annual report  
and accounts  
2010
building a sustainable business
severn trent plc
registered office
2297 coventry road
birmingham b26 3pu
tel 0121 722 4000
wwwseverntrentcom
registered number 2366619
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overview business review governance financial statements other information
wwwseverntrentcom
overview
1 2010 severn trent group highlights
2 group at a glance
4 chairman’s statement
5 chief executive’s review 
6 severn trent water – our industry
business review
9 severn trent water – our strategy
10 delivering against our kpis
12 performance
19 severn trent services – overview
20 performance
23 financial review
governance
28 directors’ report
31 directors’ responsibility statement
32 board of directors
34 executive committee
35 chairman’s letter
41 nominations committee
42 audit committee
44 corporate responsibility committee
45 directors’ remuneration report
58 risk and assurance
group financial statements
61 independent auditors’ report
62 consolidated income statement
63 consolidated statement of comprehensive income
64 consolidated statement of changes in equity
65 consolidated balance sheet
66 consolidated cash flow statement
67 notes to the group financial statements
company financial statements
112 independent auditors’ report 
113 company balance sheet
113 company statement of total recognised gains and losses
114 notes to the company financial statements
other information
122 five year summary
123 information for shareholders
contents introduction
cautionary statement
this document contains certain ‘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’ ‘will’ ‘could’ ‘may’ ‘should’ ‘expects’ ‘believes’ 
‘intends’ ‘plans’ ‘targets’ ‘goal’ or ‘estimates’ 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 will occur in the future
there are a number of factors that could cause actual results 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 severn trent 
does not intend to update these forward looking statements
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 united 
states absent registration or an applicable exemption from the registration requirements of the 
us securities act of 1933 as amended
severn trent plc
severn trent plc is a public limited company listed on the  
london stock exchange and registered in england and wales 
with company number 2366619 this is the annual report  
and accounts for the year ended 31 march 2010
more information on severn trent plc can be found on our 
website at wwwseverntrentcom
severn trent is a ftse 100 
company our core business  
is water we provide and treat 
water and waste water in the uk 
and internationally through our 
two complementary businesses 
– severn trent water and  
severn trent services
 find out more at our corporate website 
 wwwseverntrentcom
 severn trent water website 
 wwwstwatercouk
 severn trent services website 
 wwwseverntrentservicescom severn trent plc annual report and accounts 2010 1
2005
value £
2006 2007 2008 2009 2010
severn trent plc ftse 100 index
total shareholder return
0
25
50
75
100
125
150
175
200
overview
2010 severn trent group 
highlights
–  group profit before interest tax and 
exceptional items up 186 to £5571 million
–  full year dividend up 74 to 7232 pence per 
share 3 above march 2010 rpi inflation
– exceeded planned operating cost savings in  
 severn trent water 
– severn trent services positioned to  
 capture future growth opportunities
group turnover £m
£17039m
2009 £16422m
group profit £m
£3384m
2009 £2735m 
 before tax gainslosses on financial instruments  
and exceptional items
 before exceptional items gainslosses  
on financial instruments and deferred tax
group profit before tax £m
£3344m
2009 £1676m
dividend pence per share
7232p 
2009 6734p
earnings per share pence
1228p
2009 927p 
severn trent plc
ftse 100 index
this graph illustrates the value at 31 march 2010 
of £100 invested in severn trent on 31 march 
2005 compared with the value of £100 invested  
in the ftse 100 index the intermediate points 
show the value at intervening financial year end  
source datastream 
2010
2010
2010
2010
2010 severn trent plc annual report and accounts 2010 2
severn trent water 
find out more on page 6
severn trent water provides high quality water 
and sewerage services to over 37 million 
households and businesses in the midlands  
and midwales
our industry
the water industry in england and wales 
invests more than £3 billion a year and 
employs over 27000 people there are 10 
regional water and sewerage companies in 
england and wales we are seeking ways  
to address the long term challenges the 
industry faces including the possible 
introduction of water trading and other 
measures to improve the national distribution 
of water see ‘our industry’ page 6
our prices
every five years ofwat our economic 
regulator sets annual price limits for each 
water company which determine how 
much income we collect from our 
customers these five year cycles are 
referred to as asset management plan 
amp periods we have just reached the 
end of the period 2005–10 amp4 and are 
about to enter our next five year regulatory 
period amp5 the price limits for 
2010–15 were set in november 2009  
see ‘focusing on the next regulatory 
period’ on page 9
our performance
like all water companies we submit a 
detailed annual breakdown of our 
performance to ofwat each june known 
as the june return this information 
enables ofwat to monitor and compare 
water companies’ performances
our performance is also regulated by the 
drinking water inspectorate which is 
responsible for ensuring that we comply 
with drinking water quality regulations  
and the environment agency which 
controls water abstraction river pollution 
and flooding
in addition we work closely with other 
agencies such as the department for 
environment food and rural affairs 
defra the consumer council for water 
and natural england as we aim to achieve 
the highest customer service and 
environmental standards while offering our 
customers the lowest possible prices
 before interest tax and exceptional items 
turnover £m
200910 up 46
2010
2009 13249
13853
profit £m 
200910 up 187
2010
2009 4560
5413
key strengths
• our bills for customers are now the 
lowest on average in the uk industry
• we continuously work to improve our 
performance and deliver cost and 
operational efficiencies against 20 key 
performance indicators each of which 
is aligned with our long term strategy
•  the drinking water and waste water 
quality we provide is amongst the best 
in the industry
• we are committed to the long term 
responsible stewardship of the 
business the environment customers 
and the communities in which we live 
and work
• we are led by a focused management 
team with a clear business plan and 
strategic direction statement
group at a glance
where we operate in the uk
our region stretches 
across the heart of  
the uk from the 
bristol channel to  
the humber and  
from midwales to  
the east midlands
our physical assets include
– 46000 km of water mains
– 134 water treatment works
– 54000 km of sewers
–  1021 sewage 
treatment works
5686
27bn litres
18bn litres
employees
treated waste water per day
drinking water supplied per day severn trent plc annual report and accounts 2010 3
overview
severn trent services 
find out more on page 19
severn trent services is one of the world’s leading providers 
of water and waste water operational and treatment solutions 
we have a reputation for continuous innovation reliable and 
quality services and leadership in our selected markets
key strengths
• our business has a clear strategy for 
long term growth which focuses on 
the growing global demand for clean 
water and safe and efficient waste 
water treatment
• we are known around the world for 
quality reliability and stability
• we provide operating services  
to an increasing number of utilities 
municipalities and commercial 
customers in a growing number  
of countries
• in water purification our products  
and services enjoy a strong position  
in high growth high margin markets 
such as disinfection filtration 
adsorption and marineoffshore  
waste water treatments
• we operate at the forefront of 
advanced water treatment technology
• we have a long term track record of 
growth and cost control
our purpose statement
we are trusted as leading experts in water 
we endeavour to always deliver solutions 
that are right for our customers and  
the environment
we build long term relationships by 
understanding and acting on our customers’ 
needs delivering value and behaving with 
integrity in everything we do
our businesses
severn trent services provides products 
and services to water and waste water 
utilities municipalities and commercial 
customers around the world our global 
headquarters are in fort washington 
pennsylvania usa we also have 21 other 
offices worldwide
we have three principal business groups
• operating services  
• water purification 
• analytical services
growth strategy
•  continuing the geographic expansion of 
our products and services
•  expanding the scope of our operating 
services to existing clients around  
the world
•  enhancing products and operations to 
improve our effectiveness and efficiency
•  developing new technologies at  
the forefront of water and waste  
water solutions
key strategic initiatives
eight key strategic initiatives define our 
strategy and how we intend to achieve  
our objectives
•  increase employee engagement
•  continuously improve quality health 
safety and environmental performance
•  deliver what customers value
•  establish long term contracts and strong 
sales channel relationships
•  expand our global technology programme
•  continue to build a strong coherent and 
respected brand
•  optimise processes and organisational 
capabilities
•  invest in strategic acquisitions  
and partnerships to supplement  
organic growth
turnover £m
200910 down 08
 before interest tax and exceptional items
profit £m
200910 down 59
2010
3393
3365
2010
2009 305
287
3097
22
employees
number of offices worldwide
2009 severn trent plc annual report and accounts 2010 4
as this report covers the last full year of my tenure as chairman of 
severn trent plc i am pleased to report on yet another year of 
significant improvement we faced the challenges of the coldest 
winter for 30 years and an economic environment which remains 
challenging yet tony wray our chief executive and his team have 
delivered substantially increased group profit before interest tax 
and exceptional items we have continued to attain higher 
standards through process improvements development of 
supporting technology and systems and the training and 
development of our people
building on our track record of continuous improvement the board 
has overseen the progression of severn trent water from the final 
year of amp4 to embarking on the next five year programme amp5 
at a professional and personal level it is particularly gratifying to 
have presided over five years during which we have moved from 
being a business with a number of serious problems to overcome  
to a company recognised as offering good service continuous 
improvement and well placed to deliver further advances 
this year tony and our employees achieved upper quartile 
performance in nine of our 20 key performance indicators  
our dedicated employees have engaged in a range of activities 
which have helped to accelerate our efficiency programmes and 
achieved tangible improvements in customer service sewer 
flooding reduction health and safety performance and water quality
we have succeeded in delivering this performance at the same  
time as offering the lowest average water and sewerage bills in 
england and wales the cost of all severn trent water and waste 
services is on average less than 83p per day per household with 
bills falling by 072 in 201011 and set to decrease by 4 in total 
over the next five years
these advances in our regulated business are complemented by 
the expertise we have across global markets through severn trent 
services where our ‘blueprint for growth’ will shape sustainable 
growth in the years ahead 
group results
group profit before tax gainslosses on financial instruments and 
exceptional items was £3384 million 2009 £2735 million group 
profit before tax was £3344 million 2009 £1676 million
the board is proposing a final dividend of 4561 pence 2009 4105 
pence to be paid on 30 july 2010 this would give a total dividend 
of 7232 pence per ordinary share an increase of 74
corporate responsibility performance
we develop manage and operate severn trent for long term 
sustainable benefits for all our stakeholders
i am proud to be able to say that 20 of severn trent water’s total 
energy requirements were met from our own renewable sources  
in 200910 and our target is to grow this to 30 this year’s 
performance has consolidated our leadership position in the sector 
on generation from renewable sources meanwhile our continued 
focus on creating and maintaining a safe working environment 
resulted in a 17 reduction in group lost time incidents during 
200910 this focus on health and safety has in turn driven 
improved processes and efficiency
board
gordon fryett director of property at tesco was appointed to the 
boards of severn trent plc and severn trent water limited from 
1 july 2009 and his experience has already added value to the 
board’s activities
on 10 may 2010 we announced the appointment of andy duff  
as chairman designate of severn trent he brings with him the 
experience of running utilities and other essential infrastructure 
businesses at uk and international level and i wish him  
every success
as i report on page 35 we have set out our strong commitment to 
good governance at severn trent and have put in place solid 
foundations for the next period
outlook
i am pleased to confirm that we have delivered our planned 
operating costs savings over the past year and delivered our 
capital programme for the amp4 period 
by accelerating our new programmes ahead of amp5 we have 
ensured severn trent’s plans are well advanced innovation  
has been a key theme in completing the latter part of our amp4 
programme and will be central to meeting our targets during  
the next regulatory period we have further developed our  
“one supply chain” with our contractors and suppliers creating 
shared experience knowledge and offices to deliver our  
capital programme 
through our focus on continuous improvement we plan to put 
severn trent water ahead of the rest of the industry in operating 
efficiency by 2015 with customers still benefiting from the lowest 
average bills in england and wales
meanwhile severn trent services overcame a difficult economic 
environment and delivered improved results during the second half 
of the year the company continues to concentrate on higher 
growth and higher margin market segments where our water and 
waste water products and services meet a significant need 
as i prepare to hand over to a new chairman i believe we are on 
the threshold of great change across the water sector – be it within 
companies among regulators or within the policy framework which 
shapes the industry and its conduct now is the time to change 
course while preserving the achievements of 20 successful years 
of water privatisation 
i will leave with the belief that longer term our operational 
excellence low cost base geography and the growing expertise  
of severn trent services as our nonregulated business gives 
confidence that severn trent is well placed to take advantage of 
the opportunities that change will bring
sir john egan chairman
chairman’s statement severn trent plc annual report and accounts 2010 5
overview
we head into the first year of amp5 confident 
that the hard work our people have been doing 
in recent years makes us well prepared to meet 
the challenges of the future
in 200910 we continued to deliver what we set out to do in our kpis 
and business strategy focusing on improving our performance and 
successfully completing amp4 at the same time we set about 
preparing our businesses for the next regulatory period and gearing 
up for the longer term issues facing the water industry as a whole
improving performance across our group
in 200910 we faced pressures on two fronts – continuing impact 
from the economic downturn and the additional challenge of  
coping with the coldest winter for 30 years nevertheless we 
performed well on the financial front continued to make process 
and efficiency improvements throughout our businesses and 
delivered excellent service 
as we reach the end of the regulatory period our performance has 
improved to position us better for amp5 amp4 was not without its 
difficulties but we used our learning to transform our business 
putting our performance and our company in a strong position to 
meet the challenges of the next five years and beyond 
severn trent water
over the past five years we have been setting ever higher standards 
to achieve better levels of customer satisfaction and improve our 
environmental financial and regulatory performance we delivered 
good results and maintained our dividend promise we significantly 
reduced customer complaints tackling sewer flooding and 
increasing the reliability of water supplies across our region we 
achieved our own financial targets and those set by ofwat to meet 
our ongoing commitment to be the best water and waste water 
company in the uk with the highest standards the lowest possible 
charges for our customers and with great people
in december 2009 our journey of continuous improvement was 
recognised by our peers in the utility sector who named us utility 
company of the year a prestigious award one we feel very proud 
of winning that journey has been paving the way for the next 
regulatory period backed by significant leadin investments to 
improve our processes and the capabilities of our people along the 
way we have invested in systems and technologies implementing 
sap and building our new telemetry systems to improve monitoring 
of our network and lower our operating costs we rolled out our 
safer better faster sbf process improvement programme to 
more areas of our business to ensure we work in smarter and leaner 
ways we made early progress with our future capital plans and  
the new severn trent centre in coventry is already close to 
completion and ready for us to move in some 1700 staff this 
autumn all of which means we enter amp5 with our plans for the 
period well advanced
severn trent services
the global economic downturn made this a challenging year for 
severn trent services nevertheless by continuing to focus on 
longer term growth our complementary nonregulated business 
maintained customer confidence and remains in good shape 
operating services performed well and continued to grow water 
purification and analytical services were harder hit by the 
recession effectively losing a year of growth that said the order 
book remains high at water purification and by the end of the year 
performance was moving back on a growth track at analytical 
services we look forward to starting the new 10 year yorkshire 
water contract building on a restructured and lower cost base
looking to the long term
as we make the transition from one regulatory period to another the 
water industry in england and wales is reaching a critical point
at severn trent we believe we are in a strong position to deal with the 
challenges ahead our operational performance financial strength 
geography and low cost base differentiate us from other companies 
we relish the challenge of finding innovative solutions to tough 
problems and are firmly committed to delivering the lowest charges in 
england and wales for our customers we will also continue to 
support our complementary business severn trent services 
we are of course committed to responsible business conduct 
every day we’re delivering water and waste water services and 
treatment solutions to customers globally we’re investing in local 
regional and national economies and we’re doing this with a focus 
on minimising our carbon footprint this is the real heart of corporate 
responsibility and for us it’s business as usual it’s about keeping our 
prices down for our customers being a good safe and attractive 
employer and safeguarding the environments in which we work 
last but by no means least we have a great team of people in both 
severn trent and in our supply chain partners wherever i go in our 
business i’m impressed by the motivation and commitment of our 
people whether they’re keeping our customers supplied with quality 
water reducing pollution incidents and sewer flooding producing 
record levels of renewables improving customer service metrics in 
a tough economic environment or delivering technological solutions 
and getting it right first time it’s thanks to them that we move into 
amp5 with confidence and the kind of strength you would expect 
from a company with ambitions to be the best water and waste water 
company in the uk
finally may i take this opportunity to thank sir john for his huge 
contribution to severn trent over the past five years and his 
exemplary leadership through some challenging as well as 
successful times for our company i wish him all the best for the 
future and give him my personal thanks for the unstinting support 
that he has given to me in my role as chief executive
chief executive’s review
tony wray chief executive severn trent plc annual report and accounts 2010 6
the achievements of the water industry in  
the 20 years since privatisation are well 
documented – service to customers has 
improved new drinking water standards have 
been met tighter environmental standards have 
been achieved and new investment attracted 
these successes have been driven by an effective regulatory 
framework which has incentivised companies to become more 
efficient so keeping bills lower than they would otherwise have 
been the framework has also provided investor confidence 
allowing companies to attract financing for an investment 
programme of around £85 billion over the last 20 years to  
deliver the improvements
however the successes of the last 20 years have not been without 
consequences water company debt has increased significantly 
customers face higher bills and carbon emissions have increased 
 
severn trent water – our industry
natural 
environment
such as countryside 
council for wales 
and natural england
drinking water 
inspectorate
the drinking water 
inspectorate dwi 
makes sure 
companies supply 
water that is safe to 
drink and complies 
with all national and 
european standards
ofwat 
the economic regulator  
for the water and sewerage 
industry it makes sure that 
water companies use 
customers’ money 
efficiently and effectively
environment agency
the environment agency 
ea is a public body set up 
to protect and improve the 
environment
political framework
including the department 
for environment food and 
rural affairs defra and 
the welsh assembly 
government wag
consumer council for water
consumer council for water ccwater  
is an independent body designed to 
protect the rights of consumers
health and safety 
executive
the health and safety 
executive hse is the 
enforcing authority on 
health and safety law
wildlife organisations
including the royal 
society for the protection 
of birds national trust 
and the world wildlife 
fund
water is collected
water is cleaned
water is piped
customers
water flows back
water is cleaned
organisations that have an influence on how severn trent water is run
the policy and regulatory context for the water sector is complex with a number of different stakeholders having different remits in 
relation to regulating the industry and developing the policy framework this is shown below
clouds cool causing rain
water evaporates severn trent plc annual report and accounts 2010 7
overview
it’s no longer enough just to meet regulatory 
requirements – regulators and politicians 
want to know you’re prepared to go further 
as a business that’s what we want too – we 
know we’ve got a lot more to give that’s one 
of the reasons we’re so excited about the 
future
tony wray 
chief executive
utility company of the y ear
severn trent water was named utility 
company of the year in december 2009
the award judges – a cross section of 
independent figures from consumer 
organisations the industry trade journalists 
and the city – commended severn trent 
water for its “professionalism willingness to 
engage and good practice in dealings 
across the spectrum from customers to the 
supply chain” 
the judges believe “the company’s ability to 
learn the lessons of difficult years and use 
them to transform performance” will see 
severn trent water continue to make strides 
in the future
in addition there is a significant projected level of capital investment 
required over the next 20 years to deliver further statutory 
environmental improvements and adapt our services and provide 
asset resilience in the face of climate change
changing course
given these circumstances we believe now is a critical time for all of 
us with a stake in the industry to question what future direction we 
should take we have therefore developed our position on these 
issues and published a report entitled ‘changing course delivering 
a sustainable future for the water industry in england and wales’ 
which sets out six key changes we believe are required to meet 
these continuing challenges 
we believe that implementing these changes would deliver better 
outcomes for customers investors and the environment the report 
is available on our website wwwstwatercoukchangingcourse
we have engaged with our key stakeholders including those 
described on page 6 in developing our thinking and we believe there  
is a degree of consensus about the need for and the direction  
of change
we will continue to develop our thinking on these issues and  
work with our stakeholders to influence the way in which the  
sector develops
changing course – six key changes 
required to meet future challenges
policy changes
• more flexible implementation of eu 
directives to ensure a better trade off 
between costs and carbon emissions
• developing competition through water 
trading which would also optimise 
resources nationally rather than  
just regionally
regulatory changes
• a more flexible approach to 
environmental consents to allow for 
more cost effective approaches
• an improved price setting process to 
provide the right incentives for 
sustainable financing more sustainable 
solutions and increased innovation
industry changes
• companies must take the lead in driving 
innovation both in terms of the strategic 
and technical solutions they pursue  
and in shaping the wider direction the 
sector takes
changes to the institutional framework
• government should prioritise national 
policy outcomes and ensure the 
regulatory framework is set up to  
deliver them
there are some very significant 
challenges ahead and we need 
to ensure we plan effectively 
our own destiny 
michael mckeon  
finance director
we’ve taken the first step in setting out 
how we believe the industry should 
change we now want to work with 
government our regulators and other 
companies to make it happen
tony ballance 
strategy and regulation director severn trent plc annual report and accounts 2010 8
howden dam upper derwent valley
we provide 18 billion 
litres of drinking water 
each day
our region encompasses 37 million households and 
businesses across the midlands and midwales  
we maintain 46000 km of water mains and 54000 
km of sewers employing 5686 staff
we are committed to being the best water and 
waste water company in the uk with the highest 
standards the lowest possible charges for our 
customers and great people severn trent plc annual report and accounts 2010 9
improving 
technology 
that works
an improved
workplace
training and
development
employing and
developing great
people
having the highest 
standards
ensuring 
the lowest 
charges
simple 
processes
that work
being paid for doing 
the right things for 
our customers
is to be the best
water and waste 
water company 
in the uk
people
technology
process
20 kpis
industry
economic context
business review
our strategic direction statement sds sets out our direction of 
travel to develop the statement we consulted widely with key 
stakeholders such as the ea dwi defra ofwat ccwater and 
natural england we also carried out detailed market research 
among our domestic and business customers
the proposals set out in our strategy are based on making the 
improvements our customers tell us they want while ensuring that 
the economic and environmental impacts of our actions are 
sustainable they also address the complex and demanding long 
term challenges facing our industry 
our aim is to become the best water and waste 
water company in the uk delivering the highest 
standards lowest possible charges with great 
people through continuous improvement  
and innovation
more information
wwwstwatercouk
business review 
severn trent water – our strategy
key strategic intentions
our strategic direction is based 
upon eight key strategic 
intentions ksis which reflect 
what matters to our customers 
and wider stakeholder groups 
we measure our performance 
within each ksi against our  
20 key performance indicators 
kpis and organise the 
information in this report  
around them
1  providing a continuous 
supply of quality water
2  dealing effectively with
waste water
3  responding to customers’
needs
4  minimising our carbon
footprint
5  having the lowest possible
charges
6  having the right skills to 
deliver
7  maintaining investor 
confidence
8  promoting an effective 
regulatory regime
our commitments at a glance
lower bills on average our average household bills in today’s prices will be £13 lower in 201415 than in 200910 
our customers will start and end the five year period with the lowest average bills of any 
water and waste water company in england and wales
further investment we are investing around £13 million a day in our services ensuring we continue to deliver a 
safe reliable supply of drinking water and carry away and treat waste water effectively 
a more efficient water  
company
we will continually improve the way we work to help keep bills down by 2015 our efficiency 
improvements will help make up to £8 of the £13 reduction of the average household bill
focusing on the next regulatory period 2010–2015
our strategic framework
our goal
we do this by
our enablers are
we measure our  
success by  severn trent plc annual report and accounts 2010 10
our 20 key performance indicators kpis 
remain the primary basis through which we 
measure our performance and during the year 
we continued to improve our scores in many key 
areas of the business and achieved our targets 
customer service levels showed further improvement a result of 
investing in our people increasing capability and focusing on process 
and technology improvements – for example over 100000 customers 
registered for our online account management system in its first year 
we improved performance in customer call resolution maintained our 
high performance in job resolution and delivered a 23 reduction in 
customer written complaints over last year
water quality improved again in 200910 while for the third year running 
we achieved our leakage target despite the coldest winter for 30 
years our teams reacted quickly to the prolonged period of freezing 
temperatures to bring leakage rates back down as rapidly as possible
we also maintained our high standards in control of pollutions and 
made further improvements reducing sewer flooding incidents our 
continued focus on creating and maintaining a safe working environment 
resulted in a 16 reduction in lost time incidents over last year 
we have improved our debt management processes and helped 
customers with our watersure tariff and water direct a scheme from 
the department for work and pensions which allows payments 
directly from benefits to help customers manage their bills against the 
backdrop of the downturn in the economy debtor days performance 
improved to 326 days at march 2010 march 2009 331 although it 
has become more difficult to collect debt over one year old as a result 
we have increased our bad debt charge which now represents around 
25 of turnover £350 million up from around 23 £317 million at 
the end of last year we continue to monitor developments closely
the table opposite sets out our actual performance on the kpis and 
includes benchmarking against other comparable companies in the 
business review 
severn trent water – delivering against our kpis
16
improvement in lost time 
incidents 
23
fewer customer written 
complaints
89
first time call resolution – billing
74
employee motivation
kpi sewer flooding incidents
promoting the proper disposal of fats oils 
and greases fog
last year we outlined this trial as part of our 
work to reduce sewer flooding through 
community support this year we are 
pleased to bring you a further update  
and some good results
through a partnership with national charity 
community service volunteers csv a 
project called ‘grease lightening’ was set up 
in south east birmingham to raise awareness 
of the problems caused by disposing of fog 
down the sink
the scheme has shown positive results 
the proportion of households in the area 
that dispose of fog down the drain reduced 
from 26 in february 2009 to 17 in 
october 2009
this also resulted in a reduction in actual 
sewer flooding incidents in the area there 
were 52 flooding incidents as a result of 
fog between april and november 2008 
this reduced to just 17 incidents in the same 
period in 2009
water and waste water sector as well as other companies with similar 
characteristics in other sectors our performance is classified in one of 
three categories lower quartile upper quartile or median performance 
we now have nine kpis where we are achieving upper quartile 
performance 200809–11 with nine at median 200809–8 and two 
at lower quartile 200809 –1 the movement between categories is 
partly due to improved benchmarks which we update in september 
every year  but there are still areas where we need to do more for 
example on unplanned interruptions one of the kpis in the lower 
quartile we have not fully addressed issues such as poor network 
condition and incident response but we have an action plan in place 
focused on improving network monitoring and resilience and how we 
deal with incidents causing supply interruptions the other kpi in lower 
quartile breach of consents was impacted by noncompliance with 
processes during some site upgrades or routine maintenance and 
again we have taken action to address these issues the implementation 
of sap release 2 will help to provide a more structured approach to 
routine maintenance 
although we have made progress in a number of areas we recognise 
there is more to do and as companies in our sector or elsewhere 
redefine what upper quartile means our objectives move with them
looking forward to 201011 
in our drive for higher standards we have reviewed the measures 
we will need in the future to demonstrate our progress and to 
reflect the evolution of the regulatory environment in most cases 
our objectives and regulatory requirements are unchanged as we 
move from amp4 into amp5 and so the majority of our kpis will 
remain unchanged
however five kpis will have improved measures
• kpi 10 gross capex vs final determination
• kpi 11 capital process quality to be introduced in 201112
• kpi 15 pollution incidents cat 1 2 and 3 per 1000 properties
• kpi 17 sewage treatment works – breach of consents
• kpi 19 net energy use
and two new kpis will be introduced
• kpi 18 supply availability replacing security of supply
• kpi 14 ofwat efficient billing factor to be introduced in 201112 
replacing cost to serve per property
we will provide more detail on these during 201011 severn trent plc annual report and accounts 2010 11
business review
basis kpi
200809  
performance
200910  
performance
200910  
quartile at a glance
mat lost time incidents per 100000 hrs worked 
1
043 036 upper
qr employee motivation  
2
83 74 median
mat water quality test failure rate ppm 200 131 upper
mat customer written complaints per 1000 properties 
34
644 495 upper
mat first time call resolution for billing  
5
88 89 median
mat unplanned interruptions  6 hrs per 1000 properties 
3
729 1009 lower
npr properties at risk of low pressure per 1000 properties 
3 6
121 012 median
mat first time job resolution  
5
960 965 upper
qr nonperformance against regulatory obligations  
5
10 5 upper
amp capex gross vs final determination  
7
50 61 median
mat capital process quality number of defects per £100k 
5
000 007 median
act debtor days 
8
331 326 median
mat opex vs final determination uk gaap £m 
8
5009 4924 upper
mat cost to serve per property £ 
9
23653 23103 upper
mat pollution incidents cat 1 2 and 3 per 1000 properties 
10 11
008 008 median
mat sewer flooding incidents – other causes per 1000 properties 
3
0172 0131 upper
pps sewage treatment works – breach of consents  
10
000 031 lower
idx security of supply 98 99 median
mat net energy use – kwhmi 
5 12
440 435 upper
mle leakage mid 
3
492 497 median
key
  improved quartile  maintained quartile  declined quartile
notes 
mat  moving annual t otal
qr  quarterly review
npr  number of properties on register
amp  asset management plan 4
pps  percentage of population served
mle  maximum likelihood estimate
act  year end actual
idx  year end index
1 actual performance across all employees and 
agency staff
2 performance based on quarterly survey of 10  
of permanent employees
3 as reported in june return to ofwat performance 
figures are provisional at this stage as the june 
return will be submitted to ofwat on 11 june 2010
4 performance excludes properties billed by other 
water companies
5 actual performance based partially or wholly  
on internal data
6 benchmark has been compiled using data 
inclusive of information from pressure  
loggers previously calculated exclusive of 
pressure loggers
7 actual performance based on audited uk  
gaap financial statements for amp4 ended  
31 march 2010
8 actual performance based on audited uk  
gaap financial statements for the year ended  
31 march 2010
9 actual performance based on audited regulatory 
accounts for the year ended 31 march 2010
10 measure for calendar year to 31 december 2009
11 actual performance for calendar year 2009 
equates to 332 pollution incidents 2008 313
12 metrics of this kpi changed from waste water 
returned in 0809 to waste water treated in  
0910 prior year performance has been  
restated accordingly severn trent plc annual report and accounts 2010 12
team using communications as part of sbf
business review 
severn trent water – performance
focus on highest standards
in 200910 and throughout amp4 we continued to improve our 
standards in water waste water and customer services while 
minimising our carbon footprint 
ksi providing a continuous supply of quality water
in 2009 we delivered 9997 overall compliance with dwi water 
quality regulatory standards maintaining one of the best records in 
the industry we completed our programme of pressure logger 
deployment and implemented improvements to our network to 
reduce the numbers of customers experiencing low pressure from 
1546 to 424 and achieve our kpis 
during the year we have made significant organisational changes 
we designed and introduced a 247 shift system giving us 
distribution teams available at all times to meet customer needs  
we have also made major structural changes in our asset creation 
team to create the ‘expert client’ capability we need as part of our 
“one supply chain” strategy see page 16 for amp5 these 
changes have been built upon and continue the safer better faster 
sbf process improvement programme way of working
the severe winter’s snow and ice prevented us reaching parts of our 
network caused issues on production works and resulted in a 12 
increase in the number of burst pipes thanks to our teams’ rapid 
response we were still able to achieve ofwat’s leakage target for  
the third successive year however there was an increase in the 
number of unplanned supply interruptions and this will remain an 
area of focus for us in 201011
from amp4 to amp5 
we have completed a major programme of capital works at  
our biggest treatment works in frankley birmingham investing  
£54 million to enable us to treat 120mld of water pumped from the 
river severn at trimpley works this additional supply resilience 
and capacity contributed to our improved security of supply index 
sosi moving to 99 and fulfilling our section 19 undertaking with 
ofwat additionally we have installed a new works control system 
and have decommissioned the bulk chlorine gas system used for 
disinfection and replaced it with a system using on site generation 
having removed this safety risk for local residents and employees 
we will continue our programme of bulk chlorine removal in amp5
building on lessons learned following the 2007 floods we have 
included in our business plan £165 million of investment to improve 
the resilience of our supply system we have commenced our 
planning for amp5 early and have made a good start to creating the 
“one supply chain” with our contract partners taking accountability 
for the detailed design of our schemes as well as their construction
amp4 highlights included
•  completing the frankley scheme and reducing leakage to  
achieve a sosi of 99 and fulfil the section 19 undertaking
• renewing 1289 km of mains and
•  reinforcing of the network in derbyshire nottinghamshire  
powys and shropshire to improve water supplies during periods 
of peak demand
in amp5 we will improve our asset investment processes using the 
improved operational and plant performance information available 
due to our investments in information technology we will improve 
the resilience and performance of our assets through better 
maintenance and operation we will also continue to increase our 
standards and reduce our costs through process improvement  
and sbf
in the final year of amp4 we continued to 
improve our financial and operational 
performance and make our corporate 
responsibilities part and parcel of the way we 
operate and plan for the future at the same time 
we prepared for amp5 with leadin capital 
investments putting us in a strong position to 
meet the challenges of the new regulatory period 
and beyond
kpi opex vs final determination
operating more efficiently through safer 
better faster sbf process improvement 
programme
based on lean management techniques 
used widely in manufacturing but relatively 
uncommon in our own industry we 
launched sbf in severn trent water three 
years ago the programme upskills 
managers and front line employees and 
enables them to continuously improve 
processes and performance sbf is  
becoming the way we work on a day to day 
basis the efficiency gains we are reporting 
and the new ways of working proved 
invaluable during the cold winter for 
instance we were able to call on staff from 
our billing call centre and meter reading 
teams to help tackle our leakage effort and 
transfer teams across regions to where they 
were needed most severn trent plc annual report and accounts 2010 13
the new albrighton sewer
business review
ksi dealing effectively with waste water 
in 200910 we reduced the number of pollution incidents for the third 
consecutive year this time by 125 we successfully installed 
more remote monitoring on our sewerage network and rolled out 
sbf to around 1020 staff saving over £2 million in operating costs 
whilst responding faster to customers’ needs we were also more 
effective when we responded with an average of 90 of all jobs 
resolved first time an improvement of 20 over two years 
due to a small rise in the number of failures at our works particularly 
during the first seven months of 2009 our sewage treatment breach 
of consents kpi deteriorated to lower quartile we are dissatisfied 
with this position but as a result of detailed investigations we do 
understand in each case why this has happened we have put in 
place a detailed performance improvement plan which will ensure 
the correct level of focus and activity whilst we get performance 
back on track
from amp4 to amp5
overall we ended amp4 with stable serviceability and continued 
improvements to our network the work we undertook through the 
period is now bearing fruit with 15 fewer customer complaints and 
125 fewer pollution incidents 
amp4 highlights included
•  improving river quality through a 95 reduction in the number of 
unsatisfactory intermittent sewerage discharges
•  sustaining high levels of effluent and sludge quality through a 
£450 million maintenance programme and
•  generating 176 gigawatt hours of renewable energy from 
sewerage and waste water saving the equivalent of 95776 
tonnes of carbon
in amp5 we will continue to build on the successes we have had in 
serviceability customer services and the performance of our people 
and our assets a significant change for us and our customers in 
amp5 will be the transfer of individual customers’ private sewers 
into water company ownership this is designed to reduce the risk 
of future liability and repair costs to the benefit of customers and 
help promote the integrated management of the sewerage network 
the transfer is currently forecast to happen in october 2011 this 
will see approximately 37000 km of existing private sewers transfer 
into our ownership along with responsibility for repair and 
maintenance we also expect that up to 4000 private pumping 
stations will transfer on a phased basis over 5 –10 years following 
the sewer transfer we await the consultation on the regulations 
which will confirm the scope and timing of transfer in the meantime 
kpi capex gross vs final determination
amp4 has seen the completion of a 
significant number of investment 
programmes 
in albrighton shropshire we invested  
a significant amount to improve the 
infrastructure and in turn prevent  
sewer flooding
a £6 million investment provided the solution 
and took 15 months to complete this 
comprised installing a combination of 
tunnelled and open cut sewers 
throughout the scheme we worked hard to 
minimise the impact on the local community 
and businesses public meetings a resident 
engineer and drop in centres were 
fundamental in establishing community wide 
trust and a shared vision
the successful delivery of the albrighton 
scheme has directly benefited local 
internally and externally flooded properties 
and it now forms a key part of our strategic 
solution for albrighton
we have continued to engage with regulators and government to put 
in place the necessary regulatory and business response with the 
aim of delivering an efficient service to customers following transfer
a key challenge we face is the need to strike a good balance 
between improving river ecology and carbon production large 
scale capital projects are not always the best answer we need to 
become more innovative finding ways of improving river quality 
while keeping down carbon emissions and costs one example is 
catchment management where we are working with farmers and 
industrialists providing incentives for them to discharge less effluent 
or toxic waste at their sites into water courses we have also joined 
forces with the environment agency to explore options around the 
way sewage treatment discharge consents are set and enforced
ksi responding to customers’ needs 
200910 was a year of continuous improvement where we have 
built on initiatives already in place through staff training and 
capabilities for the third year running we reduced written customer 
complaints per 1000 properties by 23 and our first time call 
resolution for billing improved slightly to 89 we also maintained 
our first time job resolution performance at 965 our goal of 343  
debtor days was harder to achieve because unemployment and 
insolvencies were higher than anticipated we achieved 326 days 
which after allowing for increased levels of bad debt write off was 
aligned to last year’s performance this helped to mitigate the 
impact on income through a difficult period
following the launch of our online account management service 
over 100000 customers have already registered they will now 
have direct control over their accounts being able to update 
personal details including changing address choosing their 
payment methods and the option to receive their bill electronically
the recession meant more vulnerable people needed help to pay 
their bills we invested £55 million in the severn trent trust fund in 
200910 set up to support customers in genuine need of financial 
assistance and helped over 4000 customers through our 
watersure tariff more people signed up to water direct a third 
party deduction scheme from the department for work and 
pensions and opted to pay their bills through a payment plan or 
direct debit we also set up a relationship team to work with 
landlords such as councils and housing associations this will help 
us tackle bad debt by encouraging landlords to provide us with 
information that can help track tenants moving in and out of 
properties in particular those who move often severn trent plc annual report and accounts 2010 14
from amp4 to amp5
we made good progress in developing other sources of renewable 
energy during this period and are now moving forward with the 
planning and development of wind turbines as well as energy  
from a new crop plant at stoke bardolph in nottinghamshire  
amp4 highlights include
•  achieving the uk government goal of 20 renewable energy by 
2020 10 years ahead of schedule in 2010
•  receiving the carbon trust standard by showing a reduction in 
carbon emissions over the last three years and having a robust 
carbon management programme in place and
•  being on course to achieve our goal to produce 30 renewable 
energy by 201415 we keep a close eye on government 
incentives in this area where the economic or technological 
viability of initiatives and processes are changing
a safer workplace
in 200910 we improved our lost time incidents per 100000 hours to 
036 a reduction of 16 on the previous year our performance is 
now close to best in class our riddor reporting of injuries 
diseases and dangerous occurrences regulations rate was 031 
falling short of our measure of 028 
as part of the business planning process we commissioned an 
independent safety risk expert to analyse the risk profile of our 
activities allowing us to prioritise our improvement projects 
we won 18 awards one of which was a company gold award for 
our overall improvement programme as well as winning rospa 
royal society for the prevention of accidents awards ourselves 
we organised a joint ceremony with rospa for our awardwinning 
contractors and suppliers twentytwo of our suppliers won rospa 
awards in 200910 eight of which were gold 
from amp4 to amp5
the most significant shift in engaging people to make a safer place 
to work came about through fresh approaches to safety more 
employees are taking on the roles of safety representatives and 
safety coaches working with managers to improve our culture and 
environment the culture has improved to such an extent that from 
1 april 2010 health and safety will continue as the responsibility of 
specific business areas working on improvement plans with only a 
small central team to help with planning and coordination
business review  severn trent water – performance continued
kpi net energy use
severn trent water has been awarded  
the carbon trust standard an 
independent assessment and 
endorsement of the company’s carbon 
reduction and management 
programmes
to achieve this third party recognition 
severn trent water had to demonstrate a 
reduction in its carbon emissions and a 
robust carbon management standard
“holding the standard not only gives 
external recognition of our carbon 
management approach and achievements 
but is also an important metric for the 
carbon reduction commitment crc” 
said andrew gardner general manager 
energy and carbon management
the crc is the government’s carbon cap 
and trade scheme which came into force in 
april 2010 and is part of its strategy to 
reduce uk carbon emissions
from amp4 to amp5
we improved performance against many of our customer service 
kpis in amp4 moving them from lower quartile to upper quartile a 
year ahead of schedule in 2010
one of our challenges in amp5 will be maintaining high standards 
while changing the way we measure our performance in amp4 we 
measured our progress against one set of performance indicators 
in amp5 we will shift to ofwat’s recently set service incentive 
measurements for instance as well as measuring how quickly we 
answer a call we will also evaluate how happy the customer is with 
the interaction
benchmark tests show we are strong on process compliance and 
have highly trained contact centre staff – we will continue to focus 
our efforts in improving further the service we provide to all our 
customers through continued upskilling of our teams with a strong 
operating platform in place and opportunities to outsource routine 
back office processes we will achieve these service improvements 
with minimal investment and without disruption to our service
for amp5 we elected to retain optional metering our research 
showed customers preferred to have a choice and at this point we 
do not feel compulsory metering is necessary new homes 
however will continue to be metered 
ksi minimising our carbon footprint
we are always on the lookout for ways to reduce our energy usage 
with targets set for every aspect of our business overall company 
electricity usage was 897 gigawatt hours a reduction of 19 gigawatt 
hours when compared to 200809 
in 200910 we focused on reducing energy usage at our small sites 
by initiating a read programme for all meters where bills were 
previously calculated on estimated readings 
the production of renewable energy reached a record level of 183 
gigawatt hours a 12 increase on the previous year and around 
20 of our total consumption this was despite the impact of the 
cold weather which reduced the production of biogas from our 
sewage treatment works severn trent plc annual report and accounts 2010 15
our teams in the field with the appropriate  
safety equipment
business review
focus on lowest charges
to ensure we meet our commitment to have the lowest possible 
charges we need to make the right investments in the right 
programmes to deliver the right customer and environmental 
standards as efficiently as possible
ksi having the lowest possible charges
despite continuing economic pressures during 200910 our financial 
and operational performance showed continued improvement 
across the board as we ended the fiscal year and closed out amp4 
trading was in line with our expectations as were operating costs 
and capital expenditure the continuing rise in unemployment and a 
record number of insolvencies in the first half of the year meant the 
bad debt charge moved up slightly to 25 of turnover while 
insolvency levels are returning to normal levels we will continue to 
monitor developments closely 
from amp4 to amp5
the tough efficiency plans we set out in our final business plan  
are reflected in ofwat’s final determination considerable leadin 
investments during the final year of amp4 however mean we are 
well prepared to meet the requirements of amp5 the investments 
were focused in four areas
1  systems and technologies – phase 1 of sap went live in 
december 2009 in human resources finance and procurement 
implemented on time and to cost it has allowed us to make savings 
in our business service areas early in amp5
2  people and processes – we rolled out the safer better faster 
process improvement programme to more of our teams this helps 
us to make our processes leaner improving our ability to get it  
right first time every time upskilling our workforce to enable it to 
work in different ways and areas of the business and giving our 
people a better understanding of how their work fits into our 
business as a whole
3  accommodation – as we reported last year our accommodation 
strategy is set and work is now well in hand to create the right 
property portfolio to support us for the future the key project 
within our programme is the construction of severn trent centre 
in coventry this building has been certified breeam building 
research establishment environmental assessment method 
excellent and its exceptionally low carbon output is matched by  
its exceptionally low water consumption from autumn onwards 
1700 people will be moving into our new centre
4  energy – investment in our renewable energy programme 
provides a natural hedge against rising wholesale energy prices 
we are in the process of growing the uk’s first commercial scale 
energy crop at stoke bardolph nottinghamshire as well as 
planning wind turbines and further renewable energy generation 
from sewage sludge 
ksi maintaining investor confidence 
this was a challenging price review with the draft determination for  
the amp5 period published by ofwat in july 2009 being significantly 
different to our final business plan this prompted investor concerns 
over our ability to deliver the required outputs within the capital and 
operational expenditure limits set and to finance this investment we 
made a number of representations to ofwat over the autumn as well as 
encouraging our shareholders and other stakeholders to express their 
own views 
this was a constructive process and the final determination 
published in november 2009 more closely reflected our final 
business plan the one remaining area of difference being the 
weighted average cost of capital which ofwat set at 45 
compared with 5 in our final business plan we have confidence 
in our ability to meet the challenges ahead
kpi lost time incidents
there is clear evidence to show that 
effective reporting of near misses helps 
to improve overall safety performance 
an analysis of health and safety incident 
reporting in our sewage treatment team 
suggested a significant under reporting 
of near misses
to address this a near miss reporting 
project team was formed with the objective 
of developing a process that would increase 
the number of near misses reported within 
sewage treatment this in turn lead to a 
safer working environment and a reduction 
in the number of injuries
the team produced a simple and clear 
process for reporting near misses and 
tracking closure of any remedial actions 
following a successful trial the process was 
fully implemented across sewage treatment
an objective of the project was also to 
develop a process which could be replicated 
across other departments in severn trent 
water the water distribution department 
has adapted the near miss reporting process 
and consequently has also had a marked 
increase in near misses reported which has 
helped to reduce its lost time injury rate
the implementation of the process has 
helped to create a safer working environment 
and by involving staff in developing 
solutions has helped in overall improvement 
of health and safety behaviour severn trent plc annual report and accounts 2010 16
our “one supply chain” at work
business review  severn trent water – performance continued
kpi capital process quality
focus on innovation in  
our supply chain
innovation has been a key theme of the latter 
part of amp4 and will be central to meeting 
our targets during the next regulatory period 
over the past year we further developed “one 
supply chain” with our contractors and 
suppliers in readiness for amp5 investing in 
strengthening relationships reviewing the 
way we share experiences and knowledge 
and creating shared offices for our capital 
programme teams such collaboration is 
essential if we are to continuously improve 
and encourage the sharing of best practice
from amp4 to amp5 
we will continue to be open and proactive in our communications 
with shareholders and other stakeholders we have updated our 
kpis to ensure they continue to demonstrate our drive for higher 
standards in the future and to reflect the evolution of the regulatory 
environment we will continue to report on our progress each year
ksi promoting an effective regulatory regime
our regulatory performance is on track and we are in a strong 
position to tackle whatever challenges the future might hold
from amp4 to amp 5
we believe we have done more than many other water companies to 
help shape the future of the regulatory framework and we are well 
placed to contribute to the debate with policymakers and ofwat 
there is a growing consensus that the current policy and regulatory 
framework of the industry is not sustainable long term and we  
have made our own contribution to the debate with our “changing 
course” report published in april 2010 and available on our website 
we will continue to have discussions with shareholders and 
policymakers alike to help shape the future of our industry in the 
interests of our customers the environment and our shareholders 
focus on great people
to become the best water and waste water company in the uk  
we need to have the right people and provide them with the right 
technology and facilities and a safe modern environment in which 
to do their jobs both within the company and in our supply chain
ksi having the right skills to deliver 
the final year of amp4 has been one of considerable change for our 
employees involving upskilling an impending major office move the 
introduction of new technology and a new pay system as we gear up 
for amp5 we report that our employee surveys show our workforce 
remains positively engaged at 74 2009 83 even though it was 
challenged by many changes
we are committed to creating a diverse workforce which reflects the 
communities in which we operate we believe that a diverse and 
inclusive culture is a key factor in being a successful business we aim 
to have employees who are inspired and motivated and who are on a 
journey towards our vision of a diverse engaged workforce our 
diversity strategy is aimed beyond basic compliance towards a more 
proactive approach we do not badge diversity but ensure that it is an 
integral part of how we work by integrating the concepts of treating 
everyone fairly and valuing differences in how we think behave and 
operate our aim is to reflect the community we work in and serve and 
to ensure that we are an attractive employer we measure our 
diversity performance against external benchmarks and our 
recruitment and training initiatives are resulting in a gradual increase 
in the diversity of our people severn trent plc annual report and accounts 2010 17
suppliers working on an investment project
business review
looking forward to 201011 
looking forward to the next five years we enter amp5 in a 
stronger position with our plans well advanced due to our 
“early start” approach with contractors sap implementation 
and real estate rationalisation the business is well placed to 
achieve higher levels of operational excellence and we will 
continue to work hard to maintain the lowest charges for our 
customers working with our great people
kpi capex gross vs final determination
streamlining our procurement  
processes 
ahead of amp5 we selected seven 
contractors for the period to take design  
build and work on our biggest infrastructure 
projects compared to 22 for amp4 and 
introduced new innovative ways of working 
with them 
we have reorganised our procurement 
department to take full advantage of 
purchasing best practice by improving 
category management and end to end 
technological innovation this will enable us 
to optimise our contracts and continue to 
reduce the number of suppliers we do 
business with
from amp4 to amp5
by the end of amp4 nearly 60 of our employees had been 
introduced to tools and techniques that help them continuously 
improve their performance through the sbf way of working our 
employees have shown tremendous commitment in improving our 
company by supporting the programme which we will roll out to the 
rest of the business over the next two years
during the latter part of amp4 we invested in technology and 
workplace improvements that will help us meet the efficiency 
savings of amp5 and aid our business into the future
•  we aligned our technology strategy to our ksis allowing us to 
measure how our it investments are helping us improve our 
business and services
•  the first release of our £70 million sap implementation program 
went ahead without any significant disruption to our operations 
improving our back office operations and reducing costs release 
2 is now in development and is planned to go live in summer 
2010 improving operating systems for our operational workforce 
and asset management teams
•  following consultations with employees over the move to the 
severn trent centre in coventry we have developed support 
systems such as assisted travel costs to ease the transition 
and aid green travel plans
•  we have embarked on a £20 million transformation of the 
technology our people use to do their day to day work this 
includes a new virtual desktop and a secure system that allows 
our employees to adopt mobile working practices such as desk 
sharing and access to data and systems from wherever they  
need to and
•   through our emerging talent programme we are identifying and 
developing future leaders we also plan succession for our 
executive team and management population
one of the consequences of introducing new systems and 
improving our performance is that we are able to operate more 
efficiently at a higher standard with fewer people unfortunately  
that has led to the loss of around 275 posts in our central functions 
all of these will be through voluntary redundancy and we will ensure 
everyone affected is treated with care and respect severn trent plc annual report and accounts 2010 18
fixed film denite application
water purification – 
secures contract to 
provide world’s largest 
fixed film denitrification 
system
severn trent services has been awarded a 
contract to supply their tetra
®
 denite
®
 
