Half-yearly Report
Half Yearly Financial Report
24 November 2009
Interim Results for the six months to 30 September 2009
CONTINUOUS IMPROVEMENT
Highlights
• Underlying PBIT1 up 9.8% to £287.1 million
• Interim DPS up 1.6% to 26.71p in line with commitments (3% above RPI
inflation)
• Adjusted basic EPS up 21.6% to 60.8 pence/share
• Further improvements in customer services, sewer flooding, water quality
• On track to deliver planned cost savings for the full year
• Strong liquidity position
Group results
30 Sept 30 Sept Increase/
2009 2008 (Decrease)
£m £m %
Group turnover 852.1 814.3 4.6%
Underlying group PBIT1 287.1 261.5 9.8%
Underlying profit before tax2 188.0 154.5 21.7%
Profit before tax 208.2 137.9 51.0%
pence/ pence/
share share
Adjusted basic EPS3 60.8 50.0 21.6%
Basic earnings/(loss) per share4 63.4 (35.8) (277.1%)
Interim dividend declared 26.71 26.29 1.6%
1 before exceptional items (see note 3)
2 before exceptional items and gains/(losses) on financial instruments
3 before exceptional items, gains/(losses) on financial instruments and
deferred tax (see note 6)
4 2008: after exceptional deferred tax charge of 79.2 pence/share
Sir John Egan, Chairman Severn Trent Plc, said:
"Severn Trent continues to build on the progress we have made to date and has
remained focused on delivering further improvements in efficiency, processes
and standards, as well as successfully managing impacts from the economic
environment such as bad debts and consumption levels, all of which is reflected
in the 9.8% year on year increase in underlying PBIT for the first half. In
line with our policy, I am also pleased to announce an increase in the interim
dividend to 26.71 pence."
Tony Wray, Chief Executive Severn Trent Plc, said:
"Our objective is to continue to enhance the value of the group through the
creation of a culture of continuous improvement. These results represent
another successful step in that process. We continue to raise our customer
service standards, reduce incidents of sewer flooding and improve our health
and safety record. While continuing to raise standards and drive efficiencies,
we still have further to go as we strive for upper quartile performance across
our 20 Key Performance Indicators.
We remain on track to deliver our investment programme for the final year of
AMP4, as well as the additional cost savings announced in May. We remain
committed to raising standards, driving operational efficiency and investing in
areas of the business where customers see real benefit, to deliver the lowest
possible bills along with appropriate returns to our shareholders.
Looking forward to PR09, we have fully engaged with Ofwat since publication of
the draft determination. We will take the time necessary to analyse the Final
Determination document, which will be detailed and complex, once it is
published on 26 November."
Enquiries:
Tony Wray Severn Trent Plc 0207 353 4200 (on the day)
Chief Executive 0121 722 4938
Mike McKeon Severn Trent Plc 0207 353 4200 (on the day)
Finance Director 0121 722 4319
Peter Gavan Severn Trent Plc 0207 353 4200 (on the day)
Director of External 0121 722 4555
Affairs
John Crosse Severn Trent Plc 0207 353 4200 (on the day)
Head of Investor Relations 0121 722 4523
Peter Hewer/Mal Patel Tulchan Communications 0207 353 4200
Interim Results Presentation and Webcast
There will be an interim results presentation at 9:30am on Tuesday 24 November
2009. This presentation, together with the presentation slides, will be
available as a simultaneous webcast on the Severn Trent web site
(www.severntrent.com) and will remain on the web site for subsequent viewing.
Interim Management Report
Operating Review
Severn Trent Water
We continue to execute on our plans to raise standards and drive greater
efficiency across the business. The 20 Key Performance Indicators (KPIs) remain
the primary basis on which we demonstrate and measure raised standards.
In absolute terms, we have continued to make good progress across the KPIs
since the end of March, with further improvements in reducing customer written
complaints, sewer flooding and health and safety, which saw a 16% reduction in
lost time incidents over the year end position. Water quality showed a 23%
improvement.
Debtor days have remained stable across the first half and our leakage
performance is currently commensurate with meeting the annual target.
Another indicator of the progress we have made is the achievement of the Carbon
Trust Standard, an independent assessment and endorsement of our carbon
emissions reductions over the past 3 years and our carbon management programs
for the future. The Standard was started in 2008, and to date some 150
companies and public sector organisations have achieved it.
We have recently completed our annual update of the benchmarks we use to assess
our relative performance. It is worth noting that we had 11 KPIs in the upper
quartile at the end of 2008/09 compared to 9 at the end of 2007/08, and only 1
in the lower quartile, compared to 4 in 2007/08. Compared to the position we
reported in May 2009, the analysis shows 3 KPIs where sector benchmarks have
moved forward, resulting in our previously reported upper quartile performance
being restated as median. These 3 KPIs are:
- First time call resolution for
billing;
- Capex vs. Final Determination;
- Pollution incidents.
As companies in our sector or elsewhere redefine what upper quartile means, so
we expect our objectives to move with them and we will continue to update our
benchmarks on an annual basis.
While we are making good progress, we recognise the need to continue to drive
further improvements to achieve our ambition of upper quartile performance
across our 20 KPIs. These plans remain focused on three broad areas; process
improvements (for example, streamlining and standardisation); technology and
systems (the first phase of a new common ERP platform goes live in early
December); and location, training and development of our people (construction
of the new Severn Trent Centre is on target).
Subject to a change in the level of bad debt provision, where we have worked
hard on our collections performance to maintain the level of charge at 2.3% of
turnover, we are on track to deliver the absolute level of operating costs we
committed to for this year. The capital programme is also proceeding according
to plan and we continue to expect to deliver on our regulatory commitments in
this final year of AMP4.
Ofwat Draft Determination
The Draft Determination was published in July 2009 and proposed the following
for Severn Trent Water:
- AMP5 capital investment programme of £2.2 billion (net of efficiencies,
grants and contributions at 2007/08 prices).
