Interim Results
7 December 2006
Severn Trent Plc
Interim Results for the six months to 30 September 2006
FOCUS ON WATER
Group strategy update
* Fundamental change in Group structure achieved
* Biffa Plc demerged
* Property company sold
* Agreed sale for US Laboratories #
* New financing structures
* Special dividend of £577m paid
* Rebased dividend to grow at 3% above RPI to 2010
* Gearing to move to 60% of Regulated Capital Value
* Focus on Water
* Higher standards and greater efficiency
* Improved returns
* Progressive dividends
Group results
Group ex Biffa Plc(1) Group as reported
30 Sept 30 Sept Increase/ 30 Sept 30 Sept
2006 2005 (Decrease) 2006 2005
£m £m % £m £m
Group turnover 746.2 722.2 3.3 1,118.8 1,075.3
Group PBIT(2) 219.0 233.1 (6.0) 268.8 279.2
Profit before tax(3) 142.7 151.4 (5.7) 192.3 196.0
Profit before tax 209.8 162.3
pence/ pence/ pence/ pence/
share share share share
Adjusted basic EPS(4) 42.2 44.7
Basic EPS 55.8 49.6
Interim dividend declared(5) 22.77 21.36
Note: Biffa Plc was demerged on 9 October 2006 and is therefore included in the
Group's results for the six months to 30 September 2006. Note 11 sets out the
contribution of Biffa Plc to the Group's results and net assets.
# subject to US regulatory approval
(1) see note 11
(2) before exceptional items (see Note 3)
(3) before exceptional items and IAS39 fair value adjustments
(4) before exceptional items, IAS39 fair value adjustments and deferred tax (see
note 5)
(5) as rebased (see note 7)
Sir John Egan, Chairman Severn Trent Plc, said:
"I am pleased to report today on what has been a significant period of
restructuring for the Group with the successful demerger of Biffa Plc, the sale
of the Property business, the announced sale of US laboratories and a
substantial improvement in balance sheet efficiency, following the payment of
the £577 million special dividend.
The Board has previously announced that we intend to increase dividends by 3%
above the rate of inflation over the remainder of this regulatory period.
Today's interim dividend announcement is in line with this policy.
Severn Trent is a high quality business whose investment programme drives
strong growth prospects. The management team has a clear and focused strategy
and is pursuing higher standards to achieve both higher levels of customer
satisfaction, and also sustained strong financial returns."
Colin Matthews, Group Chief Executive Severn Trent Plc, said:
"In June 2006, the Board announced its intention to restructure the Severn
Trent Group and to focus on water. With restructuring substantially completed,
Group management is now committed to the single minded pursuit of continuous
improvement in our water business. We are investing now for improved customer
service and leakage reductions. By raising standards we will improve customer
service and generate sustained financial returns for our shareholders."
Enquiries:
Colin Matthews Severn Trent Plc 020 7353 4200 (on the day)
Group Chief Executive 0121 722 4947
Mike McKeon Severn Trent Plc 020 7353 4200 (on the day)
Group Finance Director 0121 722 4267
Peter Gavan Severn Trent Plc 020 7353 4200 (on the day)
Director of Corporate Affairs 0121 722 4310
Jonathan Davies Severn Trent Plc 020 7353 4200 (on the day)
Head of Investor Relations 0121 722 4295
Andrew Grant Tulchan 020 7353 4200
David Trenchard Communications
Interim Results Presentation and Webcast
There will be an interim results presentation at 9.30am on Thursday 7 December
2006. 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.
Group Chief Executive's Review
Focus on Water
In June 2006, the Board announced its intention to restructure the Severn Trent
Group and focus on water. Biffa Plc was successfully demerged on 9 October
2006; the sale of Severn Trent Property was completed on 6 November 2006; and
the sale of US Laboratories has been agreed, subject to US regulatory approval.
In addition, Group balance sheet efficiency has been improved by the payment on
October 20th of the £577 million special dividend. As previously announced, the
Board intends to maintain Group debt at around the target 60% of regulated
capital value, and to increase dividends by 3% above the rate of inflation,
over the remainder of the AMP4 period.
Group management is now concentrated on improving the core Water business.
While performance has been good with respect to water quality, health and
safety and pollution incidents, Severn Trent Water has needed to improve in
respect of leakage, customer service and controls. Over and beyond these basic
requirements, management is developing detailed plans for fundamental
improvement across all areas of the business. Today we are about half way
through the process of benchmarking our performance and identifying improvement
opportunities which will radically change our business over a period of years.
We are now detailing and prioritising our plans. Some are relatively quick to
implement, while others will take us into the next AMP period and will require
additional investment. We expect to update the market in June 2007.
We are however already significantly advanced in the integration of the head
office and Severn Trent Water teams. As a result of this integration, we expect
to reduce our overhead costs by between £6 million and £10 million over the
coming 18 months. Equally important is the opportunity to raise standards and
reduce the number of management layers between the Board and the front line of
customer service delivery.
Severn Trent is a high quality business whose investment programme drives
strong growth prospects. The management team has a clear and focused strategy
and is engaged in the single minded pursuit of higher standards as the means to
achieve both higher levels of customer satisfaction, and also sustained strong
financial returns.
Disposals
The Group announced on 25 September that it had agreed to sell US Laboratories
to TestAmerica Holdings, an affiliate of H.I.G. Capital, for a cash
consideration of approximately £85 million. The transaction is subject to US
regulatory approval and is expected to be completed by the end of December
2006. A provision has been taken for impairment of US Laboratories goodwill at
30 September 2006 of £31.5 million.
On 6 November 2006 the Group announced the sale of Severn Trent Property and
other property interests to Prologis Development Limited for a cash
consideration of £71.7million. The profit on disposal in aggregate is around £
35 million.
Group Performance
Note: In this Interim Results announcement, PBIT is profit from continuing
operations before interest and tax; PBIT * is PBIT excluding exceptional items
as set out in note 2. Following the sale (subject to US regulatory approval) of
the US business of Severn Trent Laboratories, the remaining UK business of
Severn Trent Laboratories has been brought under the management of the Water
purification and operating services segment. Henceforth this segment, which now
includes the UK laboratories business, is referred to as "Water Technologies
and Services". All prior year numbers have been restated for comparative
purposes.
Group profit from continuing operations before tax, IAS39 fair value
adjustments and exceptional items was £192.3 million (£196.0 million) (£142.7
million excluding Biffa Plc, a decrease of 5.7%). Group profit from continuing
operations before tax was £209.8 million (£162.3 million) an increase of 29.3%
(£160.2m excluding Biffa Plc, an increase of 36.1%).
