is
conducted by an independent research
company to ensure the results are anonymous.
We were delighted that our employee
engagement score achieved 8.4 out of 10 this
year, placing us in the top 5% of utility
companies globally. As important as the
range of opportunities provided is how our
colleagues feel about them. We continue to
ask colleagues questions relating to their
feelings about learning, careers and growth
at Severn Trent. We are really pleased that all
topics scored above benchmark, recognising
our delivery and focus in these areas.
On career paths, employees scored the
question, ‘I see a path for me to advance my
career in our organisation’ as 7.8 out of 10,
1.3 above benchmark. When asked whether
their job enables colleagues to develop and
learn new skills, 8.4 agreed. It is truly lovely
to see how our teams feel supported in their
development and see pathways to develop
and progress.
It is equally important to colleagues that we
are able to respond to what they tell us. The
below section offers an example of how we
responded to feedback during the year.
How we responded
Following publication of the QUEST results,
we immediately constituted a dedicated
workstream to review our working
environments on our sites and were able
to address the issues raised, including:
– a communication campaign to all
colleagues promoting better meeting
room etiquette;
– building multiple breakout areas at sites
with meeting pods;
– significant investment in meeting room
technology; and
– an upgraded meeting room system to
automatically reject no-shows to give
back availability of rooms.
Outcomes
We were delighted that our QUEST scores
this year showed a marked improvement
we appreciate there is still more to be
done in this space. We are pleased at the
feedback we are receiving from
colleagues:
“ This has improved since introducing two
additional breakout spaces within the
office.”
“ Plenty of room, especially since the
seating areas have been enhanced.”
“ There are always spaces available to
have conversations or meetings.”
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OUR COMMUNITIES
We work hard to make our
water wonderful and keep our
millions of customers ‘on tap’
every day. But there is more
to Severn Trent than that.
We think it is important to
give back to the communities
where our customers and
people live. Not because we
have to, but because we think
we should. Whether that
means caring for the
environment, supporting the
next generation, or just making
our region a better place to
live, we want to make a positive
difference in our communities.
Findings new ways of working and
working in partnerships
Our partnerships, such as local authorities,
regulators, charities, community groups and
schools, are fundamental to how we are
increasing our support to our customers.
We have written to the Chief Executive of every
local authority in our region to offer help with
identifying households that might need
support, building on the work we have been
doing with several local authorities in our area
to help them allocate the funding available
from central Government through the
Household Support Fund, allocating some to
ease water bills. Through our work with local
authorities, we have also secured additional
grants being paid directly to customers.
We have been working with Coventry City
Council and Birmingham City Council to help
transition households identified as financially
struggling onto one of our financial support
schemes. As part of our programme of
partnership working, in September 2022 we
partnered with Nottingham City Council to
bring together advice and support agencies for
customers including St. Ann’s Advice Centre
(debt advice), Green Doctor (energy efficiency
experts) and Nottinghamshire Energy
Partnership (delivering projects that tackle
fuel poverty).
At the same time, we have been working with
the Department for Work and Pensions to
proactively identify customers in need and,
where possible, move customers directly onto
one of our support schemes.
We regularly visit foodbanks, community
centres and outreach centres to raise
awareness of the support we provide and to
engage with vulnerable customers. We are
monitoring the ‘Warm Hubs’ initiative as
another potential venue for engaging with
customers and those struggling financially.
This enables us to engage with hard-to-reach
customers, including family and friends of
those who most need help. We assist
customers in the completion of applications for
our financial support schemes.
We announced our Societal Strategy in
November 2022, which is similarly built on
long-term collaboration with local authorities,
community groups and schools. In the first
implementation area of East Birmingham, we
have aligned our strategy with the local
authority’s East Birmingham Inclusive Growth
Strategy. We are already working with 26
partners, mostly charities and community
groups, on delivering 10,000 hours of free
employability training in communities. We are
also working with schools to provide work
experience to 300 young people every year,
rising to 500 by 2032, in social mobility cold
spots. We will also work with other
organisations to understand and remove the
barriers that could prevent children
undertaking work experience, such as
affordability and transport.
Uniting to cut carbon by
1 million tonnes per year
In September 2022, we announced our
pioneering global partnership with Aarhus Vand
(Denmark) and Melbourne Water (Australia) to
work together to reduce our carbon emissions
by around a million tonnes every year and to
lead the green transformation of the sector.
Through this world-leading collaboration,
we will build upon our collective experience,
expertise and innovation capabilities on
key projects such as:
– transforming our Strongford sewage
treatment facility into a Net Zero hub
(read more on page 19);
– developing new techniques and
international standards to measure and
record nitrous oxide and methane
releases from waste water treatment sites;
– identifying ways to enhance waste water
treatment sites with green technology
while reducing emissions to net zero; and
– maximising the use of renewable,
sustainable resources at treatment facilities.
Severn Trent creates 100
new Water Saving Champions
In September 2022, we recruited 100 new
temporary Community Water Saving
Champions across Leicestershire and
Derbyshire to help make homes water-
efficient. Our new Champions are all
making a positive difference in local
communities at pop-up events and by
talking to customers in their
neighbourhoods, helping to advise people
on how to save money by reducing water
consumption, which can in turn help
reduce water and energy bills.
Our Champions will also provide
information on our support schemes that
customers can access if they are
struggling to pay their bill, as well as free
products that will help reduce water use.
Radical innovation requires
participants with great
diversity, different expertise,
curiousity, ambition and trust-
building – precisely the
characteristics of our partners
in the UK and Australia.”
Claus Homann – Chief Executive,
Aarhus Vand
We are in the decade that matters
when the actions we take now
will define our future. We must
also adapt our operations to
prepare for a changing climate,
which is why we are passionate
about this international alliance
with Aarhus Vand and
Severn Trent.”
Nerina Di Lorenzo – Managing
Director of Melbourne Water
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91
STRATEGIC REPORT ENGAGEMENT IN ACTION CONTINUED
SHAREHOLDERS AND INVESTORS
Our intention is to drive value
for all of our stakeholders
through ensuring strong
service delivery for customers
and the environment over the
long term. Engagement with
our investors is critical to
our success.
What our investors and potential
investors say matters to them
Investor meetings are primarily attended by
our CEO, CFO and Head of Investor Relations,
although other Executive Committee members
also attend. The Chair and individual Directors
regularly engage with major shareholders to
understand their views on governance and
performance against Strategy.
During the year, we held around 170 investor
meetings and met with nearly 140 existing and
potential investors. These meetings were
attended by 53 shareholders, representing
65% of our share register. Over 70% of the
meetings were held in person compared with
only 53% in the previous year. However virtual
meetings enable us to cover large
geographical areas.
The meetings focused on the Group’s financial
performance, our commitment to the
environment, our outlook on AMP8 and our
approach to helping customers in the current
climate.
Annual Report
Our Annual Report is available to all
shareholders, and we aim to make it 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 Group Company Secretary
to request a copy.
Annual General Meeting
Our 2022 AGM was held on 7 July 2022, at
which 78.05% of our shareholders voted. We
were delighted to receive in excess of 95%
votes in favour for all of our resolutions. The
AGM was held as a hybrid meeting, meaning
that shareholders were able to follow the
business of the meeting by virtual as well as in
person. Shareholders were invited to submit
questions to a dedicated AGM mailbox and a
process was put in place for the Board to
respond to any questions directly and publish
responses on the Company’s website.
This year’s AGM is to be held on Thursday,
6 July 2023 at 10.00am. Following its success
in 2022, the Board agreed that the AGM would
be conducted as a hybrid meeting, allowing
those who join virtually to log into a live
webcast and pose questions to the Board in
real time. 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.
In addition to the AGM, the Group Company
Secretary communicates with individual
investors, making sure we respond properly to
questions in relation to their shareholding. Our
share registrar Equiniti also has a team to take
care of shareholders’ needs.
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.
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SUPPLIERS AND CONTRACTORS
Our investment plans for AMP7
and AMP8 will require a
resilient and highly engaged
supply chain. Supplier
engagement is essential to our
plans and promotes a shared
culture of trust to share
knowledge and expertise to
find the right solutions for our
customers, ensure continuous
sustainable development and
develop responsible business
strategies. Our enduring
relationships with our
suppliers help us to reduce the
risks we face as a business, for
the benefit of our wider
stakeholders, particularly our
customers and communities.
Supplier engagement is integral
to our success
We deliver this through our partnership with
the Supply Chain School, in-person Supplier
Summits, supplier onboarding events,
one-to-one engagement, training events and
dedicated supplier communications. Through
these channels, we make sure that what we,
and our customers, expect is relevant and
appropriate to the suppliers’ activities and
their environmental and social impact.
AMP8 Supply Chain Engagement Day
We have an array of hugely exciting projects
and AMP8 schemes aimed at improving our
network and service and, more importantly
build resilience to protect and enhance the
water supply for our region, both now and in
the future. A key factor of success is working
collaboratively and creatively with our supply
chain to deliver new solutions to overcome the
challenges. So we have been engaging with our
capital supply chain early.
On 10 March 2023, we brought together over
80 of our suppliers, sharing with them our
ambitions and priorities for AMP8 and
where they can play a part in delivering
our shared successes.
The agenda for the day included future
challenges and innovation (including energy
prices, climate change and affordability), early
visibility of our AMP8 investment programme
and how early engagement can help us identify
new ways of working and create a strong
foundation upon which new opportunities and
collective success can be realised.
The event was a brilliant success and received
overwhelmingly positive feedback from
suppliers.
Engaging on modern slavery
Collaboration is key to identifying and
addressing modern slavery, so we actively
engage with other organisations to gain insight
and maintain best practice. We entered our
second three-year partnership with Slave-
Free Alliance in 2021, which has been
instrumental in our approach and in the
progress we have made in identifying and
mitigating modern slavery risk. We continue to
sit on the Steering Group of Utilities Against
Slavery, formerly known as the Utilities
Modern Slavery Working Group. The working
group continues to grow, with over 24 utilities
organisations actively participating. In 2021,
we also partnered with the Supply Chain
Sustainability School, which provides access to
a wide range of learning resources, including
dedicated modern slavery awareness training
for all organisations within the Group’s supply
chain.
Having outperformed our ambition to ensure
60% of our high-impact suppliers were risk
assessed for modern slavery, we decided to
evolve our approach in view of the Ukraine
conflict, cost of living crisis and labour
shortages being observed within the
construction sector, issues that directly
increase the risk of modern slavery
occurrence in our supply chain. In
collaboration with our strategic partner, the
Slave-Free Alliance, we enhanced our supplier
selection questions in line with the utilities
sector, conducted a heat mapping exercise to
confirm our greatest areas of risk and engaged
with contract owners to develop bespoke
assessments where required.
Read more:
You can read more on our approach
and engagement in our 2023 Severn
Trent Plc Anti-Slavery and Human
Trafficking Statement online,
published in summer 2023
Scan or click to
read more
2022
Anti-Slavery
and Human
Trafficking
Statement
Engaging with suppliers to take
positive action
Working closely with our supply chain partners
is critical to the delivery of our sustainability
ambitions, and we are committed to building
supplier capability through engagement,
training and our partnership with the Supply
Chain Sustainability School to support them.
Our 2022/23 highlights include:
– 100% of contracted suppliers signing up to
our Sustainable Supply Chain Charter;
– 89 suppliers having been assessed through
EcoVadis, an independent rating platform
which assesses suppliers based on their
environmental and social impact
performance;
– being awarded CDP Supplier Engagement
Leader for the second year running;
– 44% of suppliers, by emissions, having set a
Science-Based Target for 2022/23; and
– all applicable suppliers and their
subcontractors to pay the real Living Wage
as a minimum.
Read more:
For more information on our vision
and priorities, refer to our first
Sustainable Procurement Statement,
and latest Annual Sustainability
Report, published in summer 2023.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
93
STRATEGIC REPORT ENGAGEMENT IN ACTION CONTINUED
REGULATORS AND GOVERNMENT
Our relationships with the
Government, our regulators,
and other agencies support us
in ensuring that we meet the
highest customer service and
environmental standards,
while providing value for
money services to customers.
Additional activities in the year
Over 12
sewage treatment tours held
Eight Community
Sessions
relating to our Get River Positive river
pledges, the fantastic work of our River
Rangers and local growth plans, all with
MPs from our region
Highlights of our engagement
activities during the year
2022
April
– Mansfield Green Recovery Project
Tour with MP for Bromsgrove
showcasing one of our 72 Tiny
Forests
June
– Tour of miners rescue centre in
Wrexham supported by the Community
Fund with MP for North Wales region
– Tour of Mansfield Green Recovery
Project with the National Infrastructure
Commission
– Tour of Church Wilne waste water
treatment works and Green Recovery
Programme with Ofwat Chair –
hosted by Liv Garfield
Wrexham
miners
rescue
centre
September
– Site visit and overview of Green Recovery
projects, including Bathing Rivers
scheme and an overview of our River
Rangers roles with the Environment
Agency – hosted by James Jesic
November
– Showcase on local investment and Green
Recovery Programme with MP for
Coventry North West and MP for Rugby
2023
April
– Board hosted visit to Mansfield to
showcase our work on green recovery
with the Chair of the Environment Agency
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SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Mansfield
Green
Recovery
Project
May
– Mansfield Green Recovery Project
Tour with the Environment Agency –
hosted by Liv Garfield
– Stakeholder Roadshow with MP for
Mansfield – hosted by Liv Garfield
– Green Recovery Project Site Visit and lead
pipe replacement programme with Ofwat
Mansfield
Green
Recovery
Project
July
– Tour of Bamford waste water treatment
works and Mansfield with Ofwat
– Tour of the Severn Trent Academy and
Finham Sewage Treatment Works with
The Office for Environmental Protection
– Stakeholder Roadshow to showcase our
work in the community, river pledges
and Green Recovery Programme with the MP
for Ludlow – hosted by Liv Garfield
Bamford
waste water
treatment
tour
October
– Stakeholder Roadshow to showcase our
work in the community, river pledges and
Green Recovery Programme with the MPs
for Coventry – hosted by Liv Garfield
– Water Efficiency Policy discussion
with MP for Tewkesbury
February
– River water quality discussions with
MP for Derby North
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
balancing the competing priorities of
stakeholders. Our stakeholder engagement
processes enable our Board to understand
what matters to stakeholders and consider
carefully all the relevant factors to select the
course of action that best leads to high
standards of business conduct and success of
Severn Trent in the long term. 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 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 2022/23, the
Directors have had regard to the matters set
out in s.172 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
The likely
consequences of
any decision in the
long term
Relevant disclosure
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
The need to act
fairly as between
members of the
Company
Page 2 to 3
– Corporate Strategy
Page 2 to 3
– Corporate Strategy
Page 2 to 3
– Corporate Strategy
Page 2 to 3
– Corporate Strategy
Page 2 to 3
– Corporate Strategy
Page 2 to 3
– Corporate Strategy
Page 4 to 5
– Our Business Model
Page 14 to 38
– Performance
Page 33
– Responsible
Page 14 to 38
– Performance
Review
Page 10
– Dividend Policy
Page 39 to 63
– Sustainability
Payment Practices
Page 14 to 38
– Performance
Review
Page 139
– Modern Slavery
Page 39 to 63
– Sustainability
Page 4 to 5
– Our Business Model
Page 139
– Whistleblowing
Review
Page 22 to 33
– Caring for
Our People
Page 25 to 28
– Diversity and
Inclusion
Page 84 and 85 and
89 and 90
– Employee
Engagement
Page 139
– Whistleblowing
Page 102 to 103
– Company Culture
Page 39 to 63
– Sustainability
Page 137 to 140
– Corporate
Sustainability
Committee
– Sustainability
Page 6 to 7
– Market and Industry
Overview
Page 84 to 94
– Stakeholder
Engagement
Page 139
– Whistleblowing
Page 130 to 131
– Internal Controls
Page 92
– Annual General
Meeting
Page 10
– Dividend Policy
Page 39 to 63
– Sustainability
Report available at
our website.
and Risk
management
Page 39 to 63
– Sustainability
Principal decisions in 2022/23
The principal decisions taken by the Board in the year are detailed on pages 112 to 113 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
Stakeholder engagement
activities recorded and
detail included in Board
papers where applicable
The Group’s culture
ensures that there is
proper consideration of
the potential impacts of
decisions
The Board performs due
diligence in relation to the
quality of the information
presented and receives
assurance where
appropriate
BOARD INFORMATION
BOARD STRATEGIC DISCUSSION
Board papers include
a table setting out
s.172 factors and
relevant information
relating to them
The Chair ensures decision
making is sufficiently
informed by s.172 factors
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
Follow-up
actions with
Board oversight
BOARD
DECISION
Engagement
and dialogue with
stakeholders
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
95
STRATEGIC REPORT SECTION 172 STATEMENT CONTINUED
Engagement with stakeholders
The Board recognises that stakeholder
engagement is essential to understand what
matters most to our stakeholders and the
likely impact of any key decisions. We have a
long history of engaging with all of our
stakeholders and the Board values the insight
that this engagement provides. Details of how
we engaged with our stakeholders during the
year can be found within our Stakeholder
Engagement section on pages 84 to 94.
Examples of decisions taken by the Board
and how stakeholder views and inputs,
as well as other s.172 considerations,
have been taken into account in its decision
making are set out below.
Key stakeholder groups considered
Customers
Communities
Shareholders
and Investors
Employees
Suppliers
and Contractors
Regulators
and Government
Sustainability
and ESG
SOCIETAL STRATEGY
Context
We have a range of measures in place to help
support customers who are experiencing
affordability pressures. The pandemic and
recent geopolitical events in Ukraine have
exacerbated affordability and cost of living
pressures. Inflation is now the highest it has
been since 1992 and households are seeing
significant price rises, notably for electricity,
gas, food and petrol. As a result, many more
households now find themselves in water
poverty.
As a socially responsible company that
genuinely cares about its customers and the
communities it serves, the Company
launched its Societal Strategy in November
2022, which focuses on the underlying
causes of water poverty to address the
drivers of long-term affordability issues and
contribute to the wider levelling-up agenda
given the overlap between water poverty and
income poverty. The Board developed the
Societal Strategy with the objective of
addressing affordability in the immediate
term and proposing a multi-AMP strategy to
eradicate water poverty in our region by
improving the life chances of people in our
communities.
Read more
You can read more about our Societal
Strategy on page 32 and at stwater.co.uk.
Consideration of s.172 impacts by the Board in its decision making
Customers:
Suppliers and Contractors:
The Board considered the Company’s Societal
Strategy in view of its existing commitment to keep
absolute bills as low as possible for all customers
whilst also delivering improved resilience,
sustainability and strong service delivery, by ensuring
that every pound is spent wisely and efficiently.
Potential impacts to customer bills were central to
Board discussions and, as such, the Societal Strategy
was structured so as not to increase costs to any
non-water-poor customers above the level assumed
in the Company’s Final Determination.
The Board recognised that the Company could have a
greater and faster impact by engaging with the supply
chain, building relationships with partners across a
multitude of sectors, and utilising our influence to
encourage and lobby for regional and national change.
As part of this approach, the Company engaged its
Supply Chain and Procurement Teams to encourage
and challenge our largest suppliers to join us on this
journey, asking them to match our ambitions on
apprenticeships, recruitment, and work experience,
as well as on real Living Wage, fairness and inclusion.
Regulators and Government:
The Board has a strong track record of engaging
with its regulators. Alongside our extensive support
for our customers and communities, the Board
engaged with CCW and Ofwat’s initiatives on
affordability, including the recommendations of
CCW’s Independent Water Affordability Review.
These stakeholders have indicated their support of
the Societal Strategy, as have local Government and
MPs.
Employees:
Our annual engagement survey, QUEST, tells us
that our colleagues are the most engaged they have
ever been. They are motivated by this programme of
work, which will make a positive impact in the
communities that they serve and live and work in.
Our people will also have the opportunity to
volunteer as mentors to support the delivery of our
Societal Strategy.
Outcomes and impact on the
long-term sustainable success
of the Company
Our Societal Strategy will provide support for the
most financially vulnerable customers in our
region, through supporting an additional 100,000 of
our customers and equip them with the skills and
experiences to help lift them out of water poverty, at
no increase in costs above those assumed in our
Final Determination to our non-water-poor
customers.
Following careful analysis, the Board determined that
the Societal Strategy would provide both immediate
support to customers experiencing affordability
pressures and help address the underlying causes of
poverty for the long term.
To inform its approach, the Board engaged a
research agency to carry out the Company’s
largest-ever, in-depth survey of stakeholder and
customer views on affordability. The research was
designed to include in-depth interviews, surveys,
focus groups, follow-up interviews and deliberative
workshops to make sure the Company, and the
Board, thoroughly understood the needs of its
customers prior to finalising its plans.
Communities:
Notwithstanding the Company’s Affordability
Strategy announced in May 2022, the Board
acknowledged that more needed to be done to
address the long-term drivers that perpetuate
poverty in our society. Therefore, the Board
determined that the Societal Strategy should be
developed to complement the Company’s extensive
work on affordability with an equally ambitious
approach to water poverty. By pulling together the
Company’s socially directed programmes into a
clearer framework, the Board recognised that it
would make it easier for communities to access the
support they need.
As part of this, the Board agreed to increase the
proportion of Community Fund grants going into
training and skills outreach, targeting a combined
allocation of £1 million by 2030 with the ambition of
helping 100,000 people, in or at risk of water
poverty, through access to high-quality careers and
employment-related training. Careers and
employability skills were determined to be the most
appropriate route as they impact three of the main
drivers of poverty: unemployment, low pay, and
insufficient working hours.
The Company engaged with key stakeholders,
including Ofwat, CCW, shareholders, local
communities, Business In The Community,
Birmingham City Council and Solihull Council, MPs,
and schools, to listen to and understand their views
and the challenges they face.
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CORPORATE STRATEGY – PERFORMANCE DRIVEN, SUSTAINABILITY LED
Consideration of s.172 impacts by the Board in its decision making
Customers:
The Board determined that the Group’s Corporate
Strategy should focus on service delivery for
customers, including providing safe and consistently
high-quality drinking water to customers, ensuring
that supply interruption and low-pressure events
are well managed and ensuring that bills remain
affordable and represent good value for customers.
The Board also considered that the Corporate
Strategy should facilitate a continued high-quality
customer experience both now and over time, in
consideration of long-term water scarcity and
climate change, and future customer demand.
Employees:
The Board considered that the Corporate Strategy
would also provide clarity to employees on its
strategic priorities, which would inspire their
contribution to the Company’s future success and
drive transformational change programmes to
support improved service delivery for customers
and the environment.
The Corporate Strategy also provided clarity on the
skills and capabilities required to deliver the
Group’s priorities and increased employee
engagement at all levels of the organisation,
through demonstrating opportunities to give back to
the communities in which we serve and reinforce
the Group’s socially purposeful culture.
Environment and our
Communities:
The Board considered the vital role of nature and the
natural environment for the Group, including its
ability to supply and treat water in a way that is
sustainable for the long term.
The Board reviewed the appropriateness of the
Corporate Strategy in supporting the continued
protection and improvement of our region’s natural
environment, and the creation of new community
resources – through supporting local community
projects, giving support to vulnerable and
disadvantaged members of society and, crucially,
increasing the availability of jobs and training
opportunities.
Outcomes and impact on the
long-term sustainable success
of the Company
Successful execution of the Group’s Corporate
Strategy will deliver long-term sustainable success
through delivering the Group’s sustainability aims,
increasing profitability, value growth and enhanced
reputation. In setting the Group’s Corporate Strategy,
the Board critically assessed business performance
and the future direction of the Company, and
identified areas where additional value could be
generated for its stakeholders.
Context
During the year, the Board considered its
Corporate Strategy, with the objective of
ensuring that it reflected the business that
we are today, while clearly outlining the
ambitions we have for the future. The Board
discussed the global context the business
operates within, and the challenges faced to
maintain its success as a sector-leading
Company.
The Board discussed the need to be a
performance driven, sustainability led
organisation and the desire to deliver
financial and operational outperformance in
balance with the long-term needs of the
environment and the customers and
communities the Company serves. Using
this insight, we defined four key pillars that
describe the strategic outcomes we seek to
aim for:
OUT
C
O
M
E
S
E
R
A TU
N
E
A N G
H
C
P
E
O
P
L
E
Read more
You can read more about our
Strategy on pages 2 to 3.
CHIEF FINANCIAL OFFICER SUCCESSION
Context
A key focus of the Board and Nominations
Committee is Board succession and
composition, to ensure the appropriate
balance of skills, independence, experience
and diversity on the Board and Executive
Committee. Succession planning allows the
Board to undertake the necessary
preparations to manage changes without
disruption to the business and ensure
continuity through effective handover
processes.
In February 2023, the Board announced the
retirement of James Bowling as Executive
Director and CFO at the Annual General
Meeting in July 2023.
The Chair and CEO led the process to
identify suitable candidates for the role and
an executive search firm was engaged as
part of the recruitment process. It was
announced that Helen Miles, Capital and
Commercial Services Director, would be
appointed as an Executive Director and CFO
Designate with effect from 1 April 2023.
Consideration of s.172 impacts by the Board in its decision making
Communities:
Employees:
The Board recognised the importance of
considering the Board Diversity Policy whilst
considering candidates for appointment and
aligning with the diversity of our region,
specifically in respect of gender, social and
ethnic backgrounds, skills and experience.
The Board recognised that the appointment of
an internal candidate would demonstrate the
Group’s commitment to the development,
upskilling and reskilling of its employees, and
the priority it places on its internal succession
pipeline.
Shareholders and Investors:
A key success of the Group has been its
delivery of an effective financing strategy to
position Severn Trent as a leader on financing
performance.
The CFO successor would need to
demonstrate the same commitment and
acumen to ensure continued high
performance and return for shareholders and
investors. As a highly experienced and
commercial CFO, possessing strong finance
and regulatory accounting experience, the
Board determined that Helen was the best
candidate for the role.
Outcomes and impact on the
long-term sustainable success
of the Company
The Board approved Helen’s appointment,
given her highly experienced and commercial
background and detailed understanding of the
water sector, with a proven track record of
exceptional delivery. Helen also has an
extensive knowledge of the Group and its
culture, and an in-depth understanding of the
regulated sector in which the Group operates.
Read more
You can read more in our Nominations
Committee Report on pages 121 to 126.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
97
STRATEGIC REPORT
NON-FINANCIAL AND SUSTAINABILITY
INFORMATION STATEMENT
This section of the Strategic Report constitutes the Non-Financial and Sustainability Information
Statement of Severn Trent Plc, produced to comply with sections 414SA and 414CB of the
Companies Act. The information listed in the table below is incorporated by cross reference.
Reporting
requirement
Stakeholders
Policies and standards which
govern our approach
Additional information
and risk management
– Our customers are at the heart of everything we do and our Customer Policy
Stakeholder Engagement, pages 84 to 94
outlines how our people are responsible in ensuring we keep our promises to our
customers and deliver great customer service.
– Our Group Data Protection Policy supports our people in taking responsibility for
protecting our employee and customer data whilst considering and implementing
the commitments made within the policy when performing their work and making
decisions.
– Our Group Commercial Policy outlines what is expected of all those involved in
procurement activities, enabling them to uphold our Values of acting with
integrity and putting our customers first. Complying with this Policy enables
employees to maintain proper standards of fairness and integrity in business
relationships with colleagues and suppliers.
– Our Group Environment Policy supports our environmental plans and our
commitment to environmental leadership. It sets out guiding principles of how we
as a Group operate to protect the environment and the commitments our people
need to consider when performing work activities and when making decisions.
Environmental
Matters
s.172 Statement, pages 95 to 97
Board Activities, pages 110 to 111
TCFD and Net Zero Transition Plan, pages 39
to 63
Corporate Sustainability Committee Report,
pages 137 to 140
Sustainability Report,
www.severntrent.co.uk
TCFD Report, pages 39 to 56
Stakeholder Engagement, pages 84 to 94
s.172 Statement, pages 95 to 97
Employees
– Our Group Health, Safety and Wellbeing Policy outlines what is expected of
Caring for our people, pages 22 to 38
employees as regards health, safety and wellbeing, ensuring that no one gets
hurt or made unwell by what we do. This policy extends to anyone employed by, or
who carries out work on behalf of, Severn Trent Plc and its Group companies,
contractors, temporary staff and agency workers.
– Group Speak Up Policy – We truly believe that our Values are an essential and
vital part of the life and culture of Severn Trent, and that’s why we take seriously
any reports about illegal practices or inappropriate conducts within our Company.
We hold ourselves to the highest ethical standards and encourage our colleagues
to Speak Up if they are worried about wrongdoing affecting our Company,
customers, colleagues or suppliers.
– Our Group HR Policy outlines our commitment to maintaining a work culture that
is diverse and inclusive, that’s supportive and nurturing, and which makes the
most of everyone’s growth potential. We’ll also protect the human rights of all of
our colleagues.
Respect for
Human Rights
– Anti-Slavery and Human Trafficking Statement
– Diversity within our workforce
Stakeholder Engagement, pages 84 to 94
Gender and Ethnicity pay gap, page 156
Culture, pages 102 to 103
Governance Report, pages 100 to 163
Audit and Risk Committee Report, pages 127
to 134
Directors’ Remuneration Report, pages 141
to 163
Anti-Slavery and Human Trafficking, page
139
Governance Report, pages 100 to 163
Corporate Sustainability Committee Report,
pages 137 to 140
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SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Reporting
requirement
Policies and standards which
govern our approach
Additional information
and risk management
– Our Group Financial Crime and Anti-Bribery and Anti-Corruption Policy outlines
Governance Report, pages 100 to 163
Anti-Corruption
and Bribery
acceptable and non-acceptable behaviours to ensure compliance with anti-
bribery and anti-fraud laws, which includes improper payments, gifts or
inducements of any kind to and from persons, including officials in private or
public office, customers and suppliers. This policy also covers our approach to
inside information, political donations, conflicts of interest, gifts and hospitality
and continuous disclosure.
– Our Group Conflicts of Interest Policy provides guidance around managing
conflicts of interests arising from obligations pursuant to the Companies Act
2006, the 2018 UK Corporate Governance Code and associated rules and guidance
issued by the FCA.
– Our Group Security Policy aims to minimise the likelihood of a threat being
realised through the use of appropriate security solutions that reduce the impact
of these threats through the deployment of robust response and recovery
measures.
– Group Competition and Competitive Information Policy – Competition law
applies to all parts of our Company, and we take our position within the market,
and our compliance with competition and antitrust laws, seriously. It is not
enough just to comply with the law. In everything we do, we strive to do it with
openness, fairness and honesty, which is supported by our Values and the
stringent rules we have in place.
Social Matters
– 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.
– Group Environment Policy
– Customer Policy
Description of
Principal Risks
and Impact of
Business Activity
Description of the
Business Model
Non-Financial Key
Performance
Indicators
Audit and Risk Committee Report, pages 127
to 134
TCFD and Net Zero Transition Plan, pages 39
to 63
Corporate Sustainability Committee Report,
pages 137 to 140
Directors’ Report, pages 164 to 166
Sustainability Report,
www.severntrent.co.uk
Stakeholder Engagement, pages 84 to 94
Our Approach to Risk, pages 73 to 74
Principal Risks, pages 75 to 78
Emerging Risks, page 79
Our Business Model, pages 4 to 5
Our Business Model, pages 4 to 5
Strategic Report, page 2 to 99
Key Performance Indicators, pages 14 to 38
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.
Hannah Woodall-Pagan
Group Company Secretary
23 May 2023
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
99
STRATEGIC REPORT CHAIR’S INTRODUCTION
TO GOVERNANCE
Christine Hodgson
Chair
The strong leadership and
breadth of experience we
have on the Board enables
us to make sound and
balanced decisions for
the long-term benefit of
our customers and wider
stakeholders, both now and
in the future.
The last year has seen an increasing number of challenges impacting
our sector, our business and our customers. The consequences of
ongoing geopolitical events, significant increases in energy costs and
rising inflation and interest rates are set to continue to impact
companies and communities for some time.
We are positioned well to manage these impacts, and the Board and
Executive Committee are confident that the Company’s adaptability
and agility will ensure we can respond to circumstances as they arise,
and continue to deliver for our customers and communities at a time
when they need us most.
As outlined in my Chair’s Statement, the last
18 months have been some of the most
challenging in our history and many of those
challenges continue – with high inflation driving
increases in energy costs for customers and
companies alike, and the continued impact of
geopolitical events. Despite these challenges, we
have delivered robust operational and resilient
financial performance for our customers and
wider stakeholders. This success depends on our
commitment to exceptional corporate governance
standards, which underpin the confident delivery
of everything we do. It drives ethical behaviours,
informs sound decision making, enables the
effective running of our business and, ultimately,
builds trust. The Board is fully committed to open
and transparent reporting, and I hope that this is
evident in our Annual Report this year.
I referred to the Board’s review of our Corporate
Strategy in my Chair’s Statement, to reflect
where the business is today and outline the
ambitions we have for tomorrow. In line with our
robust governance framework, the Board will
oversee the delivery of this Strategy and hold
management to account, in order to maintain the
Group’s success in the period ahead. You can
read more about our Corporate Strategy in my
Chair’s Statement from page 8.
Evolution of the Board and
Executive Team
Succession planning is a key area of focus for
the Board and, during the year, we announced a
number of significant changes to the composition
of our Board, following the retirement of Philip
Remnant, former Chair of the Remuneration
Committee, in November. I would like to thank
Philip for his dedication and significant and
impactful contributions to the Board and
Committee discussions. Sharmila Nebhrajani
has taken on the role of Remuneration
Committee Chair and, as such, will introduce
her first Directors’ Remuneration Report to
shareholders this year. I am delighted that Sarah
Legg joined the Board as an Independent
Non-Executive Director during the year. Sarah
brings significant financial and sustainability
experience to the Board and I look forward to
working with her over the coming years.
During the year, the Company also announced
the planned retirement of James Bowling,
our Chief Financial Officer of eight years, and
Bronagh Kennedy, our Group General Counsel
and Company Secretary of nearly twelve years.
The Board was delighted that, following rigorous
internal and external search and selection
processes, the appointments in relation to both
these roles, and the subsequent opportunities
created on the Executive Committee, were
largely made from talent within our business.
This helps us promote the incredible knowledge
and experience that has been developed. We are
confident that this will contribute to the Group’s
continued success over the coming years. It also
provided the opportunity to recruit an excellent
Partner from Pinsent Masons, Didar Dhillon,
bringing broad experience and a fresh
perspective to the Executive Committee. Further
detail regarding the changes made to our Board
and Executive Committee can be found in the
Nominations Committee Report from page 121.
Listening and responding to our
stakeholders
The Board values feedback from our stakeholders
and places significant importance on maintaining
close relationships with them and responding to
their views. We pride ourselves on listening and
reflecting, before then taking action. Decisions are
never taken in isolation; rather they are fully
discussed and therefore the Board welcomes
input from all who can add value to those
conversations. Further details of how the Board
has considered the views and balanced the
interests of stakeholders is set out in our Section
172 Statement on pages 96 to 97.
As a Board, we want our stakeholders to hold us to
account and therefore need to ensure that they
have appropriate access to the facts on a range of
topics so they can form a balanced opinion. A good
example of this is our river pledges, which were
developed through listening to our customers,
local communities and campaign groups – who
told us how important river quality is to them. The
Board shares their passion that our region’s rivers
should be the healthiest they can be, and we
therefore developed our river pledges aimed at
protecting and revitalising rivers in our region.
100
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
I am pleased that our commitment to ‘Get River
Positive’ has now been embraced by others,
driving improvements across the sector. You can
read about our progress against each of the five
river pledges on pages 20 to 21 and in our
dedicated Get River Positive Annual Report, which
is published on our website.
We have also responded to stakeholder feedback in
respect of remuneration, and the way in which it is
linked to performance and particularly in areas that
are most important to customers, such as the
environment. In response to this, in 2022 we linked
the river pledges to our remuneration structures,
through introducing some of the measures into our
Annual Bonus Scheme – with 8% of every
employee’s bonus aligned to their achievement in
2022/23. Whilst we have consistently focused on
connecting remuneration to environmental
outcomes, we recognise the strength of external
opinion on the performance of the sector and made
further changes to our Annual Bonus Scheme
during the year to strengthen the focus on
environmental performance – increasing the
weighting within our 2023/24 Annual Bonus
Scheme of river pledges to 12%, and overall
environmental measures to 30%. Our
Remuneration Policy is designed to incentivise
exceptional, sector-leading performance for the
benefit of customers, communities and the
environment, and to attract, retain and motivate
our Executive Directors. Three-quarters of our
potential Executive pay is variable in nature, based
on stretching targets that are reviewed annually by
the Remuneration Committee. In this way, we
ensure that our Executives are rewarded
commensurate with their performance, which we
believe is more beneficial to all stakeholders than
removing variable pay opportunity and driving up
base pay costs. Further detail can be found within
the Directors’ Remuneration Report on page 157.
Diversity and inclusion
The Board recognises the importance of diversity
– on the Board itself, throughout the
organisation, and more widely – and the need to
foster an inclusive culture which encourages all
colleagues to bring their whole selves to work,
fulfil their potential and perform at their best.
We are encouraged by our gender and ethnic
diversity representation on the Board – 56%
female and 22% minority ethnic representation
as at 31 March 2023 – but we are not complacent
and know this needs to be maintained going
forwards. We support the targets introduced by
the Financial Conduct Authority and the
transparency of the reporting framework that
has been developed in this regard, to allow
investors and other stakeholders to compare the
progress being made across the FTSE and drive
progress in this important area. We conducted a
review of our Board Diversity Policy during the
year, following which the Policy was amended to
cover a broader range of diversity characteristics
and facilitate open and transparent reporting.
We have developed a refreshed diversity
disclosure this year, which can be found within
the Nominations Committee Report on pages 125
and 126, and we welcome feedback on this.
I was also personally delighted that Severn
Trent was acknowledged as the first FTSE100
company to appoint women to the positions of
Chair, Chief Executive and Chief Financial
Officer following the announcement of Helen
Miles’ appointment as Chief Financial Officer
Designate. Whilst appointments will only ever
be made on merit, we continue to support the
increase in female appointments to leadership
roles across the FTSE and hope that our actions
inspire the next generation of company leaders.
Board and Committee effectiveness
We spent time assessing and considering the
effectiveness of the Board and its Committees
earlier this year through an internally-facilitated
Board effectiveness evaluation. The Board was
pleased by the results of the review, which
concluded that the Board, its Committees and
individual Directors continue to operate
effectively. A small number of improvements
were identified, which will be implemented
promptly. You can read more about the
evaluation process and the outcomes of this
year’s review on pages 118 to 119.
Corporate governance reforms
The Board remains fully committed to open and
transparent reporting, and we welcome the
outcomes from the Department for Business,
Energy and Industrial Strategy (‘BEIS’, now the
Department for Business and Trade) consultation
on ‘Restoring trust in audit and corporate
governance’. The Board embraces emerging
corporate governance and regulatory
developments – often adopting new
requirements earlier than required where it is
practicable to do so. As such, the Board
requested that the Audit and Risk Committee
review the Group’s preparations for future
corporate reform during the year, which
concluded that we are well positioned for the
proposed changes. Read more in the Audit and
Risk Committee Report on pages 127 to 134.
Looking ahead to AMP8
With three years of AMP7 now behind us,
the Board is spending a great deal of time
formulating our business plan for AMP8. PR24
will be my first price review process at Severn
Trent and I, along with my fellow Directors, have
invested a significant amount of time preparing
for PR24, including understanding the way in
which the Company can deliver positive
customer outcomes, greater environmental and
social value, drive improvements through
efficiency and innovation, and increase our
focus on the long term. This activity is being
informed through deepening our understanding
of our customers and communities. Individual
Directors, and the Board as a whole, have spent
time engaging with our customers, attending
community events and having discussions with
Severn Trent’s Expert Challenge Panel, ably
chaired by Bernard Crump, all to ensure that
our future plans continue to fulfil our Purpose
of ‘taking care of one of life’s essentials’.
Our draft business plan is well advanced and will
be submitted to Ofwat in October 2023.
Alongside our PR24 submission, the Board also
spent a significant amount of time considering
key long-term programmes that are inextricably
linked to our environment and PR24, such as our
Drainage and Wastewater Management Plan,
Water Resources Management Plan and the
Water Industry National Environment
Programme, to ensure that we have long-term
plans in place that consider the impacts of
population growth, drought, our environmental
obligations and climate change uncertainty, so
we can continue to deliver our essential services
for customers now and in the long term whilst
also transitioning to a net zero world.
As we look ahead to the next regulatory cycle,
I want to thank everyone involved – our
customers, communities, investors, regulators
and suppliers. But above all, thank you to our
colleagues, for their unfaltering commitment to
deliver our Strategy and fulfil our Purpose and
Values each and every day, and their contribution
to the communities they work and live in.
I look forward to the year ahead with confidence,
knowing that our focus on improving services for
our customers will be delivered through the
talent of our people, the financial resilience of
our business, and our commitment to serving
our stakeholders will ensure that we continue
to be a socially responsible business providing
a high quality, essential public service.
Christine Hodgson
Chair
23 May 2023
QUICK FACTS
– Christine Hodgson was considered
independent upon appointment on
1 January 2020.
– The Board considers that all Non-Executive
Directors remain independent.
– The biographies of individual
Directors are set out on pages 104 to 105 and
include details of the skills and experience
each brings to the Board to contribute to the
Company’s long-term sustainable success.
– All Directors are subject to election at the Annual
General Meeting (‘AGM’) which will be held on
6 July 2023. Following the completion of this
year’s evaluation, the Board concluded that each
Director standing for appointment or
reappointment continues to contribute
effectively. The Board recommends that
shareholders vote in favour of those Directors
standing for appointment or reappointment at
the AGM, as they will be doing in respect of their
individual shareholdings.
– This report explains how we have applied the
principles of the UK Corporate Governance
Code 2018 and confirms our compliance with
its provisions. Read more on page 107.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
101
GOVERNANCE REPORT CULTURE
Christine on a water bar shop at the Commonwealth Games
The Board places great importance on
ensuring that the Group’s culture and Values
are established throughout the organisation,
aligned across directorates and demonstrated
consistently by everyone who works with us.
As such, the Board spends a significant
amount of time, both inside and outside of
Board meetings, engaging with our people
through a variety of mechanisms. The Board’s
participation in the Company Forum (our
workforce engagement mechanism), review
of QUEST engagement results, attendance
at our engaging ‘Ask Our Board’ session,
complemented by a range of site visits
throughout the year, are all crucial to
informing the Board’s understanding of our
culture. In addition, the Board recognises the
need to foster an inclusive culture where all
colleagues are able to bring their whole selves
to work, fulfil their potential and perform at
their best.
Our people are fundamental to our success
and form a critical part of us being a trusted
company. Our people tell us that they work
best together, in an environment of
collaboration and innovation. Our culture of
empowerment and accountability, with a focus
on skills, talent and career development, not
only ensures we continue to deliver great
performance but also that we continue to make
Severn Trent a wonderful place to work. This is
borne out by our excellent QUEST employee
engagement score of 8.4 out of 10, putting us in
the top 5% of utility companies globally.
Our Values of Having Courage, Embracing
Curiosity, Taking Pride and Showing Care are
brought to life in our culture and are integral to
the way we behave and the way we do business.
Our Values are demonstrated by our people
every day as they work tirelessly to deliver our
essential service. Their commitment is evident
in the dedication they show in delivering for our
customers and communities – 24 hours a day,
365 days a year. Our people are also supported
by the systems and processes we have in place
that enable us to deliver consistent operational
performance. This consistency has created
capacity for our talented people to do even
more to make a positive difference for all
of our stakeholders.
How the Board monitors and
assesses culture
The Board understands the importance of
setting the right tone from the top, with each
Director leading by example to promote a
culture of inclusivity. Great emphasis is placed
by the Board on ensuring that the Group’s
culture is aligned to our Strategy, Purpose and
Values. As such, one of the Board’s key focus
areas is to monitor and assess the culture
across the Group.
The Board recognises the importance
of ensuring that the Severn Trent culture
celebrates diversity and inclusion in all
its forms, and embraces individuals’
contributions, no matter what their age,
gender, race, ethnicity, disability, sexual
orientation, social background, religion or
belief. The Board was pleased that Severn
Trent was recognised as a Top 3 FTSE100
company for representation of women on the
Board in the FTSE Women Leaders Review
2023, in addition to being named a Top 25
employer by Stonewall.
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,
engaging directly with individual employees
throughout the Group, and listening to
feedback from our stakeholders. We believe
that our culture is a unique strength and we
see the benefits of this flow through into
employee engagement, retention and
productivity. The Board places great
importance on employee engagement and
regularly reviews its approach, taking into
account the provisions of the UK Corporate
Governance Code 2018. All of these
touchpoints with colleagues and other
stakeholders provide cultural insight that the
Board can act upon and factor into its decision
making. The table on the next page provides
further detail on the activity undertaken during
the year to assess the Group’s culture.
Board Members on site visit to Mansfield waste treatment works in April 2023
Christine in conversation with one of our colleagues at the Academy
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SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
QUEST
SCORE
EMPLOYEE ENGAGEMENT
SESSIONS
8.487% participation rate (up 0.2 from last year, our highest ever
score, putting us in the top 5% of energy and utilities globally)
22
Including Deep Dives, Company Forum, Advisory Groups and
Site Visits to engage with employees
‘ASK OUR
BOARD’
110Number of attendees
CULTURE ASSESSMENT MECHANISM
CULTURAL INSIGHT
OUTCOME/ACTIONS
Review results of the annual QUEST survey,
particularly around employee engagement levels
benchmarked against peers, and how Severn Trent’s
Values link to its Purpose and behaviour.
Understanding strengths and opportunities as
identified by employees, and that our Purpose
and Values reflect the Company’s culture
and behaviours.
The Company Forum provides an opportunity for
employee and Trade Union employee representatives
to meet with Board members on a regular basis.
Members of the Board and Executive Committee
attend the Severn Trent Company Forum on a
rotational basis, so each Director receives
the opportunity to listen directly to what employees
have to say and for our employees to hear about
matters that the Board is reviewing and considering.
The ‘Ask Our Board’ event ensures a direct dialogue
with the workforce across the Group. The most
recent event in May 2023 saw 110 colleagues join, and
feedback from the Board and employees was very
positive.
A better understanding of day-to-day
operations, the practical execution of
strategy and the cultural context in which
employees work.
Provides the Board with insight into colleague
sentiment and topics of importance to
colleagues, including diversity and inclusion
and our societal contribution.
Actions taken to address the insights gained
from the QUEST survey are continuously
monitored by the Board through regular
agenda topics structured around our people.
The Board also received assurance that our
culture is aligned to our Purpose and Values.
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 discussions and decision making,
and each meeting generates wide-ranging
exchanges of opinion and insights.
Outputs from employee engagement
sessions are used to shape future Board
agenda topics and employee updates.
Questions at the event in May 2023 included
performance highlights over the year, the
Group’s Societal Strategy, River Quality and
affordability initiatives.
Board members attend meetings of the four active
employee advisory groups – LQBTQ+, Ethnicity,
Disability and Women in STEM and Ops.
Ability to hear directly about the progress made
against the diversity and inclusion action plans
across the business.
Outputs from employee engagement
sessions are used to shape future Board
agenda topics and employee updates.
Annual review and monitoring by the Audit and Risk
Committee of the effectiveness of the Group Speak
Up Policy, processes and framework. Speak Up
reports are considered at every Audit and Risk
Committee meeting, with onward reporting to
the Board.
Review by the Remuneration Committee of the wider
workforce policies and practices, including gender
and ethnicity pay gaps, CEO pay ratios and alignment
of Directors’ pension contributions to the workforce.
Integration of sustainability measures into short- and
long-term incentive targets. Remuneration is an
annual agenda item at the Company Forum and
outputs are reported to the Board.
Regular reviews by the Nominations Committee of
senior management talent and succession planning.
A perspective on the nature of colleague
concerns and trends in the behaviours of
colleagues generally. Insight into how concerns
are escalated and resolved by Severn Trent.
The Audit and Risk Committee will continue
to monitor the effectiveness of the Speak Up
Policy, and report to the Board the extent to
which this has supported the openness of
Severn Trent’s culture.
Insight into the role that remuneration, and
remuneration targets, have in promoting the
right performance and behaviours, and the
extent to which incentives and rewards are
aligned with the Group’s culture.
The Remuneration Committee will continue
to report to the Board on colleague
sentiment in relation to workforce policies
and practices.
The importance of organisational culture in
determining the Company’s strategic priorities
and reviewing senior succession plans.