- A cost of capital of 4.5% real, post tax. The component parts of the
assumed cost of capital are; real post tax cost of equity of 7.1% (AMP4
7.7%), real post tax cost of debt of 2.6% (AMP4 3.0%) and 57.5% gearing
(AMP4 55%).
- A fall in average household bills of 8% in real terms (annual average of
1.5%) by 2015.
We have fully engaged with Ofwat in responding to the draft determination and
have now completed our formal representations. We expect that the Final
Determination will be published on 26 November. This will contain new price
limits for the 2010 to 2015 period, which take effect in April 2010, and will
be a complex document with much detail to consider. We will take the time
necessary to thoroughly review its entire content before making our own
conclusions and responding to our stakeholders.
Severn Trent Services
Severn Trent Services is one of the world's leading suppliers of water and
waste water treatment solutions. There are three main business areas: Water
Purification (developing technologies and products focused on disinfection,
filtration, arsenic removal and ballast water treatment), Operating Services
(running and maintaining water and waste water treatment plants around the
world) and Analytical Services (the leader in UK environmental water testing
services).
Despite challenging economic conditions in the first half, the long term
fundamental drivers of the business remain strong - water scarcity, increased
demand (e.g. population growth), the effects of climate change and regulatory
requirements. Operating Services performed well, focusing on execution and cost
control. Water Purification suffered from delays in expenditure but has a good
order book and is expected to deliver a strong second half performance, while
Analytical Services has been impacted by lower volumes, a trend which will
continue in the second half.
Group Financial Performance
In this Interim Results Announcement PBIT is profit before interest and tax;
underlying PBIT is PBIT excluding exceptional items as set out in note 3.
Group turnover was £852.1 million (£814.3 million), an increase of 4.6% over
the same period last year. The growth in reported turnover was mainly due to
the price increases in Severn Trent Water.
Underlying group PBIT increased by 9.8% to £287.1 million (£261.5 million). The
primary factors affecting underlying PBIT are described in the commentary on
Severn Trent Water and Severn Trent Services below. There were net exceptional
charges of £11.5 million (£4.4 million). Group PBIT increased 7.2% to £275.6
million (£257.1 million).
Severn Trent Water
Turnover in Severn Trent Water increased by 4.0% in 2009/10, to £695.3 million.
Sales prices increased by 5.3% (including inflation) from 1 April 2009. The
decline in consumption across our measured income base has continued at similar
levels to 2008/09 and turnover in the first half of 2009/10 was £8.8 million
lower than the same period last year as a consequence. This trend has now
stabilised, although we continue to monitor developments.
Underlying PBIT was up by 9.4% on the same period last year, to £279.3 million.
Beyond the increase in turnover, a number of factors impacted underlying PBIT.
There was an increase in depreciation of £9.5 million arising from the
increased asset base. Energy and commodity costs increased by £2.1 million. The
turnover growth led to an increase in the bad debt charge of £1.7 million
although the incidence of bad debts as a proportion of turnover has not
increased over that seen for the full year to March 2009. There was a reduction
in infrastructure renewals expenditure of £10.3 million and we expect the ratio
of infrastructure renewals expenditure in the first half to the full year to be
similar to 2008/09.
During the period, Severn Trent Water invested £271.4 million (UK GAAP, gross)
in fixed assets and maintaining and improving its infrastructure network.
Included in this total was net infrastructure maintenance expenditure of £47.2
million, charged to the income statement under IFRS.
Severn Trent Services
Six months ended 30 September 2009 2008 Increase/
(decrease)
£m £m %
Turnover
Services as reported 165.5 157.1 5.3%
Apliclor SA - acquired May 2009 (4.0) -
Meters business and CCM - sold May 2009 (1.1) (5.8)
160.4 151.3 6.0%
Impact of exchange rate fluctuations - 19.0
Like for like businesses in constant currency 160.4 170.3 (5.8%)
Six months ended 30 September 2009 2008 Increase/
(decrease)
£m £m %
Underlying PBIT
Services as reported 12.2 13.3 (8.3%)
Apliclor SA - acquired May 2009 (0.7) -
Meters business and CCM - sold May 2009 0.3 (1.8)
11.8 11.5 2.6%
Impact of exchange rate fluctuations - 1.7
Like for like businesses in constant currency 11.8 13.2 (10.6%)
Reported turnover in Severn Trent Services at £165.5 million in the period was
up 5.3% on the same period last year and reported underlying PBIT decreased by
8.3% to £12.2 million.
After adjusting for the impact of exchange rate fluctuations and the effects of
small acquisitions and disposals, turnover on a like for like constant currency
basis was down 5.8% and underlying PBIT measured on the same basis was down
10.6%.
During the period Severn Trent Services has incurred exceptional restructuring
costs amounting to £4.3 million from actions taken to address the difficult
market conditions. These actions include exiting the UK soils testing market
with the resulting closure of a laboratory and the disposal of the meters
business, which was announced in the previous year.
Corporate and Other
Corporate and Other incurred a net charge before interest, tax and exceptional
items of £5.4 million (net charge of £6.5 million). This segment includes the
activities of the group's captive insurance company which insures Severn Trent
group risks only and does not write any external business.
Exceptional items
There was a net exceptional operating charge in the six months to 30 September
2009 of £11.5 million (£4.4 million) comprising:
• a charge of £7.2 million in Severn Trent Water arising from the
programme to restructure and realign the business; and
• a charge of £4.3 million in Severn Trent Services of which £2.8 million
arose from the programmes to restructure the Water Purification and
Analytical Services businesses and £1.5 million arose from the disposal
of Complete Credit Management Limited and the group's meters business.
Net finance costs
The group's net finance costs were £99.1 million, compared to £107.1 million in
the prior period. The decrease was largely due to lower borrowing costs on
index linked debt due to lower inflation. Net finance costs on pension
obligations increased because the expected return on pension assets was lower
as a result of a lower value of investments in the opening balance sheet in the
current period than the prior year.