denitrification system for use at the baltimore city 
department of public works’ patapsco waste 
water treatment plant the tertiary treatment 
system will help reduce the plant’s discharge of total 
nitrogen and total phosphorus significantly 
reducing nutrients flowing to the patapsco river 
and ultimately the chesapeake bay the patapsco 
waste water treatment plant is undergoing 
upgrades and expansion over the next two years 
once completed it will be the largest installed fixed 
film denitrification system in the world severn trent plc annual report and accounts 2010 19
business review
business improved when compared to the first half reflecting an 
improved operating environment and a lower cost base in the 
business this sequential growth in severn trent services turnover 
and profit was 5 and 49 respectively with water purification  
the largest contributor at 16 and 67 improvement respectively 
stronger market drivers an increase in the pipeline of projects  
and a healthy order book give us confidence in our position for 
sustainable growth
turnover in severn trent services was £3365 million in 200910 
down 08 on 200809 profit before interest tax and exceptional 
items was £287 million down 59 
we have three principal business groups
•  operating services provides contract operating services to 
manage and maintain water and waste water plants and 
networks worldwide we are a leading provider in the united 
states and united kingdom one of the few integrated water 
operators in italy and are building our presence in ireland
•  water purification is one of the leading global providers of 
advanced technologies and products for water and waste 
water disinfection filtration adsorption and marineoffshore 
waste water treatment
•  analytical services is a leader in uk environmental water 
testing services
we kept our position and our  
customers we maintained our  
margins and we are ideally placed  
for the economic recovery
len graziano
president and chief executive officer
more information about 
severn trent services
wwwseverntrentservicescom
our severn trent services business is one of the 
world’s leading suppliers of water and waste 
water operational and treatment solutions we 
are a respected global brand known throughout 
the world for operating at the forefront of 
advanced water technology and for our quality 
reliability and stability we enjoy a strong 
position in our selected markets
platform for growth
severn trent services remains focused on our core group skills of 
water and waste water treatment and operations complementary to 
our uk regulated business severn trent water 
our operating services business performed well and continued to 
show year on year growth
the first half of the year was challenging particularly in our water 
purification and analytical services businesses our customers 
found difficulty in accessing project financing due to the economic 
slowdown uncertainty about government economic stimulus 
packages and declining oil prices we quickly addressed these 
issues by restructuring the parts of the business most impacted and 
by lowering costs so that we were better positioned for growth on a 
global basis at the same time we made appropriate measured 
investments to seed new markets and geographic areas and to 
develop new technologies and products second half results in the 
business review 
severn trent services – overview
while the global recession has resulted in a 
slowdown this year the market for water and 
waste water products and services remains 
strong with substantial prospects for growth 
in the four areas we serve that is because 
the drivers of the water and waste water 
business – water scarcity population 
growth climate change and higher 
regulatory requirements – remain strong
we focus on the higher growth and higher 
margin market segments and geographies 
where our broad line of products and services 
meet the significant needs of our customers
£2072m
 turnover in our operating 
services business 
2009 – £2001m
£1018m
turnover in our water 
purification business 
2009 – £1076m
turnover in our analytical  
services business  
2009 – £316m
£275m severn trent plc annual report and accounts 2010 20
prichard water tower
business review 
severn trent services – performance
expanding the scope of our operating services to existing  
clients around the world
this has been a successful year with new business accruing from 
several large contracts in the us as many municipalities struggled 
with budget shortfalls and looked to public and private partnerships 
to help lower their costs in the city of prichard alabama a 
1 million contract to operate the waste treatment plant was 
expanded to a 6 million contract when we were asked to bid to 
operate the city’s complete package of services including water 
waste water treatment meter reading and billing
in the uk coast to coast c2c continued to extend its operational 
services outside of the 25 year contract with the ministry of defence
severn trent select was also awarded a design build contract with a 
major uk dairy and finished the year as a preferred supplier on 
another design build contract
in italy we ended the year having been awarded one major waste 
water design build and operate contract and as a preferred bidder  
on another
enhancing products and operations to improve our effectiveness  
and efficiency
this year we focused on making our operations more efficient  
we saved costs by using centralised sourcing to make combined 
purchases of similar components from lower cost locations  
also engineering services are being outsourced to india and 
assembly for membranes filtration projects is being sourced locally 
for regional markets
in our analytical services business we consolidated our facilities 
exited unprofitable lines of business and expanded services further
developing new technologies at the forefront of water and  
waste water solutions
year on year the proportion of sales coming from new products 
introduced in the last three years has increased by 80
we continue to build our innovation capability in the past year we 
have rolled out global best practice tools and processes across all 
product and technology centres of excellence with the goal of 
improving our new product performance and cycle times early 
benefits include increased visibility and transparency of our product 
and technology investment programme
additionally we have developed an overarching technology strategy 
and are now actively carrying this forward through both internal and 
collaborative development activity our product development 
pipeline is robust
operating services 
– announces it has renewed its public 
private partnership 
we have renewed our public private 
partnership with the water works and sewer 
board the board of the city of prichard 
alabama through a competitive bid process 
severn trent is responsible for the complete 
operation maintenance and management of 
the city’s water and waste water facilities 
collection and distribution systems meter 
reading billing and customer service 
functions shortly after the partnership 
started plant performance was dramatically 
improved allowing the board and its 
engineer to concentrate on capital 
improvement planning in the last two years 
the board and citizens of prichard have 
benefited from improved operations and 
performance including reduced solids 
inventory improved discharge quality the 
introduction of an asset management 
programme identification of capital 
improvement projects and the installation  
of a comprehensive maintenance 
management programme that schedules 
predictive and preventive maintenance 
in 200910 we made good progress with 
positioning our business for sustainable growth 
we delivered continued growth in our operating 
services business we ended the year in water 
purification with a strong order book and a high 
level of projects in the pipeline analytical 
services looks forward to starting an important 
long term contract with yorkshire water 
positioning our business for sustainable growth
the backdrop for the year was undoubtedly the economic downturn 
severn trent services felt the impact most noticeably in water 
purification and analytical services however we quickly took 
action by restructuring selected parts of the business and invested 
in growth areas as a result of these actions and others the order 
book for water purification was at an all time high during the last 
quarter of the year 
sometimes conditions that cause problems in one area of a business 
provide opportunities elsewhere this was certainly true for 
operating services which reported another year of continued growth
given the strength of the fundamental drivers of our business we 
remained confident the market would turn around we therefore 
decided to make use of the slower period to position our company 
for future growth we completed the reorganisation of our company 
into three business groups and four regions this will help us lower 
our cost base and be better positioned for global competition 
alongside these efficiencies we made investments to seed new 
markets and technologies for instance adding staff in the middle 
east and china and progressing new product development projects 
focus on our four key strategic growth initiatives
continuing the geographic expansion of our products and services
in europe our acquisition of ps apliclor sa near barcelona created 
a european hub from which we can expand our water purification 
business on the continent 
local product sourcing and hiring of key people in our china branch 
office has resulted in winning key filtration projects and positioning 
us to grow profitably 
our operating services business entered new regions where we have 
a good opportunity to grow for instance we extended our strong 
presence in the uk into ireland with a joint venture severn trent 
response which has already won one long term contract and also 
received notice of award for a second  severn trent plc annual report and accounts 2010 21
routine analysis being carried out on 
concentrated samples
business review
we are committed to conducting our business  
in a responsible way
we continue working to build corporate responsibility into our 
strategy and embed it in our culture 
our health and safety performance continues to improve this year 
we reduced the number of lost time incidents per 100000 hours 
worked by 22 maintaining one of the best rates in our industry 
two operating services businesses in the uk received awards 
from the royal society for the prevention of accidents c2c 
received the gold award and integra received the silver award
in 200910 we introduced a new health and safety handbook 
offering support and training for all employees in several languages
our success depends on all of our employees during the year we 
implemented a change management programme entitled ‘blueprint 
for growth’ to help employees understand our core values 
objectives key performance indicators and the role they play in 
helping our company improve and grow 
we commissioned our second independent employee engagement 
survey in 200910 with employee engagement increasing four 
percentage points from the previous survey
we take carbon management seriously and continued to look at 
ways to reduce our energy consumption for the second 
consecutive year we produced site energy management plans for 
five of our us sites and six of our uk sites implementing these 
plans has led to reductions in energy use and lower costs
outlook for the future
in our operating services business we will continue to find more 
cost efficiencies and move into new areas as part of our plans to 
grow the business year on year a change in legislation in italy 
around the awarding of contracts is expected to yield more 
opportunities increased growth is expected in the middle east
north africa region where we have a strong pipeline of prospects 
we start the financial year with a very strong order book and 
pipeline in our water purification business we will continue 
lowering our cost base focusing on our regional operations and 
delivering new products in this market such as microdynamics
®
 
ultraviolet disinfection balpure
®
 ballast water treatment and 
omnipure series 55
®
 marineoffshore sewage treatment
performance in analytical services is expected to improve as a result 
of the lower cost base the innovations being brought into the business 
and a greater number of long term contracts including yorkshire water
while the strength and pace of the economic recovery continues to  
be uncertain we believe the continuing growth of the market is 
sustainable because of the strength of its fundamental drivers we 
will therefore continue implementing our growth strategy focusing 
on our four key initiatives
analytical services
– opens new accredited laboratory  
in wakefield 
in march 2009 severn trent services 
secured a 10 year contract for delivery of 
water and waste water analysis to yorkshire 
water since the contract win we have 
constructed a brand new facility in wakefield 
in yorkshire the laboratory will deliver an 
extensive range of water and waste water 
analysis for yorkshire water but will also 
service other customers in the region and 
provide backup facilities for our two other 
water laboratories offering utility customers 
a more robust service the laboratory went 
into full operation on 1 april 2010 and is able 
to handle in excess of a quarter of a million 
samples per year
performance by business area
operating services
our operating services business has performed well because  
we are able to operate utility and municipal assets efficiently at  
a lower cost 
we are one of the leading providers in the us where we run nearly 
400 contracts
in the uk and ireland we combined all nonregulated uk 
businesses under one business unit operating services uk  
and ireland and have worked with approximately 200 commercial 
and industrial clients during the year
also in the uk we reduced leakage in our c2c ministry of defence 
contract despite the coldest winter in 30 years we have more than 
halved leakage since the contract started in 2005
water purification
a slow start to 200910 for our water purification business meant 
we effectively lost a year of expected growth cashstrapped 
municipalities slowed their investment in new equipment and while 
many orders were delayed no significant orders were cancelled 
however we restructured the business to lower our cost base  
at the same time we invested in selected growth areas as a result 
and as global markets recovered our water purification business 
achieved sequential growth during the second half of the year with 
turnover up 16 and profits up 67 when compared to the first half 
notable contract wins during the year included a 157 million 
contract for the world’s largest denitrification system in baltimore 
maryland a 7 million contract for the largest reverse osmosis sea 
water system for an oil refinery in pakistan several new contracts in 
china and the first deep bed filtration system used for water reuse 
in libya for al hadba tripoli 
we ended the year with the highest order book in severn trent 
services’ history and our key project pipeline continues to grow 
analytical services
during the year we undertook a significant restructure of our 
business this has repositioned the business with a lower cost base 
and a more resilient business platform 
we received formal notification of ukas united kingdom 
accreditation service accreditation for our newly constructed 
wakefield facility which will serve our new 10 year contract with 
yorkshire water we have introduced new technologies to offer 
more methodologies lower costs and faster output we have also 
expanded our services to include on site testing and operator self 
monitoring both growth areas severn trent plc annual report and accounts 2010 22
lake vyrnwy
186
increase in group profit 
before interest tax and 
exceptional items
despite difficult global economic conditions the 
group has performed well on the financial front  
and continued to make process and efficiency 
improvements throughout its businesses
the board is proposing a final dividend of 4561p 
2009 4105p to be paid on 30 july 2010 this 
would give a total dividend of 7232p per ordinary 
share an increase of 74 severn trent plc annual report and accounts 2010 23
business review
business review 
financial review
segmental analysis of results
     2010 2009  change
turnover   
severn trent water 13853 13249  46
severn trent services 3365 3393  08
intragroup sales 179 220 
    17039 16422  38
underlying pbit   
severn trent water 5413 4560  187
severn trent services 287 305  59
corporate and other 142 164 140
consolidation adjustments 13 02 
profit before interest tax and  
exceptional items 5571 4699  186
severn trent water – changes in underlying pbit
severn trent water underlying pbit
£’ millions
550
500
450
400
350
604
125
256
56
12
4560
5413
turnover
depreciation
bad debts
hired and contracted
infrastructure
other
employment costs
33
83
turnover in severn trent water increased by 46 in 200910 to  
£13853 million sales prices increased by 53 including inflation 
from 1 april 2009 with the previously noted decline in commercial 
consumption reducing revenues by around £16 million
profit before interest tax and exceptional items increased by 187 
to £5413 million as well as the increase in turnover a number of 
factors impacted underlying pbit employee costs decreased by 
£56 million as a result of lower pension costs hired and contracted 
services were £83 million lower and there was an increase in the 
bad debt charge of £33 million with the incidence of bad debt as a 
proportion of turnover increasing marginally to 25 from 23 at 
the end of the previous year depreciation increased by £125 million 
due to the growing asset base there was also a reduction in 
infrastructure renewals expenditure of £256 million as spending had 
peaked in the prior year
during the financial year severn trent water invested £6448 
million gross uk gaap in fixed assets and maintaining and 
improving its infrastructure network included in this total was net 
infrastructure renewals expenditure of £1045 million which is 
charged to the income statement under ifrs
we have in the past year moved from a “credit crunch” through  
a deep economic recession our prompt action in early 2009 to 
prefund our investment and cash needs for the following 24 
months meant that we retained a sound financial position 
throughout the year we were however not immune to the 
economic stresses that our customers and markets were 
experiencing we have seen a rise in bad debt charges in our 
regulated business severn trent water and a slowdown in sales 
at severn trent services in the early part of the year
against this background the financial performance of the group 
has continued to show progress and as described elsewhere 
the business areas have invested much time effort and money to 
improve their base operations these improvements are backed 
by a continuing drive to sustain a strong liquidity position at the 
lowest possible cost
we enter the new five year regulatory period and address  
new opportunities for severn trent services in a strong  
financial position
group financial performance
group turnover was £17039 million £16422 million an increase 
of 38 over last year the growth in turnover was mainly due to the 
price increases in severn trent water partially offset by the impact 
of lower consumption across our measured commercial income 
base which reduced year on year revenues by around £16 million 
less than initially expected due to a stabilisation of volumes over  
the year
financial highlights 
   2010 2009  change
turnover £m 17039 16422 38
profit before interest tax  
and exceptionals £m 5571 4699  186
profit before interest and tax £m 5074 4510  125
profit before tax exceptionals  
and ias 39 £m 3384 2735  237
profit before tax £m 3344 1676  995
earnings per share before  
exceptionals ias 39 and  
deferred tax p 1228 927  325 
earningsloss per share p 1056 246 na
final dividend p 4561  4105  111
interim dividend p 2671  2629  16
total dividend for the year p 7232  6734  74
group profit before interest tax and exceptional items underlying 
pbit increased by 186 to £5571 million £4699 million 
operating costs before exceptional items decreased by £255 
million the main components of this reduction are described in the 
commentary on severn trent water and severn trent services 
below there were net exceptional costs of £497 million £189 
million group profit before interest and tax was £5074 million 
£4510 million
the following table shows a segmental analysis of turnover and 
underlying pbit severn trent plc annual report and accounts 2010 24
adjusting for minor timing differences and modifications to the 
amp4 capital programme notified to ofwat through the change 
control process we successfully completed the five year 
programme with capital expenditure net of grants contributions  
and other income uk gaap of around £26 billion
severn trent services
turnover in severn trent services was £3365 million in 200910 
down 08 on 200809 underlying pbit decreased by 59 to 
£287 million
   increase 
 2010  2009 decrease
 £m  £m 
turnover
services as reported 3365 3393 08
apliclor sa – acquired may 2009 67 –
meters business and ccm –   
sold may 2009 10 89 
 3288 3304 05
impact of exchange rate  
fluctuations – 199 
like for like businesses in  
constant currency 3288 3503 61
   increase 
 2010  2009 decrease
 £m  £m 
underlying pbit
services as reported 287 305 59
apliclor sa – acquired may 2009 03 –
meters business and ccm –   
sold may 2009 09 09 
 275 314 124
impact of exchange rate  
fluctuations – 13 
like for like businesses in  
constant currency 275 327 159
after adjusting for the impact of exchange rate fluctuation and the 
effects of small acquisitions and disposals turnover on a like for like 
constant currency basis was down 61 and underlying pbit 
measured on the same basis was down 159
return on invested capital was 13 15
corporate and other costs
corporate overheads amounted to £127 million £127 million our 
captive insurance company and other businesses generated an 
underlying loss of £29 million loss of £37 million the group’s 
captive insurance company insures severn trent group risks only 
and does not write any external business
exceptional items
we incurred a net exceptional charge in the year to 31 march 2010 
of £497 million 189 million comprising
•  in severn trent water restructuring costs of £421 million from the 
programme to restructure and realign the business this included 
redundancy and pension curtailment costs amounting to £162 
million arising from the reduction in central functions posts and a 
further £5 million from redundancies arising from previously 
announced initiatives costs relating to the implementation of sap 
were £99 million including accelerated amortisation of £59 
million provisions for onerous leases and other costs relating to 
severn trent centre amounted to £68 million and
•  in severn trent services a charge of £59 million from its 
restructuring programme and a loss of £17 million on disposal  
of businesses
net finance costs
2010
2009
cash interest
rpi rolled up
net pension interest
composition of net ﬁnance costs £ millions
1885
1964
1752
191
21
153
150
2188
 
our net finance costs were £2188 million compared to £1964 
million in the previous year the increase was largely due to the 
higher average net debt during the year net finance costs on 
pension obligations were also higher as the expected return on 
pension assets was lower which in turn was due to the lower value 
of investments in the opening balance sheet in 2010 compared to 
2009 the effective interest rate for 2010 was 56 56
profit before tax 
group profit before tax exceptional items and gainslosses on 
financial instruments increased by 237 to £3384 million £2735 
million group profit before tax was £3344 million £1676 million
taxation
the total tax charge for the year was £829 million £2236 million 
including exceptional deferred tax charge of £1856 million the 
current tax charge was £407 million £521 million and the deferred 
tax charge was £422 million credit of £141 million before 
exceptional charge
the effective rate of current tax excluding prior year settlements and 
exceptional items calculated on profit before tax exceptional items 
and gainslosses on financial instruments was 226 247  
the decrease in effective rate is a result of increased capital 
allowances in severn trent water and agreement of a number of 
uncertain tax positions during the year rendering further provisions 
for these items unnecessary
going forward we expect the effective current tax rate for 201011 
to be in the range of 25 to 27
profit for the period and earnings per share
profit for the period was £2515 million loss of £560 million
basic earnings per share were 1056 pence loss per share 246 
pence adjusted basic earnings per share before exceptional 
items gainslosses on financial instruments and deferred tax were 
1228 pence 927p
business review 
financial review severn trent plc annual report and accounts 2010 25
maturity proﬁle of gross debt £ millions
0
100
200
300
400
500
600
700
2011 2016 2021 2026 2031 2036 2041 2046 2051 2056 2061 2066
business review
net debt at 31 march 2010 was £37614 million £35599 million 
we now include cross currency swaps that convert the proceeds of 
debt raised in foreign currency to sterling in net debt because 
together the debt and the swap give a better representation of our 
sterling debt obligations at the year end balance sheet gearing net 
debtnet debt plus equity was 80 79 net debt expressed as a 
percentage of regulatory capital value rcv was 592 574 
based on rcv of £6347 million £6198 million our net interest 
charge excluding gainslosses on financial instruments was 
covered 40 times 37 times by profit before interest tax 
depreciation amortisation and exceptional items and 27 times  
24 times by profit before interest tax and exceptional items
liquidity
the group has a european investment bank facility of £150 million 
which has to be drawn on or before april 2011 and has an undrawn 
£500 million committed bank facility that matures in 2012 and 2013 
the maturity profile of our debt is shown in the chart below
treasury policy and operations
our treasury affairs are managed centrally and in accordance with 
our treasury procedures manual and policy statement the 
treasury operation’s primary role is to manage liquidity funding 
investment and our financial risk including risk from volatility in 
interest and to a lesser extent currency rates and counterparty 
credit risk the board determines matters of treasury policy and its 
approval is required for certain treasury transactions
our strategy is to access a broad range of sources of finance to 
obtain both the quantum required and lowest cost compatible with 
the need for continued availability our principal operating 
subsidiary severn trent water is a long term business 
characterised by multi year investment programmes our strategic 
funding objectives reflect this and the liquidity position and the 
availability of committed funding are essential to meeting our 
objectives and obligations we therefore aim for a balance of long 
term funding or commitment of funds across a range of funding 
sources at the best possible economic cost
our policy for the management of interest rate risk is that no less 
than 45 of our borrowings should be at fixed interest rates or 
hedged through the use of interest rate swaps or forward rate 
agreements at 31 march 2010 interest rates for some 824 of our 
net debt of £37614 million were fixed with a weighted average 
interest rate of 59 for a weighted average period of 109 years
cash flow and net debt
   2010  2009
  £m  £m
cash generated from operations  7080 6435 
net capital expenditure  4878 4650
net interest paid  1942 1739
tax paidreceived  538 11 
other cash flows  16 13
free cash flow  294 44
acquisitions and disposals  110 – 
dividends  1597 1588
net issue of shares  24 62 
change in net debt from cash flows  1977 1482
net fair value adjustments  114 16
rpi uplift on index linked debt  136 191
foreign exchange  03 59
other noncash movements  13 37
change in net debt  2015 1667
net debt at 1 april  35599 33932
net debt at 31 march  37614 35599
free cash flow
cash generated from operations increased by £645 million over 
200809 due to increased profits in severn trent water capital 
expenditure net of contributions and proceeds of sales of fixed 
assets was £4878 million £4650 million the increase arose from 
severn trent water’s capital programme tax paid was £538 million 
whereas in 200809 a net refund of £11 million was received due to 
refunds received on the closure of computations for the years 
200405 – 200506 net interest paid increased due to the higher 
average net debt in the year
net debt
after payment of dividends of £1597 million £1588 million and net 
proceeds on share issues of £24 million £62 million the net cash 
outflow for the year increased net debt by £1977 million £1482 
million fair value adjustments on debt denominated in foreign 
currency and the related cross currency swaps decreased net debt 
by £114 million increased by £16 million the principal amount of 
our indexlinked debt is adjusted by the change in rpi on a biannual 
basis this increased net debt by £136 million £191 million 
currency impacts on cash and debt held by overseas subsidiaries 
increased net debt by £03 million decreased by £59 million other 
noncash movements mainly the reversal of fair value adjustments 
on maturing debt and currency swaps increased net debt by 
£13 million increased by £37 million severn trent plc annual report and accounts 2010 26
we use financial derivatives solely to manage risks associated with 
our normal business activities we do not hold or issue derivative 
financial instruments for financial trading 
except for debt raised in foreign currency which is fully hedged our 
business does not involve significant exposure to foreign exchange 
transactions we have investments in various assets denominated 
in foreign currencies principally the us dollar and the euro our 
current policy is to hedge an element of the currency translation risk 
associated with certain foreign currency denominated assets
we have entered into energy swaps that fix the cost of substantially 
all of severn trent water’s expected net electricity consumption for 
the first three years of amp5 the price fixed in these swaps is 
lower than the amount assumed in the final determination
gainslosses on financial instruments
we borrow in foreign currency under our emtn programme and 
use cross currency swaps to convert the proceeds to sterling the 
effect of these swaps is that interest and principal payments on the 
borrowings are made in sterling and so the currency risk is 
eliminated the foreign currency notes and swaps are recorded in 
the balance sheet at their fair values and the changes in fair values 
are included in gainslosses on financial instruments in the income 
statement since the terms of the swaps closely match those of the 
underlying borrowing these changes tend to be broadly equal and 
opposite the changes in fair value of debt are shown in the 
reconciliation of movements in net debt in note 35
we hold interest rate swaps with a net notional principal amount of 
£835 million under which we pay fixed interest and receive floating 
rate interest to reduce our exposure to changes in interest rates 
these swaps are carried at fair value and are revalued at each 
balance sheet date the changes in fair value are included in gains
losses on financial instruments in the income statement during the 
year there has been an increase of £417 million in the fair value of 
these instruments because market interest rates were higher at 31 
march 2010 than at 2009
it is important to note that we intend to and typically do hold these 
swaps to maturity and the changes in fair value are noncash 
movements over the lives of the swaps these changes will net out 
because the swaps will have a zero fair value when they mature
credit ratings
our long term credit ratings are 
    severn trent  
long term ratings severn trent plc water limited 
moody’s baa1 a3 
standard and poor’s bbb bbb
further details of our borrowings investments and financial 
instruments are contained in note 21 to the group financial 
statements
pensions
we have two defined benefit pension schemes of which the severn 
trent pension scheme stps is by far the largest formal actuarial 
valuations were last undertaken for the stps as at 31 march 2007 
the actuarial valuation as at 31 march 2010 is currently underway
on an ias 19 basis the estimated net position before deferred tax 
of our defined benefit pension schemes was a deficit of £3549 
million as at 31 march 2010 deficit of £2330 million the funding 
level at 31 march 2010 was 80 82 and our defined benefit 
pension schemes had total assets of approximately £1393 million 
and total liabilities of approximately £1748 million note 28 to the 
financial statements gives details of the year on year movement in 
the schemes’ assets and liabilities
during the year ended 31 march 2010 inflation expectations have 
increased and this has resulted in higher gross undiscounted 
liabilities increasing inflation is usually accompanied by increasing 
interest rates and so the higher undiscounted liabilities would normally 
be offset by an increase in the discount rate however corporate 
bond rates from which the discount rate is derived have fallen during 
the year and so rather than mitigate the effect of increasing inflation 
the discount rate has exacerbated the impact whilst there has been 
some recovery in equity markets this has been insufficient to 
compensate for the impacts of inflation and the discount rate
total cash contributions to the schemes in the year were £396 
million £420 million
the key actuarial assumptions were
 2010  2009 
price inflation 36 29 
salary increases 41 39 
discount rate 57 67 
pension increases in payment 36 30 
expected return on equities 80 80
age to which current pensioners  
aged 65 are expected to live  
men 853 851
women 886 882
age to which future pensioners currently  
aged 45 are expected to live  
men 865 859
women 896 889
the discount rate used in the actuarial calculations and the 
assumptions for price inflation and life expectancy can significantly 
impact the value calculated for the pension deficit the following 
table summarises the estimated impact on scheme liabilities 
resulting from changes to these key actuarial assumptions whilst 
holding all other assumptions constant
 change in impact on 
assumption assumption scheme liabilities
discount rate increasedecrease decreaseincrease 
 by 01 by £34 million
price inflation increasedecrease increasedecrease  
 by 01 by £34 million
life expectancy increase by 1 year increase by  
  £40 million
accounting policies and presentation of the financial statements
our consolidated financial statements are prepared in accordance 
with international financial reporting standards that have been 
endorsed by the european union
supplementary information 
including our preliminary 
results presentation
wwwseverntrentcom
business review 
financial review severn trent plc annual report and accounts 2010 27
business review
promoting online 
reporting
the annual report and accounts is the principal 
means of communicating with shareholders  
the group adopted ecommunications after they 
were approved by shareholders as an alternative 
means of receiving company information at the 
2007 annual general meeting as at 31 march 2010 
42449 shareholders receive company 
communications via electronic methods whilst 
27385 shareholders continue to receive 
communications by post you can visit our  
website at wwwseverntrentcom severn trent plc annual report and accounts 2010 28
governance 
directors’ report
the directors present their report together with the audited financial 
statements of the group for the year ended 31 march 2010
principal activity
the principal activity of the group is to provide and treat water and 
remove waste water in the uk and internationally
details of the principal joint ventures associated and subsidiary 
undertakings of the group at 31 march 2010 appear in notes 19 20 
and 40 to the financial statements on pages 84 and 111
business review
the chairman’s statement the chief executive’s ce review the 
report and performance reviews for the group’s main businesses 
and the financial review on pages 9 to 27 provide detailed information 
relating to the group and its strategy the operation of its businesses 
and the results and financial position for the year ended  
31 march 2010
details of the principal risks and uncertainties facing the group are set 
out in the risk and assurance section on pages 58 to 60
all of the above are incorporated by reference in and are deemed  
to form part of this report
directors and their interests
biographies of the directors currently serving on the board are set 
out on pages 32 and 33
details of changes to the board during the year and of the directors 
offering themselves for reappointment at the annual general 
meeting agm are set out in the chairman’s letter on pages 35 to 40
details of directors’ service agreements are set out in the directors’ 
remuneration report on page 52 the interests of the directors in the 
shares of the company are shown on pages 55 to 57 of that report
directors’ indemnities
the company’s articles of association provide that directors of the 
company shall be indemnified by the company against any costs 
incurred by them in carrying out their duties including defending any 
proceedings brought against them arising out of their positions as 
directors in which they are acquitted or judgment is given in their 
favour or relief from any liability is granted to them by the court
employees
the average number of employees within the group is shown in 
note 9 to the financial statements on page 77
severn trent believes that a diverse and inclusive culture is a key 
factor in being a successful business apart from ensuring an 
individual has the ability to do the job we do not discriminate in any 
way and make every effort to ensure that those with disabilities are 
able to be employed by us we ensure that training career 
development and promotion opportunities are available for all our 
employees irrespective of their gender race age or disability
the group actively encourages employee involvement and 
consultation and places emphasis on keeping its employees 
informed of its activity and financial performance by way of briefings 
and publication to staff of all relevant information and corporate 
announcements to help develop employees’ interest in the 
company’s performance severn trent offers two employee share 
plans the severn trent sharesave scheme an hm revenue and 
customs approved saye plan is offered to uk employees on an 
annual basis the severn trent share incentive plan approved by 
hm revenue and customs makes an annual award of shares to 
severn trent plc and severn trent water limited employees based 
on performance against the kpis
research and development
expenditure on research and development is set out in note 7 to  
the accounts on page 76
treasury management
the disclosures required under the eu fair value directive in relation 
to the use of financial instruments by the company are set out in note 
21 to the accounts on pages 85 to 96 further details on our treasury 
policy and management are set out in the financial review on page 26
post balance sheet events
details of post balance sheet events are set out in note 38 to the 
group financial statements on page 110
dividends
an interim dividend of 2671 pence per ordinary share was paid  
on 15 january 2010 the directors recommend a final dividend of 
4561 pence per ordinary share to be paid on 30 july 2010 to 
shareholders on the register on 18 june 2010 this would bring  
the total dividend for 200910 to 7232 pence per ordinary share 
2009 6734 pence the payment of the final dividend is subject  
to shareholder approval at the agm
capital structure
details of the company’s authorised issued share capital and of the 
movements during the year are shown in note 30 to the financial 
statements on page 103 the company has one class of ordinary 
shares which carries no right to fixed income each share carries 
the right to one vote at general meetings of the company the 
issued nominal value of the ordinary shares is 100 of the total 
issued nominal value of all share capital
there are no specific restrictions on the size of a holding nor on the 
transfer of shares which are both governed by the general 
provisions of the articles of association and prevailing legislation 
the directors are not aware of any agreements between holders of 
the company’s shares that may result in restrictions on the transfer 
of securities or on voting rights
details of employee share schemes are set out in note 33 to the 
financial statements on pages 104 to 107 for shares held by the 
severn trent employee share ownership trust the trustee abstains 
from voting
no person has any special rights of control over the company’s 
share capital and all issued shares are fully paid
with regard to the appointment and replacement of directors the 
company is governed by its articles of association the combined 
code on corporate governance the companies act and related 
legislation the articles may be amended by special resolution of 
the shareholders the powers of directors are described in the 
board governance document the articles and the chairman’s  
letter on pages 35 to 40
under its articles of association the directors have authority to allot 
up to 197166322 ordinary shares subject to the aggregate nominal 
amount limit set at the 2009 agm
there are a number of agreements that take effect after or 
terminate upon a change of control of the company such as 
commercial contracts bank loan agreements property lease 
arrangements and employee share plans none of these are 
considered to be significant in terms of their likely impact on the  severn trent plc annual report and accounts 2010 29
governance
analysis of shareholdings at 31 march 2010
 
