Severn Trent Plc Annual Report and Accounts 2019 Highlights Contents STRATEGIC REPORT £1,767.4m 93.37p What we do ................................................................................................................................. 02 Our business model ................................................................................................................. 04 Our social purpose ................................................................................................................... 06 Group turnover Dividend per share Chairman’s statement ..............................................................................................................16 2018: £1,696.4m1 2018: 86.55p Market and industry overview ............................................................................................... 18 Chief Executive’s review .......................................................................................................... 21 How we are achieving our strategic objectives .................................................................. 24 Environment, Social and Governance – At a Glance ......................................................... 29 ODIs and KPIs ............................................................................................................................ 32 Regulated Water and Waste Water ....................................................................................... 34 Business Services .................................................................................................................... 46 133.4p 145.8p Chief Financial Officer’s review .............................................................................................48 Risk management .................................................................................................................... 54 Basic earnings per share Underlying basic Emerging risks .......................................................................................................................... 55 from continuing operations earnings per share2 Principal risks ........................................................................................................................... 56 2018: 101.8p1 2018: 120.5p1 Brexit statement ........................................................................................................................61 Viability statement .................................................................................................................... 62 GOVERNANCE Chairman’s introduction to governance .............................................................................. 64 Board of Directors .................................................................................................................... 66 £563.3m £573.6m Executive Committee ............................................................................................................... 68 Stakeholder and Shareholder engagement ....................................................................... 73 Group profit before Group underlying profit Our company purpose and culture ....................................................................................... 75 interest and tax before interest and tax2 Board evaluation ....................................................................................................................... 77 Nominations Committee report ............................................................................................ 81 2018: £527.2m1 2018: £539.8m1 Audit Committee report .......................................................................................................... 85 Treasury Committee report ................................................................................................... 93 Corporate Responsibility Committee report ..................................................................... 94 Directors’ remuneration report ............................................................................................ 97 Directors’ report ..................................................................................................................... 123 1 Restated for the implementation of IFRS 15, see note 2 to the Group financial statements. Directors’ Responsibilities Statement ............................................................................... 128 2 Alternative Performance Measures are defined in note 45 to the Group financial statements. GROUP FINANCIAL STATEMENTS Independent Auditor’s report to the members of Severn Trent Plc ............................ 129 Consolidated income statement .........................................................................................134 Consolidated statement of comprehensive income ...................................................... 135 Consolidated statement of changes in equity .................................................................. 136 Consolidated balance sheet ................................................................................................. 137 Consolidated cash flow statement .....................................................................................138 Notes to Group financial statements ................................................................................. 139 COMPANY FINANCIAL STATEMENTS Company statement of comprehensive income .............................................................. 195 Company statement of changes in equity ......................................................................... 196 Company balance sheet ........................................................................................................ 197 Notes to Company financial statements ........................................................................... 198 OTHER INFORMATION Five year summary .................................................................................................................202 Information for shareholders ..............................................................................................203 Cautionary statement This document contains statements that are, or may be deemed to be, ‘forward-looking statements’ with respect to Severn Trent’s financial condition, results of operations and business and certain of Severn Trent’s plans and objectives with respect to these items. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as ‘anticipates’, ‘aims’, ‘due’, ‘could’, ‘may’, ‘will’, ‘would’, ‘should’, ‘expects’, ‘believes’, ‘intends’, ‘plans’, ‘projects’, ‘potential’, ‘reasonably possible’, ‘targets’, ‘goal’ or ‘estimates’ and, in each case, their negative or other variations or comparable terminology. Any forward-looking statements in this document are based on Severn Trent’s current expectations and, by their very nature, forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance and no assurances can be given that the forward-looking statements in this document will be realised. There are a number of factors, many of which are beyond Severn Trent’s control, that could cause actual results, performance and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, changes in the economies and markets in which the Group operates; changes in the regulatory and competition frameworks in which the Group operates; the impact of legal or other proceedings against or which affect the Group; and changes in interest and exchange rates. All written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to Severn Trent or any other member of the Group or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. Subject to compliance with applicable laws and regulations, Severn Trent does not intend to update these forward-looking statements and does not undertake any obligation to do so. Nothing in this document should be regarded as a profits forecast. This document is not an offer to sell, exchange or transfer any securities of Severn Trent Plc or any of its subsidiaries and is not soliciting an offer to purchase, exchange or transfer such securities in any jurisdiction. Securities may not be offered, sold or transferred in the US absent registration or an applicable exemption from the registration requirements of the US Securities Act of 1933 (as amended). > Strategic report Governance Group financial statements Company financial statements Other information Welcome to the Severn Trent Annual Report 2019 Our purpose is to serve our communities and build a lasting water legacy. This drives our vision to be the most trusted water company by 2020, delivering an outstanding customer experience, best value service and environmental leadership. This report highlights the progress we have made over the past year in achieving that vision through our strategic objectives and absolute focus on listening to and delivering value for all of our stakeholders. We’re committed to keeping your water flowing clearly and making your waste water clean again, so you can carry on enjoying this precious resource, for