Hello, and welcome to the Severn Trent 2021/2022 half year results. I'm Liv Garfield, Chief Executive, and today you're joining me at our Coventry wastewater treatment works. On this particular site, we treat the waste for 500,000 customers. As well as doing that, we also create fantastic renewable energy. To give you some context of what you're looking at, if you look behind me, you'll see the gas to grid, that big kind of dome-shaped building. Then to my left just here, you'll see our brand new thermal hydrolysis plant. We're super proud of those. We have four across the company, and that creates really fantastic high-quality fertilizer at the end that we, of course, then sell them to our farmers, as well as all that delicious, renewable, high-quality energy. With that, let's begin by talking about the half year highlights.
It's been a really strong first six months of the financial year, one in which we've delivered for all of our stakeholders. If I run us through a few of the highlights, the first is absolutely operational performance. 90% of our Severn Trent Water ODIs on track at green or better. We're also really pleased to have 100% of our environmental ODIs, fantastic continued momentum in water, and all of this combined performance means that today we're delighted to be announcing an upgrade of our ODI target for the year to at least GBP 75 million. If I move on now and talk about capital. We've really worked well on sites like this one to really make sure that our construction has been on track and is delivering in line with our capital program for the first two years of the AMP.
We're also delighted to have a very strong start on our Green Recovery, and it's a combination of our core program and our accelerated Green Recovery, which means that we're really confident of it delivering over 10% RCV growth for the period. Of course, our financials have also been strong. You'll have seen PBIT and turnover both up, as we've seen the non-household market return back to previous levels of consumption. Now, with that, I'd like to hand over to a video now from Helen Miles, who's gonna bring to life the really great start we've made on Green Recovery and why we're so excited about those six individual projects.
Helen, obviously at full-year and again at Capital Markets Day, we were talking an awful lot about Green Recovery, and that must be a massive challenge for you and your team. I guess the question that everybody wants answered is: how are you meeting that challenge?
Well, you know, investing in our assets and capital schemes, that's just what we do. You'll remember in AMP6, we delivered over GBP 3 billion worth of investment. In the last year of the AMP, we actually did GBP 800 million just in one year. It, it's just what we do, and we're used to it. Green Recovery, as you know, is GBP 624 million, and that's spread over the next three to four years. We just see it as a really exciting program that we've already got a real grip of, and we're just getting on with capital delivery.
We're here in Severn Trent Centre in lovely Coventry today. Obviously one of the big Green Recovery schemes is entirely around Coventry and the replacement of lead pipes. Can you talk us through that and how that's going, please, Helen?
Well, we are seeking to replace 26,000 lead pipes across the area, which is a big undertaking, but we've already started. We immediately asked for our employees to volunteer, as many of our employees are customers of Severn Trent as well. You know, we're going at pace. We're really motoring through.
We're obviously not a million miles away from the River Leam here as well, and that's another one of our big Green Recovery projects with the big bathing rivers scheme. Can you tell us how that one's going as well, Helen?
Yeah. Jonathan, we are looking to improve 50 km of river. We want bathers to use the rivers when we've completed the work. We've got work going on at three main sites, and we're focusing, as you say, on the River Leam that's not too far from here, but also the Teme. Two main rivers are the focus of the work. It's not just about the rivers. We're also investing in technology so that customers can use an app to understand when the river's at its best for swimming and can access information. There's a big technology stream as well, and we're in very early days of that, but we'll expect to accelerate that quite quickly over the next six months.
The final scheme that I want to talk about is the nature-based solutions flooding scheme in Mansfield, which is incredibly exciting.
Mm-hmm.
Helen, how's that one going?
Oh, that's a great one, isn't it? Because we're going to be using nature-based solutions to reduce flooding in Mansfield, which is, you know, something that our customers really want us to be able to do and being able to use nature-based solutions is just even better. The brilliant news is that we are doing two trials starting early in the new year, and we're going to use those trials to see what works best. We're gonna canvas our customers as well to get their feedback. Then as soon as we can, we're gonna then take the output from the trials and scale up.
That's great. Thank you very much for your time, Helen.
Hope you enjoyed that from Helen. With that, let's hand over to James. He's gonna run us through the financial performance from the nice warm haven of the cabin just over there.