Gains/(losses) on financial instruments
The group issues notes in foreign currency under its EMTN programme and uses
cross currency swaps to convert the proceeds to sterling. The effect of these
swaps is that interest and principal payments on the borrowings are denominated
in sterling and hence the currency risk is eliminated. The foreign currency
notes and the cross currency swaps are recorded in the balance sheet at their
fair values and the changes in fair values are taken to gains/(losses) on
financial instruments in the profit and loss account. Since the terms of the
swaps closely match those of the underlying notes, such 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 10.
The group holds interest rate swaps with a net notional principal amount of £
820 million under which it pays fixed rate interest and receives floating rate
interest. These swaps are carried in the balance sheet at fair value. The
changes in fair value are taken to gains/(losses) on financial instruments in
the profit and loss account. During the period there has been an increase of £
27 million in the fair value of these instruments because market interest rates
were higher at 30 September 2009 than at 31 March and hence the difference
between market rates and the rates payable in the fixed legs of the swaps has
decreased. This gain has been credited to gains/(losses) on financial
instruments.
It is important to note that we intend to, and typically do hold these swaps to
maturity. Further, this is not a cash movement and, over the life of the swaps,
these changes in fair value will net out because the swaps will have a zero
fair value when they mature.
Profit before tax
Underlying group profit before tax increased by 21.7% to £188.0 million (£
154.5 million). Group profit before tax was £208.2 million (£137.9 million).
Taxation
The total tax charge for the period was £58.2 million (£221.1 million), of
which current tax represented a charge of £43.0 million (£37.7 million) and
deferred tax (see note 4) was a charge of £15.2 million (£183.4 million
including an exceptional charge of £185.6 million in relation to the phased
withdrawal of Industrial Buildings Allowances).
The effective rate of current tax, excluding prior year charges and exceptional
items, calculated on profit before tax, exceptional items and gains/(losses) on
financial instruments was 24.3% (24.1%).
Going forward, we expect the effective current tax rate for the full year 2009/
10 to be in the range of 24% to 26%.
Profit for the period and earnings per share
Profit for the period was £150.0 million (loss of £83.2 million)
Basic earnings/(loss) per share were 63.4 pence (loss of 35.8 pence). Adjusted
basic earnings per share (before exceptional items, gains/(losses) on financial
instruments and deferred tax) were 60.8 pence (50.0 pence), see note 6.
Cash flow
Six months ended 30 September 2009 2008
£m £m
Cash generated from operations 435.6 369.6
Net capital expenditure (238.3) (226.4)
Net interest paid (81.5) (82.6)
Tax (paid)/received (14.5) 26.6
Other cash flows (9.9) (0.7)
Free cash flow 91.4 86.5
Dividends (96.8) (97.0)
Issue of shares 4.4 6.3
Purchase of own shares (2.2) (2.4)
Change in net debt from cash flows (3.2) (6.6)
Non cash movements 12.3 (23.3)
Change in net debt 9.1 (29.9)
Net debt as at 1 April (3,559.9) (3,393.2)
Net debt as at 30 September (3,550.8) (3,423.1)
Net debt comprises:
30 September 31 March 30 September
2009 2009 2008
Cash and cash equivalents 589.1 648.1 576.3
Borrowings - current liabilities (490.6) (256.2) (280.0)
Borrowings - non-current liabilities (3,875.9) (4,188.9) (3,772.0)
Net debt as previously stated (3,777.4) (3,797.0) (3,475.7)
Cross currency swaps hedging debt 226.6 237.1 52.7
Net debt (3,550.8) (3,559.9) (3,423.0)
The group's definition of net debt has been amended to include cross currency
swaps that are used to convert to sterling the proceeds of debt raised in
foreign currency where the swap is the hedging instrument in a fair value
hedge. 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.
Cash generated from operations was £435.6 million (£369.6 million). Capital
expenditure net of grants and proceeds of sales of fixed assets was £238.3
million (£226.4 million). Net interest paid decreased to £81.5 million (£
82.6 million).
Net debt at 30 September 2009 was £3,550.8 million (March 2009 £
3,559.9 million). Balance sheet gearing (net debt/net debt plus equity) at the
half year was 79.1% (31 March 2009 78.2%). Net debt, expressed as a percentage
of forecast Regulatory Capital Value at 31 March 2010 was 56.2% (55.2%). The
group's net interest charge, excluding gains/(losses) on financial instruments
and net finance costs from pensions, was covered 4.5 times (3.6 times) by
profit before interest, tax, depreciation and exceptional items, and 3.1 times
(2.5 times) by underlying PBIT.
The fair value of the group's net debt at 30 September 2009 is estimated to be
£4,431.0 million (31 March 2009 £4,246.2 million). The group's debt instruments
are not traded in an active market and hence the fair value disclosed above is
based on a theoretical discounted cash flow calculation and does not represent
an estimate of the amount for which the debt could be settled. The comparative
figure 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
(see note 7).
Pensions
The group operates two defined benefit pension schemes, of which the Severn
Trent Pension Scheme (STPS) is by far the largest. Formal triennial actuarial
valuations and funding agreements were last undertaken for the STPS as at 31
March 2007. The key actuarial assumptions from this valuation have been updated
for the accounts as at 30 September 2009 though overall contribution levels
remain unchanged.
On an IAS 19 basis, the estimated net position (before deferred tax) of all of
the group's defined benefit pension schemes was a deficit of £317 million as at
30 September 2009. This compares to a deficit of £233 million as at 31 March
2009. The movements in the net deficit were:
Defined Fair Net
benefit value of deficit
obligations plan
assets
£m £m £m
At 1 April 2009 (1,308.0) 1,075.0 (233.0)
Employer contributions - 14.7 14.7
Employee contributions (4.2) 4.2 -
Benefits paid 34.8 (34.8) -
Current service cost (7.7) - (7.7)
Past service cost (0.8) - (0.8)
Net finance cost (43.4) 35.7 (7.7)
Actuarial gains and losses (272.7) 190.2 (82.5)
At 30 September 2009 (1,602.0) 1,285.0 (317.0)
On an IAS 19 basis, the funding level has reduced from around 82% at 31 March
2009 to around 80% at 30 September 2009.