 number of  of  number of   
category shareholders shareholders shares of shares
individual and  
joint accounts 69352 9118 26885645 1136
other 6708 882 209699560 8864
total 76060 10000 236585205 10000
 includes insurance companies nominee companies banks pension funds other 
corporate bodies limited and public limited companies
 number of  of  number   
size of holding shareholders shareholders of shares of shares
1499 55834 7341 10910098 461
500999 13203 1736 9280858 392
10004999 5995 788 10257090 434
50009999 313 041 2080100 088
1000049999 341 045 8179494 346
5000099999 104 014 7440826 315
over 100000 270 035 188436739 7965
total 76060 10000 236585205 10000
business of the group as a whole furthermore the directors are not 
aware of any agreements between the company and its directors or 
employees that provide for compensation for loss of office or 
employment that occurs because of a takeover bid
substantial shareholdings
as at 24 may 2010 the company had been notified in accordance 
with chapter 5 of the disclosure and transparency rules of the 
following major shareholdings
   percentage no of 
   of voting rights ordinary 
   and issued shares of 
name of holder   share capital 97
17
19p each
pictet asset management sa  76 17718717 
invesco limited   50 11980630
legal  general group plc   39 9403273
percentages rounded down to one decimal place
authority to purchase shares
the company was given authority at its agm in 2009 to make 
market purchases of ordinary shares up to a maximum number of 
23646774 shares similar authority will again be sought from 
shareholders at this year’s agm no market purchases were made 
by the company during the year ended 31 march 2010
supplier payment policy
individual operating companies within the group are responsible for 
establishing appropriate policies with regard to the payment of their 
suppliers the companies agree terms and conditions under which 
business transactions with suppliers are conducted it is group 
policy that provided a supplier is complying with the relevant terms 
and conditions including the prompt and complete submission of all 
specified documentation payment will be made in accordance with 
agreed terms it is also group policy to ensure that suppliers know 
the terms on which payment will take place when business is 
agreed details of supplier payment policies can be obtained from 
the individual companies at the addresses shown in note 40 to the 
financial statements on page 111 trade creditors for the group at 
the year end are estimated as representing 441 days’ purchases 
2009 393 days’ purchases
contributions for political and charitable purposes
donations to charitable organisations during the year amounted to 
£326382 2009 £352201 donations are given to charities whose 
projects align closely with our aim to promote the responsible use of 
water resources and waste water services which provide the 
opportunity for longer term partnerships in addition we provide 
donations to employee nominated charities through a matched 
funding scheme and health and safety reward schemes we are 
also committed to supporting wateraid the uk’s only major charity 
dedicated to improving access to safe water hygiene and sanitation 
in the world’s poorest countries
in 200809 a provision of £5 million was established for additional 
contributions to the severn trent charitable trust as agreed with 
ofwat severn trent water paid £2 million additional contributions  
in that year and a further £2 million in 200910 the remaining  
£1 million is due to be paid in 201011
severn trent’s policy is not to make any donations for political 
purposes in the uk or to donate to eu political parties or incur eu 
political expenditure accordingly neither severn trent plc nor its 
subsidiaries made any political donations or incurred political 
expenditure in the financial year under review
under the provisions of the political parties elections and 
referendums act 2000 the relevant provisions of which are now 
contained in part 14 of the companies act 2006 shareholder 
authority is required for political donations to be made or political 
expenditure to be incurred by the company or any of its subsidiaries 
in the eu and disclose any such payments in the annual report the 
legislation gives a wide definition of what constitutes political 
donations and political expenditure including sponsorship 
subscriptions payment of expenses paid leave for employees 
fulfilling public duties and support for bodies representing the 
business community in policy review or reform the company has 
therefore obtained limited authority from shareholders as a 
precautionary measure to allow the company to continue supporting 
the community and such organisations without inadvertently 
breaching the legislation
at the 2009 agm shareholders gave the company authorities to 
make political donations or to incur political expenditure in the eu 
which would not ordinarily be regarded as political donations up to 
an aggregate annual limit of £50000 for the company and its 
subsidiaries pursuant to those authorities during the year ended 
31 march 2010 the group incurred costs of nil 2009 nil those 
authorities will expire at the 2010 agm and in line with market 
practice to renew the authorities on an annual basis the board has 
decided to put forward a resolution to this year’s agm to renew the 
authorities to make donations to political organisations and to incur 
political expenditure up to a maximum of £50000 per annum as 
permitted under the companies act 2006 this resolution also 
covers any political donations made or political expenditure 
incurred by any subsidiaries of the company
internal controls
the board has overall responsibility for the group’s system of internal 
control and for reviewing its effectiveness the board reviews the 
effectiveness of the system of internal control including financial 
operational compliance and risk management at least annually in 
accordance with the requirements of the combined code and the 
guidance set out within it the system of internal control is reviewed 
for effectiveness and adequacy the internal control system can only  severn trent plc annual report and accounts 2010 30
provide reasonable and not absolute assurance against material 
misstatement or loss as it is designed to manage rather than 
eliminate the risk of failure to achieve business objectives
the audit committee reviews the risk management process and the 
effectiveness of the system of internal control on behalf of the board 
it also keeps under review ways in which to enhance the control and 
audit arrangements in the group the audit committee receives 
reports every six months from the ce on the significant risks and 
uncertainties faced by the group an assessment of the 
effectiveness of controls over each of those risks and an action plan 
to improve controls where this has been assessed as necessary 
any significant control weaknesses that have been identified as 
requiring remedy are also reported to the audit committee the 
internal audit department provides objective assurance and advice 
on risk management and control the external auditors also report on 
significant financial control issues to this committee
the board confirms that procedures providing an ongoing process 
for identifying evaluating and managing the principal risks and 
uncertainties faced by the group have been in place for the year to 
31 march 2010 and up to the date of approval of the annual report
external auditors
in the case of each of the persons who are directors of the company 
at the date when this report was approved
• so far as each of the directors is aware there is no relevant audit 
information of which the company’s auditors are unaware and
• each of the directors has taken all the steps that heshe ought to 
have taken as a director to make himselfherself aware of any 
relevant audit information and to establish that the company’s 
auditors are aware of that information
relevant audit information means information needed by the 
company’s auditors in connection with preparing their report
this confirmation is given and should be interpreted in accordance 
with the provisions of section 418 of the companies act 2006
deloitte llp have indicated their willingness to continue as  
auditors a resolution to reappoint deloitte llp will be proposed  
at this year’s agm
the audit committee has recommended to the board the 
reappointment of deloitte llp and a resolution to that effect will be 
on the agenda at the agm the audit committee will also be 
responsible for determining the audit fee on behalf of the board
accounts of severn trent water limited
regulatory accounts for severn trent water limited are prepared 
and sent to ofwat a copy of these accounts will be available from 
the website of severn trent water limited wwwstwatercouk or on 
written request to the company secretary at the address given on 
the back cover there is no charge for this publication
going concern
the group’s business activities together with the factors likely to 
affect its future development performance and position are set out in 
the chief executive’s review on page 5 and the business reviews of 
severn trent water and severn trent services on pages 9 to 17 and 
19 to 21 the financial position of the group its cash flows liquidity 
position and borrowing facilities are described in the financial review 
on pages 23 to 26 the group’s objectives policies and processes 
for managing its capital and its financial risk management objectives 
are described in the financial review and in the governance report 
on pages 28 to 60 details of the group’s financial instruments 
hedging activities and exposure to credit risk and liquidity risk are 
described in note 21 to the group financial statements
the group’s principal operating subsidiary severn trent water is a 
regulated long term business characterised by multi year investment 
programmes the group’s strategic funding objectives reflect this 
the group therefore seeks to attain a balance of long term funding 
or commitment of funds across a range of funding at the best 
possible economic cost average debt maturity is 17 years and the 
effective average interest cost during the year was 56 the group 
is in a strong liquidity position with £2278 million in cash and liquid 
reserves and £650 million of undrawn committed bank facilities 
which are expected to be sufficient to fund its investment and cash 
flow needs for at least the first year of the amp5 period 
severn trent water operates in an industry that is currently subject 
to economic regulation rather than market competition ofwat the 
economic regulator has a statutory obligation to set price limits that 
it believes will enable the water companies to finance their activities 
as a consequence the directors believe that the group is well placed 
to manage its business risks successfully despite the current 
uncertain economic outlook
the directors are proposing to increase the limit on the company’s 
borrowing powers set out in its articles of association articles which 
are out of line with the company’s current borrowing requirements 
and require the directors to restrict the borrowings of the group to 
two and a half times its adjusted capital and reserves this 
amendment is part of a comprehensive update of the company’s 
articles to be proposed at the agm to reflect the final provisions of 
the companies act 2006 which came into effect last year whilst 
carrying out this update the directors became aware that the group’s 
borrowings were in excess of this restriction there was therefore a 
technical breach of article 102
the directors have reviewed the implications of this technical breach 
and have plans in place to address it including the above resolution 
they consider that the resolution to be proposed to the agm is in 
the best interests of shareholders and are therefore confident that 
the resolutions will be passed
after making due enquiries of this situation and of all other relevant 
matters the directors have a reasonable expectation that the 
company and the group have adequate resources to continue in 
operational existence for the foreseeable future accordingly they 
continue to adopt the going concern basis in preparing the annual 
report and accounts
annual general meeting
the agm of the company will be held at the international 
convention centre broad street birmingham b1 2ea at 11am on 
tuesday 20 july 2010 the notice convening the meeting together 
with details of the business to be considered and explanatory notes 
for each resolution is distributed separately to shareholders it is 
also available on the company’s website wwwseverntrentcom
by order of the board
fiona smith
general counsel and company secretary
27 may 2010
governance – directors’ report continued severn trent plc annual report and accounts 2010 31
governance
the directors are responsible for preparing the annual report 
directors’ remuneration report and the financial statements in 
accordance with applicable law and regulations
company law requires the directors to prepare such financial 
statements for each financial year under that law the directors are 
required to prepare group financial statements in accordance with 
international financial reporting standards ifrss as adopted by 
the european union and article 4 of the ias regulation and have 
chosen to prepare the parent company financial statements in 
accordance with united kingdom generally accepted accounting 
practice united kingdom accounting standards and applicable 
law under company law the directors must not approve the 
accounts unless they are satisfied that they give a true and fair view 
of the state of affairs of the company and of the profit or loss of the 
company for that period 
in preparing the parent company financial statements the directors 
are required to
•  select suitable accounting policies and then apply them 
consistently
•  make judgements and accounting estimates that are reasonable 
and prudent
•  state whether applicable uk accounting standards have been 
followed subject to any material departures disclosed and 
explained in the financial statements and
•  prepare the financial statements on the going concern basis 
unless it is inappropriate to presume that the company will 
continue in business
in preparing these financial statements international accounting 
standard 1 requires that the directors 
•  properly select and apply accounting policies
•   present information including accounting policies in a  
manner that provides relevant reliable comparable and 
understandable information
•  provide additional disclosures when compliance with the specific 
requirements in ifrss are insufficient to enable users to 
understand the impact of particular transactions other events and 
conditions on the entity’s financial position and financial 
performance and
•  make an assessment of the company’s ability to continue as a 
going concern
the directors are responsible for keeping adequate accounting 
records that are sufficient to show and explain the company’s 
transactions and disclose with reasonable accuracy at any time the 
financial position of the company and enable them to ensure that 
the financial statements comply with the companies act 2006  
they are also responsible for safeguarding the assets of the 
company and hence for taking reasonable steps for the prevention 
and detection of fraud and other irregularities
the directors are responsible for the maintenance and integrity of 
the corporate and financial information included on the company’s 
website legislation in the united kingdom governing the 
preparation and dissemination of financial statements may differ 
from legislation in other jurisdictions
we confirm that to the best of our knowledge
•  the financial statements prepared in accordance with the relevant 
financial reporting framework give a true and fair view of the 
assets liabilities financial position and profit or loss of the 
company and the undertakings included in the consolidation 
taken as a whole and
•  the management report which is incorporated into the directors’ 
report includes a fair review of the development and performance 
of the business and the position of the company and the 
undertakings included in the consolidation taken as a whole 
together with a description of the principal risks and uncertainties 
that they face
sir john egan michael mckeon
chairman finance director
governance 
directors’ responsibility statement severn trent plc annual report and accounts 2010 32
governance 
board of directors
1 2 3
4 5 6 7 8 9 10 11 
1 dr tony ballance bsc hons ma econ phd 45
director of strategy and regulation
appointed to the board on 2 october 2007 tony was last reappointed in 2009 
and is not retiring or standing for reappointment in 2010 
tony’s extensive experience in utility policy and regulation working for ofwat as chief 
economist and then as an economic consultant leaves him ideally placed to lead  
the company’s strategic and regulatory work other directorships and offices 
chief economist office of water services ofwat 1996–1999 director of london 
economics 1999–2000 director of stone and webster consultants 2000–2005
  
e
6 martin kane bsc ceng cenv mice miwem fiwo 57
director of customer relations 
appointed to the board in october 2007 martin has been director of customer 
relations severn trent water since may 2006 martin was last reelected in 
2008 and is retiring by rotation and standing for reappointment in 2010 
martin joined severn trent water in 1975 and has held various senior posts  
giving him an extensive understanding of the design construction and operation  
of water and waste water treatment plants water distribution networks and sewerage 
systems other directorships and offices board member of uk water industry 
research limited board member of utilities and service industries training limited
 
e
5 gordon fryett
 
56
independent nonexecutive director 
appointed to the board in july 2009 gordon was last reelected in 2009 and is 
not retiring or standing for reappointment in 2010  
gordon’s extensive experience working in and with international businesses 
accountability for managing large areas of capital expenditure and a broad range of 
executive and operational experience in a highly customer facing environment 
enables him to bring a great deal of experience and expertise to the board  
other directorships and offices property director of tesco ceo of tesco 
ireland 2001–2006 director of international support for tesco 1997–2001 
alumnus of insead
 
c  n
9 baroness noakes
 
dbe llb fca 60
independent nonexecutive director 
appointed to the board in february 2008 sheila noakes was last reelected in 
2008 and is retiring by rotation and standing for reappointment in 2010 sheila 
noakes is the chairman of the audit committee 
sheila is a fellow of the institute of chartered accountants in england and wales and 
spent most of her career in kpmg where she was a senior partner until 2000 this 
expertise together with experience of directorships within other listed companies 
ensures sheila is well placed to chair the audit committee and contribute effectively to 
the board other directorships and offices senior independent director of 
carpetright plc director of the reuters founder share company nonexecutive 
director of ici plc 2004–2008 nonexecutive director of hanson plc 2001–2007 
member of the court of the bank of england 1994–2001
 
a
  
n
10 andy smith btech hons 49
director of water services 
appointed to the board in october 2007 andy was last reelected in 2008 and  
is retiring by rotation and standing for reappointment in 2010 
andy has worked in the uk and overseas with bp mars and pepsi and as group hr 
director and a member of the board at boots andy brings a broad range of executive 
and operational experience from different sectors to the board other directorships 
and offices director of boots group plc 2002–2003
 
e
severn trent plc board of directors as at 31 march 2010
2 dr bernard bulkin
 
bs phd frsc frsa fie 68
independent nonexecutive director
appointed to the board on 1 january 2006 bernard was last reappointed in 
2008 and is not retiring or standing for reappointment in 2010 he is the 
chairman of the corporate responsibility committee 
bernard’s involvement in both innovation and policy on climate change and renewable 
energy together with an understanding of how to guide improved performance on 
safety and environmental operational issues enables him to contribute significantly to 
the board other directorships and offices chairman of chemrec ab a swedish 
company nonexecutive director of accelergy corporation in california director of 
zegen corporation in boston venture partner at vantage point an international 
venture capital firm chief scientist at bp plc 1985–2003
 
a
 
c
  
r
  
n severn trent plc annual report and accounts 2010 33
governance
7 martin lamb
 
bsc mba 50
independent nonexecutive director 
appointed to the board in february 2008 martin was last reelected in 2008  
and is retiring by rotation and standing for reappointment in 2010 
martin has extensive experience of managing and developing large engineering 
businesses in all parts of the world his strong commercial acumen experience  
of managing complex projects and familiarity with current market pressures as  
a serving chief executive leave him well placed to add value to the severn trent 
business other directorships and offices chief executive of imi plc 
nonexecutive director of spectris plc 1999–2006
  
r
  
n
8 michael mckeon ma ca 53
finance director 
michael was appointed to the board in december 2005 michael was last 
reappointed in 2008 and is not retiring or standing for reappointment in 2010 
michael has extensive international business experience having worked overseas for 
carnaudmetalbox elf atochem and price waterhouse he also held various senior 
roles with rollsroyce plc from 1997 to 2000 including finance director of aerospace 
group and was finance director of novar plc from 2000 to 2005 michael is a 
chartered accountant and a member of the institute of chartered accountants of 
scotland other directorships and offices nonexecutive director and chairman 
of the audit committee of the merchants trust plc finance director of novar plc 
2000–2005
  e
11 tony wray bsc hons
 
48
chief executive 
appointed to the board in march 2005 and became chief executive in october 
2007 tony was last reappointed in 2009 and is not retiring or standing for 
reappointment in 2010 
tony’s experience of a wide range of operational and strategic leadership roles in the 
energy telecoms water and waste industries enables him to bring a multi disciplined 
approach to the board other directorships and offices nonexecutive director – 
energy and utility skills the sector skills council director of networks at eircom the 
republic of ireland’s telephone operation 2003–2005 director roles within transco 
and national grid transco 1997–2003
  
c
 
n
  
e
andrew j duff

 bsc fei 51
independent nonexecutive director  
and chairman designate
appointed to the board in may 2010 andrew is 
standing for reappointment in 2010 
andrew’s strong track record working in regulated 
business gives him the relevant experience to make him 
the right chairman to lead the group through the next 
phase of development other directorships and offices 
chairman of rwe npower group chief executive officer 
rwe npower 2003–2009 nonexecutive director of 
wolseley plc and member of the cbi climate change 
board fellow of the energy institute
board committees
audit  
committee 
baroness noakes c 
dr bernard bulkin 
richard davey 
kerry porritt s
remuneration  
committee
richard davey c 
dr bernard bulkin 
sir john egan 
martin lamb
fiona smith s
corporate  
responsibility  
committee
dr bernard bulkin c 
sir john egan 
gordon fryett 
tony wray 
kerry porritt s
nominations 
committee
sir john egan c 
dr bernard bulkin 
richard davey
andrew duff
gordon fryett 
martin lamb 
baroness noakes 
tony wray 
fiona smith s
executive 
committee
tony wray c 
dr tony ballance
simon cocks
len graziano
myron hrycyk
martin kane
alec luhaste
michael mckeon
alec richmond
andy smith
fiona smith
senior independent 
nonexecutive director
richard davey 
general counsel and 
company secretary
fiona smith
management committee
c chairman  
s secretary  


 nonexecutive director
  
a
  
c
  
r
  
n
  
e
3 richard davey
 
ba 61
senior independent nonexecutive director
appointed to the board in january 2006 richard was last reappointed in 2008 
and is not retiring or standing for reappointment in 2010 he is chairman of the 
remuneration committee 
richard has an investment banking background and was formerly head of investment 
banking at nm rothschild and sons with extensive experience of the financial 
services sector having run rothschild’s financial services group and working with a 
number of high street banks and insurers richard brings valuable financial expertise 
to the board and audit committee and as chair of the remuneration committee 
other directorships and offices nonexecutive chairman of london capital 
holdings plc vice chairman of yorkshire building society nonexecutive director of 
amlin plc nonexecutive director of freeserve plc 1999–2001 nonexecutive 
director of scottish widows fund and life assurance society 1996–2000
  
a
 
 r
  
n
4 sir john egan
 
msc econ bsc 70
chairman 
appointed to the board in october 2004 and became chairman in january 
2005 sir john was last reappointed in 2009 and is retiring in 2010 he is 
chairman of the nominations committee 
sir john’s distinguished business career as chairman and chief executive of a 
number of leading uk companies enables him to bring a wealth of experience and 
expertise in change management and continuous improvement processes to the 
board and support to the executive management team of the company 
other directorships and offices director of warwick castle park trust limited 
director of borwick group limited nonexecutive director of governance for owners 
group llp chair of the icsa steering group commissioned by the financial 
reporting council to review the 2003 higgs report knighted in the queen’s birthday 
honours list in 1986 deputy lieutenant of the county of warwickshire chancellor of 
coventry university chairman of inchape plc 20002005 chairman of harrison 
lovegrove and co limited 2000–2005 chairman and chief executive of jaguar plc 
1984–1989 chief executive of baa plc 1990–1999 chairman of mepc 
1998–2000 president of the confederation of british industry 2002–2004
  
