Severn Trent - AGM 15 July 2020
Items 3 and 19: Dividends and share buybacks
The proposed dividend (+7.2%) is not covered by consolidated earnings in 2019/20 and free cash flow for three years in a row. Leverage (net financial debt/equity) is too high and keeps growing: at the end of FY19/20, the gearing stood at 501%. Net debt equals 115% of the company's market capitalisation. Debt to EBITDA ratio was 6.7 and Debt to FCF was 132.0. Net debt has increased by 6.8% during the fiscal year and by 16.3% since FY17/18.
Given the recent events relating to Covid-19, ECGS is in favour of postponing decisions on the dividend, reductions or suspensions that would allow companies to avoid liquidity risks or not generate risk for their survival. Even if the Company has not used the UK government support financing, we prefer that the Company reduces the amount distributed to shareholders to strengthen its balance sheet. ECGS also considers that it is not the right moment to proceed to new share buybacks.
Severn Trent is engaged in providing water and waste water services and developing renewable energy solutions through Co.'s businesses: Severn Trent Water and Dee Valley Water (together Co.'s Regulated Water and Waste Water business), and Severn Trent Business Services. Co. is organized into two main business segments: Regulated Water and Waste Water includes the wholesale water and waste water activities of Co.'s subsidiary, Severn Trent Water Limited, its retail services to domestic customers, and Dee Valley Water; and Business Services, which includes Co.'s Operating Services businesses in the U.S., the U.K. and Ireland and Co.'s Renewable Energy business.
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