Treasury management
The group continues to maintain a strong liquidity position. At 30 September
2009 the group had £589.1 million in cash and cash equivalents. During the
period the group signed a European Investment Bank facility of £150 million
which is available for the group to draw down until April 2011. The group also
has an undrawn £500 million committed bank facility that matures in 2013.
Average debt maturity is around 19 years. The group is funded for its
investment and cash flow needs up to the end of the first year of AMP 5.
Cash is invested in deposits with highly rated (A+) banks and liquidity funds
and the list of counterparties is regularly reviewed and reported to the Board.
The group's policy for the management of interest rate risk requires that no
less than 45% of the group's borrowings should be at fixed interest rates, or
hedged through the use of interest rate swaps or forward rate agreements. At 30
September 2009, interest rates for some 84% of the group's net debt of £3,550.8
million were so fixed. The effective interest rate for the period to September
2009 was 5.2%.
Exchange rates
The trading results of overseas subsidiaries are translated to sterling at the
average rate of exchange ruling during the period and their net assets are
translated at the closing rate on the balance sheet date. The impact of
changing exchange rates on net assets was immaterial. Details of the impact of
changing exchange rates on turnover and underlying PBIT are set out in the
commentary on Severn Trent Services above.
Dividend
In line with its policy for growing dividends by 3% above the rate of RPI
inflation until March 2010, the end of the current regulatory period, the Board
has declared an interim ordinary dividend of 26.71p (2008/09 26.29p), an
increase of 1.6% (being September 2009 RPI inflation of negative 1.4% plus 3%)
over the 2008/09 interim ordinary dividend. The interim ordinary dividend is
payable on 15 January 2010 to shareholders on the register at 4 December 2009.
Principal risks and uncertainties
With regard to the remaining six months of the year, the Board consider the
principal risks and uncertainties affecting the business activities of the
group to be those detailed below:
• External financial market factors could adversely impact on our financial
position.
• Compliance requirements, particularly changes in law or regulation in the
countries and types of business in which we operate could have an adverse
effect on our business and operations.
• The results of our operations depend on a number of factors relating to
business performance, including achieving an acceptable Final Determination
from Ofwat for Severn Trent Water.
• The failure of our assets, systems or our ability to carry out critical
operations could have a significant impact on the health and safety of our
people or customers, or on our financial position and our reputation.
• Our ability to influence customer behaviour or to operate in an
environmentally responsible way could affect our financial position and our
reputation.
Outlook
We continue to focus on delivering the final year of AMP4. In Severn Trent
Water, we are continuing with our programs to raise standards and drive
efficiency improvements. We are on target to deliver the additional cost
savings for this year, which we highlighted back in May and capex is in line
with expectations for the AMP4 period. We are also continuing to mobilise our
contractors and supply chain to deliver the program for the first year of AMP5,
the full content of which will become clear after publication of the Final
Determination.
In Severn Trent Services, Water Purification has a strong order book, and we
expect an improved performance in the second half of the year. Operating
Services will continue to focus on cost control and delivery, while the
environment for Analytical Services remains challenging.
Regarding PR09, we await publication of the Final Determination on 26 November.
This will be a complex document, and we will take the time necessary to analyse
it in full. Only once this is complete will we make our responses to Ofwat and
our other stakeholders.
Further information
For further information, including the group's interim results presentation,
see the Severn Trent website (www.severntrent.com).
Condensed consolidated income statement
Six months ended 30 September 2009
Six months ended 30 September 2009 2008
Notes £m £m
Turnover 2 852.1 814.3
Operating costs before exceptional items (565.0) (552.8)
Exceptional restructuring costs 3 (11.5) (5.4)
Exceptional flood income 3 - 7.2
Exceptional charge relating to regulatory matters 3 - (7.2)
Exceptional provision for third party legal costs 3 - 1.0
Total operating costs (576.5) (557.2)
Profit before interest, tax and exceptional items 2 287.1 261.5
Exceptional items 3 (11.5) (4.4)
Profit before interest and tax 2 275.6 257.1
Finance income 40.4 64.2
Finance costs (139.5) (171.3)
Net finance costs (99.1) (107.1)
Gains/(losses) on financial instruments 31.7 (12.2)
Share of results of associates and joint ventures - 0.1
Profit before tax, gains/(losses) on financial 188.0 154.5
instruments and exceptional items
Exceptional Items (11.5) (4.4)
Gains/(losses) on financial instruments 31.7 (12.2)
Profit on ordinary activities before taxation 208.2 137.9
Taxation on profit on ordinary activities
Current tax 4 (43.0) (37.7)
Deferred tax 4 (15.2) 2.2
Tax charge before exceptional tax 4 (58.2) (35.5)
Exceptional deferred tax charge 4 - (185.6)
Total taxation (58.2) (221.1)
Profit/(loss) for the period 150.0 (83.2)
Attributable to:
Equity holders of the company 149.7 (83.8)
Equity minority interests 0.3 0.6
150.0 (83.2)
Earnings/(loss) per share (pence)
Basic 6 63.4 (35.8)
Diluted 6 63.4 (35.8)
Condensed consolidated statement of comprehensive income
Six months ended 30 September 2009
Six months ended 30 September 2009 2008
£m £m
Profit/(loss) for the period 150.0 (83.2)
Gains on cash flow hedges taken to equity 1.0 0.4
Deferred tax on gains on cash flow hedges taken to equity (0.3) (0.1)
Amounts on cash flow hedges transferred to the income 3.6 2.4
statement in the period
Deferred tax on transfers to income statement (1.0) (0.7)
153.3 (81.2)