Water and Sewerage PBIT decreased by 6.1% to £225.6 million after providing £
3.2 million for credits to customers arising from the Ofwat interim report on
allegations made against Severn Trent Water in 2004, increases in energy costs
of £9.6 million, increases in bad debt provisions of £2.6 million, increase in
infrastructure renewals expenditure of £6.3 million and management's decision
to invest further in leakage management and customer service of £3.5 million.
Water Technologies and Services' PBIT * was up 11.1% to £9.0 million through
continued organic growth. Other Businesses incurred a PBIT loss of £1.3
million, (loss of £3.4 million).
There were net exceptional gains from continuing operations of £4.2 million (£
nil), representing the profit on disposal of Aquafin NV £14.3 million and
demerger and related costs of £10.1 million in Severn Trent Plc. A net
exceptional charge of £21.3 million arose on discontinued operations,
comprising an exceptional gain of £10.2 million on the disposal of Biffa
Belgium and an exceptional charge of £31.5 million relating to the impairment
of goodwill in relation to the US Laboratories assets held for sale.
Dividend
The Board is proposing an interim dividend of 22.77p (2005/06 - 21.36p as
rebased) an increase of 3% in real terms over the rebased 2005/06 interim
dividend. The interim dividend is payable on 24 January 2007 to shareholders on
the register at 15 December 2006.
The 2005/06 rebased interim dividend represents the relevant proportion of the
adjusted full year base dividend of 57p detailed in the circular to
shareholders published on 13 September 2006.
Full year outlook
Performance at our principal business, Severn Trent Water, has been as expected
in the first half of 2006/07, with a continued focus on the operating cost
challenge of the AMP4 contract. As previously announced, rising energy prices,
net of efficiency savings, will have a significant impact on 2006/07 operating
costs, with full year costs expected to be around £15m to £20m higher than last
year.
Management's decision to further invest in leakage management to address the
conditions towards the end of 2005/06 and the continued drive to improve
customer service levels will further impact on the level of operating costs in
2006/07, with the full year impact anticipated to be around £6m.
In relation to capital expenditure, the Board expects that the capital
programme will continue to proceed according to plan and that the previously
announced efficiencies of around 6% over the Ofwat determination continue to be
deliverable over the remaining AMP4 period.
Operating Review
Water and Sewerage
Turnover increased in the period by 4.6% to £610.4 million. Sales prices have
increased by 6.58% (including inflation) from 1 April 2006, being the 7.23%
increase allowed by Ofwat less the 0.65% voluntary abatement of K, as
previously announced. In addition, the cost of completing the agreement made
with Ofwat arising from their interim report dated 7 March 2006 has reduced
first half turnover and PBIT by around £3.2 million (full year around £6.3
million). This amount is being credited to customer accounts during 2006/07 and
represents the full cost of the £1 million per annum difference (plus
inflation) between the voluntary abatement of K and Ofwat's position over the
remainder of AMP4.
PBIT decreased by 6.1% in the period to £225.6 million. Severn Trent Water
continues to focus on the operating cost challenge of the AMP4 contract. The
business has incurred increased energy costs of £9.6 million, increases in bad
debt provisions of £2.6 million and management's decision to invest in leakage
reduction and customer service levels has resulted in additional expenditure of
approximately £3.5 million. These increases were in addition to the increase in
costs anticipated in the AMP4 Final Determination.
Severn Trent Water invested £42.5 million (£36.2 million) in maintaining its
infrastructure network in the period. The first half expenditure for 2006/07 is
currently programmed to contribute around 40% of the total expenditure for 2006
/07.
Net capital expenditure, excluding spending on infrastructure maintenance, was
£159.5 million in the first half. Adjusting for the changes to the program, to
be agreed with Ofwat through the change control process, and for timing
differences, we continue to be in line to achieve around 6% efficiencies
compared to the final determination over the remaining AMP4 period.
Severn Trent Water has continued to deliver high levels of performance in terms
of drinking water and wastewater quality. Its water resource position is normal
for this time of year.
Severn Trent Water has continued to develop and improve both its internal and
external governance and control environment, substantially improving the
quality and transparency of its regulatory and statutory information returns.
Water Technologies and Services
Turnover in Water Technologies and Services was up 5.4% to £149.5 million.
Turnover in the USA increased by around 3%, with organic growth being partly
offset by the sale of a small business (Pipeline Services). Turnover in the UK
and rest of the world was up by around 7% through continued organic growth.
Around 46% of Water Technologies and Services' turnover arose from customers in
the USA.
Water Technologies and Services' PBIT * increased by 11.1% to £9.0 million. The
improvement mainly arises from improved margins across all principal
businesses. The impact of changing exchange rates was immaterial.
Other Businesses
The Group has continued to rationalise its other activities. On 6 November 2006
the group announced the sale of Severn Trent Property and other property
interests to Prologis Development Limited for a cash consideration of £
71.7million. The profit on disposal in aggregate is around £35 million.
Other Businesses' turnover was down 98% to £0.5 million (£30.9 million). They
incurred a loss before interest, tax and exceptional items of £1.3 million
(loss of £3.4 million). Due to the sale process, there was no significant
development activity in the Property business during the period.
Waste Management
The demerger of Biffa Plc was successfully completed on 9 October 2006,
following shareholder approval at the EGM held on 6 October 2006. The Group's
results for the six months to 30 September 2006 include Biffa Plc. Biffa Plc's
turnover increased by 5.8% to £376.5 million. PBIT * increased by 8.0% to £49.8
million.
Financial Review
Group Results
Group turnover from continuing operations and excluding Biffa Plc was £
746.2 million (£722.2 million), an increase of 3.3% over last year. The growth
in turnover was mainly due to the price increases in Severn Trent Water and
organic growth in the Water Purification business, partially offset by the
reduction in activity in the Other Businesses.
Group profit from continuing operations before interest, tax, and exceptional
items, excluding Biffa plc, decreased by 6.0% to £219.0 million (£233.1
million), after providing £3.2 million for credits to customers arising from
the Ofwat interim report on allegations made against Severn Trent Water in
2004, increased energy costs of £9.6 million, increases in bad debt provisions
of £2.6 million, the impact of management's decision to invest in leakage
reduction and customer service of £3.5 million and higher infrastructure
maintenance expenditure of £6.3 million in Severn Trent Water. There were net
exceptional gains of £4.2 million (£nil) - see below.
After net interest charges, excluding Biffa Plc, of £76.9 million (£82.3
million) and share of profits of associates and joint ventures of £0.6 million
(£0.6 million), Group profit from continuing operations before tax, exceptional
items and IAS 39 fair value adjustments, excluding Biffa Plc, decreased by 5.7%
to £142.7 million (£151.4 million). Group profit from continuing operations
before tax, excluding Biffa Plc, was £160.2 million (£117.7 million).
