Final Results - Year Ended 31 March 2000

Severn Trent PLC 5 June 2000 Preliminary Results for the year ended 31 March 2000 SEVERN TRENT TAKES OVER AS NATIONAL WASTE LEADER WITH UK WASTE ACQUISITION Severn Trent Plc today announced the acquisition of UK Waste from Waste Management Inc. for £380 million, establishing Severn Trent's waste arm Biffa, as the clear UK waste leader. The merger of this predominantly collection and recycling business with Biffa will create a business with a turnover of nearly £500 million. Severn Trent also announced that it is in negotiations with Waste Management Inc. to acquire WM Sellbergs (Sweden); agreements have not yet been finalised, as a number of significant issues are still to be resolved. Severn Trent will only conclude a deal that is shareholder value enhancing. Today's results reflect a major change in the shape of the Group with the annual turnover rate for the non-regulated arms expected to account for over 50% of the Group total in the current year. Key acquisitions over the past year by Severn Trent Services have already secured Severn Trent's position as the leader in environmental testing laboratories in the US and UK, and reflect the Group's transformation into an international environmental services business. Financial and operating highlights: Group: Turnover up 14.8% to £1,566.6m (£1,364.3m) * Profit before interest, tax and exceptional costs steady at £459.4m (£461.7m) * Profit before tax and exceptional costs £338.7m (£361.4m) * Exceptional restructuring and Year 2000 costs £64.7 million * Final dividend of 28.0p per ordinary share, bringing total for the year to 45.0p (43.0p) * Non-regulated businesses: Turnover up 30.0% to £698.3m (98/99 £537.3m); profit before interest and tax (pre exceptionals) £52.0m (£51.6m) Strategic Acquisition * Acquisition of UK Waste from Waste Management Inc. for £380 million * Earnings enhancing in financial year 2001/02 (pre goodwill amortisation) * Deal defines future shape of the waste industry and creates a platform for growth particularly for collection and recycling Severn Trent Water: Turnover up 3.1% to £982.1m (£952.7m) * Major restructuring programme on track to meet new regulatory targets and deliver £60m p.a cost savings by 2005 * Ready for competition - comprehensive network access code published Biffa: Turnover up 17.5% to £291.1m (£247.8m) * Excellent year for collection division - turnover up 19.1% to £151.6m Severn Trent Services: Rapid growth in turnover - up 63.4% to £242.8m (£148.6m) * Restructuring by new CEO Bill Cook to position business as integrated solutions provider * Market leader in environmental testing labs - UK and US Commenting today, David Arculus, Severn Trent's Chairman, said: 'Today's announcement reflects a change in the shape of the Severn Trent Group with our non-regulated businesses taking centre stage. Over the past decade, we have transformed the Group from a regional water company into an international environmental services business. Our acquisition of UK Waste marks a highpoint in the transformation of the Group as we take our place as the UK market leader in waste management. We have already secured leadership positions in environmental laboratories in the UK and the US, establishing a strong non-regulated platform for growth. The annual run rate of turnover for our non-regulated operating arms is close to £1 billion and is expected to account for over 50% of the Group total over the next year. Over the last six years, under the strong leadership of Vic Cocker, Severn Trent has seen significant change. Vic has made a tremendous contribution to the Group's development and has been instrumental in creating the diversified environmental services business we see today. His successor will be our Deputy Chief Executive, Robert Walker, whose strategic and operational skills will be invaluable as we speed up the development of our non-regulated activities.' Vic Cocker, Group Chief Executive, said: 'The merger of UK Waste, which is predominantly a collection and recycling business, with Severn Trent's waste management arm Biffa, will create a business with a turnover of almost £500 million. The deal will redefine the shape of the UK waste industry, and will help to progress the Government's recently announced waste strategy. Our excellent management team will drive further growth and profits through our non-regulated businesses and we are very positive in our outlook for the water business. Severn Trent Water's restructuring programme will enable us to meet the challenging new regulatory targets and deliver £60m p.a. of cost savings by 2005, while maintaining our excellent service and environmental standards to deliver the highest quality for our customers.' Enquiries: Vic Cocker Severn Trent Plc 020 7404 5959 (on the day) Group Chief Executive 0121 722 4000 (thereafter) Alan Costin Severn Trent Plc as above Group Finance Director Samantha Cohen Severn Trent Plc 0774 700 8367 Media Relations Manager Simon Holberton Brunswick Group 020 7404 5959 Chairman's Statement Today's announcements reflect a significant change in the shape of the Severn Trent Group with our non-regulated businesses taking centre stage. Over the past decade, we have successfully transformed Severn Trent from a regional water company into an international environmental services group. The Severn Trent Group now comprises three main businesses - Severn Trent Water, Severn Trent Services and Biffa, which will increasingly work together to provide integrated environmental solutions. We have today separately announced the conditional acquisition of UK Waste from Waste Management Inc, which marks a highpoint in the transformation of the Group, as Severn Trent becomes the waste leader in the UK. We are also in negotiations