Regular Board updates and relevant Committee
updates on a broad range of risk and business integrity
matters, including fraud, compliance, bribery,
corruption and modern slavery, and standard supplier
protocols and procedures. This is done through review
of Internal Audit reports, compliance reports, risk
deep dives, incident reports and policies and training.
A broad understanding of practices and
behaviours, and how these align with the
Purpose, Values and Strategy of the Group,
including an understanding of the Group’s
supply chain partners and alignment to the
culture of the Group.
Completion of mandatory training modules for
colleagues by all Board members on the Group’s
Code of Conduct, Doing the Right Thing.
A deeper understanding of Severn Trent’s
Values and standards to inform future
employee engagement.
The Board, Nominations Committee and
Executive Committee were engaged
throughout the rigorous Executive Committee
recruitment and selection process.
The Board and its Committees provide
appropriate scrutiny and challenge of
management, and receive assurance over
the Company’s approach to managing risk
and business integrity matters.
All members of the Board will continue to
undertake training on an annual basis, to
ensure their knowledge and understanding
is up to date.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
103
GOVERNANCE REPORT BOARD OF DIRECTORS
We have a strong, experienced Board, with a
diverse range of professional backgrounds,
skills and perspectives. The collective
experience of the Directors and the diverse
skills and experience they possess enable 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.
Effective succession planning is enabling
the smooth transition of the Chief Financial
Officer role and will also progress the
evolution of the Board over the next few years.
N
C
R
D
E
D
E
D
E
A
N
R
T
CHRISTINE HODGSON CBE
BSc (Hons), FCA
LIV GARFIELD CBE
BA (Hons)
JAMES BOWLING
BA (Hons) Econ, ACA
HELEN MILES
ACMA
KEVIN BEESTON
FCMA
CHAIR
CHIEF EXECUTIVE
CHIEF FINANCIAL OFFICER
CHIEF FINANCIAL OFFICER
DESIGNATE
SENIOR INDEPENDENT
NON-EXECUTIVE DIRECTOR
APPOINTED:
Independent Non-Executive
Director on 1 January 2020,
Chair on 1 April 2020.
SKILLS, COMPETENCES
AND EXPERIENCE:
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 Senior
Independent Director and Chair of
the Remuneration Committee at
Standard Chartered Plc until
September 2022 and January 2023
respectively. Christine retired as an
Independent Non-Executive
Director of Standard Chartered Plc
on 31 January 2023.
In January 2020, Christine was
awarded a CBE in the Queen’s New
Year Honours for services to
education.
Christine is a fellow of the Institute
of Chartered Accountants in
England and Wales.
EXTERNAL APPOINTMENTS
– Chair of Newton Group
Holdings Limited
– Senior Pro-Chancellor and
Chair of Loughborough
University Council
– External Board Adviser to
Spencer Stuart Management
Consultants NV
APPOINTED:
Chief Executive on 11 April 2014.
APPOINTED:
Chief Financial Officer on
1 April 2015.
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.
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
SKILLS, COMPETENCES
AND EXPERIENCE:
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 awarded a
CBE in the Queen’s Birthday
Honours for services to the
water industry.
EXTERNAL APPOINTMENTS
– Non-Executive Director of
Water UK
– Non-Executive Director of
Brookfield Asset Management
Limited
– Director of Water Plus Limited
– joint venture with United
Utilities
– Chair of the Council for
Sustainable Business
– Chair of the West Midlands
Regional Business Council
– Member of the Takeover Panel,
and its Hearings Committee and
Nomination Committee
– Member of the UK Investment
Council
– Member of The 30% Club
APPOINTED:
Chief Financial Officer Designate
on 1 April 2023.
SKILLS, COMPETENCES
AND EXPERIENCE:
Helen joined Severn Trent in
November 2014 as the Chief
Commercial Officer, and in 2020
became the Capital and
Commercial Services Director,
before being appointed as Chief
Financial Officer Designate in
April 2023. She brings with her a
breadth of commercial
experience having worked within
regulated businesses across the
Telecoms, Leisure and Banking
sectors. As a member of the UK
Board, Helen was instrumental in
delivering HomeServe’s future
growth strategy and ensuring
a sustainable, customer-focused
business.
An experienced finance
professional, Helen was
previously Chief Financial Officer
for Openreach, part of BT Group
Plc, and has extensive experience
of delivering major business
transformation across the Group.
Prior to BT Group, Helen worked
in a variety of organisations
including Bass Taverns, Barclays
Bank, and Compass Group.
Helen has recent and relevant
financial experience as a member
of the Chartered Institute of
Management Accountants.
EXTERNAL APPOINTMENTS
– Non-Executive Director of
Breedon Group Plc
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
– Chair of Turnstone Equityco 1
Limited (trading as Integrated
Dental Holdings)
PHILIP REMNANT CBE
FCA, MA
INDEPENDENT
NON-EXECUTIVE
DIRECTOR
Director serving for
part of the year
Philip stepped down from the
Board on 30 November 2022,
having served as a Director
since 31 March 2014.
104
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Key
Board composition at a glance
A
C
N
R
T
D
E
Audit and Risk Committee
Corporate Sustainability
Committee
Nominations Committee
Remuneration Committee
Treasury Committee
Disclosure Committee
Executive Committee
Denotes Committee Chair
GENDER
REPRESENTATION
AS AT 23 MAY 2023
ETHNICITY
REPRESENTATION
AS AT 23 MAY 2023
4
2
BOARD INDEPENDENCE
AS AT 23 MAY 2023
CHAIR AND NON-EXECUTIVE
DIRECTOR TENURE AS AT 23 MAY 2023
Chair
(Independent on appointment)
John Coghlan
Kevin Beeston
9
6.9
Executive Directors
Christine Hodgson
8
6
Senior Independent Directors
Independent Non-Executive Directors
Male:
Female:
4
6
Non-white:
White:
2
8
Sharmila Nebhrajani
Gillian Sheldon
Tom Delay
1.5
1.3
Sarah Legg
0.5
3.3
3
A
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C
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A
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T
R
C
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T
A
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JOHN COGHLAN
BCom, ACA
TOM DELAY CBE
BSc (Hons), MBA, CEng
MIMechE
SARAH LEGG
MA, FCMA, FCT
SHARMILA NEBHRAJANI OBE
MA (Hons), ACA
GILLIAN SHELDON
BSc (Hons)
INDEPENDENT NON-
EXECUTIVE DIRECTOR
INDEPENDENT NON-
EXECUTIVE DIRECTOR
INDEPENDENT NON-
EXECUTIVE DIRECTOR
INDEPENDENT NON-
EXECUTIVE DIRECTOR
INDEPENDENT NON-
EXECUTIVE DIRECTOR
APPOINTED:
Independent Non-Executive
Director on 23 May 2014.
APPOINTED:
Independent Non-Executive
Director on 1 January 2022.
APPOINTED:
Independent Non-Executive
Director on 1 November 2022.
APPOINTED:
Independent Non-Executive
Director on 1 May 2020.
APPOINTED:
Independent Non-Executive
Director on 1 November 2021.
SKILLS, COMPETENCES
AND EXPERIENCE:
Tom brings extensive strategy,
sustainability, energy and
engineering experience to the
Company. He was appointed as
the first Chief Executive of the
Carbon Trust in 2001. Since then,
he has grown the company to
become a world leader, advising
businesses and governments on
carbon emissions reduction and
the development of low-carbon
technologies, markets and
businesses. More recently, he has
taken the company’s unique
capabilities further afield,
extending its mission to
accelerate the move to a
sustainable, low-carbon future.
Tom is a chartered engineer with
extensive experience of the
energy sector. He worked for
Shell for 16 years in a variety of
commercial and operations roles
before moving into management
consultancy with McKinsey and Co
and then as a Principal with the
Global Energy Practice of AT
Kearney. Tom is a member of the
UK Energy Research Partnership
and the advisory boards of the
Centre for Climate Finance and
Investment at Imperial College
London and the Global CO2
Initiative at the University
of Michigan.
In 2018, Tom was awarded a CBE
by the Queen for services to
sustainability in business.
EXTERNAL APPOINTMENTS
– Chief Executive of the Carbon
Trust
SKILLS, COMPETENCES
AND EXPERIENCE:
John has a wealth of experience in
financial and general management.
He spent eleven 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.
John is the Group’s designated
Non-Executive Director in respect
of Cyber Security.
EXTERNAL APPOINTMENTS
– Non-Executive Director of
Landmark Group Holdings
Limited
– Vice Chair and Senior
Independent Non-Executive
Director of Clarion Housing
Group
– External Board Adviser to
Mace Group Limited
HANNAH WOODALL-PAGAN
BSc (Hons), FCG
GROUP COMPANY
SECRETARY
APPOINTED:
2 December 2022.
SKILLS, COMPETENCES
AND EXPERIENCE:
Sarah brings extensive corporate
finance and significant audit and
risk experience gained in the
financial services sector to the
Company. She is currently a
Non-Executive Director at Lloyds
Banking Group Plc, Chair of its
Audit Committee and a member
of its Risk and Responsible
Business Committees.
Sarah has spent her entire career
in financial services with HSBC in
finance leadership roles. She was
the Group Financial Controller, a
Group General Manager, and also
Chief Financial Officer for HSBC’s
Asia Pacific region. She also spent
eight years as a Non-Executive
Director on the board of Hang
Seng Bank Limited, a Hong Kong
listed bank. Sarah is also Chair of
the Campaign Advisory Board at
King’s College, Cambridge
University, Board Member of the
Audit Committee Chairs’
Independent Forum and Trustee
of the Lloyds Bank Foundation
for England and Wales.
Sarah has recent and relevant
financial experience as a fellow
of the Chartered Institute of
Management Accountants
and through her roles in the
banking sector.
EXTERNAL APPOINTMENTS
– Non-Executive Director of
Lloyds Banking Group Plc
– Trustee of Lloyds Bank
Foundation for England and
Wales
SKILLS, COMPETENCES
AND EXPERIENCE:
Sharmila brings extensive Board
and governance experience, gained
in a variety of roles spanning the
private sector, public sector and
NGOs. Sharmila is Chairman of the
National Institute for Health and
Care Excellence (‘NICE’), the
organisation responsible for
assessing the clinical and cost
effectiveness of medical innovations
in the NHS, a Non-Executive
Director of Halma Plc, ITV Plc and
Coutts Bank, and a Member of
Council for the University of Oxford.
In her executive career, Sharmila
spent 15 years at the BBC, latterly
as Chief Operating Officer for BBC
Future Media and Technology, and
was most recently Chief Executive
at Wilton Park, an executive agency
of the UK Foreign and
Commonwealth Office convening
international dialogues for senior
policy makers from around the
world with a special focus on global
health. Previous non-executive roles
include Deputy Chair of the Human
Fertilisation and Embryology
Authority and Chairman of the
Human Tissue Authority, and she
also has served on the board of the
Pension Protection Fund.
Sharmila read Medicine at the
University of Oxford and has been
a World Fellow at the University of
Yale since 2007. She is a chartered
accountant and was awarded an
OBE in 2014 for services to
medical research.
EXTERNAL APPOINTMENTS
– Chairman of National Institute
of Health and Care Excellence
– Non-Executive Director of
– Chair of the Campaign
ITV Plc
SKILLS, COMPETENCES
AND EXPERIENCE:
Gillian has extensive strategy,
corporate finance, risk
management and M&A
experience. She is currently a
Senior Adviser at Credit Suisse in
the Investment Banking division,
where she provides advice on a
broad range of complex
transactions to clients across
multiple industries. Gillian is also
a member of the Salesforce
Europe, Middle East and Africa
Advisory Board, where she
provides strategic guidance and
supports the company’s growth
into international markets.
Gillian joined Credit Suisse in
1996, and went on to become
Head of Telecoms, Media and
Technology Investment Banking
in Europe and then Vice Chairman
of Investment Banking. Her
previous experience includes
roles at N M Rothschild & Sons
and as a Trustee and Chair of the
Investment Committee of BBC
Children in Need. Until February
2021, she was the Senior
Independent Director at Capita
Plc. Gillian is also a Corporate
Board member of the Royal
Academy.
Gillian has recent and relevant
financial experience gained
through her roles in the banking
and finance sectors.
EXTERNAL APPOINTMENTS
– Senior Adviser at Credit
Suisse – Investment Banking
Division
– Member of the Salesforce
European Advisory Board
– Corporate Board Member of
Advisory Board at King’s
College, Cambridge University
– Non-Executive Director of
the Royal Academy
Halma Plc
– Board Member of Business
– Board Member of the Audit
– Non-Executive Director of
LDN
Committee Chairs’
Independent Forum
Coutts & Company
– Member of Council for
University of Oxford
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
105
GOVERNANCE REPORT BOARD SKILLS
An effective Board requires the right mix of
skills and experience, reflective of
individuals from varied backgrounds. As
demonstrated by their individual biographies
on pages 104 to 105, our Board members
together form a diverse and effective team
focused on promoting the long-term success
of the Group.
The skills matrix below details some of the
key skills and experience that our Board
has identified as particularly valuable for
the effective oversight of the Company and
execution of our Strategy, and indicates which
Directors bring those particular skills to
the boardroom.
BOARD SKILLS MATRIX
STRATEGIC OUTCOMES
The skills matrix is reviewed at least annually
to make sure it meets current business needs,
today and in the future, and is aligned with our
strategic priorities, to ensure the Board
remains fully equipped to deliver our Strategy
and Purpose, and provide challenge to the
experienced and knowledgeable Executive
Team. This year’s review was undertaken as
part of the Board Effectiveness evaluation,
which you can read more about on pages
118 to 119.
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KEVIN
BEESTON
JAMES
BOWLING
JOHN
COGHLAN
TOM
DELAY
LIV
GARFIELD
CHRISTINE
HODGSON
SARAH
LEGG
HELEN
MILES
SHARMILA
NEBHRAJANI
GILLIAN
SHELDON
EXECUTIVE
COMMITTEE
FULL BIOGRAPHIES
ARE AVAILABLE ON
THE SEVERN TRENT
PLC WEBSITE.
As at 23 May 2023
D
E
D
E
D
E
D
E
E
LIV GARFIELD CBE
BA (Hons)
CHIEF EXECUTIVE
JAMES BOWLING
BA (Hons) Econ, ACA
HELEN MILES
CIMA
SHANE ANDERSON
BA (Hons) Econ
JUDE BURDITT
BA (Hons)
CHIEF FINANCIAL
OFFICER
CHIEF FINANCIAL
OFFICER DESIGNATE
DIRECTOR OF STRATEGY
AND REGULATION
DIRECTOR OF
CUSTOMER SOLUTIONS
106
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
COMPLIANCE WITH THE UK
CORPORATE GOVERNANCE CODE 2018
The Group’s long-term success depends on
our commitment to exceptional corporate
governance standards and the Board continues
to be guided in its approach through the
application of the UK Corporate Governance
Code 2018 (the ‘2018 Code’).
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.
With this in mind, we welcome the proposed
enhancements to the future corporate
governance regime, including the
recommendations from BEIS (now the
Department for Business and Trade).
During the year ended 31 March 2023, we have
fully applied the principles of good governance
and have been compliant with the provisions
contained in the 2018 Code.
The Board remains dedicated to open and
transparent reporting, and the table below
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.
The full wording of the 2018 Code is available
on the Financial Reporting Council’s website.
BOARD LEADERSHIP
AND COMPANY PURPOSE
DIVISION OF
RESPONSIBILITIES
AUDIT, RISK AND
INTERNAL CONTROLS
The role of the Board is
set out from page 100.
The Chair’s Introduction to
Governance is on pages 100 to 101.
How the Board engages with
stakeholders is on page 84 to 94.
The Board’s Section 172 Statement
is on pages 95 to 97.
An overview of our Purpose and Values,
including how these were established,
is set out on page 2.
How the Board oversees the Company’s
Strategy is set out on pages 100 to 101.
A list of our Group policies
and practices is on pages 98 to 99.
How we assess risk and our Viability
Statement is set out on pages 80 to 83.
Our Strategy, including performance
against our ODIs and KPIs, is on
pages 2 to 38.
The Governance Framework set out on
page 108 provides an overview of the
Board Committees in place at Severn
Trent. Further details of each Committee,
along with their members’ attendance
during the year, are provided in the
respective Committee Reports.
The division of responsibilities between
the Chair and CEO is clearly defined (page
109), and set out in writing in our Charter
of Expectations, and we fully support the
separation of the two roles.
COMPOSITION,
SUCCESSION AND
EVALUATION
The composition of the Board, along with
their biographies and tenure, is on page
104 to 105.
The outputs of the internal Board
evaluation is on pages 118 to 119.
The Nominations Committee Report
is on pages 121 to 126 and provides
information on the Committee’s work this
year, including Board succession planning.
Our approach to risk and our assessment
of our Principal Risks are outlined on
pages 73 to 79.
The Audit and Risk Committee Report on
pages 127 to 134 provides details of the
Committee’s review of our risk and
control environment, our fair, balanced
and understandable process, and its
responsibilities relating to Internal and
External Audit.
REMUNERATION
The Remuneration Committee,
comprising only Non-Executive
Directors, is responsible for
developing the Remuneration
Policy and determining Executive
and senior management remuneration.
The Directors’ Remuneration Report
is on pages 141 to 163.
E
D
E
E
E
E
STEPH CAWLEY
BA (Hons), MSc
DIDAR DHILLON
BA (Hons), GLDP
DIRECTOR OF
CUSTOMER OPERATIONS
GROUP GENERAL
COUNSEL
JAMES JESIC
BSc (Hons), PhD,
MIChemE, CEng
DIRECTOR OF CAPITAL
AND COMMERCIAL
SERVICES
NEIL MORRISON
BSc (Hons),
Chartered FCIPD,
FRSA
DIRECTOR OF HUMAN
RESOURCES
BOB STEAR
MEng (Hons), PhD,
MCIWEM, CWEM,
FIWater
CHIEF ENGINEER
BRONAGH KENNEDY
BA (Hons)
RETIRED AS GROUP
GENERAL COUNSEL AND
COMPANY SECRETARY
IN DECEMBER 2022
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
107
GOVERNANCE REPORT 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.
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 – See pages 104 to 105
Board activities – See pages 110 to 113
Roles and responsibilities – See page 109
INFORMING
REPORTING
THE BOARD DELEGATES CERTAIN MATTERS TO ITS PRINCIPAL COMMITTEES –
WHICH REPORT TO THE BOARD AT EVERY MEETING
AUDIT AND RISK
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.
CORPORATE
SUSTAINABILITY
COMMITTEE
Provides guidance and direction
to the Company’s Sustainability
Strategy and sustainability
matters linked to policies,
pledges and commitments,
including River Quality,
Anti-Slavery and Human
Trafficking, and our Community
Fund, Societal Strategy and the
Triple Carbon Pledge.
NOMINATIONS
COMMITTEE
REMUNERATION
COMMITTEE
TREASURY
COMMITTEE
Assists the Board by keeping the
Board composition under review
and makes recommendations in
relation to Board appointments.
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
Group’s Funding and Treasury
Risk Management plans
approved by the Board. The
Committee also reviews and
approves the Group Treasury
Policy Statements and ensures
that these are applied
consistently.
Report – See pages 127 to 134
Report – See pages 137 to 140
Report – See pages 121 to 126
Report – See pages 141 to 163
Report – See pages 135 to 136
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
DISCLOSURE COMMITTEE
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.
108
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
DIVISION OF RESPONSIBILITIES
As at the date of this report, our Board
comprised the Chair, six Independent
Non-Executive Directors and three Executive
Directors. There are clear divisions between
Executive and Non-Executive responsibilities,
which ensure accountability and oversight. The
roles of Chair and Chief Executive are
separately held and their responsibilities are
well defined, set out in writing in the Charter of
Expectations, and regularly reviewed by the
Board. The Chair and the other Non-Executive
Directors meet routinely without the Executive
Directors, and individual Directors meet
outside formal Board meetings in order to gain
first-hand experience of our operations and
engage with our workforce. The Executive
Directors meet weekly as part of 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 Group Company
Secretary, to whom all Directors have access
for advice and corporate governance services.
NON-EXECUTIVE DIRECTORS
CHAIR
SENIOR INDEPENDENT
NON-EXECUTIVE DIRECTOR (‘SID’)
INDEPENDENT
NON-EXECUTIVE DIRECTORS
CHRISTINE HODGSON
KEVIN BEESTON
JOHN COGHLAN, TOM DELAY,
SARAH LEGG, SHARMILA NEBHRAJANI,
GILLIAN SHELDON
– Leads our unified Board and is responsible for its
effectiveness and governance.
In addition to his responsibilities as a Non-Executive
Director, the SID also carries out the following duties:
– Promote high standards of integrity and corporate
governance.
– Fosters a culture of inclusivity and transparency by
demonstrating the Company’s Values, establishing
the right ‘tone from the top’.
– Guides the Board in shaping strategy, ensuring
alignment with the Company’s Purpose.
– 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 Group 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.
EXECUTIVE DIRECTORS
CHIEF EXECUTIVE (‘CEO’)
LIV GARFIELD
– 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.
– Uphold the cultural tone of the Company and monitor
actions to support inclusion and diversity.
– Constructively challenge and assist in the development
of strategy by providing independent insight and
support based on relevant experience.
– 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.
CHIEF FINANCIAL OFFICER (‘CFO’)
JAMES BOWLING
– Represents Severn Trent externally to all stakeholders, including the Government,
– Manages the Group’s financial affairs. The CFO’s Review can be found on pages 66 to 72.
regulators, customers, suppliers and the communities we serve.
– Supports the CEO in the implementation and achievement of the Group’s
– Sets the cultural tone of the organisation and ensures that the Group operates in a way
strategic objectives.
– Oversees Severn Trent’s relationships with the investment community.
– Represents Severn Trent externally to all stakeholders, including the Government and
regulators, customers, Pension Trustees for the Company’s defined benefit pension
schemes, lenders, suppliers and the communities we serve.
that is consistent with its Purpose and Values.
– Facilitates a strong link between the business and the Board to support effective
communication.
– Develops and implements the Group’s Strategy, as approved by the Board, through
leadership of the Executive Committee.
– Responsible for overall delivery of all strategic objectives, ensuring that decisions made
and actions taken support the Group’s long-term sustainable Purpose.
– 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 11 to 13.
GROUP COMPANY SECRETARY
HANNAH WOODALL-PAGAN
– Ensures sound information flows to the Board in order for the Board to function effectively and efficiently, in support of balanced decision making.
– Advises and keeps the Board updated on Listing and Transparency Rule requirements and on best practice corporate governance developments.
– Facilitates a comprehensive induction for newly appointed Directors, tailored to their individual requirements, and oversees the Board’s professional development programme.
– Ensures compliance with Board procedures and provides support to the Chair.
– Co-ordinates the effectiveness evaluation of the Board in conjunction with the Chair.
– Facilitates the Board’s ongoing engagement with employees.
– Provides advice and services to the Board.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
109
GOVERNANCE REPORT BOARD ACTIVITIES
BOARD MEETINGS
The Board is committed to maintaining a
comprehensive schedule of meetings and a
forward agenda to ensure its time is used
most effectively and efficiently, and it is
supported by the Group Company Secretary
to facilitate this. Flexibility in the
programme is important to permit key
items to be added to any agenda, so that the
Board can focus on evolving and important
matters at the most appropriate time.
Board meeting discussions are structured
using a carefully tailored agenda that is
agreed in advance by the Chair, in conjunction
with the CEO and Group Company Secretary.
A typical Board meeting will comprise the
following elements:
– Written reports 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.
– Following every Company Forum, a
report on the topics discussed at the
Forum is circulated and the Directors
who attended that particular Forum add
further context at the Board meeting.
– Performance reports, including: CEO
Overview; CFO Review; and Operational
Performance Reports.
– Deep dive reports into areas of
particular strategic importance,
opportunities and risks, to evaluate
progress, provide insight and, where
necessary, decide on appropriate
action. Read more about some of the
topics covered during the year opposite.
– Legal and governance updates, including:
– Approval of arrangements for delegated
financial authority across the Group;
– Review of adequacy of Whistleblowing
Procedures; and
– Approval of the Anti-Slavery and
Human Trafficking Statement.
Time is set aside at the end of every Board
meeting for the Chair to hold an
Independent Non-Executive Director only
meeting, where it is considered appropriate,
which provides the opportunity for
discussion on key agenda items and other
matters without the Executive Directors and
management present.
On the evening before most scheduled
Board meetings, all the Non-Executive
Directors meet either by themselves, or
together with just the CEO, or with the entire
Board and the Group Company Secretary.
This time is usefully spent enabling Board
members to build a rapport with each other
and a relationship on a personal level, share
external views and consider issues
impacting the Company, resulting in better
Board dynamics and decision making.
The following schematic aims to bring the
Board’s rich programme to life.
APRIL 2022
BOARD/COMMITTEE
MEETINGS
OCTOBER 2022
BOARD/COMMITTEE
MEETINGS
B
N
R
N
BSD
SITE VISIT
TO FINHAM
TREATMENT WORKS
The Board received an overview of the
Thermal Hydrolysis Process (‘THP’),
which uses anaerobic digestion to treat
sewage sludge before it is recycled as
fertiliser for agricultural land. The THP
plant was installed alongside a gas-to-
grid plant as part of an ambitious capital
investment to drive efficiency and
increase energy self-generation.
21 APRIL 2022:
DEEP DIVE – GROUP-WIDE
TALENT REVIEW
MAY 2022
BOARD/COMMITTEE
MEETINGS
B
A
C
N
R
T
STAKEHOLDER ENGAGEMENT:
MAYOR OF THE WEST MIDLANDS
20 MAY 2022:
DEEP DIVE – COMMUNITY
ENGAGEMENT AND OUR PARTNERSHIP
WITH THE COMMONWEALTH GAMES
24 MAY 2022:
APPROVAL OF SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS
JUNE 2022
STAKEHOLDER ENGAGEMENT:
CEO, CONSUMER COUNCIL FOR WATER
30 SEPTEMBER 2022:
DEEP DIVE – PROGRESS ON OUR
SUSTAINABILITY STRATEGY, INCLUDING
OUR NET ZERO TRANSITION PLAN
STAKEHOLDER ENGAGEMENT:
CEO, ENVIRONMENT AGENCY
SEPTEMBER 2022
BOARD/COMMITTEE
MEETINGS
B
A
C
N
T
SITE VISIT
TO GREEN POWER
Following a briefing on the
Group’s renewables and waste recycling
business, and the products it produces,
Corporate Sustainability Committee
members embarked on a tour of the
anaerobic digestion site to observe how
solid food waste is converted into green
gas and energy.
AUGUST 2022
7 JULY 2022:
SEVERN TRENT PLC AGM –
ATTENDED BY ALL DIRECTORS
6 JULY 2022:
DEEP DIVE – GROWING OUR
RESILIENCE AND SHAPING OUR
LONG-TERM PLANNING APPROACH
JULY 2022
BOARD/COMMITTEE
MEETINGS
B
A
N
110
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
BOARD AND
COMMITTEE MEETINGS
B Board
BSD Board Strategy Day
A
C
Audit and Risk
Committee
Corporate Sustainability
Committee
N Nominations Committee
R
T
Remuneration
Committee
Treasury Committee
21 OCTOBER 2022:
BOARD STRATEGY DAY
The Board explored opportunities to
bolster the Group’s resilience alongside
our PR24 planning and, in the context of
new long-term trends emerging across
the globe, agreed a suite of positive
actions designed to mitigate
resilience-related risks.
NOVEMBER 2022
BOARD/COMMITTEE
MEETINGS
B
A
C
R
T
18 NOVEMBER 2022:
DEEP DIVE – FLOW TO FULL
TREATMENT PROGRESS UPDATE
STAKEHOLDER ENGAGEMENT:
CHIEF INSPECTOR, DRINKING WATER
INSPECTORATE
24 NOVEMBER 2022:
TREASURY ‘TEACH IN’ SESSION
DECEMBER 2022
JANUARY 2023
BOARD/COMMITTEE
MEETINGS
C
T
20 APRIL 2023:
SITE VISIT – MANSFIELD GREEN
RECOVERY
APRIL 2023
BOARD/COMMITTEE
MEETINGS
B
R
16 MARCH 2023:
DEEP DIVE – WATER INDUSTRY NATIONAL
ENVIRONMENT PROGRAMME
MARCH 2023
BOARD/COMMITTEE
MEETINGS
B
A
C
N
R
T
STAKEHOLDER ENGAGEMENT:
CHAIR, OFWAT
BOARD EFFECTIVENESS EVALUATION:
READ MORE ON PAGES 118 TO 120
1 FEBRUARY 2023:
DEEP DIVE– SUCCESSION PLANNING
OF SENIOR MANAGEMENT TEAM
FEBRUARY 2023
BOARD/COMMITTEE
MEETINGS
B
R
STAKEHOLDER ENGAGEMENT:
GOVERNANCE ROADSHOWS –
HOSTED BY THE CHAIR
BOARD AND COMMITTEE MEMBER ATTENDANCE 2022/23
Director
Christine Hodgson
Position
Chair
Liv Garfield
Chief Executive
James Bowling
Chief Financial Officer
Kevin Beeston
Senior Independent
Non-Executive Director
John Coghlan
Independent Non-Executive Director
Tom Delay
Sarah Legg
Independent Non-Executive Director
Independent Non-Executive Director
Sharmila Nebhrajani
Independent Non-Executive Director
Philip Remnant
Independent Non-Executive Director
Gillian Sheldon
Independent Non-Executive Director
Board
8/8
Audit and Risk
Committee
-
Corporate
Sustainability
Committee
5/5
Nominations
Committee
6/6
Remuneration
Committee
5/5
Treasury
Committee
-
8/8
8/8
8/8
8/8
8/8
3/3
8/8
6/6
8/8
-
-
5/5
5/5
-
2/2
2/2
2/2
5/5
-
-
-
-
5/5
3/3
5/5
-
-
-
-
6/6
6/6
6/6
1/1
6/6
5/5
6/6
-
-
5/5
-
-
-
5/5
3/3
3/3
-
-
5/5
5/5
-
3/3
-
1/1
5/5
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
111
GOVERNANCE REPORT KEY TOPICS CONSIDERED BY THE BOARD IN 2022/23
The Board’s 2022/23 agenda was wide-ranging, with a variety of topics drawn from the
Schedule of Matters Reserved to the Board, including those related to our Strategy and culture,
and overall oversight of management and operations. Set out below are examples of topics
considered by the Board during the year.
APPROVAL OF THE SEVERN TRENT SOCIETAL STRATEGY
NET ZERO TRANSITION PLAN UPDATES
Our customers are facing a sustained increase in financial pressures – driven
by rising inflation and energy costs. As a socially responsible company, that
genuinely cares about its customers and the communities it serves, the Board
reviewed and approved the Group’s Societal Strategy, which focuses on the
underlying causes of water poverty to reduce long-term affordability issues
and contribute to the wider levelling-up agenda. The Board considered that the
best way in the longer term to help households experiencing water poverty
was to give them the tools to improve job prospects and life chances, with
much of the support being delivered by the Severn Trent Academy.
Stakeholders / Considerations:
Customers – our Societal Strategy focuses on careers and employment-
related skills and training to support customers and others in our
communities in securing employment and helping to address a key
driver of financial hardship.
Communities – helping customers and households will also help the
wider community. Interventions are targeted through school work
experience programmes, mentoring young offenders and establishing
pop-up Academy Hubs in the areas that need them the most.
Employees – as a large regional employer, we can have a positive impact
on our local communities and we know colleagues are very supportive of
the work we are doing in this area. Programmes are being delivered by
our Academy Team with support from Community Champion volunteers
across the workforce.
Climate change remains a crucial focus for Severn Trent. As such, the Board
receives regular updates on the progress made in delivering the Group’s
commitments to transition to net zero. Through these updates, the Board
received assurance that the activities and investments required to meet the
Group’s commitments were meeting their Key Performance Indicators and
timescales, and that external reporting, including the Task Force on
Climate-related Financial Disclosures (‘TCFD’), was comprehensive,
transparent and understood by investors. The Board also considered the risks
and opportunities associated with the plan, and how these could be mitigated
and explored.
Stakeholders / Considerations:
Suppliers and Contractors – Scope 3 emissions arising from Severn
Trent’s supply chain are discussed regularly with suppliers and we
encourage completion of sustainability assessments ahead of agreeing
Science-Based Targets.
Sustainability and ESG – the UK water and waste water industry is
responsible for c.1% of the UK’s greenhouse gas emissions. As such, the
Board supports the Company’s leading role both within the sector and in
the wider economy to drive down these emissions.
Regulators and Government – we engaged with Ofwat around
incorporating net zero investment and targets into its PR24 methodology
and the Board welcomed the addition of environmental performance
commitments, including in relation to the reduction of emissions.
Suppliers and Contractors – our supply chain is an extension of our
business and, as such, we have encouraged and challenged our
suppliers to join us on this journey, and many have already offered their
support to the initiatives being delivered through our Societal Strategy.
Shareholders and Investors – investors continue to place increasing
focus on financial grade reporting, such as TCFD, and this is seen as a
further opportunity to engage with investors on the proactive approach
taken by the Company.
Read more about how we engaged with stakeholders throughout the
development of our Societal Strategy in our Section 172 Statement on
pages 95 to 97
FINANCIAL MATTERS
RESILIENCE IN THE ROUND
Resilience is our ability to cope with and recover from disruption, and
anticipate emerging trends and variability in order to maintain service delivery
for our customers and the environment, both today and over time. The Board is
supportive of Ofwat’s core concept of ‘Resilience in the Round’ – comprising
operational, financial and corporate resilience – recognising its importance
for customers and broader stakeholders. It is vital that our services remain
resilient over the long term. As such, the Board discusses a deep dive on
Resilience in the Round on an annual basis, which provides an overview
of future plans to grow our resilience and shape our long-term
planning approach.
Topics featured within the deep dive included: climate change and the resulting
impact on resource availability, carbon and environmental sustainability;
extreme weather events, high-impact operational events; cyber security and
the pace at which technology continues to evolve; attracting and retaining
people with the skills and experience the business needs; and economic and
social changes, such as population growth, urbanisation, consumer habits and
perceptions, future financing and regulation.
The Board discussed the innovative approach being taken in consideration
of the Company’s suite of regulatory plans for our medium- and longer-term
future to bolster the Group’s resilience and mitigate the impact on services
for customers, the environment, the economy and communities.
– Group Budget – the Board reviewed the Group’s performance versus the
2022/23 Group budget and agreed the 2023/24 Group budget.
– Viability Statement – on the recommendation of the Audit and Risk Committee,
the Board reviewed and approved the Viability Statement to be reported in the
Annual Report and Accounts. Read more on pages 80 to 83.
– Results and Regulatory Reporting – on the recommendation of the Audit and
Risk Committee, the Board reviewed and approved the half and full year results
announcements, Annual Report and Accounts, and Annual Performance Report.
RISK MANAGEMENT AND INTERNAL CONTROLS
– Enterprise Risk Management (‘ERM’) – the Board, in conjunction with the Audit
and Risk Committee, conducts regular reviews of the Group’s ERM Risk Register.
Enhancements continue to be made to risk management processes, including
the identification, assessment, response and monitoring of all existing and
emerging risks. Read more on pages 73 to 79.
– Review of Effectiveness of Risk Management and Internal Controls – the
Board, in conjunction with the Audit and Risk Committee, assessed the
effectiveness of the risk management and internal controls in place across
the Group, including in relation to whistleblowing procedures, and
determined that the Group’s systems had operated effectively throughout
the year. Read more on pages 130 to 131.
– Deep Dives – the Board received dedicated sessions on cyber risk, our
compliance with statutory requirements relating to reservoirs, and health,
safety and wellbeing to scrutinise the internal controls in place and review
the external assurance undertaken.
112
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
CULTURE AND ENGAGEMENT
LONG-TERM PLANNING
The Board is responsible for assessing and monitoring the Group’s culture,
and regularly considers items relating to the workforce as part of its
responsibilities. The Board is satisfied that the Group’s culture remains
aligned to the Company’s Strategy, Purpose and Values, and did not identify
any corrective action required to be taken by management.
During the year, the Board considered updates on the following workforce-
related topics:
– Company Forum – Directors attend the Company Forum, which is the
Board’s selected workforce engagement mechanism, on a rotation basis
and report back on proceedings to the rest of the Board.
– Employee Voice – the Board reviews the results and feedback from the
annual employee engagement survey, QUEST, and monitors how the areas
of employee focus are being addressed. The Board determined that
appropriate interventions were made in a timely manner.
– Succession Planning and Talent Management – in order to deliver for its
stakeholders, it is vital that the Group maintains a skilled workforce today
and into the future. As such, succession planning and talent management at
all levels remains a key topic for the Board, with discussion focused on
building technical and leadership capability while creating diverse talent
pipelines for the future.
– Diversity and Inclusion (‘D&I’) – significant progress has been made in
advancing the Group’s D&I ambitions, to ensure that our workforce
increasingly reflects the communities we serve. The Group’s four D&I
Advisory Groups and initiatives such as the 10,000 Black Interns
programme continue to play an important role. This is evident in the QUEST
survey results on engagement and equality, both of which remain ahead of
global benchmarks.
– Employee Relations – the Board maintains a strong and open relationship
with employees throughout the Group, through a combination of dedicated
engagement events such as ‘Ask Our Board’, site visits and informal
meetings. These are all key components of the Group’s approach to
workforce engagement.
– Workforce Policies and Practices – the Board formally reviews the Group’s
workforce policies and practices to ensure these remain consistent with the
Company’s Purpose and Values and support the Group’s long-term
sustainable success.
A key focus for the Board this year has been reviewing the Group’s Strategy
to reflect where the business is today and outline its ambitions for the future, in
consideration of the changing environment within which the Company operates.
Central to the Group’s Strategy is a desire to be performance driven and
sustainability led – positioning the Group to deliver consistently outstanding
operational and financial performance in a manner that has a positive sustainable
impact for all stakeholders. The Board determined that this is best achieved
through balancing the long-term interests of all stakeholders. Read more about
our Strategy on pages 2 to 3.
The Board also spent a significant amount of time considering key long-term
programmes that are inextricably linked to our environment, such as our
Drainage and Wastewater Management Plan (‘DWMP’), Water Resources
Management Plan (‘WRMP’), the Water Industry National Environment
Programme (‘WINEP’) and our PR24 submission, including our Long-Term
Delivery Strategy. Through these interrelated plans, the Board has ensured that
we have appropriate, and aligned, plans in place to consider the impacts of
population growth, drought, environmental obligations and climate change
uncertainty so that we can continue to deliver our essential services for
customers now and in the future whilst also transitioning to a net zero world.
– DWMP – the Board reviewed the draft and final DWMP proposals detailing the
Company’s plans to extend, improve and maintain a robust and resilient
drainage and waste water system over the next 25 years, in consideration of
challenges posed by factors such as population growth, drought,
environmental obligations and climate change uncertainty.
– WRMP – the Board reviewed the draft WRMP proposals detailing the
Company’s plans in relation to our water system today and in the future, in
consideration of challenges posed by factors such as population growth,
drought, environmental obligations and climate change uncertainty. The final
WRMP is due to be published in Autumn 2023.
– WINEP – the Board reviewed and considered the impact of our proposed
environmental programme for PR24, which is aimed at driving positive change
in environmental performance across both water and waste. The Company
continues to make significant investment in this important area and, as such,
the Board agreed a programme that is approximately three and a half times
bigger than that submitted for AMP7, comprising proposed improvements,
investigations and monitoring to deliver against a range of statutory drivers.
– PR24 – the Board continues to shape the business plan for the next AMP, due to
be submitted to Ofwat in October 2023, and PR24 continues to be tabled as a
standing agenda item at all Board meetings. The Board considers, reviews and
discusses detailed updates at each meeting and provides management with the
challenge and scrutiny required to develop our proposals. Engagement with
stakeholders is an essential input to progressing the plan, and individual Board
members attended customer research groups to listen to, and understand,
customers’ views first hand. Similarly, individual Board members, and the
Board as a whole, have taken part in informed discussions with Ofwat.
GOVERNANCE
– Governance Strategy – the Board considered the proposed Governance
Strategy, which sets out our governance approach in the context of the
Group’s Purpose and Values, prior to its publication for consultation. The
Governance Strategy can be found on the Severn Trent Plc website.
– Board Succession Planning – on the recommendation of the Nominations
Committee, the Board oversaw the arrangements for Board succession
planning and, in consideration of maintaining a diverse, experienced and
appropriately skilled Board, approved the appointment of Sarah Legg as
an Independent Non-Executive Director and Helen Miles as an Executive
Director and the Chief Financial Officer Designate. Read more on pages
123 to 124.
– Board Effectiveness Evaluation – the Board reviewed the progress made
against the action plan for 2022/23 and, having considered the feedback
from the 2023 evaluation, set the action plan for 2023/24. Read more on
pages 118 to 119.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
113
GOVERNANCE REPORT BOARD LEADERSHIP AND COMPANY PURPOSE
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.
Scan or click
to read more
BOARD GOVERNANCE
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.
All of these documents are available on the
Severn Trent Plc website.
An effective Board
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.
As outlined on page 109, there is a clear
division of responsibilities between the roles of
Chair and Chief Executive. To allow these
responsibilities to be discharged effectively,
the Chair and Chief Executive 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
this engagement is 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 internally-
facilitated Board Effectiveness evaluation on
pages 118 to 120.
Board independence
The independence of the Board is a matter of
utmost importance given the vital role
Non-Executive Directors play in scrutinising
the performance of management and holding
individual Executive Directors to account
against agreed performance objectives. The
Chair regularly holds meetings with Non-
Executive Directors without the Executive
Directors or any management present, and
Non-Executive Directors can obtain
independent professional advice, at the
Company’s expense, in the performance of
their duties. All Directors have access to the
advice and services of the Group Company
Secretary, whose appointment and removal is
a matter reserved for the Board.
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 Directors who have served
over six years on the Board and John Coghlan,
has been subject to a particularly stringent
independence assessment, as detailed on
page 120. 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. Read
more in the Nominations Committee Report on
pages 121 to 126.
All of the Non-Executive Directors who served
during 2022/23 were considered by the Board
to be independent for the purposes of the 2018
Code and the Chair was considered to be
independent upon her appointment.
In accordance with the 2018 Code, all Directors
will retire at this year’s AGM and, with the
exception of James Bowling, submit
themselves for appointment or reappointment
by shareholders. Each of the Non-Executive
Directors seeking appointment or
reappointment 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 applicable
shareholder advisory groups’ individual guidance
on ‘overboarding’. These requirements specify a
limit on the number of directorships both
Executive and Non-Executive Directors are
permitted to hold and no Directors exceed these
guidelines, as outlined in the AGM Notice of
Meeting. Our 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 104 to 105.
Before committing to an additional
appointment, Directors confirm the existence
of any potential or actual conflicts; that the role
will not breach the Company’s 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. Directors are required to obtain
formal approval from the Board ahead of
114
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
businesses, future developments and the
results and financial position for the year
ended 31 March 2023.
Stakeholder engagement
Stakeholder engagement is central to our
Strategy and, as such, a detailed disclosure
setting out stakeholder engagement activity
conducted during the year is included in our
Strategic Report. The Board ensures that the
Company engages effectively with its
stakeholders and encourages a two-way
dialogue in order that the decisions made by
the Board take into account the views of, and
potential impacts on, stakeholders. Our
dedicated Stakeholder Engagement section
and Section 172 Statement on pages 84 to 94
and 95 to 97 respectively set out how the Board
has considered and contemplated the interests
of stakeholders. A detailed overview of the
Board’s engagement with our workforce is set
out on pages 89 and 90.
Annual General Meeting (‘AGM’)
Our 2022 AGM was held on 7 July 2022, at
which 78.05% of our shareholders (by voting
capital) voted in person, 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 95%
votes in favour for all of our resolutions,
including in relation to the Directors’
Remuneration Report. Shareholders were
invited to submit questions to a dedicated AGM
mailbox in advance of the AGM and
shareholders could also raise questions
during the AGM via the virtual platform, or in
the room if attending in person. No questions
were posed to the Board in advance of the
AGM, but one question was asked and
responded to during the AGM.
This year’s AGM is to be held on Thursday,
6 July 2023 at 10.00am. The AGM will be
convened as a physical meeting, with an option
for shareholders to follow the business of the
meeting by virtual means as well as attend 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 FRC 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.
Full details of the resolutions being tabled for
shareholder approval can be found in the
Notice of Meeting on our website.
undertaking any new external appointments
and approval was sought during the year in
relation to external appointments for both
Executive and Non-Executive Directors. In
each case, the Board determined that there
would be no impact on the time commitment
required for each Director, nor on the
independence and objectivity required to
discharge the agreed responsibilities of each
role. The resultant position is believed to be
consistent with applicable shareholder
advisory groups’ guidelines on overboarding.
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.
Schedule of Matters
Reserved to the Board
To ensure the Board maintains oversight of the
areas material to the delivery of the Group’s
Strategy and Purpose, the Board undertakes
an annual review of the Matters Reserved to
the Board. The latest review took place in
March 2023 and the Board agreed that the
Schedule contained areas appropriate to
require Board involvement, including in
relation to strategy, structure and capital,
financial reporting, controls and
communication with stakeholders. The Board
also reviewed its skills matrix to determine
whether any additional skills or development
opportunities were needed in order for the
Board to discharge its duties effectively. The
Schedule of Matters Reserved to the Board is
available on the Severn Trent Plc website.
Strategy
Appropriately evaluated strategic decisions are
crucial to help us to deliver our Strategy and
achieve our Purpose of ‘taking care of one of
life’s essentials’. 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. During the year, the
Board considered and approved the Group’s
new Corporate Strategy, further details of
which can be found within the Strategic Report
on pages 2 to 99. As well as standing strategic
items at every Board meeting, the Board also
holds a dedicated Strategy Day 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 2023. 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
ANNUAL REPORT
Our Annual Report is available to all
shareholders and we aim to make the
document 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
Group Company Secretary to request a copy.
CORPORATE WEBSITE
We continually monitor our website,
severntrent.com, to ensure it is accessible 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,
and an investor news section containing
information which may be of interest to
our shareholders.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
115
GOVERNANCE REPORT COMPOSITION, SUCCESSION AND EVALUATION
As at the date of this report,
our Board comprised the
Chair (who was independent
on appointment), six
Independent Non-Executive
Directors and three 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 104 to
105. Further detail on the role
of the Chair and members of
the Board can be found on
page 109.
Board composition
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. 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 composition 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 121 to 126.
Directors’ skills and experiences
An effective Board requires the right mix of
skills and experience and, as can be seen from
the individual biographies on pages 104 to 105
and the Board skills matrix on page 106, our
Board members contribute a diverse range of
backgrounds, skill sets and experiences that,
combined together, produce an effective team,
focused on promoting the long-term success of
the Group.
The skills matrix is reviewed at least annually
to ensure that the right balance of skills and
experience are in place to enable the effective
oversight of the Company and execution of
our Strategy.
Diversity
A diverse organisation benefits from
differences in skills, regional and industry
experience, background, ethnicity, gender,
sexual orientation, religion, belief and age, as
well as culture and personality. The Board is
pleased that Severn Trent is recognised as a
leader in this area and remains focused on
promoting broader diversity and creating an
inclusive culture across the organisation and
including on the Board itself. More details
about the Board Diversity Policy and how the
Company has performed against its Board
Diversity Targets in relation to membership of
the Board and Executive Committee can be
found in the Nominations Committee Report,
from page 121.
Development, training and resources
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, so the composition of the
Board continues to operate effectively and
support delivery of our long-term Strategy.
Our Board Effectiveness evaluation process
includes training discussions with the Group
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, sustainability, technological
and social considerations. Our Group Company
Secretary also provides regular updates to the
Board and its Committees on regulatory and
corporate governance matters.
The aim of the training sessions is to 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 took part in a
number of training and deep dive sessions
including in relation to PR24, river quality,
innovation, resilience in the round and talent
management. Further details can be found
on pages 112 to 113.
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
development content, a Results Centre and
Investor Relations section, and briefings on
regulatory topics. It also contains a further
reading section which covers updates and
guidance on changes to legislation and
corporate governance best practice.
Board succession
Along with ensuring an appropriate mix of skills
and experiences on the Board as a whole for the
effective oversight of the Company’s Strategy
and operations, the composition of the Board is
also informed by the need for orderly succession
across key Board and Committee roles.