c
  
r
  
n
  
n severn trent plc annual report and accounts 2010 34
governance 
executive committee
the chief executive is supported in his 
role by the executive management team 
and together they comprise the 
executive committee during the year 
the executive committee comprised the 
executive directors and senior executive 
managers responsible for key operational 
and central functions photographs of the 
members of the committee together with 
their biographies are set out opposite
the executive committee oversees the 
development and execution of the 
severn trent strategy it also has 
accountability for achieving business 
results the terms of reference of  
the executive committee are  
available on the company’s website 
wwwseverntrentcom or from the 
company secretary
during the year the executive 
committee structured its meetings to 
focus on strategy business 
management policy and planning and 
operational performance 
members of the executive committee 
were delegated responsibility to sit on 
steering groups overseeing the delivery 
of our strategy in such areas as our 
technologies our move to severn trent 
centre and our business planning
1 tony wray bsc hons 
48 chief executive
please see full biography on  
page 33
4 fiona smith llb 51 
general counsel and 
company secretary 
joined severn trent in february 
2006 fiona is a solicitor and was 
previously general counsel and 
company secretary at national 
grid plc where she worked for 15 
years before becoming general 
counsel at transport for london 
for two years prior to joining 
severn trent
7 andy smith btech 
hons 49 director of 
water services
please see full biography on  
page 32 
10 myron hrycyk mba 
53 chief information 
officer
joined severn trent in april 
2008 myron has delivered major 
it strategic programmes 
reorganised corporate it units and 
deployed high performance it 
practices in previous roles for nyk 
logistics and unipart myron is  
the executive sponsor of the 
company’s saperp 
transformation programme
11 len graziano mba 
beng 64 president and 
chief executive officer 
severn trent services
joined severn trent in january 
2000 prior to joining severn trent 
services len served as president 
of chemineer inc a unit of 
robbins  myers inc a global 
leader in industrial mixing and 
agitation equipment and 
technology he also served as a 
president of johnston pump 
company a full line vertical pump 
parts and repair company
2 martin kane bsc ceng 
cenv mice miwem fiwo 
57 director of customer 
relations
please see full biography on  
page 32
5 alec richmond bsc 
econ fca fiia 52  
director of internal audit
joined severn trent in june 
2007 prior to that he worked for 
cadbury schweppes plc leading 
the company’s global internal audit 
service from 2000–2005 before 
joining severn trent he worked for 
rsm robson rhodes as a director 
and a member of the management 
board responsible for risk 
assurance services alec is a 
fellow of the icaew
8 dr tony ballance bsc 
hons ma econ phd 45 
director of strategy and 
regulation
please see full biography on  
page 32 
3 michael mckeon ma ca 
53 finance director
please see full biography on  
page 33 
6 alec luhaste ba 56 
director of human 
resources
joined severn trent in july 
2007 alec was previously group 
human resources director at 
taylor woodrow and has extensive 
experience in many areas of 
human resources including 
change management 
organisational capability and 
development compensation and 
benefits and employee relations
9 simon cocks bahons 
44 waste water services 
director 
joined severn trent in july 
2009 simon is an electrical 
engineer by training and began his 
career in military communications 
working for plessey and then gec 
he previously worked for london 
electricity in various operational 
and management roles and more 
recently for national grid where 
he was head of uk operations 
performance and planning then 
commercial director for the gas 
and electricity business in the uk 
and europe and more recently held 
the position of chief procurement 
officer before joining severn trent
4
1
7
10
5
2
8
11
6
3
9 severn trent plc annual report and accounts 2010 35
governance
governance in severn trent
the way we are structured
•  our organisation is structured to allow  
for effective and efficient decision 
making with clear accountabilities
the way we choose to behave
•  our code of conduct sets out our 
approach to responsible business 
behaviours
•  the code of conduct is supported by  
14 group policies and our behaviour 
model further details of the code of 
conduct can be found on our website 
wwwseverntrentcom
the way we assure our performance
•  management assurance is provided  
by a combination of effective 
management processes and risk  
and compliance activities
•  independent assurance is provided 
primarily by internal audit by  
our external auditors and other 
external bodies
governance 
chairman’s letter
dear shareholder
introduction
i want to set out in this letter how governance underpins our activities in severn trent and 
describe how we apply the principles of good corporate governance as set out in the 
combined code on corporate governance issued by the financial reporting council 
frc in 2008 combined code
compliance with the combined code
the combined code sets out standards of good practice that listed companies are 
expected to follow in areas such as how we structure the board appropriately and develop 
its members how we pay and reward our executive team our accountability and audit and 
our relationship with our shareholders 
from 1 july 2009 to the year ended 31 march 2010 severn trent was fully compliant in its 
application of the combined code from 1 april 2009 to 30 june 2009 we did not comply  
with code provision a32 which requires that at least half the board excluding the 
chairman should comprise independent nonexecutive directors
martin houston’s unplanned resignation as a nonexecutive director in january 2009 due  
to his other work commitments meant that we needed to appoint another independent 
nonexecutive director to your board but it had to be the right director able to demonstrate 
complementary skills and experience to assist in our decision making we appointed 
gordon fryett with effect from 1 july 2009
our compliance with the combined code demonstrates our commitment to the highest 
standards of governance and corporate behaviour the combined code will be replaced 
next year with the uk corporate governance code the events in our corporate markets 
over the past two years necessitated a review of the combined code and your board 
encouraged and supported the changes that the new code will bring to bear our response 
to the consultation on the review of the combined code is available for you to review on the 
website of the financial reporting council frc wwwfrcorguk
board membership
from 1 july 2009 the board has consisted of me your nonexecutive chairman five 
executive directors and five independent nonexecutive directors together as a unified 
board i believe we bring an appropriate balance of innovation experience independence 
and challenge to ensure effective decision making
photographs of the members of the board together with their biographies and a description 
of the skills that they bring to bear can be found on pages 32 and 33 
role of the chairman
i joined the board in october 2004 and was appointed chairman on 1 january 2005
during my time as your chairman we have successfully established a strong and 
committed executive team who are driving continuous improvement throughout severn 
trent’s activities
with effect from the end of this year’s agm on 20 july i shall retire as your chairman
the board engaged zygos an independent executive search team last year to lead  
the search for my successor and richard davey your senior independent nonexecutive 
director chaired the nominations committee in the search and recommendation of  
a successor
i am delighted that andrew duff has agreed to be your chairman and having been 
appointed to the board on 10 may 2010 will stand for reappointment at the agm
the role of the chairman is to lead a unified board facilitating its members at its meetings 
and to be responsible for ensuring that the principles and processes of the board are 
maintained in line with the board governance document 
agendas for our meetings are agreed in consultation with the chief executive ce and 
company secretary although any director may request that an item be added to the 
agenda i have authority to act and speak for the board between its meetings including 
engaging with the ce i report to the board and committee chairmen as appropriate on 
sir john egan
chairman
the way 
we are 
structured
the way 
we choose 
to behave
the way we 
assure our 
performance
the way 
we work severn trent plc annual report and accounts 2010 36
governance – chairman’s letter continued
decisions and actions taken between meetings of the board i also meet with the non
executive directors without the executive directors present to consider the performance of 
the executive directors and to provide feedback
senior independent nonexecutive director
richard davey is the senior independent nonexecutive director he chairs the 
remuneration committee and is a member of the audit and nominations committees  
the board has agreed that richard davey will act as chairman of the board in the event that 
i am unable to do so for any reason 
during the year richard chaired the nominations committee leading the search for  
my successor 
due to my role on the steering group and advising the institute of chartered secretaries and 
administrators icsa on the review of the higgs guidance on board effectiveness richard 
also led our board’s response to this consultation our response can be found on the frc 
website wwwfrcorguk
nonexecutive directors
your nonexecutive directors are appointed to the board to contribute their external expertise 
and experience in areas of importance to the group such as corporate finance general 
finance corporate strategy environmental matters general management and supply chain 
management they also provide independent challenge and rigour in the board’s 
deliberations and are encouraged to make independent assessments of the company’s 
competencies the nonexecutive directors led by richard as the senior independent 
nonexecutive director meet without me at least once a year where there is an opportunity 
for them to appraise my performance
your board has reviewed the status of the nonexecutive directors and considers them all to 
be independent in character and judgment and within the definition of this term in the 
combined code
chief executive
the board has delegated all responsibility beyond its matters reserved to the ce to achieve 
the company’s strategy the ce tony wray is empowered to take all decisions and actions 
that further the company’s strategy and which in his judgment are reasonable having regard 
to the ce limits set out in the company’s group authorisation arrangements gaa
executive directors
the executive directors support tony in driving strategy forward in severn trent they are 
committed to implementing strategy in a responsible way that takes account of our 
commitment to long term responsible stewardship of the business the environment our 
customers and the communities in which we live and work 
role of the company secretary
all directors have access to the advice and services of the company secretary fiona 
smith and the company secretariat team the company secretary is responsible for 
ensuring that the board operates in accordance with the governance framework it has 
adopted and that there are good information flows to the board and its committees and 
between senior management and the nonexecutive directors
in her role as the group’s general counsel fiona is a part of the severn trent executive 
management team with responsibility for the business resilience and security company 
secretariat legal risk compliance and insurance teams 
the appointment and resignation of the company secretary is a matter for consideration by 
the board as a whole
induction
on joining the board directors are evaluated and then provided with a comprehensive and 
individualised induction pack that includes notes on the group structure the regulatory 
framework of the operating businesses within the group financial reports and business 
plans and information on our governance framework 
meetings are arranged with members of the executive management team and external 
advisers who provide support to the relevant board committees the directors may serve on 
group authorisation arrangements
the group authorisation arrangements 
gaa are the framework through which 
the severn trent plc board authorises 
the right people at the right level to take 
important decisions as we manage legal 
financial and administrative issues 
throughout the group the gaa are 
designed to facilitate good control 
efficient decision making and 
demonstrable compliance
the flow of authority is from the severn 
trent plc board to the ce in respect of 
certain issues the delegated authority is 
subject to an obligation to work with 
specialist business services areas such 
as tax treasury finance and company 
secretariat that provide additional 
expertise and a group wide perspective 
governance of subsidiaries
the board of the listed company  
severn trent plc is the same as that of 
its regulated subsidiary severn trent  
water limited this structure was 
implemented in 2007 when it was 
decided to integrate the management of 
the listed company with the management 
of the regulated entity to gain greater 
focus transparency and effectiveness 
around the regulated business
the two companies operate as distinct 
legal entities the boards have regard to 
the severn trent plc board governance 
document and the severn trent water 
limited matters reserved to the board 
they are assisted through the 
management of separate agendas 
meetings and minutes by the company 
secretariat and advised in their  
meetings by the company secretary 
where appropriate
subsidiary company boards are required 
to be managed scrupulously with respect 
to all legal fiscal and administrative 
matters in particular the relationships 
between severn trent water limited the 
regulated entity and our nonregulated 
businesses such as severn trent 
services are monitored and controlled to 
ensure that we comply with our ofwat 
obligations on arm’s length transactions  severn trent plc annual report and accounts 2010 37
governance
financial calendar
16 june 2010  exdividend date for 
200910 final dividend
18 june 2010  record date for 
200910 final dividend
20 july 2010  agm international 
convention centre 
birmingham b1 2ea
30 july 2010  payment date for 
proposed 200910 final 
dividend
23 november 2010  announcement date for 
201011 interim results
14 january 2011  payment date for 
proposed 201011 
interim dividend
visits to operational and office sites across the group are also arranged for directors joining 
the board
continuing professional development
regular seminars arranged to coincide with board meetings are held to update and refresh 
the board’s knowledge and understanding on a variety of topics during this year we had 
sessions to understand and examine the construction and delivery of our business plan for 
the next five years 
moving forward we will be creating individual programmes for learning and development 
the programmes will be reviewed by your chairman with each director as part of the annual 
performance and effectiveness reviews undertaken by the board
performance and effectiveness reviews
in 200809 the board participated in a formal evaluation of its own performance and that  
of individual directors to ensure independence and objectivity the review was externally 
facilitated by praesta partners llp  we noted that although the board was effective  
across key aspects of its role and supporting processes the directors felt that they needed 
to move the emphasis of the board’s attention from detailed operational issues to long term 
strategic issues
in 200910 working closely with tony wray your ce and fiona smith the company 
secretary we structured the content of the board and committee agendas to support that 
move in emphasis 
in april 2010 the board commenced a review of its effectiveness and the effectiveness of its 
key committees that review is being led by me your chairman assisted by fiona smith 
and facilitated by lintstock an independent firm of corporate governance advisers the 
review is in the form of an online questionnaire to be followed by a series of confidential 
interviews between each director the company secretary and me i shall present the 
results of the review to the board at its meeting in july and the results of that review will form 
part of my successor’s induction pack
board processes
we have processes in place regarding
•  our tasks and activities board membership and administration
•  the matters specifically reserved for our decision making the authority delegated to the 
ce the accountability of the ce for that authority and guidance on managing the 
relationship between us and the ce and 
•  the boundaries on ce action ce limits
an approved board governance document outlines those processes and is available on  
our website wwwseverntrentcom
the board has reserved the following for its own consideration
•  the appointment of the ce directors the company secretary and the director of  
internal audit
•  the strategy and budgets of the company
•  the gaa which set out the group’s delegated approval limits
•  decisions regarding the company and its subsidiaries required to be made by the 
company’s gaa constitutional documents statute or external regulation and
•  the approval or adoption of documents including the publication of reports and 
statements to shareholders required to be made by the board by the company’s gaa 
constitutional documents statute or external regulation
shareholders
the board recognises the importance  
of representing and promoting the 
interests of its shareholders and that  
it is accountable to shareholders for  
the performance and activities of  
the company
retail shareholder engagement 
strategy
the board has an active shareholder 
engagement strategy the main elements 
of which are set out below
the annual report and accounts is the 
principal means of communicating with 
shareholders the group adopted 
ecommunications after they were 
approved by shareholders as an 
alternative means of receiving company 
information at the 2007 annual general 
meeting as at 31 march 2010 42449 
shareholders receive company 
communications via electronic methods 
whilst 27385 shareholders continue to 
receive communications by post
the company’s website  
wwwseverntrentcom contains an 
archive of annual reports together with 
other information relevant to investors  
this includes comprehensive share  
price information financial results and 
financial calendars
the company offers a dividend 
reinvestment plan drip details of  
the drip are available on the company 
website and the website of equiniti  
our registrar
further shareholder information can  
be found on pages 123 to 124 severn trent plc annual report and accounts 2010 38
board meetings
we have regular scheduled meetings throughout the year 
papers including minutes of board committees held since the previous board meeting and 
performance reports are circulated in advance of each meeting
there is an agreed procedure in place which allows directors to take independent 
professional advice in the course of their duties and all directors have access to the advice 
and services of the company secretary where a director has a concern over any 
unresolved matter heshe is entitled to require the company secretary to minute that 
concern should the director later resign over the issue i as chairman will bring it to the 
attention of the board
board attendance in 200910
sir john egan 88 martin lamb 88
tony ballance 88 michael mckeon 88
dr bernard bulkin 78 baroness noakes 88
richard davey 88 andy smith 88
gordon fryett 56 tony wray 88
martin kane 88 
gordon fryett was unable to attend one scheduled board meeting due to a family 
commitment arranged prior to his appointment to the board
bernard bulkin was unable to attend one scheduled board meeting due to overseas 
business commitments
in both cases the directors reviewed the relevant agenda and papers and provided 
comments to me in advance of the meeting
during the year we finalised and submitted severn trent water’s business plan for amp5 
in working through this process with the executive management team we considered the 
impact of our plans on all of our stakeholders and used our risk management process to 
help us understand and assess that impact both for the five year period of our plan and our 
25 year strategic direction statement 
in addition to the formal board meetings your board attended one full day strategy session 
this year where the board and executive management team together considered severn 
trent water’s draft and final determination and severn trent services’ growth plan during 
the financial year nine ad hoc meetings of the board were convened to consider such 
matters as severn trent water’s draft determination severn trent plc’s preliminary and 
interim results and interim management statements
board committees
we have established committees of the board to deal with specific issues or approvals as 
and when necessary
the four permanent committees of the board assist in the execution of its responsibilities 
and the board delegated some of its responsibilities to those board committees the 
committees assist the board by focusing on their specific activities fulfilling their roles and 
responsibilities reporting to the board on decisions and actions taken and making any 
necessary recommendations
the terms of reference of the audit remuneration and nominations committees comply 
with the provisions of the combined code and are available for inspection together with the 
terms of reference of the corporate responsibility committee on the company’s website 
wwwseverntrentcom or may be obtained on written request from the company secretary 
at the address given on the back cover
each of the committees has reviewed its effectiveness and terms of reference during the 
year and any necessary actions have been identified and reported to the board
reports from the chairmen of these committees are set out on pages 41 to 57 of this report
governance – chairman’s letter continued
reporting obligations
as a publicly listed company the 
company has a range of reporting 
obligations to meet that are set out by law 
and regulation the company is 
committed to the promotion of investor 
confidence by taking steps within its 
power to ensure that trade in its 
securities takes place in an efficient and 
informed market
the company recognises the importance 
of effective communication as a key  
part of building shareholder value  
and that to prosper and achieve growth 
it must among other things earn the  
trust of security holders employees 
customers suppliers and communities 
by being open in its communications  
and consistently delivering on its 
commitments
the company announces its results on a 
half yearly basis and complies with the 
requirement to make interim 
management statements
institutional shareholders and analysts
presentations are made to shareholders 
and analysts following the release of the 
interim and year end results the chief 
executive and finance director meet 
shareholders during the year the 
chairman and if appropriate the senior 
independent nonexecutive director are 
available to meet shareholders if 
required the board receives written 
feedback following meetings with 
institutional shareholders and monitors 
shareholder activity on a quarterly basis 
at its meetings severn trent plc annual report and accounts 2010 39
governance
terms and conditions of appointment
we have made the terms and conditions of appointment of the directors available for 
inspection by any person at the company’s registered office during normal business hours 
they will also be available at the agm the letters of appointment of the directors can also 
be seen at our website wwwseverntrentcom
remuneration
the directors’ remuneration report is set out on pages 45 to 57
insurance and indemnities
severn trent purchases directors’ and officers’ liability and indemnity insurance to cover its 
directors and officers against the costs of defending themselves in civil proceedings taken 
against them in that capacity and in respect of damages resulting from the unsuccessful 
defence of any proceedings
interests
no director had a material interest at any time during the year in any contract of significance 
with the company or any of its subsidiary undertakings
conflicts of interests – update
last year the governance report described in full the process that the board had put in place 
to authorise situational conflicts in accordance with the provisions of the companies act 2006
for any actual or potential conflicts the following procedure has been adopted by the board 
to consider and if it sees fit to authorise situations where a director has an interest that 
conflicts or may possibly conflict with the interests of the company
•  the director will notify the chairman and company secretary of the actual or  
potential conflict
•  the nominations committee will consider the notification and determine whether  
it needs to be proposed to a board meeting for authorisation and
•  the conflict will be considered by the board at a scheduled board meeting
full details of the conflict will be sent to directors in advance of the meeting if there is a 
major conflict or it is decided that authorisation should not wait until the next scheduled 
meeting the board would be asked to authorise the conflict by way of written resolution
in addition to reviewing any conflicts notified and proposing them for authorisation by the 
board the nominations committee monitors changes to previously notified conflicts and 
any conditions imposed half yearly reports are made to the board of all directors’ conflicts 
and directors are reminded from time to time of their obligations an annual review of 
conflicts is carried out and this is incorporated into the year end process of verifying 
directors’ interests
annual general meeting
the agm of the company will be held at the international convention centre broad street 
birmingham b1 2ea at 11am on tuesday 20 july 2010
the agm is shareholders’ opportunity to feedback to the company on performance 
management and the way we work in a very direct fashion – through the way they vote – 
either in favour of the resolution against the resolution or by withholding their vote so that it 
does not count either for or against it is also shareholders’ opportunity to meet informally 
with directors and senior management before and after the meeting and ask formal 
questions during the meeting
the board encourages shareholders to attend the company’s agm and exercise their right to 
vote the notice of meeting and related papers are sent to shareholders at least 20 working days 
before the meeting separate resolutions are proposed on each substantially separate issue
presentations are made on the group’s activities and performance prior to the formal 
business of the meeting shareholders have the opportunity to ask questions of the board 
and present their views the chairmen of the audit corporate responsibility remuneration 
and nominations committees together with all other directors will attend the agm severn trent plc annual report and accounts 2010 40
governance – chairman’s letter continued
the company uses electronic voting at the agm allowing shareholders present at the 
meeting to register one vote per share held results of the poll on each resolution including 
details of the votes for and against registered prior to and at the meeting proxy votes and 
the number of abstentions will be displayed at the meeting
the poll results and a list of questions and answers from the agm will be made available on 
our website after the meeting
at the 2009 agm over 75 shareholders registered for severn trent’s shareholder 
networking programme the aim of the programme is to offer retail shareholders the 
opportunity to learn more about the company through a combination of site visits and 
talking to staff
the 2009 event was hosted by martin kane director of customer relations and a member 
of the board and fiona smith the company secretary twentyone participants were taken 
to minworth to our sewage treatment works for a tour and presentation on renewable 
energy this was followed by a visit to raynesway for a tour of our depot centre and 
customer contact centre
positive feedback was given on the organisation and content with strong support for the 
company continuing the programme both from shareholders and employees who enjoyed 
the positive interest shown in their work and their part in explaining what work they did
your board encourages those shareholders attending the 2010 agm to register for this 
year’s visit
reappointment
at this year’s agm it is proposed that the directors listed below stand for reappointment
martin kane  baroness noakes
martin lamb  andy smith 
in accordance with the company’s articles of association all directors are required to stand 
for reappointment at least every three years this year a total of four directors are retiring by 
rotation and standing for reappointment directors chosen for reappointment will vary and 
these directors have the longest service since their last reappointment
in addition andrew duff has been appointed to the board since the 2009 agm in 
accordance with the company’s articles of association he will also stand for reappointment 
at this year’s agm
conclusions
during my tenure as chairman i have presided over five years which have seen our 
business move from a position of offering poor service standards in 2005 to completing the 
delivery of our amp4 programme successfully after three years of continuous improvement 
in our operational regulatory and customer service performance your board has worked 
effectively in ensuring that we have continued to deliver this marked improvement during 
200910 together with a strong increase in our underlying profitability the board has also 
been successful in starting to deliver a clear long term strategy for severn trent so that we 
are well placed to take advantage of the opportunities that significant business policy and 
regulatory changes may bring during the amp5 period in closing my last full year as your 
chairman i would like to thank board members staff our shareholders and all our other 
stakeholders for the support given to me during my tenure with severn trent on behalf of 
you all i wish my designated successor andy duff every success in the new role which he 
is due to take up on 20 july 2010
sir john egan
chairman severn trent plc annual report and accounts 2010 41
governance
governance 
nominations committee
this report provides details of the role of the nominations committee and the work it has 
undertaken during the year 
the committee keeps under review the balance of skills on the board and the knowledge 
experience length of service and performance of the directors it also reviews their external 
interests with a view to identifying any actual perceived or potential conflicts of interests 
including the time available to commit to their duties to the company the committee 
monitors the independence of each nonexecutive director and makes recommendations 
concerning such to the board the results of these reviews are important when the board 
considers succession planning and the election and reappointment of directors members of 
the committee take no part in any discussions concerning their own circumstances
the members of the nominations committee in 200910 were the nonexecutive directors 
of the board and the ce tony wray
in may 2009 the committee recommended the appointment of gordon fryett to the board 
as an independent nonexecutive director gordon’s experience of major capital projects at 
tesco was a key driver in that decision
during the year the committee was primarily occupied with the search for sir john egan’s 
successor the search was led by richard davey to ensure independence in the duration of 
the handover of the role
the board accepted the committee’s recommendations that andrew duff join the board 
with effect from 10 may 2010 andrew will be appointed chairman at the close of this year’s 
agm upon sir john’s retirement
in respect of andrew’s appointment the committee engaged an external search agency 
zygos who assisted in identifying suitable candidates with the skills and capabilities 
required and in preparing an interview list
in march this year the nominations committee formally reviewed the performance 
contribution and commitment of each of the directors retiring at this year’s agm and  
seeking reappointment the committee supports and recommends their reappointment  
to the board the committee has confirmed that each director standing for reappointment 
continues to perform well on an individual and collective basis making a valuable 
contribution to the board’s deliberations and demonstrating commitment to the long term 
interests of the company
nominations committee attendance in 200910
sir john egan  55
dr bernard bulkin  45
richard davey  55
gordon fryett  12
martin lamb  45
baroness noakes  45
tony wray  55
each committee meeting complied with the terms of reference in that a minimum of five 
members were in attendance with the majority being independent nonexecutive directors
the main purpose of the committee is to 
assist the board by keeping the 
composition of the board under review 
and conducting a rigorous and 
transparent process when making or 
renewing appointments of directors to the 
board it also advises the board on 
issues of directors’ conflicts of interest 
and independence the full terms of 
reference for the committee can be found 
on the company’s website www
severntrentcom and are also available 
from the company secretary
succession planning
when considering new appointments to 
the board the nominations committee 
oversees the preparation of a position 
specification that is provided to an 
independent recruitment organisation 
retained to conduct a global search in 
addition to the specific skills knowledge 
and experience deemed necessary the 
specification contains criteria such as
•  a proven track record of creating 
shareholder value
•  unquestioned integrity
•  a commitment to the highest standards 
of governance
•  having the required time available to 
devote to the job
•  strategic mindset an awareness of 
market leadership outstanding 
monitoring skills
•  a preparedness to question challenge 
and openly assess and
•  an independent point of view
sir john egan
chairman of the nominations committee severn trent plc annual report and accounts 2010 42
governance 
audit committee
this report provides details of the role of the audit committee and the work it has 
undertaken during the year
the members of the audit committee are baroness noakes dbe chairman dr bernard 
bulkin and richard davey whose experience and background are set out on pages 32 and 
33 the board is satisfied that baroness noakes and richard davey have recent and 
relevant financial experience the chairman chief executive the finance director the 
director of internal audit the director of strategy and regulation the group financial 
controller the company secretary and the external auditors normally attend by invitation  
all meetings of the committee other members of senior management are also invited to 
attend as appropriate to present reports in performing its duties the committee has access 
to the services of the director of internal audit the company secretary and external 
professional advisers
like most audit committees the committee focuses on the financial statements of the 
severn trent group which are published at the half year and year end the regulated 
activities carried out by severn trent water limited result in other reporting obligations to 
ofwat and these are also covered by the audit committee these regulatory reporting 
obligations cover a comprehensive annual return on all of the severn trent water’s 
regulatory obligations known as the june return and a statement which underpins the 
charges made by severn trent water known as the principal statement
the external auditors deloitte llp  make public reports on the half year accounts and on 
the annual reports deloitte also reports to ofwat in respect of the june return the june 
return covers many aspects which are not financial and severn trent water appoints a 
reporter ws atkins to report to us on those aspects the audit committee receives 
reports from deloitte and the reporter on their work as part of its review of the financial 
statements and returns
there are four primary meetings of the committee each year and the table below which 
shows the agenda items for the meetings held in 200910 shows how the annual cycle 
covers all of the regular items as well as handling specific issues 
date  key agenda items
may 2009  review the preliminary announcement and group accounts for year 
ended 31 march 2009
  review the june return executive summary and board overview
  review the effectiveness of the systems of internal control
  review the external auditors independence objectivity and 
performance and recommendation to the board of the reappointment 
of deloitte
  review six monthly update on risks and risk management
september 2009  agree the external auditors audit plan for 200910 and approve the 
auditors fee proposal
 review the process and timeline for the 201112 principal statement
 detailed assessment of deloitte’s performance on 200809 audit and  
 approval of audit fee
 six monthly update from internal audit
  review of assurance framework for sap programme
november 2009  review six monthly update report on enterprise risk management
  financial statements for half year and interim results announcement
  progress report on sap programme
baroness noakes dbe
chairman of the audit committee
the purpose of the committee is to assist 
the board in discharging its 
responsibilities for the integrity of the 
company’s financial statements the 
assessment of the effectiveness of the 
systems of internal controls and 
monitoring the effectiveness and 
objectivity of the internal and external 
auditors the full terms of reference for 
the committee can be found on the 
company’s website wwwseverntrent
com and are also available from the 
company secretary severn trent plc annual report and accounts 2010 43
governance
date  key agenda items continued
march 2010  agree internal audit plan 201011 
  review of the work of internal audit for 200910 including the fraud log
  approve the process for the june return 2010 submission
  review the committee’s terms of reference and 201011 agendas 
  preliminary review of accounting issues for the 2010 financial 
  statements and june return
  review of implications of bribery act 2010
  review assurance arrangements for key risks see page 58
for 200910 ofwat have introduced additional reporting requirements in relation to the split 
of operating costs and fixed assets between business units as determined by ofwat the 
processes to achieve this together with the judgments required in allocating costs and 
assets which are not managed in the same way as the business units are defined have 
been reviewed by the audit committee the audit committee intends to hold an additional 
review meeting prior to the submission of the final returns to ofwat
the committee receives reports from the external auditors and regularly holds discussions 
with both the internal and external auditors in the absence of management the 
committee reports to the subsequent meeting of the board on the committee’s work and the 
board receives a copy of the minutes of each meeting of the committee
internal audit
the director of internal audit and his internal audit team are employed by severn trent plc 
on a day to day basis the group’s internal audit function reports to management on the 
effectiveness of the company’s systems of internal controls and the adequacy of these 
systems to manage business risk and to safeguard the group’s assets and resources this 
work is summarised and reported to the audit committee on a regular basis and is a key 
element of the assurance that the committee receives on the risks and controls in the group
the plans the level of resources and the budget of the internal audit function are reviewed 
at least annually by the audit committee the director of internal audit is free to raise any 
issues with the committee or its chairman at any time during the year
external auditor
deloitte llp deloitte were appointed auditors of the company in 2005 the audit 
committee reviews the auditors effectiveness each year prior to recommending to the board 
that they be proposed for reappointment at the agm deloitte audits all significant 
subsidiaries of the group
annually the committee reviews information provided by the external auditors confirming 
their independence and objectivity within the context of applicable regulatory requirements 
and professional standards this process is completed in september of each year to enable 
a tender process to be completed before the following agm if necessary the company 
does not have a policy of tendering the external audit at specific intervals the auditors 
tenure runs from one agm to the next and there are no contractual obligations that act to 
restrict the committee’s choice of external auditors
details of the amounts paid to deloitte for audit and nonaudit services are provided in 
note 7 to the accounts page 76
in accordance with the requirements for auditor independence our lead partner is standing 
down after the 200910 audit having served five years in that capacity our new lead partner 
has observed the 200910 audit to ensure continuity following the changeover
audit committee attendance in 200910
baroness noakes  44 
dr bernard bulkin  44 
richard davey  44
policy on the provision of  
nonaudit services
the company has approved a formal 
policy on the provision of nonaudit 
services aimed at safeguarding and 
supporting the independence and 
objectivity of the external auditors
the policy sets out the approach to be 
taken by the group when using the 
services of the external auditors 
including requiring that certain services 
provided by the external auditors are 
preapproved by the audit committee  
or its chairman 
it distinguishes between those services 
where an independent view is required 
and that should be performed by the 
external auditors such as statutory and 
nonstatutory audit and assurance work 
prohibited services where the 
independence of the external auditors 
could be threatened and they must not 
be used and other nonaudit services 
where the external auditors may be used 
nonaudit services where the external 
auditors may be used include non
recurring internal controls and risk 
management reviews ie excluding 
outsourcing of internal audit work advice 
on financial reporting and regulatory 
matters due diligence on acquisitions 
and disposals project assurance and 
advice tax compliance services and 
employee tax services 
the approval of the audit committee or 
its chairman is always required if a 
nonaudit service provided by the 
auditors is expected to cost more than 
£100000 or if nonaudit fees for the year 
would thereby exceed the amount of the 
audit fee severn trent plc annual report and accounts 2010 44
governance 
corporate responsibility committee
we continue to integrate corporate responsibility cr into our core business strategies and 
operations for both severn trent water and severn trent services we have also confirmed 
the structure for our cr policy and framework this is based around the four areas of 
workplace marketplace environment and community which provide a common framework 
for both our businesses – regulated and nonregulated for each of the areas there are four 
goals within our cr policy which define the direction for our focus and performance
within our cr framework we have identified 10 focus areas which are critical to our 
management of risk and reputation these areas have been determined through 
stakeholder dialogue risk assessment and benchmarking within the water industry and the 
ftse 100 the 10 areas provide the focus of the forward agenda of our cr committee
workplace
health safety and wellbeing employee skills conduct and motivation diversity
marketplace
customer needs – including vulnerable customers supply chain responsibility
environment
environmental stewardship waste reduction and recycling climate change – 
mitigation and adaptation
community
community engagement working with our customers – including pollution 
prevention and water efficiency
these focus areas also determine our approach to working in collaboration with other 
organisations who share mutual interests and objectives further information is available  
on our corporate website wwwseverntrentcomcorporateresponsibility
to embed and track delivery against the cr focus areas we have reviewed how we 
measure and report our progress within severn trent water we already have an effective 
performance management system in place through 20 core business key performance 
indicators kpis and eight ksis these are overseen by the severn trent executive 
committee and the board many of the business kpis relate directly to our cr focus areas 
and therefore contribute significantly to our cr performance
we report internally on our performance through both our executive committee and our  
cr committee externally we report through a number of channels including our annual 
june return our regulatory submission to ofwat our websites our annual report and 
accounts and our cr summary report
our cr summary report for 200910 details our strategy and approach to  
cr and our performance against key issues the report can be found at  
wwwseverntrentcomcorporateresponsibility
the members of the corporate responsibility committee are dr bernard bulkin chairman 
sir john egan gordon fryett and tony wray
corporate responsibility committee attendance in 200910
sir john egan  55 
dr bernard bulkin  55 
gordon fryett  35 
tony wray  55
dr bernard bulkin
chairman of the corporate  
responsibility committee
the purpose of the committee is to 
provide guidance and direction to the 
group’s corporate responsibility cr 
programme review the key cr risks and 
opportunities and to monitor progress 
the full terms of reference for the 
committee can be found on the 
company’s website wwwseverntrent
com and are also available from the 
company secretary
the committee reviews annually the 
group’s formal whistleblowing policy that 
deals with allegations from employees 
relating to breaches of the code of 
conduct and reviews at each of its 
meetings the whistleblowing incident log severn trent plc annual report and accounts 2010 45
governance
governance 
directors’ remuneration report
dear shareholder
this report provides details of the role of the remuneration committee and the work it has 
undertaken during the year
it also sets out the remuneration policy for the directors of severn trent plc and discloses 
the amounts paid to them in the year ended 31 march 2010
this report is subject to a shareholder vote and has been prepared in accordance with the 
requirements of the companies act 2006 the principles of the combined code on 
corporate governance and best practice guidelines
a resolution to approve the directors’ remuneration report will be proposed at the agm
remuneration committee
the remuneration committee determines on behalf of the board the company’s policy on 
the remuneration of executive directors and the chairman of the board the committee 
determines the total remuneration packages and contractual terms and conditions for these 
individuals the committee is also consulted on the remuneration policy for the next band of 
senior executive managers the policy framework for remunerating all senior executive 
managers is consistent with the approach taken for executive directors
the committee is comprised exclusively of independent nonexecutive directors of 
the company with the exception of sir john egan the company chairman who was 
independent on his appointment to the board 
the members of the remuneration committee are dr bernard bulkin sir john egan 
martin lamb and me
remuneration committee attendance in 200910
richard davey  44 
dr bernard bulkin 44 
sir john egan 44 
martin lamb appointed to committee 22 january 2010 11
with the exception of sir john egan the committee members have no personal financial 
interest other than as shareholders in the matters to be decided as stated above as 
company chairman sir john egan’s fees are set by the committee and he is not party to 
this discussion in setting performance related remuneration the committee has regard to 
the provisions set out in schedule a to the combined code
advisers
to ensure that the company’s remuneration practices are market competitive the 
committee has access to detailed external research on market data and trends from 
experienced specialist consultants
the committee has received material advice from hewitt new bridge street a trading name 
of hewitt associates ltd which has been appointed by the committee for the purpose of 
providing this advice hewitt new bridge street the principal adviser to the committee has 
not provided any other services to the company
the chief executive tony wray and the human resources director alec luhaste also 
attended the committee meetings to provide advice and respond to specific questions such 
attendances specifically excluded any matter concerning their own remuneration the 
company secretary fiona smith acts as secretary to the committee
remuneration committee activity
during the year ended 31 march 2010 the remuneration committee met four times to 
discuss the key remuneration issues arising the operation of the remuneration policy and 
richard davey
chairman of the remuneration committee
the remuneration committee assists 
the board by focusing on the activities 
detailed below reporting to the board on 
decisions and actions taken and making 
any necessary recommendations
•  the remuneration policy and its 
application to the ce and executives 
reporting to the ce
•  the adoption of annual and longer term 
incentive plans
•  determination of levels of reward to the 
ce and approval of reward to 
executives reporting to the ce
•  setting the chairman’s fee and
•  the communication to shareholders  
on remuneration policy and the 
committee’s work on behalf of  
the board
the full terms of reference for  
the committee can be found on  
the company’s website  
wwwseverntrentcom and are also 
available from the company secretary severn trent plc annual report and accounts 2010 46
governance – directors’ remuneration report continued
the market updates by its advisers the following table sets out what 
the remuneration committee covered at each of the meetings over 
the course of the year
date  key agenda items
may 2009   agree the vesting results for 200809 annual 
bonus scheme and the 2006 ltip awards
  approve the incentive plan targets for 200910 
including the setting of personal targets for the 
annual bonus scheme
november 2009  review of the executive pay environment in 
2009 and the challenges facing severn trent 
the issues raised by the uk tax changes and 
the expectations for 2010
  incentive plan performance update
january 2010  review of the market competitiveness of the 
executive directors’ total remuneration package
   review of how the annual bonus scheme will 
operate in 201011
   review of the appropriateness of the total 
shareholder return performance condition for 
severn trent long term incentive plan awards 
in particular the impact of the water industry 
amp periods the choice of comparator group 
and alternative approaches
   review of the executive directors’  
shareholding requirements
march 2010   review of director service agreement  
best practice
  incentive plan performance update
  review of the chairman’s fee
  review of the committee’s terms of reference
the remuneration committee reviews on a regular basis the 
operation and the overall market competitiveness of the total 
remuneration package for the executive directors the most recent 
review showed that in most respects the remuneration policy 
remains appropriate for the company the key conclusions reached 
by the committee during the year can be summarised as follows
 •  in 200910 a general policy of a zero increase for executive 
director base salaries was adopted in line with the broader 
employee salary review policy at the time for 201011 having 
regard to current economic conditions and the policy for broader 
employees a general policy of 2 increase for executive director 
base salaries will be adopted
•  the committee continued to review the market alignment of the 
chief executive’s base salary the £50000 increase proposed 
last year was turned down by the chief executive having regard 
to the salary constraints across the group at the time however 
the committee agreed that it was important to address this issue 
again this year and accordingly will increase the chief executive’s 
base salary from £450000 to £500000 for 201011
•  the annual bonus scheme linked to the company’s kpis 
continues to meet the operational needs of the business
•  additional metrics based on the performance of the severn trent 
services business will continue to apply to the chief executive 
and finance director
•  to address the reward opportunity for executive directors’ 
execution of the longer term strategy and following approval from 
shareholders the committee introduced the share matching plan 
this plan will provide for a matching contingent award of shares 
over those shares which are acquired by a deferral of the annual 
bonus the matching shares will be subject to a total shareholder 
return performance condition the first awards will be made  
in 2010 severn trent plc annual report and accounts 2010 47
governance
remuneration policy
each year the committee reviews the remuneration policy for 
executive directors and other senior executive managers taking into 
account both the external market and the company’s strategic 
objectives over the short and the medium term 
the company’s continuing remuneration policy for executive 
directors is to provide remuneration in a form and amount which will 
attract retain motivate and reward high calibre individuals the 
remuneration package is based on the following principles
principle rationale
incentives are aligned with the 
interests of shareholders and 
seek to reward the creation of 
long term value 
executives must be adequately 
focused on the long term strategy 
and make decisions that lead to 
the creation of long term value
reward elements are designed  
to reinforce the link between 
performance and reward 
performance related elements 
should form a significant 
proportion of the total 
remuneration package and 
typically comprise at least 50  
of total remuneration if paid at  
the maximum
the performance of the business 
is key and the package should be 
appropriately geared towards 
performance related pay 
the total remuneration 
package for on target 
performance should be fully 
competitive but not excessive 
in the relevant market 
the committee wishes the 
executives to be appropriately 
remunerated for the challenges 
they face and ensure that the right 
structure and levels are in place 
to take the business forward
packages are structured 
flexibly to meet critical  
resource needs and retain  
key executives 
package flexibility allows the 
committee to take decisive action 
with issues of recruitment and 
retention in the best interests of 
business continuity and 
shareholder value
the charts below show as a proportion of the package firstly  
the expected values of salary bonus and long term incentives for 
target performance and secondly the maximum values of salary 
bonus and long term incentives for the executive directors the 
committee considers the mix between fixed and performance  
pay to be appropriate 
0 20
base salary
40 60 80 100
chief executive
other executive directors
target bonus cash
target bonus deferred shares
expected value of ltip awards
expected value
0 20
base salary
40 60 80 100
chief executive
other executive directors
maximum bonus cash
maximum bonus deferred shares
maximum value of ltip awards
maximum value
personal shareholdings 
the company operates shareholding guidelines under which 
executive directors are expected to build and maintain a minimum 
holding of shares in the company the chief executive is expected 
to build and maintain a holding of shares to the value of 15 x base 
salary and other executive directors 1 x base salary executive 
directors are expected to retain at least half of the shares they 
receive through the long term incentive plan and other share 
based plans until they meet the guideline holdings within five years 
over the past five years the executive directors have received 
insufficient shares from the vesting of their share plan awards to 
reach their required holdings as a result the committee has agreed 
to extend this time period for a further two years
external directorships
executive directors are permitted to take on external nonexecutive 
directorships though normally only one other ftse 100 
appointment in order to avoid any conflicts of interest all such 
appointments are subject to the approval of the nominations 
committee executive directors are normally only permitted to retain 
the fees arising from one such appointment
michael mckeon was appointed as a nonexecutive director of  
the merchants trust plc on 1 may 2008 and in respect of the 
appointment for the year ended 31 march 2010 he was paid fees  
of £18000 he has retained these fees in accordance with the 
above policy
his appointment as chairman of the audit committee of the 
merchants trust plc on 11 may 2010 will increase his fees to 
£21000 in 201011
no other executive directors currently hold any external fee earning 
nonexecutive directorships severn trent plc annual report and accounts 2010 48
governance – directors’ remuneration report continued
remuneration arrangements for executive directors
the remuneration arrangements for executive directors comprise the following elements
• base salary and benefits
•  annual bonus scheme
•  long term incentive plan ltip and the share matching plan smp
• pension
details of each of the above elements follow but the table below summarises the current packages of each of the executive directors
      tony 
     michael ballance martin kane andy smith 
    tony wray mckeon director of director of director of 
    chief finance strategy and customer water 
component    executive director regulation relations services
base salary from 1 july 2010    £500000 £433500 £196300 £214200 £255000
on target bonus  of salary    60 60 60 60 60
maximum bonus  of salary    120 120 120 120 120
 of bonus earned deferred into shares    50 50 50 50 50
2010 ltip award  of salary    70 50 50 50 50
2010 smp award – maximum ratio of matching shares  
to deferred shares    051 051 051 051 051
pension arrangement    final salary cash defined cash final salary 
    occupational allowance contribution supplement occupational 
    scheme  scheme  scheme
benefits a car allowance private medical insurance life assurance and an incapacity benefits scheme
executive directors’ salaries for the financial year 201011 will be as 
follows
director  salary
tony wray  £500000
michael mckeon  £433500
tony ballance  £196300
martin kane  £214200
andy smith  £255000
the nonsalary benefits for executive directors comprise
• a car allowance
• private medical insurance
• life assurance
• an incapacity benefits scheme
private medical insurance and some other benefits may be flexed 
under the company’s flexible benefits scheme
annual bonus scheme 200910
executive directors are eligible for annual bonuses to encourage 
improved performance with targets established by the committee to 
align executive directors’ interests with shareholders the annual 
bonus opportunity for all the executive directors was 120 of salary 
for the achievement of target performance which requires 
satisfaction of challenging goals 60 of salary would be earned
the bonus scheme operates by reference to the severn trent  
water kpis with the chief executive and finance director  
also having a proportion of their bonus linked to the performance  
of severn trent services in addition each director has 10 of  
their bonus opportunity measured against a set of personal 
performance metrics
base salaries and benefits
base salaries for individual directors are reviewed annually by the 
remuneration committee and take effect from 1 july the 
company’s policy is to set the salary for each executive director 
having regard to the market median for similar roles in publicly 
quoted companies of a comparable size and so far as practicable 
undertaking similar activities and practice in other water companies 
salaries are set with reference to individual performance 
experience and contribution together with developments in the 
relevant employment market and internal relativities
the committee gives due consideration to the current economic 
climate current market practice regarding executive salary reviews 
and the broader employee salary review policy at the company
with this in mind it adopted a policy of a zero increase for the base 
salaries of the executive directors in 200910 for 201011 against a 
backdrop of economic recovery it has chosen to adopt a policy of 
2 increase for the base salaries of the executive directors
at the time of the chief executive’s appointment his salary reflected 
the fact that he was new to the role and accordingly the committee 
gave a commitment to review his performance each year and if 
appropriate increase the base salary over time to align it with the 
market median last year the chief executive declined the 
proposed £50000 increase having regard to the salary constraints 
across the group at the time this year the committee agreed that 
the chief executive’s base salary should again be reviewed giving 
due consideration to both the market alignment and the internal 
relativity between the executive directors accordingly the chief 
executive’s base salary will be increased from £450000 to 
£500000 for 201011 
tony ballance has taken on a number of additional responsibilities 
during 200910 and accordingly this has been reflected in a salary 
increase from £168000 to £196300 severn trent plc annual report and accounts 2010 49
governance
severn trent kpi achievement for the 200910 annual bonus payment 
kpi achievement
0
250
225
200
175
150
125
100
75
50
25
kpi 1
kpi 2
kpi 3
kpi 4
kpi 5
kpi 6
0 0 0 0
kpi 7
kpi 8
kpi 9
kpi 10
kpi 11
kpi 12
kpi 13
kpi 14
kpi 15
kpi 16
kpi 17
kpi 18
kpi 19
kpi 20
environment financial customer employee
kpi on target performance  100
the table above shows the level of performance attained under 
each of the 20 kpis in relation to the 200910 annual bonus 
scheme the performance improvements over the year as 
measured by the kpis resulted in a bonus award of 456 of the 
severn trent water portion for the executive directors the actual 
bonus payments awarded to each director are contained in the table 
of emoluments on page 54 
annual bonus scheme 201011
the committee has reviewed the operation of the plan and 
concluded that the same quantum should apply in respect of 
201011 with a maximum bonus opportunity for all executive 
directors of 120 of salary and a target of 60
the committee believes that the use of the severn trent water  
kpis continues to be both an effective and challenging annual 
bonus metric and meets the needs of the business the kpis  
cover the employee customer environment and financial aspects  
of the business
as outlined in the earlier kpi section the severn trent water kpis 
have been revised as a result of entering the new five year amp 
period for 201011 the committee has chosen to use 18 of the  
20 kpis for the annual bonus scheme during the period of transition 
it will review the use of kpis again next year
the chief executive and finance director will also continue to have 
a proportion of their bonus linked to the performance of severn 
trent services these individuals will have 10 of their bonus 
opportunity measured against the profit before interest and tax 
before exceptional items performance of severn trent services a 
measure which is a fully disclosed kpi of the severn trent services 
business as shown in the business review section the measure 
will be actual versus budgeted profit reflecting the desired growth of 
severn trent services subject to adjustment by the committee 
based on its assessment of performance
each executive director has 10 of their bonus opportunity 
measured against a set of personal performance metrics the 
metrics are more subjective in nature than the current measures 
and allow for more differentiation across the executive team but 
operate within the parameters of the plan the metrics incorporate 
the following
•  supporting the business change and transformation process 
– this measure focuses on the ongoing improvements to optimise 
the performance of the business this will incorporate process 
improvements technology and systems to support the processes 
and location training and development of people to operate in the 
new environment
•  developing people – this measure focuses on the individual’s 
contribution to ensuring that the talent management processes 
help develop future leaders and therefore support succession 
planning and business continuity
half of any bonus paid will be deferred into shares to be held for three 
years following payment if the executive is summarily dismissed 
without notice under hisher employment contract then the deferred 
bonuses are forfeited in all other cases of cessation of employment 
the deferred bonus is not lost and the shares automatically vest on 
the dealing day after the cessation of employment
the rules of the annual bonus scheme provide that the committee 
may reclaim ‘clawback’ some or all of the after tax part of any 
bonuses awarded to executive directors if it transpires that the 
bonus calculation was based on calculations which are 
subsequently demonstrated to be materially incorrect
annual bonus payments to executive directors are not pensionable
the bonus outturn in respect of stw performance is operated by 
reference to a balanced scorecard of measures based on the 20 
kpis outlined in the earlier kpi section on pages 10 to 11 the plan 
attributes a points score to each kpi and bonus entitlement is 
determined by reference to the aggregate number of points 
achieved across all the kpis the targets taken together are 
considered by the board to have an impact on the longer term 
financial performance of the company and a number of them are 
reported to ofwat severn trent plc annual report and accounts 2010 50
governance – directors’ remuneration report continued
the following charts show how the 201011 annual bonus metrics 
are weighted for the executive directors
0 20
stw performance
40 60 80 100
chief executive and finance director
other executive directors
sts performance
personal metrics
annual bonus metric weightings
long term incentives
in 2009 the committee reviewed the overall market competitiveness 
of the executive directors’ total remuneration package the 
conclusion was that while for the most part the components of the 
remuneration package are working effectively and are aligned with 
policy the relatively low emphasis on long term performance did not 
fully support the company’s longer term strategy and this impacted 
the overall market competitiveness of the package
a share matching plan was introduced for executive directors 
following shareholder approval at the 2009 agm this not only 
provides an enhanced long term incentive opportunity but also 
provides a link between short term and long term performance
during 2010 the committee intends to review the measurement of 
long term performance at severn trent and identify what if any 
measures other than total shareholder return tsr would make 
effective metrics for the long term incentive plans giving due 
consideration to the regulatory nature of the business and the 
impact of the amp period
share matching plan
the plan allows executive directors to receive matching share 
awards over those shares which have been acquired under the 
deferred share component of the annual bonus scheme
the first awards of matching shares will be made following the 
calculation of the 200910 annual bonus payouts and will be  
subject to a three year vesting period the matching share award  
is calculated using a share matching ratio in conjunction with the 
number of shares acquired by the annual bonus deferral the 
maximum share matching ratio is 11 but for the first set of awards  
a ratio of 05 matching shares for every one deferred share will  
be used
the performance condition requires the company’s tsr to be 
measured relative to those companies ranked 51–150 in the ftse 
index by market capitalisation excluding investment trusts on this 
basis 25 of the matching awards will vest at median performance 
and 100 will vest for performance in the upper quartile in addition 
for awards to vest the remuneration committee must be satisfied 
that the tsr is reflective of the company’s underlying performance 
this replicates the ltip performance condition for the 2010 award
the number of shares subject to an award will increase to reflect 
dividends paid through the performance period on the basis of such 
notional dividends being reinvested at the then prevailing share 
price awards will normally vest as soon as the committee 
determines that the performance conditions have been met 
provided that the participant remains in employment at the end of 
the performance period
long term incentive plan
the current long term incentive plan ltip was approved by 
shareholders at the 2005 agm under the ltip  annual conditional 
awards of performance shares may be made to executive directors 
and senior staff up to an annual maximum limit of shares worth 
125 of base salary
the number of shares subject to an award will increase to reflect 
dividends paid through the performance period on the basis of such 
notional dividends being reinvested at the then prevailing share 
price awards will normally vest as soon as the committee 
determines that the performance conditions have been met 
provided that the participant remains in employment at the end of 
the performance period
2008 2009 and 2010 ltip awards
in 2009 ltip awards of 50 of salary were made to the executive 
directors and 70 of salary to the chief executive 
the vesting of awards made in 2008 2009 and planned for 2010 
will be subject to tsr measured relative to those companies 
ranked 51–150 in the ftse by market capitalisation excluding 
investment trusts this is considered to be the most suitable 
comparator group since the number of comparable regulated utilities 
against which to compare the company’s performance remains too 
small to enable meaningful analysis the ftse 51–150 comparator 
group allows for the company’s performance to be measured 
against a broader market without any one sector overly impacting 
the group
the performance measures remain unchanged with 25 of awards 
vesting at median performance and 100 vesting for performance 
in the upper quartile in addition for awards to vest the committee 
must be satisfied that the company’s tsr is reflective of the 
company’s underlying performance
after the end of the performance period the performance condition 
will be measured and independently verified by hewitt new bridge 
street on behalf of the committee
2007 ltip award
the performance period for the 2007 award ended on 31 march 
2010 the award was subject to tsr measured relative to those 
companies ranked 51–150 in the ftse by market capitalisation 
excluding investment trusts those companies which delisted 
during the performance period were removed from the comparator 
group the tsr result and the level of vesting achieved for this 
award is shown below
ltip award ranking vesting 
2007 33 out of 85 603 severn trent plc annual report and accounts 2010 51
governance
ifs proshare award winner
severn trent’s share incentive plan won the 
‘best overall performance in fostering 
employee share ownership’ award in 
december 2009
the ifs proshare annual awards recognise 
and promote best practice in the employee 
share plans industry the award judges – 
independent figures from the financial 
services authority employee share 
ownership and reward industries and 
members of the institute of chartered 
secretaries said “with a clear link to 
corporate objectives impressive 
communication methods backed up by 
weekly emails from the chief executive  
and the high levels of take up severn  
trent can feel justifiably proud of what  
it has achieved”
performance graph
this graph shows the value by 31 march 2010 of £100 invested in 
severn trent plc on 31 march 2005 compared with the value of 
£100 invested in the ftse 100 index the ftse 100 was chosen 
as the comparator because the company is a constituent of that 
index the intermediate points show the value at intervening 
financial year ends
2005
value £
2006 2007 2008 2009 2010
severn trent plc ftse 100 index
total shareholder return
0
25
50
75
100
125
150
175
200
below board remuneration
in 200910 there were nine executives immediately below board 
level who were paid salaries of between £100000 and £300000 
per annum
salary £000  number of executives
100–150  3
151–200  1
201–250  4
251–300 1
the below board level executives also participate in the same 
incentive arrangements as the executive directors the annual 
bonus scheme operates on the same terms as the executive 
directors with the exception that 33 of any bonus earned is 
deferred into shares and there is other than for the president of 
severn trent services no severn trent services performance 
metric the ltip and the share matching plan operate on the same 
terms as for the executive directors
all employee share plans
through a variety of share schemes employees are encouraged to 
hold shares in the company
this includes an all employee share incentive plan awards are 
currently made which include a performance condition based on 
achievement of the 20 kpis employees of severn trent plc and 
severn trent water limited participate in the plan for the year 
200910 awards of shares to the value of £342 will be made to all 
eligible employees
the company also offers an all employee hmrc approved saye 
plan on an annual basis and periodically reviews the use of other all 
employee incentive vehicles
hedging of awards
details of the company’s shares that are held in trust on behalf of 
participants of certain of the employee share schemes are given on 
pages 56 and 57 in respect of the ltips deferred share awards 
under the annual bonus scheme and the share matching plan the 
company’s policy is to purchase and hold in trust 50 of the total 
number of shares that could potentially vest from all outstanding 
awards the requirement to purchase shares is calculated and the 
purchase carried out shortly after each annual award
in respect of awards made under the company’s share incentive 
plan all the shares taken up by employees at each invitation are 
normally purchased and placed in trust immediately
the company grants saye options over unissued shares always 
operating within the dilution limits contained in the scheme rules
the committee is satisfied that the overall dilution limits provide 
sufficient headroom for all the company’s share schemes
pensions
of the current executive directors andy smith and tony wray 
participate in the severn trent pension scheme the scheme is a 
funded hmrc registered final salary occupational pension scheme 
which provides
•   a normal retirement age of 60 years
•  an overall pension at normal retirement age of two thirds of final 
pensionable salary which for executive directors is defined as 
base salary only subject to the completion of 20 years’ 
pensionable service
•  life cover of 4 x pensionable earnings
•  a pension payable in the event of retirement on grounds  
of ill health and
•  a dependant’s pension on death of two thirds of the  
member’s pension severn trent plc annual report and accounts 2010 52
governance – directors’ remuneration report continued
andy smith and tony wray participate up to the level of the scheme 
specific earnings cap which in 200910 was £123600 they are 
provided with a cash supplement in lieu of pension entitlement 
above this scheme cap at 40 of their respective salaries
members’ contributions are payable at the rate of 6 of pensionable 
earnings early retirement is available after the age of 55 with the 
consent of the company any pension would be subject to a 
reduction that the trustees consider appropriate acting on actuarial 
advice to reflect the expected longer payment of the pension in the 
event of incapacity early retirement is available on an unreduced 
basis allowing for pensionable service to age 60
under the trust deed and rules pensions in payment in excess of 
any guaranteed minimum pension are guaranteed to increase in 
line with price inflation subject to a maximum of 5 each year in the 
calculation of individual cash equivalent transfer values allowance is 
made for such increases
it is the policy of the committee to offer new executives an 
allowance expressed as a percentage of base salary to fund their 
own pension provision the individual is able to choose whether the 
allowance is paid to the company’s registered defined contribution 
scheme taken as cash or paid to a personal pension arrangement 
this reflects the wish of the committee to remove future exposure to 
defined benefit schemes for senior executives these arrangements 
apply to michael mckeon at 40 of base salary
martin kane is a member of the severn trent pension scheme 
wps section but opted out of the scheme in june 2007 he 
receives a cash supplement of 30 of his basic salary in lieu of 
accrual for future service from that date while he no longer accrues 
additional years of service for pension purposes consistent with the 
legislation martin kane’s accrued benefits generally continue to be 
linked to his final salary or £161000 plus rpi from 30 june 2007 to 
the date of his retirement if higher and scheme benefits are 
preserved in relation to ill health retirement and death in service 
his normal retirement age is 65 although early retirement is possible 
prior to age 65 with the consent of the company but any benefits 
relating to service accruing after 1 december 2006 would be 
subject to an actuarial reduction
tony ballance is a member of the severn trent pension scheme 
pension choices section which is the company’s defined 
contribution scheme he currently contributes 3 of salary and the 
company contributes at 30 plus a further 25 in respect of death 
in service and ill health benefits the normal retirement age for the 
scheme is 65 although retirement prior to 65 is possible with the 
consent of the company
directors’ service agreements and letters of appointment
a model service contract was approved by the committee in 2004 
and updated during 200708 the main terms of the contracts are 
summarised in the table below
provision policy
notice period 12 months from either party
termination 
payment
maximum payment in the case of redundancy or 
termination in breach of the agreement by the 
company of up to and capped at 175 of base 
salary which is calculated as a conservative  
estimate of the value of salary fixed benefits and  
on target bonus
any payment will not include amounts in respect of 
awards which have been made under the company’s 
long term incentive plan over which the committee 
retains discretion
mitigation any termination payment will not be made 
automatically but will be subject to both phasing  
and mitigation unless in the circumstances the 
committee considers it appropriate to achieve  
a clean break through payment of a lump sum  
in which case it will require some discount for  
early payment
change of 
control
there are no specific contractual payments or 
benefits which would be triggered in the event of a 
change in control of the company
contract  
dates executive directors date of agreement effective date
tony wray
michael mckeon
 