with Waste Management Inc to acquire WM Sellbergs in Sweden; agreements have not yet been finalised as a number of significant issues are still to be resolved. We can make no further comment on the potential Swedish transaction at this stage, but Severn Trent will only conclude a deal that enhances value for our shareholders. Our acquisitions over the past year have also made us the clear market leader in environmental laboratory testing services in the US and UK. We have a new management team in place to drive further growth and profits through our non-regulated businesses and we are very positive in our outlook for the water business. I am proud to say that the Severn Trent Group is now well positioned to thrive in a more competitive marketplace and we are looking forward to an exciting future. Transforming the Group Negotiations were completed over the weekend for the acquisition of UK Waste for £380 million, establishing Biffa as the clear UK leader in waste management. The deal, which will be earnings enhancing in financial year 2001/02 before goodwill amortisation, redefines the shape of the UK waste industry and helps to progress the Government's recently announced waste strategy. UK Waste has 26 collection depots, 8 operational landfill sites and 6 paper recycling plants. The merger of this primarily waste collection and recycling business with Biffa creates a waste business with a current turnover of nearly £500 million (Biffa turnover 99/00 £291 million). Acquisitions in both Biffa and Severn Trent Services, supported by the solid financial performance of the group over the last twelve months, underline the transformation of the Severn Trent Group. The annual rate of turnover for the non-regulated operating arms of the Severn Trent group will be nearly £1 billion and will represent over 50% of the Group total - achieving our medium term target for turnover. Following this achievement, there are strong opportunities for the generation of further growth and value, based on our attainment of leadership positions in key markets. These include waste services (UK and Belgium), environmental laboratories (US and UK), water and waste purification (US and Europe), and contract operations (US and Europe). Within five years we expect around 30% of operating profit to be derived from these activities. Financial Review During the year Group turnover rose 14.8% to £1,566.6m (1998/99 £1,364.3m). Turnover from the non-regulated businesses increased by 30.0% to £698.3m (1998/99 £537.3m) and accounted for 42% of revenues as against 36% the previous year. Group profit before interest and exceptional costs was £459.4m (1998/99 £461.7m). Of this, the non-regulated businesses contributed £52.0m (1998/99 £51.6m). After exceptional costs totalling £64.7 million and interest costs of £120.7 million, profit on ordinary activities before tax was £274.0 million (1998/99 £350.4 million). The tax charge for the year was £22.1 million (1998/99 £46.6 million), an effective rate of 8.1% (1998/99 13.3%). Profit after tax was £251.9 million (1998/99 £303.8 million). Basic earnings per share before exceptional costs were 92.8p (1998/99 92.4p). On these results the Board is recommending a final dividend of 28.0p per ordinary share, bringing the total for the year to 45.0p (1998/99 43.0p). Operational review Severn Trent Water Turnover in Severn Trent Water rose 3.1% to £982.1 million with operating profits before exceptionals steady at £423.5 million. Water quality and customer service levels improved again and capital investment for the year was £556 million. This brought the total for the five year period to £2,373 million, and over the ten year period since privatisation, the company has invested £5.0 billion in improving its infrastructure, customer service and quality. A major restructuring programme is in place to meet new regulatory targets and deliver £60 million operating cost savings per annum by 2005. The cost of this programme is expected to be £52.5 million and has been provided for as an exceptional item in the accounts for the year ended 31 March 2000. Severn Trent remains confident about the outlook for the water business and believes that there are opportunities to outperform the OFWAT determination in respect of both operating costs and capital investment costs. Our OPEX profile for AMP3 is now determined, the first two years are fully planned, and we aim to deliver the bulk of the savings up-front. Our CAPEX financial profile has been finalised and virtually all outputs have been agreed with the regulators. Severn Trent Water is primed for opportunities presented by competition with the publication of its Network Access Code and is in position to win more business outside its region and offer new products and services to commercial and industrial customers. Biffa Waste Services During the year Biffa Waste Services increased turnover by 17.5% to £291.1 million. Biffa's collection division had an excellent year with turnover rising 19.1% to £151.6 million and profits increasing to £20 million. Profits from special waste division also showed a healthy increase, but landfill profits were down in both the UK and Belgium. UK landfill profits were reduced by £1.8 million due to the adoption of the new FRS15 accounting standard, and by very competitive market conditions. Consequently, profit before interest for the Biffa group fell by 9.4% to £31 million. Following the acquisition of UK Waste, Biffa is the clear leader in waste management in the UK, and a strong competitor in Belgium, offering a comprehensive range of services to industry, commerce, retail customers and the health and public sectors. Between 1991 and 2000, Biffa almost tripled both its revenues and profits - and until now has done so largely organically rather