116
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ANNUAL REPORT AND ACCOUNTS 2023
SARAH LEGG’S INDUCTION
MEMBER OF:
– Audit and Risk Committee
– Corporate Sustainability Committee
– Nominations Committee
– Treasury Committee
The Board welcomed Sarah Legg during
the year, and her extensive induction
programme covered a range of areas across
the business. Along with a detailed overview
of the water sector and the regulatory
requirements we operate under, Sarah
attended a number of sessions covering
topics including governance, stakeholder
engagement and the environment. The
sessions were a mix of virtual and physical
meetings, including visits to a range of
operational sites.
Additional areas of focus for Sarah’s
induction were matters pertinent to her role
on the Board Committees. For her role on
the Audit and Risk Committee, this included
receiving an overview of the current risks
faced by the Group, regulatory finance
model, risk management framework,
Internal Audit programme and internal
control processes, and an overview of the
Group’s AMP7 funding strategy in relation to
her role on the Treasury Committee. In
relation to her membership of the Corporate
Sustainability Committee, Sarah undertook
a series of deep dives in relation to the
Group’s Sustainability Strategy and net zero
commitments. A high-level overview of the
induction process is set out below.
The Nominations Committee and Board have
applied particular focus to this important area
over the last 18 months and further detail can
be found in the Nominations Committee Report
on page 122.
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 Group
Company Secretary, along with other
members of the Executive Committee and
Senior Management Team. 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
first hand. We provide briefings on the key
duties of being a Director of a regulated water
company and proposed appointees meet with
Ofwat ahead of their formal appointment.
We enhance the Board’s induction
programme in light of feedback from new
Directors and the Board Effectiveness
evaluation, for example, the introduction of
the Board buddy scheme.
My Severn Trent Board
induction has been an
incredibly thorough and
well thought-out journey.
I have experienced both
the Group’s operations and
its culture, and have met
some wonderful people
along the way.
Induction process
UNDERSTANDING THROUGH
COMPLEMENTED WITH
KNOWLEDGE REINFORCED BY
INTRODUCTORY
MEETINGS
SPECIFIC DEEP
DIVE SESSIONS
SITE
VISITS
Sessions held in the first few days
and weeks to ensure that new
Directors are able to gain a real
understanding of our Strategy and
Purpose, the regulatory regime and
our core business activities.
Deep dive sessions enable Directors
to explore in detail the areas of
focus for the Group over the short,
medium and long term, and deepen
their understanding of the Group.
Site visits allow Directors to
observe the Group’s operations in
action and meet colleagues to gain
further insight into our culture and
enhance their understanding of the
Group’s operations.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
117
GOVERNANCE REPORT COMPOSITION, SUCCESSION AND EVALUATION CONTINUED
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.
This year, the review was facilitated internally
by the Group Company Secretary, who is well
placed as an independent sounding board to
the process. Meetings took place during
February and March 2023, and key themes
were shared with the Board and Nominations
Committee along with a 2023 action plan.
An externally-facilitated evaluation was
conducted by Independent Board Evaluation in
2020/21 and the next externally-facilitated
evaluation will be scheduled for 2023/24 in
accordance with the 2018 Code provision that
the Company should undertake an externally-
facilitated Board Effectiveness evaluation at
least every three years.
BOARD EVALUATION
REVIEW CYCLE
During the year, the Board reviewed the
nature of its evaluation process and
agreed to adopt a three-year assessment
cycle moving forward, to build on
momentum in prior years, whilst also
ensuring a rigorous and balanced
approach to implementing incremental
improvements.
The cycle is set out below and 2023/24
will be the first year of a new three-year
cycle, and therefore will involve an
externally-facilitated evaluation exercise.
The Nominations Committee has
commenced the process to select a
facilitator to conduct the 2023/24
evaluation.
YEAR 1
EXTERNAL
YEAR 3
INTERNAL
YEAR 2
INTERNAL
YEAR 1 – 2023/24
Externally Led Comprehensive
Evaluation: A detailed, independent
assessment of the Board, Committees
and individual Directors.
YEAR 2 – 2024/25
Internally Led Intermediate Level
Evaluation: With a focus on Board
dynamics, Board composition and
succession.
YEAR 3 – 2025/26
Internally Led Lighter Touch Evaluation:
With a focus on stakeholder engagement
and Board contribution to strategy and
organisational culture.
INTERNAL EVALUATION PROCESS FOR 2022/23
A description of the process followed for this year’s review is detailed below.
STAGE 1
EVALUATION PROCESS
PLANNING
DECEMBER 2022 –
JANUARY 2023
STAGE 2
QUESTIONNAIRE
RESPONSES AND
ONE-TO-ONE
MEETINGS
FEBRUARY –
MARCH 2023
STAGE 3
EVALUATION
AND REPORTING
MARCH 2023
STAGE 4
CONSIDER RESULTS
AND AGREE ACTIONS
MARCH 2023
The Group Company Secretary undertook a detailed review of
the 2021/22 Board Effectiveness evaluation process in order to
develop the approach for 2022/23, incorporating
recommendations from the 2018 Code, Parker Review, FRC
Guidance on Board Effectiveness and Ofwat’s Board leadership,
transparency and governance principles. A focused
questionnaire was designed to gather individual Directors’
perceptions of the effectiveness of the Board and its operations,
including in relation to accountability, oversight, strategy, value
creation, culture, ethics, behaviours, stakeholder engagement
and information flows to the Board and its Committees.
The questionnaires were issued and each Director was also
asked to complete an updated entry for the Board skills matrix,
taking into consideration skills that had been strengthened
through training and development over the previous year.
Directors were also asked to highlight any additional skills that
they felt may be beneficial for the Board to have amongst its
members in order to discharge its duties effectively.
Board members participated in comprehensive one-to-one
meetings with the Chair and Group Company Secretary, with
additional input from the Senior Independent Director, to allow
reflection on their personal responses to the questionnaire and
discussion of matters relevant to boardroom culture, process
and development. Separate discussions were held to consider
the effectiveness of the CEO, CFO and Group Company
Secretary, led by the Chair. The Chair’s performance evaluation
was led by the Senior Independent Director.
The Group Company Secretary collated the individual
responses, including analysis of themes and proposed
actions. A detailed report, setting out the findings of the
evaluation, was provided to the Chair for consideration. The
Group Company Secretary and Chair met to discuss the
findings, with the resulting report being tabled to the
Nominations Committee and Board in March 2023.
The findings of the evaluation exercise were fully considered
when making recommendations in respect of the appointment
and reappointment of individual Directors, and included an
assessment of their independence, time commitment and
individual performance. The respective proposed 2023 AGM
Resolutions were considered and agreed by the Board. The
proposed actions arising from the evaluation were thoroughly
discussed and agreed for implementation and monitoring.
STAGE 5
MONITOR PROGRESS
APRIL 2023 ONWARDS
The Board will continue to oversee the progress made in
relation to the agreed actions to ensure their timely
completion. The Nominations Committee will also continue to
play a key role in monitoring the actions relating to Board
succession, composition, recruitment and induction.
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ANNUAL REPORT AND ACCOUNTS 2023
EVALUATION 2022/23 FINDINGS
RECOMMENDATION
INITIAL PROGRESS
SUCCESSION PLANNING AND BOARD COMPOSITION
Ensure process to enable the smooth succession of Non-Executive
Directors, including the Senior Independent Director, commences
well in advance of scheduled retirements.
Succession planning continues to be a key focus of the Board and a
standing item on the agenda for Nominations Committee meetings.
Robust succession plans are in place for all roles.
BOARD AGENDA
Notwithstanding the well-structured agendas which comprise an optimal
mix of strategic and operational items, consideration should be given to:
The Board forward agenda has been reviewed to ensure that:
– All matters are appropriately scheduled for discussion at future
– Scheduling key strategic and complex regulatory topics earlier on
Board meetings; and
the Board agenda to ensure sufficient time for discussion and
debate; and
– Allocating more time on the Board agenda to discuss strategic
developments and opportunities, as well as innovation initiatives,
both within and outside of the utilities sector.
BOARD REPORTS
Notwithstanding the high quality of Board reporting, there was
an opportunity to enhance executive summaries and articulate
key takeaways within Board reports to facilitate focus of
Board discussions.
– Sufficient time is devoted to the discussion of strategic and
innovative topics.
Feedback on Board reporting has been incorporated into the Group’s
suite of report writing training.
EVALUATION RECOMMENDATIONS FROM 2021/22
The internally-facilitated board effectiveness process also provided an update on the recommendations identified in the 2021/22 review. The report
concluded that good progress had been made in relation to the recommendations from the 2021/22 evaluation. Further details are set out in the table below.
RECOMMENDATION
BOARD AGENDA
ACTION TAKEN
Notwithstanding the well-structured agendas which comprise an
optimal mix of strategic and operational items, more opportunity
could be afforded to allow the Board to discuss bolder strategic
moves and opportunities, future likely trends and developments
outside of the utilities sector, and potential areas of differentiation.
The Board developed and agreed a set of Board objectives for 2022/23,
which were reviewed at its meetings in March and April 2022. The
Board forward agenda was also reviewed to ensure that all matters
were appropriately scheduled for discussion at future Board
meetings.
In addition to the informative oral reports provided to the Board by
the Chair on her meetings with shareholders, consideration should
be given to include dedicated time on the agenda for all Directors to
provide feedback on engagement with stakeholders.
ENGAGEMENT OUTSIDE MEETINGS
The Board agenda allows time for Directors to provide individual
feedback on their engagement activity with all stakeholders.
Non-Executive Directors should continue to be invited to additional
site visits outside the Board meeting rhythm to further build
relationships with each other and gain an even deeper
understanding of the business.
Alongside the regular programme of Board meetings being held at
operational sites, a number of additional site visits were scheduled,
covering the full range of the Group’s operations. See page 110 for
further details.
‘Teach in’ sessions for non-Treasury Committee members should be
established to provide other Non-Executive Directors with additional
knowledge and experience of this technically complex area.
A programme of ‘teach in’ sessions was developed, including
Treasury-related topics and other technical matters.
BOARD COMMITTEES
Nominations Committee – consideration should be given as to
whether the Committee’s remit should be expanded to cover wider
talent development, below Executive Committee level.
The Committee’s remit was considered during the review of its Terms
of Reference undertaken in March 2023 and it was determined that
these remained appropriate and reflective of the requirements
outlined in the 2018 Code. The Board participated in a Group-wide
succession planning and talent management session during the year.
Read more in the Nominations Committee Report on pages 121 to 126.
Remuneration Committee – consideration should be given as to
whether there should be an additional Non-Executive Director on
the Committee.
As part of its ongoing succession planning activity, the Board
continues to consider the composition of all Committees, including
that of the Remuneration Committee.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
119
GOVERNANCE REPORT COMPOSITION, SUCCESSION AND EVALUATION CONTINUED
External appointments
It is imperative that Directors have sufficient time
to meet their responsibilities of providing
constructive challenge and strategic guidance,
and holding management to account. Approvals
were sought from the Board 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 further review of each Director’s time
commitment was undertaken as part of the
evaluation, with full consideration given to
the number of external positions held by the
Executive and Non-Executive Directors, including
the time commitment required for each. The
Nominations Committee, in considering the
Continuing Office of Directors, did not identify any
instances of overboarding and confirms that all
individual Directors have sufficient time to commit
to their appointment as Directors of Severn Trent
Plc. The full list of key external appointments held
by our Directors can be found in their biographies
on pages 104 to 105.
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 links
are maintained between the Committees and
the Board, not least as it is impracticable for
all Independent Non-Executive Directors to be
members of all the Committees. Mechanisms
are in place to facilitate these links, including
ensuring that there are no gaps or
unnecessary duplications between the remit of
each Committee and overlapping membership
between Board Committees where necessary.
Each Committee has its own Terms of
Reference, which are reviewed annually, and
the Board receives a written summary of each
of the Committee’s meetings along with oral
updates at the Board, where appropriate.
The effectiveness of the Board Committees is
therefore an important part of the evaluation
and, along with each respective Committee, the
Board also monitors any Committee-related
recommendations that arise from the review.
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. Each Committee
remains effective in providing the Board with the
support it has requested. Further details on each
Committee, including its oversight and focus
during the year, can be found in the Committee
reports starting on page 121.
Chair’s performance
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 the
Chair and subsequently reported to the
Nominations Committee and Board. The review
confirmed that the Chair continued to
demonstrate strong leadership and commitment,
highlighting her expert management of the Board
succession process during the year. It was
concluded that the Chair promoted a culture of
inclusivity, openness and debate, ensuring that
views from others were sought before expressing
her own perspective. As such, meetings were
constructive and focused, and Directors received
accurate, timely and clear information in advance.
Board members confirmed that the Chair devoted
sufficient time to the role, including in relation to
building good relationships with key stakeholders,
and in all respects met the requirements of the
2018 Code.
John Coghlan’s independence
John Coghlan will have served on the Board for
nine years in May 2023. The Board is satisfied that
John continues to demonstrate independent
character, judgment and objectivity. Continual
monitoring of his independence and performance
will be undertaken over his remaining tenure.
The Board, taking into account the provisions set
out in the 2018 Code, considered that John
remained independent notwithstanding the fact
he would be serving for a period of more than
nine years and concluded that there were no
relationships or circumstances likely to impair
his judgment. This was based on a number of
factors, including:
– John’s strong record in making objective
decisions and holding management to account,
and remaining willing and able to do so;
– His clear independence demonstrated in terms
of his participation at meetings with
management and his interactions with
stakeholders including the External Auditor;
– His arm’s-length approach to dealing with
Executive Directors and continued challenge of
management where appropriate;
– The fact that none of John’s external
directorship appointments conflicted or
potentially conflicted with those of the
Company; and
– The broader composition of the Board,
including the fact that no other Non-Executive
Director had a tenure in excess of nine years.
120
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
NOMINATIONS COMMITTEE REPORT
Dear Shareholder
This report details the role of the Nominations
Committee and the important work it has
undertaken during the year. It highlights the
vital part played by the Committee to ensure
that the Board has the appropriate balance of
skills, experience, knowledge and diversity to
provide the Company with the strong
leadership required to support its workforce
and deliver long-term sustainable success.
The Committee also ensures there is a
high-quality, stable Executive Team in place,
focused on the long term but adaptive to the
changing world around us in order to deliver
for all of our stakeholders.
This year has seen a number of significant
changes to the composition of the Board,
following the retirement of Philip Remnant,
former Chair of the Remuneration Committee,
in November. I would like to convey my thanks
to Philip for his dedication and significant and
impactful contributions to the Board and
Committee discussions. Sharmila Nebhrajani
has taken on the role of Remuneration
Committee Chair and, as such, will introduce
her first Directors’ Remuneration Report to
shareholders this year.
We also welcomed Sarah Legg as an
Independent Non-Executive Director of the
Board from 1 November 2022. Given her
strong financial background and deep interest
in sustainability matters, Sarah joined our
Audit and Risk, Treasury and Corporate
Sustainability Committees, in addition to the
Nominations Committee. Details of her
ongoing induction programme can be found on
page 117.
During the year, we also announced the
planned retirement of James Bowling, our
Chief Financial Officer of eight years, and
Bronagh Kennedy, our Group General Counsel
and Company Secretary of nearly twelve years.
The Committee was delighted that, following
rigorous internal and external search and
selection processes, the appointments in
relation to both these roles, and the
subsequent opportunities they created on
the Executive Committee, were largely made
from existing talent within our business,
helping us preserve the incredible knowledge
and experience we possess and help drive us
forward over the coming years. As a result of
the Committee’s positive action, the Group’s
succession readiness has been strengthened
and the Committee considers that all key roles
have credible succession plans in place. You
can read more about these appointments
on pages 123 and 124.
Following the implementation of these
changes, the Committee has been focused on
planning for the transition of our long-standing
Non-Executive Directors, ensuring that the
Board remains well balanced, with a strong
pipeline of candidates with the appropriate
skill sets, experience and capabilities.
During the year, the Committee also
considered the Board Diversity Policy (the
‘Policy’) and reviewed progress made against
the agreed objectives set out in the Policy. The
importance of the Policy aligning with the
diversity of our region, specifically in respect
of gender, social and ethnic backgrounds,
skills and experience, was paramount. The
Committee also considered the new Listing
Rule requirements in relation to diversity and
inclusion, and progress in achieving the
individual targets. Following its review, the
Committee recommended to the Board that
the Policy was amended to cover a broader
range of diversity characteristics and facilitate
the open and transparent reporting by
Directors. Read more on page 125.
I am pleased to report that the Company
complies with the targets outlined within the
Listing Rules, with 60% of the current Board
Directors being women, two of the senior
positions currently held by women (Chair and
Chief Executive) – moving to three following
Helen Miles’ appointment as Chief Financial
Officer in July 2023 – and two members of our
Board from non-White Ethnic Minority
backgrounds. We have developed a refreshed
disclosure this year, which can be found on
page 126, and we welcome feedback on this.
Committee members
Christine Hodgson (Chair)
Kevin Beeston
John Coghlan
Tom Delay
Sarah Legg
Sharmila Nebhrajani
Philip Remnant
Gillian Sheldon
Member since
Meetings attended
January 2020
June 2016
May 2014
January 2022
November 2022
May 2020
March 2014 until November 2022
January 2022
6/6
6/6
6/6
6/6
1/1
6/6
5/5
6/6
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
121
Christine Hodgson
Chair
The evolution of the Board
and succession planning for
the Executive Committee
have been key areas of focus
for the Committee this year
and we believe we have
the right team in place to
deliver our Strategy into the
next AMP and beyond.
All members of the Committee are
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 Director
of Human Resources and other senior
management and external advisers, may
be invited to attend meetings as and when
appropriate. None of these attendees are
members of the Committee.
Documents available at severntrent.com
Board Diversity Policy
‘Wonderfully You’, our Diversity and
Inclusion Strategy
Charter of Expectations
Committee Terms of Reference
GOVERNANCE REPORT NOMINATIONS COMMITTEE REPORT CONTINUED
As part of the Committee’s governance oversight
role, the Committee also assists the Board in its
consideration of conflicts of interest and
independence issues. As part of its
recommendation to the Board in respect of the
Continuing Office of Directors, the Committee
conducted its annual review of individual Director
conflict authorisations as recorded in our
Conflicts of Interest Register. When reviewing
conflict authorisations, the Committee
considered 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 and that
there were no business or other circumstances
that were likely to affect the independence of
any Non-Executive Director. As such, the
Committee determined that all Non-Executive
Directors continued to demonstrate
independence and I am pleased to report that
the Board concurred with our conclusion.
In accordance with the 2018 Code, all the
Directors will retire at this year’s AGM and,
with the exception of James Bowling, submit
themselves for appointment, in the case of
Sarah Legg and Helen Miles, or reappointment
by shareholders. Each of the Non-Executive
Directors seeking appointment or
reappointment are considered to be
independent in judgment and character.
Finally, in what has been a very busy year
for the Committee, we also paid significant
attention to enhancing the effectiveness of
the Board and its Committees. An internally-
facilitated Board Effectiveness evaluation was
conducted earlier this year, which concluded
that the Board continues to operate effectively
while also signalling minor areas for
improvement, details of which can be
found on page 119.
I would like to thank the members of the
Committee 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.
Christine Hodgson
Chair of the Nominations Committee
23 May 2023
KEY AREAS OF
FOCUS IN 2022/23
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.
Key areas of focus for the Committee this
year included the following:
– Consideration of the composition of the
Board and Committees and the succession
of Non-Executive Directors and the skills,
knowledge, experience, diversity and
attributes required of current and future
Non-Executive Directors. In considering
Board succession, the Committee took into
account the length of tenure of the
Non-Executive Directors and the
importance of the progressive refreshing
of Board membership.
– Review of individual Director independence
through the established Conflicts of
Interest and Persons Closely Associated
declaration process and concluded that
there were no concerns as regards the
composition of the Board, or the
contribution or commitment of any of
the Directors.
– Review of the search firm providers for
the next stage of the Board’s succession
planning and engaged the executive search
firms Hedley May1 and Spencer Stuart2.
– Oversight of the succession plans in place
for the Executive Committee and other
members of senior management, including
consideration of the Group’s talent
development programmes to build
technical and leadership capability.
– Oversight of the Board Effectiveness
evaluation and discussion of the feedback,
observations and recommendations from
the review of the Board and Committees,
including the 2023 action plan for approval
by the Board.
– Reviewed the Board Diversity Policy
to ensure it remained aligned with the
requirements of the Listing Rules and
incorporated any other best practice.
– Continued application of the Board
Diversity Policy and initiatives, and
reviewed progress made against the
agreed objectives set out in the Board
Diversity Policy.
– Discussion of the role of the Board
Diversity Policy in advancing the
composition and effectiveness of the Board
and Executive Committee.
The Committee also reviewed and approved
its Terms of Reference, 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.
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.
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.
2 Spencer Stuart is a signatory to the Voluntary Code of
Conduct for Executive Search firms. Christine Hodgson
acts as an External Board Adviser to Spencer Stuart
Management Consultants NV. This is the only connection
between the two companies. Read more on page 124.
122
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
NON-EXECUTIVE DIRECTOR SUCCESSION PLANNING
1
ENHANCED
REVIEW OF
INDEPENDENCE
Whilst we see long service on the Board as a positive
characteristic, the Board is mindful that the 2018 Code
indicates that Non-Executive Directors should not
serve for more than nine years and Non-Executive
Directors that have served over six years should be
subjected to a particularly rigorous review.
Such reviews, in line with the requirements of the 2018
Code, had been undertaken in relation to the
independence and commitment of the following
Non-Executive Directors since reaching their six-year
tenures:
– Philip Remnant
– John Coghlan
– Kevin Beeston
In all cases, the Board remained satisfied that Philip,
John and Kevin continued to act with the utmost
independence and considered that their continued
appointment was in the long-term best interests of
shareholders. The length of service, independence and
potential for conflicts of interest of John and Kevin were
also considered as part of our internally-facilitated
Board Effectiveness evaluation conducted this year,
further details of which are set out on pages 118 to 119.
2
PREPARATION
FOR
RECRUITMENT
In preparation for two of its longest-serving
Independent Non-Executive Directors, Philip Remnant
and John Coghlan, approaching their maximum tenures
of nine years, the Committee was tasked with reviewing
the succession plans in place and recruiting additional
Independent Non-Executive Directors, where
appropriate, to ensure the optimum balance of skills and
experience on the Board. During 2021/22, the
Committee appointed an independent search firm, which
is a signatory to the Voluntary Code of Conduct for
Executive Search Firms, to support with the evolution
of the Independent Non-Executive membership of the
Board over the next two to three years.
Both Philip and John held Committee Chairships and
therefore tailored recruitment criteria and role
specifications were developed to outline the appropriate
skills and experience required to ensure the Board
continued to comprise members who were qualified
to carry out these vital roles.
3
SHORTLIST AND
SELECTION
The Committee ensured that the recruitment process
was conducted in line with the Board Diversity Policy,
in particular that diverse candidates from a wide
variety of backgrounds and those with non-listed
company experience were included within the
respective shortlists. Read more about our Board
Diversity Policy on page 125.
Interviews were conducted by the Chair, Senior
Independent Director and Chief Executive, with support
from the Group Company Secretary. Once a preferred
candidate had been selected, a pre-appointment
meeting with Ofwat was arranged ahead of the
proposed Non-Executive Director being formally
appointed to the Board of Severn Trent Water Limited.
4
APPOINTMENTS
Since 2021, the Committee has recommended the
following appointments to the Board:
– Gillian Sheldon – as an Independent Non-Executive
Director and member of the Audit and Risk,
Remuneration and Nominations Committees, and
Chair of the Treasury Committee.
– Tom Delay – as an Independent Non-Executive
Director, Chair of Corporate Sustainability
Committee and member of the Nominations
Committee.
– Sarah Legg – as an Independent Non-Executive
Director and member of the Audit and Risk,
Nominations, Corporate Sustainability and
Treasury Committees.
The Committee had also recommended to the Board
the appointment of Sharmila Nebhrajani, an existing
Independent Non-Executive Director, to the
Remuneration Committee in anticipation of her
succeeding Philip Remnant as Chair of the
Remuneration Committee.
The Committee also considered succession plans for
the Chair of the Audit and Risk Committee, John
Coghlan, who will have served on the Board for nine
years in May 2023. The Committee and Board
are satisfied that John continues to demonstrate
independent character, judgment and objectivity.
5
SUCCESSION
AND INDUCTION
All newly appointed Directors undertook thorough, tailored induction programmes, overseen by the Committee,
which included specific focus on key aspects of their roles on the Board Committees. Further details on Non-
Executive Director induction programmes can be found on page 117.
FUTURE
PLANNING
The Committee is satisfied that all key roles have credible succession plans in place. Notwithstanding this, the
Committee considers succession planning at each of its meetings and will continue to make appropriate
recommendations to the Board as necessary.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
123
GOVERNANCE REPORT NOMINATIONS COMMITTEE REPORT CONTINUED
EXECUTIVE COMMITTEE SUCCESSION PLANNING
THE NOMINATIONS COMMITTEE ALSO CONSIDERED SUCCESSION PLANNING FOR MEMBERS OF THE EXECUTIVE COMMITTEE DURING THE YEAR,
INCLUDING IN RELATION TO THE BELOW ROLES.
CHIEF FINANCIAL
OFFICER
The Company announced on 1 February 2023 that
James Bowling, Chief Financial Officer (‘CFO’) and
Executive Director, intended to retire from the
Severn Trent Board following the conclusion of
the AGM on 6 July 2023, having served the
Company for over eight years.
Following a rigorous internal and external search
and selection process, led by the Committee, it
was announced that Helen Miles, the Group’s then
incumbent Director of Capital and Commercial
Services, would be appointed as an Executive
Director and the CFO Designate with effect from
1 April 2023.
The Chair and the CEO led the process to identify
suitable candidates for the CFO role and the
executive search firm Spencer Stuart1 was engaged
as part of the recruitment process, having
demonstrated, of the executive search firms
considered, that it had the best understanding and
knowledge of the Group and its culture. Having
been provided with a role specification and detailed
brief of the desired candidate profile, Spencer
Stuart undertook the initial independent appraisal
process and identified a number of potential
internal and external candidates for the Committee
to consider. Those shortlised were then interviewed
by members of the Committee.
The Committee was pleased to recommend to the
Board the appointment of Helen Miles given her
highly experienced and commercial background
along with a detailed understanding of the water
sector and proven track record of exceptional
delivery.
Furthermore, the Committee was particularly
pleased that Helen would have the opportunity to
work alongside James prior to his retirement to
ensure an effective and orderly handover.
1 Spencer Stuart is a signatory to the Voluntary Code of Conduct
for Executive Search Firms. Christine Hodgson acts as an
External Board Adviser to Spencer Stuart Management
Consultants NV. The decision to appoint Spencer Stuart was
first discussed with John Coghlan, Chair of the Audit and Risk
Committee, before the Board considered the matter and
determined that the engagement of Spencer Stuart would
present no conflict of interest.
GROUP GENERAL
COUNSEL
AND GROUP COMPANY
SECRETARY
The Company announced on 13 September 2022
that Bronagh Kennedy, Group General Counsel
and Company Secretary, intended to retire from
Severn Trent on 2 December 2022, having served
the Company for nearly twelve years.
Following a rigorous internal and external search
and selection process, the Committee considered
that the role should be split into two roles – Group
General Counsel and Group Company Secretary –
with the following two candidates recommended
for appointment:
– Didar Dhillon was appointed as the Company’s
new Group General Counsel with effect from
2 December 2022, having joined the Group in
October 2022.
– Hannah Woodall-Pagan was appointed as Group
Company Secretary with effect from 2 December
2022, having joined the Group in October 2015.
DIRECTOR OF CAPITAL
AND COMMERCIAL
SERVICES AND DIRECTOR
OF CUSTOMER
OPERATIONS
Further to Helen Miles’ appointment as CFO
Designate, the Committee oversaw the succession
plans in place for the Executive Committee.
– Director of Customer Operations – Appointment
of Steph Cawley, who has held a number of
senior roles since joining the Group in 2018.
The Committee recommended to the Board the
following:
– Director of Capital and Commercial Services –
Appointment of James Jesic, who previously
served as Director of Customer Operations since
2020 and has been with the Group since 2003.
The Committee was particularly pleased to
appoint internal candidates to these roles, as
it demonstrates the strength and talent of the
Senior Management Team within the business.
124
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Diversity on our Board
and Committees
The Committee and Board continue to drive the
agenda of diversity across the Group in setting
the right tone from the top and are proud of the
progress being made to date. Whilst Severn
Trent has long been an advocate of a diverse
workforce and the huge advantages that this
brings teams across the business, the
Committee acknowledges that there is more to
be done to encourage greater diversity, so that
all companies can experience the benefits of
wide-ranging experience and backgrounds.
We welcome the Financial Conduct Authority’s
(‘FCA’) policy statement, published in April
2022, regarding changes to the Listing Rules in
relation to diversity and inclusion on company
boards. This section of the Annual Report
addresses the FCA’s requirements in relation
to diversity and inclusion disclosures set out in
Listing Rule 9.8.6R(9).
The Nominations Committee reviews the
Board Diversity Policy (the ‘Policy’) on an
annual basis and makes recommendations
to the Board where it identifies changes
that can be made to further contribute to
improving the diversity of the Board and
Executive Committee.
This year, the Policy was updated to include
reference to the Board Committees required
to be considered under the 2018 Code and in
consideration of how wider diversity
characteristics can be addressed. The main
objectives contained in the Policy are set out
below, alongside an overview of the action
taken to implement the Policy. The full Policy
is available on the Severn Trent Plc website.
BOARD POLICY OBJECTIVES
IMPLEMENTATION
PROGRESS MADE
Ensure the Board comprises an appropriate
balance of skills, experience and knowledge
required to effectively oversee and support
the management of the Company.
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.
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.
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.
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 March 2023 meeting, the Committee
formally reviewed the composition of the
Board and the performance, contribution and
commitment of individual Directors in the
context of the 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. All Board succession
discussions took place in consideration of
the Policy.
Sarah Legg was appointed to the Board as an
Independent Non-Executive Director on
1 November 2022.
Following the end of the financial year,
Helen Miles was appointed to the Board as
an Executive Director and the CFO Designate
on 1 April 2023.
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 Hedley May and
Spencer Stuart, the executive search firms
engaged for these appointments, presented
a diverse potential candidate list, including
candidates with no listed company
experience.
At its April 2023 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 minority ethnic
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.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
125
GOVERNANCE REPORT NOMINATIONS COMMITTEE REPORT CONTINUED
Annual Statement on Board Diversity Targets
On behalf of the Board, the Nominations Committee is pleased to confirm that as at 31 March 2023, all three of the targets set out within the Board
Diversity Policy, which align with the diversity and inclusion targets set out in the Listing Rules, have been met. A summary of the Board Diversity
Targets is set out in the table below.
BOARD DIVERSITY TARGET
TARGET MET?
BOARD DIVERSITY AS AT 31 MARCH 2023
At least 40% of the individuals on the Board of Directors are women.
– 56% of the individuals on the Board of
Directors are women
At least one of the senior positions (Chair, Chief Executive, Senior
Independent Director, Chief Financial Officer) on the Board of Directors is
held by a woman.
– The Chair is a woman
– The Chief Executive is a woman
At least one member of the Board of Directors is from a non-White Ethnic
Minority background (as referenced in categories recommended by the
Office for National Statistics (‘ONS’)).
– Two members of the Board of Directors
are from non-White Ethnic Minority
backgrounds
Detailed numerical information on the gender and ethnicity representation on the Board and Executive Committee is set out below.
Data concerning gender and ethnicity representation is collected directly from all the individual Board and Executive Committee members
through a Diversity and Inclusion Monitoring Form (the ‘Form’) which is issued for completion on an annual basis. The Form asks individuals to
disclose their gender and ethnicity using the options included on the Form, which align with the detail in the left-hand columns of the tables below
and therefore includes the option to not specify an answer. This data is collated by the Company Secretariat Team and held securely and in
accordance with the Group’s data protection processing and retention guidelines.
Gender Representation as at 31 March 2023
Severn Trent Plc Board
Severn Trent Plc
Executive Committee
Number of
Board members
Percentage
of the Board
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
Number
in Executive
Management
Percentage
of Executive
Management
Men
Women
Not specified/prefer not to say
4
5
-
44%
56%
-
2
2
-
Ethnicity Representation as at 31 March 2023
Severn Trent Plc Board
6
3
-
67%
33%
-
Severn Trent Plc
Executive Committee
White British or other White
(including minority‑white groups)
Mixed/Multiple Ethnic Groups
Asian/Asian British
Black/African/Caribbean/Black British
Other ethnic group, including Arab
Not specified/prefer not to say
Number of
Board members
Percentage
of the Board
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
Number
in Executive
Management
Percentage
of Executive
Management
7
1
1
-
-
-
78%
11%
11%
-
-
-
4
-
-
-
-
-
8
-
1
-
-
-
89%
-
11%
-
-
-
As discussed on page 100, since 31 March 2023, there have been changes to the membership of both the Board and the Executive Committee. The
Nominations Committee confirms that these appointments have not affected the attainment of any of the Board Diversity Targets and neither the
Board nor the Committee foresees any risks in not being able to continue to meet the Board Diversity Targets during the current financial year.
126
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
AUDIT AND RISK COMMITTEE REPORT
Dear Shareholder
I am pleased to present this report, which aims
to give shareholders a clear insight into the
work we have done as a Committee to provide
challenge and assurance on the integrity of the
2022/23 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.
Throughout the year, I maintained regular
dialogue with other members of the
Committee, the Chief Financial Officer and
other members of management, including
presenters of upcoming agenda items prior
to meetings, to ensure the Committee was
provided with the necessary information to
enable it to guide, challenge and advise and,
when required, make informed decisions. I
also met privately with the Head of Internal
Audit and representatives from the External
Auditor and External Assurer, both to discuss
any issues that may have arisen and as part of
my ongoing assessment of their effectiveness.
Much of the Committee’s work relates to the
regulated activities of Severn Trent Water, which
represent over 91% of Group turnover. The
Committee’s vital contribution to our Purpose
of ‘taking care of one of life’s essentials’ ensures
that the interests of shareholders and other
stakeholders, particularly our customers and
regulators, are properly protected, by overseeing
the Group’s financial reporting and internal
control arrangements. The Committee uses its
collective expertise, with input from the External
Auditor, to provide challenge to the approach and
judgments made by management in the
treatment of financial matters and the resulting
disclosures within the financial statements.
Transparency and openness are fundamental
to the relationship between management and
the Committee, which is further reinforced
through our culture of Doing the Right Thing.
As such, 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 Committee has
spent considerable time reviewing and
scrutinising the Group’s financial results, and
details of the significant issues we considered
can be found on page 134.
The External Auditor performs 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 168 to 175.
The Financial Reporting Council’s Audit Quality
Review (‘AQR’) team selected for review the
audit of the Severn Trent Plc financial
statements for the year ended 31 March 2022
as part of its annual inspection of audit firms.
As Chair of the Audit and Risk Committee, I
received a full copy of the findings of the AQR
and have discussed these with Deloitte. The
findings were largely positive, with no
significant areas for improvement identified
within the report. The Committee is also
satisfied that there is nothing within the report
which might have a bearing on the audit
appointment. Based on consideration of the
responses to our internal effectiveness review,
and taking into account the AQR report, the
Committee remains satisfied with the
efficiency and effectiveness of the audit.
We were pleased to advise the Board that the
2022/23 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 131.
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
80 to 83). It was agreed that this was appropriate,
given the nature of the regulatory framework in
the water sector and Ofwat’s statutory duty to
ensure that companies can finance the proper
carrying out of their functions.
The increasing focus of stakeholders on
the impact of climate change and other
environmental issues has become evident in
the Committee’s workload. The Committee
plays a key role in the governance of
environmental and climate-related reporting,
John Coghlan
Chair
Against the backdrop of upcoming audit
and corporate governance enhancements,
the Committee’s contribution to ensuring
that reporting is fair, balanced and
understandable is increasingly vital for
shareholders and other stakeholders who
want to assess the Company’s performance
and hold the Board to account.
All members of the Committee are Independent
Non-Executive Directors of the Board. The Board
considers that all members of the Committee
have recent and relevant financial experience and
competence relevant to the sector, with the Chair
and the majority of the Committee members being
qualified accountants. Only members of the
Committee have the right to attend Committee
meetings. Other regular attendees at meetings at
the invitation of the Committee include the Chair
of the Board, the Chief Executive, the Chief
Financial Officer (‘CFO’), the Group Company
Secretary, the Group General Counsel, the Group
Financial Controller, the Head of Internal Audit,
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 Chair of the Committee
regularly holds separate one-to-one meetings
with the CFO, the Head of Internal Audit, the
External Auditor and with Committee members
outside of scheduled meetings to better
understand any issues or areas for concern.
Documents available at severntrent.com
Kevin Beeston
Committee members
John Coghlan (Chair)
Sarah Legg
Non-Audit Services Policy
Anti-Bribery and Anti-Fraud Policy
Charter of Expectations
Committee Terms of Reference
Sharmila Nebhrajani
May 2020 until September 2022
Philip Remnant
Gillian Sheldon
March 2014 until September 2022
January 2022
Member since
Meetings attended
May 2014
September 2016
November 2022
5/5
5/5
2/2
2/2
2/2
5/5
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
127
GOVERNANCE REPORT AUDIT AND RISK COMMITTEE REPORT CONTINUED
including overseeing, in conjunction with the
Corporate Sustainability Committee and
supported by independent third-line assurance
by Jacobs, the Group’s Task Force on Climate-
related Financial Disclosures (‘TCFD’).
The Committee has also spent a considerable
amount of time reviewing the Group’s risk
management processes and procedures, with
good progress made in enhancing their
effectiveness during the year. You can read more
about our approach to risk on pages 73 to 74.
You will see that this report contains an overview
of the Company’s whistleblowing arrangements.
The Board has previously agreed that the
responsibility for oversight of whistleblowing
arrangements should continue to be delegated to
the Audit and Risk Committee and not be 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 and Risk Committee
continues to receive reports on investigations
and all significant whistleblowing matters are
reported directly to the Board. 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.
The annual Board Effectiveness evaluation, which
was conducted internally this year, 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. 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. Further information about
each Committee member is contained in their
individual biographies, which can be found on
pages 104 to 105.
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 and Risk Committee
23 May 2023
KEY AREAS
OF FOCUS IN 2022/23
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.
Internal Audit and assurance
– 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 2023/24.
– Reviewed the quality and effectiveness
of Internal Audit and the effectiveness of
the current co-source arrangements.
– Considered the findings of the assurance
that had been undertaken as part of
regulatory submissions for the Drainage
and Wastewater Management Plan, Water
Resources Management Plan, Water
Industry National Environment Programme
and Strategic Resource Options.
– Reviewed the detailed assurance plan and
approach for the Severn Trent Water PR24
submission.
Internal controls and risk
management
– Reviewed the effectiveness of the Group’s
ERM processes and procedures and internal
control systems, and integration of the
components of the risk framework into
Board and Committee reporting, prior to
making a recommendation to the Board.
– Received updates on legal, regulatory and
ethical matters, and 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.
– Oversaw and monitored 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).
External Audit
– Managed the relationship for the 2022/23
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 2022/23 audit.
– Considered the outcome of the FRC’s Audit
Quality Review of Deloitte’s audit of the
Company’s 2021/22 financial statements.
– 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 2023.
– Reviewed and approved the non-audit
services, provided by the External Auditor
and related fees for 2022/23.
Financial and regulatory reporting
– 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 Report, and other regulatory
submissions, for Severn Trent Water as
required to be submitted to Ofwat.
– Reviewed the 2022/23 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’.
– Challenged and scrutinised management’s
detailed assessment of the Group’s
long-term viability and its ability to
continue as a going concern. In doing so,
the Committee took into account the risks
facing the business, and its ability to
withstand a number of severe but
plausible scenarios. Having considered
management’s assessment, the
Committee recommended to the Board the
long-term Viability Statement set out on
pages 80 to 83.
– Considered the Company’s proposals
to address the response to the
Government’s call to strengthen the audit,
corporate reporting and corporate
governance regime in the United Kingdom.
Read more on page 129.
The Committee also reviewed and approved the Committee’s Terms of Reference, 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.
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.
128
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
SPOTLIGHT ON
CORPORATE REFORM
The quality and accuracy of reported
information has always been a key focus of
the Committee’s work. As such, the
Committee welcomed the response from the
Department of Business, Energy and
Industrial Strategy (‘BEIS’) on proposals to
strengthen the UK’s audit, corporate
reporting and corporate governance
systems, which was published during the
year. Whilst the timelines and final
conclusions of the reforms are uncertain, the
Committee requested from management a
summary of the measures that the Financial
Reporting Council (‘FRC’) and the Audit
Reporting and Governance Authority (‘ARGA’,
the successor to the FRC) intend to progress,
an initial assessment of how the changes
could impact the Group and any proactive
action that could be taken in the interim
period ahead of formal legislation being
passed.
and internal control system in relation to
financial reporting was strong and, as a
result, many of the proposed reforms were
expected to be implemented efficiently and
effectively. A number of action points were
considered by the Committee for the short to
medium term, whilst clarity was awaited on
potential amendments to the 2018 Code and
the enactment of relevant legislation.
The review undertaken by the Finance and
Company Secretariat teams concluded that
the Group’s existing governance framework
A summary of the Committee’s
considerations is set out below.
PUBLICATION OF AN AUDIT AND
ASSURANCE POLICY EVERY THREE YEARS
AND AN IMPLEMENTATION
REPORT ANNUALLY
By virtue of the Group’s existing regulatory requirements, a robust audit and assurance
framework and system are already in place. Details of our current audit and assurance
framework and systems are reported externally through the Annual Report and Annual
Performance Report. We welcome further guidance and look forward to publishing our
Audit and Assurance Policy in due course.
STRENGTHENING OF INTERNAL CONTROL
PROVISIONS IN THE 2018 CODE
The Committee oversees the annual review of the Group’s systems, processes and
procedures in order to provide assurance to the Board that the Group’s internal control
systems continue to operate effectively. As such, the Committee noted that there will be
future changes to the 2018 Code which will require a formal statement regarding the
effectiveness of controls and the basis of the assessment that has been completed. The
Group will continue to review any proposed changes in relation to internal control to ensure
compliance to future changes.
PROVISION OF A RESILIENCE STATEMENT
TO REPORT ON MATTERS THAT THE
COMPANY CONSIDERS WILL RESULT IN A
MATERIAL CHALLENGE TO ITS RESILIENCE
OVER THE SHORT AND MEDIUM TERM
Given the existing risk, going concern and viability requirements and disclosures, the Group
is well positioned to address developments relating to the introduction of a formal
Resilience Statement. The Group will continue to comply with current requirements and
will review any amendments to legislation and the 2018 Code to ensure readiness ahead of
changes coming into effect.
REQUIREMENT FOR DIRECTORS TO MAKE
A STATEMENT ON STEPS THE COMPANY
HAS TAKEN TO PREVENT AND DETECT
MATERIAL FRAUD
To ensure the Group has an appropriate and effective fraud risk management framework in
place, during the year an initial review of our existing framework was undertaken. As a
result of the review, minor amendments have been implemented, including training staff to
recognise common forms of bribery and corruption, and ensuring Group Authorisation
Arrangements remain appropriate.
DISCLOSURE AND AUDIT OF
DISTRIBUTABLE RESERVES
INCREASED TRANSPARENCY OVER
EXECUTIVE PAY
We currently disclose the amount of reserves that are distributable and we publish the
Group’s approved Dividend Policy. Once further guidance has been made available, a review
of the reporting requirements will be undertaken and any additional detail relating to
dividends and capital maintenance will be included to ensure compliance.
The Government has proposed changes to the provisions of the 2018 Code, including greater
transparency of the conditions under which Executive pay can be withheld or recovered and
provisions in relation to minimum malus and clawback conditions which should be applied
by remuneration committees. Once guidance has been published, a review of the updated
requirements will be undertaken and the Committee will work alongside the Remuneration
Committee to ensure the necessary disclosures are made.
ENGAGEMENT OF SMALLER CHALLENGER
AUDIT FIRMS TO CONDUCT A MEANINGFUL
PORTION OF SUBSIDIARY AUDITS
We await further guidance on the definition of a ‘meaningful portion’. Once the guidance is
available, an assessment will be undertaken to consider how the appointment of a
challenger audit firm could be implemented and how this might impact our next external
audit tender process, which we anticipate will be conducted no later than 31 March 2024.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
129
GOVERNANCE REPORT AUDIT AND RISK COMMITTEE REPORT CONTINUED
INTERNAL AUDIT
Internal Audit is an independent assurance function available to the Board, Audit and Risk Committee and all levels of management, and is a
key element of the Group’s corporate governance framework.
Support is provided by four main co-sourcing partners: PwC, EY, KPMG and BDO. Co-source 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.
INTERNAL AUDIT PLAN AND ACTIONS
The role of Internal Audit is to provide independent and objective
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.
A three-year strategic audit planning approach is applied, from which
Internal Audit develops an annual risk-based audit plan; this
facilitates an efficient deployment of resource in providing assurance
coverage over time across the whole business. The Committee’s role
is to review and 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.
Once approved by the Committee, regular reporting enables the
Committee to monitor delivery of the audit plan and ensure that
Internal Audit performs its work in accordance with the mandatory
aspects of the International Professional Practice Framework of the
Chartered Institute of Internal Auditors (the ‘CIIA’), with integrity
(honestly, diligently and responsibly) and objectively (without conflicts
of interest).
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. No material weaknesses were
identified during the year. 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.
The Internal Audit function also liaises with the External Auditor,
discussing relevant aspects of their respective activities which
ultimately supports the assurance provided to the Committee
and Board.
EFFECTIVENESS
We undertake an annual review of the effectiveness of the Internal
Audit function in line with the CIIA Internal Audit Code of Practice and
the FRC Guidance on Audit Committees. The CIIA guidance states that
Audit Committees should obtain an independent and objective external
quality assessment at least every five years. However, we consider it
prudent to carry out external effectiveness reviews every three years.
The last external review of the effectiveness of the Internal Audit
function was undertaken in December 2021. The review was carried out
by BDO, which concluded that the Internal Audit function remained fit
for purpose, was operating efficiently and effectively, and in line with
good practice.
BDO’s findings also highlighted clear evidence that the Internal Audit
function operated with strategic alignment, a focus on risk and an
emphasis on quality and continuous improvement, all underpinned
by objectivity and integrity. The minor areas of improvement raised
by BDO have been incorporated into an action plan which was shared
and agreed with the Chair of the Committee. All actions were
completed in line with the proposed timescales.
Taking all these elements into account, the Committee concluded that
the Internal Audit function was an effective provider of assurance
over the Group’s risks and controls, and appropriate resources were
available as required.
INTERNAL CONTROLS AND RISK MANAGEMENT
The 2018 Code sets out requirements in relation to companies’ internal controls and risk management and, as such, throughout the year,
the Committee receives and reviews regular management reports and updates in relation to internal controls and risk management
to assure itself that the processes in place remain effective.
INTERNAL CONTROLS
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. The Committee reviews the Group’s internal control
systems and receives updates on the findings of Internal Audit’s
investigations at every meeting, prior to reporting any significant
matters to the Board, which retains overall responsibility for the
effectiveness of the full suite of internal controls across the Group.
As set out on page 130, the Audit and Risk Committee has oversight of
the Group’s preparations to enact early recommendations that have
arisen from the BEIS consultation on ‘Restoring trust in audit and
corporate governance’. We are fully committed to ensuring that the
Group’s audit and governance arrangements reflect best practice and
address any new requirements within the expected timeframes.
As part of this, during the year a detailed review of the Group’s
systems, processes and procedures was undertaken by the
Committee in order to provide assurance to the Board that the
Group’s internal control systems, including those which cover
financial reporting, continue to operate effectively.
Further to the reports received by the Committee, which set out
the Group’s processes, systems and assurance procedures, the
Committee has concluded that it has complied with its obligations
under the 2018 Code in relation to the assessment of risk and the
monitoring and review of the effectiveness of internal controls and
risk management. The Committee is pleased to confirm that it was
able to provide the Board with assurance that the Group’s internal
control systems and risk management procedures are effective,
efficient and operating as required.
130
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
INTERNAL CONTROLS AND RISK MANAGEMENT CONTINUED
RISK MANAGEMENT
The Group has an ERM 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 and Risk Committee.
The Committee reviews the processes for, and outputs from, the Group’s
ERM activity, 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. The Audit and
Risk Committee is complemented by a Strategic Risk Forum which
assists the Committee in reviewing the risk management system,
internal controls that mitigate risks and undertaking reviews of
assurance risk reports prior to Audit and Risk Committee meetings.