The total tax charge for the first half was £63.6 million (£49.1 million), of
which current tax represented £55.0 million (£55.7 million) (excluding Biffa
plc was £43.8 million (£47.8 million)) and deferred tax was a charge of £8.6
million (credit of £6.6 million) (excluding Biffa plc was £2.4 million (credit
of £10.2 million)). Profit for the period from continuing operations excluding
Biffa Plc was £114.0 million (£80.1 million).
Basic earnings per share were 55.8 pence (49.6 pence). Adjusted basic earnings
per share from continuing operations (before Biffa plc, exceptional items, IAS
39 fair value adjustments and deferred tax) were 42.2 pence (44.7 pence).
The sale of US Laboratories was announced on 25 September 2006 and it is
therefore classified as a discontinued operation, along with Biffa Belgium
which was sold on 30 June 2006. Discontinued operations generated a profit
after tax of £5.5 million (£1.6 million). An exceptional gain of £10.2 million
on the sale of Biffa Belgium and an exceptional charge relating to the
impairment of goodwill on US Laboratories of £31.5 million (£nil) were
recognised.
Cash flow
30 Sept 30 Sept
2006 2005
£m £m
--------------------
Cash generated from operations 392.5 425.5
Net capital expenditure (192.7) (190.7)
Net interest paid (59.6) (78.9)
Tax paid (21.1) (18.9)
Other cash flows 0.4 1.0
--------------------------------------------------------------
Free cash flow 119.5 138.0
Dividends (111.3) (167.8)
Acquisitions and disposals 69.7 (1.4)
Issue of shares 7.7 9.4
--------------------------------------------------------------
Change in net debt from cash flows 85.6 (21.8)
Non cash movements 9.0 29.6
--------------------------------------------------------------
Change in net debt 94.6 7.8
Net debt at 1 April (2,961.1) (2,894.6)
--------------------------------------------------------------
Net debt at 30 September (2,866.5) (2,886.8)
--------------------------------------------------------------
Net debt comprises:
Cash and cash equivalents 475.2 101.1
Borrowings - current liabilities (541.1) (590.5)
Borrowings - non-current liabilities (2,800.6) (2,397.4)
--------------------------------------------------------------
(2,866.5) (2,886.8)
--------------------------------------------------------------
Cash generated from operations was £392.5 million (£425.5 million). The fall in
cash generated from operations is primarily due to lower PBIT in Water and
Sewerage and lower working capital in the prior period as a result of the sale
of a major development in the Property business. Capital expenditure net of
grants and proceeds of sales of fixed assets was £192.7 million (£190.7
million) including capital expenditure in Severn Trent Water of £159.5 million
(£150.2 million). Net interest paid decreased to £59.6 million (£78.9 million)
due to lower interest payments on finance leases.
Net debt at 30 September 2006 was £2,866.5 million (£2,886.8 million). Balance
sheet gearing (net debt/ net debt plus equity) at the half year is 60.4%
(61.8%). The group's net interest charge, excluding IAS 39 fair value
adjustments, was covered 5.2 times (4.8 times) by profit before interest, tax,
depreciation and exceptional items, and 3.5 times (3.3 times) by PBIT *.
Exceptional items
There were net exceptional gains, on continuing operations, in the six months
to 30 September 2006 of £4.2 million (£nil), which comprised:
* Profit on disposal of Aquafin NV of £14.3 million,
* Demerger and related costs of £10.1 million,
and net exceptional charges of £21.3 million (£nil) on discontinued operations,
which comprised:
* Profit on disposal of Biffa Belgium of £10.2 million, and
* Impairment in goodwill on US Laboratories assets held for sale of £31.5
million.
Taxation
The charge for current tax on continuing operations was £55.0 million (£
55.7 million).
The effective rate of current tax, excluding prior year charges and exceptional
items, calculated on profit before tax, exceptional items and IAS 39 fair value
adjustments was 28.7% (30.6%). The decrease in effective rate is as a result of
the anticipated tax benefit of pension contributions to be made in the full
year 2006/07.
Going forward we would expect the effective current tax rate (taking account of
the demerger of Biffa Plc) for the full year 2006/7, to be in the range of 26%
to 29%.
Accounting policies
The accounting policies adopted are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
March 2006.
Pensions
The Group has four 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 and another scheme, the Severn Trent Senior Staff
Pension Scheme, as at 31 March 2004.
On an IAS19 basis, the estimated net position (before deferred tax) of all of
the group's defined benefit pension schemes was a deficit of £277.4 million as
at 30 September 2006. This compares to a deficit of £221.9 million as at 31
March 2006.
As previously announced, as a result of the demerger and other corporate
transactions, the group is committed to making gross deficit funding
contributions of £83 million into the Severn Trent Pension Scheme and Severn
Trent Senior Staff Pension Scheme by 31 March 2007.
On an IAS19 basis, the funding level has declined from around 86% at 31 March
2006 to around 83% at 30 September 2006.
As at 30 September 2006 the Group's defined benefit pension schemes had total
assets of approximately £1,388.5 million, of which around 63% was invested in
equities.
Treasury management
The Group's policy for the management of interest rate risk requires that no
less than 50% 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 2006, interest rates for some 76% of the Group's net debt of £2,867
million were so fixed, at a weighted average interest rate of 5.85% for a
weighted average period of around 12 years.
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 was immaterial.
Post balance sheet events
On 6 October 2006 the shareholders of Severn Trent Plc approved the demerger of
Biffa Plc, the payment of a special dividend of £1.65 per share and a share
consolidation of two new Severn Trent shares for every three old Severn Trent
shares. The contribution of Biffa Plc to the Group's results and net assets is
summarised in note 11.
Regulatory matters
On 31 October 2005, as a result of a referral by Ofwat, the Serious Fraud
Office (SFO) informed the Company that it was undertaking a criminal
investigation into alleged reporting irregularities in relation to leakage made
to Ofwat by Severn Trent Water Limited between 2000 and 2003.
On 7 March 2006 Ofwat published its interim report concerning the allegations
of false reporting made against Severn Trent Water in 2004.
Having considered Ofwat's findings, the Board of Severn Trent Plc agreed that
customer accounts should be credited as soon as possible.
The Company also acknowledged that Ofwat may expect further amends to be made
to customers. Ofwat has stated that this penalty will be discussed with Severn
Trent Water on completion of the SFO investigation into leakage.
In April 2006 the Company announced that it had submitted an interim report to
Ofwat into misreporting of customer service performance data, including
performance standards under Guaranteed Standards Scheme. As a result Ofwat and
Severn Trent Water appointed Ernst & Young LLP to carry out an independent
investigation into the irregularities. This investigation is ongoing.