Exchange movement on translation of overseas results and (13.9) 11.1
net assets
Actuarial losses on defined benefit pension schemes (82.5) (102.6)
Tax on actuarial losses 23.1 28.7
Other comprehensive income for the period (73.3) (62.8)
Total comprehensive income/(loss) for the period 80.0 (144.0)
Attributable to:
Equity shareholders of the company 80.1 (145.0)
Minority interests (0.1) 1.0
80.0 (144.0)
Condensed consolidated statement of changes in equity
Six months ended 30 September 2009
Equity
attributable
to equity
holders of
Share Share Other Retained Severn Minority Total
capital premium reserves earnings Trent Plc interests equity
£m £m £m £m £m £m £m
At 1 April 2009 231.0 71.9 468.7 174.5 946.1 6.0 952.1
Profit for the - - - 149.7 149.7 0.3 150.0
period
Gains on - - 1.0 - 1.0 - 1.0
cashflow hedges
taken to equity
Deferred tax on - - (0.3) - (0.3) - (0.3)
gains on
cashflow hedges
taken to equity
Amounts on cash - - 3.6 - 3.6 - 3.6
flow hedges
transferred to
the income
statement
Deferred tax on - - (1.0) - (1.0) - (1.0)
transfers to
the income
statement
Exchange - - (13.5) - (13.5) (0.4) (13.9)
movement on
translation of
overseas
results and net
assets
Actuarial - - - (82.5) (82.5) - (82.5)
losses on
defined benefit
pensions
schemes
Tax on - - - 23.1 23.1 - 23.1
actuarial
losses
Total - - (10.2) 90.3 80.1 (0.1) 80.0
comprehensive
income for the
period
Shares issued 0.6 3.8 - - 4.4 - 4.4
Share based - - - 0.7 0.7 - 0.7
payments
Tax on share - - - (0.1) (0.1) - (0.1)
based payments
Dividends paid - - - (96.8) (96.8) (1.3) (98.1)
At 30 September 231.6 75.7 458.5 168.6 934.4 4.6 939.0
2009
Condensed consolidated statement of changes in equity (continued)
Six months ended 30 September 2008
Equity
attributable
to equity
holders of
Share Share Other Retained Severn Minority Total
capital premium reserves earnings Trent Plc interests equity
£m £m £m £m £m £m £m
At 1 April 229.7 64.3 427.4 479.6 1,201.0 4.2 1,205.2
2008
Loss for the - - - (83.8) (83.8) 0.6 (83.2)
period
Gains on - - 0.4 - 0.4 - 0.4
cashflow
hedges taken
to equity
Deferred tax - - (0.1) - (0.1) - (0.1)
on gains on
cashflow
hedges taken
to equity
Amounts on - - 2.4 - 2.4 - 2.4
cash flow
hedges
transferred
to the income
statement
Deferred tax - - (0.7) - (0.7) - (0.7)
on transfers
to the income
statement
Exchange - - 10.7 - 10.7 0.4 11.1
movement on
translation
of overseas
results and
net assets
Actuarial - - - (102.6) (102.6) - (102.6)
losses on
defined
benefit
pensions
schemes
Tax on - - - 28.7 28.7 - 28.7
actuarial
losses
Total - - 12.7 (157.7) (145.0) 1.0 (144.0)
comprehensive
income for
the period
Shares issued 0.9 5.3 - - 6.2 - 6.2
Share based - - - 0.5 0.5 - 0.5
payments
Tax on share - - - (0.7) (0.7) - (0.7)
based
payments
Dividends - - - (97.0) (97.0) (0.8) (97.8)
paid
At 30 230.6 69.6 440.1 224.7 965.0 4.4 969.4
September
2008
Condensed consolidated balance sheet
At 30 September 2009
30 September 31 March
Notes 2009 2009
£m £m
Non current assets
Goodwill 69.8 63.3
Other intangible assets 130.3 121.3
Property, plant and equipment 6,069.3 5,980.1
Interests in joint ventures 0.1 0.3
Interests in associates 4.7 4.8
Derivative financial instruments 222.6 225.4
Available for sale financial assets 0.1 0.1
6,496.9 6,395.3
Current assets
Inventory 29.4 30.6
Trade and other receivables 461.4 447.1
Derivative financial instruments 20.3 29.8
Cash and cash equivalents 589.1 648.1
1,100.2 1,155.6
Assets held for sale - 4.6
Total assets 7,597.1 7,555.5
Current liabilities
Borrowings 7 (490.6) (256.2)
Derivative financial instruments (75.4) (0.4)
Trade and other payables (491.0) (442.7)
Current income tax liabilities (109.0) (81.1)
Provisions for liabilities and charges (16.5) (9.2)
Liabilities associated with assets held for sale - (0.4)
(1,182.5) (790.0)
Non current liabilities
Borrowings 7 (3,875.9) (4,188.9)
Derivative financial instruments (67.0) (171.6)
Trade and other payables (249.6) (241.1)
Deferred tax (943.9) (948.4)
Retirement benefit obligations 8 (317.0) (233.0)
Provisions for liabilities and charges (22.2) (30.4)
(5,475.6) (5,813.4)
Total liabilities (6,658.1) (6,603.4)
Net assets 939.0 952.1
Capital and reserves attributable to the
company's equity shareholders
Called up share capital 9 231.6 231.0
Share premium account 75.7 71.9
Other reserves 458.5 468.7
Retained earnings 168.6 174.5
Equity attributable to the company's equity 934.4 946.1
shareholders
Minority interests 4.6 6.0
Total equity 939.0 952.1
Condensed consolidated cash flow statement
Six months ended 30 September 2009
Six months ended 30 September 2009 2008
Note £m £m
Cash generated from operations 10 435.6 369.6
Tax paid (14.5) 26.6
Net cash generated from operating activities 421.1 396.2
Investing activities
Interest received 4.9 20.6
Dividends received from associates and joint 0.1 -
ventures
Net cash inflow from sale of investments 3.8 -
Acquisition of subsidaries (12.5) -
Proceeds on disposal of property, plant and 2.0 2.9
equipment
Purchases of intangible assets (24.1) (10.0)
Purchases of property, plant and equipment (226.1) (235.2)
Contributions and grants received 9.9 15.9
Net cash used in investing activities (242.0) (205.8)
Financing activities
Interest paid (80.2) (94.2)
Interest element of finance lease payments (6.2) (8.9)
Dividends paid to shareholders of the parent (96.8) (97.0)
Dividends paid to minority interests (1.3) (0.8)
Repayments of borrowings (44.4) (78.8)
Repayments of obligations under finance leases (9.3) (5.1)
New loans raised - 4.5
Issues of shares 4.4 6.3
Purchase of own shares (2.2) (2.4)
Net cash used in financing activities (236.0) (276.4)
Decrease in cash and cash equivalents (56.9) (86.0)
Net cash and cash equivalents at beginning of 648.1 653.4
period
Effect of foreign exchange rates (2.1) 2.4
Net cash and cash equivalents at end of period 589.1 569.8
Net cash and cash equivalents comprise:
Total cash and cash equivalents 589.1 576.3
Bank overdrafts - (6.5)
Net cash and cash equivalents at end of period 589.1 569.8
Notes to the condensed interim financial information
1 General information
The interim report has been prepared in accordance with the recognition and
measurement criteria of IFRS and the disclosure requirements of the Listing
Rules.