tony ballance
martin kane
 
andy smith
20 may 2008
6 december 
2005
2 june 2008
2 june 2008
 
2 june 2008
7 march 2005
13 december 
2005
23 july 2005
30 september 
1975
1 january 2005
the committee believes that the contracts provide as much scope 
as is feasible to protect the interests of shareholders when 
negotiating a termination at which time it would address the duty  
of mitigation
the committee recognises that in line with current best practice 
guidelines any termination payment should be based upon an 
estimate of salary and fixed benefits only accordingly the 
committee will adopt this policy in the service agreements of future 
executive directors
martin kane and andy smith are subject to reappointment as 
directors at the forthcoming agm  severn trent plc annual report and accounts 2010 53
governance
chairman and other nonexecutive directors
the remuneration policy for nonexecutive directors other than the chairman is determined by the board within the limits set out in  
the articles of association
remuneration for nonexecutive directors other than the chairman comprises an annual fee for acting as a nonexecutive director of the 
company and additional fees for the senior independent director and chairmanship or membership of the committees the annual fee 
which was last increased in 2008 will be increased to £43350 in 201011 from £42500 the additional fees have remained the same and 
can be summarised as follows 
senior 
independent 
director
audit committee remuneration committee
corporate responsibility 
committee
nominations  
committee chairman member chairman member chairman member
additional fee per annum £10000 £15000 £3000 £15000 £3000 £10000 £3000 no fee paid
during 2009 sir john egan was paid fees of £250000 for his role as chairman he does not receive any additional fees for committee 
memberships sir john is provided with a car allowance but does not participate in any of the company’s pension arrangements share or 
bonus schemes
andrew duff was appointed to the board on 10 may 2010 and will receive a fee of £250000 per annum for this role he will not  
receive any additional fees for committee memberships nor will he participate in any of the company’s pension arrangements share  
or bonus schemes
the board does not require directors to take a proportion of their fees in shares and instead leaves decisions regarding the holding of 
shares to individual nonexecutive directors
nonexecutive directors do not participate in share or bonus schemes nor is any pension provision made
nonexecutive directors normally serve three terms of three years they do not have service contracts but their terms of engagement are 
regulated by letters of appointment details of which are shown below
chairman and nonexecutive directors  initial appointment current appointment current expiry date
sir john egan  1 october 2004 1 january 2008 31 december 2010
bernard bulkin  1 january 2006 1 january 2009 31 december 2011
richard davey  1 january 2006 1 january 2009 31 december 2011
andrew duff  10 may 2010 10 may 2010 9 may 2013
gordon fryett  1 july 2009 1 july 2009 30 june 2012
martin lamb  29 february 2008 29 february 2008 28 february 2011
baroness noakes  29 february 2008 29 february 2008 28 february 2011
 subject to the requirements of the company’s articles of association for the reappointment of directors at agms
andrew duff martin lamb and baroness noakes are subject to reappointment as directors at the 2010 agm severn trent plc annual report and accounts 2010 54
governance – directors’ remuneration report continued
the text and tables that follow comprise the auditable part of the directors’ remuneration report being the information required by the ukla 
listing rules 986 and 988
directors’ emoluments
 basic salary and fees
       annual  total total
     cash biks bonus
1
 other
2
 200910 200809
     £000 £000 £000 £000 £000 £000
chairman and other nonexecutive directors
sir john egan chairman     2500 – – 125 2625 2764
dr bernard bulkin     585 – – 01 586 585
richard davey     705 – – 01 706 709
gordon fryett     341 – – – 341 –
martin houston     – – – – – 379
martin lamb     431 – – – 431 425
baroness noakes     575 – – – 575 578
executive directors
tony ballance     1680 29 1029 177 2915 3123
martin kane     2038 26 1286 763 4113 3926
michael mckeon     4250 43 2574 151 7018 7527
andy smith     2500 30 1516 656 4702 5036
tony wray     4500 45 2780 1456 8781 9213
     20105 173 9185 3330 32793 34265
1 the directors receive 50 of their bonus in cash and 50 is deferred into shares to be held for three years
2  other emoluments include expenses chargeable to income tax car allowances travel allowances telephone allowances payments made under the group’s flexible benefits 
arrangements and amounts paid in lieu of pension contributions included in other emoluments are
• sir john egan car allowance £12500
• dr bernard bulkin expenses £55
• richard davey expenses £69
• tony ballance flexible benefits payments £2670 and car allowance £15000
• martin kane pension supplement £61125 flexible benefits payments £121 car allowance £15000 and expenses £12
• michael mckeon car allowance £15000 and expenses £113
• andy smith pension supplement £50560 car allowance £15000 and expenses £75
• tony wray pension supplement £130560 and car allowance £15000
directors’ pension provisions
       increase 
    increase   decrease in 
   increase in in accrued transfer value transfer value transfer value 
 service completed accrued accrued pension of accrued of accrued over the year  
 in years including pension at pension during the year pension at pension at net of directors’ 
 transferred in 31 march 2010 during the year net of inflation 31 march 2010 31 march 2009 contributions 
name service credits £pa £pa £pa £000 £000 £000
martin kane 35 121236 12644 8626 17512 9955 7557
andy smith 5 21616 4969 4353 3289 1548 1667
tony wray 5 20882 4933 4343 3037 1413 1550
    transfer 
   increase in value of accrued 
  increase in accrued pension benefits net 
 accrued pension accrued pension during the year of directors’ 
 at 31 march 2010 during the year net of inflation contributions 
name £pa £pa £pa £000
martin kane 121236 12644 8626 1790
andy smith 21616 4969 4353 682
tony wray 20882 4933 4343 644
notes 
relevant directors confirmed by severn trent plc
accrued pension figures and transfer value calculations provided by towers watson
there have been no changes to the transfer value basis since last year’s disclosures
allowance has been made for changes in market conditions over the year by applying the relevant market value adjustment
inflation figure used in respect of year is to february 2010 37 as the latest available figure prior to the year end
september 2008 figure had been used last year 50 if september 2009 had been used then this would have shown negative inflation –14 severn trent plc annual report and accounts 2010 55
governance
the following contributions were paid to defined contribution pension arrangements in respect of directors
   2010 2009
tony ballance   59640 59978
michael mckeon      170000  167500
directors’ share interests
the directors of the company at 31 march 2010 and their beneficial interests in the shares of the company were as follows
i beneficial holdings
 at 1 april 2009   
 or date of  at 24 may 2010 
 appointment if later at 31 march 2010 number of ordinary 
 number of ordinary number of ordinary shares of 
 shares of 97
17
 19p each shares of 97
17
 19p each 97
17
 19p each
chairman and other nonexecutive directors
sir john egan chairman 7610 12160 12160
dr bernard bulkin 554 554 554
richard davey 588 588 588
martin lamb 3012 3012 3012
baroness noakes 4018 4018 4018
gordon fryett – 1000 1000
executive directors   
tony ballance 1985 2032 2032
martin kane
1
 7915 8189 8511
michael mckeon 20 67 67
andy smith 4034 5217 5217
tony wray 5874 7057 7057
1 martin kane acquired 322 shares on 4 may 2010 following the exercise of his 2007 three year sharesave scheme option severn trent plc annual report and accounts 2010 56
governance – directors’ remuneration report continued
ii long term incentive plan
the executive directors have further interests in the company’s ordinary shares of 97
17
 19p each by virtue of having received contingent 
awards of shares under the severn trent plc long term incentive plan ltip the ltip operates on a three year rolling basis the severn 
trent employee share ownership trust is operated in conjunction with the ltip  awards do not vest until they have been held in trust for 
three years and specific performance criteria have been satisfied
executive directors have a technical interest in 606609 shares held by the employee share ownership trust the details of the 
performance criteria are explained on page 50 of this report the individual interests for the above named directors and for the directors 
who left during the year which represent the maximum aggregate number of shares to which each individual could become entitled are as 
follows
     maximum outstanding 
 awards maximum awards awards awards as at 
 granted award vested lapsed 31 march 2010
tony ballance 19 june 2006 4782 – 4782 –
 18 july 2007 3261 – – 3261
 14 july 2008 5486 – – 5486
 7 july 2009
1
 7405 – – 7405
martin kane 19 june 2006 4680 – 4680 –
 18 july 2007 3475 – – 3475
 14 july 2008 6001 – – 6001
 7 july 2009
1
 8154 – – 8154
michael mckeon 19 june 2006
2
 36405 – 36405 –
 19 june 2006 30118 – 30118 –
 18 july 2007 12363 – – 12363
 14 july 2008 13717 – – 13717
 7 july 2009
1
 18733 – – 18733
andy smith 19 june 2006 12210 – 12210 –
 18 july 2007 5881 – – 5881
 14 july 2008 8230 – – 8230
 7 july 2009
1
 11019 – – 11019
tony wray 19 june 2006 22385 – 22385 –
 18 july 2007 9189 – – 9189
 14 july 2008 19684 – – 19684
 7 july 2009
1
 27769 – – 27769
1 the market price on the date of the 2009 award was 1046p
2 michael mckeon received an additional ltip award in 2006 in accordance with commitments made by the company upon appointment the award was made pursuant to the 
exemption provided in listing rule 942
no further awards have been made under the ltip as at 27 may 2010
as disclosed last year the committee determined that the targets applying to the 2006 awards were not met and that none of the  
awards vested
the performance period for awards granted on 18 july 2007 ended on 31 march 2010 the committee has subsequently determined 
based on the company’s tsr target over the three year performance period that participants are entitled to 603 of the award as at 
27 may 2010 the shares from the 2007 contingent award had not vested but would do so as soon as practicable severn trent plc annual report and accounts 2010 57
governance
iii  annual bonus scheme
from 2008 onwards half of any bonus paid is deferred into shares the table below shows the directors’ deferred share awards and the 
vesting dates
  annual bonus deferred number of deferred share 
 date of grant into shares shares award vests
tony ballance 27 june 2008 £24554 1818 26 june 2011
 7 july 2009 £62294 5669 6 july 2012
martin kane 27 june 2008 £26425 1957 26 june 2011
 7 july 2009 £68598 6243 6 july 2012
michael mckeon 27 june 2008 £85667 6345 26 june 2011
 7 july 2009 £157590 14343 6 july 2012
andy smith 27 june 2008 £37732 2794 26 june 2011
 7 july 2009 £92700 8437 6 july 2012
tony wray 27 june 2008 £76029 5631 26 june 2011
 7 july 2009 £166860 15187 6 july 2012
iv  sharesave options over ordinary shares
 at the exercised cancelled granted at the  
 start of during during during end of year of  date from 
 the year the year the year the year the year grant of exercise which expiry 
 no of shares no of shares no of shares no of shares no of shares option price p exercisable date
sharesave
1
         
tony ballance 556 – – – 556 2009 862 may 2012 oct 2012
 – – – 561 561 2010 808 may 2013 oct  2013
martin kane 227 227 – – – 2006 823 may 2009 oct 2009
 322 – – – 322 2007 1172 may 2010 oct 2010
 314 – – – 314 2008 1221 may 2011 oct 2011
 222 – – – 222 2009 862 may 2012 oct 2012
 – – – 449 449 2010 808 may 2013 oct 2013
michael mckeon 1943 – – – 1943 2009 862 may 2014 oct 2014
andy smith 1136 1136 – – – 2006 823 may 2009 oct 2009
 – – – 1123 1123 2010 808 may 2013 oct 2013
tony wray 1136 1136 – – – 2006 823 may 2009 oct 2009
 – – – 1123 1123 2010 808 may 2013 oct 2013
1 the executive directors in common with all eligible uk employees of the group are entitled to participate in the company’s hmrc approved sharesave scheme
the terms and conditions applicable to these options are those provided in that scheme the options have no performance conditions as 
such conditions are not permitted by legislation
a no executive share options in respect of executive directors were granted or lapsed during the year at 31 march 2010 there were five 
other executives participating in the group’s historical executive share option scheme 31 march 2009 nine other executives
b at the close of business on 31 march 2010 the midmarket price of the company’s shares was 1195p and the range during the year  
was 933p to 1215p
signed on behalf of the board which approved the directors’ remuneration report on 27 may 2010
richard davey 
chairman of the remuneration committee  severn trent plc annual report and accounts 2010 58
business  
risk maps
specific risk  
assessments eg
company  
risk map
cascading  
objectives
departments teams  individuals
executive  
committee 
cut off
performance  
monitoring  
and reporting
businesses  
functions
board  
committees
filter
filter
safety asset
fraud
project
process
governance 
risk and assurance
enterprise risk management
our enterprise risk management process as illustrated above 
continues to be used for the identification and assessment of risks 
to significant business objectives the process ensures clear 
ownership for risks mitigating controls and improvement actions by 
assigning accountability to relevant line management risks are 
reported to the executive committee and audit committee every six 
months notwithstanding this risks are normally reviewed within the 
business on a quarterly basis to ensure they remain at the forefront 
of the management’s agenda that no significant risks have been 
overlooked that controls continue to be effective and mitigating 
actions are being addressed in a timely manner
having established our approach to risk management over the 
previous 18 months this year we have started to implement further 
improvements to our process regarding the risk of noncompliance 
with critical legal and regulatory obligations in particular we are 
looking to increase the visibility of measures in place across the 
company to help demonstrate compliance we are doing this for a 
number of reasons including
•  to improve our understanding of key compliance obligations  
and compliance control awareness generally
•  to ensure that as specific processes are redesigned and  
improved as part of our safer better faster initiative  
compliance is ‘built in’ such that by following the process 
compliance will be achieved and
•  to provide transparency over compliance management to our 
executive and any interested external third parties
in addition to this work we have continued to further embed our 
enterprise risk management process within all areas of the 
business including significant change programmes and with steps 
now being taken to roll out in our capital programmes 
principal risks
our principal risks are described in the table on pages 59 to 60 
these and other risks have been monitored by the executive 
committee and audit committee during the past year
assurance framework
severn trent has made solid progress in implementing the key 
components of its governance framework which are based on clear 
organisational structures and decision making sound policies and 
standards and assurance of the outcomes the board and other 
key stakeholders need a transparent methodology which delivers 
and validates the outcome of activities
the company expects roles to be performed in line with specific 
annual job objectives employees performing their roles properly 
preparing and reporting outcomes on time and to the required 
standard is a key component in our assurance framework
the company continues to embed the compliance verification and 
performance management activities in severn trent these are 
within business areas and sometimes within discrete functions 
these confirm that operational activities have been performed 
properly in the line
lastly the company maintains an independent perspective on the 
overall framework by obtaining confirmation that the components of 
the governance structure are working properly in severn trent this 
is obtained from our assurance providers including internal audit
in order to provide an appropriate understanding of how these 
responsibilities come together for severn trent the company has 
developed a description of the key elements over which assurance 
is required by the board this is maintained by the director of 
internal audit on behalf of the board
a map details the areas over which severn trent has decided to 
gain specific assurance these may vary from year to year the 
criteria by which each area for assurance is selected are
• potentially damaging to reputation 
• material financial impact and
• linked to the corporate kpis
internal audit will confirm the details of the assurance provision  
to cover
• who is responsible
• what is the activity and
• how is this recorded
internal audit deliver an audit plan to confirm that key business  
risks are being mitigated 
risk management process severn trent plc annual report and accounts 2010 59
governance
principal risk description key mitigation activities 
risks relating to the ongoing implementation of our 
coordinated change programme and achieving the significant 
and sustainable forecasted benefits see page 15 – having 
the lowest possible charges
specific examples include
• successful implementation of our it strategy and our ability 
to continue to provide a robust and secure technology 
platform to meet the needs of the business
• the implementation of sap and the potential impact of  
the implementation on ongoing business activities and
• the planned major change to processes including those 
necessitated by the successful implementation of our  
sap system 
• we have a programme management office which monitors and 
coordinates the activities of the various change programmes 
and ensures effective governance within each of the 
programmes including ensuring that benefits are defined and 
tracked there are also defined escalation procedures including 
escalation to the executive committee if problems are identified
• we ensure that significant training and support is provided 
before and after each implementation and business readiness 
for change is monitored by the programmes prior to going live 
• we have undertaken an upskilling programme to ensure that all 
our employees are able to work in different ways and 
understand how their work fits into the business as a whole
• our change programmes have processes in place to ensure 
extensive and effective consultation takes place with all those 
affected by the change for example business deployment 
leads have been identified from each business area and work 
closely with projects prior to implementation to ensure all 
processes and systems are fit for purpose and business 
readiness for implementation to take place
as a regulated business we are subject to numerous and 
changing obligations with which we must comply and 
management of these is often dispersed across and through  
the organisation we pay particular attention to management  
of risks in these areas particularly in relation to changing legal 
and regulatory requirements
specific examples include
• changes in the regulatory regime and market within which  
we operate including increased competition
• the taking on of private sewers and lateral drains see page  
13 – dealing effectively with waste water and
• noncompliance with legal requirements
• we continue to work closely with our regulators and other 
stakeholders to influence policy decisions in order to ensure  
the best possible outcome for our shareholders and customers 
see page 16 – promoting an effective regulatory regime
• we are improving our compliance management framework  
to further enhance transparency and consistency of our 
management of controls in place to ensure compliance with  
key legal and regulatory obligations
external financial market factors could adversely impact on our 
financial position
specific examples include
• developments in the capital markets which could affect our 
ability to attract funds see page 25 – financial review section
• counterparty exposure risks 
• our ability to meet our forecasted operating and capital 
expenditure targets and
• the impact of the financial environment on our pension funds 
• we plan and monitor our cash flows and borrowings to ensure 
that sufficient liquidity is available to meet our requirements
• we have policies in place which limit the available 
counterparties and are designed to ensure a spread of 
investments there is also regular monitoring of counterparties 
and investment performance see page 25 – financial  
review section
• we make use of cross currency swaps with the intention of 
eliminating foreign currency risks see page 25 – financial 
review section
• we have processes in place to monitor and manage our long 
term pensions obligations with the intention of ensuring that they 
do not become a major drain on the company see page 26 – 
pensions information within financial review section severn trent plc annual report and accounts 2010 60
principal risk description key mitigation activities include…
due to the nature of our business we continue to face risks 
arising during our normal course of business including risk of 
failure of our assets processes or systems which could 
otherwise impact on the health safety and security of our people 
or customers or on our financial position and our reputation
specific examples include
• the health and safety of our people contractors and visitors in 
line with our “zero by choice” policy towards accidents
• physical security of our assets security and safety of our 
people and security of our information and
• effective prioritisation of our asset maintenance and  
investment activities to ensure our assets continue to be  
safe and fit for purpose
• we are entering year three of a four year improvement plan to 
further enhance safety across all of our sites and operations 
and will continue to monitor implementation of the agreed 
improvements see page 14 – a safer workplace
• we have developed a prioritised capital investment programme 
using models which take into account the consequence 
likelihood and severity of a service failure
• we have an annual business planning process which ensures 
that the prioritisation of investment delivers the required  
service levels
• we have robust processes for monitoring operating and  
capital spending
• we are implementing a new model for working with our  
key partners for delivery of our critical programmes over the 
next five years see page 16 – focus on innovation in our 
supply chain
whilst acceptance of the price determination from ofwat leads  
to greater certainty over what we need to achieve for the  
coming amp period nevertheless we must still manage the  
risk associated with our ability to effectively meet the challenging 
targets set
an example of this is the achievement of our regulatory 
performance targets and objectives to ensure that these 
commitments are met
• we have detailed processes in place for planning and 
performance monitoring to ensure we achieve agreed 
regulatory outputs including targets for efficiency in our capital 
and operating expenditure
our ability to influence customer behaviour or to operate in an 
environmentally responsible way could affect our financial 
position and our reputation
an example of this is our reputation as we recognise that our 
customers’ trust is essential to do business
• we have a holistic approach to communicating with the aim of 
ensuring that the importance of the efficient use of water and 
waste water resources is fully understood and we continuously 
monitor the effectiveness of these plans
• we are working to find ways to improve river quality while 
keeping carbon emissions and costs down for example through 
our catchment management programme see page 13 – 
dealing effectively with waste water
• we are working to develop new sources of renewable energy 
and have set ourselves a target of 30 renewable energy by 
201415 see page 14 – minimising our carbon footprint
in the challenging economic environment we continue to closely 
monitor risks to the achievement of the growth plan for our 
unregulated businesses
an example of this is our ability to effectively implement 
appropriate organisation processes and systems to support  
the growth plan
• we regularly monitor economic conditions and forecast growth 
to maximise the likelihood of achieving our growth targets for 
this part of the business 
• we have strong market leading products and good market 
knowledge and we are establishing a local presence in  
our target markets see pages 20 to 21 – severn trent  
services performance
governance – risk and assurance continued severn trent plc annual report and accounts 2010 61
financial statements
independent auditors’ report to the members of 
severn trent plc
we have audited the group financial statements of severn trent 
plc for the year ended 31 march 2010 which comprise the 
consolidated income statement the consolidated statement of 
comprehensive income the consolidated statement of changes 
in equity the consolidated balance sheet the consolidated 
cash flow statement and the related notes 1 to 40 the financial 
reporting framework that has been applied in their preparation 
is applicable law and international financial reporting 
standards ifrss as adopted by the european union
this report is made solely to the company’s members as a 
body in accordance with chapter 3 of part 16 of the 
companies act 2006 our audit work has been undertaken so 
that we might state to the company’s members those matters 
we are required to state to them in an auditors’ report and for 
no other purpose to the fullest extent permitted by law we do 
not accept or assume responsibility to anyone other than the 
company and the company’s members as a body for our audit 
work for this report or for the opinions we have formed
respective responsibilities of directors and auditors
as explained more fully in the directors’ responsibilities 
statement the directors are responsible for the preparation of 
the group financial statements and for being satisfied that they 
give a true and fair view our responsibility is to audit the group 
financial statements in accordance with applicable law and 
international standards on auditing uk and ireland those 
standards require us to comply with the auditing practices 
board’s apb’s ethical standards for auditors
scope of the audit of the financial statements
an audit involves obtaining evidence about the amounts and 
disclosures in the financial statements sufficient to give 
reasonable assurance that the financial statements are free 
from material misstatement whether caused by fraud or error 
this includes an assessment of whether the accounting 
policies are appropriate to the group’s circumstances and  
have been consistently applied and adequately disclosed  
the reasonableness of significant accounting estimates  
made by the directors and the overall presentation of the 
financial statements
opinion on financial statements
in our opinion the group financial statements
• give a true and fair view of the state of the group’s affairs as 
at 31 march 2010 and of its profit for the year then ended
• have been properly prepared in accordance with ifrs as 
adopted by the european union and
• have been prepared in accordance with the requirements of 
the companies act 2006 and article 4 of the ias regulation
opinion on other matters prescribed by the companies 
act 2006
in our opinion the information given in the directors’ report for 
the financial year for which the financial statements are 
prepared is consistent with the group financial statements
matters on which we are required to report by exception
we have nothing to report in respect of the following
under the companies act 2006 we are required to report to 
you if in our opinion
• certain disclosures of directors’ remuneration specified by 
law are not made or
• we have not received all the information and explanations we 
require for our audit
under the listing rules we are required to review
• the directors’ statement contained within the directors’ report 
in relation to going concern and
• the part of the corporate governance statement relating to 
the company’s compliance with the nine provisions of the 
june 2008 combined code specified for our review
other matters
we have reported separately on the parent company financial
statements of severn trent plc for the year ended 31 march 
2010 and on the information in the directors’ remuneration 
report that is described as having been audited
douglas king senior statutory auditor
for and on behalf of deloitte llp
chartered accountants and statutory auditors 
london uk
27 may 2010 severn trent plc annual report and accounts 2010 62
consolidated income statement
for the year ended 31 march 2010
       2010 2009
      note £m £m
turnover      56 17039 16422
operating costs before exceptional items      7 11468 11723
exceptional restructuring costs      8 480 146
exceptional flood income      8 – 15
exceptional charge relating to regulatory matters     8 – 72
exceptional provision for third party legal costs     8 – 14
total operating costs      7 11948 11912
exceptional loss on disposal of businesses       17 –
profit before interest tax and exceptional items     5 5571 4699
exceptional items      78 497 189
profit before interest and tax       5074 4510
finance income      10 809 1262
finance costs      11 2997 3226
net finance costs       2188 1964
gainslosses on financial instruments      12 457 870
share of results of associates and joint ventures      01 –
profit before tax gainslosses on financial instruments and exceptional items    3384 2735
exceptional items      8 497 189
gainslosses on financial instruments      12 457 870
profit on ordinary activities before taxation      3344 1676
taxation on profit on ordinary activities
– current tax      13 407 521
– deferred tax      13 422 141
– exceptional deferred tax charge      13 – 1856
total taxation      13 829 2236
profitloss for the period       2515 560
attributable to  
equity holders of the company       2492 578
equity minority interests       23 18
       2515 560
earningsloss per share pence    
basic      15 1056 246
diluted      15 1055 246 severn trent plc annual report and accounts 2010 63
financial statements
consolidated statement of comprehensive income
for the year ended 31 march 2010
         2010 2009
         £m £m
profitloss for the period       2515 560
losses on cash flow hedges taken to equity       132 78
deferred tax on losses on cash flow hedges taken to equity     37 22
amounts on cash flow hedges transferred to the income statement in the period    76 49
deferred tax on transfers to income statement       21 13
exchange movement on translation of overseas results and net assets     90 421
tax on exchange differences       04 25 
actuarial losses on defined benefit pension schemes      1244 1231
tax on actuarial losses       348 338
other comprehensive loss for the period       1030 467
total comprehensive incomeloss for the period      1485 1027
attributable to
equity shareholders of the company       1465 1058
minority interests       20 31
        1485 1027 severn trent plc annual report and accounts 2010 64
consolidated statement of changes in equity
for the year ended 31 march 2010
       equity  
      attributable to   
       equity holders   
   share other retained of severn minority  
  share capital premium reserves earnings trent plc interests total 
  £m £m £m £m £m £m £m
at 1 april 2008  2297  643  4274  4796  12010  42  12052 
loss for the period  – – – 578 578 18  560
losses on cash flow hedges taken to equity  – – 78 – 78 – 78
deferred tax on losses on cash flow hedges  
taken to equity  – – 22  – 22  – 22 
amounts on cash flow hedges transferred to  
the income statement  – – 49  – 49  – 49 
deferred tax on transfers to the income statement – – 13 – 13 – 13
exchange movement on translation of overseas  
results and net assets  – – 408  – 408  13  421 
tax on exchange differences  – – 25 – 25 – 25
actuarial losses  – – – 1231 1231 – 1231
tax on actuarial losses  – – – 338  338  – 338 
total comprehensive loss for the period  – – 413  1471 1058 31  1027
share options and ltips              
– shares issued  13  76  – – 89  – 89 
– value of employees’ services  – – – 53  53  – 53 
– payroll tax on awards vesting  – – – 25 25 – 25
current tax on share based payments  – – – 13  13  – 13 
deferred tax on share based payments  – – – 33 33 – 33
dividends paid  – – – 1588 1588 13 1601
at 31 march 2009  2310  719  4687  1745  9461  60  9521 
profit for the period  –  –  –  2492  2492  23  2515 
losses on cash flow hedges taken to equity  –  –  132  –  132  –  132
deferred tax on losses on cash flow hedges  
taken to equity  –  –  37 – 37 –  37
amounts on cash flow hedges transferred  
to the income statement  –  –  76  –  76  –  76
deferred tax on transfers to the income statement –  –  21  –  21  –  21 
exchange movement on translation of overseas 
results and net assets  –  –  87 –  87 03  90
tax on exchange differences  – – 04 – 04 – 04
actuarial losses  –  –  – 1244  1244  –  1244
tax on actuarial losses  –  –  –  348 348  –  348
total comprehensive income for the period  – – 131 1596 1465 20  1485
share options and ltips
– proceeds from shares issued  06  40  –  –  46  –  46
– value of employees’ services  –  –  –  51  51  –  51
– free shares issued  –  –  –  22  22  –  22
current tax on share based payments  –  –  –  03  03  –  03
dividends paid  –  –  –  1597 1597  17 1614
at 31 march 2010  2316 759 4556 1776 9407 63 9470 severn trent plc annual report and accounts 2010 65
financial statements
       2010 2009
      note £m £m
noncurrent assets   
goodwill      16 706 633
other intangible assets      17 1385 1213
property plant and equipment      18 62605 59801
interests in joint ventures      19 03 03
interests in associates      20 46 48
derivative financial instruments      21 2038 2254
available for sale financial assets      21 01 01
       66784 63953
current assets   
inventory      22 265 306
trade and other receivables      23 4728 4471
derivative financial instruments      21 29 298
cash and cash equivalents      24 2278 6481
       7300 11556
assets held for sale       – 46
total assets       74084 75555
current liabilities   
borrowings      21 2609 2562
derivative financial instruments      21 44 04
trade and other payables      26 4642 4427
current income tax liabilities       672 811
provisions for liabilities and charges      29 255 92
liabilities associated with assets held for sale       – 04
       8222 7900
noncurrent liabilities   
borrowings      21 39156 41889
derivative financial instruments      21 1403 1716
trade and other payables      26 2436 2411
deferred tax      27 9564 9484
retirement benefit obligations      28 3549 2330
provisions for liabilities and charges      29 284 304
       56392 58134
total liabilities       64614 66034
net assets       9470 9521
capital and reserves attributable to the company’s equity shareholders   
called up share capital      30 2316 2310
share premium account      31 759 719
other reserves      32 4556 4687
retained earnings       1776 1745
equity attributable to the company’s equity shareholders     9407 9461
minority interests       63 60
total equity       9470 9521
signed on behalf of the board who approved the accounts on 27 may 2010
sir john egan michael mckeon
chairman finance director
consolidated balance sheet
at 31 march 2010
consolidated statement of changes in equity
for the year ended 31 march 2010
company number 2366619 heading
for the year ended 31 march 2010
severn trent plc annual report and accounts 2010 66 severn trent plc annual report and accounts 2010 66
       2010 2009
      note £m £m
cash generated from operations      35 7080 6435
tax paidreceived       538 11
net cash generated from operating activities      6542 6446
investing activities   
interest received       105 325
dividends received from associates and joint ventures      01 –
net cash flow from sale of investments       22 –
acquisition of subsidiaries       132 –
proceeds on disposal of property plant and equipment      69 59
purchases of intangible assets       478 341
purchases of property plant and equipment       4649 4627
contributions and grants received       180 259
net cash used in investing activities       4882 4325
financing activities   
interest paid       1947 1902
interest element of finance lease payments       100 162
dividends paid to shareholders of the parent       1597 1588
dividends paid to minority interests       17 13
repayments of borrowings       1800 2215
repayments of obligations under finance leases      432 410
new loans raised       10 4001
issue of shares        46 89
purchase of own shares       22 27
net cash used in financing activities       5859 2227
decrease in cash and cash equivalents       4199 106
net cash and cash equivalents at beginning of the period      6481 6534
effect of foreign exchange rates       04 53
net cash and cash equivalents at the end of the period    35 2278 6481
net cash and cash equivalents at beginning of the period      
total cash and cash equivalents       2278 6481
bank overdrafts       – –
net cash and cash equivalents at end of the period      2278 6481
the decrease in cash and cash equivalents is reconciled to the movement in net debt in note 35
consolidated cash flow statement
for the year ended 31 march 2010 67 severn trent plc annual report and accounts 2010
financial statements
notes to the group financial statements
1  general information
the severn trent group has two segments which have a 
number of operations these are described in the segmental 
analysis in note 5
severn trent plc is a company incorporated and domiciled  
in the united kingdom the address of its registered office  
is shown on the back of the cover of the annual report  
and accounts
severn trent plc is listed on the london stock exchange
2  accounting policies
a basis of preparation
the financial statements have been prepared in accordance with 
international financial reporting standards ifrs international 
accounting standards ias and ifric interpretations issued 
and effective and ratified by the european union as at 31 march 
2010 and those parts of the companies act 2006 applicable  
to companies reporting under ifrs as adopted by the  
european union
the financial statements have been prepared on the going 
concern basis see directors’ report on page 28 and under the 
historical cost convention as modified by the revaluation of 
certain financial assets and liabilities including derivative 
instruments at fair value
the preparation of financial statements in conformity with ifrs 
requires the use of estimates and assumptions that affect the 
reported amounts of assets and liabilities at the date of the 
financial statements and the reported amount of revenues and 
expenses for the reporting period although these estimates 
are based on management’s best knowledge of the amount 
event or actions actual results may ultimately differ from  
those estimates
b basis of consolidation
the financial statements include the results of severn trent plc 
and its subsidiaries joint ventures and associated 
undertakings the results of subsidiaries joint ventures and 
associated undertakings are included from the date of 
acquisition or incorporation and excluded from the date  
of disposal
the results of subsidiaries are consolidated where the group 
has the power to control a subsidiary
the results of joint venture undertakings are accounted for on 
an equity basis where the company exercised joint control 
under a contractual arrangement
the results of associates are accounted for on an equity basis 
associates are entities where the group has the power to 
exercise significant influence
minority interests in the net assets of consolidated subsidiaries 
are identified separately from the group’s equity therein 
minority interests consist of the amount of those interests at the 
date of the original business combination and the minority’s 
share of changes in equity since that date losses attributable 
to the minority in excess of the minority’s interest in the 
subsidiary’s equity are allocated against the interests of the 
group except to the extent that the minority has a binding 
obligation and is able to make an additional investment to  
cover the losses
all intragroup transactions balances income and expenses 
are eliminated on consolidation
c revenue recognition
revenue represents the fair value of consideration receivable 
excluding value added tax trade discounts and inter company 
sales in the ordinary course of business for goods and  
services provided
revenue is not recognised until the service has been provided 
to the customer or the goods to which the sale relates have 
either been despatched to the customer or where they are held 
on the customer’s behalf title has passed to the customer
turnover includes an estimate of the amount of mains water 
and waste water charges unbilled at the year end the accrual 
is estimated using a defined methodology based upon a 
measure of unbilled water consumed by tariff which is 
calculated from historical billing information
in respect of long term contracts revenue is recognised based 
on the value of work carried out during the year with reference 
to the total sales value and the stage of completion of  
these contracts
interest income is accrued on a time basis by reference to the 
principal outstanding and at the effective interest rate 
applicable dividend income from investments is recognised 
when the group’s rights to receive payment have been 
established interest and dividend income are included in 
finance income
d exceptional items
exceptional items are income or expenditure which individually 
or if of a similar type in aggregate should in the opinion of the 
directors be disclosed by virtue of their size or nature if the 
financial statements are to give a true and fair view in this 
context materiality is assessed at the segment level
e taxation
current tax payable is based on the taxable profit for the year 
taxable profit differs from net profit as reported in the income 
statement because it excludes items of income and expenses 
that are taxable or deductible in other years and it further 
excludes items that are never taxable or deductible the 
group’s liability for current tax is calculated using tax rates that 
have been enacted or substantively enacted by the balance 
sheet date
deferred taxation is provided in full using the liability method 
on taxable temporary differences between the tax bases of 
assets and liabilities and their carrying amounts in the financial 
statements a deferred tax asset is only recognised to the 
extent it is probable that sufficient taxable profits will be 
available in the future to utilise it deferred taxation is 
measured on a nondiscounted basis using the tax rates and 
laws that have then been enacted or substantively enacted by 
the balance sheet date and are expected to apply when the 
related deferred income tax asset is realised or the deferred 
tax liability is settled
deferred tax assets and liabilities are offset when there is a 
legally enforceable right to set off current tax assets against 
current tax liabilities and when they relate to income taxes 
levied by the same taxation authority and the group intends to 
settle its current tax assets and liabilities on a net basis severn trent plc annual report and accounts 2010 68
notes to the group financial statements continued
for the year ended 31 march 2010
2  accounting policies continued
f goodwill
goodwill represents the excess of the fair value of purchase 
consideration over the fair value of the net assets acquired 
goodwill arising on acquisition of subsidiaries is included in 
intangible assets whilst goodwill arising on acquisition of 
associates is included in investments in associates if an 
acquisition gives rise to negative goodwill this is credited 
directly to the income statement fair value adjustments  
based on provisional estimates are amended within one year  
of the acquisition if required with a corresponding adjustment 
to goodwill
goodwill arising on all acquisitions prior to 1 april 1998 was 
written off to reserves under uk gaap and remains eliminated 
against reserves purchased goodwill arising on acquisitions 
after 31 march 1998 is treated as an intangible fixed asset
goodwill is tested for impairment in accordance with the  
policy set out above and carried at cost less accumulated 
impairment losses goodwill is allocated to the cash  
generating unit that derives benefit from the goodwill for 
impairment testing purposes
where goodwill forms part of a cash generating unit and all or 
part of that unit is disposed of the associated goodwill is 
included in the carrying amount of that operation when 
determining the gain or loss on disposal of the operation
g intangible noncurrent assets
intangible assets acquired separately are capitalised at cost 
and when acquired in a business combination are capitalised at 
fair value at the date of acquisition following initial recognition 
the historical cost model is applied to intangible assets 
amortisation charged on assets with finite lives is taken to the 
income statement through operating expenses
finite life intangible assets are amortised on a straight line 
basis over their estimated useful economic lives as follows
  years
software  310
other assets  220
intangible assets are reviewed for impairment where indicators 
of impairment exist
h research and development
research expenditure is expensed when it is incurred 
development expenditure is capitalised and written off  
over its expected useful economic life where the following 
criteria are met
• an asset is created that can be identified
• it is probable that the asset created will generate future 
economic benefits and
• the development cost can be measured reliably
expenditure on property plant and equipment relating to 
research and development projects is capitalised and written 
off over the expected useful life of those assets
i precontract costs
precontract costs are expensed as incurred except where it is 
probable that the contract will be awarded in which case they 
are recognised as a prepayment which is written off to the 
income statement over the life of the contract
j property plant and equipment
property plant and equipment comprises
i infrastructure assets
infrastructure assets are included at cost or deemed cost on 
transition to ifrs less accumulated depreciation the costs of 
like for like replacement of infrastructure components are 
recognised in the income statement as they arise where it is 
probable that the money spent will cause future economic 
benefits to flow to the group then costs are capitalised 
infrastructure assets are depreciated over their useful 
economic lives which are as follows
  years
impounding reservoirs  250
raw water aqueducts  250
mains  80150
sewers  150200
ii other assets
other assets are included at cost less accumulated 
depreciation freehold land is not depreciated other assets 
are depreciated over their estimated economic lives to their 
residual value which are principally as follows
  years
buildings  3080
fixed plant and equipment  2040
vehicles and mobile plant  215
assets in the course of construction are not depreciated  
until commissioned
interest costs of debt raised to finance new property plant and 
equipment where construction commenced after 1 april 2010 
are included within the cost of those fixed assets
k leased assets
where the group obtains assets under leasing arrangements 
which transfer substantially all the risks and rewards of 
ownership of an asset to the group as lessee finance leases 
the lower of the fair value of the leased asset or the present 
value of the minimum lease payments is capitalised as an asset 
with a corresponding liability representing the obligation to the 
lessor lease payments are treated as consisting of a capital 
element and a finance charge the capital element reducing the 
obligation to the lessor and the finance charge being written off 
to the income statement at a constant rate over the period of 
the lease in proportion to the capital amount outstanding 
depreciation is charged over the shorter of the estimated 
useful life and the lease period
where the group obtains assets under leasing arrangements 
where substantially all the risks and rewards of ownership 
remain with the lessor these are classified as operating leases 
rental costs arising under operating leases are expensed on a 
straight line basis over the term of the lease leases of land are 
normally treated as operating leases unless ownership is 
transferred to the group at the end of the lease
l grants and contributions
grants and contributions received in respect of noncurrent 
assets including charges made for new connections to the 
water and sewerage networks are treated as deferred income 
and released to the income statement over the useful economic 
life of those noncurrent assets 69 severn trent plc annual report and accounts 2010
financial statements
2  accounting policies continued
l grants and contributions continued
grants and contributions which are given in compensation for 
expenses incurred with no future related costs are recognised 
in operating costs in the income statement in the period that 
they become receivable
m impairment of noncurrent assets
if the recoverable amount of goodwill an item of property plant 
and equipment or any other noncurrent asset is estimated to 
be less than its carrying amount the carrying amount of the 
asset is reduced to its recoverable amount where the asset 
does not generate cash flows that are independent from other 
assets the group estimates the recoverable amount of the 
cash generating unit to which the asset belongs recoverable 
amount is the higher of fair value less costs to sell or estimated 
value in use at the date the impairment review is undertaken 
fair value less costs to sell represents the amount obtainable 
from the sale of the assets in an arm’s length transaction 
between knowledgeable and willing third parties less costs of 
disposal value in use represents the present value of future 
cash flows expected to be derived from a cash generating unit 
discounted using a pretax discount rate that reflects current 
market assessments of the cost of capital of the cash 
generating unit or asset
the discount rate used is based on the group’s cost of capital 
adjusted for the risk profiles of individual businesses
goodwill is tested for impairment annually impairment reviews  
are also carried out if there is an indication that an impairment  
may have occurred or where otherwise required to ensure 
that noncurrent assets are not carried above their estimated  
recoverable amounts
impairments are recognised in the income statement
n investments
after initial recognition at cost being the fair value of the 
consideration paid investments which are classified as 
available for sale are measured at fair value with gains or 
losses recognised in equity when an available for sale 
investment is disposed of or impaired the gain or loss 
previously recognised in equity is taken to the income 
statement where there is no active market in the investments 
and the fair value cannot be measured reliably the investments 
are held at cost
other investments are classified as held to maturity when the 
group has the positive intention and ability to hold to maturity 
investments held for an undefined period are excluded from 
this classification such investments and those held to 
maturity are measured at amortised cost using the effective 
interest rate method with any gains or losses being recognised 
in the income statement
o financial instruments
i debt instruments
all loans and borrowings are initially recognised at cost being 
the net fair value of the consideration received after initial 
recognition interest bearing loans and borrowings are 
subsequently measured at amortised cost using the effective 
interest rate method where a loan or borrowing is in a fair 
value hedging relationship it is remeasured for changes in fair 
value of the hedged risk at the balance sheet date with gains 
or losses being recognised in gainslosses on financial 
instruments in the income statement see below
gains and losses are recognised in the income statement 
when the liabilities are derecognised as well as through the  
amortisation process
ii derivative financial instruments and hedging activities
the group uses derivative financial instruments such as cross 
currency swaps forward currency contracts and interest rate 
swaps to hedge its risks associated with foreign currency and 
interest rate fluctuations such derivative instruments are 
initially recorded at cost and subsequently remeasured at fair 
value at the balance sheet date the fair value of cross 
currency swaps interest rate swaps and forward currency 
contracts is calculated by reference to market exchange rates 
and interest rates at the period end net interest receivable or 
payable in respect of derivative financial instruments is 
included in finance income or finance costs
in relation to fair value hedges which meet the conditions for 
hedge accounting the gain or loss on the hedging instrument is 
taken to gainslosses on financial instruments in the income 
statement where the effective portion of the hedge will offset 
the gain or loss on the hedged item see above
in relation to cash flow hedges which meet the conditions for 
hedge accounting the portion of the gain or loss on the 
hedging instrument that is determined to be an effective hedge 
is recognised directly in equity and the ineffective portion in 
gainslosses on financial instruments in the income statement 
the gains or losses deferred in equity in this way are recycled 
through gainslosses on financial instruments in the income 
statement in the same period in which the hedged underlying 
transaction or firm commitment is recognised in the  
income statement
where forward currency contracts and foreign currency 
borrowings are used to hedge net investments in foreign 
currency denominated operations to the extent that they are 
designated and effective as net investment hedges they are 
matched in equity against changes in value of the related 
assets any ineffectiveness is taken to gainslosses on financial 
instruments in the income statement
hedge accounting is discontinued when the hedging instrument 
expires is sold terminated or exercised or no longer qualifies 
for hedge accounting at that date any cumulative gain or loss 
on the hedging instrument recognised in equity is kept in equity 
until the forecast transaction occurs or transferred to gains
losses on financial instruments in the income statement if the 
forecast transaction is no longer expected to occur
for derivatives that do not qualify for hedge accounting gains 
or losses are taken directly to gainslosses on financial 
instruments in the income statement in the period
derivatives embedded in other financial instruments or other 
host contracts are treated as separate derivatives when their 
risks and characteristics are not closely related to those of the 
host contract and the host contract is not carried at fair value 
with gains and losses reported in gainslosses on financial 
instruments in the income statement
p inventory
inventory and work in progress is stated at the lower of cost 
and net realisable value cost includes labour materials 
transport and attributable overheads severn trent plc annual report and accounts 2010 70
notes to the group financial statements continued
for the year ended 31 march 2010
2  accounting policies continued
q trade receivables
trade receivables are measured at fair value on initial 
recognition and are subsequently measured at amortised cost 
using the effective interest rate method unless there is 
objective evidence that the asset is impaired where it is written 
down to its recoverable amount and the irrecoverable amount 
is recognised as an expense
trade receivables that are assessed not to be impaired 
individually are assessed collectively for impairment by 
reference to the group’s historical collection experience for 
receivables of similar age
r service concession arrangements
where the group has a right to receive cash from a government 
body in return for constructing or upgrading a public sector 
asset it recognises a financial asset in prepayments and 
accrued income where it has incurred costs that will be 
recovered from amounts receivable from the concession in 
future periods costs of construction or upgrading the public 
sector assets are recognised as a straight line basis before 
adjusting for expected inflation over the life of the contract
s trade payables
trade payables are initially measured at fair value and are 
subsequently measured at amortised cost using the effective 
interest rate method
t retirement benefits
the group operates both defined benefit and defined 
contribution pension schemes
the difference between the value of defined benefit pension 
scheme assets and defined benefit pension scheme liabilities  
is recorded on the balance sheet as a retirement benefit asset  
or obligation
defined benefit pension scheme assets are measured using 
bid price defined benefit pension scheme liabilities are 
measured at the balance sheet date by an independent actuary 
using the projected unit method and discounted at the current 
rate of return on high quality corporate bonds of equivalent 
term and currency to the liability service cost which is the 
increase in the present value of the liabilities of the group’s 
defined benefit pension schemes expected to arise from 
employee service in the period is included in operating costs 
the expected return on the scheme’s assets and the increase 
during the period in the present value of the scheme’s liabilities 
arising from the passage of time are included in other finance 
income or cost
actuarial gains and losses arising from experience adjustments 
changes in actuarial assumptions and amendments to pension 
plans are charged or credited to equity and recorded in the 
statement of recognised income and expense
contributions to defined contribution pension schemes are 
charged to the income statement in the period in which they  
fall due
u provisions
provisions are recognised where
• there is a present obligation as a result of a past event
• it is probable that there will be an outflow of economic 
benefits to settle this obligation and
• a reliable estimate of this amount can be made
selfinsurance provisions are recognised for claims notified and 
for claims incurred but which have not yet been notified based 
on advice from the group’s independent insurance advisers
provisions are discounted to present value using a pretax 
discount rate that reflects the risks specific to the liability where 
the effect is material
v purchase of own shares
the group balance sheet includes the shares held by the 
severn trent employee share ownership trust the trust and 
which have not vested unconditionally by the balance sheet 
date these are shown as a deduction from shareholders’ 
funds until such time as they vest
w share based payments
the group operates a number of equity settled share based 
compensation plans for employees the fair value of the 
employee services received in exchange for the grant is 
recognised as an expense over the vesting period of the grant
the fair value of employee services is determined by reference 
to the fair value of the awards granted calculated using an 
appropriate pricing model excluding the impact of any 
nonmarket vesting conditions the number of awards that are 
expected to vest takes into account nonmarket vesting 
conditions including where appropriate continuing employment 
by the group the charge is adjusted to reflect shares that do not 
vest as a result of failing to meet a nonmarket condition
x cash and cash equivalents
for the purpose of the cash flow statement cash and cash 
equivalents include highly liquid investments that are readily 
convertible to known amounts of cash and which are subject to 
an insignificant risk of change in value such investments are 
normally those with less than three months’ maturity from the 
date of acquisition and include cash and bank balances and 
investments in liquid funds cash and cash equivalents also 
include overdrafts repayable on demand
y foreign currency
the results of overseas subsidiary and associated 
undertakings are translated into sterling the presentational 
currency of the group using average rates of exchange ruling 
during the year
the net investments in overseas subsidiary and associated 
undertakings are translated into sterling at the rates of exchange 
ruling at the year end exchange differences thus arising are 
treated as movements in equity on disposal of a foreign 
currency denominated subsidiary the deferred cumulative 
amount recognised in equity since 1 april 2004 relating to that 
entity is recognised in the income statement under the 
transitional rule of ifrs 1
exchange differences arising in respect of foreign exchange 
instruments taken out as hedges of overseas investments are 
also treated as movements in equity to the extent that the 
hedge is effective see note 2 o
all other foreign currency denominated assets and liabilities of 
the company and its subsidiary undertakings are translated into 
the relevant functional currency at the rates of exchange ruling at 
the year end any exchange differences so arising are dealt with 
through the income statement foreign currency transactions 
arising during the year are translated into sterling at the rate of 
exchange ruling on the date of the transaction all profits and 
losses on exchange arising during the year are dealt with 
through the income statement 71 severn trent plc annual report and accounts 2010
financial statements
2  accounting policies continued
z discontinued operations and assets held for sale
where an asset or group of assets a disposal group is available 
for immediate sale and the sale is highly probable and expected 
to occur within one year then the disposal group is deemed as 
held for sale the disposal group is measured at the lower of the 
carrying amount and fair value less costs to sell
where a group of assets which comprises operations that can 
be clearly distinguished operationally and for financial reporting 
purposes from the rest of the group a component has been 
disposed of or classified as held for sale and it
• represents a separate major line of business or geographical 
area of operations or
• is part of a single coordinated plan to dispose of a separate 
major line of business or geographical area of operations or
• is a subsidiary acquired exclusively with a view to resale
then the component is classified as a discontinued operation
noncurrent assets classified as held for sale are measured at 
the lower of carrying amount and fair value less costs to sell 
depreciation is not charged on such assets
3 new accounting policies and future requirements
international financial reporting standard 8 ‘operating 
segments’ ifrs 8 was issued in november 2006 and was 
required to be implemented by the group from 1 april 2009 
the standard requires identification of operating segments 
based on internal reports that are regularly reviewed by the 
chief operating decision maker in order to allocate resources  
to the segment and assess its performance the impact of the 
standard on the group’s financial statements is not significant 
since the group’s segmental reporting already closely  
reflected reports regularly reviewed by the severn trent 
executive committee
ias 23 revised was issued in march 2007 and was required to 
be implemented by the group from 1 april 2009 the revision to 
the standard removed the option of immediately recognising as 
an expense borrowing costs that are directly attributable to the 
acquisition construction or production of an asset that takes a 
substantial period of time to get ready for use or sale such 
costs are therefore required to be capitalised as part of the cost 
of the asset the revised standard required the group to 
change its previous policy and resulted in borrowing costs that 
would previously have been expensed being capitalised in 
property plant and equipment £26 million or intangible assets 
£nil the costs will be amortised over the expected useful 
lives of the relevant assets
ias 1 revised was issued in september 2007 and was 
required to be implemented by the group from 1 april 2009 
the revision is aimed at improving users’ ability to analyse and 
compare the information given in financial statements the 
changes made are to require information in financial 
statements to be aggregated on the basis of shared 
characteristics and to introduce a statement of comprehensive 
income since the group already presented a statement of 
recognised income and expense the changes had no 
significant impact on the group financial statements
the following statements have been issued by the international 
accounting standards board and are likely to affect future  
financial statements
ias 27 revised was issued in january 2008 and is  
required to be implemented by the group from 1 april 2010  
the revised standard requires the effects of all transactions 
with noncontrolling interests to be recorded in equity if there  
is no change in control the standard also specifies the 
accounting when control is lost the group has had no 
transactions in the current or prior year that would have  
been impacted by the revised standard
ifrs 3 revised was issued in january 2008 and is required  
to be implemented by the group from 1 april 2010 the 
standard continues to apply the acquisition method to business 
combinations with some significant changes the group has 
had no transactions in the current or prior year that would have 
been impacted by the revised standard
ifric 18 “transfer of assets from customers” was issued in 
january 2009 and is required to be applied retrospectively from 
1 april 2010 to transfer of assets occurring after 1 july 2009 
the interpretation requires that if the group receives an asset 
from a customer it should recognise that asset at fair value if 
the group has no further obligation as a result of the transfer 
then the fair value of the asset is recognised as revenue if the 
group has ongoing obligations then the fair value of the asset is 
recognised as deferred income and released to revenue over 
the period of the obligation
the directors assess that the other standards and interpretations 
issued but not yet effective are not applicable to the group
4 significant accounting judgments and key 
sources of estimation uncertainty
in the process of applying the group’s accounting policies the 
group is required to make certain judgments estimates and 
assumptions that it believes are reasonable based on the 
information available
the more significant judgments were
a tax provisions
assessing the outcome of uncertain tax positions requires 
judgments to be made regarding the result of negotiations with 
and enquiries from tax authorities in a number of jurisdictions 
the assessments made are based on advice from independent 
tax advisers and the status of ongoing discussions with the 
relevant tax authorities
b provisions for other liabilities and charges
assessing the financial outcome of uncertain commercial  
and legal positions requires judgments to be made regarding 
the relative merits of each party’s case and the extent to  
which any claim against the group is likely to be successful 
the assessments made are based on advice from the  
group’s internal counsel and where appropriate independent 
legal advice
c service concession arrangements
assessing the extent to which costs of constructing or 
upgrading the mod assets should be recognised in the period 
requires judgments to be made about the expected level of 
costs for the whole contract estimates are based on 
engineering data and adjusted for inflation expectations severn trent plc annual report and accounts 2010 72
notes to the group financial statements continued
for the year ended 31 march 2010
4 significant accounting judgments and key sources of estimation uncertainty continued
the key accounting estimates were
a goodwill impairment
determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units cgu to which 
goodwill has been allocated the value in use calculation requires the group to estimate the future cash flows expected to arise 
from the cgu and a suitable discount rate to calculate present value details of the assumptions used are set out in note 16 to the 
financial statements
b  depreciation and carrying amounts of property plant and equipment
calculating the depreciation charge and hence the carrying value for property plant and equipment requires estimates to be made 
of the useful lives of the assets the estimates are based on engineering data and the group’s experience of similar assets details 
are set out in note 2 j
c retirement benefit obligations
determining the amount of the group’s retirement benefit obligations and the net costs of providing such benefits requires 
assumptions to be made concerning long term interest rates inflation salary and pension increases investment returns and 
longevity of current and future pensioners changes in these assumptions could significantly impact the amount of the obligations 
or the cost of providing such benefits the group makes assumptions concerning these matters with the assistance of advice from 
independent qualified actuaries details of the assumptions made are set out in note 28 to the financial statements
d unbilled revenue
severn trent water raises bills and recognises revenue in accordance with its right to receive revenue in line with the limits 
established by the periodic regulatory price review processes for water and waste water customers with water meters the 
amount recognised is dependent upon the volume supplied including an estimate of the sales value of units supplied between the 
date of the last meter read and the year end meters are read on a cyclical basis and the group recognises revenue for unbilled 
amounts based on estimated usage from the last billing to the end of the financial year the estimated usage is based on historical 
data judgment and assumptions
e provision for impairment of trade receivables
provisions are made against severn trent water’s trade receivables based on historical experience of levels of recovery from 
accounts in a particular ageing category the actual amounts collected could differ from the estimated level of recovery which 
could impact operating results
5 segmental analysis
the group has two reportable segments severn trent water and severn trent services the key factor determining the 
identification of reportable segments is the regulatory environment in which the businesses operate severn trent water is subject 
to economic regulation by ofwat and operates under a licence to provide water and sewerage services within a defined 
geographical region in england and wales severn trent services is not subject to economic regulation and operates in markets in 
the usa europe and asia
the severn trent executive committee stec is considered to be the group’s chief operating decision maker the reports 
provided to stec include segmental information prepared on the basis described above details of severn trent water’s 
operations are described on pages 12 to 17 of the business review and those of severn trent services on pages 19 to 21
the group has a large and diverse customer base and there is no significant reliance on any single customer
the measure of profit or loss that is reported to stec for the segments is profit before interest tax and exceptional items 
underlying pbit a segmental analysis of sales and underlying pbit is presented below
       severn trent severn trent  
       water services 
2010       £m £m
external sales       13836 3203
intersegment sales       17 162
total sales       13853 3365
profit before interest tax and exceptional items      5413 287
exceptional items       421 76
profit before interest and tax       4992 211
profit before interest tax and exceptional items is stated after      
amortisation of intangible assets       234 16
depreciation of property plant and equipment       2325 61
profit on disposal of fixed assets       43 02 73 severn trent plc annual report and accounts 2010
financial statements
5 segmental analysis continued
       severn trent severn trent  
       water services 
2009       £m £m
external sales       13235 3187 
intersegment sales       14 206 
total sales       13249 3393 
profit before interest tax and exceptional items      4560 305 
exceptional items       194 07
profit before interest and tax       4366 298 
profit before interest tax and exceptional items is stated after 
amortisation of intangible assets       229 13 
depreciation of property plant and equipment       2200 61 
profit on disposal of fixed assets       40 –
the group’s treasury and tax affairs are managed centrally by the group treasury and tax departments finance costs are 
managed on a group basis and hence interest income and costs are not reported at the segmental level tax is not reported  
to stec on a segmental basis
interests in joint ventures and associates are not material and are not included in the segmental reports reviewed by stec
separate segmental analyses of assets and liabilities are not reviewed by stec the balance sheet measure reviewed by stec 
on a segmental basis is capital employed which includes the following components
       severn trent severn trent  
       water services 
2010       £m £m
operating assets       66899 2153
goodwill       – 706
interests in joint ventures and associates       02 47
segment assets       66901 2906
segment operating liabilities       9853 920
capital employed       57048 1986
       severn trent severn trent  
       water services 
2009       £m £m
operating assets       63792 2139
goodwill       – 633
interests in joint ventures and associates       02 49
segment assets       63794 2821
segment operating liabilities       8013 976
capital employed       55781 1845
operating assets comprise other intangible assets property plant and equipment inventory and trade and other receivables
operating liabilities comprise trade and other payables retirement benefit obligations and provisions severn trent plc annual report and accounts 2010 74
notes to the group financial statements continued
for the year ended 31 march 2010
5  segmental analysis continued
additions to other intangible assets and property plant and equipment were as follows
       severn trent severn trent  
       water services 
2010       £m £m
other intangible assets       444 32
property plant and equipment       4973 130
       severn trent severn trent  
       water services 
2009       £m £m
other intangible assets       316 20
property plant and equipment       4701 60
the reportable segments’ revenue is reconciled to group turnover as follows
       2010 2009
        £m £m
severn trent water revenue       13853 13249
severn trent services revenue       3365 3393
intersegment sales       179 220
group turnover       17039 16422
segmental underlying pbit is reconciled to the group’s profit before tax and discontinued operations as follows
       2010 2009
        £m £m
underlying pbit
severn trent water       5413 4560
severn trent services       287 305
corporate and other costs       142 164
consolidation adjustments       13 02
group underlying pbit       5571 4699
exceptional items
severn trent water       421 194
severn trent services       76 07
corporate       – 12
share of results of associates and joint ventures      01 –
net finance costs       2188 1964
gainslosses on financial instruments       457 870
profit before tax and discontinued operations       3344 1676
the reportable segments’ assets are reconciled to the group’s total assets as follows
       2010 2009
        £m £m
segment assets     
severn trent water       66901 63794
severn trent services       2906 2821
corporate assets       217 135
derivative financial assets       2067 2552
cash and cash equivalents       2278 6481
assets held for sale       – 46
available for sale financial assets       01 01
consolidation adjustments       286 275
total assets       74084 75555
the consolidation adjustments include intragroup debtors and unrealised profits on fixed assets 75 severn trent plc annual report and accounts 2010
financial statements
5  segmental analysis continued
the reportable segments’ liabilities are reconciled to the group’s total liabilities as follows
       2010 2009
        £m £m
segment liabilities     
severn trent water       9853 8013
severn trent services       920 976
corporate and other       497 664
borrowings       41765 44451
financial liabilities       1447 1720
current tax       672 811
deferred tax       9564 9484
liabilities associated with assets held for sale       – 04
consolidation adjustments       104 89 
total liabilities       64614 66034
the consolidation adjustments include intragroup creditors
geographical areas
the group’s sales were derived from the following countries
       2010 2009
        £m £m
uk       14592 14066 
usa       1451 1426 
other       996 930 
       17039 16422
the group’s noncurrent assets excluding financial instruments were located in the following countries
       2010 2009
        £m £m
uk       63867 60980
usa       613 624
other       266 95
       64746 61699
6  revenue
       2010 2009
        £m £m
water and sewerage services       13770 13161
other services       2264 2147
sale of goods       478 634
revenue from long term contracts       527 480
total turnover       17039 16422
interest receivable note 10       98 364
total revenue       17137 16786 severn trent plc annual report and accounts 2010 76
notes to the group financial statements continued
for the year ended 31 march 2010
7  operating costs
     2010  2009
   before   before
   exceptional exceptional  exceptional exceptional
   costs costs total costs costs total
   £m £m £m £m £m £m
wages and salaries   2768 146 2914 2651 14 2665
social security costs   185 05 190 198 01 199
pension costs   191 75 266 289 – 289
share based payments   51 – 51 53 – 53
total employee costs   3195 226 3421 3141 15 3206
power   560 – 560 563 – 563
raw materials and consumables   1169 04 1173 1287 09 1296
rates   610 08 618 592 – 592
charge for bad and doubtful debts   351 01 352 318 01 319
service charges   311 – 311 300 – 300
depreciation of property plant and equipment   2361 08 2369 2237 – 2237
amortisation of intangible fixed assets   252 58 310 242 – 242
hired and contracted services   1459 49 1508 1437 26 1463
operating lease rentals
– land and buildings   42 54 96 40 – 40
– other   11 01 12 16 – 16
hire of plant and machinery   82 01 83 71 – 71
research and development expenditure   56 – 56 56 – 56
profit on disposal of property plant and equipment  45 – 45 40 – 40
foreign exchange gains   – – – 02 – 02
water and sewerage infrastructure maintenance expenditure 1045 – 1045 1301 – 1301
other operating costs   895 70 965 921 138 1059
   12354 480 12834 12530 189 12719
release from deferred income   75 – 75 53 – 53
own work capitalised   811 – 811 754 – 754
total operating costs   11468 480 11948 11723 189 11912
the classification of certain prior year costs has been amended to conform with the current year presentation
further details of exceptional costs are given in note 8 the pension costs shown above include current and past service costs 
other pension costs interest costs expected returns on assets and actuarial gains and losses are included in finance costs and 
other comprehensive income
during the year the following fees were charged by the auditors
       2010 2009
       £m £m
fees payable to the company’s auditors for
the audit of the company’s annual accounts      01 01
the audit of the company’s subsidiaries pursuant to legislation     04 04
audit fees payable to associates of the company’s auditors     01 01
total audit fees       06 06
fees payable to the company’s auditors and their associates for other services to the group 
– other services pursuant to legislation       02 03
– services relating to corporate finance       01 01
total nonaudit fees       03 04
details of directors’ remuneration are set out in the directors’ remuneration report on pages 45 to 57 77 severn trent plc annual report and accounts 2010
financial statements
8  exceptional items
       2010 2009
       £m £m
restructuring programmes
severn trent water       421 137
severn trent services       59 21
corporate and other release of disposal provisions made in previous periods    – 12
exceptional restructuring costs       480 146
flood costs       – 131
insurance recoverable       – 146
severn trent water exceptional flood income      – 15
fine and costs relating to leakage reporting       – 22
contribution to charitable trust       – 50
severn trent water exceptional charge relating to regulatory matters    – 72
severn trent services release of provision for third party legal costs    – 14
total exceptional operating costs       480 189
exceptional loss on disposal of business       17 –
total exceptional items       497 189
9  employee numbers
average number of employees including executive directors during the year
       2010 2009 
       number number
by type of business        
severn trent water       5686 5624
severn trent services       3090 3120
corporate and other       12 24
       8788 8768
10  finance income
       2010 2009
       £m £m
interest revenue earned on        
bank deposits       70 320
other financial income       28 44
total interest revenue       98 364
expected return on defined benefit scheme assets      711 898
total finance income       809 1262
all interest revenue relates to loans and receivables severn trent plc annual report and accounts 2010 78
notes to the group financial statements continued
for the year ended 31 march 2010
11  finance costs
       2010 2009 
       £m £m
interest on bank loans and overdrafts       76 130
interest on other loans       1950 1917
interest on finance leases       101 163
total borrowing costs       2127 2210
other financial expenses       09 97
interest cost on defined benefit scheme obligations      861 919
total finance costs       2997 3226
in accordance with ias 23 borrowing costs of £26 million 2009 £nil that were incurred funding eligible capital projects have been 
capitalised at an interest rate of 565
12  gainslosses on financial instruments
       2010 2009 
       £m £m
lossgain on cross currency swaps used as hedging instruments in fair value hedges   109 2211
gainloss arising on adjustments for foreign currency debt in fair value hedges    223 2227
fair value loss on cash flow hedges transferred from equity     76 49
gainloss arising on interest rate swaps where hedge accounting is not applied    419 805
       457 870
the group’s hedge accounting arrangements are described in note 21 g
13  taxation
a analysis of tax charge in the year
       2010 2009
       £m £m
current tax
current year at 28       713 650
prior year at 28        306 129
total current tax       407 521
deferred tax
origination and reversal of temporary differences – current year     259 233
origination and reversal of temporary differences – prior year     163 92
exceptional deferred tax       – 1856
total deferred tax       422 1715
total tax charge       829 2236
the finance act 2008 included legislation which will prevent the group claiming industrial building allowances on affected assets 
after 2011 this change is being introduced by reducing the rate of allowance that may be claimed from 1 april 2009 to 31 march 
2011 at which point the allowances will be removed the removal of these allowances resulted in an exceptional deferred tax charge 
of £1856 million in the year ended 31 march 2009 79 severn trent plc annual report and accounts 2010
financial statements
13  taxation continued
b factors affecting the tax charge in the year
the tax expense for the current year is lower 2009 higher than the standard rate of corporation tax in the uk 28  
the differences are explained below
       2010 2009
       £m £m
profit on ordinary activities before tax       3344 1676
tax at the standard rate of corporation tax in the uk 28 2009 28     936 469
tax effect of expenditure not deductibleincome not taxable in determining taxable profit   27 59
effect of different rates of tax in overseas jurisdictions      09 07
adjustments in respect of prior years       143 37
exceptional deferred tax       – 1856
total tax charge       829 2236
c tax credited directly to equity
in addition to the amount charged to the income statement the following amounts of tax have been credited directly to equity
       2010 2009
       £m £m
current tax
tax on share based payments       03 13
tax on pension contributions in excess of profit and loss charge     07 38
tax on exchange differences on foreign currency hedging      04 25
total current tax credited directly to equity       06 76
deferred tax
tax on actuarial losses       341 300
tax on cash flow hedges       16 09
tax on share based payments       – 33
total deferred tax credited directly to equity      357 276
14  dividends
amounts recognised as distributions to equity holders in the period
      2010 2009
     pence per  pence per
     share £m share £m
final dividend for the year ended 31 march 2009 2008    4105 965 4129 970
interim dividend for the year ended 31 march 2010 2009    2671 632 2629 618
     6776 1597 6758 1588
proposed final dividend for the year ended 31 march 2010   4561   
the proposed final dividend is subject to approval by shareholders at the agm and has not been included as a liability in these 
financial statements severn trent plc annual report and accounts 2010 80
notes to the group financial statements continued
for the year ended 31 march 2010
15  earnings per share
basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders by the weighted average 
number of ordinary shares in issue during the year excluding those held in the severn trent employee share ownership trust 
which are treated as cancelled
for diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all 
potentially dilutive ordinary shares these represent share options granted to employees where the exercise price is less than the 
average market price of the company’s shares during the year
basic and diluted earnings per share from continuing operations are calculated on the basis of profit from combining operations 
attributable to the equity holders of the company
the calculation of basic and diluted earnings per share is based on the following data
earnings
       2010 2009
       £m £m
earnings for the purpose of basic and diluted earnings per share being
profitloss for the period attributable to the equity holders of the company    2492 578
number of shares
       2010 2009
       m m
weighted average number of ordinary shares for the purpose of basic earnings per share   2360 2349
effect of dilutive potential ordinary shares
share options and ltips       03 07
weighted average number of ordinary shares for the purpose of diluted earnings per share   2363 2356
adjusted earnings per share
       2010 2009
       pence pence
adjusted basic earnings per share       1228 927
adjusted diluted earnings per share       1226 924
adjusted earnings per share figures are presented for combining operations these exclude the effects of deferred tax  
gainslosses on financial instruments and exceptional items in both 2010 and 2009 the directors consider that the adjusted 
figures provide a useful additional indicator of performance the denominators used in the calculations of adjusted basic and 
diluted earnings per share are the same as those used in the unadjusted figures set out above
the adjustments to earnings are as follows
adjustments to earnings
       2010 2009
       £m £m
earnings for the purpose of basic and diluted earnings per share     2492 578
adjustments for
exceptional items       497 189
current tax related to exceptional items at 28       56 18
gainslosses on financial instruments       457 870
deferred tax       422 1715
earnings for the purpose of adjusted basic and diluted earnings per share    2898 2178 81 severn trent plc annual report and accounts 2010
financial statements
16  goodwill
       2010 2009
       £m £m
cost and net book value
at 1 april       633 502
additions       103 –
amounts written off       02 –
exchange adjustments       28 131
at 31 march       706 633
goodwill impairment tests
goodwill is allocated to the group’s cash generating units cgus identified according to country of operation and business segment
a summary of the goodwill allocation by cgu is presented below
       2010 2009
       £m £m
severn trent services
water purification us       278 294
contract operations us       125 131
uk services       – 02
uk laboratories       120 120
services italy       80 86
apliclor       103 –
       706 633
the recoverable amount of a cgu is determined using value in use calculations these calculations use cash flow projections 
based on financial budgets approved by management covering a five year period the key assumption underlying these budgets is 
the revenue growth assumptions are determined by management of each cgu based on past experience current market trends 
and expectations of future developments
cash flows beyond the five year period are extrapolated using an estimated nominal growth rate stated below the growth rate 
does not exceed the long term average growth rate for the economy in which the cgu operates the assumptions used in relation 
to growth rates beyond the five year period and discount rates were
     nominal growth rate discount rate
     2010 2009 2010 2009
        