On 8 June 2006 Ofwat issued a notice under section 22.A (4) of the Water
Industry Act indicating its intention to impose a penalty on Severn Trent Water
for failure to meet standards of performance under the Water Supply and Sewage
Service (Customer Service Standards) Regulations 1989 (as amended).
No reliable estimate can currently be made of the amounts that might become
payable as a result of the SFO enquiry, Ofwat's final conclusion in respect of
the allegations of false reporting or its review of customer relations data.
Consequently, no provision has been included in the financial statements in
respect of these matters.
Further information
For further information, including the Group's interim results presentation,
see the Severn Trent web site (www.severntrent.com).
Consolidated income statement
Six months ended 30 September 2006
Unaudited Unaudited Audited
6 months 6 months to Year ended
to 30 Sept 30 Sept 2005 31 Mar 2006
2006 (Restated) (Restated)
Notes £m £m £m
-------------------------------------------
Turnover 2 1,118.8 1,075.3 2,161.0
-------------------------------------------------------------------------------
Operating costs before exceptional items (850.0) (796.1) (1,678.8)
Exceptional restructuring costs 3 - - (7.9)
Exceptional demerger costs 3 (10.1) - (7.8)
-------------------------------------------------------------------------------
Total operating costs (860.1) (796.1) (1,694.5)
Exceptional profit on disposal of
business 3 14.3 - -
-------------------------------------------------------------------------------
Profit before interest, tax and
exceptional items 2 268.8 279.2 482.2
Exceptional items 3 4.2 - (15.7)
-------------------------------------------------------------------------------
Profit before interest and tax 273.0 279.2 466.5
-------------------------------------------------------------------------------
Finance income 10.9 4.2 7.9
Finance costs (88.4) (88.5) (175.5)
-------------------------------------------------------------------------------
Net finance costs before fair value movements
on treasury instruments (77.5) (84.3) (167.6)
Fair value movements on treasury
instruments 13.3 (33.7) (36.7)
-------------------------------------------------------------------------------
Total net finance costs (64.2) (118.0) (204.3)
Share of results of associates and joint
ventures 1.0 1.1 2.1
-------------------------------------------------------------------------------
Profit before tax, fair value movements on
treasury instruments and exceptional items 192.3 196.0 316.7
Exceptional items 3 4.2 - (15.7)
Fair value movements on treasury
instruments 13.3 (33.7) (36.7)
-------------------------------------------------------------------------------
Profit on ordinary activities before
taxation 209.8 162.3 264.3
-------------------------------------------------------------------------------
Taxation on profit on ordinary activities
- current tax 4 (55.0) (55.7) (50.3)
- deferred tax 4 (8.6) 6.6 6.0
-------------------------------------------------------------------------------
Total taxation 4 (63.6) (49.1) (44.3)
-------------------------------------------------------------------------------
Profit for the period from continuing
operations 146.2 113.2 220.0
-------------------------------------------------------------------------------
Discontinued operations
Profit from discontinued operations 5.5 1.6 3.0
Exceptional profit on disposal of
business 3 10.2 - -
Exceptional impairment of goodwill on
discontinued operations 3 (31.5) - -
-------------------------------------------------------------------------------
Total (loss)/profit from discontinued
operations (15.8) 1.6 3.0
-------------------------------------------------------------------------------
Profit for the period 130.4 114.8 223.0
-------------------------------------------------------------------------------
Attributable to:
Equity holders of the company 129.5 114.5 221.6
Equity minority interests 0.9 0.3 1.4
-------------------------------------------------------------------------------
130.4 114.8 223.0
-------------------------------------------------------------------------------
Earnings per share (pence)
From continuing operations
Basic 5 62.6 48.9 94.6
Diluted 5 62.1 48.6 94.0
From continuing and discontinued operations
Basic 5 55.8 49.6 95.9
Diluted 5 55.3 49.4 95.3
Consolidated balance sheet
At 30 September 2006
Unaudited Unaudited Audited
30 Sept 2006 30 Sept 2005 31 Mar 2006
(Restated)
Notes £m £m £m
----------------------------------------------
Non-current assets
Goodwill 441.3 506.4 506.3
Other intangible assets 108.0 111.0 112.4
Property, plant and equipment 5,748.9 5,674.4 5,743.1
Interests in joint ventures 1.1 9.6 9.7
Interests in associates 3.3 16.1 19.6
Derivative financial instruments 3.8 2.2 3.7
Available-for-sale financial assets 0.3 0.7 0.5
-------------------------------------------------------------------------------
6,306.7 6,320.4 6,395.3
Current assets
Inventory 25.6 66.1 54.4
Trade and other receivables 521.6 542.0 481.5
Derivative financial instruments 7.0 6.3 10.8
Cash and cash equivalents 475.2 101.1 142.6
-------------------------------------------------------------------------------
1,029.4 715.5 689.3
-------------------------------------------------------------------------------
Assets held for sale 132.5 - 41.5
-------------------------------------------------------------------------------
Total assets 7,468.6 7,035.9 7126.1
-------------------------------------------------------------------------------
Current liabilities
Borrowings (541.1) (590.5) (808.2)
Derivative financial instruments (95.4) (117.9) (114.4)
Trade and other payables (578.3) (530.3) (540.6)
Current income tax liabilities (80.9) (105.3) (48.8)
Provisions for other liabilities and
charges (21.3) (34.3) (30.1)
Liabilities directly associated with assets
classified as held for sale (15.4) - (28.5)
-------------------------------------------------------------------------------
(1,332.4) (1,378.3) (1,570.6)
Non-current liabilities
Borrowings (2,800.6) (2,397.4) (2,295.5)
Derivative financial instruments (47.7) (20.4) (30.1)
Trade and other payables (173.9) (183.7) (158.7)
Deferred tax liabilities (867.9) (861.1) (870.2)
Retirement benefit obligations 10 (277.4) (319.1) (221.9)
Provisions for other liabilities
And charges (85.8) (89.8) (80.1)
-------------------------------------------------------------------------------
(4,253.3) (3871.5) (3,656.5)
-------------------------------------------------------------------------------
Total liabilities (5,585.7) (5,249.8) (5,227.1)
-------------------------------------------------------------------------------
Net assets 1,882.9 1,786.1 1,899.0
-------------------------------------------------------------------------------
Capital and reserves attributable to the
company's equity shareholders
Called up share capital 228.0 227.0 227.2
Share premium account 55.5 46.6 48.6
Other reserves 422.4 398.2 432.4
Retained earnings 1,174.2 1,112.3 1,188.2
-------------------------------------------------------------------------------
