Severn Trent has provided insight into how they are operating in an environment punctuated by soaring inflation in their first half results in which revenue increased.
Soaring inflation meant the company’s revenue increased, but the impact of inflation-linked debt saw their overall earnings suffered.
Severn Trent’s revenue grew £103.6 million to £1,061.8 million but Adjusted basic EPS nearly halved to 29.9p from 54p.
The culprit was a sharp increase in net financing costs which hit £186.9m, compared to £120.8m in the year prior. This more than offset the increase in revenue and profit before interest and tax.
Nonetheless, Severn Trent increased their dividend. With a yield of 3.7%, the willingness to improve investor distributions, despite a challenging backdrop, will be an attraction to investors seeking a reliable income play.
“Severn Trent are showing the benefits of being a utility provider when inflation’s running wild, as inflation linked tariff rises gave revenue a £39m boost over the half,” said Matt Britzman, Equity Analyst at Hargreaves Lansdown.
“That’s not to say Severn Trent’s been immune to pressures, higher costs meant a big chunk of the 11% rise in revenue never made its way down to the profit line and inflations impact on index-linked debt meant financing costs shot up. Though it’s worth remembering, most of the rise in finance cost is a non-cash charge due to how changes in the value of index linked debt is accounted for, rather than a cost that had to be paid in cash.”