Thank you, Liv, and hello, everyone. Today, I'm pleased to report a strong set of interim results that reflect good operational performance, a recovery in our revenues following the easing of lockdown measures, and a robust balance sheet that's well positioned to support an exciting growth program. Let's turn to the highlights. Group revenue is up 8% year-on-year, consistent with our guidance and reflecting a return to more normal patterns of consumption in our regulated business and a strong recovery in business services. As a result, group adjusted PBIT is up 14% from the prior year and in line with expectations.
We have a strong balance sheet with low gearing and a pension scheme deficit that has fallen to GBP 292 million, which puts us in good shape to fund our future RCV growth. Earnings per share is up 6%, reflecting our strong operational performance and a benefit from tax, but was of course affected by higher inflation, which will increase revenue next year, but impacts our finance costs this year. Our interim dividend has increased to GBP 0.4086, in line with our inflation-linked policy. Turning now to regulated water and wastewater revenue. We've seen water consumption more or less return to pre-COVID patterns, with higher non-household demand as businesses reopened and lower domestic usage as workers return to offices.
This shift accounted for GBP 39 million of our reported revenue increase, with the balance due to other smaller increases, including GBP 3.5 million of additional renewable energy income in our Bioresources business and a PBIT neutral accounting reclassification, which you'll see offset in IRE. Inflation plays only a small part in this year's revenue increase, having been based on CPIH this time last year. However, we expect it to feature significantly next year as recent inflation trends continue through this November reference month, and of course, over the longer term through RCV growth. The increase in revenue has been the largest component of our increased water and wastewater PBIT. We also benefited from bad debt charges GBP 9 million lower than last year, when we increased our provision for the expected impact of COVID-19 on cash collections.
I'm pleased to say that these have remained strong and our bad debt charge is back to 2.2% of household revenue. Net labor and hired and contracted costs increased by GBP 8 million, reflecting our continued insourcing strategy and an annual pay award of 2.3%, in this, the second of a three year pay deal. Power costs were GBP 8.2 million higher than the previous period. Like all businesses, we've seen unprecedented rises in wholesale energy prices, but we have the hedging benefit of around 50% self-generation and forward price contracts taken earlier in the year. These substantially reduce the impact on our operating costs and protect our RoRE, and we have fixed the cost of around 97% of our estimated energy usage for the remainder of the year.
We've expanded our IRE program this half year by GBP 8 million, in line with our plan. Following high levels of capital expenditure in the last few years, the depreciation charge grew by GBP 4.3 million. Taking all of these together, regulated PBIT was up 10% to just over GBP 242 million. Turning now to our financing performance. As you probably anticipated, the story for this half year has been about inflation. Now we have one of the lowest proportions of index-linked debt in the sector. But even so, increased inflation fully accounted for the GBP 30 million increase in our finance costs this half. The Bank of England's most recent report suggests that inflation will continue to climb over the second half, with CPI expected to peak in the spring at 5%. I've updated our full-year interest cost guidance to reflect that.
Our effective cash cost of interest, which excludes the inflation roll-up on index-linked debt, remained flat at 3.1%, and we've continued to outperform the iBoxx on all recent debt issues. Turning now to our financing strategy. In the first half, we raised over GBP 50 million in new debt and raised a further GBP 50 million in October, all below the iBoxx rate. We've also renewed our credit facilities, which are now over GBP 1 billion. Our equity raise in May has helped reduce regulated gearing to 60.8%, providing the capacity to fund our exciting Green Recovery projects. As I mentioned, just 27% of our debt is index-linked, and around 2/3 is fixed with an average tenor of 10 years. A balance I believe puts us in a leading position to navigate current macroeconomic conditions. Let's turn now to pensions.
I'm pleased to report that over the past six months, our deficit has fallen to GBP 292 million, continuing the trend of the last five years. Our hedging strategy has insulated us from recent inflation and interest rate movements, and our investment performance and sustainable contributions means we're in good shape relative to our valuation journey plan. During the period, we also completed a bulk annuity buy-in for our smaller Mirror Image Pension Scheme, which means its liabilities will be met by an insurance company, substantially reducing the remaining risk for Severn Trent. Turning now to our Business Services division, which has bounced back from last year's difficult trading conditions. Turnover was up 12%. EBITDA was up 58% to just under GBP 24 million. Adjusted PBIT has more than doubled.