water purification us     30 30 78 87
contract operations us     30 30 89 92
uk laboratories     30 30 89 95
services italy     30 30 101 117
apliclor     30 – 100 –
the weighted average growth rates used are consistent with the forecasts included in industry reports the discount rates used 
are pretax and reflect specific risks relating to the cgu
changes in the growth rate outside the five year period or in the discount rate applied to the cash flows could cause the cgus’ 
carrying amounts to exceed their recoverable amounts the amount by which the recoverable amount of each cgu exceeded its 
carrying value and the amount by which the growth rate or discount rate would have to change in order to reduce the recoverable 
amount of the cgu to its carrying value is set out below
      change required for 
     
surplus of
 recoverable amount to
     
recoverable
 equal carrying amount
      amount over growth rate discount rate 
      carrying amount percentage percentage 
      £m points points
severn trent services
water purification us      2505 319 134 
contract operations us      256 54 37
uk laboratories      50 08 09
services italy      173 53 36
apliclor      125 63 37 severn trent plc annual report and accounts 2010 82
notes to the group financial statements continued
for the year ended 31 march 2010
17  intangible assets
    computer software other
     internally  
internally
     generated purchased generated total 
     £m £m £m £m
cost       
at 1 april 2008     996 1453 198 2647
additions     126 208 07 341
disposals     80 149 – 229
transfers     – 29 29 –
transfers to assets held for sale     – – 05 05
exchange adjustments     01 08 16 25
at 1 april 2009     1043 1549 187 2779
additions     131 315 31 477
acquisitions of businesses     – 03 – 03
disposals     – 12 – 12
disposal of businesses     – 01 01 02
transfers     – 01 04 05
exchange adjustments     – 02 03 05
at 31 march 2010     1174 1853 218 3245
amortisation
at 1 april 2008     619 844 112 1575
amortisation for year     84 146 12 242
disposals     80 163 10 253
transfers     – 13 13 –
transfers to assets held for sale     – – 03 03
exchange adjustments     03 01 07 05
at 1 april 2009     620 841 105 1566
amortisations for the year     91 147 14 252
exceptional impairment     23 35 – 58
disposals     – 11 – 11
disposal of businesses     – 01 01 02
exchange adjustments     – 02 01 03
at 31 march 2010     734 1009 117 1860
net book value        
at 31 march 2010     440 844 101 1385
at 31 march 2009     423 708 82 1213
other assets primarily comprise capitalised development costs and patents 83 severn trent plc annual report and accounts 2010
financial statements
18  property plant and equipment
      fixed plant 
    land and infrastructure and movable 
    buildings assets equipment plant total 
    £m £m £m £m £m
cost
at 1 april 2008    21880 38807 26855 570 88112
additions    1461 615 2570 93 4739
disposals    54 – 453 95 602
transfers to assets held for sale    03 – 33 – 36
exchange adjustments    16 – 82 36 134
at 1 april 2009    23300 39422 29021 604 92347
additions    1622 787 2696 104 5209
acquisition of businesses    03 – 09 – 12
disposals    74 – 220 100 394
disposal of businesses    – – 03 – 03
transfers    14 – 10 01 05
exchange adjustments    04 – 17 07 28
at 31 march 2010    24833 40209 31496 600 97138
depreciation        
at 1 april 2008    6821 10203 13490 286 30800
charge for year    486 199 1477 75 2237
disposals    55 – 420 74 549
transfers to assets held for sale    03 – 25 – 28
exchange adjustments    09 – 53 24 86
at 1 april 2009    7258 10402 14575 311 32546
charge for year    517 257 1503 84 2361
exceptional impairment    – – 08 – 08
acquisition of businesses    – – 07 – 07
disposals    73 – 217 80 370
transfers    09 – 10 01 –
exchange adjustments    02 – 12 05 19
at 31 march 2010    7691 10659 15874 309 34533
net book value        
at 31 march 2010    17142 29550 15622 291 62605
at 31 march 2009    16042 29020 14446 293 59801
the carrying amount of property plant and equipment includes the following amounts in respect of assets held under finance leases
      fixed plant 
    land and infrastructure and movable 
    buildings assets equipment plant total 
    £m £m £m £m £m
net book value        
at 31 march 2010    – 1211 1164 – 2375
at 31 march 2009    – 1221 1409 – 2630
property plant and equipment includes £4596 million 2009 £5718 million in respect of assets in the course of construction for 
which no depreciation is charged severn trent plc annual report and accounts 2010 84
notes to the group financial statements continued
for the year ended 31 march 2010
19  interests in joint ventures
       2010 2009
       £m £m
group’s share of        
long term assets       – –
current assets       18 20
current liabilities       15 17
amounts due from joint ventures       – –
       03 03
group’s share of
turnover       47 16
operating costs       47 16
profit before tax       – –
tax       – –
profit after tax       – –
the joint ventures have no significant contingent liabilities to which the group is exposed and the group does not have any 
significant contingent liabilities in relation to its interests in the joint ventures the group has no capital commitments in relation to 
its interests in the joint ventures
particulars of the group’s principal joint venture undertakings at 31 march 2010 are
      country of proportion of proportion of 
name      incorporation ownership voting power
cognica limited      great britain 50 50
jackson water partnership     usa 70 see below
the partnership agreement for the jackson water partnership requires that certain key decisions require the unanimous consent 
of the partners and consequently the partnership has been accounted for as a joint venture
20  interests in associates
       2010 2009
       £m £m
at 1 april       48 41
share of profits       01 –
other movements       03 07
at 31 march       46 48
group’s share of
total assets       256 264
total liabilities       210 216
       46 48
turnover       80 70
profit before tax       01 –
the associate company has no significant contingent liabilities to which the group is exposed the group has given guarantees in 
respect of the associate’s borrowings the guarantees are limited to €112 million and the group does not expect any liabilities to 
arise from these arrangements the group has no capital commitments in relation to its interests in the associate
the principal associate at 31 march 2010 was
      percentage 
    equity  of share  nature of 
name    interest  capital held  business
sii societa consortile per azioni   16279127 of €1  30 water and sewerage
the country of incorporation and main operation is italy 85 severn trent plc annual report and accounts 2010
financial statements
21  financial instruments
a capital management
it is the group’s policy to access a broad range of sources of finance to obtain both the quantum required and the lowest cost 
compatible with the need for continued availability the group is funded using a mixture of equity and debt including fixed rate 
index linked and floating rate
at 31 march the group’s equity and debt capital comprised the following
       2010 2009
       £m £m
cash and short term deposits       2278 6481
bank loans       6898 7898
other loans       31859 33109
obligations under finance leases       3008 3444
cross currency swaps       1873 2371
net debt       37614 35599
equity attributable to the company’s equity shareholders      9407 9461
total capital       47021 45060
b categories of financial assets
       2010 2009
       £m £m
fair value through profit and loss        
derivatives that do not qualify for hedge accounting       
interest rate swaps       194 181
derivatives that are designated and effective as hedging instruments carried at fair value   
cross currency swaps       1873 2371
available for sale investments carried at fair value       
unquoted shares       01 01
loans and receivables including cash and cash equivalents      
trade receivables       1966 2011
short term deposits       1837 5865
cash at bank and in hand       441 616
       4244 8492
total financial assets       6312 11045
disclosed in the balance sheet as        
noncurrent assets        
derivative financial instruments       2038 2254
available for sale financial assets       01 01
       2039 2255
current assets        
derivative financial instruments       29 298
cash and cash equivalents       2278 6481
trade and other receivables note 23       1966 2011
       4273 8790
       6312 11045 severn trent plc annual report and accounts 2010 86
notes to the group financial statements continued
for the year ended 31 march 2010
21  financial instruments continued
c categories of financial liabilities
       2010 2009 
       £m £m
fair value through profit and loss        
derivatives that do not qualify for hedge accounting       
interest rate swaps       1254 1620
foreign exchange forward contracts       – 04
       1254 1624
derivatives that are designated and effective as hedging instruments carried at fair value   
interest rate swaps       95 96
energy swaps       98 –
       193 96
other financial liabilities        
bank loans       6898 7898
other loans       31859 33109
obligations under finance leases       3008 3444
trade payables       284 463
       42049 44914
total financial liabilities       43496 46634
disclosed in the balance sheet as        
noncurrent liabilities        
derivative financial instruments       1403 1716
borrowings       39156 41889
       40559 43605
current liabilities        
derivative financial instruments       44 04
borrowings       2609 2562
trade payables note 26       284 463
       2937 3029
       43496 46634
d derivative contracts
     2010 2009
     asset liability asset liability
     £m £m £m £m
cross currency swaps – fair value hedges     1873 – 2371 –
interest rate swaps – cash flow hedges     – 95 – 96
energy swaps – cash flow hedges     – 98 – –
interest rate swaps – derivatives not in a formal hedge relationship   194 1254 181 1620
foreign exchange forward contracts     – – – 04
total     2067 1447 2552 1720
less noncurrent portion
cross currency swaps – fair value hedges     1845 – 2073 –
interest rate swaps – cash flow hedges     – 95 – 96
energy swaps – cash flow hedges     – 97 – –
interest rate swaps – derivatives not in a formal hedge relationship   193 1211 181 1620
total noncurrent     2038 1403 2254 1716
current portion     29 44 298 04 87 severn trent plc annual report and accounts 2010
financial statements
21  financial instruments continued
e fair values of financial instruments
except as disclosed below the directors consider that the carrying amount of financial assets and liabilities recorded in the 
financial statements approximate their fair values
     31 march 2010 31 march 2009
         restated
     book value fair value book value fair value
     £m £m £m £m
borrowings falling due within one year        
bank loans – amortised cost     2012 2012 1000 1020
other loans – amortised cost     18 18 14 –
other loans – fair value     106 106 1114 1114
obligations under finance leases – amortised cost    473 489 434 630
     2609 2625 2562 2764
borrowings falling due after more than one year      
bank loans – amortised cost     4886 4779 6898 6528
other loans – amortised cost     20166 21592 20040 18143
other loans – fair value     11569 11569 11941 11941
obligations under finance leases – amortised cost    2535 2114 3010 3087
     39156 40054 41889 39699
     41765 42679 44451 42463
discounted future cash flows are used to determine fair values for debt discount rates are derived from yield curves based on 
quoted interest rates and are adjusted for credit risk
the fair value of group borrowings disclosed at 31 march 2009 has been restated to reflect a change in methodology of estimating 
the fair value to include an adjustment for the pricing of the group’s credit risk the impact of the change was to reduce the 
estimated fair value of borrowings at 31 march 2009 by £10044 million
fair value measurements recognised in the balance sheet
the following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value 
grouped into levels 1 to 3 based on the degree to which the fair value is observable
level 1 fair value measurements are those derived from quoted prices unadjusted in active markets for identical assets  
and liabilities
level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are 
observable for the asset or liability either directly or indirectly and
level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are 
not based on observable market data
the fair value of interest rate swaps is calculated as the present value of the estimated future cash flows estimated and discounted 
based on the applicable yield curves derived from quoted interest rates
cross currency swaps are valued by reference to quoted forward exchange rates at the balance sheet date and yield curves 
derived from quoted interest rates matching the maturities of the contracts 
energy swaps are valued by reference to quoted forward electricity prices at the balance sheet date and yield curves derived from 
quoted interest rates matching the maturities of the contracts  severn trent plc annual report and accounts 2010 88
notes to the group financial statements continued
for the year ended 31 march 2010
21  financial instruments continued
e fair values of financial instruments continued
     level 1 level 2 level 3 total
2010     £m £m £m £m
derivative financial assets        
cross currency swaps – fair value hedges     – 1873 – 1873
interest rate swaps – derivatives not in designated hedging relationships  – 194 – 194
     – 2067 – 2067
derivative financial liabilities         
interest rate swaps – cash flow hedges     – 95 – 95
interest rate swaps – derivatives not in designated hedging relationships  – 1254 – 1294
energy swaps – cash flow hedges     – 98 – 98
     – 1447 – 1447
     – 620 – 620
f financial risk factors
the group’s activities expose it to a variety of financial risks market risk including currency and interest rate risk mainly credit 
risk liquidity risk and inflation risk the group’s overall risk management programme addresses the unpredictability of financial 
markets and seeks to reduce potential adverse effects on the group’s financial performance or position
financial risks are managed by a central treasury department group treasury under policies approved by the board of directors 
group treasury identifies evaluates and hedges financial risks in close cooperation with the group’s operating units the board 
provides written principles for overall risk management as well as written policies covering specific areas such as exchange rate 
risk interest rate risk credit risk the use of derivative and nonderivative financial instruments derivative financial instruments are 
used to hedge exposures to changes in exchange rates and interest rates the group’s policy is that derivative financial 
instruments are not held for trading
i market risk
the principal market risk that the group is exposed to is fluctuations in interest rates since substantially all of the group’s profits 
and net assets arise from severn trent water which has very limited and indirect exposure to changes in exchange rates the 
sensitivity of the group’s results to changes in exchange rates is not material
interest rate risk
the group’s income and operating cash flows are substantially independent of changes in market interest rates
the group’s interest rate risk arises from long term borrowings borrowings issued at variable rates expose the group to cash flow 
interest rate risk borrowings issued at fixed rates expose the group to fair value interest rate risk group policy is to maintain  
45–90 of its net debt in fixed rate instruments at 31 march 2010 some 824 of the group’s net debt was fixed 2009 876
the group manages its cash flow interest rate risk by using floating to fixed interest rate swaps such interest rate swaps have the 
economic effect of converting borrowings from floating rates to fixed rates under the terms of the interest rate swaps the group 
agrees with other parties to exchange biannually the difference between fixed contract and floating rate interest rates calculated 
by reference to the agreed notional principal amounts the group has entered into a series of long dated interest rate swaps to 
hedge future debt economically these act to fix debt within the group which is denominated as floating rate but do not achieve 
hedge accounting under the strict criteria of ias 39 this has led to a £419 million credit 2009 charge of £805 million in the 
income statement
some of the group’s debt is indexlinked that is its cost is linked to changes in the retail price index rpi this debt provides an 
economic hedge for severn trent water’s revenues and regulatory asset values that are also rpi linked under its regulatory regime 89 severn trent plc annual report and accounts 2010
financial statements
21  financial instruments continued
f financial risk factors continued
financial liabilities analysed by interest rate after taking account of various interest rate swaps entered into by the group
    non floating fixed   
    interest interest interest index 
    bearing rate rate linked total 
2010    £m £m £m £m £m
bank loans and overdrafts    – 5442 – 1456 6898
other loans    – 2475 20299 9085 31859
finance leases    – 1418 1590 – 3008
other financial liabilities    285 – – – 285
    285 9335 21889 10541 42050
         