The Central ERM Team also undertook a review of the integration of the
components of the risk framework into Board and Committee reporting,
prior to making a recommendation to the Board.
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 73 to 74.
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 73 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 and online channel, ‘Safecall’.
All investigations are carried out independently with findings being
reported directly to the Audit and Risk Committee.
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
assessing culture, risk and stakeholder engagement. The Audit and
Risk 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.
FAIR, BALANCED AND
UNDERSTANDABLE
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’ (‘FBU’) 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
REGULAR DISCLOSURE
COMMITTEE REVIEW
The Disclosure Committee reviewed the Annual
Report and Accounts throughout the drafting process
and undertook a detailed FBU assessment ahead of
tabling a detailed report to the Audit and Risk
Committee.
2
REGULAR AUDIT AND RISK
COMMITTEE REVIEW
The Audit and Risk Committee reviewed the Annual
Report and Accounts at an early stage, and
throughout the drafting process, to enable sufficient
time for review and comment, and to ensure overall
balance and consistency between the narrative
sections and the financial statements.
The Audit and Risk Committee was supported in its
review by the Disclosure Committee, whose
appraisal of the Annual Report and Accounts is
undertaken by members of the Executive Team who
are not directly involved in drafting any content.
3
INTERNAL AUDIT VERIFICATION
AND OVERSIGHT
Internal Audit reviewed the Annual Report and
Accounts, and oversaw the verification process for
all factual content and reported back to the Audit and
Risk Committee on its assessment findings.
4
FBU ASSESSMENT
The Audit and Risk Committee reviewed and
approved the process in place to support the FBU
assessment and reviewed the findings of this
process. The Audit and Risk Committee was 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 and Accounts.
5
EXTERNAL AUDITOR REVIEW
The External Auditor is required to consider whether
there are any material inconsistencies between
information presented in different sections of the
Annual Report and Accounts, taking into account the
Auditor’s knowledge obtained during the audit and
the Auditor’s understanding of the legal and
regulatory requirements applicable to the narrative.
The External Auditor presented the results of its
audit work. The significant issues the Audit and Risk
Committee considered were consistent with those
identified by the External Auditor in its report (see
pages 168 to 175 for more detail).
6
RECOMMENDATION TO THE BOARD
The Board approved the Audit and Risk Committee’s
recommendations that the FBU statement could be
made in the Annual Report and Accounts. A
declaration to this effect is included within the
Directors’ Responsibility Statement on page 167.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
131
GOVERNANCE REPORT AUDIT AND RISK COMMITTEE REPORT CONTINUED
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.
TENDER AND APPOINTMENT
Following a formal tender process in 2015/16, Deloitte LLP was
reappointed as External Auditor at the 2016 AGM. Following the rule
that the audit engagement partner must change every five years,
Jacqueline Holden became the senior statutory auditor and has
overseen the audit of the Severn Trent Group since 2020/21. Other
senior audit staff also rotate at regular intervals.
The Committee anticipates that the next competitive tender will be
conducted no later than 31 March 2024, in accordance with current
regulation that requires a tender every ten years. Deloitte will not be
able to participate due to mandatory rotation requirements.
EFFECTIVENESS AND COMPETENCE
The Committee considers audit quality to be the principal
requirement of the annual audit process and, as such, a full
effectiveness review is conducted annually. This year, it involved
assessment of the External Auditor by the Committee, key Executives
and relevant senior management, including an evaluation of whether
the External Auditor met the minimum standards of qualification,
independence, expertise, effectiveness and communication. All
members of the Committee, as well as key members of 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, ‘professional scepticism’
of the External Auditor 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.
INDEPENDENCE
The Committee regards independence of the External Auditor as
absolutely crucial in safeguarding the integrity of the audit process
and takes responsibility for ensuring the three-way relationship
between the Committee, the External Auditor and management
remains appropriate.
The Committee recognises that independence is also a key focus for
the External Auditor, and Deloitte has confirmed that it has complied
with its own ethics and independence policies, which are consistent
with the FRC’s Revised Ethical Standard (2019). This includes the
External Auditor’s assurances that all of its partners and staff
involved with the audit are independent of any links to the Group and
that none of its employees working on our audit hold any shares in
Severn Trent Plc.
The proposed tender date is in the best interests of shareholders 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.
– Expertise of the audit team conducting the audit.
– 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
2023, without the External Auditor present. The Committee discussed
the conclusions and any opportunities for improvement, which were
brought to the attention of the External Auditor. The Committee also
considered the outcome of the FRC’s Audit Quality Review into the
External Auditor’s audit of Severn Trent Plc’s financial statements for
the year ended 31 March 2022. No significant issues were reported as
part of either the internal or external review processes, and it was
concluded that the external audit process and services provided by
Deloitte were satisfactory and effective.
Deloitte provides confirmation of independence during the planning
stage of the audit, disclosing matters relating to its independence and
objectivity. There were no independence issues raised in respect of
the 2022/23 audit.
The Committee also develops and recommends to the Board the
Group’s policy on non-audit services and associated fees paid to
Deloitte, to ensure the External Auditor is not providing any additional
services which could impede its independence. You can read more
on this policy on page 133.
STATUTORY AUDITOR REAPPOINTMENT FOR THE YEAR ENDING 31 MARCH 2024
The Committee has recommended to the Board that Deloitte LLP be proposed for reappointment for the year ending 31 March 2024 at the
forthcoming AGM on 6 July 2023. There are no contractual obligations that restrict the Committee’s choice of auditor; the recommendation is
free from third party influence and no auditor liability agreement has been entered into.
132
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
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
FRC’s Revised 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 £1.3 million 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 £0.3 million this year,
which is 23.1% 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 192. 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 whilst
maintaining its objectivity and independence.
Details of audit and non-audit fees and the significant non-audit work
undertaken during the year are set out below.
AUDIT AND NON-AUDIT FEES (£M)
0.3
0.3
0.3
0.6
0.6
0.7
0.1
0.1
Total fees
£1.1m
2020/21
0.2
0.1
Total fees
£1.2m
2021/22
0.2
0.1
Total fees
£1.3m
2022/23
Statutory audit – the Company
Audit-related assurance services
Statutory audit – subsidiaries
Other assurance services
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
This is mainly assurance of the Sustainable Finance Framework allocation report.
SUBTOTAL
TOTAL 2022/23 NON-AUDIT FEES
90
89
179
93
42
135
314
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
133
GOVERNANCE REPORT AUDIT AND RISK 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 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 2023, the provision in the Group’s financial
statements was £135.1 million and the charge for the
year was £24.5 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 severe but plausible scenarios modelled in
relation to the Company’s Principal Risks, noting the stress tests performed by
management and the potential mitigating actions identified.
Our Business Model can be found on pages 4 to 5. Principal Risks and uncertainties
can be found on pages 75 to 78. The Viability Statement can be found on pages 80 to 83
and the Going Concern Statement on page 83.
The Committee challenged management’s assumptions regarding historical cash
collection and the impact of the cost of living pressures on Severn Trent Water’s
customers on the expected credit losses for trade receivables existing at 31 March
2023, noting the independent forecasts of the likely economic impacts and the recent
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
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.
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.
DETERMINATION OF THE AMOUNT OF THE GROUP’S
RETIREMENT BENEFIT OBLIGATIONS
At 31 March 2023, net retirement benefit obligations
amounting to £279.4 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 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.
The Committee scrutinised the assumptions underlying the valuation of the obligations
and obtained explanations for the significant reduction 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 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.
The Committee further considered the accounting treatment for the bulk annuity
buy-in for the Dee Valley Water Section of the Water Companies Pension Scheme and,
in particular, management’s conclusion that this transaction did not represent a
settlement under IAS 19. The Committee noted that the Group retained the legal
obligation to pay the member benefits as they fall due and discussed this conclusion
with the External Auditor.
The Committee determined that no adjustment to the amounts recorded was required.
134
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
TREASURY COMMITTEE REPORT
Dear Shareholder
I am delighted to introduce my first report as
Chair of the Treasury Committee and would
like to convey my thanks to John Coghlan for
his leadership of the Committee over the
previous seven years and for the significant
time he has invested in ensuring a smooth and
effective handover to me.
The Committee continues to oversee the Group’s
funding requirements and financing risks and
opportunities and, in doing so, assists the Board
in the effective discharge of its responsibilities
in relation to treasury management.
The Committee plays a key role in ensuring that
the Group remains in a strong financing position
and, in recognition of the importance of its work,
feedback from the 2021/22 Board evaluation led
to a dedicated ‘teach-in’ session on Treasury
matters being held during the year for Directors
who were not members of the Committee.
Future funding is an important part of the
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 opportunities.
This year the Committee spent a large amount
of time considering the impact of the external
economic environment on the Group, including
the growing cost of energy, the impacts of the
rise in interest rates and increasing inflation, and
the ongoing effects of geopolitical events. The
Committee also continually reviews financial
counterparty risk. Against this tumultuous
backdrop and resulting uncertainty, it was
crucial that the Group continued to develop and
maintain a diverse range of funding sources and
access to a range of global debt markets.
During the year, the Group refinanced £979 million
of its debt and issued £1,351 million of new debt.
The Treasury Team has been active in diversifying
its sources of funds, promoting the Group in new
global markets. This comprehensive activity
ensured that the Group 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 in line with the Group’s
treasury policies.
Of the total debt raised, Severn Trent Water issued
a further £600 million under the European Medium
Term Note Programme, providing cost-effective
liquidity, whilst continuing to maintain diversity in
the Company’s sources of funding. This comprised
a £400 million sustainable GBP fixed-rate bond and
£100 million CPIH debt issue, which provides a
hedge against the Company’s index-linked
revenues and Regulatory Capital Growth (‘RCV’),
and fixed-rate Private Placements totalling
£100 million. In addition, Severn Trent Water raised
a further £350 million through bank loans and
£200 million from US Private Placements.
In common with many other companies, we closely
monitored the volatile energy market during the
year and the effect that the rapid rise of energy
costs was having on inflation. The Group’s Hedging
Policy was reviewed to ensure it remained
appropriate in consideration of market volatility
being observed. In line with its Terms of Reference,
the Committee proposed to the Board that
amendments were made to the Group Authorisation
Arrangements to enable management to act swiftly
in relation to future hedging opportunities.
Sustainable finance remained a core element of the
Group’s funding strategy and an updated
Sustainable Finance Framework was published in
July 2022. The Group closely monitors developments
in sustainable finance through its Sustainable
Finance Committee, which reports to the Treasury
Committee on at least an annual basis.
During the year the Dee Valley Pension Scheme
completed a bulk annuity buy in with Just
Retirement Limited, effectively de-risking the
scheme from future interest rate, inflation and
longevity risk. The UK Gilt market also saw
unprecedented volatility, which affected many
pension schemes. The Treasury Team, with the
oversight of the Treasury Committee, worked
closely with the Trustee of the Severn Trent
Pension Scheme to review its risk management
controls and procedures and ensure continued
liquidity throughout the market volatility.
The annual Board Effectiveness evaluation, which
was conducted internally this year, 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. 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. Further
information about each Committee member is
contained in their individual biographies, which
can be found on pages 104 to 105.
I would like to thank the members of the Committee,
the management team and our debt 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.
Gillian Sheldon
Chair of the Treasury Committee
23 May 2023
Gillian Sheldon
Chair
Effective treasury
management is an
essential contributor to the
successful delivery of the
Group’s Strategy, through
ensuring the Company’s
long-term investment needs
and financial resilience are
maintained throughout the
remainder of the AMP7
regulatory period and into a
high-investment AMP8.
All members of the Committee are
Independent Non-Executive Directors
of the Board. Only members of the
Committee have the right to attend
Committee meetings. Other 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 debt advisers, Rothschild
& Co. None of these attendees are
members of the Committee.
Committee members
Member since
Meetings attended
Documents available at severntrent.com
Gillian Sheldon (Chair from November 2022)
January 2022
Sustainable Finance Framework
Sustainable Bond Allocation Report
Charter of Expectations
Committee Terms of Reference
Kevin Beeston
John Coghlan (Chair to November 2022)
Sarah Legg
Philip Remnant
March 2021
May 2015
November 2022
May 2015 until September 2022
5/5
5/5
5/5
3/3
1/1
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
135
GOVERNANCE REPORT TREASURY COMMITTEE REPORT CONTINUED
KEY AREAS
OF FOCUS IN 2022/23
The Committee provides Board
oversight of the Group’s key financing
risks and opportunities.
– Execution of the Group’s financing
plan and evaluation of funding
opportunities, in consideration of the
external operating environment,
including entering new financial
markets.
– Consideration of the Group’s Liquidity
Policy and confirmation that a
15-month Policy remained
appropriate.
– Review of the Group’s treasury
policies in relation to hedging of
market risks (including energy,
interest rates, inflation and currency),
and financial counterparty credit risk
and credit ratings.
– Annual update of the Group’s
European Medium Term Note
Programme and approval for bonds
to be issued pursuant to that
Programme during the year, including
a £400 million Sterling Bond
completed in November 2022.
– Review of the Group’s Sustainable
Finance Framework and associated
governance.
– Regular review of the Group’s Funding
Strategy, including interest rate
strategy to support the Group in
consistently outperforming the cost
of debt allowance.
The Committee also reviewed and
approved its Terms of Reference, 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.
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.
Sustainable Finance Framework
Our financing strategy recognises that a strong
liquidity position and the availability of
committed funding are essential to meeting
the Group’s objectives and obligations. It is
also imperative that we achieve these aims in
a responsible and sustainable way.
The Sustainable Finance Framework (the
‘Framework’) was first established in 2019 to
enable Severn Trent Plc and its subsidiaries
to raise debt in support of the financing and/or
refinancing of assets and expenditure of a
sustainable nature across the Group’s
activities. The Framework was updated
during the year to align to the latest market
standards.
Under the Framework, we report on a range
of environmental and social impacts resulting
from the investments and the eligible projects
funded by the proceeds. To date, around
£3 billion of finance has been raised under
the Framework and these proceeds have
been allocated to the areas listed below.
Environmental:
– Generating energy from renewable sources
for use on site.
– Reducing Scope 1 and 2 emissions.
– Reducing leakage.
– Increasing biodiversity by planting trees
and ensuring sustainable land and water
resources management practices.
– Improving the quality of our rivers in the
Severn Trent region.
Social:
– Supporting vulnerable customers
struggling to pay their bills.
– Providing free employability training
under our Employability Scheme.
More information on how proceeds from
the Framework have been used to progress
our eligible projects can be found in the
dedicated Allocation Reports on our website.
We are committed to applying the most
up-to-date standards and methodologies to
measure and report on the impact of future
issuances. All reporting under the Framework
is available to investors via our website in line
with the reporting requirements.
Ahead of the updated Framework being
published, independent assessors, DNV,
provided a Second Party Opinion on the
accuracy and integrity of the Framework to
give investors confidence that the Framework
was aligned to accepted market principles. A
copy of DNV’s opinion confirming the
Framework’s compliance with the required
standards and protocols can also be found on
our website.
136
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
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read more
CORPORATE SUSTAINABILITY COMMITTEE REPORT
Dear Shareholder
I am delighted to introduce my second report
as Chair of the Corporate Sustainability
Committee. The following pages describe the
activities of the Committee and provide an
overview of the topics addressed during
the year.
The Corporate Sustainability Committee has a
key role in supporting the Board by providing
guidance and direction on the Company’s
sustainability ambitions. The Committee
provides Board oversight for elements of the
Group’s Strategy that relate to the environment
and also social and economic priorities in
accordance with the Company’s Sustainability
Framework, ensuring the Company can
demonstrate that it lives through its Purpose
and Values, and acts responsibly in its
engagement with all stakeholders.
Sitting alongside me on the Committee are
Christine Hodgson, Sharmila Nebhrajani and
Sarah Legg, and Liv Garfield attends each
meeting, with an open invitation, to bring the
benefit of her expertise in sustainability
matters. Our collective experience and
capability lead to insightful and passionate
debate around a wide range of existing and
emerging sustainability topics. The
Committee’s discussion is then presented to
the Board at the beginning of every meeting to
ensure that its oversight of Environmental,
Social and Governance (‘ESG’) matters
remains strategic, current and effective.
I would like to extend a personal welcome
to Sarah Legg, who joined the Board as an
Independent Non-Executive Director from
1 November 2022 and as a member of the
Corporate Sustainability Committee. In
addition to a strong financial background,
Sarah has a wide range of experience having
been heavily involved in community work and
diversity initiatives during her career. I know
that sustainability is a topic of particular
interest to her and we are delighted to have
her as a member.
Following the refresh of the Group’s Strategy,
the Committee reviewed and approved its
Terms of Reference during the year before
getting the approval of the Board. In its review,
the Committee concluded that the Terms of
Reference remained appropriate and reflected
the manner in which the Committee was
discharging its duties. Additional duties were
introduced to strengthen the role of the
Committee in advising the Severn Trent Plc
Remuneration Committee on the Group’s
performance against sustainability metrics
and on the setting of sustainability-related
targets.
READ MORE: OUR CORPORATE STRATEGY
See pages 2 to 3
Global sustainability agenda
The turbulence of the last year has led to many
of the long-term challenges around
sustainability being accelerated. From a
climate resilience perspective, we have seen
extremes from across the globe that bring into
sharp focus the real-life impact behind the
climate science, such as water scarcity,
extreme heat and rainfall intensity. At the
same time, geopolitical unrest has created
unprecedented supply pressures, and
subsequent price volatility across a range of
commodities, including energy and chemicals.
These have created significant cost pressures
for both businesses and individual households,
our customers. Inflationary increases are
putting pressure on household income, further
exacerbated by interest rate rises, recession,
and potential job losses.
While the evidence continues to build that
systemic change is needed to address these
issues that the world is facing, there are
divided opinions on how change should happen
and who should deliver it. Severn Trent
continues to take a pragmatic approach,
maintaining a balance between the needs of our
stakeholders, the drive for sustainable change
and the needs of the communities we serve.
Tom Delay
Chair
Sustainability is not a new
or separate direction for
us. Our drive to deliver
outstanding performance
in a way that has a positive
sustainable impact is what
makes Severn Trent so
unique, guiding our purpose
of ‘taking care of one of life’s
essentials’.
All members of the Committee are
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 Director
of Human Resources and other senior
management and external advisers, may
be invited to attend meetings as and when
appropriate. None of these attendees are
members of the Committee.
Documents available at severntrent.com
Committee members
Member since
Meetings attended
Anti-Slavery and Human Trafficking Statement
Tom Delay (Chair)
Charter of Expectations
Sustainability Report
Committee Terms of Reference
Sustainable Supply Chain Charter
Christine Hodgson
Sharmila Nebhrajani
Sarah Legg
January 2022
January 2020
May 2020
November 2022
5/5
5/5
5/5
3/3
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
137
GOVERNANCE REPORT CORPORATE SUSTAINABILITY COMMITTEE REPORT CONTINUED
Sustainability led culture
Sustainability is not a new or separate direction
for us. Acting in a responsible manner is
integral to our Purpose of ‘taking care of one of
life’s essentials’ and our culture reflects the
social challenges that we face. We developed
our Sustainability Framework to draw together
our ESG ambitions, which form an integral part
of our business plan that is deeply embedded
within the organisation. 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 ESG indices. You can read
more in our standalone Sustainability Report,
which will be available on the Severn Trent Plc
website in June.
The Group’s Remuneration Policy is designed
with all stakeholders in mind and incentivise
service delivery for our customers, society and
the environment.
In 2021, the Company agreed the development
of sustainability performance measures in the
Long-Term Incentive Plan (‘LTIP’) with a
weighting of 20%. In March 2022, we
announced our commitment to ‘Get River
Positive’ and directly linked our river pledges
to our remuneration structures through
including them in our Annual Bonus Plan for
2022/23. This year, the Board approved two
new equally-weighted carbon measures for
the 2023-26 LTIP aligning more closely to
internationally recognised mechanisms such
as the Science Based Target Initiatives for
Scope 1, 2 and 3. These are: ‘Direct
Contributors to Carbon Reduction’ and
‘Innovation and Engagement for Carbon
Reduction’. For the 2023 award, each of these
has two components.
Our culture ensures that we care about our
customers and the broader communities that
we serve. Many of our people live in these
communities, which is why we are so
committed to our new Societal strategy
announced in November 2022. Our ambitious
ten-year plan aims to address the underlying
causes of poverty across the Midlands in a
landmark scheme designed to help 100,000
people out of poverty. The scheme supports
more people to help themselves and improve
their life chances, through initiatives such as
work experience, training and employability
skills development, partnerships, mentoring
and more.
READ MORE: SOCIETAL STRATEGY
See pages 32
This year we continued to test, at scale, how
innovation can drive the reduction of our
carbon footprint. Recognising the importance
of early action, we recently announced an
exciting partnership with Melbourne Water and
Aarhus Vand Partners, working collaboratively
to develop and test technologies that could
reduce the carbon footprint of waste water
treatment sites, share existing expertise, and
establish new international standards for
measuring and reporting emissions. This joint
commitment looks to reduce carbon emissions
by over a million tonnes and aims to lead the
green transformation of the sector. I am
encouraged by this collaborative approach
to support our transition to net zero and embed
circular economy principles so we can
maximise the value from the material that is in
our waste.
READ MORE: REMUNERATION
READ MORE: CASE STUDY
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 is proud of the Company’s
many achievements over the last year,
described within the Strategic Report on pages
2 to 99, and the work we have undertaken to
positively impact communities within our
region. Further detail on key matters,
ambitions and achievements that the
Committee has considered during the year are
set out on the pages that follow, in addition
to the areas of focus for 2023/24.
The increasing focus of stakeholders on the
impact of climate change and other
environmental issues has become evident in
the Committee’s workload. The Corporate
Sustainability Committee plays a key role in
the governance of environmental and
climate-related reporting, including
overseeing, in conjunction with the Audit and
Risk Committee and supported by independent
third-line assurance by Jacobs, the Group’s
TCFD disclosure.
I would 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.
Tom Delay
Chair of the Corporate Sustainability
Committee
23 May 2023
See pages 159
More information on how our
Sustainability Framework and
employee rewards are linked can
be found on page 157 of the
Directors’ Remuneration Report.
See pages 139
The Committee recognises that our
sustainability ambitions are deeply rooted and
owned across the whole Company. We are
proud that our affordability approach won ESG
Initiative of the Year at the Corporate
Governance Institute Awards 2022, and were
delighted to have been placed 58th by Corporate
Knights as one of the world’s most sustainable
companies. In August 2022, we also achieved
the ‘Advancing’ tier of Carbon Trust Route to Net
Zero, a new certification that we piloted last
year. These achievements underline our
commiment to delivering excellence on the
sustainability agenda. The Committee has a
clear view of the focus areas for our
sustainability journey, and both the Committee
and Board are confident that we have the right
aims and approach in place.
138
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
OUR TCFD
DISCLOSURE
We are committed to the
recommendations of the Task Force on
Climate-related Financial Disclosures
(‘TCFD’), providing our stakeholders with
transparent information on climate-
related risks and opportunities that are
relevant to our business.
Our fifth TCFD disclosure can be found on
pages 39 to 56.
Human rights and modern slavery
We are committed to protecting the human
rights of our employees and contractors, as
outlined 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 a range of Group policies on Human
Resources, Anti-Bribery and Anti-Fraud,
Whistleblowing (‘Speak Up’) and
Procurement, as well as a Modern Slavery
Escalation and Remediation Policy and a
separate Anti-Slavery and Human Trafficking
Statement. We consider this approach goes
above and beyond a human rights policy.
Additionally, our Group policies are well
embedded across the Group.
NET ZERO HUB AT
STRONGFORD
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Process emissions contribute significantly
to our reduction challenge, accounting for
around 83% of operational emissions. We
aim to convert a large number of our sites to
low carbon works, necessitating scale
deployment of new technologies and
alternative processes to reduce our process
emissions. Our first pilot project in this area
is to deliver a Net Zero hub at Strongford,
working in partnership with others in the UK
and internationally. Proving the value of this
concept now will provide the basis for wider
roll-out across our region in coming years.
We know modern slavery is a growing global
issue and our customers and other
stakeholders share our concern, which is why
we remain fully committed to protect against
modern slavery in our business and supply
chain. Our highest risk is within our supply
chain and, as such, we work closely with our
suppliers to ensure they operate to the same
standards we set ourselves and ensure the
risks involved in their own supply chains are
understood and mitigated. All suppliers are
required to sign up and operate in line with
our Code of Conduct, which clearly sets out a
zero-tolerance approach to modern slavery,
and this requirement is built into our
procurement tender process.
Our commitment to training colleagues, senior
managers and Board members remains as
strong as ever, and our partnerships with
Slave-Free Alliance, the Supply Chain
Sustainability School and Utilities Against
Slavery help support this. We provide our
employees with access to a wide range of
learning resources, including dedicated
modern slavery awareness training for
all organisations within the Group’s supply
chain. Our full Anti-Slavery and Human
Trafficking Statement can be found on the
Severn Trent Plc website.
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 their views are
taken into account.
Responsible business practices are an integral
part of our business strategy. Performance
against our sustainability commitments is
reported throughout our Annual Report and
Accounts, reflecting their embedded nature in
our Governance Framework. You can read
more in our standalone Sustainability Report
and on our dedicated sustainability webpages,
which will be available on the Severn Trent Plc
website in June.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
139
GOVERNANCE REPORT CORPORATE SUSTAINABILITY COMMITTEE REPORT CONTINUED
KEY AREAS OF FOCUS AGAINST OUR
SUSTAINABILITY FRAMEWORK IN 2022/23
COMMITTEE ACTIVITIES DURING 2022/23
SUSTAINABILITY ACHIEVEMENTS DURING 2022/23
LOOKING AHEAD TO 2023/24
TAKING CARE OF THE ENVIRONMENT
– Enhancing our natural environment
– Mitigating and adapting to climate change
– Oversaw environmental initiatives, including
mitigating climate change through our Triple
Carbon Pledge and Science-Based Targets.
– Agreed the approach to the Scope 3
Science-Based Target relating to supplier
engagement and monitored its progress.
– Reviewed the Group’s Modern Slavery
Statement (the ‘Statement’), including an
updated risk assessment ahead of
recommending the Statement for
approval by the Board.
– Agreed the approach to our TCFD disclosure
and updated our Net Zero Transition Plan.
– Oversaw publication of our Sustainability
Report.
– Ensuring a sustainable water cycle
– Making the most of our resources
– Launched Get River Positive in 2021/22
whereby we agreed our river pledges.
– Published our Biodiversity Strategy, SSSI
Strategy and Strategy for Pollinators.
– Delivered 7,728 hectares of biodiversity
improvements during the year.
– Planted more than 227,000 trees.
– Added more electric vehicles to our fleet,
with 36% of company cars and 1% of company
vans now electric.
– Partnership with the Birmingham 2022
Commonwealth Games as Official Nature
and Carbon Neutral Partner.
– Launched our ‘Regenerative Farming
Pathway’ in May 2022 supporting others to
improve and care for rivers, building on our
successful Farming for Water programme.
– Publish a short statement in the 2023
Sustainability Report of our intention
regarding the Taskforce on Nature-related
Financial Disclosures (‘TNFD’).
– Update our greenhouse gas reporting and
Net Zero Transition Plan following
substantive updates to national and
international guidance.
– Review our wider Sustainability Report
in light of the soon to be published
Sustainability Standards Disclosure.
– Review our land strategy.
– Inclusion of key sustainability performance
targets within PR24 plans.
– Evolution of Scope 3 Strategy.
– Further progression of delivery against
our Net Zero Transition Plan.
– Achieved Carbon Trust Route to Net Zero
– Consolidation of our approach to climate
Standard (Advancing Tier).
adaptation.
– Ranked 58th in Corporate Knights’ global list of
the 100 most sustainable organisations of 2023.
HELPING PEOPLE TO THRIVE
– Making a positive difference in the community
– Delivering an affordable service for everyone
– Investing in skills and knowledge
– Providing a fair, inclusive and safe place to work
– Engaged with Business in the Community,
– Launched our ‘Affordability Strategy’ in May
which provided external insight into
emerging social inequality trends and
challenges.
2022.
– Launched our ‘Societal Strategy’ in
November 2022.
– Reviewed the Severn Trent Community
– Awarded over £2 million to 116 Community
Fund’s progress since its launch in early
2020.
– Discussed our diversity and inclusion
ambition and priorities for the next part of our
journey. Read more about our Diversity and
Inclusion Advisory Groups on pages 26 and 27.
Fund projects through the year.
– Supported 132,296 of our customers in need
of financial support through our Big
Difference Scheme.
– 22,714 learners and over 765 events hosted
at our Academy during the year.
– Continued support for our affordability
schemes during the cost of living crisis.
– Greater level of customer insight to provide
understanding of how we can best support
their needs.
– Build on our Societal Strategy work,
by working closely with schools and
communities in hot spot areas.
– Leverage more support from partnerships.
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
– Ensure our PR24 submission reflects the
growing needs of all our stakeholders.
– Reviewed sustainability performance
– 97% of supplier payments paid within 60
days, with an average time to pay of 31 days.
– 100% of our contracted suppliers have signed
up to our Sustainable Supply Chain Charter.
– 89 suppliers signed up to EcoVadis, our
online Sustainability Assessment Platform.
– 100% of our suppliers’ employees working on
our contracts are paid the real Living Wage.
– Review alignment to EU Taxonomy.
reports – a quarterly update on all strategic
elements to monitor our progress.
– 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 75
to 78.
– Approved the approach to sustainability
reporting to ensure that the sustainability
ambitions we have embedded in our wider
organisation strategy are shared with
stakeholders.
– Approval of the Committee’s Terms of
Reference, along with a discussion on
the purpose and expected remit of
the Committee.
– Reviewed the Group’s Governance Strategy
ahead of recommending the Strategy for
approval by the Board.
140
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
DIRECTORS’ REMUNERATION REPORT
Quick Links
Chair’s Letter
Remuneration at a Glance
Remuneration for the Year in Review
Summary of Remuneration Policy and Implementation
Company Remuneration at Severn Trent
Committee Governance
Annual Report on Remuneration
Page
141
145
146
149
152
158
160
Sharmila Nebhrajani
Chair
The Committee is fully
aware of the unique nature
of our business, being
both a regional monopoly
and an essential public
service. We strive to ensure
management is held to
account through setting
stretching targets and
assessing performance in
the round and over time,
with incentives that can
only be achieved through
the delivery of value for
our stakeholders.
All members of the Committee are
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 Director
of Human Resources, the Chief Financial
Officer, other senior management and
external advisers, may be invited to
attend meetings as and when appropriate.
None of these attendees are members
of the Committee.
Documents available at severntrent.com
Gender and Ethnicity Pay Gap Report
Remuneration Policy
Charter of Expectations
Committee Terms of Reference
Dear Shareholder
I am delighted to present my first Directors’
Remuneration Report as Chair of the
Remuneration Committee (the ‘Committee’). I
joined the Severn Trent Board in May 2020 and
took over as Chair of the Committee from
Philip Remnant in December 2022. On behalf of
the Committee, I am pleased to provide an
overview of both Executive Director and wider
workforce remuneration for the financial year
ended 31 March 2023.
Over the next few pages, I set out how we
are actively addressing and factoring in
stakeholder expectations into our approach
to Executive pay, for the benefit of our
customers, colleagues, communities and
shareholders alike.
REMUNERATION
DESIGNED WITH
STAKEHOLDERS
IN MIND
OUR STAKEHOLDERS
Shareholders
and investors
Customers
Communities
Suppliers and
contractors
Colleagues
Regulators and
Government
Committee members
Sharmila Nebhrajani
(Chair from December 2022)
Philip Remnant
(Chair from March 2015 to November 2022)
Kevin Beeston
Christine Hodgson
Gillian Sheldon
In this letter, as well as setting out
performance for the year under review and
remuneration decisions for the year ahead, I
focus on how the Committee takes into account
broader stakeholder views when setting and
determining our remuneration policy,
structure and outcomes.
We are in no doubt that the issue of Executive
pay has struck a powerful chord with the
public and is understandably under scrutiny.
There is also no doubt that water companies
need to acknowledge this as a totemic issue
and demonstrate robust principles and
decision making on Executive pay.
Our Remuneration Policy is designed to
deliver balanced outcomes for our
stakeholders, driving long-term sustainable
performance for the benefit of all groups.
In overseeing remuneration outcomes, the
Committee ensures that performance is
assessed in the round and over time through
a number of lenses, incorporating a variety
of stakeholder perspectives. Page 148
provides more detail about how the
Committee reviewed the formulaic bonus
and Long-Term Incentive Plan (‘LTIP’)
outcomes for 2022/23, taking into account
broader aspects of the Company’s
performance.
Looking beyond the year in review, the
Committee always considers the impact
on broader stakeholder groups when
making decisions on remuneration. The
table overleaf shows the principles on which
our Remuneration Policy is built to ensure
stakeholders are considered.
Member since
Meetings attended
September 2021
March 2014 until
November 2022
November 2016
January 2020
September 2022
5/5
3/3
5/5
5/5
3/3
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
141
GOVERNANCE REPORT Stakeholders who
benefit
DIRECTORS’ REMUNERATION REPORT CONTINUED
REMUNERATION DESIGNED
WITH STAKEHOLDERS IN MIND
Remuneration
Principle
Strong
alignment of
remuneration
Health and
safety
Focus on
long-term
performance
How applied
– All of our people share in our success by participating in our all-employee bonus plan, ensuring employees are aligned with the
same measures and rewarded for achieving our key objectives.
– The Company has real Living Wage employer accreditation and reviews salaries in this context.
– As of April 2022, Executive Director employer pension contributions are fully aligned to those of the wider workforce.
– All employees can participate in the Save As You Earn scheme, Sharesave, which attracts significant take-up rates with 73.4%
of employees actively participating.
– All employees are eligible to participate in our flexible benefits scheme, which we believe is one of the best in the industry and
is designed to support all aspects of physical, mental and financial wellbeing. See page 24 for our range of benefits.
– We take our commitment to keeping our employees safe and well very seriously and as a result we set stretching targets for
this via a Lost Time Incidents (‘LTI’) measure which comprises 8% of the annual bonus.
– In 2022/23, the Company delivered its best ever health and safety performance, with a world-leading LTI rate of 0.11.
– 50% of Executive Directors’ annual bonuses are awarded in shares that are deferred for three years and 100% of the LTIP is
awarded in shares, which are subject to a two-year holding period post-vesting.
– All of the Company’s incentive scheme rules contain malus and clawback provisions, allowing the Committee to reduce or
recoup any past incentive payments from individual Executives if we later learn of information that was material to the
incentive scheme outcome after the time of the award. Use of deferral mechanisms aids our ability to operate malus and
clawback as required, though neither have been deemed necessary to date.
– Post-cessation shareholding requirements were introduced as part of the 2021 Remuneration Policy (the ‘Policy’) to reinforce
the importance of sustainable long-term performance.
Proportionate
base pay
– The Committee regularly assesses the position of base pay against other water and sewerage companies (‘WaSCs’) and
similar listed companies with benchmark data provided by our external remuneration advisers, PricewaterhouseCoopers
LLP (‘PwC’).
– Cumulative Chief Executive Officer (‘CEO’) and Chief Financial Officer (‘CFO’) pay increases have been below both inflation
every year since appointment and the cumulative increases applied to the wider workforce during the same period.
– Three-quarters of potential CEO pay is variable in nature (see chart below), based on stretching targets that are reviewed
annually by the Committee.
Assessment
of
performance
in the round
Stretching
targets
Focus on the
environment
– When determining Executive pay outcomes, we do not simply follow the formulaic outcome of each performance measure but
also undertake a thorough assessment of ‘performance in the round’ through several lenses. This assessment examines
whether formulaic outcomes are appropriate in the context of overall business performance and service delivery for
customers, the environment and wider stakeholders.
– ‘Performance in the round’ is also assessed by an independent market assessment report prepared for the Committee by PwC.
– LTIP maximum outturn can only be achieved if Severn Trent’s Return on Regulated Equity (‘RoRE’) performance is upper
quartile (‘UQ’) relative to other WaSCs.
– We set stretching targets on the profitability component of the Annual Bonus Scheme (‘ABS’), and the degree of stretch is
shown by the fact that the overall outturn for this measure has only paid out once in full during AMP6 and AMP7.
– Customer Outcome Delivery Incentives (‘ODI‘) bonus measures are split into three buckets to ensure the Company focuses on
performing well across all measures, rather than prioritising a few. The Committee’s insistence on stretching targets means
that we have not paid out the maximum possible bonus during AMP7 to date, despite delivering sector-leading ODI
performance.
– In 2021, we introduced a sustainability-based performance measure within the LTIP, with a weighting of 20%, with targets
aligned to our Triple Carbon Pledge.
– In 2022, we created a specific section of the annual bonus for measures and targets linked to river health equating to 8% of the
total bonus. This took the overall the weighting of environmental measures from 12% to 20%.
– In 2023/24, the weighting of environmental measures in the bonus has been increased again from 20% to 30%. This was done
primarily by increasing the river health weighting from 8% to 12%, and introducing a new EPA 4* measure worth 5%.
Stakeholders key
Customers
Colleagues
Communities
Shareholder and investors
Suppliers and contractors
Regulators and Government
MAXIMUM CEO PAY UNDER THE REMUNERATION
POLICY
Fixed
27%
Salary
23%
Pension/
benefits
4%
LTIP
46%
Bonus
27%
Performance related
73%
142
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Performance for
the year under review
This year has been a challenging one for most
businesses in the UK, and Severn Trent is no
exception. Rising energy and chemical costs,
coupled with one of the hottest summers on
record, has tested the Company both
financially and operationally. Notwithstanding
the challenging backdrop, the Company has
delivered a resilient set of results and
maintained its focus on delivering for
customers, caring for communities and
colleagues, and nurturing the environment.
There can be no doubt that the cost of living
crisis has affected many employees. The
Committee was pleased to see the Company
continuing to prioritise its duty of care to
employees throughout the year. As well as
being a real Living Wage employer, employees
have access to a wide range of services and
benefits designed to take care of all aspects of
wellbeing; physical, mental and financial. For
more details of how we are helping colleagues
through the cost of living crisis, see the case
study on page 157.
2022/23 bonus outcome
A consistent bonus design is operated
throughout the organisation. When
implementing the 2022/23 scheme, the
Committee determined that it would continue to
use the measures and weightings agreed with
shareholders. Page 146 sets out details of the
2022/23 annual bonus outturn, which will pay
out at 38.5% of maximum opportunity,
compared to 81% in 2021/22. The payout for
2022/23 is equivalent to 46.2% of salary for both
the CEO and CFO, versus 97.2% in 2021/22. The
lower outturn is driven largely by lower
performance against the PBIT measure,
reflecting a significantly tougher operating
environment, particularly the impact of higher
energy and chemical costs. Whilst the overall
outcome of our Customer and Environment ODI
measures is below target and lower than last
year, c.80% of measures are green, and we
performed well against our health and safety
targets, with a formulaic outcome just below
maximum performance. 2022/23 was the first
year of operation of our river health bonus
measure and we achieved full vesting following
excellent performance against our reduction in
Combined Sewer Overflows (‘CSO’) activations
and reduction in Reasons for Not Achieving
Good Status (‘RNAGS’) targets.
LTIP vesting
The standard element of the 2020 LTIP
award measures the Company’s performance
against RoRE set by Ofwat’s Final
Determination (‘FD’). Over the three-year
performance period of the 2020 LTIP, the
Company achieved a RoRE of 1.95x against the
target of 1.39x the base RoRE return.
This results in full vesting of the standard
element of the 2020 LTIP award, which is
equivalent to 75% of maximum for the
total 2020 LTIP award for the CEO, and 66.7%
of maximum for the CFO. The Committee has
reviewed the vesting of the award to consider
potential windfall gains and concluded that,
subject to final share price on vesting, there
has not been any windfall gain. For more
details on how the Committee assessed this,
please see page 148.
Vesting under the UQ element of the 2019 LTIP
award was only known at the end of July 2022
when comparable statistics for the other WaSCs
were published. This meant that the LTIP single
figure value reported for 2021/22 did not include
the UQ element of the 2019 LTIP award. We
now know that Severn Trent achieved UQ
performance, and therefore the UQ element of
the 2019 LTIP award is included in the 2022/23
single figure for the CEO and CFO.
Assessment of performance
in the round
In overseeing remuneration outcomes, the
Committee ensures that performance is
assessed in the round through a number of
lenses, to incorporate a variety of stakeholder
perspectives. This assessment examines
whether formulaic incentive outcomes are
appropriate in the context of overall business
performance for customers, the environment
and wider stakeholders. It also considers other
factors, including regulatory investigations,
environmental compliance beyond the
measures contained in the incentive schemes,
health and safety performance, treatment of
the wider workforce and societal matters
such as support for our local communities.
We have demonstrated again this year that we
are one of the sector’s leading performers:
– We are highly confident in achieving EPA 4*
in the Environment Agency’s annual
assessment for the fourth consecutive year.
– c.80% of our ODI measures are green,
including those that measure leakage,
pollutions and water quality complaints.
– In November 2022 we launched our Societal
Strategy, with the objective of helping up to
100,000 people in our region, giving them
improved chances in life and tackling the
underlying causes of poverty.
Further detail on the Committee’s assessment
of performance in the round is set out on page
148.
Following the Committee’s assessment of
these factors in the performance in the round,
no discretion has been exercised to override
the formulaic outturn of either the 2022/23
annual bonus or the standard element of the
2020 LTIP award.
The Committee believes that the outcomes
of the annual bonus and LTIP are both
appropriate and reflective of the Company’s
broader performance over their respective
performance periods, and that the Policy
has operated as intended.
Remuneration for the year ahead
The Committee considers all elements of
Executive Director pay as well as reviewing
wider workforce implications. Looking ahead
to 2023/24, the Committee has made the
following decisions for the coming year:
Base salaries and fees
The Executive Director base salaries, Chair’s
fee, and Non-Executive Director base fees will
increase by 3.0% in July 2023. Although
negotiations with our Trade Unions for the
wider workforce pay increase are ongoing
at the time of publication, these rises are
less than half of the current offer that has
been tabled.
2023/24 bonus
Over the last year the focus on environmental
performance of water companies has
intensified, particularly in relation to how it
links to Executive pay outcomes. Whilst the
Committee is confident that we already have
strong links between environmental
performance and pay, with 20% of the existing
annual bonus linked to environmental
measures, we believe it is appropriate to go
further and make the link between
environmental performance and remuneration
even stronger and more direct.
In April 2023, the Committee approved an
increase to the weighting of the river health
element from 8% to 12% and the creation of a
specific section of the annual bonus for the 4*
Environmental Performance Assessment
(‘EPA’) rating equating to 5% of the total. This
means that, from 2023/24, 30% of the annual
bonus will be linked to measures relating
specifically to environmental measures and
river health.
The Committee shared these proposals with
30 of our largest shareholders, which are
aligned with the Policy and will apply to our
bonus structure from the 2023/24 financial
year onwards. More detail can be found on
page 157.
The maximum bonus opportunity will be 120%
of salary for the Executive Directors, with
performance conditions continuing to be
consistent throughout the organisation.
2023 LTIP grant
The Committee has determined to make the
grant on the normal timetable and to retain the
existing RoRE and sustainability performance
elements, with updated measures and targets
for the sustainability element (see box on the
next page, and page 151). In April 2023, we
shared these proposals with 30 of our largest
shareholders to inform them of the evolution of
the sustainability measures. These changes
are within the remit of the current Policy,
which will be reviewed and tabled for
shareholder approval at the 2024 AGM.
The Committee will assess the value of the
2023 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.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
143
GOVERNANCE REPORT
DIRECTORS’ REMUNERATION REPORT CONTINUED
Board changes
In February 2023, Severn Trent announced
James Bowling’s intention to retire as CFO and
Executive Director. James has been
instrumental in driving the success of Severn
Trent since his appointment in 2015, and I know
how much the Board and wider Company have
valued his experience and counsel over the
last eight years. I’d like to thank James on
behalf of the Committee, and I wish him well
for the future.
It was also announced that, following a
rigorous internal and external search and
selection process, our Capital and Commercial
Services Director Helen Miles would succeed
James as CFO. Helen was appointed as
Executive Director of the Company on 1 April
2023, with the title of CFO Designate. James
will remain an Executive Director and the CFO
until the conclusion of the AGM on 6 July, at
which point Helen, having completed a full
handover process, will take on the
responsibility. The Committee has determined
that James will leave with ‘good leaver’ status,
and is being treated in line with the Policy, as
set out in more detail on page 151. The
Committee considered the status of ongoing
regulatory investigations and noted its ability
to exercise its powers of malus and clawback if
appropriate, once concluded.
Helen has been appointed on a salary of
£480,000, and her wider remuneration package
is in line with that of her predecessor, and the
shareholder-approved Policy. Helen is a CFO
of exceptional calibre, with a detailed
understanding of the water sector, and I am
delighted that she was appointed as James’
successor.
Further detail on implementation of
remuneration for all Executive Directors for
2023/24 can be found on pages 149 to 150.
We remain committed to maintaining an
ongoing and transparent dialogue with our
major shareholders and we will actively
engage with each of them individually as the
formal Policy review commences later in 2023.
I hope that we can rely on your vote in support
of our approach to remuneration. If you would
like to discuss any aspect of this Report, I
would be happy to hear from you. You can
contact me through our Group Company
Secretary.
Sharmila Nebhrajani OBE
Chair of the Remuneration Committee
LTIP sustainability
As part of the 2021 Policy, we introduced a
sustainability-based performance measure
within the LTIP, with a weighting of 20%. The
first LTIP awards with this measure were
granted in June 2021.
Our LTIP sustainability framework
focuses on two equally weighted areas,
‘Direct Contributors to Carbon Reduction’
and ‘Innovation and Engagement for Carbon
Reduction’, and for the 2023 award each
of these measures has two components,
as follows:
Direct Contributors
to Carbon Reduction
Scope 1 & 2 reduction
A Scope 1 & 2 reduction target is a
natural evolution from measuring
process emissions to delivering actual
reduction. It continues the activity
previously incentivised through the LTIP,
including improving emissions
measurement and electric or low-carbon
vehicles. These actions and subsequent
reductions will directly contribute
towards our committed 46% reduction
Science-Based Target (‘SBT’).
Self-generation of renewable energy
In light of the renewed ambition to push
further on renewable energy investment
for both economic, resilience and
environmental purposes, this measure
remains a fundamental driver of our
credible carbon reduction journey.
Innovation and Engagement
for Carbon Reduction
Roll-out of Net Zero hub
Process emissions contribute
significantly to our reduction challenge,
accounting for around 80% of operational
emissions. Our aim is to turn a large
number of our sites into net zero works,
which will require new technologies and
alternative processes.
We have made a commitment to deliver
a Net Zero hub at one of our largest sites
as a pilot project. The successful delivery
of this will underpin the future roadmap
to Net Zero by 2030 for the business and
will lead the sector in delivery of scale
improvements in process emissions in
AMP8 and beyond.
Scope 3 supply chain engagement
Aligned to our own SBT, we have
committed to engage a percentage of
our suppliers to have set a SBT
themselves by 2026. This engagement
target for the supply chain is a key staging
post on the journey to set that reduction
pathway by 2026.
For more detail on these measures,
see page 151
144
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
KEY AREAS
OF FOCUS IN 2022/23
Our workforce
– Considered Severn Trent Plc’s 2022
gender and ethnicity pay gap statistics.
– Approved the outturn of the 2021/22
all-employee Annual Bonus Scheme.
– Reviewed and approved the 2022/23
all-employee Annual Bonus 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 the 2023/24 all-employee
annual bonus structure.
Executive and senior management
– Approved the outturn of the LTIP
awards granted in July 2019.
– Reviewed and approved the LTIP
awards granted in July 2022.
– Considered the structure of the LTIP
award to be granted in 2023.
– Reviewed and approved the
remuneration package for Helen Miles,
CFO Designate.
– Reviewed and approved the
remuneration package for Steph Cawley,
Director of Customer Operations.
– Reviewed and approved the remuneration
package for Hannah Woodall-Pagan,
Group Company Secretary.
– Reviewed and approved the leaver
treatment for James Bowling, CFO.
Committee governance
– Reviewed and approved the 2021/22
Directors’ Remuneration Report
and agreed the framework for the
2022/23 Report.
– Considered Severn Trent’s 2021/22
reward and performance alignment
compared with WaSC peers.