The information for the year ended 31 March 2009 does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985. A copy of the
statutory accounts for that year prepared under IFRS has been delivered to the
Registrar of Companies. The auditors' report on those accounts was unqualified,
did not draw attention to any matters by way of emphasis and did not contain a
statement under section 237 (2) or (3) of the Companies Act 1985.
Accounting policies
The interim financial information has been prepared on the going concern basis
using accounting policies consistent with International Financial Reporting
Standards and in accordance with IAS 34 "Interim Financial Reporting". The same
accounting policies, presentation and methods of computation are followed in
the interim financial information as applied in the group's annual financial
statements for the year ended 31 March 2009 except that during the period the
group has adopted:
• IAS 1 (revised): Presentation of Financial Statements. As a result, the
information which was previously presented in the Statement of
Recognised Income and Expense is now presented in the Statement of
Comprehensive income and changes in shareholders' equity are now
presented in a primary statement rather than the notes to the financial
statements;
• IFRS 8: Operating Segments. However, this has not changed the segmental
analysis presented by the group; and
• IAS 23 (revised) Borrowing Costs. This standard requires that borrowing
costs which are directly attributable to the construction or production
of an asset that takes a substantial period of time to get ready for
use or sale are capitalised as part of the cost of the asset. The
revised standard applies to borrowing costs relating to qualifying
assets where capitalisation commenced after 1 April 2009. This change
in accounting policy has resulted in borrowing costs amounting to £0.3
million being capitalised in the period which would have been charged
to the income statement under the previous policy.
IFRIC 18: Transfers of Assets from Customers is effective for transfers of
assets after 1 July 2009. However, this Interpretation has not been endorsed by
the European Union and consequently the group has not adopted it in this
interim financial information.
Going concern
The group is funded for its investment and cash flow needs up to March 2011
(see Treasury Management). After making enquiries the directors have a
reasonable expectation that the group has adequate resources to continue in
operational existence for the foreseeable future and hence the interim
financial information has been prepared on a going concern basis.
Seasonality
The group's businesses are not seasonal in nature.
2 Segmental analysis
The group is organised into two main business segments:
Severn Trent Water: Provides water and waste water services to domestic and
commercial customers in England and Wales.
Severn Trent Services: Provides services and products associated with water,
waste water and contaminated land principally in the US, UK and Europe. On 13
May 2009 the group acquired PS Apliclor, a small distribution operation in
Spain. The impact of the acquisition is not material and details of the net
assets acquired and consideration payable will be disclosed in the annual
financial statements for the year ending 31 March 2010.
Six months ended 30 September 2009
Severn Severn
Trent Trent Corporate
Water Services and Other Eliminations Consolidated
£m £m £m £m £m
External sales 694.9 157.2 - - 852.1
Inter-segment sales 0.4 8.3 2.5 (11.2) -
Total sales 695.3 165.5 2.5 (11.2) 852.1
Profit before interest, tax 279.3 12.2 (5.4) 1.0 287.1
and exceptional items
Exceptional items (note 3) (7.2) (4.3) - - (11.5)
Profit before interest and 272.1 7.9 (5.4) 1.0 275.6
tax
Share of results of - - - - -
associates and joint
ventures
Segment result 272.1 7.9 (5.4) 1.0 275.6
Total net finance costs and (67.4)
gains/(losses) on financial
instruments
Profit before tax 208.2
Tax (58.2)
Profit for the period 150.0
Six months ended 30 September 2008
Severn Severn
Trent Trent Corporate
Water Services and Other Eliminations Consolidated
£m £m £m £m £m
External sales 668.4 145.9 - - 814.3
Inter-segment sales - 11.2 2.1 (13.3) -
Total sales 668.4 157.1 2.1 (13.3) 814.3
Profit before interest, tax 255.3 13.3 (6.5) (0.6) 261.5
and exceptional items
Exceptional items (note 3) (5.4) 1.0 - - (4.4)
Profit before interest and 249.9 14.3 (6.5) (0.6) 257.1
tax
Share of results of - 0.1 - - 0.1
associates and joint
ventures
Segment result 249.9 14.4 (6.5) (0.6) 257.2
Total net finance costs and (119.3)
gains/(losses) on financial
instruments
Profit before tax 137.9
Tax (221.1)
Loss for the period (83.2)
3 Exceptional items
The group classifies items of income or expenditure as exceptional if
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.