Operating services delivered good growth from increased activity on our core MoD and Coal Authority contracts and higher property search volumes in the first quarter before the end of the stamp duty holiday. In green power, higher energy prices and incentive income from gas generation were partially offset by lower gate fee income as domestic waste volumes fell from last year's lockdown peaks. Our property development team had an excellent six months, generating GBP 8.9 million of profits to put us firmly on track with our commitment of GBP 100 million of PBIT by 2027. The screen shows Teal Close, one of our biggest recent deals. I'm now gonna pass on to our head of property development, Julie Rossiter, who is at the site in Nottinghamshire, to explain a bit more about how our property development program benefits our customers, communities, and investors.
I'm here with Julie Rossiter, who is from our property team. Can you tell us a little bit about what's going on behind us?
We're here at Teal Close in Nottingham, where you can see developments underway, building lots of new homes, business, and community facilities for the local residents, which is much needed in this area.
How come Severn Trent was involved in this?
Well, this is a great example of the public and private sectors working together. We released land which we no longer need for our Stoke Bardolph works, and we were able to repurpose the land and obtain planning consent for mixed-use redevelopment and then sell into the development industry. There's gonna be around 830 new homes, essentially a brand-new school. The sports pitches have been refurbished, and there's also going to be an ecology park for the local communities. Alongside that, a further 20 acres were sold for employment usage, so again bringing much-needed new jobs into the area. This is one part, admittedly a large part, of our plans, which were announced to investors back in 2017 to deliver GBP 100 million PBIT by 2027.
Obviously we've had COVID. How did that affect that disposals program and what are we seeing now as we're into the second half of year two of the AMP?
Well, clearly the pandemic did affect the property industry in the same way as it affected all of our lives, and we did see sales slow down. I'm really pleased to say that following the easing of lockdown that we've seen renewed interest in our sales and we're back on track to deliver GBP 100 million PBIT by 2027.
This is obviously gonna be 830 homes by the time it's finished. This is a really, really big site. But the deal was done before the pandemic. Post pandemic, you said the market's picked up. Can you tell us a little bit about what's been happening in the last six months?
The last six months we've been really, really busy. For example, we sold a residential site in South Derbyshire, and just down the road from here actually, there's a 10 acre site which had planning consent for 120 homes, which we've also recently sold as well.
Julie, you mentioned earlier the GBP 100 million PBIT target. How are we doing against that?
I'm absolutely delighted because we've already reached GBP 45 million against our GBP 100 million PBIT target by 2027.
Obviously that helps any number of our stakeholders, so our communities, our investors, and our customers. Can you just talk me through how that works?
Yes, it's absolutely great for our communities because we're recycling our redundant land assets to provide much needed new homes, new business facilities, and then facilities for our communities like ecology parks, new schools, and cycle routes. It's great for our investor community too because it provides additional returns alongside our regulated business, and it's also fantastic for our customers because it helps keep our customers' bills low as we share the profits with them.
Let's turn now to our technical guidance for the full-year. I'll leave you to read the detail, but there's a few key updates that I'd like to highlight. First, following a great operational start to the year, we're now guiding to at least GBP 75 million of ODI rewards, which is quoted gross of tax at 25%. That's the rate we expect to be in place when the rewards are taken as revenue. Second, the strong recovery and property development activity this half means we're confident of at least 20% growth in business services profits for the full-year. Lastly, as I mentioned previously, based on the latest inflation forecast, I'm expecting second half interest costs to be around 20% higher than the first half.
To summarize, we've seen the top line benefit of a return to more normal patterns of consumption in our regulated business and a strong performance from our business services division flow through to a 14% improvement in group PBIT. We've made a fantastic operational start to the second year of the AMP, leading us to increase our customer ODI guidance to GBP 75 million for the full-year. Our funding position is strong, and we continue to outperform the allowance on new debt issues. We're pleased to confirm our interim dividend at GBP 0.4086, up in line with our CPIH-linked policy. With that, I'll hand you back to Liv.