impact of interest rate swaps not matched against specific debt instruments – 8350 8350 – –
    285 985 30239 10541 42050
weighted average interest rate      588  
weighted average period for which interest is fixed years     109  
    non floating fixed 
    interest interest interest index 
    bearing rate rate linked total 
2009    £m £m £m £m £m
bank loans and overdrafts    – 5015 1405 1478 7898
other loans    – 3286 20894 8929 33109
finance leases    – 1756 1688 – 3444
other financial liabilities    463 – – – 463
    463 10057 23987 10407 44914
impact of interest rate swaps not matched against  
specific debt instruments    – 7207 7207 – –
    463 2850 31194 10407 44914
weighted average interest rate      590  
weighted average period for which interest is fixed years     121  
financial assets analysed by interest rates
    noninterest floating fixed 
    bearing interest interest index 
    assets rate rate linked total 
2010    £m £m £m £m £m
available for sale financial assets    01 – – – 01
loans and receivables    1966 – – – 1966
cash and cash equivalents    – 2278 – – 2278
    1967 2278 – – 4245
    noninterest floating fixed 
    bearing interest interest index 
     rate rate linked total 
2009    £m £m £m £m £m
available for sale financial assets    01 – – – 01
loans and receivables    2011 – – – 2011
cash and cash equivalents    – 6481 – – 6481
    2011 6481 – – 8493 severn trent plc annual report and accounts 2010 90
notes to the group financial statements continued
for the year ended 31 march 2010
21  financial instruments continued
f financial risk factors continued
interest rate sensitivity analysis
the sensitivity after tax of the group’s profits cash flow and equity including the impact on derivative financial instruments to 
changes in interest rates at 31 march is as follows
     2010 2009
     £m £m £m £m
     10 10 10 10
profit or loss     392 484 658 788
cash flow     187 149 151 140
equity     343 440 672 803
inflation rate sensitivity analysis
the sensitivity after tax of the group’s profits and equity to changes in inflation at 31 march is set out in the following table this 
analysis excludes any impact on severn trent water’s revenues and regulated capital value
     2010 2009
     £m £m £m £m
     10 10 10 10
profit or loss     76 76 75 75
equity     76 76 75 75
exchange rate risk
the group operates internationally and is exposed to foreign exchange risk arising from net investments in foreign operations 
primarily with respect to the us dollar and the euro however since substantially all of the group’s profits and net assets arise from 
severn trent water which has very limited and indirect exposure to changes in exchange rates the sensitivity of the group’s 
results to changes in exchange rates is not material
the group has a significant value of foreign currency debt primarily in yen and euros to manage the foreign exchange risk arising 
from foreign currency debt the group enters into cross currency swaps with external parties
the group’s risk management policy is to hedge 100 of all foreign currency denominated debt at 31 march 2010 all foreign 
currency denominated debt was hedged 2009 100
monetary assets and liabilities by currency excluding functional currency
certain of the group’s subsidiaries operate in markets where the local currency is different from the functional currency of the 
operation exchange risks relating to such operations are managed centrally by group treasury through forward exchange 
contracts to buy or sell currency external foreign exchange contracts are designated at group level as hedges of foreign exchange 
risk on specific assets liabilities or future transactions on a gross basis the net amount of foreign currency assets and liabilities 
and the forward contracts that have been taken out to hedge the exchange risks on these assets and liabilities and on future 
committed transactions are summarised below
     us dollar euro other total 
2010     £m £m £m £m
functional currency of operation
sterling     06 01 01 08
total     06 01 01 08
     us dollar euro other total 
2009     £m £m £m £m
functional currency of operation
sterling     – 06 – 06
euro     284 – – 284
total     284 06 – 278 91 severn trent plc annual report and accounts 2010
financial statements
21  financial instruments continued
f financial risk factors continued
the group’s borrowings are denominated in the following currencies after taking account of cross currency swaps
       2010 2009
       £m £m
sterling       41753 44427
euro       12 24
       41765 44451
the euro denominated borrowings relate to operations in which the euro is the functional currency
ii credit risk
operationally the group has no significant concentrations of credit risk it has policies in place to ensure that sales of products are 
made to customers with an appropriate credit history other than in severn trent water limited whose operating licence obliges it 
to supply domestic customers even in cases where bills are not paid amounts provided against accounts receivable and 
movements on the provision during the year are disclosed in note 23
for financing purposes derivative counterparties and cash transactions are limited to high credit quality financial institutions the 
group has policies that limit the amount of credit exposure to any one financial institution
credit risk analysis
at 31 march the credit limits and amounts deposited analysed by credit ratings of counterparties were as follows
     credit limit amount deposited 
     2010 2009 2010 2009
rating     £m £m £m £m
aaa     3000 4000 355 2198
double a range     4500 5250 896 1129
single a range     5250 3750 586 2538
     12750 13000 1837 5865
the amounts of derivative assets analysed by credit ratings of counterparties were as follows
      interest rate swaps 
      not qualifying for 
     cross currency swaps hedge accounting
     2010 2009 2010 2009
rating     £m £m £m £m
aaa     – – – –
double a range     714 550 194 181
single a range     1159 1821 – –
     1873 2371 194 181
iii liquidity risk
prudent liquidity risk management implies maintaining sufficient cash balances and the availability of funding through an adequate 
amount of committed credit facilities and the ability to close out market positions group treasury manages liquidity and flexibility in 
funding by monitoring forecast and actual cash flows and the maturity profile of financial assets and liabilities and by keeping 
committed credit lines available
at the balance sheet date the group had committed undrawn borrowing facilities of £1917 million expiring between one and two 
years 2009 £ nil and £4583 million 2009 £500 million expiring between two and five years severn trent plc annual report and accounts 2010 92
notes to the group financial statements continued
for the year ended 31 march 2010
21  financial instruments continued
f financial risk factors continued
financial liabilities analysed by maturity date
the following tables detail the group’s remaining contractual maturity for its nonderivative net financial liabilities the information 
presented is based on the earliest date on which the group can be required to pay and represents the undiscounted cash flow 
including principal and interest
   between between between between after more 
  within one and two and five and ten and than twenty  
  one year two years five years ten years twenty years years total 
2010  £m £m £m £m £m £m £m
financial liabilities        
bank loans  2060 104 2127 3419 431 431 8572
other loans  1424 1422 7437 14448 16800 53207 94738
finance leases  562 212 788 1015 958 320 3855
other financial liabilities  284 – – – – – 284
  4330 1738 10352 18882 18189 53958 107449
financial assets
trade receivables  1966 – – – – – 1966
cash and short term deposits  2278 – – – – – 2278
net  86 1738 10352 18882 18189 53958 103205
   between between between between after more 
  within one and two and five and ten and than twenty  
  one year two years five years ten years twenty years years total 
2009  £m £m £m £m £m £m £m
financial liabilities 
bank loans  1229 172 4321 3509 468 – 9699
other loans  2209 1443 4882 22003 12327 48047 90911
finance leases  560 586 773 1329 1061 – 4782
other financial liabilities  463 – – – – – 463
total  4461 2201 9976 26841 13856 48520 105855
financial assets
trade and receivables  2011 – – – – – 2011
cash and short term deposits  6481 – – – – – 6481
net  4031 2201 9976 26841 13856 48520 97363
other loans includes index linked debt with maturities of up to 57 years the principal is revalued at fixed intervals and is linked to 
movements in the retail price index interest payments are made biannually based on the revalued principal the principal repayment 
equals the revalued amount at maturity the calculations above are based on forward inflation rates at the balance sheet date
when the group entered into a £200 million facility it gave certain representations which have subsequently been discovered to be 
inaccurate as a result at 31 march 2010 there was an event of default on this facility and the outstanding amount of £200 million 
has been classified as current liabilities this technical default was in the process of being remedied on 27 may 2010
the following tables detail the group’s liquidity analysis for its derivative financial instruments the tables are based on the 
undiscounted net cash inflowsoutflows on the derivative financial instruments that settle on a net basis and the undiscounted 
gross inflows and outflows on those derivatives that require gross settlement when the amount payable or receivable is not 
fixed the amount disclosed has been determined by reference to the projected interest and foreign currency rates as illustrated by 
the forward curves existing at the balance sheet date 93 severn trent plc annual report and accounts 2010
financial statements
21  financial instruments continued
f financial risk factors continued
      financial assets falling due
   between between between between after more  
  within one and two and five and ten and than twenty   
  one year two years five years ten years twenty years years total 
2010  £m £m £m £m £m £m £m
instruments settled net    
interest rate swaps  80 60 55 03 – – 198
instruments settled gross        
cross currency swaps        
cash receipts  519 482 3037 7537 567 1289 13431
cash payments  330 433 2442 6309 387 607 10508
net cash flow  189 49 595 1228 180 682 2923
total  269 109 650 1231 180 682 3121
      financial liabilities falling due
   between between between between after more  
  within  one and two and five and ten and than twenty   
  one year two years five years ten years twenty years years total 
2010  £m £m £m £m £m £m £m
instruments settled net        
interest rate swaps  445 304 454 261 334 158 1956
energy swaps  01 06 87 10 – – 104
instruments settled gross        
cross currency swaps        
cash receipts  – – – – – – –
cash payments  – – – – – – –
net cash flow  – – – – – – –
total  446 310 541 271 334 158 2060
      financial assets falling due
   between between between between after more 
  within one and  two and five and ten and than twenty  
  one year two years five years ten years twenty years years total 
2009  £m £m £m £m £m £m £m
instruments settled net        
interest rate swaps  63 54 61 18 – – 196
instruments settled gross        
cross currency swaps        
cash receipts  1567 543 2210 9146 559 1591 15616
cash payments  1215 473 1948 7333 437 694 12100
net cash flow  352 70 262 1813 122 897 3516
total  415 124 323 1831 122 897 3712 severn trent plc annual report and accounts 2010 94
notes to the group financial statements continued
for the year ended 31 march 2010
21  financial instruments continued
f financial risk factors continued
      financial liabilities falling due
   between between between between after more 
  within one and two and five and ten and than 
  one year two years five years ten years twenty years twenty years total 
2009  £m £m £m £m £m £m £m
instruments settled net        
interest rate swaps  337 317 390 36 668 425 2173
instruments settled gross        
cross currency swaps        
cash receipts  – – – – – – –
cash payments  – – – – – – –
  – – – – – – –
total  337 317 390 36 668 425 2173
g hedge accounting
the group uses derivative financial instruments to hedge exposures to changes in exchange rates and interest rates hedge 
accounting is adopted for such instruments where the criteria set out in ias 39 are met
i fair value hedges
the group raises debt denominated in currencies other than sterling – principally japanese yen and euro cross currency swaps 
are entered into at the time that the debt is drawn down to swap the proceeds into sterling debt bearing interest based on libor in 
order to mitigate the group’s exposure to exchange rate fluctuations the terms of the receivable leg of the swap closely match the 
terms of the underlying debt hence the swaps are expected to be effective hedges at the year end the amounts of cross currency 
swaps designated as fair value hedges was as follows
     notional 
     principal amount fair value
     2010 2009 2010 2009
     £m £m £m £m
us dollar     270 270 77 99
euro     5480 5500 902 1089
yen     1610 2059 669 857
czech krona     472 657 225 256
other     – 114 – 70
     7832 8600 1873 2371 95 severn trent plc annual report and accounts 2010
financial statements
21  financial instruments continued
g hedge accounting continued
ii cash flow hedges
the group has entered into interest rate swap contracts under which it has agreed to exchange the difference between fixed and 
floating interest rate amounts calculated on agreed notional principal amounts such contracts enable the group to mitigate the risk 
of changing interest rates on the future cash flow exposures arising from issued variable rate debt the group also entered into a 
number of interest rate swap contracts with start dates set at annual intervals throughout the regulatory period such contracts 
enable the group to mitigate the risk of changing interest rates on debt which is highly probable to be issued over the amp5 period 
to fund severn trent water’s capital programme and have been accounted for as cash flow hedges 
the interest rate swaps settle net on a biannual basis the floating rate on the interest rate swaps is six months libor
details of interest rate swaps that have been accounted for as cash flow hedges are summarised below
   average contract notional 
   fixed interest rate principal amount fair value
   2010 2009 2010 2009 2010 2009
period to maturity     £m £m £m £m
less than 1 year   – – – – –
1 to 2 years   – 474 – 1060 – 33
2 to 5 years   – – – – – –
5 to 10 years   – – – – – –
10 to 20 years   507 518 4930 405 95 63
more than 20 years   – – – – – –
     4930 1465 95 96
the group has entered into a series of energy swaps under which it has agreed to exchange the difference between fixed and 
market prices of electricity at sixmonthly intervals between 2013 and 2024
details of energy swaps that have been accounted for as cash flow hedges are summarised below
    average notional 
    contract price contracted amount fair value
   2010 2009 2010 2009 2010 2009
period to maturity   £mwh £mwh mwh mwh £m £m
less than 1 year   356 – 65520 – 01 –
1 to 2 years   439 – 196560 – 10 –
2 to 5 years   524 – 1275456 – 87 –
     1537536 – 98 –
changes in the amounts deferred in equity during the period relating to cash flow hedges were as follows
       2010 2009
       £m £m
fair value gains deferred in equity at start of the period      35 64
fair value losses recognised in equity in the period      132 78
fair value losses transferred to finance costs in the period      76 49
fair value lossesgains deferred in equity at end of the period     21 35
during the period the group has ceased to account for certain forward start swaps as cash flow hedges because the group was 
not able to identify specific debt instruments that would enable the strict hedge accounting criteria of ias 39 to be met when the 
swaps started fair value losses amounting to £35 million relating to these swaps that had been taken directly to equity will be 
transferred to the income statement on a straight line basis over the remaining lives of the swaps any future changes in the fair 
values of the swaps will be recorded in the income statement severn trent plc annual report and accounts 2010 96
notes to the group financial statements continued
for the year ended 31 march 2010
21  financial instruments continued
g hedge accounting continued
details of interest rate swaps that have not been accounted for as cash flow hedges including those where hedge accounting has 
been discontinued in the period are summarised below
   average contract notional 
   fixed interest rate principal amount fair value
   2010 2009 2010 2009 2010 2009
period to maturity     £m £m £m £m
less than 1 year   511 – 3550 – 42 –
1 to 2 years   – 566 – 2490 – 186
2 to 5 years   – – – – – –
5 to 10 years   632 632 2250 2250 386 333
10 to 20 years   – – – – – –
20 to 30 years   532 565 4550 4467 826 1101
     10350 9207 1254 1620
contracts where the group receives fixed interest are summarised below
   average contract notional 
   fixed interest rate principal amount fair value
   2010 2009 2010 2009 2010 2009
period to maturity     £m £m £m £m
5 to 10 years   518 518 2000 2000 194 181
22  inventory
       2010 2009
       £m £m
inventory and work in progress       265 306
23  trade and other receivables
       2010 2009
       £m £m
trade receivables       2884 2941
less provision for impairment of receivables       918 930
trade receivables net       1966 2011
receivables from related parties       02 02
other amounts receivable       424 184
prepayments and accrued income       2336 2274
       4728 4471
the carrying values of trade and other receivables are reasonable approximations of their fair values
prepayments and accrued income include £262 million 2009 £242 million in respect of amounts due from customers for 
contract work and £430 million 2009 £442 million which is recoverable after more than one year
credit control policies and procedures are determined at the individual business unit level by far the most significant business unit 
of the group is severn trent water limited which represents 81 of group turnover and 62 of trade receivables severn trent 
water has a statutory obligation to provide water and sewerage services to customers within its region therefore there is no 
concentration of credit risk with respect to its trade receivables and the credit quality of its customer base reflects the wealth and 
prosperity of all of the commercial businesses and domestic households within its region none of the other business units are 
individually significant to the group 97 severn trent plc annual report and accounts 2010
financial statements
23  trade and other receivables continued
movements on the doubtful debts provision were as follows
       2010 2009
       £m £m
at 1 april       930 834
amounts written off during the year       363 229
charge for bad and doubtful debts       352 319
exchange adjustments       01 06
at 31 march       918 930
included in trade receivables are balances with a carrying amount of £1545 million 2009 £1654 million which were past due at 
the reporting date but for which no specific provision has been made as the collective impairment recorded against such assets is 
considered to be sufficient allowance for the risk of noncollection of such balances
the aged analysis of past due receivables that were not individually impaired is as follows
       2010 2009
       £m £m
0 – 90 days       541 602
91 – 365 days       743 674
1 – 2 years       193 222
2 – 3 years       59 78
more than 3 years       09 78
total       1545 1654
included in the allowance for doubtful debts are provisions against specific trade receivables amounting to £62 million  
2009 £128 million the age of the impaired receivables was as follows
       2010 2009
       £m £m
0 – 90 days       02 01
91 – 365 days       17 26
1 – 2 years       12 15
2 – 3 years       04 08
more than 3 years       31 87
total       66 137
24  cash and cash equivalents
       2010 2009
       £m £m
cash at bank and in hand       441 616
short term bank deposits       1837 5865
       2278 6481
of the £1837 million 2009 £5865 million of short term bank deposits £274 million 2009 £311 million is held as security deposits 
for selfinsurance obligations and is not available for use by the group severn trent plc annual report and accounts 2010 98
notes to the group financial statements continued
for the year ended 31 march 2010
25  finance leases
obligations under finance leases are as follows
       2010 2009
       £m £m
gross obligations under finance leases       3855 4782
less future finance charges       847 1338
present value of lease obligations       3008 3444
a maturity analysis of gross obligations under finance leases is presented in note 21
net obligations under finance leases fall due as follows
       2010 2009
       £m £m
within one year        473 434
in the second year       129 469
in the third to fifth year inclusive       573 477
after more than five years       1833 2064
included in noncurrent liabilities       2535 3010
       3008 3444
the remaining terms of finance leases ranged from 1 to 22 years at 31 march 2010 interest terms are set at the inception of the  
lease leases with capital outstanding of £1540 million 2009 £1684 million bear fixed interest at a weighted average rate of 
54 2009 54 the lease obligations are secured against the related assets
there were no contingent rents escalation clauses or material renewal or purchase options the terms of the finance leases do 
not impose restrictions on dividend payments additional debt or further leasing
26  trade and other payables
       2010 2009
       £m £m
current liabilities
trade payables       284 463
social security and other taxes       60 61
other payables       349 349
accruals and deferred income       3949 3554
       4642 4427
noncurrent liabilities
other payables       03 02
deferred income       2393 2335
accrued expenses       40 74
       2436 2411
the directors consider that the carrying value of trade payables is not materially different from their fair values accruals and 
deferred income includes £nil 2009 £68 million in respect of amounts due to customers for contract work 99 severn trent plc annual report and accounts 2010
financial statements
27  deferred tax
an analysis of the movements in the major deferred tax liabilities and assets recognised by the group is set out below
      fair 
   accelerated retirement  value of 
   tax benefit  financial 
   depreciation obligation tax losses instruments other total 
   £m £m £m £m £m £m
at 1 april 2008   8626 353 87 195 92 8083
charge to income   2028 – 14 238 89 1715
charge to equity   – 300 – 09 33 276
exchange differences   06 – 32 – 12 38
at 1 april 2009   10660 653 105 442 24 9484
charge to income   442 – 27 123 170 422
charge to equity   – 341 – 16 – 357
transfers   510 – – – 510 –
acquisitionsdisposals   04 – – – – 04
exchange differences   02 – 07 – 02 11
at 31 march 2010   11618 994 71 335 654 9564
certain deferred tax assets and liabilities have been offset the offset amounts are as follows
       2010 2009
       £m £m
deferred tax asset to be recovered after more than 12 months     136 262
deferred tax asset to be recovered within 12 months      40 36
       176 298
deferred tax liability to be recovered after more than 12 months     9740 9594
deferred tax liability to be recovered within 12 months      – 188
       9740 9782
       9564 9484
28  retirement benefit schemes
defined benefit schemes
a amount included in the balance sheet arising from the group’s obligations under defined benefit schemes
       2010 2009
       £m £m
fair value of scheme assets  
equities       7457 5428
gilts       2708 2360
corporate bonds       3070 2301
property       611 521
cash       84 140
total fair value of assets       13930 10750
present value of defined benefit obligations – funded schemes     17403 13018
       3473 2268
present value of defined benefit obligations – unfunded schemes     76 62
liability recognised in the balance sheet       3549 2330 severn trent plc annual report and accounts 2010 100
notes to the group financial statements continued
for the year ended 31 march 2010
28  retirement benefit schemes continued
a amount included in the balance sheet arising from the group’s obligations under defined benefit schemes
movements in the fair value of the scheme assets were as follows
       2010 2009
       £m £m
fair value at 1 april       10750 13323
expected return on scheme assets       711 898
contributions from the sponsoring companies       396 420
contributions from scheme members       68 80
actuarial gainslosses recognised in the statement of comprehensive income    2704 3298
benefits paid       699 673
fair value at 31 march       13930 10750
movements in the present value of the defined benefit obligations were as follows
       2010 2009
       £m £m
present value at 1 april       13080 14583
service cost       147 238
interest cost       861 919
curtailment costssettlement costs       74 –
contributions from scheme members       68 80
actuarial lossesgains recognised in the statement of comprehensive income     3948 2067
benefits paid       699 673
present value at 31 march       17479 13080
of which
       2010 2009
       £m £m
amounts relating to funded schemes       17403 13018
amounts relating to the unfunded scheme       76 62
present value at 31 march       17479 13080
b amounts recognised in the income statement in respect of these defined benefit schemes
       2010 2009
       £m £m
amounts charged to operating costs
current service cost       147 233
curtailment charge       74 –
past service cost       – 05
       221 238
amounts charged to finance costs
interest cost       861 919
amounts credited to finance income
expected return on scheme assets       711 898
total amount charged to the income statement      371 259
the actual return on scheme assets was a gain of £3415 million 2009 loss of £2400 million
actuarial gains and losses have been reported in the statement of comprehensive income the cumulative amount of actuarial  
gains and losses recognised in the statement of recognised income and expense since the adoption of ifrss is a net loss of  
£2201 million 2009 net loss of £957 million 101 severn trent plc annual report and accounts 2010
financial statements
28  retirement benefit schemes continued
c background
the group operates a number of defined benefit pension schemes in the uk covering the majority of uk employees the defined 
benefit schemes are funded to cover future salary and pension increases and their assets are held in separate funds administered 
by trustees the trustees are required to act in the best interests of the schemes’ beneficiaries a formal actuarial valuation of each 
scheme is carried out on behalf of the trustees at triennial intervals by an independent professionally qualified actuary under the 
defined benefit schemes members are entitled to retirement benefits calculated as a proportion varying between 
1
 30 and 
1
 80 for 
each year of service of their salary for the final year of employment with the group or if higher the average of the highest three 
consecutive years’ salary in the last ten years of employment the final salary sections of all of the pension schemes listed below 
are closed to new entrants and the age profile of scheme participants is expected to rise and hence service costs are also 
expected to rise in the future
the uk defined benefit schemes and the date of their last formal actuarial valuation are as follows
uk defined benefit scheme      date of last formal actuarial valuation
severn trent pension scheme stps       31 march 2007
severn trent water mirror image pension scheme      31 march 2009
 the stps is by far the largest of the group’s uk defined benefit schemes the severn trent senior staff pension scheme was merged with the stps on 31 march 2009
the group has an obligation to pay pensions to a number of former employees whose benefits would otherwise have been 
restricted by the finance act 1989 earnings cap provision for such benefits amounting to £76 million 2009 £62 million is 
included in an unfunded scheme within the retirement benefit obligation
d actuarial assumptions
the major assumptions used in the valuation of the stps also the approximate weighted average of assumptions used for the 
valuations of all group schemes were as follows
       2010 2009
        
price inflation       360 290
salary increases       410 390
pension decreases in payment       360 300
pension increases in deferment       360 290
discount rate       570 670
long term rate of return on  
equities       800 800
gilts       450 420
corporate bonds       570 670
property       700 610
cash       450 050
the assumption for price inflation is derived from the difference between the yields on longer term fixed rate gilts and on index 
linked gilts the discount rate is based on the annualised yield from the iboxx over 15 year aa rated sterling corporate bond index 
the expected rate of return on scheme assets is based on market expectations at the beginning of the period for returns over the 
life of the benefit obligation for gilts and corporate bonds the expected rates of return are based on market yields for equities an 
equity risk premium has been added to the gilt rate severn trent plc annual report and accounts 2010 102
notes to the group financial statements continued
for the year ended 31 march 2010
28  retirement benefit schemes continued
d actuarial assumptions continued
the mortality assumptions adopted are based on mortality tables applicable to the sex and year of birth of individual members 
with the ‘medium cohort’ allowance for future improvements in longevity for men the assumptions are based on the ‘00’ series 
tables and for women the ‘92’ series both projected to calendar year 2005 with medium cohort improvements to 2005 and a two 
year age rating applied these have been based on a mortality investigation carried out in conjunction with the valuation of the 
stps carried out on behalf of the trustees as at 31 march 2007
the life expectancies implied by the mortality assumptions adopted at each year end are as follows
       2010 2009
age to which current pensioners aged 65 are expected to live
– men years       853 851
– women years       886 882
age to which future pensioners aged 45 at the balance sheet date are expected to live
– men years       865 859
– women years       896 889
the calculation of the scheme liabilities is sensitive to the actuarial assumptions and in particular to the assumptions relating to 
discount rate price inflation and mortality the following table summarises the estimated impact on scheme liabilities and service 
cost resulting from changes to key actuarial assumptions whilst holding all other assumptions constant
assumption change in assumption impact on scheme liabilities
discount rate increasedecrease by 01 decreaseincrease by £34 million
price inflation increasedecrease by 01 increasedecrease by £34 million
mortality increase life expectancy by 1 year increase by £40 million
e contributions to the schemes
contribution rates are set in consultation with the trustees for each scheme and each participating employer it is anticipated that 
normal contributions to the scheme in the year ending 31 march 2011 will be in the order of £30 million and lump sum deficit 
reduction contributions of £10 million are planned subject to the outcome of the ongoing actuarial valuation
f history of actual and expected performance of pension scheme assets and liabilities
    2010 2009 2008 2007 2006
    £m £m £m £m £m
present value of defined benefit obligations    17479 13080 14583 14997 16248
fair value of scheme assets    13930 10750 13323 13646 14029
deficit in the schemes    3549 2330 1260 1351 2219
difference between actual and expected return on scheme assets  2704 3298 1257 106 1791
experience adjustments on scheme liabilities    198 79 643 37 1528
defined contribution schemes
the group also operates defined contribution arrangements for certain of its uk and overseas employees in september 2001 the  
severn trent group pension scheme an occupational defined contribution scheme was established to ensure compliance with 
stakeholder legislation and to provide the group with an alternative pension arrangement this was closed to new entrants on 1 april 
2005 and replaced by the severn trent stakeholder pension scheme
the total cost charged to operating costs of £45 million 2009 £51 million represents contributions payable to these schemes by 
the group at rates specified in the rules of the schemes as at 31 march 2010 all contributions 2009 100 due in respect of the 
current reporting period had been paid over to the schemes 103 severn trent plc annual report and accounts 2010
financial statements
29  provisions
      terminated 
      operations  
    self onerous and 
   restructuring insurance contracts disposals other total 
   £m £m £m £m £m £m
at 1 april 2009   15 232 45 59 45 396
charged to income statement   97 57 75 02 16 243
utilisation of provision   04 68 – 02 32 106
other movements   – – 04 – – 04
exchange differences   01 – – 01 – 02
at 31 march 2010   109 221 124 56 29 539
       2010 2009
       £m £m
included in  
current liabilities       255 92
noncurrent liabilities       284 304
       539 396
the restructuring provision reflects costs to be incurred in respect of committed restructuring programmes
derwent insurance limited a captive insurance company is a wholly owned subsidiary of the group provisions for claims are made as 
set out in note 2 u the associated outflows are estimated to arise over a period of up to five years from the balance sheet date
the onerous or loss making contract provision relates to specific contractual liabilities either assumed with businesses acquired or 
arising in existing group businesses where estimated future costs are not expected to be recovered in revenues the associated 
outflows are estimated to occur over a period of ten years from the balance sheet date
provisions relating to terminated operations and disposals include amounts that it is probable will be paid in respect of claims arising 
from services performed by these businesses and the indemnities described in note 37 b
in 2009 other provisions include £18 million relating to third party legal costs incurred in the conclusion of a severn trent services 
arbitration to settle an interpretation on a long term operating service contract
30  share capital
       2010 2009
       £m £m
total authorised share capital        
434139785 ordinary shares of 97
17
 19p 2009 346783834     4250 3395
total issued and fully paid share capital        
236585205 ordinary shares of 97
17
 19p 2009 235938946     2316 2310
changes in share capital were as follows
       number £m
ordinary shares of 97
17
 19p        
at 1 april 2009      235938946 2310
shares issued at 536p 548p 592p 759p 823p 862p 1172p or 1221p 
under the group’s employee sharesave scheme      639121 06
shares issued at 720p or 738p under the group’s share option scheme    7138 –
at 31 march 2010       236585205 2316 severn trent plc annual report and accounts 2010 104
notes to the group financial statements continued
for the year ended 31 march 2010
31  share premium
       2010 2009
       £m £m
at 1 april       719 643
share premium arising on issue of shares for employee share option scheme    40 76
at 31 march       759 719
32  other reserves
    capital  translation  total 
    redemption infrastructure exchange hedging other 
    reserve reserve reserve reserve reserves 
    £m £m £m £m £m
at 1 april 2008    1561 3142 25 404 4274
total comprehensive incomeloss for the period   – – 433 20 413
at 1 april 2009    1561 3142 408 424 4687
total comprehensive loss for the period    – – 91 40 131
at 31 march 2010    1561 3142 317 464 4556
the capital redemption reserve arose on the redemption of b shares
the infrastructure reserve arose on restating infrastructure assets to fair value as deemed cost on transition to ifrs
the translation reserve arises from exchange differences on translation of the results and financial position of foreign subsidiaries 
as well as foreign exchange differences arising from hedges of net investment
the hedging reserve arises from gains or losses on interest rate swaps taken directly to equity under the hedge accounting 
provisions of ias 39 and the transition rules of ifrs 1
33  share based payments
the group operates a number of share based remuneration schemes for employees during the period the group recognised total 
expenses of £51 million 2009 £53 million related to equity settled share based payment transactions
the weighted average share price during the period was £1050 2009 £1270
at 31 march the number of shares that were exercisable under each of the share based remuneration schemes was as follows
     2010 2009
     number of weighted number of weighted
     exercisable average exercisable average
     options exercise options exercise
     awards price awards price
long term incentive plan     – – – –
employee sharesave scheme     525098 870p 626053 715p
approved share option scheme     3125 720p 4759 724p
unapproved share option scheme     35259 728p 40763 728p
     563482  671575 
i long term incentive plan ltip
under the ltip annual conditional awards of shares may be made to executive directors and senior staff awards are subject to  
performance conditions and continued employment throughout the vesting period awards have been made on different bases to 
severn trent plc and severn trent water employees the ltip and to severn trent services employees the services ltip during 
the year awards over 163421 shares 2009 123743 shares with a fair value each of £541 2009 £749 were made to 21 
employees 2009 23 employees under the ltip 
the services ltip awards vest in three equal tranches and are subject to achievement of turnover and profit targets in the years 
ending 31 march 2011 2012 and 2013 no awards have been made to employees under the services ltip during the year 2009 
awards over 118489 shares to 13 employees
the ltip awards are subject to total shareholder return over three years measured relative to the companies ranked 51–150 by 
market capitalisation in the ftse index excluding investment trusts 
details of changes in the number of awards outstanding during the year are set out below 105 severn trent plc annual report and accounts 2010
financial statements
33  share based payments continued
      number of awards
       ltip services ltip
outstanding at 1 april 2008       894529 –
granted during the year       123743 118489
vested during the year       227490 –
cancelled during the year       4799 –
lapsed during the year       203801 –
outstanding at 1 april 2009       582182 118489
granted during the year       163421 –
cancelled during the year       17131 8049
lapsed during the year       334989 –
outstanding at 31 march 2010       393483 110440
details of ltip awards outstanding at 31 march were as follows
      number of shares
date of grant    normal date of vesting 2010 2009
june 2006    2009 – 334990
july 2007    2010 121223 123449
july 2008    2011 153528 163240
july 2008    2012 36813 39496
july 2008    2013 36813 39496
july 2009    2012 155546 –
     503923 700671
the fair value of the ltip awards made during the year was calculated using the monte carlo method using the principal 
assumptions set out below
assumptions       2010 2009
expected volatility
severn trent plc        25 17
– comparator group       45 30
correlation between severn trent plc and comparator group     30 30
proportion of employees expected to cease employment before vesting    0 0
severn trent share price volatility is based on observations of historical weekly volatility over a three year period weekly volatility 
in the observed data varied between 10 and 40
for the 200910 ltip award and the 200809 award the comparator group is the companies ranked 51–150 in the ftse index 
comparator group volatility was therefore based on observed volatility for the ftse 250 index correlation between severn trent 
and the comparator group was based on the average pairwise correlation for companies in the ftse 250
the share price at the grant date was £1134 2009 £1280 the vesting period commences before the grant date performance 
in the vesting period prior to the grant date is taken into account in determining the fair value of the award
dividends ‘paid’ on shares during the vesting period are accumulated during the vesting period and released subject to 
achievement of the performance condition in the same manner as the underlying shares as a result a dividend yield assumption 
is not required
the 2009 services ltip is based entirely on nonmarket conditions and hence market assumptions are not required to determine 
the fair value of the award for 2010 it has been assumed that performance against the services ltip nonmarket vesting 
conditions will be 78
details of the basis of the ltip schemes are set out in the remuneration report on page 50
ii employee sharesave scheme
under the terms of the sharesave scheme the board may grant the right to purchase ordinary shares in the company to those 
employees who have entered into an hmrc approved save as you earn contract for a period of three or five years severn trent plc annual report and accounts 2010 106
notes to the group financial statements continued
for the year ended 31 march 2010
33  share based payments continued
details of changes in the number of options outstanding during the year are set out below
        weighted 
       number average 
       of share exercise 
       options price
outstanding at 1 april 2008       4033637 843p
granted during the year       1671207 862p
forfeited during the year       59628 937p
cancelled during the year       568290 1093p
exercised during the year       1321735 660p
expired during the year       30379 735p
outstanding at 1 april 2009       3724812 887p
granted during the year       922888 806p
forfeited during the year       95659 1007p
cancelled during the year       320240 981p
exercised during the year       639121 715p
expired during the year       25612 953p
outstanding at 31 march 2010       3637068 899p
sharesave options outstanding at 31 march were as follows
      number of share options
date of grant  normal date of exercise option price 2010 2009
january 2002  2009 548p – 69236
january 2003  2008 or 2010 536p 73017 77253
january 2004  2009 or 2011 592p 53862 266288
january 2005  2008 2010 or 2012 759p 332581 346747
january 2006  2009 2011 or 2013 823p 239385 597749
january 2007  2010 2012 or 2014 1172p 286787 351518
january 2008  2011 or 2013 1221p 252683 347912
january 2009  2012 or 2014 862p 1411857 1668109
january 2010  2013 or 2015 808p 987096 –
      3637068 3724812
the fair value of the sharesave options granted during the year was calculated using the blackscholes model the principal 
assumptions were as follows
     2010 2009
assumptions     3 year  5 year  3 year 5 year
expected volatility     25 25 17 17
risk free rate     180 278 224 274
expected dividend yield     40 40 40 40
proportion of employees expected to cease employment before vesting  150 170 150 170
fair value per share     264p 280p 272p 268p
expected volatility is based on observations of historical weekly volatility over a three year period weekly volatility in the observed 
data was between 10–40
the risk free rate is derived from yields at the grant date of gilts of similar duration to the sharesave contracts
the proportion of employees expected to cease employment before vesting is based on historically observed data
the following data was used in the calculation of the fair value of the sharesave options
     2010 2009
     3 year scheme 5 year scheme 3 year scheme 5 year scheme
share price at grant date     1080p 1080p 1189p 1189p
vesting period years     3 3 3 5
option life years     35 35 35 55 107 severn trent plc annual report and accounts 2010
financial statements
33  share based payments continued
the number of employees entering into sharesave contracts and the number of options granted during the year were as follows
     2010 2009
     3 year scheme 5 year scheme 3 year scheme 5 year scheme
number of employees     1602 563 2007 869
number of options granted     586381 405652 931272 739935
iii share incentive plan sip
under the sip the board may grant share awards to employees of group companies during the year the board has announced 
that it will make awards under the sip based on performance against severn trent water’s targets for its key performance 
indicators eligible employees will be entitled to shares to a maximum value of £750 it is expected that these awards will be made 
in august 2010 sip shares vest with the employees on the date of grant
iv approved share option scheme
under the terms of the share option scheme formerly executive share option scheme the board has granted directors and other 
executives options to purchase ordinary shares in the company no awards have been made under this scheme since july 2003
        weighted 
       number average 
       of share exercise 
       options price
outstanding at 1 april 2008       12012 770p
forfeited during the year       3415 638p
exercised during the year       3838 899p
outstanding at 1 april 2009       4759 724p
exercised during the year       1634 731p
outstanding at 31 march 2010       3125 720p
options outstanding under this scheme at 31 march were as follows
      number of shares
date of grant  normal date of exercise option price 2010 2009
june 2001  2004 – 2011 738p – 1016
july 2002  2005 – 2012 720p 3125 3743
    3125 4759
v unapproved share option scheme
the board has granted executives options to purchase ordinary shares in the company under an unapproved share option 
scheme no awards have been made under this scheme since july 2003
details of the movements in the share awards outstanding during the year are as follows
        weighted 
       number average 
       of share exercise 
       options price
outstanding at 1 april 2008       49304 724p
exercised during the year       8541 670p
outstanding at 1 april 2009       40763 728p
exercised during the year       5504 728p
outstanding at 31 march 2010       35259 728p
options outstanding under this scheme at 31 march were as follows
      number of shares
date of grant  normal date of exercise option price 2010 2009
july 2001  2004 – 2011 738p 16274 18848
june 2002  2005 – 2012 720p 18985 21915
    35259 40763 severn trent plc annual report and accounts 2010 108
notes to the group financial statements continued
for the year ended 31 march 2010
34  acquisitions
on 13 may 2009 the group acquired 100 per cent of the issued share capital of ps apliclor sa for cash consideration  
of £132 million this transaction has been accounted for by the purchase method of accounting
       book value fair value
        £m £m
net assets acquired    
intangible assets       02 02
tangible assets       04 05
financial assets       – –
inventory       14 14
accounts receivable       37 41
borrowings amounts falling due within one year      15 16
accounts payable       15 16
borrowings amounts falling due after more than one year      01 01
        26 29
goodwill       – 103
total consideration         132
satisfied by    
cash         132
the goodwill arising on the acquisition of ps apliclor is attributable to the anticipated profitability of the company 
ps apliclor contributed £67 million to revenue and £02 million to profit before tax for the period between the date of acquisition and 
the balance sheet date
35  cash flow statement
a reconciliation of operating profit to operating cash flows
       2010 2009
       £m £m
profit before interest and tax        5074 4510
depreciation of property plant and equipment       2361 2237
amortisation of intangible assets       252 242
exceptional impairment and depreciation       66 –
pension service cost       147 238
pension curtailment cost       74 –
pension contributions       396 420
share based payments charge       51 53
profit on sale of property plant and equipment       45 40
loss on disposal of businesses       17 –
deferred income released       74 53
provisions charged to income statement       242 108
utilisation of provisions for liabilities and charges      105 489
decreaseincrease in stocks       39 27
increase in debtors       264 92
decreaseincrease in creditors       359 168
cash generated from operations       7080 6435
tax paidreceived       538 11
net cash inflow from operating activities       6542 6446
b noncash transactions
no additions to property plant and equipment during the year were financed by new finance leases 2009 £nil 109 severn trent plc annual report and accounts 2010
financial statements
35  cash flow statement continued
c exceptional cash flows
the following cash flows arose from items classified as exceptional in the income statement
 