Equity attributable to the company's
equity shareholders 1,880.1 1,784.1 1,896.4
Minority interests 2.8 2.0 2.6
--------------------------------------------- ----------------------------------
Total equity 6 1,882.9 1,786.1 1,899.0
-------------------------------------------------------------------------------
Consolidated cash flow statement
Six months ended 30 September 2006
Unaudited Unaudited Audited
6 months to 6 months to Year ended
30 Sept 2006 30 Sept 2005 31 Mar 2006
Notes £m £m £m
--------------------------------------------
Operating activities
Cash generated from operations 8 392.5 425.5 758.9
Interest paid (60.7) (73.0) (139.4)
Interest element of finance lease
rental payments (1.0) (18.8) (45.1)
Tax paid (21.1) (18.9) (68.3)
-------------------------------------------------------------------------------
Net cash generated from operating
activities 309.7 314.8 506.1
-------------------------------------------------------------------------------
Investing activities
Interest received 2.1 12.9 4.4
Dividends received from associates and
joint ventures - 1.0 2.7
Net loans advanced to associates and
joint ventures - - (2.3)
Net cash inflow from available for sale
fixed asset investments 0.4 - 0.2
Acquisition of subsidiaries net of cash - (1.4) (0.3)
acquired
Proceeds on disposal of businesses 69.7 - 1.6
Proceeds on disposal of property, plant
and equipment 4.8 3.4 8.4
Purchases of intangible assets (11.8) - (29.6)
Purchases of property, plant and (200.0) (210.0) (407.5)
equipment
Grants received 14.3 15.9 32.8
-------------------------------------------------------------------------------
Net cash used in investing activities (120.5) (178.2) (389.6)
-------------------------------------------------------------------------------
Financing activities
Dividends paid to shareholders of the
parent (111.3) (167.8) (234.3)
Dividends paid to minority interests - - (0.8)
Repayment of borrowings (684.5) (365.9) (500.2)
Receipts from sale and leaseback
transaction - - 170.2
Repayment of obligations under finance
leases (0.8) (9.9) (167.7)
New loans raised 964.8 406.9 648.8
Issue of shares 7.7 9.4 11.6
-------------------------------------------------------------------------------
Net cash generated from/(used in)
financing activities 175.9 (127.3) (72.4)
-------------------------------------------------------------------------------
Increase in cash and cash equivalents 365.1 9.3 44.1
Net cash and cash equivalents at beginning
of the period 110.4 64.4 64.4
Effect of foreign exchange rates (1.6) 1.0 1.9
-------------------------------------------------------------------------------
Net cash and cash equivalents at the end of
the period 473.9 74.7 110.4
-------------------------------------------------------------------------------
Net cash and cash equivalents comprise:
Cash and cash equivalents 475.2 101.1 142.6
Bank overdrafts (1.3) (26.4) (32.2)
-------------------------------------------------------------------------------
Net cash and cash equivalents at the end of
the period 473.9 74.7 110.4
-------------------------------------------------------------------------------
Consolidated statement of recognised income and expense
Six months ended 30 September 2006
Unaudited Unaudited Audited
6 months to 6 months to Year ended
30 Sept 2006 30 Sept 2005 31 Mar 2006
(Restated)
Notes £m £m £m
--------------------------------------------
Exchange movement on translation of
overseas results and net assets (17.2) 13.7 21.6
Exchange differences on hedges of
net investment 5.1 (3.9) (5.3)
Tax on exchange differences on foreign
currency hedging (1.5) 1.1 1.8
Gains/(losses) on cash flow hedges
taken to equity 2.0 (1.4) 0.3
Actuarial (losses)/gains on defined
benefit pension schemes (48.2) (37.1) 26.3
Deferred tax on items posted directly
to equity 13.9 0.5 (8.0)
-------------------------------------------------------------------------------
Net (loss)/income recognised directly
in equity (45.9) (27.1) 36.7
Transfers
Amounts on cash flow hedges transferred to
the income statement in the period 2.3 2.1 4.5
Deferred tax on transfers to income (0.7) (0.6) (1.4)
statement
Profit for the period 130.4 114.8 223.0
-------------------------------------------------------------------------------
Total recognised income for the period 86.1 89.2 262.8
-------------------------------------------------------------------------------
Attributable to:
Equity shareholders of the company 85.2 88.8 261.4
Minority interests 0.9 0.4 1.4
-------------------------------------------------------------------------------
Total recognised income for the period 86.1 89.2 262.8
-------------------------------------------------------------------------------
Change in accounting policy on adoption
of IAS 32 and IAS 39 - all attributable to
equity holders of the parent 6 - (57.8) (57.8)
-------------------------------------------------------------------------------
Notes
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 2006 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
and did not contain statements under section 237 (2) or (3) of the Companies
Act 1985.
Accounting policies
The accounting policies adopted are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
March 2006.
The comparative figures for the six months ended 30 September 2005 have been
restated:
* to reflect the impact of a change in the treatment of infrastructure
connections income under IFRS compared with the previous treatment under UK
GAAP. Under IFRS, infrastructure connection charges are credited to
deferred income and released to the income statement over the estimated
useful lives of the assets to which the income relates. This restatement is
consistent with the treatment adopted in the financial statements for the
year ended 31 March 2006. Under UK GAAP such contributions were taken to
the profit and loss account when they were due. The impact is to reduce
shareholders' equity at 1 April 2005 by £34.1 million. There is no impact
on the total recognised income previously reported for the period ended 30
September 2005; and
* to reclassify the analysis of derivative financial instruments between
current and non-current amounts. The balance sheet as at 30 September 2005
was prepared on the basis of the maturity date of the derivative. However,
since that date best practice has emerged to classify all derivative
instruments that are not designated as hedges as current assets or
liabilities. The impact on the comparative balance sheet as at 30 September
2005 is to increase current assets and decrease non- current assets by £5.1
million and to increase current liabilities and decrease non-current
liabilities by £103 million.
The comparative figures for the six months ended 30 September 2005 and the year
ended 31 March 2006 have been restated to disclose the results of the US
business of Severn Trent Laboratories as discontinued. The comparative figures
for the period ended 30 September 2005 have also been restated to disclose the
results of Biffa Belgium as discontinued.