– Considered an independent update,
provided by PwC, on current market
practice and future remuneration trends.
– Reviewed the expenses claim
procedure for the Chair and CEO.
– Reviewed and approved the Committee’s
Terms of Reference, 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.
REMUNERATION AT A GLANCE
Strategic alignment of remuneration
The approach to remuneration across the
Group is to ensure all our employees are
rewarded and incentivised to deliver Severn
Trent’s performance driven, sustainability-led
strategy. Delivering against this Strategy is
critical to the creation of long-term value for
our stakeholders: customers, communities,
employees, shareholders, suppliers and
contractors, and our regulators.
In determining the right performance
measures for our incentive plans, the
Committee seeks to strike a balance between
short- and long-term financial, operational
and sustainability goals. As we are a long-term
business, actions taken in a single year flow
through to longer-term performance. We
operate an Annual Bonus Scheme across the
Group, which reflects our belief that all our
employees play a part in the creation of value
for our stakeholders.
The diagrams below illustrate the
performance measures that we use within our
incentives and explain how the measures,
together with the overall structure of
incentives, help deliver the Group’s financial,
operational and sustainability goals.
O U R PURPOSE
OUTC
O
M
E
S
Performance
driven,
sustainability
led
E
G
HA N
C
P
E
O
T
A
K
I
N
P
LE
G C
A
RE OF ONE OF L I F E ’ S E
N
S
E
R
A TU
N TIALS
E
S
2023/24 annual bonus plan
LTIP
Underlying profit is a key measure of shareholder value.
Group
PBIT
40%
A significant proportion of ODIs relates to the service
we provide to our customers and supports alignment
with customer focus. Our ODIs are grouped into three
categories. To achieve the maximum outtum for this
section of the bonus requires outperformance
across all three categories, thereby ensuring
strategic focus across all customer
and environmental performance indicators.
Customer and
Environment ODIs
35%
Our five river pledges focus on what is most pertinent
to stakeholders, namely reducing the impact of our
operations on river health, helping others reduce
their impact, and increasing opportunities for people
in our region to enjoy our waterways.
We are committed to achieving the industry-leading
4* EPA status.
River Health
12%
EPA 5%
Health and Safety
8%
Deferral into shares
We are committed to keeping our employees safe
and well, and set stretching targets via our
‘Lost Time Incidents’ measure.
For Executive Directors, 50% of the bonus is
deferred into shares for three years to support
long-term shareholder alignment.
RoRE
80%
(standard &
UQ element)
RoRE is a financial Key Performance Indicator
(‘KPI’) and is the core driver of overall Company
performance, supporting the long-term
sustainability of the Company.
Components of RoRE are as follows:
– Wholesale totex
– Customer ODIs
– Retail operating costs
– Financing
As explained on page 146, the RoRE performance
measure of the LTIP award comprises a standard
element and a UQ element. The UQ element ensures
that exceptional relative performance must be
achieved to justify full vesting of the RoRE element.
Our sustainability measures are aligned with our
environmental commitments to reach net zero
carbon emissions by 2030.
Sustainability
20%
Two-year holding
period
For Executive Directors, the LTIP is fully delivered
in Company shares subject to a two-year holding
period, ensuring long-term alignment with
shareholder interests and delivery for stakeholders,
including customers and the environment.
Aspects of our Sustainability Framework
Link
to ESG
Link to reward
Taking
care of the
environment
Helping
people
to thrive
Being
a company
you can trust
Ensuring a sustainable
water cycle
Enhancing our natural
environment
Making the most
of our resources
Mitigating and adapting to
climate change
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
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
E
E
E
E
S
S
S
S
G
G
G
G
Annual bonus includes River Health
measure, environmental ODIs and EPA
rating
Electric vehicle salary sacrifice scheme
Financing/Totex/ODI within RoRE in the LTIP
Volunteering (Community Champion events)
Sustainability measure within the LTIP
Alignment of Executive pension
contributions
All-employee bonus scheme
Accredited real Living Wage employer
Focus on creating a safe environment
for all employees
Flexible benefits programme
Learning and development opportunities
Sharesave scheme
Gender and ethnicity pay gap reporting
Employee recognition
Volunteering (Community
Champion events)
Purpose and Values co-created
with employees
Rewarding UQ RoRE performance
in the LTIP
Linking bonus and LTIP (RoRE) measures
directly to Ofwat definitions
Deferral of annual bonus into shares
Malus/clawback provisions within
variable pay
Holding periods on LTIPs for
Executive Directors
Shareholding requirements for
Executive Directors/Executive Committee
Visible and transparent pay bands
Market leading remuneration
reporting
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
145
GOVERNANCE REPORT
DIRECTORS’ REMUNERATION REPORT CONTINUED
REMUNERATION FOR THE YEAR IN REVIEW
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 aligned
to targets that deliver value for stakeholders.
The following section highlights the performance and remuneration outcomes for our Executive
Directors for the year ended 31 March 2023, starting with the total single figure outcomes.
2022/23 single figure outcomes £’000
The graphs below 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 160 in the Annual Report on Remuneration.
Liv Garfield – CEO
Single figure
2022/23
Single figure
2021/22
2020 standard
2019 UQ
2019 standard
2018 UQ
James Bowling – CFO
Single figure
2022/23
Single figure
2021/22
2020
standard
2019 UQ
2019
standard
2018 UQ
0
1,000
2,000
3,000
4,000
0
500
1,000
1,500
2,000
2,500
Salary
Fixed
Annual bonus
LTIP UQ element
Variable
Salary
Benefits and pension
LTIP standard element
Benefits and pension
LTIP UQ element
Annual bonus
LTIP standard element
LTIP UQ element
The single figure amounts in 2022/23 are 18.7% and 18.5% lower than 2021/22 for the CEO and CFO respectively, mainly due to the lower bonus
outcome in 2022/23.
As part of the 2018 Policy review, the maximum potential remuneration of the Executive Directors was increased through the introduction of
a new stretch UQ element within the LTIP. This change, which received overwhelming support from shareholders, saw the maximum LTIP
opportunity increase from 150% to 200% of salary for the CEO and 100% to 150% of salary for the CFO.
In order to determine if the Company has achieved the stretch LTIP target, comparative data for the other WaSCs needs to be collated, verified
and published by Ofwat. This process concludes in July each year, which is after the publication date of the Directors’ Remuneration Report.
The outcome of the LTIP UQ element will therefore always be published one year in arrears.
Comparative data published by Ofwat in July 2022 confirmed that the Company achieved UQ status and therefore the UQ element of the 2019
LTIP award vested, and is reported in the 2022/23 single figure as shown above.
For more detail on the single figure value, see page 160.
Annual bonus 2022/23 outturn
A summary of business performance is set out on pages 14 to 38 within the Strategic Report.
Bonus element
Group PBIT
Customer and Environment ODIs
Health and Safety(ii)
River Health(iii)
Total
Threshold
(0% payable)
Target
(50% payable)
Maximum
(100% payable)
Outturn
Weighting
Outcome
achieved
£497.0m
£522.0m
£547.0m
£508.8m
49%
11.5%
£45.0m
£55.0m
£65.0m
£35.5m(i)
35%
12.0%
0.18
0%
0.14
50%
0.10
0.11
8%
7.0%
100%
100%
8%
100%
8.0%
38.5%
(i) Our ODIs are grouped into categories as detailed on page 157. The outcome achieved
(ii) Measured as number of Lost Time Incidents divided by number of hours worked multiplied
reflects in-year performance across all three ODI categories, and the outturn represents
significant outperformance in one of the three categories. Total reported ODIs of £53m
also include £17.5m of end of AMP ODIs for work and milestones already delivered.
by 100,000.
(iii) Measured by specific River Health deliverables, see below for more detail.
River Health
The below chart is a breakdown of the River Health element of the bonus, shown in the chart above.
River Health element
Reduction in Combined Sewer
Overflows (‘CSO’) activations
Reduction in Reasons for Not Achieving
Good Status (‘RNAGS’)
Threshold
(0% payable)
Target
(50% payable)
Maximum
(100% payable)
Outturn
Weighting
Outcome
achieved
24.4
50
23.7
70
23.0
90
18.4
90
4%
4%
4.0%
4.0%
The 4% relating to RNAGS is underpinned by a binary bathing river quality milestones measure. This was achieved in full.
146
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Bonus opportunity and outcome
Performance measures and weightings in the annual bonus arrangements at Severn Trent are consistent throughout the organisation. Following the
Committee’s assessment of performance in the round, no discretion has been exercised by the Committee to override the formulaic outcomes of the
2022/23 annual bonus, and therefore will pay out at 38.5% of maximum opportunity, compared to 81% in 2021/22. This is equivalent to 46.2% of salary
for both the CEO and CFO, compared to 97.2% in 2021/22.
2022/23 salary
(£’000)(i)
Bonus opportunity
(% salary)
Bonus outcome
(% max)
Annual bonus
(£’000)
Value of cash bonus
(£’000)
Value of deferred shares
(£’000)(ii)
CEO
CFO
776.3
467.8
120%
120%
38.5%
38.5%
358.8
216.2
179.4
108.1
179.4
108.1
(i) Bonus calculated using salary as at 31 March 2023.
(ii) Value of bonus deferral shares is 50% of the total bonus value.
2019 and 2020 LTIP award vesting for performance levels (as a % of salary)
RoRE, which captures a range of measures such as totex, financing and Customer ODIs, continues to be our primary LTIP measure, with a
weighting of 80%. RoRE is assessed over a three-year period so that the focus is on long-term performance.
The table below shows the 2019 and 2020 LTIP award vesting schedule for performance levels as a percentage of salary:
CEO
CFO
Threshold FD
37.5%
25.0%
1.39x FD
150.0%
100.0%
UQ RoRE performance
relative to WaSCs
200.0%
150.0%
2020 LTIP standard element
The standard element of the 2020 LTIP award measures the Company’s performance against RoRE set by Ofwat’s FD. Over the three-year
period of the 2020 LTIP, the Company achieved a RoRE of 1.95x against the target of 1.39x the base RoRE return.
Based on the performance levels set out above, this results in full vesting of the standard element of the 2020 LTIP award, which is equivalent
to 75% of maximum for the total 2020 LTIP award for the CEO, and 66.7% of maximum for the CFO.
The graph below sets out Severn Trent’s RoRE performance relative to the other WaSCs across the performance period of the 2019 LTIP, as well
as Severn Trent’s 2022/23 performance.
2019 LTIP UQ element
Vesting under the UQ element of the 2019 LTIP award was only
known at the end of July 2022 when comparable statistics for the
other WaSCs were published and provided to Ofwat. We now know
that Severn Trent achieved UQ performance, and therefore the UQ
element of the 2019 LTIP award is included in the 2022/23 single
figure for the CEO and CFO.
No discretion has been exercised by the Committee to override the
formulaic outturns of either the 2019 LTIP award, or the standard
element of the 2020 LTIP award.
Severn Trent RoRE performance
%
E
R
o
R
13.0%
12.0%
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
2019-20
2020-21
2021-22
2022-23
LQ – Median
UQ – Median
Severn Trent
Breakdown of the LTIP single figure value
The LTIP single figure amounts include share price appreciation
between grant and vesting, as well as any dividend equivalents.
For 2022/23, the reportable LTIP figures are the standard element of
the 2020 LTIP award and the UQ element of the 2019 LTIP award. For
2021/22, the reportable LTIP figures are the standard element of the
2019 LTIP award and the UQ element of the 2018 LTIP award.
Standard element
UQ element
LTIP total in single figure
values (£’000s)
CEO
CFO
2021/22
2022/23
2021/22
2022/23
1,679
622
2,301
1,385
560
1,945
675
361
1,036
557
337
894
The table to the right shows the comparative value of the standard
elements of the 2020 and 2019 LTIP awards, plus the value of the UQ
element of the 2019 and 2018 LTIP awards included in the single figures:
For more detail on the share price appreciation and dividend
equivalents, see page 162.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
147
GOVERNANCE REPORT DIRECTORS’ REMUNERATION REPORT CONTINUED
Assessment of performance
in the round
In overseeing remuneration outcomes, the
Committee ensures that performance is
assessed in the round and over time through a
number of lenses, incorporating a variety of
stakeholder perspectives. In reviewing the
formulaic bonus and LTIP outcomes, the
Committee took into account the following
broader aspects of the Company’s performance:
– Environmental performance – we are highly
confident in achieving EPA 4* in the
Environment Agency’s annual assessment,
for the fourth consecutive year. We have also
made excellent progress in the first year on
our Get River Positive river pledges.
– Customer experience – there were two
significant weather-related events, with the
hot weather over the summer and the
freeze-thaw event in December. Because of
the learnings from events in 2018 and the
proactive measures we put in place, we
delivered a marked improvement in our
performance.
– Societal impact – In addition to the launch of
our Societal Strategy, in 2022/23, the Severn
Trent Community Fund has awarded over £2m
to good causes across our region, benefiting
over one million Severn Trent customers. As
part of the #10000BlackInterns programme,
we had 61 placements last year, with 44% of
those gaining employment following their
placement with us.
– Wider workforce experience – Employee
engagement increased to our highest ever
score in November 2022, which now places us
in the top 5% of energy and utilities companies
globally. There have been no redundancy or
furlough programmes in the year, and eligible
employees will receive a bonus in 2022/23.
– Windfall gains – At the time of the 2020 LTIP
grant, the Committee reviewed the grant price
of £23.97 compared to that of the 2019 LTIP of
£20.40, and was satisfied that no adjustments
were required on grant for windfall gains due to
the increase in share price since the 2019 LTIP
grant, noting that the Company’s share price
had been less impacted by COVID-19 than many
other companies. The Committee also noted
that it would assess the value of the 2020 LTIP at
vesting to ensure that the final outturn reflects
all relevant factors, including consideration of
any windfall gains. The Committee has reviewed
the Company’s share price performance over
the performance period and is satisfied that,
subject to the final share price on vesting, no
windfall gains have occurred.
The Committee considered the status of
ongoing regulatory investigations and noted
its ability to exercise its powers of malus and
clawback if appropriate, once concluded.
The Committee further confirms that it has
considered the Company’s wider performance in
the round and has concluded that it would not be
appropriate to override the formulaic outcomes of
either the 2020 LTIP or the 2022/23 annual bonus.
Executive Director shareholdings
The CEO and CFO have exceeded the shareholding requirements applicable in 2022/23 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 Executive Directors have also increased their shareholdings further through personal share purchases.
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 below 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 below use a closing share price on 31 March 2023 of £28.79.
Further detail regarding the Executive Directors’ outstanding share awards can be found on page 163.
Executive Director shareholdings % of base salary
CEO
CFO
% of
salary
1,309%
228%
402%
828%
173%
302%
0
200%
400%
600%
800%
1,000%
1,200%
1,400%
1,600%
1,800%
2,000%
Shareholding requirement
Shares counting towards
shareholding requirement(i)
Unvested subject to
continued employment(ii)
Unvested subject to performance(iii)
(i) 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).
(ii) Represents 2020 LTIP shares (where the performance period is now complete) 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 2021 and 2022 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 the 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.
2022/23 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 the year
(£’000)(i)
Value of shares at
end of the year
(£’000)(ii)
CEO
CFO
3,209.3
1,662.3
283,423
98,901
332,898
122,579
8,723.8
3,044.2
9,584.1
3,529.0
Difference
860.4
484.9
(i) Based on a closing share price on 31 March 2022 of £30.78.
(ii) Based on a closing share price on 31 March 2023 of £28.79.
148
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
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, aligned with stakeholder interests.
The tables below illustrate the balance of pay and time period of each element of the Policy for Executive Directors. In addition, the table below
sets out how the Policy elements are aligned with the factors set out in Provision 40 of the 2018 UK Corporate Governance Code (‘the 2018 code’).
Full details of the 2021 Policy can be found on the Severn Trent Plc website or on pages 145 to 153 of the 2021 Directors’ Remuneration Report.
Total pay over five years
Year 1
Year 2
Year 3
Year 4
Year 5
Fixed pay
Salary, benefits
and 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
Policy element
Fixed pay elements
Base salary
Y1 Y2 Y3 Y4 Y5
Benefits
Y1 Y2 Y3 Y4 Y5
Pension
Y1 Y2 Y3 Y4 Y5
Purpose, operation and
opportunity levels
How we plan to implement
the Policy in 2023/24
Alignment with Provision 40
of the 2018 Code
Proportionality
There is a reasonable balance between
fixed pay and variable pay, and variable
pay is weighted to long-term
performance.
Clarity
Base salaries are competitive against
companies of a similar size and
complexity.
Alignment with culture
Base salary increases generally aligned
to the average increase for the UK wider
workforce. Pension rates for Executive
Directors are aligned with the rate offered
to the majority of the wider workforce.
A salary increase of 3.0% will be
applied at the salary review date,
with the exception of the CFO
Designate whose salary was set
on appointment on 1 April 2023.
From 1 July 2023, Executive
Director salaries will be:
– £799,600
– CEO
– £481,900
– CFO
– CFO Designate – £480,000
Although negotiations with our
Trade Unions for the wider
workforce pay increase are
ongoing at the time of
publication, these rises are less
than half of the current offer that
has been tabled.
Normal Company
benefit provision.
Executive Director pension
arrangements are as follows:
– 15% of salary
- CEO
- CFO
– 15% of salary
- CFO Designate – 15% of salary
To recruit and reward Executive Directors of a suitable
calibre for the role and duties required.
Salaries are normally reviewed annually and increases
normally take effect from 1 July. Set with reference to:
–
individual performance;
– experience and contribution;
– developments in the relevant employment market;
– company performance and affordability;
– wider economic environment; and
–
Any increase will generally be no higher than the average
increase for the workforce. Higher increases may be
proposed in the event of a role change or promotion, or in
other exceptional circumstances.
internal relativities.
To provide competitive benefits in the market to enable
the recruitment and retention of Executive Directors.
Benefits typically include green travel allowance, family level
private medical insurance, life assurance, personal accident
insurance, health screening, an incapacity benefits scheme
and other incidental benefits and expenses.
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.
To provide pension arrangements comparable with
similar companies in the market to enable the
recruitment and retention of Executive Directors.
A defined contribution scheme and/or cash supplement in
lieu of pension.
For current Executive Directors, the Company contribution
and/or cash allowance is 15% of salary. This aligns pension
contribution quantum for all Executive Directors with the
maximum 15% contribution available to members of the
Severn Trent Group Personal Pension (the majority of the
wider workforce).
For any new recruit, the contribution will be up to a maximum
of 15% of salary.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
149
GOVERNANCE REPORT SUMMARY OF REMUNERATION POLICY AND IMPLEMENTATION CONTINUED
Policy element
Variable pay elements
Annual bonus
Up to 120% of salary
Y1 Y2 Y3 Y4 Y5
50% paid in cash
Y1 Y2 Y3 Y4 Y5
50% deferred
Y1 Y2 Y3 Y4 Y5
LTIP
Up to 200% of salary
Y1 Y2 Y3 Y4 Y5
5-year period
Y1 Y2 Y3 Y4 Y5
Other policy elements
All-employee
share plans
Up to £500 per month
for 3 or 5 years
Y1 Y2 Y3 Y4 Y5
Shareholding
requirement
-
Y1 Y2 Y3 Y4 Y5
Purpose, operation and
opportunity levels
How we plan to implement
the Policy in 2023/24
Alignment with Provision 40
of the 2018 Code
To encourage improved financial and operational
performance, and to align the interests of Executive
Directors with shareholders through the partial deferral
of payment into shares.
Bonuses are based on financial, operational, customer, and
environmental performance. Performance measures and
targets are selected annually and no more than 20% of the
bonus will relate to personal contribution.
50% of the bonus is paid in cash and 50% is deferred into
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.
Malus and clawback mechanisms apply for three years
from the payment of the cash bonus or the grant of
deferred shares.
Maximum award of 120% of salary for the CEO, CFO and CFO
Designate. The CFO’s 2022/23 annual bonus will be pro-rated
for time in role.
For threshold performance, 0% of maximum opportunity
will be paid. For target performance 50% of maximum
opportunity will be paid.
To encourage strong and sustained improvements in financial
performance, in line with the Company’s Strategy and
long-term shareholder returns.
Awards are granted annually and are subject to one or more
performance conditions assessed over a three-year
performance period.
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 mechanisms apply within three years of
vesting.
The value of dividends paid on the shares comprising the award
will be rolled up and paid on vesting.
Maximum award opportunity up to 200% of salary. Up to 25% of
the LTIP award may vest for threshold performance.
To encourage widespread employee share ownership
to enable employees to share in the success of the business.
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 set by HMRC.
To encourage strong shareholder alignment both during and
after employment with 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 requirement has been met.
A post-employment shareholding requirement
applies 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 applies to shares acquired under share plan
awards granted following approval of the 2021 Policy.
Performance measures
(as a % of maximum):
Group PBIT – 40%
Customer and Environment ODIs – 35%
River Health – 12%
Health and Safety – 8%
EPA – 5%
The Committee considers the
forward-looking targets to be
commercially sensitive but full
disclosure of the targets and
performance outcome will be set out in
next year’s Directors’ Remuneration
Report.
Grant levels:
CEO – 200% of salary
CFO Designate – 150% of salary
The 2023 LTIP awards will be based on the
following performance measures:
– 80% of the maximum LTIP award
based on RoRE and will require the
Company’s RoRE to outperform the
target set out in Ofwat’s FD and, for full
vesting, to deliver upper quartile
relative performance compared with
other WaSCs.
– 20% of the maximum LTIP award
based on measures relating to Severn
Trent’s sustainability framework.
See page 151 for detail on LTIP awards to
be granted.
In line with all employees.
Clarity
Variable remuneration is based on
supporting the successful
implementation of the Company’s
strategy measured through KPIs which
are used for the annual bonus and LTIP.
Simplicity
Defined limits on the maximum awards
which can be earned. Variable
remuneration focuses on long-term
sustainable performance, including the
Company’s environmental ambitions.
Risk
The Policy ensures there is sufficient
flexibility to adjust bonus and LTIP
payments through malus and clawback
and an overriding discretion to depart
from formulaic outcomes.
Predictability
Shareholders are given full information
on the potential values which can be
earned under the annual bonus and LTIP.
Proportionality
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 to ensure that the
Executives have a strong drive to ensure
that the performance is sustainable over
the long term.
Alignment with 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.
Alignment with culture
All-employee share plans support a
culture of share ownership and align
employee interests with the long-term
sustainable performance of the
Company.
CEO – 300% of salary
CFO – 200% of salary
CFO Designate – 200% of salary
Post-employment shareholding
requirement applies.
See pages 148 and 163 for further details
on shareholding requirements and
outstanding share awards.
Risk
Incentives are primarily paid in shares
which must be retained until minimum
shareholding requirements have been
met. Post-employment shareholding
requirement further increases the
exposure of Executive Directors to the
share price after leaving the Company.
150
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
LTIP awards to be granted in 2023
The table below describes how the LTIP will be implemented in 2023. As per the 2022 award, 80% of the maximum LTIP opportunity will be based
on RoRE and 20% will be based on sustainability measures. The awards will be 200% and 150% of salary respectively for the CEO and CFO
Designate, in line with the awards made to the CEO and CFO in 2022. James Bowling will not be granted an LTIP award in 2023. Both the RoRE and
sustainability performance conditions will be measured over three years, to 31 March 2026, and corresponding vesting (as a % of salary) will be:
RoRE measure
Operation
Award recipient
Vesting for
performance
CEO
CFO Designate
Threshold FD
(% salary)
30%
20%
1.39x FD
(% salary)
UQ RoRE performance
relative to WaSCs
(% salary)
Sustainability
performance measure
(% salary)
120%
80%
160%
120%
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 and Engagement for Carbon Reduction’, setting out the four components and corresponding vesting (as a % of salary).
Direct Contributors to Carbon Reduction
Innovation and Engagement for Carbon Reduction
Scope 1 & 2 reduction
(% salary)
Self-generation
(% salary)
Roll-out of Net Zero hub
(% salary)
Scope 3 supply chain
engagement (% salary)
CEO
CFO Designate
10%
7.5%
10%
7.5%
10%
7.5%
10%
7.5%
The performance targets/milestones for the 2023 award will be as follows:
Direct Contributors to Carbon Reduction (10%)
Scope 1 & 2 reduction
Achieving a cumulative reduction in our Scope 1 & 2 emissions of 30% against a 2019/20 baseline (of 508.4 kT)
by 31 March 2026.
Self-generation
Achieving an outturn of 137 GWh additional generation from the 2019/20 baseline of 486 GWh, enabling a minimum
total renewable generation of 623 GWh by 31 March 2026.
Innovation and Engagement for Carbon Reduction (10%)
Roll-out of Net Zero hub
Achieving a cumulative reduction in Scope 1, 2 and 3 emissions by 15 kT by 31 March 2026.
Scope 3 supply chain
engagement
To have suppliers representing 70% of our Scope 3 emissions committed to a Science-Based Target at 31 March 2026.
The Committee will assess the value of the 2023 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)
The Chair, Senior Independent Director and Non-Executive Directors are appointed for a three-year term, subject to annual re-election by
shareholders at the Annual General Meeting following the annual Board Effectiveness evaluation process. The current Letters of Appointment are
available on the Severn Trent Plc website.
From 1 July 2023, Non-Executive Director fees will be increased by 3.0% from £60,460 to £62,300, and the Chair’s fee will be increased by 3.0% from
£314,000 to £323,500. Although negotiations with our Trade Unions for the wider workforce pay increase are ongoing at the time of publication, these rises
are less than half of the current offer that has been tabled. The current fee levels, and those for the future financial year, are set out in the table below.
Operation
Chair’s fee
Fee paid to all Non-Executive Directors
Supplementary fees:
– Senior Independent Director
– Audit and Risk Committee Chair
– Corporate Sustainability Committee Chair
– Remuneration Committee Chair
– Treasury Committee Chair
Fees 2022/23
Fees 2023/24
Increase %
£314,000
£60,460
£15,350
£17,390
£15,350
£17,390
£16,370
£323,500
£62,300
£15,815
£17,920
£15,815
£17,920
£16,865
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
CFO leaver treatment
James Bowling will be retiring from the Company in December 2023, and his remuneration arrangements will be treated in line with the
shareholder approved Policy. He will not receive any compensation for loss of office, but as a retiree he will be treated as a good leaver in relation
to his outstanding incentive awards. His bonus for 2023/24 will be pro-rated and paid in cash and he will retain original vesting dates for ABS
deferred awards. He will not be awarded an LTIP in 2023, and his in-flight LTIP awards will vest in line with the normal timeline, pro-rated to his
termination date and maintaining the two-year holding period. His two-year Post Employment Shareholding Requirement (‘PESR’) period will
commence in July 2023, once he steps down from the Severn Trent Plc Board.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
151
GOVERNANCE REPORT Remuneration element
Details
Committee focus areas
Implementation at Severn Trent
COMPANY REMUNERATION
AT SEVERN TRENT
Number of
employees
covered
Eligibility
All employees
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.
The table to the right 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 who 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.
7,939
(as at
31 March
2023)
Salary
Benefits
Pension
Annual bonus
Sharesave
Management
and senior
management
421
LTIP
A proportion of this
population participate
in the LTIP by annual
invitation
£
+
+
%
This section of the report covers:
Pay and alignment across the business
Pay comparisons:
– CEO pay ratios; and
– Gender and ethnicity and pay gap reporting
Executive
Directors
and Executive
Committee
9
Our supply
chain
Shareholding requirement
as a % of salary
CEO – 300%
CFO – 200%
Executive Committee –
100%
152
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Salaries are set to reflect the market value of the role,
– Date of annual increase across
– The average annual salary increase across the workforce
and to aid recruitment and retention. Employees who are
all employee groups.
in 2022/23 was 2.3%.
not on a training rate of pay (such as apprentices) receive
at least the voluntary real 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.
– Wider workforce increases
– Annual pay reviews are effective in July for all
versus the senior Executive
employee groups.
population.
– Differences across
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.
All employees are eligible to participate in our flexible
– Types of benefits.
– A consistent approach is applied across the business
benefits scheme which we believe is one of the best in
the industry and is designed to support physical, mental
and financial wellbeing.
– Eligibility across levels.
for benefits.
We offer a market-leading defined contribution pension
– Employer pension
– The majority of employees are eligible to participate
scheme and double any contributions that employees
contributions across the
in the Severn Trent Group Personal Pension.
make (up to a maximum of 15% of salary).
workforce.
– Employer pension contributions for Executive Directors
– Comparisons of wider
are aligned with the maximum 15% contribution available
workforce pension to
Executive pensions.
to members of the Severn Trent Group Personal Pension
(the majority of the workforce).
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 of those, 60% pay contributions
above the minimum of 3%.
All of our people share in our success by participating
– Bonus design across
– A consistent design is operated throughout the business.
in our all-employee bonus plan, ensuring all employees
different populations.
are aligned with the same measures and rewarded for
achieving our key objectives.
– Details of performance
measures and targets.
– At all levels performance outcomes are measured against
the same metrics (see page 145).
– An individual performance multiplier is in place
– Outturn during the year.
across management grades informed by our
Offering the opportunity to participate in our Sharesave
– Participation rates.
– All Severn Trent Plc employees can participate
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 from £5 to £500 per month over three or 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
– Eligibility.
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
– Cost.
– Dilution.
shared ownership culture in the Group.
– Details of performance
measures and targets.
Inspiring Great Performance (‘IGP’) outcomes.
– Our frontline 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.
in the Save As You Earn scheme – Sharesave.
– There is a significant take-up of this benefit with
73.4% of employees actively participating.
– 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, with 80% based
on RoRE performance and 20% on sustainability
measures. 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 25% of salary
to 200% of salary.
– Executive Directors have a UQ stretch performance target.
– Malus and clawback provisions are in place.
Supports alignment of Executives’ interests
– Eligibility.
– Shareholding requirements are in place for the Executive
with shareholders.
– Requirements versus
actual shareholdings.
Directors and Executive Committee.
– A post-employment shareholding requirement
was introduced for Executive Directors as part
of the 2021 Policy.
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.
Number of
employees
covered
Eligibility
All employees
7,939
(as at
31 March
2023)
Salary
Benefits
Pension
Annual bonus
Sharesave
£
+
+
%
Management
and senior
management
421
LTIP
A proportion of this
population participate
in the LTIP by annual
invitation
Executive
Directors
and Executive
Committee
9
Our supply
chain
Shareholding requirement
as a % of salary
CEO – 300%
CFO – 200%
Executive Committee –
100%
Remuneration element
Details
Committee focus areas
Implementation at Severn Trent
– Date of annual increase across
– The average annual salary increase across the workforce
all employee groups.
in 2022/23 was 2.3%.
– Wider workforce increases
versus the senior Executive
population.
– Differences across
employee groups.
– 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.
– Types of benefits.
– Eligibility across levels.
– A consistent approach is applied across the business
for benefits.
– Employer pension
– The majority of employees are eligible to participate
contributions across the
workforce.
– Comparisons of wider
workforce pension to
Executive pensions.
in the Severn Trent Group Personal Pension.
– Employer pension contributions for Executive Directors
are aligned with the maximum 15% contribution available
to members of the Severn Trent Group Personal Pension
(the majority of the workforce).
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 real 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 is designed to support physical, mental
and financial wellbeing.
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 of those, 60% 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.
– Bonus design across
different populations.
– Details of performance
measures and targets.
– Outturn during the year.
– Participation rates.
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 from £5 to £500 per month over three or 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.
– Eligibility.
– Cost.
– Dilution.
– Details of performance
measures and targets.
Supports alignment of Executives’ interests
with shareholders.
– Eligibility.
– Requirements versus
actual shareholdings.
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.
– A consistent design is operated throughout the business.
– At all levels performance outcomes are measured against
the same metrics (see page 145).
– An individual performance multiplier is in place
across management grades informed by our
Inspiring Great Performance (‘IGP’) outcomes.
– Our frontline 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.
– 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
73.4% of employees actively participating.
– 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, with 80% based
on RoRE performance and 20% on sustainability
measures. 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 25% of salary
to 200% of salary.
– Executive Directors have a UQ stretch performance target.
– Malus and clawback provisions are in place.
– Shareholding requirements are in place for the Executive
Directors and Executive Committee.
– A post-employment shareholding requirement
was introduced for Executive Directors as part
of the 2021 Policy.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
153
GOVERNANCE REPORT COMPANY REMUNERATION AT SEVERN TRENT CONTINUED
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 pages 152 and 153 and in our 2021 Policy, which can be
found on the Severn Trent Plc website.
The table below shows how the CEO’s total single figure of remuneration compares with the equivalent figures for employees occupying the 25th,
50th and 75th percentiles.
We have chosen Option A under the Regulations for the calculation, which takes into consideration the full-time equivalent basis of all employees
and provides a representative result of employee pay conditions across the Company.
Total pay and benefits for all have been calculated as at 31 March 2023, 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. The median CEO ratio is consistent with the pay
and progression policies for the Company’s UK employees as a whole.
CEO pay ratio
CEO
Total single figure (£’000)(i)
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:
– 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:
2020
2,765.1
74.0%
100%
2021
3,084.0
63.8%
100%
2022
3,948.4
81.0%
100%
2023(iii)
3,209.3
38.5%
75%
84.5
65.7
53.9
92.8
72.3
59.8
116.0
90.8
75.3
93.7
73.1
60.7
4.2
(i) Figures for 2022 have been restated to reflect the updated 2019 LTIP values based on the share price at the date of vesting and include dividend equivalents in respect of vested shares.
(ii) The value of the UQ element of the 2019 LTIP award for 2021/22 could not be measured until July 2022, and is therefore included in the total remuneration value for 2023. The value of the
2020 LTIP award for 2022/23 is based on the Committee’s assessment of the standard element of the total potential LTIP vesting, as this measures the Company’s performance against the
RoRE set by its FD, plus the UQ element of the 2019 LTIP. The UQ element of the 2020 LTIP cannot be measured until the end of July 2023; such vesting, if any, will therefore be disclosed in
the 2023/24 Directors’ Remuneration Report.
(iii) The 2023 total remuneration figure includes £559.8k in respect of UQ performance for the 2019 LTIP, which is published one year in arrears as explained on page 147 and relates therefore
to the 2022 remuneration figure.
The median CEO pay ratio has decreased from 90.8 to 73.1 year-on- year, mainly due to the lower bonus award in 2022/23, as well as a higher
share price appreciation impact in 2021/22. More detail on the single figure amount is included on page 160.
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 year-on-year in the CEO pay ratio given that the CEO’s single figure is made up of a higher
proportion of performance-related 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.
The key factors to note for this year’s CEO pay ratio are as follows:
– For 2022/23, the single figure includes the standard element of the 2020 LTIP award plus the UQ element 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: 36.9
– To employee at the 50th percentile: 28.8
– To employee at the 75th percentile: 23.9
The table sets out the base salary and total pay benefits details for the CEO and 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
2023
771.9
3,209.3
26.5
32.3
40.8
34.2
43.9
52.9
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.
154
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
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.
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 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.
% change on last year for
2019/20
% change on last year for
2020/21
% change on last year for
2021/22
% change on last year for
2022/23
Salary/
Salary/
Salary/
Salary/
Fees Benefits
Bonus
Fees Benefits
Bonus
Fees Benefits
Bonus
Fees(i) Benefits(ii)
Bonus(iii)
2.4%
0.6% 29.5%
2.3% (1.2)% (11.8)%
2.3% (3.1)% 30.0%
2.3%
5.3% (51.3)%
2.4%
0.0% 29.5%
2.3%
0.0% (11.8)%
2.3%
0.0% 30.0%
2.3%
3.4% (51.4)%
N/A
N/A
N/A
431.4%
N/A
N/A
1.7%
N/A
N/A
2.3%
2.2%
N/A
N/A
1.5%
N/A
N/A
6.8%
N/A
N/A
4.9%
13.3%
N/A
N/A
1.0%
N/A
N/A
3.5%
N/A
N/A
(3.5)%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
19.3%
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
N/A
N/A
8.7%
N/A
N/A
8.3%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
12.6%
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
2.4%
N/A
N/A
1.7%
N/A
N/A
1.5%
N/A
N/A
N/A
N/A
N/A
1.9%
N/A
N/A
1.4%
N/A
N/A
3.6%
N/A
N/A
2.6%
N/A
N/A
2.0%
N/A
N/A
1.4%
N/A
N/A
3.7%
N/A
N/A
N/A
N/A
N/A
3.7% (5.5)% 21.8%
2.2% (7.1)% (13.7)%
2.1%
0.3%
9.9%
3.4%
2.8% (41.6)%
Executive Directors
Liv Garfield
11 April 2014 – present
James Bowling
1 April 2015 – present
Non-Executive Directors(iv)
Christine Hodgson(v)
1 January 2020 – present
Kevin Beeston
1 June 2016 – present
John Coghlan
23 May 2014 – present
Tom Delay
1 January 2022 – present
Sarah Legg
1 November 2022 – present
Sharmila Nebhrajani
1 May 2020 – present
Gillian Sheldon
1 November 2021 – present
Former Directors
Dominique Reiniche
Resigned effective 8 July 2021
Philip Remnant
Resigned effective
1 November 2021
Angela Strank
Resigned effective
31 March 2022
Colleagues
Average per employee(vi)
(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) 2020/21 reflects a change in rate from Non-Executive Director to Chair of the Board on 1 April 2020.
(vi) The average annual pay increase for the wider workforce during the year was 2.3%.
Please see page 144 of last year’s Directors’ Remuneration Report for historic details of events that impact the changes in remuneration, such as
role changes, joiners and leavers.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
155
GOVERNANCE REPORT COMPANY REMUNERATION AT SEVERN TRENT CONTINUED
GENDER AND ETHNICITY PAY GAP REPORTING
After five years of publishing our gender pay gap data, we are delighted to have published
our first combined gender and ethnicity pay gap report.
Gender pay gap
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. We reported our gender pay gap in November
2022 in line with statutory requirements.
The data was based on figures from 5 April 2022 and showed a
median gap of 9.4% (last year: 9.1%) and a mean gap of 2.9% (last
year: 3.8%). Whilst the hourly rates for both male and female
employees have increased, this year there has been a slight increase
in the median gender pay gap due to a number of small fluctuations in
the overall population. At the same time, there has been a decrease
in the mean gender pay gap, mainly due to small changes within our
executive population. These changes have a larger effect on the
mean bonus gap, and so this, along with the effect of the UQ element
of the LTIP, has increased the mean bonus gap even further in favour
of females at -77%. Our mean gender bonus gap is as a result of the
high percentage of women in our Executive and senior management
population.
Gender pay gap %
16
14
12
10
8
6
4
2
0
2017
2018
2019
2020
2021
2022
Median
Mean
Ethnicity pay gap
In our first year of publishing our ethnicity pay gap information, the
median gap is 4.1% and the mean gap is 5.7%. Around 94% of our
employees have shared their ethnicity information and we continue
to actively encourage all employees to share their data. Of those who
have declared themselves as being from an ethnic minority
background, around two-thirds are Asian/Asian British.
The difference in hourly pay between white and ethnic-minority
employees in 2022 is:
MEDIAN
4.1%
MEAN
5.7%
The difference in annual bonus pay between white and ethnic-
minority employees in 2022 is:
MEDIAN
-1.4%
MEAN
50.4%
Pay distribution
Men
Women
Top quartile
Upper middle quartile
Lower middle quartile
Lower quartile
Overall
71%
80%
79%
56%
71%
29%
20%
21%
44%
29%
White
Ethnic minority
The difference in hourly pay between male and female
employees in 2022 is:
MEDIAN
9.4%
MEAN
2.9%
Top quartile
Upper middle quartile
Lower middle quartile
Lower quartile
Overall
90%
91%
91%
87%
90%
10%
9%
9%
13%
10%
The difference in annual bonus pay between male and female
employees in 2022 is:
MEDIAN
0%
MEAN
-77%
The full gender and ethnicity pay gap report
can be found online at severntrent.com,
detailing the methodology and definitions,
including case studies showcasing how
our advisory groups are fostering a working
environment where colleagues trust and
know that opportunities are available to all,
regardless of an individual’s gender,
ethnicity or background.
156
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ANNUAL REPORT AND ACCOUNTS 2023
COST OF LIVING
As a company, we are acutely aware of the pressures that the cost of living crisis is causing to our customers. But we are also aware that
those same challenges face our colleagues and the communities around them. That is why we regularly remind all of our colleagues of the
free benefits that are available to all employees:
Financial
support
Offer
– Access to a range of financial wellbeing tools, calculators and
Impact
– 16 colleagues saved up to £1,000 per year on
advice.
their nursery fees.
– Helping employees find long-term and emergency care solutions
– 34 colleagues have engaged with the
for elderly loved ones through our Seniorcare benefit
Seniorcare service to support elderly relatives.
– Discounts on nursery fees with one of the UK’s largest nursery
– Employees have saved £75,000 using our
companies.
discount offers.
– Providing Severn Trent scheme members with tailored financial
advice at retirement.
– Our daily savings website offers a wide range of discounts on food
shopping, technology and entertainment at well-known retailers.
Caring about
health and
wellbeing
– We offer a great Employee Assistance Programme available 24/7,
– Nearly 400 active Mental Health First Aiders
365 days a year.
– Our Elective Treatment Fund pays for 50% of the treatment costs
for certain pre-existing conditions where the length of wait for
NHS treatment had been negatively impacted by the COVID-19
pandemic.
and Champions, who wear a yellow lanyard to
be easily identifiable, able to provide in-the-
moment support.
– 488 physiotherapy referrals.
– 50 enquiries to the Elective Treatment Fund,
– We offer a free physiotherapy service of between four and eight
resulting in 28 applications.
sessions, to all colleagues.
– 544 employees contacted the Employee
– Our wellbeing app brings a whole load of health and wellbeing
Assistance Programme.
benefits, deals and rewards, including unlimited 24/7 access to a
GP for colleagues and their families.
– 911 uses of our virtual GP service.
– 36% of our current workforce have received
– We have trained nearly 3,000 of our employees in some form of
mental health training.
Focus on
skills
Mental Health First Aid.
– Our Societal Strategy aims to help change the lives of 100,000
people, by offering work experience placements, free skills and
employability training in communities, and ‘pop-up’ academies
reaching thousands of individuals.
– Every employee can spend two days per year volunteering and
learning new skills in the community.
– We offer a huge range of technical training, such as water and
waste treatment apprenticeships available for employees at any
age, not just those who are fresh out of full-time education.
– We have a huge library of digital resources, called LearnAnytime,
with a catalogue of over 500 eBooks, videos, articles and podcasts.
– Introduction of the Future Leaders Programme.
– We offer one-to-one interview preparation sessions.
– A new managers induction programme, aiming to help new
managers navigate their way in their role.
– 38% of people taking the Future Leaders
Programme in the last year have since
been promoted.
– Over 1,100 internal promotions this year.
– We have delivered over 71,000 hours against
our 100,000 free employability training hours
target.
A focus on environmental performance
In April 2023, the Committee approved a change to the
bonus design for 2023/24, to make the link between
environmental performance and remuneration
even stronger.
– We have increased the weighting of the River Health
element from 8% to 12%.
– We have introduced a new measure relating to our EPA
rating, which will have a weighting of 5% of the bonus.
This measure will only pay out if we achieve the highest
EPA 4* rating.
– The weighting of environmental ODIs will increase from
12% to 13% of the bonus.
– The weighting of the Group PBIT element of the budget
will be reduced from 49% to 40%.
In total the environmental performance element of
the budget for 2023/24 is worth 30%.
EPA rating
River Health
5%
12%
30%
is linked to
environmental
performance
PBIT
40%
35%
Total ODIs
13%
ODI
Improve the
environment we live in
11%
ODI
Minimise disruption
to the environment
8%
11%
H&S
ODI
Prevent failure in our
network and our sites
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
157
GOVERNANCE REPORT COMMITTEE GOVERNANCE
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.
How does the Committee set performance targets?
The Committee has a well-established process for setting stretching targets to ensure that incentives drive our strategic outcomes and
deliver value for our stakeholders.
1. Review and approve targets
Management proposes targets for the
bonus and the LTIP, taking into
consideration the AMP7 Business Plan,
long-term strategy (including our
sustainability framework), the Board-
approved budget, historical performance,
consensus forecasts, stakeholder
expectations and wider market/economic
conditions. The Committee reviews the
proposed targets (including the underlying
assumptions) to ensure they are suitably
stretching but also realistic. Following this
review, the Committee approves the
targets.
2. Assess performance
At the end of the performance period (one
year for the bonus and three years for the
LTIP), the formulaic outcomes of each
performance measure are assessed on a
standalone basis, including those that are
independently verified by our external
regulator, Ofwat. As stated on page 146,
the UQ element for LTIP awards can only
be measured once data for all WaSCs is
available. A specific Committee meeting is
scheduled for this purpose.
3. Determining final outcomes
The Committee assesses whether
formulaic outcomes are fair in the context
of overall business performance and
service delivery for customers and the
environment. The Committee has a well-
established process to review formulaic
outcomes and, as part of this process,
independent external advice is sought
whereby the Committee looks at
‘performance in the round.’ The
Committee has the ability to exercise
discretion to adjust formulaic incentive
outcomes.
What the 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 in 2019 for the
Committee to expand its responsibility to oversee and review 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
and senior management pay supports fair and equal remuneration throughout the entire workforce.
Activity
Focus Areas
Implementation at Severn Trent
Purpose and
Values
Reflection on wider
workforce policies and
practices
– We are a real Living Wage employer, which means we are committed to paying all of our direct
employees and our supply chain a wage based on the cost of living today. In 2022/23, we implemented
the increase early with effect from 1 October 2022, resulting in an uplift in salary for a number of our
colleagues.
– We launched two new employee benefits that help our colleagues care for their families, and assist with
the cost of living: Seniorcare, and a discount with one of the UK’s largest nursery companies.
– This year we have continued to expand and develop our Academy, offering courses covering
professional, technical and personal development.
– We have introduced new supportive guides and training aiming to help both employees and managers to
talk about difficult topics, such as bereavement.
Engagement
Sharing our guiding
remuneration principles with
the Company Forum
– In December 2022, Christine Hodgson and Sharmila Nebhrajani attended the Company Forum, with
Gillian Sheldon also attending in March 2023.
– Topics discussed included the 2022 Gender and Ethnicity Pay Gap Report, Executive remuneration, our
Societal Strategy, and employee engagement.
Focus on ESG
measures
Bringing to life how
sustainability is embedded in
our remuneration framework
– Review of carbon reduction measures in LTIP, with input from the Corporate Sustainability Committee.
– Review of River Health measures in the bonus.
– Review of environmental measures within the bonus structure, with the introduction of the EPA rating
measure.
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SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
What the Committee will look at in 2023/24
REMUNERATION
POLICY REVIEW
Work on the Remuneration Policy review
will commence later in 2023 and will
incorporate any changes arising as part of
the Price Review. We will maintain an
ongoing and transparent dialogue with
our major shareholders and actively
engage with each of them individually.
FAIR AND
TRANSPARENT
PAY
We will continue to monitor and evaluate
developments in our pay framework and
review Executive pay with respect to the
wider workforce. We will continue to
clarify the contribution of unique role
types to ensure an equal and fair reward
package that is representative of roles
with similar skill types.
COST OF LIVING
As the external economic environment is
expected to be challenging for some time,
we will continue to review the support we
provide to employees across all three
pillars of wellbeing – physical, mental and
financial.
Governance matters
The Committee’s performance was assessed as part of the annual
Board Effectiveness 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.
2022 AGM shareholder voting outturn
Resolution
Votes for
Votes against
Approve Directors’
Remuneration Report
179,181,598
95.06%
9,316,047
4.94%
Votes withheld
7,605,276
2021 AGM shareholder voting outturn
Our current Remuneration Policy received overwhelming shareholder
support at the 2021 AGM held on 8 July 2021, with 99.66% approval. The
full 2021 Policy can be found on the Severn Trent Plc website and on
pages 145 to 153 of the 2021 Directors’ Remuneration Report.
Resolution
Votes for
Votes against
Votes withheld
Approve Directors’
Remuneration Policy
191,642,002
99.66%
662,228
0.34%
625,355
Committee advisers
To ensure that the Company’s remuneration practices are in line with
best practice, the Committee has appointed independent external
remuneration advisers, PwC. This appointment in 2017 followed a
formal selection process. PwC attends meetings of 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 £92,985 excluding VAT
(2021/22: £75,250). 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.
The CEO, CFO, Director of Human Resources and the Head of Reward
and 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 Group
Company Secretary acts as secretary to the Committee.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
159
GOVERNANCE REPORT
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 6 July 2023.
