ST Plc accepts Ofwat proposal to increase ODI cap

13 December 2018

Severn Trent Plc pleased to accept increase in customer ODI cap with tougher targets

Following a consultation, Ofwat has today published the 'Final Determination of in-period ODIs for 2018' which outlines their proposal to amend Severn Trent Water's waste water Customer Outcome Delivery Incentives (ODIs) for the remainder of AMP6.

The key elements of the proposal are as follows:

·     The cap on waste water customer ODIs will be increased from 2% to 2.6% of RoRE, based on performance from 1 January 2019;

·     Targets for internal and external sewer flooding and category 3 pollution incidents will become tougher by being set at the rates achieved in 2017/18, effective from 1 January 2019; and

·     The incentive rate for external sewer flooding will be reduced to £2,967 per incident from 1 January 2019.

We are pleased that Ofwat has recognised the valuable role that incentivisation plays in enabling us to push forward our frontier performance in waste water. The tougher targets will lock in the significant improvements we have delivered since the start of the AMP and the increase in the customer ODI cap will allow us to enhance our performance even further, to the benefit of both our customers and the environment.

We have fully embraced the role of incentivisation in our sector and firmly believe it is in the best interests of our customers, of whom 72% supported the principle of uncapping, based on a survey of 4,000 customers. We are therefore pleased to accept Ofwat's proposal.

These prospective changes will have a limited impact on our customer ODIs in the remainder of FY2018/19 and we continue to guide to a net neutral customer ODI position for full year. We will now have the opportunity to receive further outperformance payments in FY2019/20 for some of our longer term customer ODIs, such as the Water Framework Directive, which would otherwise have been restricted due to the previous cap. We will now explore cost beneficial options to fully realise these opportunities and will provide guidance for FY2019/20 in our full year results announcement on 22 May 2019.

Cautionary statement regarding forward-looking statements

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.

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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: the Principal Risks disclosed in our latest Annual Report and Accounts (which have not been updated since the date of its publication); 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.

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

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