2 Segmental analysis
Primary segments Profit before
interest
Turnover tax and exceptional
items
-------------------------------------
2006 2005 2006 2005
(Restated) (Restated)
Six months ended 30 September £m £m £m £m
-------------------------------------------------------------------------
Water and Sewerage 610.4 583.5 225.6 240.2
Water Technologies and Services 149.5 141.9 9.0 8.1
Other Businesses 0.5 30.9 (1.3) (3.4)
Unallocated Corporate Expenses - - (13.5) (11.2)
Inter segment trading (14.2) (34.1) (0.8) (0.6)
-------------------------------------------------------------------------
Group before Biffa Plc 746.2 722.2 219.0 233.1
Biffa Plc 376.5 356.0 49.8 46.1
Inter segment trading (3.9) (2.9) - -
-------------------------------------------------------------------------
Group 1,118.8 1,075.3 268.8 279.2
-------------------------------------------------------------------------
Following the sale (subject to US regulatory approval) of the US business of
Severn Trent Laboratories, the remaining UK business of Severn Trent
Laboratories has been brought under the management of the Water purification
and operating services segment. This segment, which now includes the UK
laboratories business, is now referred to as "Water Technologies and Services".
Secondary segments Turnover
--------------------
2006 2005
(Restated)
Six months ended 30 September £m £m
--------------------------------------------------------
United Kingdom 1,023.3 978.1
Rest of Europe 16.6 17.8
USA 68.6 69.4
Other 10.3 10.0
--------------------------------------------------------
Group 1,118.8 1,075.3
--------------------------------------------------------
3 Exceptional items
An exceptional credit of £4.2 million from continuing operations and an
exceptional charge of £21.3 million from discontinued operations arose in the
period ended 30 September 2006. These comprised:
* in Water Technologies and Services, an exceptional gain on the disposal of
the group's interest in Aquafin NV amounting to £14.3 million;
* in Corporate Expenses, exceptional costs relating to the demerger of Biffa
Plc amounting to £10.1 million; and
* in discontinued operations, an exceptional charge relating to the
impairment of goodwill in relation to the US Laboratories assets held for
sale amounting to £31.5 million and an exceptional gain on the disposal of
Biffa Belgium amounting to £10.2 million.
4 Taxation
Unaudited Unaudited
6 months to 6 months to
30 Sept 2006 30 Sept 2005
(Restated)
£m £m
-------------------------------
Current tax relating to continuing operations
UK corporation tax (53.9) (58.5)
UK corporation tax prior year - 4.0
Overseas tax (1.1) (1.2)
------------------------------------------------------------------------
Total current tax relating to
continuing operations (55.0) (55.7)
------------------------------------------------------------------------
Deferred tax relating to continuing
operations (8.6) 6.6
------------------------------------------------------------------------
Total tax relating to continuing
operations (63.6) (49.1)
------------------------------------------------------------------------
5 Earnings per share
Basic earnings per share is 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. The weighted average
number of shares has been adjusted for the 2 for 3 share consolidation that was
approved at the Extraordinary General Meeting on 6 October 2006.
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.
Adjusted earnings per share figures are presented. These exclude the results of
Biffa Plc, the effects of deferred tax, fair value movements on treasury
instruments and exceptional items. The directors consider that the adjusted
figures provide a useful additional indication of performance.
From continuing operations
Six months ended 30 Sept 2006
------------------------------------------
Earnings Weighted average Per share
number of shares amount
£m m pence
------------------------------------------
Basic earnings per share 145.3 232.0 62.6
Effect of dilutive options - staff
share plans - 2.1 (0.5)
----------------------------------------------------------------------------
Diluted earnings per share 145.3 234.1 62.1
----------------------------------------------------------------------------
Six months ended 30 Sept 2005
------------------------------------------
Earnings Weighted average Per share
number of shares amount
(Restated) (Restated) (Restated)
£m m pence
------------------------------------------
Basic earnings per share 112.9 230.7 48.9
Effect of dilutive options - staff
share plans - 1.3 (0.3)
----------------------------------------------------------------------------
Diluted earnings per share 112.9 232.0 48.6
----------------------------------------------------------------------------
From continuing and discontinued operations
Six months ended 30 Sept 2006
------------------------------------------
Earnings Weighted average Per share
number of shares amount
£m m pence
------------------------------------------
Basic earnings per share 129.5 232.0 55.8
Effect of dilutive options - staff
share plans - 2.1 (0.5)
----------------------------------------------------------------------------
Diluted earnings per share 129.5 234.1 55.3
----------------------------------------------------------------------------
Six months ended 30 Sept 2005
------------------------------------------
Earnings Weighted average Per share
number of shares amount
(Restated) (Restated)
£m m pence
------------------------------------------
Basic earnings per share 114.5 230.7 49.6
Effect of dilutive options - staff
share plans - 1.3 (0.2)
----------------------------------------------------------------------------
Diluted earnings per share 114.5 232.0 49.4
----------------------------------------------------------------------------
Adjusted earnings per share
Six months ended 30 Sept 2006
------------------------------------------
Earnings Weighted average Per share
number of shares amount
£m m pence
------------------------------------------
Basic earnings per share 145.3 232.0 62.6
Effect of:
Exceptional demerger costs 10.1 - 4.4
Exceptional profit on disposal of
businesses (14.3) - (6.2)
Biffa Plc profit after current
Tax (38.4) - (16.6)
Fair value movements on treasury
instruments (13.3) - (5.7)
Effect of deferred tax 8.6 - 3.7
----------------------------------------------------------------------------
Adjusted basic earnings per share 98.0 232.0 42.2
----------------------------------------------------------------------------
Diluted earnings per share 145.3 234.1 62.1
Effect of:
Exceptional demerger costs 10.1 - 4.3
Exceptional profit on disposal of
businesses (14.3) - (6.1)
Biffa Plc profit after current
tax (38.4) - (16.4)
Fair value movements on treasury
instruments (13.3) - (5.7)
Effect of deferred tax 8.6 - 3.7
----------------------------------------------------------------------------
Adjusted diluted earnings per
share 98.0 234.1 41.9
----------------------------------------------------------------------------
Six months ended 30 Sept 2005
------------------------------------------
Earnings Weighted average Per share
number of shares amount
(Restated) (Restated) (Restated)
£m m pence
------------------------------------------
Basic earnings per share 112.9 230.7 48.9
Effect of:
Exceptional demerger costs - - -
Exceptional profit on disposal of
businesses - - -
Biffa Plc profit after current
tax (36.7) - (15.9)
Fair value movements in treasury
instruments 33.7 - 14.6
Effect of deferred tax (6.6) - (2.9)
----------------------------------------------------------------------------
Adjusted basic earnings per
share 103.3 230.7 44.7
----------------------------------------------------------------------------
Diluted earnings per share 112.9 232.0 48.6
Effect of:
Exceptional demerger costs - - -
Exceptional profit on disposal of
businesses - - -
Biffa Plc profit after current
tax (36.7) - (15.8)
Fair value movements in treasury
instruments 33.7 - 14.5
Effect of deferred tax (6.6) - (2.8)
----------------------------------------------------------------------------
Adjusted diluted earnings per
share 103.3 232.0 44.5
----------------------------------------------------------------------------
6 Movement in shareholders' equity
Unaudited Unaudited Audited
6 months to 6 months to Year ended
30 Sept 2006 30 Sept 2005 31 Mar 2006
(Restated)
£m £m £m
------------------------------------------
At 31 March 1,899.0 1,849.5 1,849.5
Adjustment for adoption of IAS 32
and IAS 39 - (57.8) (57.8)
-----------------------------------------------------------------------------
At 1 April 1,899.0 1,791.7 1,791.7
Total recognised income for the
financial period 86.1 89.2 262.8
Shares issued 7.7 9.4 11.6
Credit from share based payments
charge (note 9) 2.6 2.2 4.1
Deferred tax on items posted directly
to reserves (0.5) (1.3) 0.8
Dividends (112.0) (105.1) (172.0)
-----------------------------------------------------------------------------
Net (reduction in)/addition to equity
shareholders' funds (16.1) (5.6) 107.3
-----------------------------------------------------------------------------
At 30 September/31 March 1,882.9 1,786.1 1,899.0
-----------------------------------------------------------------------------
7 Dividends
Unaudited Unaudited
6 months to 6 months to
30 Sept 2006 30 Sept 2005
Pence Pence
per per
share £m share £m
---------------------------------
Amounts recognised as distributions to
equity shareholders in the period:
Final dividend for the year ended
31 March 2006/2005 31.97 111.3 30.30 104.8
The Board declared a special dividend of £1.65 per ordinary share which was
approved at the extraordinary general meeting held on 6 October 2006 and was
paid on 20 October 2006. The cost of the special dividend was £576.7 million.