The information on pages 160 to 163
is audited.
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 2022/23 (or for
performance periods ending in 2022/23 in respect of long-term
incentives) and 2021/22 for comparison, and total fees received by
Non-Executive Directors for 2022/23 and 2021/22, for comparison.
Where necessary, further explanations of the values provided are
included below. The tables and the explanatory notes have been
audited.
Executive
Directors
Liv
Garfield
James
Bowling
Financial
year ended
31 March
2022/23
2021/22
2022/23
2021/22
Salary
(£’000)(i)
771.9
754.5
465.2
454.7
Benefits
(£’000)(ii)
18.1
17.2
17.6
17.0
Pension
(£’000)(iii)
115.8
138.1
69.8
83.2
Fixed pay
and benefits
sub-total
(£’000)
905.8
909.8
552.5
559.4
Other
(£’000)(iv)
0.0
0.0
0.0
4.5
Annual
bonus
(£’000)(v)
358.8
737.6
216.2
444.5
LTIP
standard
element
(£’000)
1,384.9
1,679.3
556.6
674.9
LTIP UQ
element
(£’000)
559.8
621.7
337.0
361.5
Variable
remuneration
sub-total
(£’000)
2,303.5
3,038.6
1,109.8
1,480.8
Total
remuneration
(£’000)(vii)
3,209.3
3,948.4
1,662.3
2,040.2
LTIP total
(£’000)(vi)
1,944.7
2,301.1
893.6
1,036.3
(i) Salaries are shown before the deductions of benefits purchased through the Company’s
(v) The annual bonus is paid 50% in cash and 50% in shares, with the portion deferred into
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. This also includes a benefit-in-kind relating to electric vehicles, which
increased from 1% in 2021/22 to 2% in 2022/23.
(iii) The Executive Directors’ pension provision was equal to 18.3% of salary in 2021/22. As of
1 April 2022 their maximum contribution is aligned with the wider workforce at 15%.
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.
shares subject to continued employment for three years but with no further performance
conditions attached. See page 146 for further details of the annual bonus outturn for
2022/23.
(vi) For 2022/23 the value of the LTIP is based on the outcome of the standard element of the
total potential 2020 LTIP vesting, plus the UQ element of the 2019 LTIP. For 2021/22 the
value of the LTIP is based on the standard element of the total 2019 LTIP vesting, plus the
UQ element of the 2018 LTIP. 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.
(vii) The 2022/23 total remuneration figures include £559.8k for the CEO and £336.9k for
the CFO in respect of UQ performance for the 2019 LTIP, which is published one year
in arrears as explained on page 146 and relates therefore to the 2021/22 remuneration figure.
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
2021/22
£m
366.5
254.5
2022/23
£m
382.3
261.3
% change
4.3%
2.7%
Annual bonus outturn for 2022/23 (audited)
Our all-employee Annual Bonus Scheme ensures that all of our people,
from Executive Directors to our frontline 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 frontline employees, is set out in the Remuneration for the
Year in Review section on page 146.
Total Non-Executive Directors’ fees (audited)
Christine Hodgson
1 January 2020 – present
Kevin Beeston
1 June 2016 – present
John Coghlan(i)
23 May 2014 – present
Tom Delay
1 January 2022 – present
Sarah Legg
1 November 2022 – present
Sharmila Nebhrajani
1 May 2020 – present
Gillian Sheldon
1 November 2021 – present
Former Directors
Dominique Reiniche
Resigned effective 8 July 2021
Philip Remnant
Resigned effective 30 November 2022
Angela Strank
Resigned effective 31 March 2022
2021/22
(£’000)
Fees
2022/23
(£’000)
Fees
305.2
312.2
72.0
100.8
14.8
0.0
62.4
24.6
15.8
75.0
73.0
75.5
97.3
71.6
25.2
67.6
66.9
0.0
51.5
0.0
(i)
Inclusive of a fee of £10,470 in relation to his Hafren Dyfrdwy Cyfyngedig Chair
responsibilities in 2022/23 and £10,230 in 2021/22
160
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Remuneration of the CEO
The total 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
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
CEO
Total remuneration (£’000)(i)
Annual bonus (% of maximum)
LTIP vesting (% of maximum)
SMP vesting (% of maximum)
Tony Wray
1,818.4
78.7%
100.0%
64.3%
Liv
Garfield
2,197.6
52.0%
100.0%
N/A
Liv
Garfield
2,493.6
88.2%
100.0%
N/A
Liv
Garfield
2,424.0
75.8%
100.0%
N/A
Liv
Garfield
2,193.5
60.4%
100.0%
N/A
Liv
Garfield
2,478.8
58.5%
100.0%
N/A
Liv
Garfield
2,765.1
74.0%
Liv
Liv
Garfield
Garfield
3,084.0
3,948.4
81.0%
63.8%
100.0% 100.0%(ii) 100.0%(iii)
N/A
N/A
N/A
Liv
Garfield
3,209.3
38.5%
75.0%(iii)
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 vesting of the 2019 LTIP award was reported in the 2021/22 Directors’ Remuneration
Report as 75% of maximum. In light of UQ performance being achieved, the UQ element of
the 2019 LTIP award has since vested in full. To reflect this, the LTIP vesting percentage
for 2022 has been restated. The additional LTIP value arising from the full vesting of the
UQ element (£559.8k) is included in the total remuneration value for 2022/23.
(iii) The value of the 2020 LTIP award for 2022/23 is based on the Committee’s assessment of
the vesting of the standard element of the LTIP. The UQ element cannot be measured until
the end of July 2023; such vesting, if any, will form part of the total remuneration value for
2023/24.
CEO remuneration vs returns to shareholders
The graph below shows the value at 31 March 2023 of £100 invested in Severn Trent Plc on 1 April 2013 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
)
£
(
n
r
u
t
e
r
r
e
d
l
o
h
e
r
a
h
s
l
a
t
o
T
400
350
300
250
200
150
100
50
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
'
)
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
t
O
E
C
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Severn Trent Plc TSR
FTSE 100 TSR
CEO total remuneration (£’000)
Benefits for 2022/23 (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 15, we show below the benefits received by the individual Executive
Directors in the year, and their typical annual value where possible.
Benefits for 2022/23 (audited)
Green travel allowance
Private medical insurance
Life assurance
Personal accident cover
Biennial health screening
Incapacity benefits
Typical annual value 2021/22
£15,000
£1,493
Up to 6x salary
As per the Group-wide policy
£671 per health screen
Worth 75% of salary for a period of
five years (subject to qualifying
criteria)
Typical annual value 2022/23
£15,000
£1,563
Up to 6x salary
As per the Group-wide Policy
£671 per health screen
Worth 75% of salary for a period of
five years (subject to qualifying
criteria)
Percentage increase/(decrease)
0%
4.7%
0%
0%
0%
0%
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
161
GOVERNANCE REPORT
ANNUAL REPORT ON REMUNERATION CONTINUED
LTIP awards vesting in relation to performance in 2022/23 (audited)
Under the 2018 Policy, which received very 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 2020 LTIP is based on performance over the three-year period from 1 April 2020 to 31 March 2023. This is the third 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 achievement of
the standard element against the total potential LTIP vesting, as this measures the Company’s performance against the RoRE set by its FD.
Achievement under the standard element was 1.95x and this was measured against the target that we set of 1.39x the base RoRE return. This
results in a vesting equivalent to 150% of salary for the CEO and 100% of salary for the CFO. Full details are set out in the table below.
Total
number
of shares
granted
60,483
27,336
Value of
award at
grant
(£’000)
1,450.0
655.3
End of
performance
period
31/03/2023
31/03/2023
Standard
element of
award
vesting
(% max)
75.0%
66.7%
Number of
shares
vesting Vesting date
24/07/2023
45,362
24/07/2023
18,233
Value
attributable
to share price
movement
(£’000)
180.8
72.7
Value
of LTIP
shares
vesting(i)
(£’000)
1,268.3
509.8
Value of
dividend
equivalents
due(ii)
(£’000)
116.6
46.8
Value of
standard
element of LTIP
(single figure)
(£’000)
1,384.9
556.6
CEO
CFO
Standard proportion of 2020 award (up to 1.39x FD)
(i) Based on the average share price over the final three months of the performance period of £27.96 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 2023.
The vesting of the standard element of the 2019 LTIP award was reported in the 2021/22 Directors’ Remuneration Report. The below reflects the vesting of the
UQ element of the 2019 LTIP award (as a percentage of the maximum award). The 2019 LTIP vested at 100% of maximum when these two elements are combined.
Total
number
of shares
granted
69,411
31,367
Value of
award at
grant
(£’000)
1,416.0
639.9
End of
performance
period
31/03/2022
31/03/2022
Standard
element of
award
vesting
(% max)
25.0%
33.3%
Number of
shares
vesting Vesting date
23/07/2022
17,353
23/07/2022
10,445
Value
attributable
to share price
movement
(£’000)
147.0
88.5
Value
of LTIP
shares
vesting(i)
(£’000)
501.0
301.6
Value of
dividend
equivalents
due(ii)
(£’000)
58.8
35.4
Value of
standard
element of LTIP
(single figure)
(£’000)
559.8
337.0
CEO
CFO
UQ element of 2019 award
(i) Based on the three day average share price to 23 July 2023 of £28.87.
(ii) Based on dividends paid in the period since date of grant to 23 July 2023.
The UQ element of the 2020 LTIP award cannot be measured, and so the associated vesting will not be known, until the end of July 2023 when comparable
statistics for the other WaSCs are published and provided to Ofwat; such vesting, if any, will therefore be disclosed in the 2023/24 Directors’ Remuneration
Report. The LTIP value in the 2023/24 single figure table will comprise the UQ element of the 2020 LTIP award (if any) plus the standard element of the 2021 LTIP
award. 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.
Maximum number
of shares that
could vest
15,121
9,103
Value based on share price at grant
of £23.97
(£’000)
362.5
218.2
Value attributable to share price
movement
(£’000)
60.3
36.3
Value based on average share price of
£27.96
(£’000)
461.6
277.9
CEO
CFO
2020 LTIP – UQ element
2022 LTIP award (awards granted during the year)
Basis of award
(% of base salary)
200%
150%
Number of
shares
granted(i)
52,951
23,934
Grant
date
08/06/2022
Face value of
award at grant
(£’000)
End of
performance
period
Vesting
date
3-day average share
price used for grant
calculations
£1,517.6
£686.0(ii)
31/03/2025
24/07/2025
£28.66
CEO
CFO
(i) LTIP awards are conditional share awards subject to performance conditions, as set out below.
(ii) The in-flight awards for the CFO will vest in line with the normal timeline, pro-rated to his termination date and maintaining the two-year holding period.
2022 LTIP award
Vesting for
performance
CEO
CFO
Threshold FD
baseline 3.89%
(% salary)
30%
20%
1.39x FD 5.41%
(% salary)
120%
80%
UQ performance
relative to WaSCs
(% salary)
Sustainability
performance measure
(% salary)
160%
120%
40%
30%
Max outturn
(% salary)
200%
150%
Deferred shares under the Annual Bonus Scheme (including awards granted during the year)
One half of the bonus earned in respect of performance during 2021/22 was deferred into shares, as detailed below:
Award
Basis of
award
Number of
shares granted(i)
Grant
date
Face value of
award at grant
(£’000)
3-day average
share price used
for grant
calculations
Vesting
date
CEO
CFO
2022 Annual Bonus
Scheme relating to 2021/22
Deferred
bonus
12,734
7,674
14/06/2022
368.8
222.2
14/06/2025
£28.96
(i) Annual bonus shares are deferred shares which are subject to continued employment, but are not subject to further performance conditions.
162
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
Directors’ shareholdings and summary of outstanding share interests (audited)
Page 148 in the Remuneration for the Year in Review 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 2022/23.
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 all stakeholders.
There has been no change in the Directors’ interests in the ordinary share capital of the Company between those set out below and 23 May 2023.
Directors
Liv Garfield
11 April 2014 – present
James Bowling
1 April 2015 – present
Non-Executive Directors
Christine Hodgson
1 January 2020 – present
Kevin Beeston
1 June 2016 – present
John Coghlan
23 May 2014 – present
Tom Delay
1 January 2022 – present
Sarah Legg
1 November 2022 – present
Sharmila Nebhrajani
1 May 2020 – present
Gillian Sheldon
1 November 2021 – present
Former Directors
Philip Remnant
Resigned effective 30
November 2022
Beneficially
owned
LTIP
shares(i) (ii)
Annual bonus
shares(iii)
SAYE
options
Shareholding
requirement as a
% of salary
Current shareholding
as a % of salary
% shareholding
requirement
achieved(iv)
332,898
168,895
37,619
122,579
76,338
22,670
967
780
300%
200%
1,309%
828%
436%
414%
5,161
4,834
2,670
0
750
231
350
1,969
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(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 £28.79 (as at 31 March 2023). The guideline figures include unvested annual bonus shares (47%
deducted to cover statutory deductions).
External directorships
Liv Garfield was appointed a member of the Takeover Panel in November 2017. She retains any fees in respect of her appointment for the year
ended 31 March 2023. In December 2022, she also became a Non-Executive Director of Brookfield Asset Management Limited and retains any
fees associated with this appointment.
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, and on the Severn Trent Plc website.
All Directors, with the exception of James Bowling, will retire at this year’s AGM and submit themselves for appointment or reappointment by
shareholders at the AGM on 6 July 2023. Liv Garfield, James Bowling and Helen Miles have service contracts which provide for a notice period of
one year. Non-Executive Directors do not have service contracts, their Letters of Appointment can be found on the website.
Name
Liv Garfield
James Bowling
Helen Miles
Date of service contract
Nature of contract
Notice period
Termination payments
10/04/2014
01/04/2015
01/04/2023
Rolling
12 months
Payments for loss of office comprise a maximum
of 12 months’ salary and benefits only
Sharmila Nebhrajani OBE
Chair of the Remuneration Committee
23 May 2023
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
163
GOVERNANCE REPORT DIRECTORS’ REPORT
The Directors’ Report for the
year ended 31 March 2023
comprises pages 164 to 166
of this report, together with
the sections of the Annual
Report incorporated by
reference. The Governance
Report set out on pages 100
to 163 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 1 to 99, as the
Board considers them to be of
strategic importance.
Specifically, these are:
– the Performance Review on pages 14 to 38,
which 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 2023;
– 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 73 to 79;
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.
– information on the Group’s greenhouse gas
(‘GHG’) emissions for the year ended
31 March 2023 on page 61;
Severn Trent Plc does not have in place
any indemnities for the benefit of the
External Auditor.
– how we have engaged with our people and
stakeholders on pages 84 to 94;
– business relationships (throughout the
Strategic Report); and
– the Section 172 Statement on pages 95 to 97.
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 venture,
associated and subsidiary undertakings of the
Group as at 31 March 2023 are shown in note 43
to the Group financial statements.
Areas of operation
During the course of 2022/23, the Group had
activities and operations in the UK.
Directors and their interests
Biographies of the Directors currently serving
on the Board are set out on pages 104 to 105.
As set out in the Notice of Meeting, all the
Directors, with the exception of James Bowling,
will retire at this year’s AGM and submit
themselves for reappointment or, in the case of
Sarah Legg and Helen Miles, appointment, by
shareholders. All Directors seeking
reappointment were subject to a formal and
rigorous performance evaluation, further details
of which can be found on pages 118 to 120.
Details of Directors’ service contracts are set out
in the Directors’ Remuneration Report on page
163. The interests of the Directors in the shares of
the Company are also shown on page 163 of that
report. The Board has a documented process in
place in respect of conflicts.
Employees
The average number of employees within the
Group is shown in note 8 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 that 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.
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
(2), (5), (6), (7), (8) – (14)
Not applicable
Location
Page 193
Page 151
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 215 to 222 and is incorporated by reference. For information on our approach to social, environmental and ethical matters, please refer to our
Net Zero Transition Plan and TCFD disclosures on pages 39 to 63 and our separately published Sustainability Report, which will be made available at severntrent.co.uk.
164
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ANNUAL REPORT AND ACCOUNTS 2023
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 126.
Employee engagement
Due to our commitment to transparent and
best practice reporting, we have included the
sections on our people on pages 22 to 28 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 84
to 85 and 89 to 90 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 taken 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% of Severn Trent’s employees now
participate in Sharesave, with 26% of
participants saving the maximum of £500 per
month.
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.
Business relationships
Pages 95 and 97 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 £3.0 million.
Internal controls
Further details of our internal control
framework can be found in the Audit and Risk
Committee Report on page 130 to 131.
Treasury management
Details on our Treasury Policy and
management are set out in the Chief Financial
Officer’s Review on pages 66 to 72.
Post balance sheet events
Details of post balance sheet events are set out
in note 40 to the Group financial statements.
Dividends
An interim dividend of 42.73 pence per ordinary
share was paid on 11 January 2023. The
Directors recommend a final dividend of 64.09
pence per ordinary share to be paid on 14 July
2023 to shareholders on the register on 2 June
2023. This would bring the total dividend for
2022/23 to 106.82 pence per ordinary share
(2021/22: 102.14 pence). The payment of the
final dividend is subject to shareholder
approval at the 2023 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.
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 Dividend Policy, the
Board considered various scenarios and
sensitivities, and reviewed the impact of
adverse changes in inflation and interest rates
on key metrics. The Board believes that the
Dividend Policy is commensurate with a
sustainable investment-grade credit rating.
Capital structure
Details of the Company’s issued share capital
and of the movements during the year are
shown in note 8 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 36 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 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
2022 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
2022 to make market purchases of ordinary
shares up to a maximum number of 25,112,416
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 24,690,396 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.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
165
GOVERNANCE REPORT DIRECTORS’ REPORT CONTINUED
Contributions for political
and charitable purposes
Donations to charitable organisations during
the year amounted to £5,662,557
(2022: £5,594,954). 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 in our dedicated
Community Fund Report, which can be found
on our website.
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.
You can read more about how we have worked
with our suppliers and contractors on page 33.
For the payment practices reporting period
ended 31 March 2023, the average time to pay
for Severn Trent Water Limited was 31 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 and Risk Committee Report on
pages 132 and 134, the Audit and Risk
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 2023 AGM. Deloitte
LLP indicated its willingness to continue as
Auditor. The Audit and Risk Committee will
also be responsible for determining the audit
fee on behalf of the Board.
Carbon footprint
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 Net Zero
Transition Plan and TCFD disclosure on pages
39 to 63 of the Strategic Report is incorporated
into the Directors’ Report by cross reference.
Our TCFD disclosure includes our annual
report on GHG 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 for the 2023 AGM
can be found on the Severn Trent Plc website.
By order of the Board
Hannah Woodall-Pagan
Group Company Secretary
23 May 2023
Substantial shareholdings
As at 31 March 2023, 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
Pictet Asset Management
Legal & General Investment Management
SSGA
Number of ordinary shares
29,688,918
Voting rights held (%)
11.80
19,700,492
11,599,565
11,416,035
9,837,307
9,225,994
8,236,864
7.83
4.61
4.54
3.91
3.67
3.27
As at 23 May 2023, the Company had been notified of the following holdings of voting rights in the ordinary share capital of the Company:
BlackRock 29,002,992 shares (11.37%); Lazard Asset Management 18,946,162 shares (7.43%); Qatar Investment Authority 11,599,565 shares
(4.55%); Vanguard Group 11,504,139 shares (4.51%); Pictet Asset Management 9,837,307 shares (3.86%); Legal & General Investment
Management 8,741,868 shares (3.43%); and SSGA 8,199,986 shares (3.21%).
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.
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ANNUAL REPORT AND ACCOUNTS 2023
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.
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
consolidation taken as a whole, together
with a description of the Principal Risks
and uncertainties that they face; and
– the Annual Report and financial statements,
taken as a whole, are fair, balanced and
understandable, and provide the information
necessary for shareholders to assess the
Company’s position and performance,
business model and strategy.
This responsibility statement was approved by
the Board of Directors on 23 May 2023 and is
signed on its behalf by order of the Board:
Liv Garfield
Chief Executive
23 May 2023
James Bowling
Chief Financial Officer
23 May 2023
The Directors are required to prepare the
Group financial statements in accordance with
United Kingdom adopted International
Financial Reporting Standards (‘IFRSs’), 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 Annual Report and financial
statements 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;
– provide additional disclosures when
compliance with the specific requirements
in IFRSs are insufficient to enable users
to understand the impact of particular
transactions, other events and conditions
on the entity’s financial position and financial
performance; and
– make an assessment of the Company’s
ability to continue as a going concern.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Company’s
transactions and disclose with reasonable
accuracy at any time the financial position of
the Company and enable them to ensure that
the financial statements comply with the
Companies Act 2006. They are also
responsible for safeguarding the assets of the
Company and hence for taking reasonable
steps for the prevention and detection of fraud
and other irregularities.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
167
GOVERNANCE REPORT 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 2023 and of the group’s profit for the year then ended;
– the group financial statements have been properly prepared in accordance with United Kingdom adopted international accounting
standards;
– 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 statements of changes in equity;
– the consolidated and parent company balance sheets;
– the consolidated cash flow statement; and
– the related notes 1 to 43 of the consolidated financial statements and notes 1 to 16 of the parent company financial statements.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and United
Kingdom adopted international accounting standards. 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 we have not provided any non-audit services prohibited
by the FRC’s Ethical Standard 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; and
– classification of capital programme expenditure in Severn Trent Water Limited.
Within this report, key audit matters are identified as follows:
Similar level of risk
Materiality
Scoping
The materiality that we used for the audit of the group financial statements is £18.5m (2022: £13.9m). This materiality has
been established with regards to a number of metrics and equates to 3.6% (2022: 2.7%) of profit before interest and tax.
Our scoping has resulted in over 95% (2022: over 95%) of the group’s net operating assets, 96% (2022: 97%) of revenue
and 96% (2022: 100%) of profit before interest and tax, being subject to audit testing.
Significant changes
in our approach
The materiality benchmark has been updated in the current year from profit before tax adjusted for gains/(losses) from
financial instruments and exceptional items, used in the prior year. The change in the benchmark is reflective of the size
and scale of the business.
4. Conclusions relating to going concern
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.
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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 assessment of level of committed undrawn facilities including the £1.3 billion
revolving credit and bilateral facilities and 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 AMP (Asset
Management Plan) 7 and performing a sensitivity analysis relating to these assumptions;
– testing the arithmetic accuracy of the model used to prepare the cash flow forecasts and assessing the sophistication of the model used to
prepare the forecasts;
– assessing the impact of risks and uncertainties on the business model and medium-term risks; and
– assessing the appropriateness of management’s going concern disclosures in light of the above assessment.
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.
5.1. Valuation of the provision of household trade receivables in Severn Trent Water Limited
Key audit matter
description
Severn Trent Water supplies water to residential customers in the UK and the provision represents the portion of household
customers who do not, or cannot, pay their bills. Management makes estimates regarding the expected future loss rate for
current receivables when calculating the appropriate level of bad debt provision.
As at 31 March 2023, the provision recorded was £127.5m (2022: £128.2m) which incorporates management’s estimate of the
future impact of external economic factors on customers’ ability to pay their outstanding bills to Severn Trent Water Limited.
Provisions are made against Severn Trent Water Limited’s trade receivables balance based on the historical cash collection of
debt invoiced seven to nine years ago, which is considered by management to be representative of collection risk on whole
population of household debtors. This historical collection performance is then adjusted for actual current cash collection.
The final step is to adjust the provision for future economic conditions, for which management has considered the correlation
between forecast cash collection and gross disposable household income (GDHI).
The key audit matter is focussed on the appropriateness of the assumption that the experience of debt invoiced seven to nine
years ago is a reasonable expectation for the determination of lifetime expected credit losses under IFRS 9 Financial
Instruments, and whether the assumptions used in determining the impact of forecast decreases in GDHI on the expected
credit loss are appropriate. Due to the high degree of estimation uncertainty associated with the recoverability of household
trade receivables, we have determined that there was a potential for fraud through possible manipulation of this balance.
The Audit and Risk committee also considered this as a significant issue as discussed in the Audit and Risk Committee Report
on page 134. The bad debt provision is discussed in note 2 p) and note 21 to the financial statements. Management has included
this as a source of estimation uncertainty in note 4 to the financial statements.
Our procedures to address the key audit matter included the following:
– obtaining an understanding of relevant controls over the determination of the bad debt provision, including over the
supporting data and assumptions;
– testing the completeness and accuracy of the data included within the bad debt provision calculation;
– testing the allocation of cash received in the current year to debt aged between seven and nine years;
– use of data analytics to reconcile the debtor ageing for each debt category used in the bad debt provision model using
source data from the billing system;
– evaluating the reasonableness of economic data (both forecast and historical) used within the calculation, and
performed a sensitivity analysis;
– evaluating management’s assumptions used in the calculation of the bad debt provision and challenged whether this
represents lifetime expected credit loss, including review of cash collection data and historical trends; and
– assessing the appropriateness of the disclosures provided relating to the key assumptions, and the range of
sensitivities disclosed.
How the scope
of our audit
responded to the
key audit matter
Key observations
We are satisfied that the assumptions applied in assessing the expected credit losses, are reasonable and that Severn Trent
Water Limited’s bad debt provision has been appropriately calculated using relevant data, in accordance with IFRS 9.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
169
GROUP FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SEVERN TRENT PLC CONTINUED
5.2. Classification of capital programme expenditure in Severn Trent Water Limited
Key audit matter
description
Severn Trent Water has a substantial capital programme which was agreed with the regulator (‘Ofwat’) and therefore
incurs significant expenditure in relation to the development and maintenance of both infrastructure and non-
infrastructure assets.
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 capitalisation 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.
During the year, Severn Trent Water Limited has invested £868.2 million (2022:£689.3 million) in capital expenditure
projects out of the total group additions of £898.9 million (2022: £714.3 million) disclosed in note 17. Severn Trent Water
Limited spent a further £223.2 million (2022: £194.1 million) on infrastructure maintenance expenditure out of the total
group expenditure of £238.4 million (2022: £198.2 million) disclosed in note 7.
The Audit and Risk Committee also considered this as a significant issue as discussed in the Audit and Risk Committee
report on page 134. Further details are included within the critical accounting judgements note in note 4 to the financial
statements.
Our procedures to address the key audit matter included the following:
– assessing management’s capitalisation and implementation guidance to understand any changes in the current year
and to determine compliance with the relevant accounting standards;
– testing the relevant controls related to classification of capital programme expenditure;
– obtaining an understanding of, and testing, relevant controls over the application of the policy regarding expenditure
incurred on projects within the capital programme during the year; and
– for a sample of projects, assessing whether the capitalisation policy has been applied to the costs incurred by
reviewing the business cases, making direct enquiries of project managers, and inspecting 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 financial year. We are
satisfied that management has applied its capitalisation policy and implementation guidance appropriately in
determining the expenditure to be 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 the materiality of the financial statements as a whole as follows:
Materiality
Basis for
determining
materiality
Rationale for
the benchmark
applied
Group financial statements
Parent Company financial statements
£18.5 million (2022: £13.9 million)
£17.6 million (2022: £13.2 million)
The current year materiality has been established with
regards to a number of metrics and equates to 3.6%
(2022: 2.7%) of Profit before interest and tax.
We determined parent company materiality based on 3.0%
(2022: 3.0%) of net assets and capped materiality at 95%
(2022: 95%) of group materiality.
We consider Profit before interest and tax to be the
most relevant benchmark to measure the performance
of the group.
The parent company does not trade or exist for profit
generating purposes, so materiality has been determined
using net assets.
The increase in materiality in 2023 represents a change
from the 2022 benchmark to a measure which is reflective
of the size and scale of the business.
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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.
Performance
materiality
Basis and rationale
for determining
performance
materiality
Group financial statements
Parent Company financial statements
70% (2022: 70%) of group materiality
70% (2022: 70%) of parent company materiality
The factors we considered in setting performance materiality at 70% of group and parent company materiality included:
– The overall quality of the control environment and that we were able to rely on controls in certain of the group’s
businesses.
– The small number and low value of uncorrected misstatements identified in previous audits.
6.3. Error reporting threshold
We agreed with the Audit and Risk Committee that we would report to the Committee, all audit differences in excess of £0.9 million
(2022: £0.7 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also reported to
the Audit and Risk Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
7.1. Identification and scoping of components
Our audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls, and assessing the risks of
material misstatement at the group level.
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 £17.6 million (2022: £12.9 million). We have audited a further seven components using component materiality which range from
£9.3 million to £17.6 million (2022: nine components using statutory materiality which range from £0.1 million to £13.2 million). Audit work to
respond to the risks of material misstatement was performed directly by the group audit engagement team.
This represented over 95% (2022: over 95%) of the group’s net operating assets, 96% (2022: 97%) of revenue and 96% (2022: 100%) of profit before
interest and tax, being subject to audit testing.
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 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 tested and relied on the relevant controls in respect of household and non-household revenue and classification of capital programme
expenditure which are supported by the group’s financial accounting software platform. We tested the relevant controls on a sample basis by
either observing or reperforming each step of the control and obtaining the relevant supporting evidence.
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ANNUAL REPORT AND ACCOUNTS 2023
171
GROUP FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SEVERN TRENT PLC CONTINUED
7.3. Our consideration of climate-related risks
The group has assessed the risk and opportunities relevant to climate change and has included the risk as a principal risk as set out on page 78,
consistent with previous years. This included assessing the potential impact of the material risks and opportunities and its Net Zero Transition
Plan on both the current balance sheet position and its accounting policies.
We reviewed management’s climate change risk assessment and evaluated the completeness of the identified risks and impact on the financial
statements. We also considered climate change within our audit risk assessment process in conjunction with our assessment of the balances and
did not identify any additional risks of material misstatement.
With the involvement of our Environmental, Social and Governance (‘ESG’) specialists, we:
– evaluated the financial statement disclosures to assess whether climate risk assumptions underpinning specific account balances were
appropriately disclosed; and
– read the climate change-related statements (as disclosed in the Strategic Report) and considered whether the information included in the
narrative reporting is materially consistent with the financial statements and our knowledge obtained in the audit.
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.
9. Responsibilities of directors
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.
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ANNUAL REPORT AND ACCOUNTS 2023
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.
Identifying and assessing potential risks related to irregularities
11.1.
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 remuneration policies,
key drivers for directors’ remuneration, bonus levels and performance targets;
– the group’s own assessment of the risks that irregularities may occur either as a result of fraud or error that was approved by the board on
20 February 2023;
– results of our enquiries of management, internal audit, the directors and the Audit and Risk Committee about their own identification and
assessment of the risks of irregularities, including those that are specific to the group’s sector;
– any matters we identified having obtained and reviewed the group’s documentation of their 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; and
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations.
– the matters discussed among the audit engagement team and relevant internal specialists, including tax, valuations, pensions, treasury and IT,
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 of trade receivables in Severn Trent Water Limited; and
– classification of capital programme expenditure 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 also obtained an understanding of the legal and regulatory framework that the group operates in, focusing on provisions of those laws and
regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and
regulations we considered in this context included the UK Companies Act, Listing Rules, pensions 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).
Audit response to risks identified
11.2.
We identified the valuation of the provision of trade receivables in Severn Trent Water Limited and the classification of capital programme
expenditure 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.
In addition to the above, 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 and Risk Committee, in-house legal counsel concerning actual and potential litigation and claims;
– 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, reviewing internal audit reports and reviewing correspondence with HMRC,
Ofwat, and other regulatory authorities;
– 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.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
173
GROUP FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SEVERN TRENT PLC CONTINUED
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
– the Strategic report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
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 83;
– 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 page 80;
– the directors’ statement on fair, balanced and understandable set out on page 167;
– the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 75;
– the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on
pages 130 to 131; and
– the section describing the work of the Audit and Risk Committee set out on pages 127 to 134.
14. Matters on which we are required to report by exception
14.1.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Adequacy of explanations received and accounting records
– 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.
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SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
15. Other matters which we are required to address
Auditor tenure
15.1.
Following the recommendation of the Audit and Risk Committee, we were appointed by the shareholders 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 18 years, covering the years ending 31 March 2006 to 31 March 2023.
15.2.
Our audit opinion is consistent with the additional report to the Audit and Risk Committee we are required to provide in accordance with ISAs (UK).
Consistency of the audit report with the additional report to the Audit and Risk Committee
16. Use of our report
This report is made solely to the parent 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 parent 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 parent company and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial statements form
part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National Storage Mechanism of the UK FCA in
accordance with the ESEF Regulatory Technical Standard ((‘ESEF RTS’). This auditor’s report provides no assurance over whether the annual
financial report has been prepared using the single electronic format specified in the ESEF RTS.
Jacqueline Holden FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
23 May 2023
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
175
GROUP FINANCIAL STATEMENTS GROUP FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH 2023
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
Reduction in expected credit loss on loan receivable
Net gains on financial instruments
Share of net gain/(loss) of joint ventures accounted for using the equity method
Profit on ordinary activities before taxation
Current tax
Deferred tax
Taxation on profit on ordinary activities
Profit/(loss) for the year
Earnings/(loss) per share (pence)
Basic
Diluted
Note
5,6
7
7
9
10
11
19
12
12
12
Note
14
14
2023
£m
2022
£m
2,165.1
1,943.3
–
5.3
(1,631.8)
(1,417.8)
(24.5)
(24.6)
(1,656.3)
(1,442.4)
508.8
84.1
(446.7)
(362.6)
–
21.7
–
167.9
(0.2)
(35.5)
(35.7)
132.2
2023
52.7
52.5
506.2
54.7
(324.1)
(269.4)
0.2
39.3
(2.2)
274.1
4.8
(366.1)
(361.3)
(87.2)
2022
(35.2)
(35.2)
176
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2023
Profit/(loss) 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 rate change
Items that may be reclassified to the income statement:
(Loss)/gain on cash flow hedges
Deferred tax on losses/gains 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 (loss)/income for the year
Note
2023
£m
132.2
2022
£m
(87.2)
27
12
12
12
11
12
(252.2)
63.0
–
(189.2)
(2.5)
0.6
4.9
(1.1)
1.9
(187.3)
(55.1)
188.5
(47.1)
8.4
149.8
54.6
(13.0)
6.8
(1.7)
46.7
196.5
109.3
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
177
GROUP FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2023
Equity attributable to owners of the company
Share
capital
£m
237.2
Share
premium
£m
Other
reserves
£m
Retained
earnings
£m
Total
£m
148.1
101.7
651.7
1,138.7
29,30
10.2
235.1
29,30
0.7
11.2
248.1
394.4
148.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
54.6
(13.0)
6.8
(1.7)
46.7
–
–
–
–
–
–
–
–
(2.5)
0.6
4.9
(1.1)
1.9
–
–
–
–
–
(87.2)
188.5
(47.1)
8.4
–
–
–
–
62.6
–
–
8.3
4.9
(87.2)
188.5
(47.1)
8.4
54.6
(13.0)
6.8
(1.7)
109.3
245.3
11.9
8.3
4.9
(254.5)
(254.5)
473.0
132.2
(252.2)
63.0
–
–
–
–
1,263.9
132.2
(252.2)
63.0
(2.5)
0.6
4.9
(1.1)
(57.0)
(55.1)
–
9.5
(1.8)
0.1
(261.3)
162.5
15.3
9.5
(1.8)
0.1
(261.3)
970.6
29,30
1.0
14.3
36
12
13
–
–
–
–
–
–
–
–
249.1
408.7
150.3
At 1 April 2021
Loss for the year
Net actuarial gains
Deferred tax on net actuarial gains
Deferred tax arising from rate change
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
Total comprehensive income for the year
Note
27
12
12
12
11
12
36
12
13
27
12
12
11
12
Proceeds from equity placing
Share options and LTIPs
– proceeds from shares issued
– value of employees’ services
Deferred tax on share based payments
Dividends paid
At 1 April 2022
Profit for the year
Net actuarial losses
Deferred tax on net actuarial losses
Loss 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
Total comprehensive loss for the year
Share options and LTIPs
- proceeds from shares issued
- value of employees’ services
- own shares purchased
Deferred tax on share based payments
Dividends paid
At 31 March 2023
178
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
GROUP FINANCIAL STATEMENTS CONTINUED CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH 2023
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
Investment in joint venture
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
Trade and other payables
Provisions for liabilities
Net current liabilities
Total assets less 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
Note
15
16
17
18
19
20
21
27
21
20
22
23
25
28
23
24
25
26
27
28
29
30
31
2023
£m
92.7
185.9
2022
£m
91.4
179.6
10,716.9
10,208.4
129.3
129.9
16.5
82.3
88.4
5.7
16.5
31.2
92.1
17.5
11,317.7
10,766.6
35.4
750.9
9.9
0.5
34.2
830.9
(317.4)
(720.4)
(52.4)
32.0
606.4
6.2
27.6
115.4
787.6
(365.2)
(655.5)
(38.4)
(1,090.2)
(1,059.1)
(259.3)
(271.5)
11,058.4
10,495.1
(6,986.2)
(6,365.9)
(11.3)
(43.3)
(1,479.6)
(1,334.0)
(1,293.5)
(1,320.6)
(285.1)
(32.1)
(145.5)
(21.9)
(10,087.8)
(9,231.2)
970.6
1,263.9
249.1
408.7
150.3
162.5
970.6
248.1
394.4
148.4
473.0
1,263.9
Signed on behalf of the Board who approved the accounts on 23 May 2023.
Christine Hodgson
Chair
James Bowling
Chief Financial Officer
Company Number 02366619
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
179
GROUP FINANCIAL STATEMENTS
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 2023
Cash generated from operations
Tax received
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Purchase of subsidiaries net of cash acquired
Purchases of property, plant and equipment
Purchases of intangible assets
Proceeds on disposal of property, plant and equipment
Loans repaid by joint venture
Loans advanced to joint venture
Interest received
Net cash outflow from investing 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 net of costs
Payments for swap terminations
Proceeds from swap terminations
Purchase of own shares
Net cash outflow 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 the end of the year
Cash at bank and in hand
Bank overdrafts
Short term deposits
Note
37
37
37
2023
£m
753.3
6.1
(10.1)
749.3
(0.4)
(699.7)
(40.0)
12.9
5.5
–
5.5
(716.2)
(205.3)
(3.7)
(261.3)
(982.4)
(13.1)
1,351.4
15.3
(11.2)
–
(1.8)
(112.1)
(79.0)
107.7
28.7
34.2
(5.5)
–
28.7
2022
£m
891.7
–
(1.2)
890.5
–
(610.3)
(36.3)
9.5
–
(13.0)
1.9
(648.2)
(182.9)
(4.0)
(254.5)
(488.9)
(12.1)
501.0
257.2
–
5.6
–
(178.6)
63.7
44.0
107.7
40.4
(7.7)
75.0
107.7
180
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
GROUP FINANCIAL STATEMENTS CONTINUED NOTES TO THE GROUP FINANCIAL STATEMENTS
1 General information
The Severn Trent Group’s operations 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 83 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).
b) Basis of consolidation
The consolidated financial statements include the results of Severn
Trent Plc and its subsidiaries and joint ventures. Results are included
from the date of acquisition or incorporation and excluded from the date
of disposal.
Subsidiaries are consolidated where the Group has the power to control
a subsidiary.
Joint venture undertakings are accounted for on an equity basis where
the Group exercised joint control under a contractual arrangement.
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.
(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 United Kingdom
adopted International Financial Reporting Standards.
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.
(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 United
Kingdom adopted International Financial Reporting Standards 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 is presented for the parent company. The profit for the
year is disclosed in the Company statement of comprehensive income,
the Company statement of changes in equity and the Company 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.
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 intercompany 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 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.
Amounts received from developers for diversions activity is recognised
as turnover when the service to divert the infrastructure has been
completed.
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.
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GROUP FINANCIAL STATEMENTS 2 Accounting policies (continued)
d) Exceptional items
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.
e) Taxation
Current tax payable is based on taxable profit for the year and is
calculated using tax rates that have been enacted or substantively
enacted by the balance sheet date.
Deferred taxation is provided in full on taxable temporary differences
between the tax bases of assets and liabilities and their carrying
amounts in the financial statements. Deferred taxation is measured
on a non-discounted basis using the tax rates and laws that have been
enacted or substantively enacted by the balance sheet date and are
expected to apply when the related deferred income tax asset is
realised or the deferred tax liability is settled.
Where there is a change in the tax rate enacted or substantively
enacted, deferred tax assets and liabilities in the opening balance sheet
are remeasured at the new rate. The resulting charge/credit to income
statement and reserves is recognised in the year that the rate change
occurs.
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.
f) Goodwill
Goodwill represents the excess of the fair value of purchase
consideration over the fair value of the net assets acquired. Goodwill
arising on acquisition of subsidiaries is included in intangible assets,
whilst goodwill arising on acquisition of associates or joint ventures
is included in 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 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.
g) Other intangible non-current assets
Intangible assets acquired separately, or internally generated where
a separate resource that is controlled by the Group is created, 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
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).
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.
i) Property, plant and equipment
Property, plant and equipment is held at cost (or at deemed cost
for infrastructure assets on transition to IFRS) less accumulated
depreciation and impairment. Expenditure on 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. The transfer is
considered to be linked to the provision of ongoing services therefore
the corresponding credit is recorded in deferred income and released
to turnover over the expected useful lives of the related assets. Further
details regarding the judgment applied is detailed in note 4.
Where assets take a substantial period 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.
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NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
2 Accounting policies (continued)
i) Property, plant and equipment (continued)
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:
Infrastructure assets
Impounding reservoirs
Raw water aqueducts
Mains
Sewers
Other assets
Buildings
Fixed plant and equipment
Vehicles and mobile plant
Years
250
250
80-150
150-200
30-80
20-40
2-15
j) Leased assets
Where the Group enters 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.
Most 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.
k) Grants and contributions
Grants and contributions received in respect of non-current assets,
including certain charges made for 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 adjusted
for the risk profiles of individual businesses. For regulated businesses
we use the WACC from Ofwat’s latest price review adjusted 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 the
policy set out in l) above.
Inventory
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.
o) Loans receivable
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 ventures. 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.
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GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS
2 Accounting policies (continued)
Changes in the retirement benefit obligation that arise from:
o) Loans receivable (continued)
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 loan receivable 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.
p) Trade receivables and accrued income
Trade receivables and accrued income are measured at fair value on
initial recognition, and subsequently measured at amortised cost using
the effective interest rate method, less loss allowance. 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.
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.
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– 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.
r) Provisions
Provisions are recognised where:
– there is a present obligation as a result of a past event;
– it is probable that there will be an outflow of economic benefits to
settle this obligation; and
– a reliable estimate of this amount can be made.
Insurance provisions are recognised for claims notified and for claims
incurred but which have not yet been notified, based on advice from
the Group’s independent insurance advisers.
Provisions are discounted to present value using a pre-tax discount
rate that reflects the risks specific to the liability where the effect
is material.
s) Purchase of own shares
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.
t) Borrowings
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 in the
income statement.
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 in the income statement.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 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.
v) Share based payment
The Group operates a number of equity settled share based
compensation plans for employees. The fair value of the employee
services received in exchange for the grant is recognised as an expense
over the vesting period of the grant.
The fair value of employee services is determined by reference to the
fair value of the awards granted, calculated using an appropriate pricing
model, excluding the impact of any non-market vesting conditions.
The number of awards that are expected to vest takes into account
non-market vesting conditions including, where appropriate, continuing
employment by the Group. The charge is adjusted to reflect shares that
do not vest as a result of failing to meet a non-market condition.
Share based compensation plans are satisfied in shares of the parent
company. Where the fair value of the awards is not recharged to
participating Group companies, the parent company records the fair
value of the awards as an increase in its investment in the subsidiary.
The investment is adjusted to reflect shares that do not vest as a result
of failing to meet a non-market based condition.
w) Cash flow statement
For the 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.
2 Accounting policies (continued)
u) Derivative financial instruments
Derivative financial instruments are stated at fair value, including
accrued interest. Fair value is determined using the methodology
described in note 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 in the
income statement.
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, energy swaps and interest rate
swaps to hedge its risks associated with foreign currency, interest rate
and energy price 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.
Hedge accounting is discontinued when the hedging instrument
expires, is sold, terminated or exercised, or no longer qualifies for
hedge accounting.
Fair value hedges
Where a loan or borrowing is in a fair value hedging relationship it is
remeasured for changes in fair value of the hedged risk at the balance
sheet date, with gains or losses being recognised in gains/losses on
financial instruments in the income statement. The gain or loss on the
corresponding hedging instrument is also taken to gains/losses on
financial instruments in the income statement so that the effective
portion of the hedge will offset the gain or loss on the hedged item.
If hedge accounting is discontinued, the fair value adjustment arising
from the hedged risk on the hedged item is amortised to the income
statement over the anticipated remaining life of the hedged item.
Cash flow hedges
The portion of the gain or loss on the hedging instrument that is
determined to be an effective hedge is recognised in equity and the
ineffective portion is charged to gains/losses on financial instruments
in the income statement. When the gain or loss from the hedged
underlying transaction is recognised in the income statement, the
gains or losses on the hedging instrument that have previously been
recognised in equity are recycled through gains/losses on financial
instruments in the income statement.
If hedge accounting is discontinued, any cumulative gain or loss on the
hedging instrument previously recognised in equity is held in equity
until the forecast transaction occurs, or transferred to gains/losses
on financial instruments in the income statement if the forecast
transaction is no longer expected to occur. 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.
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GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS 2 Accounting policies (continued)
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’).
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.
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.
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) Critical accounting judgments
(i)
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 the 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 £238.4 million (2022: £198.2 million).
Expenditure which results in quality or capacity enhancements to the
operating capability of the infrastructure networks is capitalised and
amounted to £898.9 million (2022: £714.3 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. 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
£105.0 million (2022: £69.0 million), infrastructure charges amounting
to £21.8 million (2022: £25.0 million) and other charges relating to
the provision of infrastructure amounting to £20.2 million
(2022: £17.0 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.
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NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 4
Critical accounting judgments and key sources of
estimation uncertainty (continued)
a) Critical accounting judgments (continued)
(iii) Climate change
The Group continues to develop its assessment of the impact that
climate change may have on the amounts recognised in the financial
statements. The natural environment in which the Group operates is
continually changing, and the expected impact on the Group from
climate change is set out within the ‘Our approach to climate change’
section of the Strategic Report on page 39.
We have considered the impact of the climate change related risks
to which the Group is exposed in the preparation of these financial
statements. The risks are long term in nature, and whilst they will
provide a need for investment in the future, we conclude that there
is no material impact on the carrying amount of assets or liabilities
recognised in the financial statements, nor do they lead to any
additional key sources of estimation or judgment.
b) Sources of estimation uncertainty
(i)
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 by asset
category is detailed as follows:
Land and buildings
Infrastructure assets
Fixed plant and equipment
Moveable plant
Average
useful
economic life
(years)
42.1
135.2
24.3
11.4
The impact on the annual depreciation expense of a 10 per cent increase
and decrease in useful economic life (‘UEL’) of property, plant and
equipment by asset category is detailed as follows:
Impact on annual depreciation (£m)
Land and buildings
Infrastructure assets
Fixed plant and equipment
Moveable plant
10 per cent
increase in
UEL
£m
10 per cent
decrease in
UEL
£m
(9.3)
(9.1)
(20.5)
(0.6)
11.3
5.1
25.0
0.8
(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 external economic factors on the
Group’s collection of trade receivables. A number of economic factors
such as high inflation, rising interest rates and reduction of Government
support for domestic energy bills might impact household disposable
income and therefore the expected credit losses on trade receivables.
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
2023
£m
746.7
(135.1)
611.6
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
2023
£m
135.0
24.5
(24.4)
135.1
2022
£m
630.9
(135.0)
495.9
2022
£m
137.1
24.6
(26.7)
135.0
The average expected credit loss for the outstanding trade receivables
and accrued income was 2.25% at 31 March 2023. A change of 10bps in
the expected credit loss would increase the charge and provision for
bad and doubtful debts by £10.3 million.
5 Segmental analysis
a) Background
The Group is organised into two main business segments:
Regulated Water and Waste Water includes the activities of Severn
Trent Water Limited, except hydro-electric generation and property
sales, and Hafren Dyfrdwy Cyfyngedig.
Business Services includes the Group’s Operating Services businesses,
the Green Power business including Severn Trent Water’s hydro-
electric generation, the Property Development business and our other
non-regulated businesses including affinity products and searches.
The Severn Trent Executive Committee (‘STEC’) is 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 PBIT. A segmental analysis of turnover and PBIT is presented below.