       2010 2009
       £m £m
restructuring costs       159 162
fines and penalties       20 400
third party legal costs       – 14
loss on disposal of business       09 –
       188 576
d reconciliation of movement in cash and cash equivalents to movement in net debt
 
  as at   rpi uplift  other as at
  1 april cash fair value on index foreign noncash 31 march
  2009 flow adjustments linked debt exchange movements 2010
  £m £m £m £m £m £m £m
cash and cash equivalents  6481 4199 – – 04 – 2278
bank loans  7898 1002 – 21 – 23 6898
other loans  33109 788 223 157 01 395 31859
finance leases  3444 432 – – – 04 3008
net debt as previously stated  37970 1977 223 136 03 376 39487 
cross currency swaps hedging debt  2371 – 109 – – 389 1873
net debt  35599 1977 114 136 03 13 37614
36  contingent liabilities
a bonds and guarantees
group undertakings have entered into bonds and guarantees in the normal course of business no liability is expected to arise in 
respect of either bonds or guarantees
b disposal of subsidiaries
the group has given certain guarantees and indemnities in relation to disposals of businesses
on 5 march 2007 the group received notice of a claim for €234 million from veolia proprete sa veolia alleging breach of 
warranty in relation to the disposal of biffa belgium the group has subsequently received notice from veolia of a further claim for 
€5 million relating to the same matter the group considers that there is no basis for this claim and hence no provision has been 
recorded in the financial statements in relation to this matter following a hearing in the commercial court in belgium in february 
2010 the court rendered judgment in favour of the group on 1 april 2010 and declared all of veolia’s claims to be unfounded
the group is not aware of any other liability that is likely to result from these guarantees and indemnities that has not been 
provided for in these financial statements severn trent plc annual report and accounts 2010 110
notes to the group financial statements continued
for the year ended 31 march 2010
37  financial and other commitments
a investment expenditure commitments
       2010 2009
       £m £m
contracted for but not provided in the financial statements      3210 1817
in addition to these contractual commitments severn trent water limited has longer term expenditure plans which include 
investments to achieve improvements in performance mandated by the director general of water services ofwat and to provide 
for growth in demand for water and sewerage services
b leasing commitments
at the balance sheet date the group had outstanding commitments for future minimum operating lease payments under 
noncancellable operating leases which fall due as follows
       2010 2009
       £m £m
within one year       49 68
in the second to fifth years inclusive       90 134
after more than five years       49 82
       188 284
operating lease payments represent rentals payable by the group for certain of its office properties plant and equipment
38  post balance sheet events
following the year end the board of directors has proposed a final dividend of 4561 pence per share further details of this are 
shown in note 14
39  related party transactions
transactions between the company and its subsidiaries which are related parties have been eliminated on consolidation and are 
not included in this note transactions between the group and its associates and joint ventures are disclosed below
trading transactions
    amounts due from amounts due to 
  sale of goods purchase of goods related parties related parties
 2010 2009 2010 2009 2010 2009 2010 2009
 £m £m £m £m £m £m £m £m
cognica – – 01 01 – – – –
sii 105 94 – – 155 138 – –
jackson water partnership 50 14 – – 15 17 – –
 155 108 01 01 170 155 – –
the related parties are associates and joint ventures in which the group has a participating interest
remuneration of key management personnel
key management personnel comprise the members of stec
the remuneration of the directors is included within the amounts disclosed below further information about the remuneration of 
individual directors is provided in the audited part of the directors’ remuneration report on pages 54 to 57
       2010 2009
       £m £m
short term employee benefits       55 62
post employment benefits       06 07
termination benefits       03 –
share based payments       05 08
       69 77 111 severn trent plc annual report and accounts 2010
financial statements
40   principal subsidiary undertakings and  
their directors
details of the principal operating subsidiaries are given below  
a complete list of subsidiary undertakings is available on 
request to the company and will be filed with the next  
annual return
severn trent water
severn trent water limited
2297 coventry road  
birmingham b26 3pu 
telephone 0121 722 4000
directors
sir john egan m j lamb
a j ballance m j kane
b bulkin m j e mckeon
r h davey baroness noakes
a j duff a p smith
g fryett a p wray
severn trent services
severn trent services inc
suite 300 580 virginia drive
fort washington pennsylvania 19034 2707 usa
telephone 001 215 646 9201
incorporated and operational in the united states of america
directors
d l chester l f graziano
severn trent environmental services inc
park 10 16337 park row
houston texas 77084 usa
telephone 001 281 578 4200
incorporated and operational in the united states of america
directors
d l chester k j kelly
l f graziano
severn trent services limited
arley drive birch coppice business park  
dorden tamworth b78 1sa
telephone 01827 266000
directors
l f graziano k a a porritt
r c mcpheely p m senior
severn trent water purification inc
3000 advance lane  
colmar pennsylvania 18915 usa
telephone 001 215 997 4000
incorporated and operational in the united states of america
directors
d l chester k j kelly
l f graziano
severn trent services international limited
2308 coventry road  
birmingham b26 3jz
telephone 0121 722 6000
directors
l f graziano k a a porritt
r c mcpheely p m senior
c2c services limited  
80 owned
2308 coventry road  
birmingham b26 3jz
telephone 0121 722 6000
directors
d godfrey r j phillips
a j handford w g weatherdon
b m horner e a wilson
severn trent laboratories limited
stl business centre torrington avenue
coventry cv4 9gu
telephone 0247 642 1213
directors
l f graziano k a a porritt
r c mcpheely p m senior
other businesses
derwent insurance limited
6a queensway po box 64  
gibraltar
telephone 00 350 200 47529
insurance company incorporated and operational in gibraltar
directors
j davies f b smith
n feetham f white
severn trent luxembourg overseas holdings sa
1a rue thomas edison l1445 strassen  
luxembourg
finance company registered and operational in luxembourg
directors
d l chester x pauwels 
l f graziano d robyns 
m j e mckeon f b smith
country of incorporation and main operation is great britain 
and registration is england and wales unless otherwise stated 
all subsidiary undertakings are wholly owned unless otherwise 
indicated all shareholdings are in ordinary shares
all subsidiary undertakings have been included in the 
consolidation
as at 27 may 2010 severn trent plc annual report and accounts 2010 112
independent auditors’ report to the members of 
severn trent plc
we have audited the parent company financial statements of 
severn trent plc for the year ended 31 march 2010 which 
comprise the company balance sheet the company statement 
of total recognised gains and losses and the related notes 1 to 
19 the financial reporting framework that has been applied in 
their preparation is applicable law and united kingdom 
accounting standards united kingdom generally accepted 
accounting practice
this report is made solely to the company’s members as a 
body in accordance with chapter 3 of part 16 of the 
companies act 2006 our audit work has been undertaken so 
that we might state to the company’s members those matters 
we are required to state to them in an auditors’ report and for 
no other purpose to the fullest extent permitted by law we do 
not accept or assume responsibility to anyone other than the 
company and the company’s members as a body for our audit 
work for this report or for the opinions we have formed
respective responsibilities of directors and auditors
as explained more fully in the directors’ responsibilities 
statement the directors are responsible for the preparation  
of the parent company financial statements and for being 
satisfied that they give a true and fair view our responsibility  
is to audit the parent company financial statements in 
accordance with applicable law and international standards  
on auditing uk and ireland those standards require us to 
comply with the auditing practices board’s apb’s ethical 
standards for auditors
scope of the audit of the financial statements
an audit involves obtaining evidence about the amounts  
and disclosures in the financial statements sufficient to  
give reasonable assurance that the financial statements  
are free from material misstatement whether caused by  
fraud or error this includes an assessment of whether the 
accounting policies are appropriate to the parent company’s 
circumstances and have been consistently applied and 
adequately disclosed the reasonableness of significant 
accounting estimates made by the directors and the overall 
presentation of the financial statements
opinion on financial statements
in our opinion the parent company financial statements
• give a true and fair view of the state of the parent company’s 
affairs as at 31 march 2010 
• have been properly prepared in accordance with united 
kingdom generally accepted accounting practice and
• have been prepared in accordance with the requirements of 
the companies act 2006
opinion on other matters prescribed by the companies 
act 2006
in our opinion
• the part of the directors’ remuneration report to be audited 
has been properly prepared in accordance with the 
companies act 2006 and
• the information given in the directors’ report for the financial 
year for which the financial statements are prepared is 
consistent with the parent company financial statements
matters on which we are required to report by exception
we have nothing to report in respect of the following matter 
where the companies act 2006 requires us to report to you  
if in our opinion
• adequate accounting records have not been kept by the 
parent company or returns adequate for our audit have not 
been received from branches not visited by us or
• the parent company financial statements and the part of the 
directors’ remuneration report to be audited are not in 
agreement with the accounting records and returns or
• certain disclosures of directors’ remuneration specified by 
law are not made or
• we have not received all the information and explanations we 
require for our audit
other matter
we have reported separately on the group financial statements 
of severn trent plc for the year ended 31 march 2010
douglas king senior statutory auditor 
for and on behalf of deloitte llp 
chartered accountants and statutory auditors  
london uk 
27 may 2010 severn trent plc annual report and accounts 2010 113
financial statements
company balance sheet
at 31 march 2010
       2010 2009
      note £m £m
fixed noncurrent assets        
tangible fixed assets      2 04 05
investments in subsidiaries      3 36093 33907
derivative financial instruments       210 224
       36307 34136
current assets   
debtors      4 563 588
derivative financial instruments       28 177
cash at bank and in hand       2390 4180
       2981 4945
creditors amounts falling due within one year      5 7461 10413
net current liabilities       4480 5468
total assets less current liabilities       31827 28668
creditors amounts falling due after more than one year     6 4666 1431
net assets       27161 27237
capital and reserves attributable to the company’s equity shareholders
called up share capital      8 2316 2310
share premium account      9 759 719
other reserves      10 1486 1463
retained earnings      11 22600 22745
equity attributable to the company’s equity shareholders    11 27161 27237 
signed on behalf of the board who approved the accounts on 27 may 2010
sir john egan michael mckeon
chairman finance director
company statement of total recognised  
gains and losses
for the year ended 31 march 2010
       2010 2009
       £m £m
transfers        
transfers to profit and loss account on cash flow hedges      32 32
deferred tax on transfers to profit and loss account      09 09
       23 23
profit for the period       1400 1133
total recognised gains and losses for the period      1423 1156
company number 2366619 severn trent plc annual report and accounts 2010 114
notes to the company financial statements
1  accounting policies
a basis of accounting
the financial statements have been prepared under the 
historical cost convention as modified by the revaluation of 
financial assets and liabilities including derivative instruments 
at fair value through profit or loss and in accordance with 
applicable united kingdom accounting standards and comply 
with the requirements of the united kingdom companies act 
2006 the act
b tangible fixed assets and depreciation
tangible fixed assets are included at cost less accumulated 
depreciation freehold land is not depreciated other assets 
are depreciated on a straight line basis over their estimated 
economic lives which are principally as follows
  years
buildings  30 – 60
vehicles computers and software  2 – 15
c leased assets
where assets are financed by leasing arrangements which 
transfer substantially all the risks and rewards of ownership of 
an asset to the lessee finance leases the assets are 
accounted for as if they had been purchased and the fair 
values of minimum lease payments are shown as an 
obligation to the lessor lease payments are treated as 
consisting of a capital element and a finance charge the 
capital element reducing the obligation to the lessor and the 
finance charge being written off to the profit and loss account 
over the period of the lease in proportion to the capital 
amount outstanding depreciation is charged over the shorter 
of the estimated useful life and the lease period all other 
leases are accounted for as operating leases rental costs 
arising under operating leases are charged to the profit and 
loss account on a straight line basis over the life of the lease
d impairment of fixed assets and investments
impairments of fixed assets and investments are calculated as 
the difference between the carrying values of net assets of 
income generating units including where appropriate investments 
and goodwill and their recoverable amounts recoverable 
amount is defined as the higher of net realisable value or 
estimated value in use at the date the impairment review is 
undertaken net realisable value represents the net amount that 
can be generated through sale of assets value in use represents 
the present value of expected future cash flows discounted on a 
pretax basis using the estimated cost of capital of the income 
generating unit impairment reviews are carried out if there is 
some indication that an impairment may have occurred or where 
otherwise required to ensure that goodwill and fixed assets are 
not carried above their estimated recoverable amounts 
impairments are recognised in the profit and loss account and 
where material are disclosed as exceptional
e financial instruments
the company has taken advantage of the exemption in 
frs29 “financial instruments disclosures” not to provide 
the detailed disclosures of financial instruments set out in that 
standard since these are provided on a consolidated basis in 
the group financial statements
i debt instruments
all loans and borrowings are initially recognised at cost being 
the net fair value of the consideration received after initial 
recognition interestbearing loans and borrowings are 
subsequently measured at amortised cost using the effective 
interest rate method where a loan or borrowing is in a fair 
value hedging relationship it is remeasured for changes in fair 
value of the hedged risk at the balance sheet date with gains 
or losses being recognised in the profit and loss account  
see below
gains and losses are recognised in the profit and loss 
account when the liabilities are derecognised or impaired as 
well as through the amortisation process
ii derivative financial instruments and hedging activities
the company uses derivative financial instruments such as 
cross currency swaps forward currency contracts and 
interest rate swaps to hedge its risks associated with foreign 
currency and interest rate fluctuations such derivative 
instruments are initially recorded at cost and subsequently 
remeasured at fair value for the reported balance sheet the 
fair value of cross currency swaps interest rate swaps and 
forward currency contracts is calculated by reference to 
market exchange rates and interest rates at the period end
in relation to fair value hedges which meet the conditions for 
hedge accounting the gain or loss on the hedging instrument 
is taken to the profit and loss account where the effective 
portion of the hedge will offset the gain or loss on the hedged 
item see above
in relation to cash flow hedges which meet the conditions for 
hedge accounting the portion of the gain or loss on the 
hedging instrument that is determined to be an effective 
hedge is recognised directly in reserves and the ineffective 
portion in the profit and loss account the gains or losses 
deferred in reserves in this way are recycled through the profit 
and loss account in the same period in which the hedged 
underlying transaction or firm commitment is recognised in 
the profit and loss account
for derivatives that do not qualify for hedge accounting gains 
or losses are taken directly to the profit and loss account in 
the period
hedge accounting is discontinued when the hedging 
instrument expires is sold terminated or exercised or no 
longer qualifies for hedge accounting at that date any 
cumulative gain or loss on the hedging instrument recognised 
in reserves is kept in reserves until the forecast transaction 
occurs or transferred to the profit and loss account if the 
forecast transaction is no longer expected to occur
derivatives embedded in other financial instruments or other 
host contracts are treated as separate derivatives when their 
risks and characteristics are not closely related to those of the 
host contract or the host contract is not carried at fair value 
with gains and losses reported in the profit and loss account 115 severn trent plc annual report and accounts 2010
financial statements
2  tangible fixed assets
      land and plant and 
      buildings equipment total 
      £m £m £m
cost        
at 1 april 2009      07 05 12
additions      – 01 01
at 31 march 2010      07 06 13
depreciation
at 1 april 2009      07 – 07
charge for year      – 02 02
at 31 march 2010      07 02 09
net book value        
at 31 march 2010      – 04 04
at 31 march 2009      – 05 05
3  investments
      subsidiary undertakings
      shares loans total 
      £m £m £m
at 1 april 2009      32252 1655 33907
additionsloans advanced      629 1557 2186
at 31 march 2010      32881 3212 36093
details of the principal subsidiaries of the company are given in note 40 of the group financial statements
1  accounting policies continued
f investments 
investments in subsidiary undertakings are held at  
historical cost
after initial recognition at cost being the fair value of the 
consideration paid investments which are classified as held 
for trading or available for sale are measured at fair value 
with gains or losses recognised in income or equity 
respectively when an available for sale investment is 
disposed of or impaired the gain or loss previously 
recognised in reserves is taken to the profit and loss account
other investments are classified as held to maturity when the 
company has the positive intention and ability to hold to 
maturity investments held for an undefined period are 
excluded from this classification such investments and those 
held to maturity are subsequently measured at amortised 
cost using the effective interest rate method with any gains or 
losses being recognised in the profit and loss account
g share based payments
the company operates a number of equity settled share based 
compensation plans for employees the fair value of the 
employee services received in exchange for the grant is 
recognised as an expense over the vesting period of the grant
the fair value of employee services is determined by 
reference to the fair value of the awards granted calculated 
using a pricing model excluding the impact of any nonmarket 
conditions the number of awards expected to vest takes into 
account nonmarket vesting conditions including where 
appropriate continuing employment by the group the charge 
is adjusted to reflect shares that do not vest as a result of 
failing to meet a nonmarket based condition
h cash flow statement
the company has taken advantage of the exemption under 
financial reporting statement 1 ‘cash flow statements’ and 
not produced a cash flow statement
i deferred taxation
deferred taxation is fully provided for in respect of timing 
differences between the treatment of certain items for taxation 
and accounting purposes only to the extent that the group has 
an obligation to pay more tax in the future or a right to pay less 
tax in the future deferred tax assets are only recognised to the 
extent that taxable profits are expected to arise in the future 
material deferred taxation balances arising are discounted by 
applying an appropriate risk free discount rate
j pensions
the company participates in the group’s defined benefit and 
defined contribution pension schemes details of which are 
set out in note 28 to the group financial statements however 
the company is currently unable to identify its share of assets 
and liabilities relating to the defined benefit schemes the 
pension costs charged against the operating profit are the 
contributions payable to the scheme in respect of the 
accounting period in respect of the defined benefit and 
defined contribution schemes severn trent plc annual report and accounts 2010 116
notes to the company financial statements continued
4  debtors
       2010 2009
       £m £m
amounts owed by group undertakings       35 316
deferred tax       101 118
corporation tax recoverable       383 154
other debtors       01 –
prepayments and accrued income       43 –
       563 588
5  creditors amounts falling due within one year
       2010 2009
       £m £m
bank overdrafts       914 247
other loans       106 653
borrowings note 7       1020 900
derivative financial instruments       20 –
trade creditors       02 –
amounts due to group undertakings       6355 9365
other creditors       56 60
taxation and social security       – –
accrued expenses       08 88
       7461 10413
6  creditors amounts falling due after more than one year
       2010 2009
       £m £m
borrowings – other loans note 7       778 869
amounts due to group undertakings       3502 104
derivative financial instruments       386 458
       4666 1431
7  borrowings
borrowings analysed by maturity date
       2010 2009
       £m £m
borrowings due within one year       1020 900
borrowings due after one year       
between one and two years       – 106
between two and five years       558 215
after more than five years       220 548
total borrowings due after one year       778 869
       1798 1769 117 severn trent plc annual report and accounts 2010
financial statements
7  borrowings continued
financial liabilities analysed by interest rate after taking into account of interest rate swaps entered into by the company
 
  noninterest floating fixed 
  bearing liabilities interest rate interest rate  
2010  £m £m £m total
bank loans and overdrafts     – 914 – 914
other loans     – 884 – 884
other financial liabilities     02 – – 02
     02 1798 – 1800
impact of interest rate swaps not matched against specific  
debt instruments     – 3000 3000 –
     02 1202 3000 1800
weighted average interest rate      63
weighted average period for which interest is fixed years     42
  noninterest floating fixed 
  bearing liabilities interest rate interest rate  
2009  £m £m £m total
bank loans and overdrafts     – 247 – 247
other loans     – 1522 – 1522
finance leases     – – – –
other financial liabilities     – – – –
     – 1769 – 1769
impact of interest rate swaps not matched against specific  
debt instruments     – 3000 3000 – 
     – 1231 3000 1769
weighted average interest rate      64
weighted average period for which interest is fixed     52
the company’s borrowings are denominated in sterling after taking into account cross currency swaps the company has entered 
into there is no difference between the book value and the fair value of the company’s borrowings
the fair values are based on expected future cash flows discounted using zero coupon forward interest rates related to the 
expected timing of payments
at the balance sheet dates the company had committed undrawn borrowing facilities of £417 million 2009 nil expiring between 
one and two years and £4583 million 2009 £500 million expiring between two and five years 2009 two and five years severn trent plc annual report and accounts 2010 118
notes to the company financial statements continued
8  share capital
       2010 2009
       £m £m
total authorised share capital        
434139785 ordinary shares of 97
17
 19p 2009 346783834 ordinary shares of 97
17
 19p   4250 3395
total issued and fully paid share capital        
236585205 ordinary shares of 97
17
 19p 2009 235938946 ordinary shares of 97
17
 19p   2316 2310
changes in share capital were as follows
       number £m
ordinary shares of 97
17
 19p      235938946 2310
at 1 april 2009        
shares issued at 536p 548p 592p 759p 823p 862p 1172p or 1221p   
under the group’s employee sharesave scheme      614269 06
shares issued at 720p and 738p under the group’s share option scheme    3548 –
at 31 march 2010      236556763 2316
9  share premium
       2010 2009
       £m £m
at 1 april       719 643
share premium arising on issue of shares for employee share option scheme    40 76
at 31 march       759 719
10  other reserves
      capital 
      redemption hedging total other 
      reserve reserve reserves 
      £m £m £m
at 1 april 2008      1561 121 1440
transfers to the profit and loss account on cash flow hedges    – 23 23
at 1 april 2009      1561 98 1463
transfers to the profit and loss account on cash flow hedges    – 23 23
at 31 march 2010      1561 75 1486
the capital redemption reserve arose on the repurchase of b shares this is not distributable 119 severn trent plc annual report and accounts 2010
financial statements
11  reconciliation of shareholders’ equity
        equity 
        attributable 
        to the equity 
    share share other retained holders of 
    capital premium reserves earnings severn trent plc 
    £m £m £m £m £m
at 1 april 2008    2297 643 1440 23149 27529
cash flow hedges        
– transfers to net profit    – – 23 – 23
share options and ltips        
– proceeds from shares issued    13 76 – – 89
– value of employees’ services    – – – 01 01
– awards granted by subsidiaries    – – – 52 52
– tax and social security paid on awards vesting   – – – 02 02
net profit for the year    – – – 1133 1133
dividends    – – – 1588 1588
at 1 april 2009    2310 719 1463 22745 27237
cash flow hedges        
– transfers to net profit    – – 23 – 23
share options and ltips        
– proceeds from shares issued    06 40 – – 46
– awards granted by subsidiaries    – – – 52 52
net profit for the year    – – – 1400 1400
dividends    – – – 1597 1597
at 31 march 2010    2316 759 1486 22600 27161
in previous years £12212 million of the company’s retained profit arose as a result of group restructuring exercises and is not 
considered likely to be distributable as permitted by section 408 of the companies act 2006 no profit or loss account is 
presented for the company
12  employee costs and auditors’ remuneration
       2010 2009
       £m £m
wages and salaries       12 14
social security costs       01 01
pension costs       08 28
total employee costs       21 43
for details of directors’ remuneration see the directors’ remuneration report on pages 54 to 57
auditors’ fees in respect of the company were £76000 2009 £77000 for full details of the fees paid to the auditors by the 
group see note 7 to the group financial statements
fees payable to deloitte llp and their associates for nonaudit services to the company are not required to be disclosed because 
the consolidated financial statements are required to disclose such fees on a consolidated basis
13  employee numbers
average number of employees of the company including executive directors during the year was 11 2009 10 all were based in 
the united kingdom
14  employee share schemes
for details of employee share schemes and options granted over the shares of the company see note 33 of the consolidated financial 
statements details of ltip conditional awards and share options granted by the company to its employees are set out below
the company has charged £nil 2009 £01 million to the profit and loss account in respect of share based payments severn trent plc annual report and accounts 2010 120
notes to the company financial statements continued
14  employee share schemes continued
at 31 march the number of options that were exerciseable under each of the share based remuneration schemes was as follows
     2010 2009
     number of weighted number of weighted
     exercisable average exercisable average
     options exercise options exercise
     awards price awards price
long term incentive plan     – – – –
employee sharesave scheme     161 1172p 1237 598p
     161  1237  
i long term incentive plan ltip
changes in the number of awards outstanding during the year
        number of  
        awards
outstanding at 1 april 2008        423554
granted during the year        3566
vested during the year        50770
lapsed during the year        64590
transferred to other group companies        231620
outstanding at 1 april 2009        80140
granted during the year        4813
vested during the year        –
lapsed during the year        76574
transferred to other group companies        –
outstanding at 31 march 2010        8379
awards outstanding at 31 march were
      number of shares
date of grant  normal date of vesting 2010 2009
july 2006  2009 – 76574
july 2007  2010 – –
july 2008  2011 3566 3566
july 2009  2012 4813 –
   8379 80140
ii employee sharesave scheme
changes in the number of options outstanding during the year
        weighted 
       number average 
       of share exercise 
       options price
outstanding at 31 march 2008       3083 780p
cancelled during the year       461 1172p
exercised during the year       1146 809p
forfeited during the year       239 823p
outstanding at 31 march 2009       1237 598p
cancelled during the year       449 806p
exercised during the year       1237 598p
transferred from other companies       4107 874p
outstanding at 31 march 2010       4556 867p 121 severn trent plc annual report and accounts 2010
financial statements
14  employee share schemes continued
options outstanding at 31 march were
      number of shares
date of grant   normal date of vesting option price 2010 2009
january 2002   2009 548p – 1010
january 2006   2009 2011 or 2013 823p – 227
january 2007   2010 2012 or 2014 1172p 161 –
january 2009   2012 or 2014 862p 3946 –
january 2010   2013 or 2015 808p 449 –
     4556 1237
15  pensions
the company operates two defined benefit schemes being the severn trent pension scheme and the severn trent water mirror 
image pension scheme in addition the group operates an unfunded arrangement for certain employees whose earnings are 
above the pension cap
further details regarding the operation of these schemes are given in note 28 of the group financial statements
the company is currently unable to identify its share of the underlying assets and liabilities from the group’s defined benefit 
schemes and hence it continues to account for the cost of contributions as if the scheme was a defined contribution scheme
the pension charge for the year was £08 million 2009 £29 million
16  related party transactions
the company has taken advantage of the exemption under frs 8 and not disclosed details of transactions with other undertakings 
within the severn trent group of companies
17  contingent liabilities
a bonds and guarantees
the company has entered into bonds and guarantees in the normal course of business no liabilities are expected to arise in 
respect of either the bonds or guarantees
b bank offset arrangements
the banking arrangements of the company operate on a pooled basis with certain of its subsidiary undertakings under these 
arrangements participating companies guarantee each others’ overdrawn balances to the extent of their credit balances which 
can be offset against balances of participating companies
18  post balance sheet events
on 27 may 2010 the board of directors proposed a final dividend of 4561 pence per share
19  dividends
for details of the dividends paid in 200910 and 200809 see note 14 in the group financial statements severn trent plc annual report and accounts 2010 122
    2010 2009 2008 2007 2006
     restated restated restated restated 
continuing operations    £m £m £m £m £m
turnover    17039 16422 15524 14802 14553
profit before interest tax and exceptional items   5571 4699 4695 4053 3930
net exceptional items    497 189 688 247 157 
net interest payable before gainslosses on financial instruments  2188 1964 1774 1538 1639
gainslosses on financial instruments    457 870 310 488 367
results of associates and joint ventures    01 – 01 05 11
profit on ordinary activities before taxation    3344 1676 1924 3255 1778
current taxation on profit on ordinary activities    407 521 562 585 615
deferred taxation    422 1715 744 184 73
profitloss on ordinary activities after taxation   2515 560 2106 2486 1236
discontinued    – – 08 200 994
profitloss for the period    2515 560 2114 2686 2230
net assets employed
fixed assets    64746 61699 58929 56755 63916
other net liabilities excluding net debt retirement benefit  
obligation and provisions    2757 2872 2173 2429 2122
derivative financial instruments
1    
1253 1539 261 416 961
retirement benefit obligation    3549 2330 1656 1351 2219
provisions for liabilities and charges and deferred tax   10103 9880 8855 9300 9804
net assets held for sale    – 42 – – 130
    47084 45120 45984 43259 48940
financed by
called up share capital    2316 2310 2297 2283 2272
reserves    7091 7151 9713 9059 16692
total shareholders’ funds    9407 9461 12010 11342 18964
minority shareholders’ interests    63 60 42 31 26
net debt
2    
37614 35599 33932 31886 29950
    47084 45120 45984 43259 48940
statistics
earnings loss per share continuing – pence    1056 246 893 1061 529
adjusted earnings per share – pence    1231 927 978 824 704
dividends per share excluding special dividend – pence   7232 6734 6563 6145 5113
dividend cover before exceptional items and deferred tax  46 14 15 13 14
gearing    799 789 740 733 609
ordinary share price at 31 march – pence    1195 990 1419 1434 1117
average number of employees 
– severn trent water    5686 5624 5569 5289 5188
– other    3102 3144 2814 7172 11124
1  excludes hedging instruments 
2  includes hedging instruments
the prior years have been restated as the group’s definition of net debt has been amended to include cross currency swaps where 
the swap is the hedging instrument in a fair value hedge these are issued to convert the proceeds of debt raised in foreign 
currency into sterling this broadly eliminates the impact of the revaluation of the debt which results from hedge accounting and 
consequently the restated net debt figure is a better representation of the group’s debt obligations
the amounts for 2006 have also been restated to exclude the results of discontinued operations 
gearing has been calculated as net debt divided by the sum of equity and net debt
five year summary 123 severn trent plc annual report and accounts 2010
electronic communications and our website
at the 2007 agm a resolution amending the articles of 
association was passed allowing the company to 
communicate with shareholders either via the severn trent plc 
website or by post the company last wrote to shareholders in 
april 2008 asking that they choose to either
• provide an email address to receive notifications when 
shareholder documentation is made available on the website or
• continue to receive shareholder documentation in hard copy 
by returning the personalised reply card 
if the completed card was not returned then in accordance 
with the companies act 2006 shareholders were deemed to 
have agreed to receive shareholder documentation via the 
website these shareholders and those who have positively 
elected for website communication will receive immediately 
prior to the publication date notification whenever shareholder 
documents are available to view on the website at 
wwwseverntrentcom
shareholders may receive electronic communications either
• via email – this option is available though shareview 
shareholders will receive an email notification when a new 
document is made available or
• via our website – shareholders will receive a notification by 
post when a new document is made available
the electronic arrangements enable shareholders to access 
information immediately as it becomes available by using 
electronic communications the company is also able to both 
reduce its impact on the environment from reducing the use of 
paper and the energy required for publication and distribution 
and benefit from savings associated with reduced printing and 
mailing costs
shareholders who register to receive shareholder 
documentation from severn trent plc electronically can
• view the annual report and accounts on the day it  
is published
• receive an email alert when shareholder documents  
are available
• cast their agm vote electronically and
• manage their shareholding quickly and securely online 
through shareview
shareholders who receive such a notification are entitled to 
request a hard copy of the document and may also change the 
way they receive communications at any time by contacting 
equiniti visit wwwshareviewcouk for more information and to 
register for electronic shareholder communications
we will periodically consult with shareholders to check how 
they wish to receive information from us and a shareholder is 
taken to have agreed to website communications if a response 
has not been received
notwithstanding any election the company may at its sole and 
absolute discretion send any notification or information to 
shareholders in hard copy form
our website also provides company news and information 
together with links to our operational businesses’ websites  
the investor centre on the website contains up to date 
information for shareholders including
• comprehensive share price information
• financial results
• a history of dividend payment dates and amounts and
• access to current and historical shareholder documents such 
as the annual report and accounts
severn trent shareholder helpline
the company’s registrar is equiniti limited equiniti’s main 
responsibilities include maintaining the shareholder register and 
making dividend payments 
if you have any queries on the following matters you can 
contact equiniti via one of the methods below
• transfer of shares
• change of name or address
• lost share certificate
• lost or out of date dividend cheques and other  
dividend queries 
• death of the registered holder of shares or
• any other query relating to your severn trent shareholding
registrar contact details
telephone 0871 384 2967
overseas enquiries 44 121 415 7044
text phone 0871 384 2255
by post equiniti aspect house spencer road lancing 
west sussex bn99 6da
email severntrentequiniticom
 calls to these numbers are charged at 8 pence per minute 
from a bt landline other telephony providers’ costs may vary
dividend payments directly into bank accounts
dividends can be paid automatically into your bank or building 
society account this service has a number of benefits
• no risk of the dividend cheque being lost in the post
• the dividend payment is cleared more quickly as the cash is 
paid directly into the account on the payment date without the 
need to pay in the cheque and wait for it to clear and
• since the 200910 financial year a single consolidated tax 
voucher is issued annually in february in time for your self 
assessment tax return
to take advantage of this service or for further details contact 
equiniti or visit wwwshareviewcouk
dividend reinvestment plan 
a dividend reinvestment plan was introduced in july 2009 
the plan gives shareholders the option of using their dividend 
payments to buy more severn trent plc shares instead of 
receiving cash if you would like to participate in the plan 
please request a dividend reinvestment plan mandate from 
equiniti financial services limited 
telephone 0871 384 2268
lines are open from 830am to 530pm monday to friday 
telephone number from outside the uk 44 121 415 7058
overseas dividend payments
shareholders in over 30 countries have the opportunity to 
receive severn trent dividends in their local currency for a 
small administration fee shareholders can have their dividends 
automatically converted from sterling and paid into their bank 
account normally within five working days of the dividend 
payment date please call 44 121 415 7044 for further details
information for shareholders
other information severn trent plc annual report and accounts 2010 124
information for shareholders continued
amalgamating different share accounts
shareholders with more than one account arising from 
inconsistencies in name or address details may avoid receipt 
of duplicate mailings by asking the registrar to amalgamate 
their holdings
lost investors
during 200910 we have appointed prosearch to look for 
investors who have failed to keep their details up to date  
we have unclaimed funds waiting to be claimed shareholders 
are reminded that if they move house they need to contact 
equiniti and advise them of their new address
buying and selling shares in the uk
if you wish to buy or sell certificated severn trent shares you 
will need to use a stockbroker or high street bank which trades 
on the london stock exchange there are also many 
telephone and online services available to you if you are 
selling you will need to present your share certificate at the 
time of sale details of low cost dealing services may be 
obtained from wwwshareviewcouk or 0845 603 7037
share price information
shareholders can find share price information on our website 
and in most national newspapers ceefax where available 
also display share prices that are updated regularly throughout 
the trading day for a realtime buying or selling price you 
should contact a stockbroker
gifting your shares
to transfer your shares to another member of your family as  
a gift please request a gift transfer form from equiniti the 
completed transfer form together with the relevant share 
certificates should be returned to equiniti to record the 
change in ownership
if you have a small number of shares and would like to donate 
them to charity please ask equiniti for a sharegift charity 
donation scheme transfer form sharegift registered charity 
no 1052686 is an independent charity which provides a free 
service for shareholders wishing to dispose charitably of small 
numbers of shares which would cost more to sell than they are 
worth further information is also available on the sharegift 
website at wwwsharegiftorg or by telephoning 0207 337 0501
shareholder security
many companies have become aware that their shareholders 
have received unsolicited phone calls or correspondence 
concerning investment matters these are typically from 
overseas based ‘brokers’ who target uk shareholders offering 
to sell them what often turn out to be worthless or high risk 
shares in us or uk investments these operations are 
commonly known as ‘boiler rooms’ these ‘brokers’ can be very 
persistent and extremely persuasive and the number of this 
type of fraud has increased dramatically in recent years a 
2006 survey by the financial services authority fsa has 
reported that the average amount lost by investors is around 
£20000 it is not just the novice investor that has been duped 
in this way many of the victims had been successfully investing 
for several years
in addition in the current economic climate boiler rooms are 
now targeting victims who have redundancy money or those 
who are not experienced investors and are asking for smaller 
sums of money to be invested
if you receive any unsolicited investment advice 
• ensure you get the full name of the person and organisation 
• check that they are properly authorised by the fsa before 
getting involved by visiting wwwfsagovukregister
• report the matter to the fsa either by calling 0300 500 5000 
or visiting wwwmoneymadeclearfsagovuk and 
• if the calls persist hang up
please be aware that if you deal with an unauthorised firm you 
will not be eligible to receive payment under the financial 
services compensation scheme the fsa can be contacted 
by completing an online form at wwwfsagovukpagesdoing
regulatedlaw alertsoverseasshtml
shareholders are advised to be very wary of any unsolicited 
advice offers to buy shares at a discount or offers of free 
company reports details of any share dealing facilities that the 
company endorses will be included in company mailings or on 
our website for more detailed information from the fsa go to 
moneymadeclearfsagovuk
shareholder fraud – tips on protecting your shareholding
to reduce the risk of fraud happening to you please consider
the following
• ensure all your share certificates and dividend tax vouchers 
are kept in a safe place or consider holding your shares 
electronically in crest via a nominee
• keep all correspondence from the registrar in a safe place 
destroy all correspondence showing your personal details 
eg shareholder reference number by shredding
• if you change your address inform the registrar if you receive 
a letter from the registrar regarding a change of address and 
have not recently moved house please contact them 
immediately you may be a victim of identity theft and
• know when dividends are paid consider having your 
dividend paid directly into your bank or building society 
account reducing the risk of cheques being intercepted or 
lost in the post if you change your bank or building society 
account inform the registrar of the details of your new 
account immediately respond to any letters the registrar 
sends you about this
if you have any reason to believe that you may have been the 
target of a fraud or attempted fraud please contact the 
registrar immediately
unsolicited mail
the company is legally obliged to make its share register 
available to the general public consequently some 
shareholders may receive unsolicited mail if you wish to limit 
the amount of unsolicited mail you receive please contact
the mailing preference service mps  
freepost 29 lon20771 london w1e 0zt
alternatively register online at wwwmpsonlineorguk or call 
the mps registration line on 0845 703 4599
share capital history
information on the company’s share capital history including 
the share capital reorganisation in august 1997 and the 
demerger of biffa plc return of capital by payment of a special 
dividend and share consolidation in october 2006 is available 
from the investor centre pages on our website designed and produced by salterbaxter
this report was printed by pureprint group using their pureprint
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in the production of this report was generated from renewable sources 
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 company and registered to the environmental 
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overview business review governance financial statements other information
wwwseverntrentcom
overview
1 2010 severn trent group highlights
2 group at a glance
4 chairman’s statement
5 chief executive’s review 
6 severn trent water – our industry
business review
9 severn trent water – our strategy
10 delivering against our kpis
12 performance
19 severn trent services – overview
20 performance
23 financial review
governance
28 directors’ report
31 directors’ responsibility statement
32 board of directors
34 executive committee
35 chairman’s letter
41 nominations committee
42 audit committee
44 corporate responsibility committee
45 directors’ remuneration report
58 risk and assurance
group financial statements
61 independent auditors’ report
62 consolidated income statement
63 consolidated statement of comprehensive income
64 consolidated statement of changes in equity
65 consolidated balance sheet
66 consolidated cash flow statement
67 notes to the group financial statements
company financial statements
112 independent auditors’ report 
113 company balance sheet
113 company statement of total recognised gains and losses
114 notes to the company financial statements
other information
122 five year summary
123 information for shareholders
contents introduction
cautionary statement
this document contains certain ‘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’ ‘will’ ‘could’ ‘may’ ‘should’ ‘expects’ ‘believes’ 
‘intends’ ‘plans’ ‘targets’ ‘goal’ or ‘estimates’ 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 will occur in the future
there are a number of factors that could cause actual results 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 severn trent 
does not intend to update these forward looking statements
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 united 
states absent registration or an applicable exemption from the registration requirements of the 
us securities act of 1933 as amended
severn trent plc
severn trent plc is a public limited company listed on the  
london stock exchange and registered in england and wales 
with company number 2366619 this is the annual report  
and accounts for the year ended 31 march 2010
more information on severn trent plc can be found on our 
website at wwwseverntrentcom
severn trent is a ftse 100 
company our core business  
is water we provide and treat 
water and waste water in the uk 
and internationally through our 
two complementary businesses 
– severn trent water and  
severn trent services
 find out more at our corporate website 
 wwwseverntrentcom
 severn trent water website 
 wwwstwatercouk
 severn trent services website 
 wwwseverntrentservicescom annual report  
and accounts  
2010
building a sustainable business
severn trent plc
registered office
2297 coventry road
birmingham b26 3pu
tel 0121 722 4000
wwwseverntrentcom
registered number 2366619
annual report and accounts 2010 severn trent plc


Summary:
 severn trent plc annual report and accounts 2010 4
as this report covers the last full year of my tenure as chairman of 
severn trent plc i am pleased to report on yet another year of 
significant improvement we faced the challenges of the coldest 
winter for 30 years and an economic environment which remains 
challenging yet tony wray our chief executive and his team have 
delivered substantially increased group profit before interest tax 
and exceptional items we have continued to attain higher 
standards through process improvements development of 
supporting technology and systems and the training and 
development of our people
building on our track record of continuous improvement the board 
has overseen the progression of severn trent water from the final 
year of amp4 to embarking on the next five year programme amp5 
at a professional and personal level it is particularly gratifying to 
have presided over five years during which we have moved from 
being a business with a number of serious problems to overcome  
to a company recognised as offering good service continuous 
improvement and well placed to deliver further advances 
this year tony and our employees achieved upper quartile 
performance in nine of our 20 key performance indicators  
our dedicated employees have engaged in a range of activities 
which have helped to accelerate our efficiency programmes and 
achieved tangible improvements in customer service sewer 
flooding reduction health and safety performance and water quality
we have succeeded in delivering this performance at the same  
time as offering the lowest average water and sewerage bills in 
england and wales the cost of all severn trent water and waste 
services is on average less than 83p per day per household with 
bills falling by 072 in 201011 and set to decrease by 4 in total 
over the next five years
these advances in our regulated business are complemented by 
the expertise we have across global markets through severn trent 
services where our ‘blueprint for growth’ will shape sustainable 
growth in the years ahead 
group results
group profit before tax gainslosses on financial instruments and 
exceptional items was £3384 million 2009 £2735 million group 
profit before tax was £3344 million 2009 £1676 million
the board is proposing a final dividend of 4561 pence 2009 4105 
pence to be paid on 30 july 2010 this would give a total dividend 
of 7232 pence per ordinary share an increase of 74
corporate responsibility performance
we develop manage and operate severn trent for long term 
sustainable benefits for all our stakeholders
i am proud to be able to say that 20 of severn trent water’s total 
energy requirements were met from our own renewable sources  
in 200910 and our target is to grow this to 30 this year’s 
performance has consolidated our leadership position in the sector 
on generation from renewable sources meanwhile our continued 
focus on creating and maintaining a safe working environment 
resulted in a 17 reduction in group lost time incidents during 
200910 this focus on health and safety has in turn driven 
improved processes and efficiency
board
gordon fryett director of property at tesco was appointed to the 
boards of severn trent plc and severn trent water limited from 
1 july 2009 and his experience has already added value to the 
board’s activities
on 10 may 2010 we announced the appointment of andy duff  
as chairman designate of severn trent he brings with him the 
experience of running utilities and other essential infrastructure 
businesses at uk and international level and i wish him  
every success
as i report on page 35 we have set out our strong commitment to 
good governance at severn trent and have put in place solid 
foundations for the next period
outlook
i am pleased to confirm that we have delivered our planned 
operating costs savings over the past year and delivered our 
capital programme for the amp4 period 
by accelerating our new programmes ahead of amp5 we have 
ensured severn trent’s plans are well advanced innovation  
has been a key theme in completing the latter part of our amp4 
programme and will be central to meeting our targets during  
the next regulatory period we have further developed our  
“one supply chain” with our contractors and suppliers creating 
shared experience knowledge and offices to deliver our  
capital programme 
through our focus on continuous improvement we plan to put 
severn trent water ahead of the rest of the industry in operating 
efficiency by 2015 with customers still benefiting from the lowest 
average bills in england and wales
meanwhile severn trent services overcame a difficult economic 
environment and delivered improved results during the second half 
of the year the company continues to concentrate on higher 
growth and higher margin market segments where our water and 
waste water products and services meet a significant need 
as i prepare to hand over to a new chairman i believe we are on 
the threshold of great change across the water sector – be it within 
companies among regulators or within the policy framework which 
shapes the industry and its conduct now is the time to change 
course while preserving the achievements of 20 successful years 
of water privatisation 
i will leave with the belief that longer term our operational 
excellence low cost base geography and the growing expertise  
of severn trent services as our nonregulated business gives 
confidence that severn trent is well placed to take advantage of 
the opportunities that change will bring
sir john egan chairman
chairman’s statement