Six months ended 30 September 2009 2008
£m £m
Severn Trent restructuring programmes:
Severn Trent Water 7.2 5.4
Severn Trent Services 4.3 -
Exceptional restructuring costs 11.5 5.4
Flood costs - 2.1
Insurance recoverable - (9.3)
Severn Trent Water exceptional flood income - (7.2)
Fine costs relating to leakage reporting - 2.2
Contribution to charitable trust - 5.0
Severn Trent Water exceptional charge relating to - 7.2
regulatory matters
Severn Trent Services exceptional release of provision - (1.0)
for third party legal costs
Total exceptional items 11.5 4.4
4 Tax
Income tax for the period is charged in the income statement at 27.9% (six
months ended 30 September 2008: charged at 25.7%), representing the best
estimate of the average annual effective income tax rate expected for the full
year applied to the pre tax income of the six month period.
The effective rate of current tax, excluding prior year charges and exceptional
items, calculated on profit before tax, exceptional items and gains/losses on
financial instruments was 24.3% (2008: 24.1%).
Current tax of £0.3 million and deferred tax of £21.4 million has been credited
directly to reserves in the period.
The exceptional deferred tax charge last year reflected the impact of the
removal of the entitlement to industrial buildings allowances following the
passing of the Finance Act 2008. For corporation tax purposes allowances
continue at reducing rates until 2011.
5 Dividends
Amounts recognised as distributions to equity holders in the period:
Six months ended 30 September 2009 2008
Pence per £m Pence per £m
share share
Final dividend for the year ended 31 41.05 96.8 41.29 97.0
March
The proposed interim dividend of 26.71p per share (2008: 26.29p per share) was
approved by the board on 23 November 2009 and has not been included as a
liability as at 30 September 2009.
6 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 period, 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
period and LTIP awards where the vesting conditions have been satisfied at the
balance sheet date. Potential ordinary shares which would reduce a loss per
share are not considered to be dilutive and hence in these circumstances
diluted loss per share is equal to basic loss per share.
The calculation of basic and diluted earnings per share is based on the
following data:
Earnings
Six months ended 30 September 2009 2008
£m £m
Earnings for the purpose of basic and diluted earnings per
share from continuing and discontinuing operations being:
Profit/(loss) for the period attributable to the equity 149.7 (83.8)
holders of the company
Number of shares
Six months ended 30 September 2009 2008
m m
Weighted average number of ordinary shares for the purpose 236.0 234.4
of basic earnings per share
Effect of dilutive potential ordinary shares:
Share options and LTIPs 0.3 1.1
Weighted average number of ordinary shares for the purpose 236.3 235.5
of diluted earnings per share
Adjusted earnings per share
Six months ended 30 September 2009 2008
Pence Pence
Adjusted basic earnings per share 60.8 50.0
Adjusted diluted earnings per share 60.7 49.8
Adjusted earnings per share figures exclude the effects of deferred tax, gains/
(losses) on financial instruments and exceptional items in both 2009 and 2008.
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
Six months ended 30 September 2009 2008
£m £m
Earnings for the purpose of basic and diluted earnings per 149.7 (83.8)
share from continuing operations
Adjustments for:
Exceptional restructuring costs 11.5 5.4
Exceptional flood costs/(income) - (7.2)
Exceptional charge relating to regulatory matters - 7.2
Exceptional release of provision for third party legal - (1.0)
costs
Current tax related to exceptional items (1.3) 1.0
(Gains)/losses on financial instruments (31.7) 12.2
Deferred tax 15.2 183.4
Earnings for the purpose of adjusted basic and diluted 143.4 117.2
earnings per share
7 Borrowings
30 September 31 March
2009 2009
£m £m
Bank loans 785.4 789.8
Other loans 3,246.3 3,310.9
Obligations under finance leases 334.8 344.4
Borrowings 4,366.5 4,445.1
30 September 31 March
2009 2009
£m £m
The borrowings are repayable as follows:
On demand or within one year (included in current 490.6 256.2
liabilities)
In the second year 58.8 56.4
In the third to fifth years 191.1 487.7
After five years 3,626.0 3,644.8
Included in non current liabilities 3,875.9 4,188.9
4,366.5 4,445.1
The fair values of the group's borrowings were:
30 September 31 March
2009 2009
(restated)
£m £m
Bank loans 767.7 754.8
Other loans 3,345.6 3,119.8
Obligations under finance leases 317.7 371.7
4,431.0 4,246.3
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 this
change was to reduce the estimated fair value of borrowings at 31 March 2009 by
£1,004.4 million.
8 Retirement benefit schemes
The group operates two defined benefit schemes being the Severn Trent Pension
Scheme and the Severn Trent Mirror Image Scheme. The group also has an unfunded
obligation to provide benefits to certain former employees whose earnings were
in excess of the pensions cap that operated when the benefits were accrued.
The retirement benefit obligation as at 30 September 2009 has been calculated
on a year to date basis, using the actuarial valuation update as at 31 March
2009. There have not been any significant fluctuations or one time events since
that date that would require adjustment to the actuarial assumptions made at 31
March 2009. However, the market based assumptions have been updated for
conditions prevailing at the balance sheet date as follows:
30 September 31 March
2009 2009
Discount rate 5.7% 6.7%
Inflation rate 3.0% 2.9%
The defined benefit assets have been updated to reflect their market value as
at 30 September 2009. Differences between the expected return on assets and the
actual return on assets have been recognised as an actuarial loss in the
statement of comprehensive income in accordance with the group's accounting
policy.