Thank you, James. Let's start by talking about the momentum we've seen in water, not just through this last six months, but actually through the 18 months to date. I wanna bring to life that momentum by talking about some of my favorite examples of the operational measures. Now, these are all measures that our customers care about most. For example, water quality complaints. You know we've been on a long journey of improvement here. Actually, it's our fifth year of double-digit improvement year after year, and I'm really pleased to see that once again continuing with a fantastic 18% improvement in the course of this year. If we move on now to talk about speed of response. If our customers see a leak, they want us to get out there quickly and to immediately solve that issue.
It's been great to see ourselves speed up and actually improve that measure by 11% again during the course of the last few months. The last of the ones I wanna bring up is water quality, the CRI measure, the critical measure in the eyes of the Drinking Water Inspectorate. We were so proud to be named actually with both Hafren Dyfrdwy and Severn Trent as the two leading companies last year on that particular measure, Hafren across the piece and Severn Trent as the leading WASC player, which felt really good on our continued story of momentum in water. Now, we're not yet done. We're certainly not gonna rest on our laurels.
We know there's loads more to do, and that's why we've actually introduced a change, a new operating model in our water division, where we're actually going for a much more multi-skilled workforce that can jump on customers' issues quicker, get out there and actually solve that issue first time at the exact moment the customer needs the solution, and we're really pleased that will give us continued push on and growth in terms of our performance for the next period of time. Let's move on now and talk about waste. We've performed strongly on waste for the last number of years.
It's very much at the heart of the Severn Trent DNA, and we've made really good investment decisions, which means we've been able to push on, and actually we're now forecasting by the end of this year to see a 30% reduction in our blockages and our sewer flooding measures, which is fantastic for our customers, but also a source of real pride for the company. Now, we know that the next phase, the next frontier in our waste performance, comes down to data, and it's linked very carefully to our sewer sensor investment. We're investing in over 40,000 sewer monitors by the end of the AMP. We're really pleased with how performance has gone so far with the first 1,400 we've already placed into the ground, and we genuinely think this is gonna take us on to a new level in terms of performance.
To bring it to life, don't listen to me, let's pass over now to our Head of Operations, James Jesic, who's gonna share his thoughts with us all. I'm here at Minworth Sewage Treatment Works today with James Jesic, and Minworth of course, is the main sewage treatment works for Birmingham and the Black Country, so there's an awful lot of waste coming through here. We're really here to talk to James about what's actually been the key to the success that Severn Trent's had in its waste programs.
Well, one of the key areas, Jonathan, is that we really consider our waste network and the drivers that cause us problems across that network. Those problems might be blockages, pollutions or floodings. Now what we recognize is blockages are the key, and if we reduce our blockage numbers, we should see improvements in all those other areas as well. We've got a multifaceted program that really targets customer education, teaching customers about the sort of things they should and shouldn't put down the sewer network. It works with restaurants about disposing of fat oil and grease and making sure that's collected and then disposed of properly. We have these really complex models that allow us to proactively intervene on our network and prevent a blockage before it occurs.
Also, obviously, James, we're using technology to a greater degree than we ever have before. Can you talk me through that a little bit as well?
We're installing 40,000 monitors across our network, and what that's gonna allow us to do is be even more proactive at preventing blockages occurring. Now we're already on track for around a 30% reduction in blockages since the start of the AMP. That is gonna deliver far more flooding improvements and pollution improvements as well as we progress throughout the AMP.
Obviously we've been going really well in waste for a number of years now, but that doesn't mean we're resting on our laurels, does it? Can you talk me through some of the changes we're making specifically with regards to the customer journey?
One of the things that we're really conscious of is that if a customer has an issue with their waste system, it can be quite a horrific thing to have to deal with, and we know that customers generally need a bit more care and a bit more help in those situations. As a result, we've set up this dedicated hub in Derby, which is purely focused on improving the waste customer experience. Although it's early days, we are already starting to see improvements in that space.
James, we're here at Minworth, and obviously one of the things about Minworth is it was the first site that we built a thermal hydrolysis plant, and now we've expanded that system to three other plants as well. Can you give us, you know, an overview of why THPs are a good decision for us and why they're good for, you know, our stakeholders as well?