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
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GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS
5 Segmental analysis (continued)
b) Segmental results
The following table shows the segmental turnover and PBIT:
External turnover
Inter-segment turnover
Total turnover
Profit before interest and tax
Profit before interest and tax is stated after:
2023
2022
Regulated
Water and
Waste Water
£m
Business
Services
£m
Regulated
Water and
Waste Water
£m
1,995.0
0.4
1,995.4
467.5
170.1
7.0
177.1
49.2
1,803.9
0.5
1,804.4
476.3
Business
Services
£m
139.4
4.2
143.6
36.4
2023
2022
Regulated
Water and
Waste Water
£m
Business
Services
£m
Regulated
Water and
Waste Water
£m
Business
Services
£m
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:
367.6
2.2
30.8
(0.2)
12.1
1.7
2.8
(2.0)
Regulated Water and Waste Water
Business Services
Corporate and other
Consolidation adjustments
350.6
1.0
33.4
2.5
2023
£m
1,995.4
177.1
1.1
(8.5)
11.1
2.8
2.9
(7.9)
2022
£m
1,804.4
143.6
1.1
(5.8)
2,165.1
1,943.3
Included in the revenues of Regulated Water and Waste Water of £1,995.4 million (2022: £1,804.4 million) is £259.5 million (2022: £259.8 million)
which arose from sales to Water Plus Group. No other single customer contributed 10% or more to the Group’s revenue for either 2023 or 2022.
Segmental PBIT is reconciled to the Group’s profit before tax as follows:
Regulated Water and Waste Water
Business Services
Corporate and other
Consolidation adjustments
PBIT
Net finance costs
Reduction in expected credit loss on loan receivable
Net gains on financial instruments
Share of net gain/(loss) of joint ventures accounted for using the equity method
2023
£m
467.5
49.2
(8.0)
0.1
508.8
(362.6)
–
21.7
–
2022
£m
476.3
36.4
(6.9)
0.4
506.2
(269.4)
0.2
39.3
(2.2)
Profit on ordinary activities before taxation
167.9
274.1
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.
188
188
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
5 Segmental analysis (continued)
c) Segmental capital employed
Separate segmental analyses of assets and liabilities are not reviewed by STEC. The balance sheet measure reviewed by STEC on a segmental
basis is capital employed.
Operating assets
Goodwill
Segment assets
Segment operating liabilities
Capital employed
2023
2022
Regulated
Water and
Waste Water
£m
Business
Services
£m
Regulated
Water and
Waste Water
£m
Business
Services
£m
11,498.4
63.5
11,561.9
(2,507.4)
9,054.5
349.5
30.5
380.0
(33.3)
346.7
10,869.7
63.5
10,933.2
(2,158.8)
8,774.4
337.4
29.2
366.6
(29.6)
337.0
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.
The reportable segments’ assets are reconciled to the Group’s total assets as follows:
Segment assets
Regulated Water and Waste Water
Business Services
Corporate and other
Other financial assets
Investment in joint venture
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
Deferred tax
Consolidation adjustments
Total liabilities
The consolidation adjustments comprise elimination of intra-group creditors.
2023
£m
2022
£m
11,561.9
10,933.2
380.0
5.3
117.0
16.5
75.3
9.9
366.6
4.5
174.2
16.5
79.6
6.2
(17.3)
(26.6)
12,148.6
11,554.2
2023
£m
2022
£m
(2,507.4)
(2,158.8)
(33.3)
(47.4)
(29.6)
(38.2)
(7,314.9)
(6,774.2)
(1,293.5)
(1,320.6)
18.5
31.1
(11,178.0)
(10,290.3)
SEVERN TRENT PLC
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
189
189
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS
5 Segmental analysis (continued)
c) Segmental capital employed (continued)
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
All of the Group’s sales were derived from the UK in 2023 and 2022.
2023
2022
Regulated
Water and
Waste Water
£m
Business
Services
£m
Regulated
Water and
Waste Water
£m
39.5
885.5
3.0
0.5
14.3
–
35.9
694.3
2.7
Business
Services
£m
0.4
20.0
1.5
6 Revenue from contracts with customers
Revenue recognised from contracts with customers is analysed by type of revenue and by business segment below:
Year ended 31 March 2023
Water and waste water services
Operating services
Renewable energy
Other sales
Year ended 31 March 2022
Water and waste water services
Operating services
Renewable energy
Other sales
Business
Services
£m
Corporate
and other
£m
Consolidation
adjustments
£m
Regulated
Water and
Waste Water
£m
1,932.9
–
57.2
5.3
Regulated
Water and
Waste Water
£m
1,767.5
–
32.8
4.1
–
84.7
78.6
13.8
–
74.4
55.5
13.7
1,804.4
143.6
–
–
–
1.1
1.1
(0.4)
–
(7.0)
(1.1)
(8.5)
–
–
–
1.1
1.1
(0.5)
–
(4.2)
(1.1)
(5.8)
Group
£m
1,932.5
84.7
128.8
19.1
2,165.1
Group
£m
1,767.0
74.4
84.1
17.8
1,943.3
1,995.4
177.1
Business
Services
£m
Corporate
and other
£m
Consolidation
adjustments
£m
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.
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 in relation to connections were as follows:
At 1 April
Contributions and grants received
Assets transferred at no cost
Amounts released to income statement
At 31 March
2023
£m
2022
£m
1,353.4
1,259.1
40.2
105.0
(16.4)
42.8
69.0
(17.5)
1,482.2
1,353.4
Revenue amounting to £16.4 million (2022: £17.5 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 (2022: 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.
190
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
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
2023
£m
16.2
64.8
1,401.2
1,482.2
2022
£m
29.5
118.0
1,205.9
1,353.4
Payments received from customers in advance of the service period represents a contract liability. Changes in the Group’s contract liabilities from
payments received in advance were as follows:
Contract liability at 1 April
Revenue recognised
Cash received
Contract liability at 31 March
2023
£m
144.8
2022
£m
132.5
(1,394.9)
(1,291.1)
1,396.6
1,303.4
146.5
144.8
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. The estimated transaction price has
increased from 31 March 2022 as a result of increased inflation and consumption. At 31 March 2023 the aggregate amount of the estimated
transaction price allocated to performance obligations that were not satisfied was £372.5 million (2022: £396.3 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
2023
£m
52.1
212.3
108.1
372.5
2022
£m
49.0
197.4
149.9
396.3
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 are recorded
as contract liabilities. Changes in contract assets in the year were as follows:
Contract asset at 1 April
Amounts billed
Revenue recognised
Contract asset at 31 March
No contract liabilities arose from the Group’s Operating Services contract with the MoD.
2023
£m
39.9
(52.6)
57.0
44.3
2022
£m
38.2
(49.9)
51.6
39.9
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
191
191
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS 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 on disposal of tangible fixed assets
Exchange (gains)/losses
Infrastructure maintenance expenditure
Ofwat licence fees
Other operating costs
Other operating income
Own work capitalised
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
2023
£m
315.1
35.3
22.4
9.5
382.3
198.3
115.2
84.4
24.5
41.6
379.7
3.9
33.7
291.6
0.3
–
9.1
(2.2)
(0.8)
2022
£m
299.1
30.9
28.2
8.3
366.5
110.9
81.3
84.3
24.6
36.5
361.5
3.8
36.3
256.9
0.1
0.5
9.3
(5.4)
0.5
238.4
198.2
5.5
71.3
(3.1)
4.9
63.3
(3.3)
1,873.7
1,630.7
(217.4)
(188.3)
1,656.3
1,442.4
2023
£m
2022
£m
0.3
0.7
1.0
0.2
0.1
0.3
0.3
0.6
0.9
0.2
0.1
0.3
Other assurance services include certain agreed upon procedures performed by Deloitte in connection with financing documents.
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 and Risk Committee report on pages 127 and 134. No services were provided pursuant to contingent fee arrangements.
Details of directors’ remuneration are set out in the Directors’ Remuneration Report on pages 141 to 144.
192
192
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 8 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
9 Finance income
Interest income earned on bank deposits
Other financial income
Total interest receivable
Interest income on defined benefit scheme assets
10 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
2023
2022
7,176
461
14
7,651
2023
£m
3.3
2.2
5.5
78.6
84.1
2023
£m
30.9
328.6
3.7
363.2
1.3
82.2
446.7
6,612
492
14
7,118
2022
£m
0.1
1.8
1.9
52.8
54.7
2022
£m
14.7
243.5
4.0
262.2
2.4
59.5
324.1
Borrowing costs of £56.6 million (2022: £34.5 million) incurred on funding eligible capital projects have been capitalised at an interest rate of 5.4%
(2022: 4.11%). Tax relief of £10.7 million (2022: £6.5 million) was claimed on these costs which has created tax losses carried forward, offset by a
related deferred tax asset of £14.1 million (2022: £8.6 million).
11 Net gains/(losses) on financial instruments
Loss on swaps used as hedging instruments in fair value hedges
(Loss)/gain arising on debt in fair value hedges
Exchange loss on other loans
Net loss on cash flow hedges transferred from equity
Hedge ineffectiveness on cash flow hedges
Gain arising on swaps where hedge accounting is not applied
Amortisation of fair value adjustment on debt
2023
£m
(1.3)
(0.3)
(7.4)
(4.9)
(1.3)
35.7
1.2
21.7
2022
£m
(1.0)
1.6
(6.6)
(6.8)
(0.6)
51.5
1.2
39.3
The gains from financial assets and liabilities mandatorily measured at fair value through profit or loss was £34.4 million (2022: £50.5 million).
There were no financial assets or liabilities designated as at fair value through the profit or loss (2022: nil).
The Group’s hedge accounting arrangements are described in note 35.
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
193
193
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS 12 Taxation
a) Analysis of tax charge in the year
Current tax
Current year at 19% (2022: 19%)
Prior years
Total current tax charge/(credit)
Deferred tax
Origination and reversal of temporary differences:
Current year
Prior years
Exceptional charge on rate change
Total deferred tax charge
2023
£m
–
0.2
0.2
36.0
(0.5)
–
35.5
35.7
2022
£m
–
(4.8)
(4.8)
66.7
5.0
294.4
366.1
361.3
An exceptional deferred tax charge of £294.4 million arose from recalculating opening deferred tax liabilities at 25% in 2022 (see note 26).
b) Factors affecting the tax charge in the year
The tax expense for the year is higher (2022: higher) than the standard rate of corporation tax in the UK of 19% (2022: 19%). The differences are
explained below:
Total tax
Profit before taxation
Tax at standard rate of corporation tax in the UK 19% (2022: 19%)
Tax effect of depreciation on non-qualifying assets
Permanent difference from super deductions
Other permanent differences
Current year impact of rate change
Adjustments in respect of prior years
Exceptional deferred tax arising from rate change
Total tax charge
Current tax
Profit before taxation
Tax at standard rate of corporation tax in the UK 19% (2022: 19%)
Tax effect of depreciation on non-qualifying assets
Permanent difference from super deductions
Other permanent differences
Tax effect of accelerated capital allowances
Other temporary differences
Adjustments in respect of prior years
Total current tax charge/(credit)
2023
£m
167.9
31.9
2.2
(4.6)
(2.0)
8.5
(0.3)
–
35.7
2023
£m
167.9
31.9
2.2
(4.6)
(2.0)
(33.1)
5.6
0.2
0.2
2022
£m
274.1
52.1
1.9
(5.3)
2.1
15.9
0.2
294.4
361.3
2022
£m
274.1
52.1
1.9
(5.3)
2.1
(40.8)
(10.0)
(4.8)
(4.8)
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.
194
194
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 12 Taxation (continued)
b) Factors affecting the tax charge in the year (continued)
On 3 March 2021, the UK Government announced the introduction of a capital allowance ‘super deduction’ which gave an in-year capital allowance
of 130% on the cost of plant and machinery qualifying for the relief between 1 April 2021 and 31 March 2023 and an acceleration of capital
allowances on the cost of assets qualifying for special rate allowances. The introduction of these changes meant the Group was eligible to claim
more capital allowances in the last two years to the extent that the Group was not liable to pay corporation tax for those years.
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.
The 30% allowance in excess of the cost of assets qualifying for the super deduction will never be charged as depreciation in the financial
statements and therefore this represents a permanent difference between profits recognised in the income statement and taxable profits.
Other permanent differences comprise expenditure that is not deductible for tax purposes or income that is not taxable.
Other temporary 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 assets 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.
Deferred tax is provided at 25%, the rate that is expected to apply when the asset or liability is expected to be settled. Further details are
provided in note 26.
c) Tax (credited)/charged directly to other comprehensive income or equity
No current tax has been charged or credited to other comprehensive income or equity. The following amounts of deferred tax have been (credited)/
charged to other comprehensive income or equity:
2023
£m
2022
£m
Deferred tax on:
Actuarial losses/gains
Cash flow hedges
Share based payments
Transfers to the income statement
Effect of change in tax rate
Total deferred tax (credited)/charged to other comprehensive income or equity
13 Dividends
Amounts recognised as distributions to owners of the Company in the year:
Final dividend for the year ended 31 March 2022 (2021)
Interim dividend for the year ended 31 March 2023 (2022)
Total dividends paid
Proposed final dividend for the year ended 31 March 2023
(63.0)
(0.6)
(0.1)
0.1
–
(62.6)
2023
Pence per
share
61.28
42.73
104.01
64.09
£m
153.9
107.4
261.3
163.1
2022
Pence per
share
60.95
40.86
101.81
47.1
13.0
(4.9)
1.7
(8.4)
48.5
£m
152.2
102.3
254.5
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.
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
195
195
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS
14 Earnings/(loss) 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. Potential ordinary shares are not treated as dilutive if their conversion does not decrease earnings per share
or increase loss per share.
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/(loss) for the period
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
2023
£m
132.2
2023
£m
250.8
1.1
251.9
2022
£m
(87.2)
2022
£m
247.9
–
247.9
Unvested share options and LTIPs have not been treated as dilutive potential ordinary shares in 2022 because their conversion would decrease the
loss per share.
b) Adjusted earnings per share
Adjusted basic earnings per share
Adjusted diluted earnings per share
2023
pence
58.2
58.0
2022
pence
96.1
95.6
Adjusted earnings per share figures are presented for continuing operations. These exclude the effects of net gains/losses on financial
instruments, current tax on net gains/losses on financial instruments, and deferred tax in both 2023 and 2022. 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 except that the number of ordinary shares for the purpose
of the adjusted diluted earnings per share for the year ended 31 March 2022 is 249.3 million as this includes 1.4 million dilutive potential ordinary
shares from share options and LTIPs.
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:
– net gains on financial instruments
– current tax on net gains on financial instruments
– deferred tax
Earnings for the purpose of adjusted basic and diluted earnings per share
2023
£m
132.2
(21.7)
–
35.5
146.0
2022
£m
(87.2)
(39.3)
(1.4)
366.1
238.2
The comparative earnings for the purpose of adjusted basic and diluted earnings per share excluded an amount relating to amortisation of
acquired intangibles. We have restated this comparative measure to include the effect of amortisation of acquired intangibles so that it is
calculated on a consistent basis with the current year.
196
196
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 15 Goodwill
Cost
At 1 April
Acquisition of subsidiary
At 31 March
2023
£m
91.4
1.3
92.7
2022
£m
91.4
–
91.4
On 8 February 2023, Severn Trent Services Operations UK Limited acquired 100% of the issued share capital of M A solutions (Lindum) Ltd for a
total consideration of £1.6 million, of which £0.8 million is cash consideration and the remainder deferred consideration.
The acquisition has been accounted for using the acquisition method. Goodwill of £1.3 million was recognised, attributable to the anticipated future
opportunities and outperformance arising as a result of the acquisition. The goodwill valuation was based on management’s best estimates of the
fair values of the assets and liabilities acquired, which was estimated at £0.3m.
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
Operating Services
2023
£m
62.2
29.2
1.3
92.7
2022
£m
62.2
29.2
–
91.4
Regulated Water and Waste Water also has an intangible asset with indefinite useful life amounting to £4.3 million (2022: £4.3 million). This is
reviewed for impairment as part of the Regulated Water and Waste Water impairment review, set out in note 15 a) below.
a) Regulated Water and Waste Water
On 1 July 2018 Instruments of appointments 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 five-year period to 31 March 2028.
The key assumptions underlying these projections are the cash flows in the projections and the following:
Discount rate
RPI long-term inflation
CPI long-term inflation
Growth rate in the period beyond the detailed projections
%
6.5
3.0
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 adjusted for market changes. The rate disclosed above is the equivalent pre-tax nominal rate.
Inflation has been included in the detailed projections at 3.0% 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 and external factors likely to drive long-term growth in the regulatory capital base.
The fair value less costs to sell for the CGU exceeded its carrying value by £2,534.4 million. An increase in the discount rate to 7.1% or a reduction
in the growth rate in the period beyond the detailed projections to 0.7% would reduce the recoverable amount to the carrying amount of the CGU.
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
197
197
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS 15 Goodwill (continued)
b) Green Power
On 30 November 2018, the Group acquired Agrivert Holdings and its subsidiary undertakings resulting in goodwill of £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 2028.
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
%
7.8
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 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 £19.2 million. An increase in the discount rate to 9.0% or reduction in the growth rate in
the period beyond the detailed projections to 1.2% would reduce the recoverable amount to the carrying amount of the CGU.
16 Other intangible assets
Cost
At 1 April 2021
Additions
Disposals
Transfers from property, plant and equipment
At 1 April 2022
Additions
At 31 March 2023
Amortisation
At 1 April 2021
Amortisation for the year
Disposals
At 1 April 2022
Amortisation for the year
At 31 March 2023
Net book value
At 31 March 2023
At 31 March 2022
Computer software
Internally
generated
£m
Purchased
£m
Capitalised
development
costs and
patents
£m
Other
intangible
assets
£m
303.9
21.8
–
11.3
337.0
22.1
359.1
(216.4)
(25.5)
–
(241.9)
(20.6)
(262.5)
96.6
95.1
162.5
14.5
–
3.0
180.0
12.2
192.2
(116.9)
(8.7)
–
(125.6)
(10.9)
(136.5)
55.7
54.4
12.8
–
(12.8)
1.3
1.3
–
1.3
(12.8)
–
12.8
–
(0.1)
(0.1)
1.2
1.3
35.8
–
–
–
35.8
5.7
41.5
(4.9)
(2.1)
–
(7.0)
(2.1)
(9.1)
32.4
28.8
Total
£m
515.0
36.3
(12.8)
15.6
554.1
40.0
594.1
(351.0)
(36.3)
12.8
(374.5)
(33.7)
(408.2)
185.9
179.6
Other intangible assets include the instrument of appointment acquired with Dee Valley Water, customer contracts and energy subsidy contracts
both acquired with Agrivert and rights obtained under contracts for biological assets. 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 15. As at 31 March 2023 no impairment was recorded (2022: nil).
198
198
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
17 Property, plant and equipment
Cost
At 1 April 2021
Additions
Transfers on commissioning
Transfers to intangible assets
Disposals
At 1 April 2022
Additions
Transfers on commissioning
Disposals
At 31 March 2023
Depreciation
At 1 April 2021
Charge for the year
Disposals
At 1 April 2022
Charge for the year
Disposals
At 31 March 2023
Net book value
At 31 March 2023
At 31 March 2022
Land and
buildings
£m
Infrastructure
assets
£m
Fixed
plant and
equipment
£m
Moveable
plant
£m
Assets under
construction
£m
Total
£m
4,015.0
5,773.2
4,792.8
59.1
131.5
–
(3.9)
4,201.7
35.9
74.5
(10.8)
136.4
97.0
–
–
6,006.6
161.4
1.2
(2.3)
132.9
313.3
–
(8.6)
5,230.4
77.6
180.7
(30.8)
4,301.3
6,166.9
5,457.9
(1,542.2)
(1,434.7)
(2,858.1)
(100.9)
3.5
(40.7)
–
(212.7)
8.3
(1,639.6)
(1,475.4)
(3,062.5)
(102.1)
10.8
(45.6)
0.2
(225.0)
32.1
(1,730.9)
(1,520.8)
(3,255.4)
2,570.4
2,562.1
4,646.1
4,531.2
2,202.5
2,167.9
72.3
0.7
12.3
–
(4.9)
80.4
0.8
1.3
(2.5)
80.0
(38.4)
(7.2)
4.6
(41.0)
(7.0)
1.9
(46.1)
33.9
39.4
1,095.3
15,748.6
385.2
(554.1)
(15.6)
(3.0)
907.8
623.2
(257.7)
(9.3)
714.3
–
(15.6)
(20.4)
16,426.9
898.9
–
(55.7)
1,264.0
17,270.1
–
–
–
–
–
–
–
(5,873.4)
(361.5)
16.4
(6,218.5)
(379.7)
45.0
(6,553.2)
1,264.0
907.8
10,716.9
10,208.4
Additions include assets transferred from developers at no cost, which have been recognised at their fair value of £105.0 million
(2022: £69.0 million) and provisions for works in response to legally enforceable undertakings to regulators amounting to £34.2 million
(2022: £15.3 million).
The net book value of land and buildings is analysed as follows:
Freehold
Short leasehold
2023
£m
2022
£m
2,570.1
2,561.8
0.3
0.3
2,570.4
2,562.1
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
199
199
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS
18 Leases
a) The Group’s leasing activities
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).
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
2023
£m
2022
£m
0.9
1.1
0.2
1.7
3.9
3.7
–
0.3
2023
£m
12.5
110.4
4.1
2.3
1.4
1.1
0.2
1.1
3.8
4.0
0.5
0.1
2022
£m
12.3
111.5
4.1
2.0
129.3
129.9
Additions to right-of-use assets were £3.0 million (2022: £4.2 million). Disposals were £nil (2022: £0.2 million). Extension of lease terms during
the year has resulted in a reduction in dilapidation provisions included in right-of-use assets of £0.8 million (2022: £1.1 million).
Lease liabilities:
Current
Non-current
2023
£m
8.3
102.6
110.9
2022
£m
7.1
110.3
117.4
200
200
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 18 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
2023
£m
12.3
12.2
39.6
80.4
144.5
(33.6)
110.9
2023
£m
8.3
8.4
29.6
64.6
102.6
110.9
2022
£m
11.0
11.2
35.5
95.0
152.7
(35.3)
117.4
2022
£m
7.1
7.4
25.9
77.0
110.3
117.4
d) Cash flow
The total cash outflow for leases in the year was £16.8 million (2022: £16.1 million) which consists of £3.7 million (2022: £4.0 million) payments
of interest and £13.1 million (2022: £12.1 million) repayment of principal elements. This is included in financing cash flows.
19 Interests in joint ventures
Particulars of the Group’s principal joint venture undertaking at 31 March 2023 were:
Name
Water Plus Group Limited
Country of
incorporation
Class of share
capital held
Type
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. 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
Reclassification on subscription for equity
Group’s share of profit/(loss) after tax and comprehensive income/(loss)
Carrying value of joint venture investment at 31 March
2023
£m
16.5
–
–
16.5
2022
£m
–
18.7
(2.2)
16.5
On 23 April 2021, the Group extinguished the £32.5 million Revolving Credit Facility (‘RCF’) previously extended to Water Plus, and replaced this
with a subscription for £32.5 million of equity shares in Water Plus Group Limited at par. The carrying value of the loan receivable was reclassified
to investment in joint venture.
During the current year, Water Plus broke even (2022: loss of £4.4m).
As at 31 March 2023 and 2022 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 2023 or 2022.
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
201
201
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS 19 Interests in joint ventures (continued)
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 £43.5 million (2022: £54.1 million).
The registered office of Water Plus Group Limited is South Court Riverside Park, Campbell Road, Stoke-On-Trent, United Kingdom, ST4 4DA.
Balance sheet and income statement extracts can be found below for Water Plus:
At 31 March
Non-current assets
Current assets1
Current liabilities2
Non-current liabilities3
Net assets/liabilities
1
2
3
Includes cash of £12.2 million (2022: £24.4 million)
Includes current financial liabilities (excluding trade and other payables and provisions) of £1.2 million (2022: £0.1 million)
Includes non-current financial liabilities of £213.1 million (2022: £240.3 million)
For the year ended 31 March
Revenue
Depreciation and amortisation
Finance income
Finance costs
Tax credit/(charge)
Comprehensive gain/(loss) for the year
The below shows a reconciliation from the net assets of Water Plus to the carrying value as above:
Net assets of Water Plus at 31 March
Severn Trent’s share of net assets
Water Plus financial liabilities classified as part of net investment in joint venture
Other
Carrying value of joint venture investment at 31 March
2023
£m
40.0
300.9
(112.4)
(214.6)
13.9
2023
£m
731.7
(6.2)
3.7
(11.3)
(1.6)
–
2023
£m
13.9
7.0
9.8
(0.3)
16.5
2022
£m
41.6
367.3
(154.5)
(241.4)
13.0
2022
£m
750.9
(6.6)
4.0
(7.7)
4.2
(3.5)
2022
£m
13.0
6.5
9.8
0.2
16.5
The net assets position of Water Plus is derived from the best information available at the time the financial statements of the Group are approved.
The impact on the Group of any subsequent changes in the net assets of Water Plus will be reflected in the financial statements prepared to
31 March 2024.
202
202
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 20 Categories of financial assets
Fair value through profit and loss
Cross currency swaps – not hedge accounted
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 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
Loan receivable from joint venture
Current assets
Derivative financial assets
Trade and other receivables
Cash and cash equivalents
Note
21
21
21
21
22
22
2023
£m
20.5
–
7.3
27.8
14.0
40.5
0.5
55.0
82.8
294.4
317.2
73.4
75.3
–
34.2
794.5
877.3
82.3
3.3
75.3
2022
£m
13.7
2.9
–
16.6
14.6
–
27.6
42.2
58.8
217.7
278.2
58.8
79.6
75.0
40.4
749.7
808.5
31.2
6.7
79.6
160.9
117.5
0.5
681.7
34.2
716.4
877.3
27.6
548.0
115.4
691.0
808.5
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
203
203
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS 21 Trade and other receivables
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
2023
£m
2022
£m
294.4
217.7
70.1
44.3
24.9
317.2
750.9
3.3
9.8
75.3
88.4
52.1
39.9
18.5
278.2
606.4
6.7
5.8
79.6
92.1
839.3
698.5
Prepayments include unamortised success fees paid as a result of winning the MoD contract (see note 6) amounting to £4.3 million
(2022: £4.8 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.
a) Credit risk
(i) Trade receivables and accrued income
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 91% of Group turnover and 89% 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 ventures are disclosed within note 41, 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 forecasts of the future impact
of external economic factors 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 (2022: nil).
(ii) Contract assets
The contract assets represent the Group’s right to receive consideration from the MoD 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 (2022: 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.
204
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ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 21 Trade and other receivables (continued)
b) Expected credit loss allowance
(i) Trade receivables and accrued income
The expected credit loss at 31 March 2023 and 2022 was as set out below. The loss allowance is based on historical credit losses adjusted for
expected changes in cash collection. The loss rate disclosed is calculated by applying the loss allowance to the gross carrying amount for each
age category.
2023
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
2022
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
%
Gross carrying
amount
£m
Loss
allowance
£m
Net carrying
amount
£m
3
21
32
38
41
52
56
55
64
69
96
415.3
109.2
66.2
46.6
29.6
26.5
18.8
12.8
8.3
5.9
7.5
(13.4)
(22.8)
(21.4)
(17.5)
(12.0)
(13.9)
(10.5)
(7.0)
(5.3)
(4.1)
(7.2)
401.9
86.4
44.8
29.1
17.6
12.6
8.3
5.8
3.0
1.8
0.3
746.7
(135.1)
611.6
Expected loss
rate
%
Gross carrying
amount
£m
Loss
allowance
£m
Net carrying
amount
£m
4
25
39
43
55
49
54
63
69
73
100
333.1
93.8
63.3
39.0
32.2
26.2
16.2
11.2
7.4
3.3
5.2
(11.7)
(23.1)
(24.6)
(16.7)
(17.6)
(12.8)
(8.7)
(7.1)
(5.1)
(2.4)
(5.2)
321.4
70.7
38.7
22.3
14.6
13.4
7.5
4.1
2.3
0.9
–
630.9
(135.0)
495.9
2023
£m
135.0
24.5
(24.4)
135.1
2022
£m
137.1
24.6
(26.7)
135.0
(ii) Loan receivable from joint venture
In previous years, the Group has determined that there has been a significant increase in the credit risk since inception relating to its loans
receivable of £76.4 million (2022: £80.7 million) from Water Plus, in the light of significant losses incurred by Water Plus. Following a breakeven
position from Water Plus in the current year, the Group determines that there continues to be credit risk since inception on the loan receivable
balance from Water Plus. The Group has therefore assessed the lifetime expected credit loss of its loans to Water Plus at 31 March 2023 based on
Water Plus’s financial projections. The Group has maintained the expected credit loss provision at £1.1 million (2022: £1.1 million) resulting in a net
loan receivable of £75.3 million (2022: £79.6 million).
SEVERN TRENT PLC
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
205
205
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS
22 Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
2023
£m
34.2
–
34.2
2022
£m
40.4
75.0
115.4
£18.4 million (2022: £24.6 million) of cash at bank and in hand is restricted for use on the MoD contract and £0.6 million (2022: £0.5 million) is held
as security for insurance obligations. Neither are available for use by the Group.
23 Borrowings
Current liabilities
Bank overdraft
Bank loans
Other loans
Lease liabilities
Non-current liabilities
Bank loans
Other loans
Lease liabilities
See note 34 for details of interest rates payable and maturity of borrowings.
2023
£m
5.5
3.6
300.0
8.3
317.4
709.4
6,174.2
102.6
6,986.2
7,303.6
2022
£m
7.7
3.7
346.7
7.1
365.2
778.8
5,476.8
110.3
6,365.9
6,731.1
206
206
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 24 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
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
Current liabilities
Borrowings
Trade payables
Other payables
25 Trade and other payables
Current liabilities
Trade payables
Social security and other taxes
Other payables
Accruals and receipts in advance
Deferred income
Non-current liabilities
Accruals and receipts in advance
Deferred income
Note
23
25
25
2023
£m
10.0
–
10.0
0.9
0.4
1.3
11.3
2022
£m
37.0
3.7
40.7
–
2.6
2.6
43.3
7,303.6
6,731.1
122.7
15.6
7,441.9
7,453.2
11.3
6,986.2
6,997.5
317.4
122.7
15.6
455.7
7,453.2
2023
£m
122.7
10.9
15.6
555.0
16.2
720.4
13.6
1,466.0
1,479.6
2,200.0
89.1
13.4
6,833.6
6,876.9
43.3
6,365.9
6,409.2
365.2
89.1
13.4
467.7
6,876.9
2022
£m
89.1
11.1
13.4
512.4
29.5
655.5
10.1
1,323.9
1,334.0
1,989.5
The accruals balance above includes £146.5m of contract liabilities (2022: £144.8m). Movements in this balance are set out in note 6 of the
financial statements.
Movements in the deferred income balance are set out in note 6 to the financial statements.
SEVERN TRENT PLC
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
207
207
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS 26 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 2021
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 2022
Charge/(credit) to income
Charge/(credit) to equity
At 31 March 2023
Accelerated
tax
depreciation
£m
Retirement
benefit
obligations
£m
Fair value of
financial
instruments
£m
972.1
57.8
307.0
–
–
1,336.9
49.2
–
1,386.1
(27.8)
9.0
(2.6)
47.1
(6.2)
19.5
15.5
(63.0)
(28.0)
(39.0)
11.5
(10.5)
14.7
(1.8)
(25.1)
14.4
0.5
(10.2)
Other
£m
0.7
(6.6)
0.5
(4.9)
(0.4)
(10.7)
(43.6)
(0.1)
(54.4)
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
2023
£m
(92.6)
1,386.1
1,293.5
Total
£m
906.0
71.7
294.4
56.9
(8.4)
1,320.6
35.5
(62.6)
1,293.5
2022
£m
(35.8)
1,356.4
1,320.6
Deferred tax is provided at the rate that is expected to apply when the asset or liability is expected to be settled. On 3 March 2021, the UK
Government announced an increase in the rate of corporation tax from 19% to 25%, effective 1 April 2023. Deferred tax assets and liabilities were
therefore remeasured at 1 April 2021 at the new rate of 25%. This resulted in an exceptional deferred tax charge in the income statement for 2022
of £294.4 million and a credit to reserves amounting to £8.4 million.
27 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 applying 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)
*
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.
Date of last formal
actuarial valuation
31 March 2022
31 March 2022
31 March 2020
The defined benefit scheme assets have been updated to reflect their market value at 31 March 2023. Actuarial gains and losses on the scheme
assets and defined benefit obligations have been reported in the statement of comprehensive income. Service cost, and the costs of administrating
the scheme, are recognised in operating costs and interest cost is recognised in net finance costs.
208
208
SEVERN TRENT PLC
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 27 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
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
Annuity policies
Corporate bonds
Liability-driven investment funds (‘LDIs’)
Property
Buy and maintain credit
High-yield bonds
Cash
2023
£m
2022
£m
1,785.3
2,659.4
(2,064.7)
(2,787.4)
(279.4)
(128.0)
5.7
(278.6)
(6.5)
(285.1)
(279.4)
2023
£m
188.4
122.2
237.0
259.2
239.6
–
–
17.5
(137.6)
(7.9)
(145.5)
(128.0)
2022
£m
478.1
104.6
953.0
642.4
296.8
22.5
25.8
738.9
1,785.3
136.2
2,659.4
*
In June 2021, the STMIPS Trustees completed the purchase of a bulk annuity contract with JUST, an insurance company, to secure the benefits of all members of the STMIPS. The Trustees
continue to pay benefits to members as before the transaction, but these cashflows are now matched exactly by income from JUST. In March 2023, the DVWS also entered into a bulk
annuity buy-in investment policy with JUST that covers the majority of the scheme obligations.
Most of the assets have quoted prices in active markets, but there are equities, annuity policies, corporate bonds and LDI investments which are
unquoted amounting to £419.0 million (2022: £496.0 million).
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
Return on plan assets (excluding amounts included in finance income)
Scheme administration costs
Benefits paid
Fair value at 31 March
2023
£m
2022
£m
2,659.4
2,600.4
78.6
100.5
(922.0)
(4.3)
52.8
61.9
68.9
(3.8)
(126.9)
(120.8)
1,785.3
2,659.4
SEVERN TRENT PLC
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
209
209
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS 27 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 present value of the defined benefit obligations were as follows:
Present value at 1 April
Current service cost
Past service credit
Interest cost
Actuarial (losses)/gains arising from changes in demographic assumptions
Actuarial gains arising from changes in financial assumptions
Actuarial losses arising from experience adjustments
Benefits paid
Present value at 31 March
2023
£m
2022
£m
(2,787.4)
(2,968.1)
(0.1)
8.3
(82.2)
(16.2)
744.7
(58.7)
126.9
(0.2)
–
(59.5)
5.6
192.9
(78.9)
120.8
(2,064.7)
(2,787.4)
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 £6.5 million (2022: £7.9 million) is included as an unfunded scheme within
the retirement benefit obligation.
The Group has assessed that it 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 the DVWS has been recognised in full.
(iii) Amounts recognised in the income statement in respect of these defined benefit pension schemes
Amounts credited/(charged) to operating costs:
Current service cost
Past service credit
Scheme administration costs
Amounts charged to finance costs:
Interest cost
Amounts credited to finance income:
Interest income on scheme assets
Total amount credited/(charged) to the income statement
The actual return on scheme assets was a loss of £843.4 million (2022: gain of £121.7 million).
Actuarial gains and losses have been reported in the statement of comprehensive income.
2023
£m
(0.1)
8.3
(4.3)
3.9
2022
£m
(0.2)
–
(3.8)
(4.0)
(82.2)
(59.5)
78.6
0.3
52.8
(10.7)
210
210
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 27 Retirement benefit schemes (continued)
a) Defined benefit pension schemes (continued)
(iv) Actuarial risk factors
The schemes typically expose the Group to actuarial risks such as investment risk, inflation risk and longevity risk for so long as the benefits are
not insured.
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 the 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 STPS has a balanced approach to investment in equity securities, debt instruments and real estates. Due to the long-term nature of
the scheme liabilities, the Group and the STPS Trustees 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. The STMIPS and DVWS are now primarily invested in bulk annuity insurance contracts
with JUST, with a small residual amount of invested assets remaining.
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
2023
% pa
3.3
Pre 2030: 2.3
Post 2030: 3.2
4.8
3.3
3.3
2022
% pa
3.6
2.6
3.5
2.8
3.6
3.6
The assumption for RPI inflation is derived with reference to the difference between the yields on longer-term fixed rate gilts and on index-linked
gilts. RPI is expected to be more closely aligned with CPI from 2030 onwards, which is reflected in the corresponding assumption for CPI inflation.
In setting the 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 this constructed yield curve.
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
211
211
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS 27 Retirement benefit schemes (continued)
a) Defined benefit pension schemes (continued)
(v) Actuarial assumptions (continued)
The mortality base table assumptions are based on those used in the latest triennial funding valuation of the STPS. The mortality assumptions
adopted at the year end for accounting purposes and the life expectancies at age 60 implied by the assumptions are as follows:
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 2021
Remaining life expectancy for members currently aged 60 (years)
Remaining life expectancy at age 60 for members currently aged 40 (years)
2023
2022
Men
Women
Men
Women
S3PMA
S3PFA_M
S3PMA_L
S3PFA_M
98%
91%
112%
95%
CMI 2021
CMI 2021
CMI 2021
CMI 2021
1.0%
40%
25.8
26.9
1.0%
40%
28.6
29.8
1.0%
20%
26.5
27.6
1.0%
20%
28.5
29.7
The calculation of the scheme obligations is sensitive to the actuarial assumptions and in particular to the assumptions relating to 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 £26 million
Increase/decrease by 0.1% pa
Increase/decrease by £21 million
Increase in life expectancy by 1 year
Increase by £72 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.
The projected impact resulting from a change in RPI reflects the underlying effect on pensions in payment, pensions in deferment and resultant pension increases. This would be expected
to be offset by returns on LDI assets within the asset portfolios used to hedge against the value of liabilities, as set out in the inflation risk section of note 34(d).
The change in this assumption reflects the risk that life expectancy rates might increase.
2
3
In reality inter-relationships exist between the assumptions, particularly between the discount rate and price inflation. The above analysis does
not take into account the effect of these inter-relationships. 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 Trustees for each Scheme and each participating employer.
The average duration of the benefit obligation at the end of the year is 13 years for STPS, 10 years for STMIPS and 12 years for DVWS.
The most recently completed formal triennial actuarial valuations and funding agreements were carried out as at 31 March 2022 for the STPS and
STMIPS and 31 March 2020 for DVWS. As a result of the STPS actuarial valuation, annual deficit reduction contributions of £34.2 million were
agreed, with the March 2023 payment having been increased in line with the annual increase in CPI to November 2022. Thereafter, future
contributions for the STPS will also increase in line with CPI inflation until March 2027. The first two contributions in March 2023 and March 2024
are payable directly into the STPS and it is expected that payments in future years will be payable to a limited liability partnership that the Group
and Trustee are in the process of setting up.
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 ending 31 March 2018 and continuing to 31 March 2031. These contributions will cease earlier should a
subsequent valuation of the STPS show that they are no longer needed. There are no deficit reduction contributions payable by the Group for
STMIPS and DVWS.
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 £22.4 million (2022: £28.1 million) represents contributions payable to these schemes by the Group at
rates specified in the rules of the scheme. As at 31 March 2023, no contributions (2022: 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.
212
212
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
28 Provisions
At 1 April 2022
Charged to income statement
Other net additions
Utilisation of provision
Unwinding of discount
At 31 March 2023
Included in:
Current liabilities
Non-current liabilities
Insurance
£m
Regulatory
£m
19.8
5.3
–
(9.9)
–
15.2
23.1
1.1
34.2
(7.4)
–
51.0
Other
£m
17.4
0.7
–
–
0.2
18.3
2023
£m
52.4
32.1
84.5
Total
£m
60.3
7.1
34.2
(17.3)
0.2
84.5
2022
£m
38.4
21.9
60.3
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.
Regulatory comprises provisions for works in response to legally enforceable undertakings to regulators, some of which are capital projects. 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.
29 Share capital
Total issued and fully paid share capital
254,425,641 ordinary shares of 9717/19p (2022: 253,410,074)
2023
Number
2022
Number
249.1
248.1
At 31 March 2023, 2,863,716 treasury shares (2022: 3,116,579) were held at a nominal value of £2,803,427 (2022: £3,051,131).
On 25 May 2021 the Company issued 10,420,000 ordinary shares of 9717/19p at 2,400p per share, through a placing, raising £245.3 million net of
issue costs.
Changes in share capital were as follows:
Ordinary shares of 9717/19p
At 1 April 2021
Shares issued under the Employee Sharesave Scheme
Shares issued from equity placing
At 1 April 2022
Shares issued under the Employee Sharesave Scheme
At 31 March 2023
Number
£m
242,259,862
730,212
10,420,000
253,410,074
1,015,567
254,425,641
237.2
0.7
10.2
248.1
1.0
249.1
SEVERN TRENT PLC
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
213
213
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS 30 Share premium
At 1 April
Share premium arising on issue of shares for Employee Sharesave Scheme
Share premium arising from equity placing
At 31 March
31 Other reserves
At 1 April 2021
Total comprehensive income for the year
At 1 April 2022
Total comprehensive income for the year
At 31 March 2023
2023
£m
394.4
14.3
–
408.7
Hedging
reserve
£m
(55.4)
46.7
(8.7)
1.9
(6.8)
2022
£m
148.1
11.2
235.1
394.4
Total
£m
101.7
46.7
148.4
1.9
150.3
Capital
redemption
reserve
£m
157.1
–
157.1
–
157.1
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.
32 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 limit its exposure to floating interest rate debt, which comprises 5% (2022: 4%) of
our gross debt portfolio at the balance sheet date, with a further 28% (2022: 27%) of index-linked debt and 67% (2022: 69%) of fixed rate debt.
Exposure to credit risk (excluding credit risk relating to amounts receivable from contracts with customers) is set out in note 34 b).
Foreign exchange risk is set out in note 34 a) (ii).
The Group has the following credit ratings:
Severn Trent Plc
Severn Trent Water
The ratings were stable.
Moody’s
Baa2
Baa1
Standard
and Poor’s
BBB
BBB+
Fitch
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
Severn Trent Water Group’s net debt plus Hafren Dyfrdwy Cyfyngedig’s net debt divided by their combined RCV. Amongst other considerations, the
Group takes into account Ofwat assumption at the Price Review (60% for AMP 7). At 31 March 2023 the Group’s RCV gearing ratio based on the RCV
in the Final Determination for AMP7 (FD RCV) was 60.7% (2022: 59.5%). The FD RCV excludes expenditure that was not in the PR19 Business Plan
such as our Green Recovery Programme. This expenditure will be included in the opening RCV for AMP8. Where the expenditure has been
incurred but is not yet included in the RCV, there is a mismatch in the RCV gearing ratio. We therefore also monitor our shadow RCV gearing ratio
which adjusts the RCV for expenditure already incurred but not yet included in the RCV. The shadow RCV gearing ratio at 31 March 2023 was 60.0%
(2022: 59.2%).
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 2022/23 dividend at 106.82 pence, an increase of 4.6% compared to the
total dividend for 2021/22 of 102.14 pence. Our policy is to grow the dividend annually at no less than CPIH until March 2025.
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NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 32 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
33 Fair values of financial instruments
2023
£m
28.7
2022
£m
107.7
(713.0)
(782.5)
(6,474.2)
(5,823.5)
(110.9)
(117.4)
33.6
75.3
28.3
79.6
(7,160.5)
(6,507.8)
(970.6)
(1,263.9)
(8,131.1)
(7,771.7)
a) Fair value measurements
The valuation techniques that the Group applies in determining the fair values of its financial instruments on a recurring basis are described
below. The techniques are classified under the hierarchy defined in IFRS 13 which categorises valuation techniques into Levels 1 – 3 based on the
degree to which the fair value is observable. 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
Inflation swaps
Assets
Liabilities
2023
£m
34.5
(0.9)
40.5
(10.4)
2022
£m Valuation techniques and key inputs
Discounted cash flow
28.3
–
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
2.9
(39.6)
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
0.5
27.6
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
7.3
–
–
(3.7)
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 (“the CPI wedge”).
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.
Changes in the carrying values of instruments that are measured using a Level 3 technique were as follows:
At 1 April 2021
Net gains recognised in profit or loss
At 31 March 2022
Net gains recognised in profit or loss
At 31 March 2023
Inflation swaps
£m
(32.1)
28.4
(3.7)
11.0
7.3
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 £4.5 million.
SEVERN TRENT PLC
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ANNUAL REPORT AND ACCOUNTS 2023
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GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS
33 Fair values of financial instruments (continued)
b) Comparison of fair value of financial instruments with their carrying amounts
The Directors consider that the carrying amounts of 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
Other loans
Lease liabilities
Index-linked debt
Bank loans
Other loans
2023
2022
Carrying value
£m
Fair value
£m
Carrying value
£m
Fair value
£m
569.0
146.8
5.5
721.3
551.0
157.9
5.5
714.4
652.6
147.8
7.7
808.1
652.6
161.4
7.7
821.7
4,441.3
4,177.0
3,984.3
4,253.0
110.9
110.9
117.4
126.6
4,552.2
4,287.9
4,101.7
4,379.6
144.0
1,886.1
2,030.1
7,303.6
137.1
1,798.0
1,935.1
6,937.4
129.9
1,691.4
1,821.3
6,731.1
149.5
2,456.1
2,605.6
7,806.9
The above floating, fixed or index-linked classification does not take into account the impact of 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 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.
34 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 35 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 35 a) (i).
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ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
34 Risks arising from financial instruments (continued)
Energy swaps are held to mitigate the Group’s exposure to changes in wholesale energy prices. Further details are provided in note 35 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/CPI/CPIH 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 AMP7. 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 37)
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
2023
£m
7,160.5
34.2
75.3
33.6
(20.1)
(22.3)
2022
£m
6,507.8
115.4
79.6
28.3
(21.1)
(14.9)
7,261.2
6,695.1
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.
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ANNUAL REPORT AND ACCOUNTS 2023
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GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS 34 Risks arising from financial instruments (continued)
a) Market risk (continued)
(i) Interest rate risk (continued)
The following tables show analyses of the Group’s interest bearing financial liabilities by type of interest. Debt which is hedged by interest rate
swaps or cross currency swaps is included in the category after taking account of the impact of the swap. Debt raised in foreign currencies has
been included at the notional sterling value of the payable leg of the corresponding cross currency swap since this is the amount that is exposed to
changes in interest rates.
Valuation adjustments that do not impact the amount on which interest is calculated, such as fair value hedge accounting adjustments, are
excluded from this analysis.
The net principal amount of unhedged 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.
2023
Overdraft
Bank loans
Other loans
Lease liabilities
Floating
rate
£m
(5.5)
(543.6)
Fixed
rate
£m
–
Index- linked
£m
–
Total
£m
(5.5)
(25.4)
(144.0)
(713.0)
(83.0)
(4,462.7)
(1,886.1)
(6,431.8)
–
(110.9)
–
(110.9)
(632.1)
(4,599.0)
(2,030.1)
(7,261.2)
Impact of swaps not matched against specific debt instruments
275.0
(275.0)
–
–
Interest bearing financial liabilities
(357.1)
(4,874.0)
(2,030.1)
(7,261.2)
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)
2022
Overdraft
Bank loans
Other loans
Lease liabilities
67%
4.11%
9.7
Fixed
rate
£m
–
Index- linked
£m
–
Total
£m
(7.7)
(27.2)
(129.9)
(782.5)
(3,991.8)
(1,691.4)
(5,787.5)
Floating
rate
£m
(7.7)
(625.4)
(104.3)
–
(117.4)
–
(117.4)
(737.4)
(4,136.4)
(1,821.3)
(6,695.1)
Impact of swaps not matched against specific debt instruments
475.0
(475.0)
–
–
Interest bearing financial liabilities
(262.4)
(4,611.4)
(1,821.3)
(6,695.1)
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)
66%
3.84%
9.2
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
£25.9 million (2022: £25.2 million) in the income statement.
Pay fixed rate interest
1-2 years
2-5 years
5-10 years
Average contract fixed
interest rate
Notional principal amount
Fair value
2023
%
–
–
5.46
5.46
2022
%
4.98
5.14
5.46
5.20
2023
£m
–
–
(75.0)
(75.0)
2022
£m
(50.0)
(150.0)
(75.0)
(275.0)
2023
£m
–
–
(10.0)
(10.0)
2022
£m
(2.2)
(13.6)
(21.2)
(37.0)
In addition to the above the Group has cross currency swaps that also swap fixed rate interest to floating (see below).