The Board has also declared an interim dividend of 22.77p per ordinary share
(2005: 19.16p) representing a 3% real increase on the relevant proportion of
the full year dividend of 57p detailed in the circular to shareholders
published on 13 September 2006. The interim dividend will be paid on 24 January
2007. The shares will be traded 'ex-dividend' with effect from 13 December
2006. The cost of the proposed interim dividend will be £53.3 million (2005: £
66.5 million).
Neither the special dividend nor the interim dividend have been included as a
liability as at 30 September 2006.
8 Reconciliation of profit before interest and tax to operating cash flows
Unaudited Unaudited
6 months to 6 months to
30 Sept 2006 30 Sept 2005
£m £m
-----------------------------
Profit before interest and tax from continuing
operations 273.0 279.2
(Loss)/profit before interest and tax from
discontinued operations (15.5) 2.1
-----------------------------
257.5 281.3
Depreciation charge 133.0 128.9
Amortisation of intangible assets 15.2 12.1
Impairment of goodwill 31.5 -
(Profit)/loss on sale of property, plant (2.3) 0.3
and equipment
Profit on sale of businesses (24.5) -
Deferred income movement (3.1) (1.4)
Provisions for liabilities and charges 10.3 17.2
Utilisation of provisions for liabilities
and charges (15.0) (17.3)
Movement in working capital, retirement benefit
obligation and share-based payments (10.1) 4.4
-----------------------------
Net cash inflow from operating activities 392.5 425.5
-----------------------------
9 Share based payments
During the six months to 30 September 2006, the Group has granted a new series
of Long Term Incentive Plan awards. The fair value of these awards (which all
incorporate a Total Shareholder Return criteria) has been calculated as £6.04
per share. The fair value of these awards will be charged to the income
statement over the vesting period (3 years).
The total share based payment charge recognised in the income statement to 30
September 2006 is £2.6 million (2005: £2.2 million).
10 Retirement benefit schemes
The Group operates four defined benefit schemes being the Severn Trent Pension
Scheme, the Severn Trent Mirror Image Scheme, the Severn Trent Senior Staff
Pension Scheme and the UK Waste Pension 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
assets and liabilities at the balance sheet date were as follows:
Unaudited Unaudited Audited
30 Sept 2006 30 Sept 2005 31 Mar 2006
2006
£m £m £m
-------------------------------------
Funded schemes
Present value of defined benefit
obligations (1,661.3) (1,559.8) (1,613.3)
Total fair value of assets 1,388.5 1,252.0 1,402.9
------------------------------------------------------------------------
Deficit relating to funded schemes (272.8) (307.8) (210.4)
Unfunded schemes
Present value of defined benefit
obligations (4.6) (11.3) (11.5)
------------------------------------------------------------------------
Total deficit recognised on balance
sheet (277.4) (319.1) (221.9)
------------------------------------------------------------------------
The amounts recognised in the income statement are as follows:
Unaudited Unaudited Audited
6 months to 6 months to Year ended
30 Sept 2006 30 Sept 2005 31 Mar 2006
£m £m £m
-------------------------------------
Amounts charged to operating costs
Current service cost (23.3) (20.1) (38.9)
Past service cost - - (0.8)
------------------------------------------------------------------------
(23.3) (20.1) (39.7)
------------------------------------------------------------------------
Amounts charged to net finance costs
Interest cost (38.9) (37.9) (75.4)
Expected return on scheme
assets 46.2 39.8 79.2
------------------------------------------------------------------------
7.3 1.9 3.8
------------------------------------------------------------------------
Total amount charged to the income
statement (16.0) (18.2) (35.9)
------------------------------------------------------------------------
The movement in the deficit in the schemes during the period was as follows:
Unaudited Unaudited Audited
6 months to 6 months to Year ended
30 Sept 2006 30 Sept 2005 31 Mar 2006
£m £m £m
--------------------------------------
Deficit in the schemes at the
beginning of the period (221.9) (317.5) (317.5)
Contributions 8.7 53.7 105.2
Current service cost (23.3) (20.1) (39.7)
Other financial income 7.3 1.9 3.8
Actuarial (loss)/gain (48.2) (37.1) 26.3
------------------------------------------------------------------------
Deficit in the schemes at the end
of the period (277.4) (319.1) (221.9)
------------------------------------------------------------------------
11 Post balance sheet events
On 6 October 2006 the shareholders of Severn Trent Plc approved the demerger of
Biffa Plc, the payment of a special dividend of £1.65 per share and a share
consolidation of two new Severn Trent shares for every three old Severn Trent
shares. The contribution of Biffa Plc to the group's results and net assets is
summarised below:
Results
Six months ended 30 September 2006 Continuing operations
------------------------------------------
Group ex Biffa Plc Consolidation Group
Biffa Plc Eliminations
£m £m £m £m
------------------------------------------
Turnover 746.2 376.5 (3.9) 1,118.8
Profit before interest, tax and
exceptional items 219.0 49.8 - 268.8
Profit before tax, fair value movements
on treasury instruments and
exceptional items 142.7 42.5 7.1 192.3
Profit before tax 160.2 42.5 7.1 209.8
-----------------------------------------------------------------------------
Current tax (43.8) (11.2) - (55.0)
Deferred tax (2.4) (6.2) - (8.6)
-----------------------------------------------------------------------------
Profit after tax 114.0 25.1 7.1 146.2
-----------------------------------------------------------------------------
Six months ended 30 September 2005 Continuing operations
------------------------------------------
Group ex Biffa Plc Consolidation Group
Biffa Plc Eliminations
£m £m £m £m
------------------------------------------
Turnover 722.2 356.0 (2.9) 1,075.3
Profit before interest, tax and
exceptional items 233.1 46.1 - 279.2
Profit before tax, fair value movements
on treasury instruments and
exceptional items 151.4 35.8 8.8 196.0
Profit before tax 117.7 35.8 8.8 162.3
-----------------------------------------------------------------------------
Current tax (47.8) (7.9) - (55.7)
Deferred tax 10.2 (3.6) - 6.6
-----------------------------------------------------------------------------
Profit after tax 80.1 24.3 8.8 113.2
-----------------------------------------------------------------------------
Net assets
30 September 2006 Group ex Biffa Plc Consolidation Group
Biffa Plc Eliminations
£m £m £m £m