Amounts recognised in the income statement in respect of these defined benefit
schemes are as follows:
Six months ended September 2009 2008
£m £m
Amounts charged to operating costs:
Current service cost (7.7) (13.9)
Past service cost (0.8) -
Amounts charged to net finance costs:
Interest cost (43.4) (46.3)
Expected return on scheme assets 35.7 44.2
(7.7) (2.1)
Total amount charged to the income statement (16.2) (16.0)
Actuarial gains and losses have been reported in the statement of comprehensive
income.
The amount included in the balance sheet arising from the group's obligations
under defined benefit schemes is as follows:
30 September 31 March
2009 2009
£m £m
Present value of the defined benefit obligations - (1,595.0) (1,301.8)
funded schemes
Total fair value of assets 1,285.0 1,075.0
Present value of the defined benefit obligations - (7.0) (6.2)
unfunded schemes
Liability recognised in the balance sheet (317.0) (233.0)
Movements in the liability recognised in the balance sheet were as follows:
Six months ended 30 September 2009 2008
£m £m
At 1st April (233.0) (126.0)
Current service cost (7.7) (13.9)
Past service cost (0.8) -
Interest cost (43.4) (46.3)
Expected return on scheme assets 35.7 44.2
Contributions from the sponsoring companies 14.7 18.3
Actuarial losses recognised in the statement of (82.5) (102.6)
comprehensive income
At 30 September (317.0) (226.3)
9 Share capital
At 30 September 2009 the issued and fully paid share capital was 236.6 million
shares of 9717/19p amounting to £231.6 million (31 March 2009: 235.9 million
shares of 9717/19p amounting to £231.0 million).
During the period the company issued 614,269 shares as a result of the exercise
of employee share options.
10 Cash flow
a) Reconciliation of operating profit to operating cash flows
Six months ended 30 September 2009 2008
£m £m
Profit before interest and tax 275.6 257.1
Depreciation of property, plant and equipment 112.7 104.5
Amortisation of intangible assets 12.4 12.0
Exceptional impairment and depreciation 3.6 -
Pension service cost 8.5 13.9
Pension contributions (14.7) (18.3)
Share based payments charge 3.0 2.7
Profit on sale of property, plant and equipment (0.7) (2.0)
Deferred income movement (2.6) (2.4)
Provisions for liabilities and charges 4.6 4.0
Utilisation of provisions for liabilities and charges (5.9) (43.6)
Decrease in working capital 39.1 41.7
Cash generated from operations 435.6 369.6
Tax (paid)/received (14.5) 26.6
Net cash inflow from operating activities 421.1 396.2
b) Non cash transactions
No additions to property, plant and equipment during the six months to
September 2009 were financed by new finance leases (2008: nil).
c) Exceptional cash flows
The following cash flows arose from items classified as exceptional in the
income statement:
Six months ended 30 September 2009 2008
£m £m
Restructuring costs (4.4) (13.4)
Flood income/(costs) - 7.0
Fines and penalties - (38.0)
Third party legal costs (1.8) (1.3)
(6.2) (45.7)
d) Reconciliation of movements in net debt
As at RPI Other As at 30
uplift
1 April Cash Fair value on Foreign non cash September
index
2009 Flow adjustments linked exchange movements 2009
debt
£m £m £m £m £m £m £m
Cash and cash 648.1 (56.9) - - (2.1) - 589.1
equivalents
Net cash and 648.1 (56.9) - - (2.1) - 589.1
cash
equivalents
Bank loans (789.8) 0.1 - 4.4 - (0.1) (785.4)
Other loans (3,310.9) 44.3 6.6 1.4 - 12.3 (3,246.3)
Finance leases (344.4) 9.3 - - - 0.3 (334.8)
Net debt as (3,797.0) (3.2) 6.6 5.8 (2.1) 12.5 (3,777.4)
previously
stated
Cross currency 237.1 - 1.8 - - (12.3) 226.6
swaps hedging
debt
Net debt (3,559.9) (3.2) 8.4 5.8 (2.1) 0.2 (3,550.8)
The group's definition of net debt has been amended to include cross currency
swaps that are used to convert to sterling the proceeds of debt raised in
foreign currency where the swap is the hedging instrument in a fair value
hedge. 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.
11 Post balance sheet events
There were no significant post balance sheet events.
12 Contingent liabilities
Details of the Group's contingent liabilities were disclosed in the financial
statements for the year ended 31 March 2009 which were approved on 28 May 2009.
No further contingent liabilities have been identified since that date and
there have been no significant developments relating to the contingent
liabilities disclosed in those financial statements.
13 Related party transactions
There have been no related party transactions that materially affected the
financial position of performance of the group during the period.
14 Forward-looking statements
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",
"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; changes in the markets
from which the group raises finance; 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.
15 Cautionary statement
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).
Responsibility statement
We confirm to the best of our knowledge:
(a) the condensed set of financial statements has been prepared in
accordance with IAS 34; and
(b) the interim management report includes a fair review of the information
required by Disclosure and Transparency Rules 4.2.7R and 4.2.8R of the
United Kingdom Financial Services Authority.
Signed on behalf of the Board who approved the half yearly financial report on
23 November 2009.
Sir John Egan Michael McKeon
Chairman Finance Director
Further copies of this half yearly financial report may be obtained from the
Company Secretary, Severn Trent Plc, 2297 Coventry Road, Birmingham B26 3PU.
INDEPENDENT REVIEW REPORT TO SEVERN TRENT PLC
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2009 which comprises the condensed consolidated income statement, the
condensed consolidated statement of comprehensive income, the condensed
consolidated statement of changes in equity, the condensed consolidated balance
sheet, the condensed consolidated cash flow statement and related notes 1 to
15. We have read the other information contained in the half-yearly financial
report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity"
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review 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, for our review work, for this report, or for the conclusions
we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure and Transparency
Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34, "Interim Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2009 is not prepared, in
all material respects, in accordance with International Accounting Standard 34
as adopted by the European Union and the Disclosure and Transparency Rules of
the United Kingdom's Financial Services Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditors
London, UK
23 November 2009
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