218
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
34 Risks arising from financial instruments (continued)
a) Market risk (continued)
(i)
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
2023
2023
+1.0%
£m
2.3
(2.8)
2.3
-1.0%
£m
(2.8)
2.8
(2.8)
+1.0%
£m
9.7
(1.5)
9.7
+1.0%
£m
(10.6)
1.5
(10.6)
(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 nil charge (2022: 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 SONIA.
Where the terms of the receivable leg of the swap closely match the terms of the underlying debt, the swaps are expected to be effective hedges,
hence the swaps have been accounted for as fair value hedges. The notional value and fair value of these swaps is shown in note 35 a) (i).
The Group also has cross currency swaps with a sterling notional value of £98.3 million (2022: £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 income of £7.1 million
(2022: charge of £2.3 million) in the income statement, as well as an exchange loss of £7.4 million (2022: loss of £6.6 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.
2023
Borrowings by currency
Cross currency swaps – hedge accounted
Cross currency swaps – not hedge accounted
Net currency exposure
2022
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
(10.3)
10.3
–
–
Yen
¥bn
(2.0)
2.0
–
–
SEVERN TRENT PLC
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ANNUAL REPORT AND ACCOUNTS 2023
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219
219
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS
34 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 21.
Cash deposits and derivative contracts are only placed with high credit quality financial institutions, which have been approved by the Board.
Group Treasury monitors the credit quality of the approved financial institutions and the list of financial institutions that may be used is approved
annually by the Board. The Group has policies that limit the amount of credit exposure to any one financial institution.
Credit risk analysis
At 31 March the aggregate credit limits of authorised counterparties and the amounts held on short term deposits were as follows:
Double A range
Single A range
Triple B range
The fair values of derivative assets analysed by credit ratings of counterparties were as follows:
Single A range
Triple B range
c) Liquidity risk
Credit limit
Amount deposited
2023
£m
150.0
770.5
–
920.5
2022
£m
150.0
710.5
10.0
870.5
2023
£m
–
–
–
–
Derivative assets
2023
£m
82.8
–
82.8
2022
£m
–
75.0
–
75.0
2022
£m
52.6
6.2
58.8
(i) Committed facilities
Prudent liquidity management requires sufficient cash balances to be maintained; adequate committed facilities to be available; and market
position to be closed out when required. Group Treasury manages liquidity and flexibility in funding by monitoring forecast and actual cash flows
and the maturity profile of financial assets and liabilities, and by keeping committed credit lines available.
At the balance sheet date the Group had committed undrawn borrowing facilities expiring as follows:
2 – 5 years
5 years
2023
£m
800.0
100.0
900.0
2022
£m
1,100.0
–
1,100.0
(ii) Cash flows from non-derivative financial instruments
The following tables show the estimated cash flows that will arise from the Group’s non-derivative net financial liabilities. The information
presented is based on the earliest date on which the Group can be required to pay and represents the undiscounted cash flows including principal
and interest.
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220
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
34 Risks arising from financial instruments (continued)
c) Liquidity risk (continued)
Interest and inflation assumptions are based on prevailing market conditions at the year end date.
2023
Undiscounted amounts payable:
Within 1 year
1 – 2 years
2 – 5 years
5 – 10 years
10 – 15 years
15 – 20 years
20 – 25 years
25 – 30 years
30 – 35 years
35 – 40 years
40 – 45 years
Total
Undiscounted amounts receivable:
Within 1 year
1 – 2 years
2 - 5 years
Total
2022
Undiscounted amounts payable:
Within 1 year
1 - 2 years
2 - 5 years
5 - 10 years
10 - 15 years
15 - 20 years
20 - 25 years
25 - 30 years
30 - 35 years
35 - 40 years
40 - 45 years
Total
Undiscounted amounts payable:
Within 1 year
1 – 2 years
2 - 5 years
Total
Floating
rate
£m
(16.7)
(10.6)
(141.8)
(211.9)
–
–
–
–
–
–
–
Fixed
rate
£m
(473.5)
(153.7)
(906.6)
(2,002.1)
(905.4)
(1,064.8)
(152.9)
–
–
–
–
Index-linked
£m
Trade and
other
payables
£m
Payments on
financial
liabilities
£m
(36.1)
(89.3)
(113.8)
(714.3)
(168.0)
(304.4)
(326.2)
(738.5)
(2,909.0)
(917.5)
(413.3)
(149.2)
–
–
–
–
–
–
–
–
–
–
(675.5)
(253.6)
(1,162.2)
(2,928.3)
(1,073.4)
(1,369.2)
(479.1)
(738.5)
(2,909.0)
(917.5)
(413.3)
(381.0)
(5,659.0)
(6,730.4)
(149.2)
(12,919.6)
Loans due
from joint
ventures
£m
Trade and
other
receivables
£m
Cash and
short-term
deposits
£m
Receipts from
financial
assets
£m
2.4
7.3
87.0
96.7
Fixed
rate
£m
(404.4)
(449.7)
(1,175.7)
(1,591.1)
(731.7)
(1,070.7)
–
–
–
–
–
681.7
34.2
3.3
–
–
–
685.0
34.2
718.3
10.6
87.0
815.9
Index-linked
£m
Trade and
other
payables
£m
Payments on
financial
liabilities
£m
(133.1)
(32.7)
(154.4)
(593.1)
(255.1)
(280.5)
(211.6)
(727.2)
(1,713.3)
(2,082.6)
(411.9)
(113.5)
–
–
–
–
–
–
–
–
–
–
(655.1)
(799.7)
(1,737.8)
(2,295.6)
(986.8)
(1,351.2)
(211.6)
(727.2)
(1,713.3)
(2,082.6)
(411.9)
Floating
rate
£m
(4.1)
(317.3)
(407.7)
(111.4)
–
–
–
–
–
–
–
(840.5)
(5,423.3)
(6,595.5)
(113.5)
(12,972.8)
Loans due
from joint
ventures
£m
Trade and
other
receivables
£m
Cash and
short-term
deposits
£m
Receipts from
financial
assets
£m
3.3
102.3
12.5
118.1
547.9
115.4
6.6
–
–
–
554.5
115.4
666.6
108.9
12.5
788.0
SEVERN TRENT PLC
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
221
221
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS 34 Risks arising from financial instruments (continued)
c) Liquidity risk (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,
CPI or CPIH. 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.
2023
Within 1 year
1 - 2 years
2 - 5 years
5 - 10 years
10 - 15 years
2022
Within 1 year
1 - 2 years
2 - 5 years
5 - 10 years
10 - 15 years
15 – 20 years
Interest
rate swaps
£m
Inflation
swaps
£m
13.9
9.3
12.1
0.4
–
35.7
0.5
0.5
2.0
7.2
(1.9)
8.3
Interest
rate swaps
£m
Inflation
swaps
£m
(16.5)
(16.6)
(29.4)
(25.0)
–
–
(87.5)
0.2
0.3
1.3
3.0
(5.7)
(8.2)
(9.1)
(241.3)
105.8
Cross currency swaps
Cash
receipts
£m
Cash
payments
£m
7.4
7.5
157.2
47.7
82.8
302.6
(6.1)
(6.0)
(125.1)
(45.1)
(59.0)
Cross currency swaps
Cash
receipts
£m
Cash
payments
£m
6.2
6.2
146.3
39.3
–
–
(3.5)
(3.5)
(120.3)
(33.2)
–
–
Energy
swaps
£m
0.5
–
–
–
–
0.5
Energy
swaps
£m
28.0
–
–
–
–
–
28.0
198.0
(160.5)
Total
£m
16.2
11.3
6.2
10.2
21.9
Total
£m
14.4
(13.6)
(2.1)
(15.9)
(5.7)
(8.2)
(31.1)
Inflation risk
d)
The Group’s principal operating subsidiary, Severn Trent Water, operates under a regulatory environment where its prices are linked to inflation
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 that 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 (2022: £350 million) in order to mitigate the risk of divergence between
inflation measured by CPIH and that measured by RPI.
Inflation rate sensitivity analysis
The finance cost of the Group’s index-linked debt instruments varies with changes in CPI/CPIH/RPI rather than interest rates. The sensitivity at
31 March of the Group’s profit and equity to changes in CPI/CPIH/RPI is set out in the following table. This analysis relates to financial instruments
only and excludes any CPI/CPIH/RPI impact on Severn Trent Water’s revenues and Regulatory Capital Value, or accounting for defined benefit
pension schemes.
Profit or loss
Equity
222
222
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
2023
+1.0%
£m
(16.4)
(16.4)
-1.0%
£m
16.4
16.4
2022
+1.0%
£m
(14.8)
(14.8)
-1.0%
£m
14.8
14.8
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
35 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
(i) Cross currency swaps
The Group raises debt denominated in currencies other than sterling. Cross currency swaps are entered into at the time that the debt is drawn
down to swap the proceeds into sterling debt bearing in order to mitigate the Group’s exposure to exchange rate fluctuations. Where the terms of
the receivable leg of the swap closely match the terms of the underlying debt, the swaps are expected to be effective hedges.
At the year end the amounts of cross currency swaps designated as fair value hedges were as follows:
Euro
US dollar
Yen
b) Cash flow hedges
Notional principal amount
Fair value
2023
£m
11.4
23.2
59.9
94.5
2022
£m
11.4
23.2
8.5
43.1
2023
£m
6.4
3.1
3.6
13.1
2022
£m
7.4
0.9
6.3
14.6
(i) Interest rate swaps
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
2-5 years
5-10 years
Average contract fixed
interest rate
Notional principal amount
Fair value
2023
%
2.43
1.83
2.03
2022
%
1.70
2.10
2.05
2023
£m
125.4
248.0
373.4
2022
£m
50.0
325.2
375.2
2023
£m
9.5
30.6
40.1
2022
£m
1.0
(0.7)
0.3
The Group recognised a loss on hedge ineffectiveness of £1.3 million (2022: loss of £0.6 million) in gains/losses on financial instruments in the
income statement in relation to interest rate swaps.
(ii) Energy swaps
The Group enters into a series of energy swaps under which it agrees to exchange the difference between fixed and market prices of electricity at
six-monthly intervals. No such energy swaps are currently active and the risk of changes in wholesale energy prices in the next year is managed
through physical contracts.
Details of energy swaps that have been accounted for as cash flow hedges are summarised below:
Period to maturity
Less than 1 year
Average contract price
Notional contracted amount
Fair value
2023
£/MWh
44.7
44.7
2022
£/MWh
38.5
38.5
2023
MWh
2022
MWh
43,680
131,520
43,680
131,520
2023
£m
0.5
0.5
2022
£m
27.6
27.6
SEVERN TRENT PLC
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
223
223
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS
35 Hedge accounting (continued)
c) Cumulative fair value adjustments
At the year end the cumulative fair value adjustments arising from the corresponding continuing hedge relationships were as follows:
2023
Cross currency swaps
Interest rate swaps
2022
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
–
–
–
(109.9)
(171.4)
(281.3)
–
–
–
(14.0)
–
(14.0)
Carrying amount
of hedged items
Cumulative amount of fair
value adjustments on the
hedged items
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
–
–
–
(58.2)
(374.9)
(433.1)
–
–
–
(13.7)
–
(13.7)
£109.9 million (2022: £58.2 million) of the carrying amount of hedged items and £14.0 million (2022: £13.7 million) of the cumulative amount of fair
value adjustments on the hedged items relates to fair value hedges. The remainder relates to cash flow hedges.
36 Share based payment
The Group operates a number of share based remuneration schemes for employees. During the year, the Group recognised total expenses of
£9.5 million (2022: £8.3 million) related to equity settled share based payment transactions.
The weighted average share price during the period was £27.65 (2022: £27.30).
At 31 March 2023, there were no options exercisable (2022: none) under any of the share based remuneration schemes.
a) Long Term Incentive Plan (LTIP)
Under the 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 2019, 2020, 2021 and 2022 LTIP awards are subject to Severn Trent Water’s achievement of Return on Regulatory Equity in excess of the base
return included within the Final Determinations over a three year vesting period. It has been assumed that performance against the LTIP
non-market conditions will be 100% (2022: 100%).
(ii) Awards outstanding
Details of changes in the number of awards outstanding during the year are set out below:
Outstanding at 1 April 2021
Granted during the year
Vested during the year
Lapsed during the year
Outstanding at 1 April 2022
Granted during the year
Vested during the year
Lapsed during the year
Outstanding at 31 March 2023
224
224
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
Number of
awards
692,189
203,756
(230,003)
(26,744)
639,198
215,103
(226,429)
(14,713)
613,159
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
36 Share based payment (continued)
a) Long Term Incentive Plan (LTIP) (continued)
Details of LTIP awards outstanding at 31 March were as follows:
Date of grant
July 2019
July 2020
July 2021
July 2022
Normal Date
of Vesting
2022
2023
2024
2025
Number of awards
2023
–
202,547
196,129
214,483
613,159
2022
231,442
205,651
202,105
–
639,198
The awards outstanding at 31 March 2023 had a weighted average remaining contractual life of 1.5 years (2022: 1.1 years).
Details of the basis of the LTIP scheme are set out in the Directors’ remuneration report on pages 141 to 163.
b) Employee Sharesave Scheme
Under the terms of the Sharesave Scheme, the Board may grant the right to purchase ordinary shares in the Company to those employees who
have entered into an HMRC approved Save As You Earn contract for a period of three or five years.
Options outstanding
Details of changes in the number of options outstanding during the year are set out below:
Outstanding at 1 April 2021
Granted during the year
Forfeited during the year
Cancelled during the year
Exercised during the year
Lapsed during the year
Outstanding at 1 April 2022
Granted during the year
Forfeited during the year
Cancelled during the year
Exercised during the year
Lapsed during the year
Number of
share options
4,102,760
884,726
(74,463)
(135,804)
(730,212)
(4,608)
4,042,399
1,112,373
(72,506)
(216,312)
(1,015,567)
(7,749)
Weighted
average
exercise price
1,688p
2,307p
1,734p
1,811p
1,611p
1,682p
1,824p
2,183p
1,968p
2,113p
1,502p
1,772p
Outstanding at 31 March 2023
3,842,638
1,994p
Sharesave options outstanding at 31 March were as follows:
Date of grant
January 2017
January 2018
January 2019
January 2020
January 2021
January 2022
January 2023
Normal Date
of Vesting
Normal Date
of Vesting
2022
2023
2022 or 2024
2023 or 2025
2024 or 2026
2025 or 2027
1,633p
1,652p
1,474p
1,787p
1,860p
2,307p
Number of awards
2023
–
111,115
2022
123,540
112,993
216,309
1,101,868
829,908
855,384
732,604
885,178
943,311
875,509
–
2026 or 2028
2,183p
1,097,318
The options outstanding at 31 March 2023 had a weighted average remaining contractual life of 1.8 years (2022: 1.7 years).
3,842,638
4,042,399
SEVERN TRENT PLC
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
225
225
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS 36 Share based payment (continued)
c) Fair value calculations
The fair values of the share awards made and share options granted during the year were calculated using the Black Scholes method. The
principal assumptions and data are set out below:
2023
2022
LTIP
SAYE
LTIP
SAYE
Share price at grant date (pence)
Option life (years)
Vesting period (years)
Expected volatility (%)
Expected dividend yield (%)
Risk free rate (%)
Fair value per share (pence)
3 year
scheme
2,674
5 year
scheme
2,674
3.3
3
18.2
4.0
3.5
526
5.3
5
18.2
4.0
3.6
542
2,858
3
3
18.2
3.7
n/a
2,842
2,676
3
3
18.2
3.9
n/a
2,659
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.
37 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
Pension service (credit)/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
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
Increase in amounts receivable
Increase in amounts payable
Cash generated from operations
Tax received
Tax paid
Net cash generated from operating activities
226
226
SEVERN TRENT PLC
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
3 year
scheme
2,939
5 year
scheme
2,939
3.3
3
18.2
3.5
0.1
543
2023
£m
508.8
379.7
3.9
33.7
(8.2)
4.3
(100.5)
9.5
(2.2)
(16.4)
40.2
7.1
(17.3)
842.6
(3.4)
(146.2)
60.3
753.3
6.1
(10.1)
749.3
5.3
5
18.2
3.5
0.1
521
2022
£m
506.2
361.5
3.8
36.3
0.2
3.8
(61.9)
8.3
(5.4)
(17.5)
42.8
14.8
(12.3)
880.6
(1.2)
(87.6)
99.9
891.7
–
(1.2)
890.5
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
37 Cash flow statement (continued)
b) Non-cash transactions
Non-cash investing and financing transactions disclosed in other notes were:
– Acquisition of infrastructure assets from developers at no cost and provisions in response to legally enforceable undertakings to regulators
(note 17).
– Acquisition of right-of-use assets (note 18).
– Shares issued to employees for no cash consideration under the LTIP (note 36).
c) Reconciliation of movement in cash and cash equivalents to movement in net debt
At 1 April 2022
Cash flow
Fair value adjustments
Inflation uplift on index-linked debt
Foreign exchange
Other non-cash movements
At 31 March 2023
d) Liabilities from financing activities
Net cash
and cash
equivalents
£m
107.7
(79.0)
–
–
–
–
Bank
loans
£m
Other
loans
£m
Lease
liabilities
£m
(782.5)
(5,823.5)
83.7
–
(13.5)
–
(0.7)
(452.7)
0.9
(193.9)
(7.4)
2.4
(117.4)
13.1
–
–
–
(6.6)
28.7
(713.0)
(6,474.2)
(110.9)
Cross
currency
swaps
£m
28.3
–
–
–
–
5.3
33.6
Loans due
from joint
venture
£m
79.6
(5.5)
–
–
–
1.2
75.3
Net debt
£m
(6,507.8)
(440.4)
0.9
(207.4)
(7.4)
1.6
(7,160.5)
At 1 April 2021
Cash flow
Fair value adjustments
Inflation uplift on index-linked debt
Foreign exchange
Other non-cash movements
At 1 April 2022
Cash flow
Fair value adjustments
Inflation uplift on index-linked debt
Foreign exchange
Other non-cash movements
At 31 March 2023
Bank
loans
£m
Other
loans
£m
Lease
liabilities
£m
Total
£m
(1,011.1)
(5,471.3)
(121.3)
(6,603.7)
238.5
(250.6)
12.1
–
(6.9)
–
(3.0)
2.9
(99.6)
(6.6)
1.7
–
–
–
(8.2)
–
2.9
(106.5)
(6.6)
(9.5)
(782.5)
(5,823.5)
(117.4)
(6,723.4)
83.7
–
(13.5)
–
(0.7)
(452.7)
0.9
(193.9)
(7.4)
2.4
13.1
(355.9)
–
–
–
(6.6)
0.9
(207.4)
(7.4)
(4.9)
(713.0)
(6,474.2)
(110.9)
(7,298.1)
SEVERN TRENT PLC
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
227
227
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS 38 Contingent liabilities
a) Bonds and guarantees
Group undertakings have entered into bonds and guarantees in the normal course of business. No liability (2022: 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 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 is scheduled to be held in November 2023.
c) Ongoing combined sewer overflow investigations
Ofwat and the Environment Agency are each conducting their own investigations into the waste water industry, to investigate compliance with the
conditions of environmental permits. Ofwat has launched specific enforcement investigations against six sewerage companies, but Severn Trent is
not included in those cases. The Environment Agency’s investigation of all English sewerage companies is continuing and it is not yet clear what
the outcome of those investigations will be. We have responded quickly and comprehensively to all questions from the regulators and have had
open conversations with them on the issues under investigation.
39 Financial and other commitments
a)
Investment expenditure commitments
Property, plant and equipment contracted for but not provided for in the financial statements
2023
£m
634.9
2022
£m
354.7
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.
40 Post balance sheet events
Following the year end the Board of Directors has proposed a final dividend of 64.09 pence per share.
228
228
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ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 41 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
Outstanding balances between the Group and the joint venture as at 31 March were as follows:
Amounts due to related parties
Trade and other receivables due from related parties
Loans receivable from joint venture
2023
£m
259.5
3.9
263.4
2023
£m
–
0.2
75.3
75.5
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 27.
Remuneration of key management personnel
Key management personnel comprise the members of STEC during the year, and non-executive directors of the Company.
The remuneration of the directors is included within the amounts disclosed below. Further information about the remuneration of individual
directors is provided in the audited part of the Directors’ remuneration report on pages 151 and 160 to 163.
Short term employee benefits
Service contract non-executive director benefits
Share based payments
2023
£m
4.6
0.9
5.4
10.9
2022
£m
259.8
2.5
262.3
2022
£m
(0.2)
–
79.6
79.4
2022
£m
5.7
0.7
6.6
13.0
42 Alternative performance measures (APMs)
Financial measures or metrics used in this report that are not defined by IFRS are alternative performance measures (‘APM’s). 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.
a) Exceptional items
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. There were no exceptional items in the years ended 31 March 2023 and 2022.
b) Adjusted earnings per share
Adjusted earnings per share figures exclude the effects of net gains/losses on financial instruments, current tax on net gains/losses 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 14.
c) 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 37.
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
229
229
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS
42 Alternative performance measures (APMs) (continued)
d) Effective interest cost
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.
Net finance costs
Net finance costs from pensions
Capitalised finance costs
Average net debt
Effective interest cost
2023
£m
362.6
(3.6)
56.6
2022
£m
269.4
(6.7)
34.5
415.6
6,720.6
297.2
6,292.2
6.2%
4.7%
This APM is used as it shows the average finance cost for the net debt of the business.
e) Effective cash cost of interest
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
Average net debt
Effective cash cost of interest
This is used as it shows the average finance cost that is paid in cash.
f) PBIT interest cover
The ratio of PBIT to net finance costs excluding net finance costs from pensions.
PBIT
Net finance costs
Net finance costs from pensions
Net finance costs excluding net finance costs from pensions
PBIT interest cover ratio
2023
£m
362.6
(3.6)
(215.7)
56.6
199.9
2022
£m
269.4
(6.7)
(106.5)
34.5
190.7
6,720.6
6,292.2
3.0%
3.0%
2023
£m
508.8
362.6
(3.6)
359.0
ratio
1.4
2022
£m
506.2
269.4
(6.7)
262.7
ratio
1.9
This is used to show how the PBIT of the business covers the financing costs associated only with net debt on a consistent basis. In previous years
we have reported adjusted PBIT interest cover.
230
230
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 42 Alternative performance measures (APMs) (continued)
g) 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.
PBIT
Depreciation (including right-of-use assets)
Amortisation
EBITDA
Net finance costs
Net finance costs from pensions
Net finance costs excluding finance costs from pensions
2023
£m
508.8
383.6
33.7
926.1
362.6
(3.6)
359.0
2022
£m
506.2
365.3
36.3
907.8
269.4
(6.7)
262.7
EBITDA interest cover ratio
2.6
3.5
This is used to show how the EBITDA of the business covers the financing costs associated only with net debt on a consistent basis.
h) Adjusted effective current tax rate
The current tax charge for the year, excluding prior year charges and current tax on financial instruments, divided by profit before tax, net losses/
gains on financial instruments, exceptional items, and share of net profit/loss of joint ventures accounted for using the equity method.
Profit before tax
Adjustments
Share of net (profit)/loss of joint venture
Net (gains)/losses on financial instruments
2023
Current tax
thereon
£m
–
–
–
–
£m
167.9
–
(21.7)
146.2
2022
Current tax
thereon
£m
–
–
–
–
£m
274.1
2.2
(39.3)
237.0
Adjusted effective current tax rate
0.0%
0.0%
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 14. Share of net (profit)/loss of joint ventures is excluded from the calculation because the (profit)/loss is included after tax and so the tax on
joint venture profits is not included in the current tax charge.
i) Operational cashflow
Cash generated from operations less contributions and grants received.
Cash generated from operations
Contributions and grants received
Operational cashflow
2023
£m
753.3
(40.2)
713.1
2022
£m
891.7
(42.8)
848.9
This APM is used to show operational cash excluding the effect of contributions and grants received as part of capital programmes.
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
231
231
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS 42 Alternative performance measures (APMs) (continued)
j) 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
Contributions and grants received
Proceeds on disposal of property, plant and equipment
Cash capex
2023
£m
699.7
40.0
(40.2)
(12.9)
686.6
2022
£m
610.3
36.3
(42.8)
(9.5)
594.3
This APM is used to show the cash impact of the Group’s capital programmes.
k) Capital investment
Additions to property, plant and equipment and intangible fixed assets less contributions and grants received, assets contributed at no cost, and
capitalised finance costs.
Additions to property, plant and equipment
Additions to intangible assets
Contributions and grants received
Assets contributed at no cost
Capitalised finance costs
Capital investment
2023
£m
898.9
40.0
(40.2)
(105.0)
(56.6)
737.1
2022
£m
714.3
36.3
(42.8)
(69.0)
(34.5)
604.3
Includes £34.2 million (2022: £15.3 million) of provisions for future capital expenditure arising from regulatory obligations (See notes 17 and 28).
232
232
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 43 Subsidiary undertakings
Details of all subsidiary undertakings as at 31 March 2023 are given below. Details of the joint venture are set out in note 19. All subsidiary
undertakings have been included in the consolidation.
Owned directly by Severn Trent Plc
Athena Holdings Limited
Country of operation
and incorporation
Percentage of share
capital held
Class of share
capital held
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
Severn Trent Green Power Group Limited
Severn Trent Green Power Holdings Limited
Debeo Debt Recovery Limited
Severn Trent Green Power Limited
Dee Valley Group Limited
Dee Valley Limited
Dee Valley Services Limited
Severn Trent Holdings Limited
Severn Trent Investment Holdings Limited
Severn Trent LCP Limited
Dee Valley Water (Holdings) Limited
Severn Trent Leasing Limited
East Worcester Water Limited
Severn Trent Metering Services Limited
Etwall Land Limited
Hafren Dyfrdwy Cyfyngedig
M A Solutions (LINDUM) Ltd
Severn Trent MIS Trustees Limited
Severn Trent Overseas Holdings Limited
Severn Trent Pension Scheme Trustees Limited
Midlands Land Portfolio Limited
Severn Trent PIF Trustees Limited
North Wales Gas Limited
Northern Gas Supplies Limited
Severn Trent (W&S) Limited
Severn Trent Property Solutions Limited
Severn Trent Reservoirs Limited
Severn Trent Retail and Utility Services Limited
Severn Trent Data Portal Limited
Severn Trent Services (Water and Sewerage) Limited
Severn Trent Draycote Limited
Severn Trent Services Defence Holdings Limited
Severn Trent Finance Holdings Limited
Severn Trent Services Defence Limited
Severn Trent Finance Limited
Severn Trent Services Holdings Limited
Severn Trent General Partnership Limited
Severn Trent Services International (Overseas Holdings) Limited
Severn Trent Green Power (Ardley) Limited
Severn Trent Services International Limited
Severn Trent Green Power (Bridgend) Limited
Severn Trent Services Operations UK Limited
Severn Trent Green Power (Cassington) Limited
Severn Trent Solar Power Limited
Severn Trent Green Power (CW) Limited
Severn Trent SSPS Trustees Limited
Severn Trent Green Power (Hertfordshire) Limited
Severn Trent Trimpley Limited
Severn Trent Green Power (North London) Limited
Severn Trent Utilities Finance Plc
Severn Trent Green Power (RBWM) Limited
Severn Trent Water Limited
Severn Trent Green Power (Wallingford) Limited
Severn Trent Wind Power Limited
Severn Trent Green Power (West London) Limited
Severn Trent WWIF Limited
Severn Trent Green Power Biogas Limited
Wrexham Water Limited
Severn Trent Green Power Composting Limited
The Group owns 100% of the share capital of the following subsidiary undertakings.
All subsidiary undertakings
Energy Supplies UK Limited
Lyra Insurance Guernsey Limited
Severn Trent Carsington Limited
Country of operation and incorporation
Class of share capital held
United Kingdom
Guernsey
United Kingdom
A and B Ordinary
Ordinary
A and B Ordinary
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
233
233
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS 43 Subsidiary undertakings (continued)
Unless stated below, the registered office of the aforementioned entities is Severn Trent Centre, 2 St John’s Street, Coventry, CV1 2LZ,
United Kingdom.
Company
Athena Holdings Limited
Dee Valley Limited
Hafren Dyfrdwy Cyfyngedig
Registered office
One 33, Hysan Avenue, Causeway Bay, Hong Kong
Packsaddle, Wrexham Road, Rhostyllen, Wrexham, LL14 4EH
Packsaddle, Wrexham Road, Rhostyllen, Wrexham, LL14 4EH
Lyra Insurance Guernsey Limited
St Martin’s House, Le Bordage, St Peter Port, GY1 4AU, Guernsey
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
234
234
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 43 Subsidiary undertakings (continued)
Subsidiary audit exemptions
Severn Trent Plc has issued guarantees over the liabilities of the following companies at 31 March 2023 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 Services Holdings Limited
Severn Trent Services International (Overseas Holdings) Limited
Severn Trent Services International Limited
Severn Trent Retail and Utility Services 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
4395572
3125131
2387816
2562471
10690056
11966722
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
235
235
GROUP FINANCIAL STATEMENTSGROUP FINANCIAL STATEMENTS
COMPANY FINANCIAL STATEMENTS
COMPANY STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2023
Profit for the year
Other comprehensive income
Items that will not be reclassified to the income statement:
Net actuarial gains
Deferred tax arising on actuarial gains
Deferred tax arising on change of rate
Other comprehensive income for the year
Total comprehensive income for the year
Note
12
3
3
2023
£m
426.7
2022
£m
141.8
1.2
(0.3)
–
0.9
0.1
–
0.5
0.6
427.6
142.4
236
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2023
COMPANY FINANCIAL STATEMENTS
At 1 April 2021
Profit for the year
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
Proceeds from equity placing
Dividends paid
At 31 March 2022
Profit for the year
Net actuarial gains
Deferred tax on net actuarial gains
Total comprehensive income for the year
Share options and LTIPs
– proceeds from shares issued
– value of employees’ services
Dividends paid
At 31 March 2023
Note
Share
capital
£m
237.2
Share
premium
£m
Other
reserves
£m
Retained
earnings
£m
Total
£m
148.1
157.1
2,814.7
3,357.1
12
3
8,9
16
12
3
8,9
16
–
–
–
–
0.7
–
10.2
–
–
–
–
–
11.2
–
235.1
–
–
–
–
–
–
–
–
–
141.8
141.8
0.1
0.5
0.1
0.5
142.4
142.4
–
8.4
–
(254.5)
11.9
8.4
245.3
(254.5)
248.1
394.4
157.1
2,711.0
3,510.6
–
–
–
–
1.0
–
–
–
–
–
–
14.3
–
–
–
–
–
–
–
–
–
426.7
426.7
1.2
(0.3)
1.2
(0.3)
427.6
427.6
–
9.7
15.3
9.7
(261.3)
(261.3)
249.1
408.7
157.1
2,887.0
3,701.9
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 £1,665.8 million.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
237
Note
2
3
4
4
5
6
7
5
6
12
7
8
9
10
2023
£m
0.3
0.6
2022
£m
0.3
0.8
3,371.6
3,362.1
1.6
1,139.0
4,513.1
2.0
1,126.0
4,491.2
33.9
15.0
1.2
50.1
(0.2)
(12.6)
(0.8)
(13.6)
36.5
25.6
13.6
–
39.2
(96.2)
(94.0)
(0.8)
(191.0)
(151.8)
4,549.6
4,339.4
(837.4)
(819.2)
(2.9)
(6.5)
(0.9)
(0.1)
(7.9)
(1.6)
(847.7)
(828.8)
3,701.9
3,510.6
249.1
408.7
157.1
2,887.0
3,701.9
248.1
394.4
157.1
2,711.0
3,510.6
COMPANY FINANCIAL STATEMENTS CONTINUED
COMPANY BALANCE SHEET
FOR THE YEAR ENDED 31 MARCH 2023
Non-current assets
Property, plant and equipment
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
Provisions for liabilities
Net current assets/(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 £426.7 million (2022: £141.8 million).
Signed on behalf of the Board who approved the accounts on 23 May 2023.
Christine Hodgson
Chair
James Bowling
Chief Financial Officer
Company Number 02366619
238
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
NOTES TO THE COMPANY FINANCIAL STATEMENTS
COMPANY FINANCIAL STATEMENTS
1 Employee numbers
The average number of employees during the year was 14 (2022: 14).
2
Investments in subsidiaries
At 1 April 2022
Additions
At 31 March 2023
Details of principal subsidiaries of the Company are given in note 43 to the Group financial statements.
3 Deferred tax
At 1 April 2021
Credit to income arising from rate change
At 1 April 2022
Charge to income
Charge to equity
At 31 March 2023
4 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
5 Borrowings
Current liabilities
Other loans
Lease liabilities
Non-current liabilities
Bank loans
Amounts due to group undertakings under loan agreements
Other loans
Lease liabilities
£m
3,362.1
9.5
3,371.6
Retirement
benefit
obligations
£m
1.5
0.5
2.0
(0.1)
(0.3)
1.6
2022
£m
0.2
0.2
25.2
25.6
2.7
78.8
2023
£m
0.2
0.2
33.5
33.9
3.2
74.3
1,061.5
1,139.0
1,172.9
1,044.5
1,126.0
1,151.6
2023
£m
0.1
0.1
0.2
0.4
637.2
199.1
0.7
837.4
837.6
2022
£m
96.1
0.1
96.2
–
619.4
199.0
0.8
819.2
915.4
At the balance sheet date the Company had £100.0 million (2022: £100.0 million) undrawn borrowing facilities.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
239
6 Trade and other payables
Current liabilities
Trade payables
Social security and other taxes
Other payables
Accruals
Amounts due to group undertakings
Non-current liabilities
Other payables
Accruals
7 Provisions
At 1 April 2022
Utilisation of provision
At 31 March 2023
Included in:
Current liabilities
Non-current liabilities
2023
£m
0.6
0.1
0.7
1.2
10.0
12.6
2.9
–
2.9
15.5
Other
£m
2.0
(0.6)
1.4
2023
£m
0.8
0.9
1.7
2022
£m
0.1
0.1
3.2
1.2
89.4
94.0
–
0.1
0.1
94.1
Total
£m
2.4
(0.7)
1.7
2022
£m
0.8
1.6
2.4
Insurance
£m
0.4
(0.1)
0.3
The cash 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.
8 Share capital
Total issued and fully paid share capital
254,425,641 ordinary shares of 9717/19p (2022: 253,410,074)
2023
£m
2022
£m
249.1
248.1
At 31 March 2023, 2,863,716 treasury shares (2022: 3,116,579) were held at a nominal value of £2,803,427 (2022: £3,051,131).
On 25 May 2021 the Company issued 10,420,000 ordinary shares of 9717/19p at 2,400p per share, through a placing, raising £245.3 million net of
issue costs.
Changes in share capital were as follows:
Ordinary shares of 9717/19p
At 1 April 2021
Shares issued under the Employee Sharesave Scheme
Shares issued from equity placing
At 1 April 2022
Shares issued under the Employee Sharesave Scheme
At 31 March 2023
240
240
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
Number
£m
242,259,862
730,212
10,420,000
253,410,074
1,015,567
254,425,641
237.2
0.7
10.2
248.1
1.0
249.1
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED 9 Share premium
At 1 April
Share premium arising on issue of shares for Employee Sharesave Scheme
Share premium arising from equity placing
At 31 March
10 Other reserves
At 31 March 2021, 31 March 2022 and 31 March 2023
The capital redemption reserve arose on the redemption of B shares.
COMPANY FINANCIAL STATEMENTS
2023
£m
394.4
14.3
–
408.7
2022
£m
148.1
11.2
235.1
394.4
Capital
redemption
reserve
£m
157.1
11 Share based payment
For details of employee share schemes and options granted over the shares of the Company, see note 36 of the Group financial statements. Details
of options exercised and awards vesting during the year and of the weighted average share price of the Company during the year are also disclosed
in that note.
12 Pensions
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 £0.5 million (2022: £0.5 million). There were no
amounts outstanding for contributions to the defined benefit schemes (2022: 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 27 to the Group financial statements.
13 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 27 to the Group financial statements.
Information about Directors’ remuneration is provided in the audited part of the Directors’ Remuneration Report.
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 in respect of liabilities to wholesalers is capped at £43.5 million (2022: £54.1 million).
The Company has a revolving credit facility available to Water Plus totalling £95 million. At 31 March 2023 the amount drawn was £76.4 million
(2022: £80.5 million).
14 Contingent liabilities
a) Bonds and guarantees
The Company has entered into bonds and guarantees in the normal course of business. No liabilities are expected to arise in respect of either the
bonds or guarantees.
b) Bank offset arrangements
The banking arrangements of the Company operate on a pooled basis with certain of its subsidiary undertakings. Under these arrangements
participating companies guarantee each other’s overdrawn balances to the extent of their credit balances, which can be offset against balances of
participating companies. As at 31 March 2023, the Company had no contingent liabilities (2022: nil).
15 Post balance sheet events
Following the year end the Board of Directors has proposed a final dividend of 64.09 pence per share.
16 Dividends
For details of the dividends paid in the years ended 31 March 2023 and 31 March 2022 see note 13 in the Group financial statements.
SEVERN TRENT PLC
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
ANNUAL REPORT AND ACCOUNTS 2023
241
241
FIVE YEAR SUMMARY
Continuing operations
Turnover
Profit before interest, tax, and exceptional items
Gain on impairment of loans receivable
Net exceptional items before tax
2023
£m
2,165.1
508.8
–
–
2022
£m
2021
£m
2020
£m
2019
£m
1,943.3
1,827.2
1,843.5
1,767.4
506.2
470.7
0.2
–
3.6
(4.9)
Net interest payable before gains/(losses) on financial instruments and
exceptional finance costs
(362.6)
(269.4)
(187.1)
Gains/(losses) on financial instruments
Results of associates and joint ventures1
Profit on ordinary activities before taxation
Current taxation on profit on ordinary activities
Deferred taxation
Exceptional tax
Profit/(loss) 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
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 – %
568.2
–
(51.7)
(188.4)
(17.4)
–
310.7
(30.1)
(29.1)
(92.7)
158.8
572.9
–
(9.6)
(194.2)
16.0
(0.4)
384.7
(31.8)
(39.4)
1.8
315.3
21.7
–
167.9
(0.2)
(35.5)
–
132.2
39.3
(2.2)
274.1
4.8
(71.7)
(294.4)
(87.2)
(6.2)
(8.9)
267.2
(26.8)
(28.2)
–
212.2
10,716.9
10,609.3
10,261.4
9,954.8
9,337.7
(966.3)
(1,315.9)
(1,276.0)
(1,142.0)
37.9
(279.4)
(12.8)
(128.0)
(1,378.0)
(1,380.9)
(86.0)
(367.7)
(949.2)
(158.5)
(234.0)
(945.1)
(992.6)
(95.1)
(452.9)
(798.9)
8,131.1
7,771.7
7,582.5
7,475.2
6,998.2
249.1
721.5
970.6
7,160.5
8,131.1
52.7
58.2
106.8
0.5
88.1
248.1
1,015.8
1,263.9
6,507.8
7,771.7
(35.2)
96.9
102.1
0.9
83.7
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
Ordinary share price at 31 March – pence
2,879.0
3,078.0
2,306.0
2,280.0
1,976.0
Average number of employees
– Regulated Water and Waste Water
– Other
1 Excludes exceptional share of net gains/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.
7,176
475
6,612
506
6,536
497
6,345
451
5,680
900
242
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
GLOSSARY
OTHER INFORMATION
ABS – Annual Bonus Scheme
FD – Final Determination
s.172 – Section 172 Statement
AGM – Annual General Meeting
FFT – Flow to Full Treatment
AMP – Asset Management Plan
FRC – Financial Reporting Council
AMP6 – the period 2015–2020
GAA – Group Authorisation Arrangements
AMP7 – the period 2020–2025
GDPR –General Data Protection Regulations
AMP8 – the period 2025–2030
APD – Acid Phase Digestion
AQR – Audit Quality Review
BEIS – Department for Business, Energy and
Industrial Strategy
CAW – Carbon Accounting Workbook
CCW – Consumer Council for Water
CDP – Carbon Disclosure Project
GHG – Greenhouse Gas
GWh – Gigawatt hours
Ha – Hectares of land
HD – Hafren Dyfrdwy
IGP – Inspiring Great Performance
IPCC – International Panel for Climate Change
ISSB – International Sustainability
Standards Board
CEO – Chief Executive Officer
KPI – Key Performance Indicator
CFO – Chief Financial Officer
LTDS – Long–Term Delivery Strategy
CHP – Combined Heat and Power
LTI – Lost Time Incidents
C–MeX – Customer Measure of Experience
LTIP – Long Term Incentive Plan
CRI – Compliance Risk Index
M&A – Mergers and Acquisitions
CRISP – Compliance Risk Index
Sustainability Plan
CSO – Combined Sewer Overflows
Defra – Department for the Environment, Food
and Rural Affairs
D&I – Diversity and Inclusion
D–MeX – Developer Measure of Experience
DNSH – Do No Significant Harm
DRIP – Dividend Reinvestment Plan
DTRT – Doing the Right Thing
DWI – Drinking Water Inspectorate
DWMP – Drainage and Wastewater
Management Plan
EA – Environment Agency
EAP – Employee Assistance Programme
EBITDA – Earnings Before Interest, Tax,
Depreciation and Amorisation
ECL – Expected Credit Losses
EDM – Event Duration Monitor
EPA – Environmental Performance
Assessment
EPS – Earnings per share
ERM – Enterprise Risk Management
ESG – Environment, Social and Governance
FBU – Fair, Balanced and Understandable
FCA – Financial Conduct Authority
MoD – Ministry of Defence
NAV – New Appointments and Variations
NHH – Non–Household
NIS–R – Network and Information Systems
Regulations
NRW – Natural Resources Wales
NZTP – Net Zero Transition Plan
ODI – Outcome Delivery Incentive
ONS – Office for National Statistics
PAI – Principal Adverse Impact
PBIT – Profit Before Interest and Tax
PCC – Per Capita Consumption
PESR – Post Employment Shareholding
Requirement
PESTLE – Politicial, Economic, Social,
Technological, Legal and Environmental
PFAS – Per– and Polyfluorinated Substances
PR24 – Price Review 2024
PSR – Priority Services Register
RCM – Regional Climate Model
RCP – Representative Concentration Pathway
RCV – Regulatory Capital Value
REGO – Renewable Energy Guarantee of Origin
RNAGS – Reasons for Not Achieving Good
Status
RoRE – Return on Regulated Equity
SASB – Sustainability Accounting Standards
Board
SBT – Science–Based Targets
SBTi – Science–Based Targets incentive
SDS – Strategic Direction Statement
STEM & Ops – Science Technology,
Engineering and Mathematics and Operations
SID – Senior Independent Director
SLA – Service Level Agreement
SMT – Senior Management Team
SOAF – Storm Overflows Assessments
SODRP – Storm Overflows Discharge
Reduction Plan
SOP – Standard Operating Procedure
SRF – Strategic Risk Forum
SSO – Sanitary Sewer Overflows
SSSI – Site of Special Scientific Interest
STEC – Severn Trent Executive Committee
STEM & Ops – Science, Technology,
Engineering and Mathematics & Operations
STEPS – Severn Trent Environmental
Protection Scheme
STW – Severn Trent Water
TCA – The Coal Authority
TCFD – Task Force for Climate–related
Financial Disclosures
THP – Thermal Hydrolysis Process
TNFD – Taskforce for Nature–related Financial
Disclosures
Totex – Total expenditure
TSC – Technical Screening Criteria
TUB – Temporary Use Ban, also known as a
hosepipe ban
UKCP18 – UK Climate Projections 2018
UKWIR – UK Water Industry Research
UQ – Upper Quartile
WaSCs – Water and Sewerage Companies
WINEP – Water Industry National Environment
Programme
WRMP – Water Resources Management Plan
WSSR – Water Scarcity Status Report
WwTW – Waste water Treatment Works
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
243
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: shareview.co.uk
Telephone: +44 (0) 371 384 29671*
Accessibility: For deaf and speech impaired
customers Equiniti welcome calls via Relay
UK. Please see https://www.relayuk.bt.com
for more information.
By post: Equiniti, Aspect House, Spencer Road,
Lancing, West Sussex, BN99 6DA, United
Kingdom.
Please include your shareholder reference and
details of your query.
Corporate website
Shareholders are encouraged to visit our
website severntrent.com which provides:
– Company news and information;
– links to our operational businesses’ websites;
– details of our governance arrangements;
– details of our plans and social purpose; and
– our approach to sustainability and
innovation.
There is also a dedicated investors’ section on
the website containing up-to-date information
for shareholders including:
– our investment proposition; and
– our financial reports and presentations;
Plus a shareholder centre containing:
– share price information;
– a history of dividend payment dates and
amounts; and
– access to current and historical shareholder
information.
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 and register for an
online portfolio account enabling you to:
– monitor all your shareholdings;
– manage your personal details;
– buy and sell shares;
– vote at company meetings; and
– view tax vouchers online.
Dividend payments
Bank mandates
Dividends can be paid automatically into your
bank or building society account.
The benefits of doing this include:
– receiving cleared funds in your bank account
on the payment date;
– avoiding postal delays; and
– removing the risk of your cheques getting
lost in the post.
To take advantage of this service or for further
details, contact Equiniti or register/log-in to
shareview.co.uk and select Manage My Shares
and My Dividends.
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 via the
Customer Experience number below or online
via www.shareview.co.uk by registering for/
logging-in to your portfolio account.
Telephone: +44 (0) 371 384 2967¹
¹ Please use the country code when calling from outside the
UK. Lines are open from 8.30am to 17.30pm (UK time),
Mon-Fri (excluding public holidays in England and Wales).
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
dealing services offered by Equiniti Financial
Services Limited may be obtained from
www.shareview.co.uk or contact 03456 037 037*
for assistance.
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.
Please be aware that scams are becoming
ever-more sophisticated with fraudsters often
claiming or implying that they have some
connection with Severn Trent, and possibly
offering an attractive investment opportunity.
Beware, they may simply be trying to obtain
your personal data.
Financial calendar
Ex dividend date – final dividend
Record date to be eligible for the final dividend
DRIP election date – final
AGM
Final dividend payment date
1 June 2023
2 June 2023
23 June 2023
6 July 2023
14 July 2023
1 Please use the country code when contacting Equiniti
from outside the UK.
All dates are indicative and may be subject to change.
* 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). Calls from a landline are charged at national rates. Calls from a mobile device may incur network extras.
244
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
OTHER INFORMATION
Cautionary Forward-Looking 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).
This report has been printed on Printspeed
Offset, a paper which is certified by the Forest
Stewardship Council®. The paper is made at a
mill with ISO 14001 Environmental Management
System accreditation.
Printed by Pureprint Group using vegetable oil
based inks, Pureprint Group is a
CarbonNeutral® printer, certified to ISO 14001
Environmental Management System.
SEVERN TRENT PLC
ANNUAL REPORT AND ACCOUNTS 2023
245
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;
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’), DMA
House, 70 Margaret Street, London, W1W SS.
– Check the Financial Services Register at
fca.org.uk to see if the person and firm
contacting you is authorised by the FCA;
Alternatively, register online at
www.mpsonline.org.uk or call the MPS
Registration line on 0207 291 3310.
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 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 43006, Providence RI 02940-3078 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
– 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
(see details below) if the firm does not have
contact details on the Register or you are
told they are out of date;
– Search the FCA Warning List of unauthorised
firms to avoid at www.fca.org.uk/
consumers/report-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 personal data or documents or your
money; and
– Remember, if it sounds too good to be true,
it probably is.
If you are approached by fraudsters please tell
the FCA using their contact form online at
www.fca.org.uk/consumers/report-scams, or
contact them on:
– 0800 111 6768 (freephone)
– 0300 500 8082 (from the UK)
– +44 207 066 1000 (from abroad)
– (18001) 0207 066 1000
(next generation text relay)
(open Mon-Fri 8am to 6pm, Sat 9am to 1pm)
If you have already paid money to share
fraudsters you should contact Action Fraud
on 0300 123 2040 (Mon-Fri 8am to 8pm) or
online via https://www.actionfraud.police.uk/
reportscam.
Consultancy, design and production
www.luminous.co.uk
Design and production
www.luminous.co.uk
Severn Trent Plc
Registered office:
Severn Trent Centre
2 St John’s Street
Coventry
CV1 2LZ
severntrent.com
Registered in England and Wales
Registration number: 2366619