----------------------------------------------
Non-current assets 5,574.5 732.2 - 6,306.7
Current assets 854.2 178.7 (3.5) 1,029.4
Assets held for sale 132.5 - - 132.5
----------------------------------------------------------------------------
Total assets 6,561.2 910.9 (3.5) 7,468.6
----------------------------------------------------------------------------
Current liabilities (1,174.3) (176.4) 18.3 (1,332.4)
Non-current liabilities (3,794.1) (459.2) - (4,253.3)
----------------------------------------------------------------------------
Total liabilities (4,968.4) (635.6) 18.3 (5,585.7)
----------------------------------------------------------------------------
Net assets 1,592.8 275.3 14.8 1,882.9
----------------------------------------------------------------------------
31 March 2006 Group ex Biffa Plc Consolidation Group
Biffa Plc Eliminations
£m £m £m £m
----------------------------------------------
Non-current assets 5,667.3 728.0 - 6,395.3
Current assets 532.9 160.7 (4.3) 689.3
Assets held for sale 41.5 - - 41.5
----------------------------------------------------------------------------
Total assets 6,241.7 888.7 (4.3) 7,126.1
----------------------------------------------------------------------------
Current liabilities (1,426.8) (161.6) 17.8 (1,570.6)
Non-current liabilities (3,533.7) (414.6) 291.8 (3,656.5)
----------------------------------------------------------------------------
Total liabilities (4,960.5) (576.2) 309.6 (5,227.1)
----------------------------------------------------------------------------
Net assets 1,281.2 312.5 305.3 1,899.0
----------------------------------------------------------------------------
On 6 November 2006 the group announced the sale of Severn Trent Property and
other property interests to Prologis Development Limited for a cash
consideration of £71.7million realising a profit on disposal in aggregate of
around £35 million.
12 Contingent Liabilities
a) Bonds and guarantees
Group undertakings have entered into bonds in the normal course of business. No
liability is expected to arise in respect of either bonds or guarantees.
b) Regulatory matters
On 31 October 2005, as a result of a referral by Ofwat, the Serious Fraud
Office (SFO) informed the Company that it was undertaking a criminal
investigation into alleged reporting irregularities in relation to leakage made
to Ofwat by Severn Trent Water Limited between 2000 and 2003.
On 7 March 2006 Ofwat published its interim report concerning the allegations
of false reporting made against Severn Trent Water in 2004.
Having considered Ofwat's findings, the Board of Severn Trent Plc agreed that
customer accounts should be credited as soon as possible.
The Company also acknowledged that Ofwat may expect further amends to be made
to customers. Ofwat has stated that this penalty will be discussed with Severn
Trent Water on completion of the SFO investigation into leakage.
In April 2006 the Company announced that it had submitted an interim report to
Ofwat into misreporting of customer service performance data, including
performance standards under Guaranteed Standards Scheme. As a result Ofwat and
Severn Trent Water appointed Ernst & Young LLP to carry out an independent
investigation into the irregularities. This investigation is ongoing.
On 8 June 2006 Ofwat issued a notice under section 22.A(4) of the Water
Industry Act indicating its intention to impose a penalty on Severn Trent Water
for failure to meet standards of performance under the Water Supply and Sewage
Service (Customer Service Standards) Regulations 1989 (as amended).
No reliable estimate can currently be made of the amounts that might become
payable as a result of the SFO enquiry, Ofwat's final conclusion in respect of
the allegations of false reporting or its review of customer relations data.
Consequently, no provision has been included in the financial statements in
respect of these matters.
c) The group has entered into agreements to dispose of its interests in
Worksuite LLC, the assets and certain liabilities of its CIS business and Biffa
Belgium. The group has given certain guarantees and indemnities to the
purchasers of these businesses.
In June 2005 The Flemish Waste Agency "OVAM" instigated an investigation by the
Antwerp Examining Magistrate into Biffa Belgium's waste recycling operations in
connection with the payment of environmental taxes. The liability arising from
the civil claim by OVAM has been settled during the period. The purchaser of
Biffa Belgium would be entitled to claim for any criminal penalties that might
result from this investigation.
Except as noted above, the group is not aware of any liability that is likely
to result from these guarantees and indemnities that has not been provided for
in these financial statements.
13 Interim statement
The interim report and accounts were approved by a committee of the Board of
Directors on 6 December 2006.
Further copies of this interim statement may be obtained from the Company
Secretary, Severn Trent Plc, 2297 Coventry Road, Birmingham B26 3PU.
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; 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).
16 Other information
The interim report for the six months to 30 September 2006, including extracts
from this announcement and the independent review report by the auditors, will
be advertised in The Financial Times on 8 December 2006. Copies will be
available to the public at Severn Trent's registered office and on its website
www.severntrent.com
INDEPENDENT REVIEW REPORT TO SEVERN TRENT Plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 September 2006 which comprise the consolidated income
statement, the consolidated balance sheet, the consolidated cash flow
statement, the consolidated statement of recognised income and expense and
related notes 1 to 16. We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
This report is made solely to the company in accordance with Bulletin 1999/4
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 interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and
applying analytical procedures to the financial information and underlying
financial data and, based thereon, assessing whether the accounting policies
and presentation have been consistently applied unless otherwise disclosed. A
review excludes audit procedures such as tests of controls and verification of
assets, liabilities and transactions. It is substantially less in scope than an
audit performed in accordance with International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2006.
Deloitte & Touche LLP
Chartered Accountants
London
6 December 2006
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