Thermal hydrolysis plants, Jonathan, what they effectively do is inject heat and pressure into our biosolids and break it down much easier, and that has a couple of benefits. First of all, when we put those biosolids into a digestion system, they create far more gas than they did previously. We can then use that gas to either inject straight into the gas network or use it to generate electricity. That's really good from a carbon footprint perspective, but also from a self-generation capacity. But then the added benefit that we have is that we have this enhanced product at the end that we can then use as fertilizer. We sell that to farmers, which they can then use to fertilize the land. It's really helping carbon sequestration in that space as well. We see THP as a real core component of our net zero ambitions.
Thanks a lot for your time, James. It's been a really interesting insight.
Thanks, James, for that. Let's move on now and talk about the environment. Now, there's been much speculation recently about the state of the nation's rivers, and I want to reassure everyone as to how passionate we are about the remit that we have in protecting our nation's rivers. Now, we don't own them, as we all know, but we are a key party that can absolutely do some fantastic good in this space. That's why we're so proud to be 100% green on all of our environmental ODIs. When we look at the commitments that we've made, we take our role incredibly seriously.
Whether it's our commitment to actually make sure we look after 5,000 hectares of biodiverse land, or the most recent desire to actually restore 2,000 acres of peatland. Maybe it's the fact that we've said we're definitely going to plant over 1 million trees. Actually the way that we're judged by the Environment Agency. We're proud of the fact that we've been a four-star company, the very highest accolade you can receive, for the last couple of years. As it stands today, on track to achieve that again this year, which would make it third year in a row. We know how important the rivers are, the ecology of the system as a supply chain to ourselves and for people in terms of their leisure activities.
That's why we invest about GBP 100 million a year in really doing our part of looking after the rivers. We'll continue to make sure that we step up and do even more as time continues, and we're very clear that this is a key part of how we'll be assessed and judged by our customers and our stakeholders. With that, I want to move on now and talk about our customers. Now, of course, our customers are central to everything we do, and we consistently try to make sure that any journey they have with us is even easier and even more personalized than ever before. We also know that the cost of the bill is an absolutely critical situation in today's climate. It's why we're proud to have one of the lowest bills in the land at about GBP 1 a day.
We also know that even that amount of money is an awful lot for some customers. Once again, we continually strive to help as many customers as we can that might be struggling with financial hardship. In the first six months of the year alone, we've helped 160,000 customers. Looking ahead, there's still more that we can do. We're actually investing in speech analytics to make that journey even more personalized, and also working with expert partners like the Citizens Advice Bureau to see how they can help us to shape that particular experience and make it as easy and as tailored as possible. Let's move on now and talk about our role in the wider community arena. We take our role in living and serving in our community very seriously.
We love the fact we're regionally based and that we're socially responsible as an organization. We also are so pleased, as such, to be named as first place in the Tortoise Responsibility100 Index, which judges all FTSE 100 companies as to how they behave as much as anything in terms of looking after their staff and also looking after their customers. We want to make sure the people in our region, that they succeed. We want to support our community in their endeavors. To be named in the top 10 for the third year in a row on the Social Mobility Employer Index is again a source of real pride to us. We wanna make sure that people have careers in our region, that we do our part as a large organization in supporting that.
That's why we decided to take on 500 Kickstarters, 16-24 year-olds looking to have that first moment in work. What's been lovely as we've watched these fantastic young people join us, is how those that have actually come to the end of their time with us, over 40% have found long-term employment or gone back into further education, giving them their next focus or their purpose for their future lives. That's been a real delight for every single person in Severn Trent. We don't just wanna look after that particular community, we also want to look after the even younger people in our area, and that's why we have such a fantastic education program.
I'm so pleased to share that actually in just over the first six months of the year, we've been able to really deliver all of our education ODI, and the team aren't gonna stop there. They're gonna keep going as we look to educate all of that particular kind of young people age group and everything they should or shouldn't do, putting down the toilets or using water more sparingly. Now, in addition to all of those lovely things, we also believe our cash can actually make a real change, and that's why we're pleased to have been able to give GBP 8 million thus far in the AMP towards the community fund. When you look on the website at some of the incredible causes that are supported, again, it's a source of real pride for the organization. With that, it just requires me to summarize today.
There's been a really strong start to the year. We still think there's so much more that we can deliver. We're definitely not done. We're absolutely open for questions, so it is now for you to ask any questions for myself or the rest of the senior team that'll be gathered here ready to talk to you right now.