than by acquisition. Biffa's expansion has been and will continue to be fuelled by new legislation that has made companies more responsible for the way their waste is managed, and by generating a variety of treatment solutions for different types of waste. The collection and recycling strengths of UK Waste, together with Biffa's strengths in this area, will give us a pre-eminent position in fulfilling the Government's waste strategy. This emphasises the logic of acquiring a business where the vast majority of the value is in the collection business. Biffa has the largest and fastest growing collection activity in the UK, and business growth will continue to be driven by industrial and commercial collection activities as the waste market develops to meet legislative targets. The combined Biffa/UK Waste business gives us an even stronger national depot and transfer station coverage and will present the opportunity to establish the lowest collection cost structure in the industry. Moreover, Biffa's proven and successful business model will underpin the enlarged collection activity. Severn Trent Services Severn Trent Services posted strong growth with revenues rising 63.4% to £242.8 million and profit before interest and exceptionals increasing by 42.7% to £15.7 million. Under its new President and CEO, Bill Cook, the business has undergone a major reorganisation to capitalise on its critical mass, accelerate organic growth and establish a single, powerful brand. Laboratory Services in the USA now has a run rate of almost USD200 million - three times the size of its nearest competitor, while the acquisition of Hyder Laboratories has confirmed our position as the leader in the UK environmental laboratory market. It was also a good year for the Water Purification businesses with turnover increasing 35.3% to £78.2m. The Operating Services division now has over 400 contracts in 31 states within the USA and is one of the leading providers of management services for municipal and industrial water and waste water systems in the country. In Europe, in addition to its investment in Aquafin, which provides sewerage services to the Flanders region of Belgium, the business is also expanding, with a series of acquisitions in northern Italy which take advantage of Italy's moves towards privatisation. Severn Trent Systems The delivery of CIS-OV, the customer information and billing system, has required considerable investment (all of which has been written off against profits) and delayed some revenues, resulting in an operating loss of £2.6m for the year. The system is now operational in 4 leading utilities in the USA and Australia, with 4 additional contracts for delivery in 2000, and new sales expected. Demand for Severn Trent Systems' other highly successful software products in work management, fieldworking, network modelling and systems integration, remains strong. It is clear that software products require on-going investment and a global marketing capability in order to realise their full potential sales and profit stream. It has therefore been decided to restructure the business, separating Severn Trent Systems from Severn Trent Services so that a thorough review of strategic alternatives for this business can be undertaken. Property, Engineering Consultancy and Insurance Our Property, Engineering Consultancy and Insurance businesses produced good results with operating profits up 23.8% to £7.8 million. The Board Vic Cocker, who has been Chief Executive for the last six years, retires in October 2000 after 26 years with Severn Trent. Vic has made a tremendous contribution to the Group's development and has been largely instrumental in creating the international environmental services business Severn Trent is today. He will be greatly missed by his colleagues. Vic's successor will be Robert Walker, Deputy Chief Executive, whose strategic and operational skills will be invaluable as the Group accelerates the development of its non-regulated activities. The Future We have an exceptionally strong portfolio of non-regulated businesses. We are now the leader in the UK waste industry, and a strong competitor in Belgium. In our services businesses we are now by far the leading environmental laboratory business in the US and in the UK. We are also the leading supplier of chlorine based disinfection equipment and services worldwide. The future of Severn Trent lies with our management teams and our people. In our water business we have a proven track record of beating tough regulatory targets. Biffa has a management well capable of exploiting the synergies which exist within the extended waste business. The Severn Trent Services team is now focussed into two areas, the US and Europe. Environmental leadership is Severn Trent's guiding principle. With ever increasing attention being given to environmental issues by Government and by customers, the Group has the opportunity to generate increasing value for shareholders by providing integrated environmental solutions. David Arculus Chairman, Severn Trent Plc Group profit and loss account Year ended 31 March 2000 2000 1999 Notes £m £m Turnover: group and share of joint ventures 1,580.2 1,378.6 Less: share of joint ventures' turnover (13.6) (14.3) ------- ------- Continuing operations 1,485.0 1,364.3 Acquisitions 81.6 - ------------------------------------------------------------------------------ Turnover 1,566.6 1,364.3 Operating costs before exceptional costs (1,115.8) (911.9) Exceptional restructuring costs 1(c) (56.1) - Exceptional Year 2000 costs 1(c) (8.6) (11.0) ------------------------------------------------------------------------------ Total operating costs (1,180.5) (922.9) Operating profit Continuing operations 378.6 441.4 Acquisitions 7.5 - ------- ----- 386.1 441.4 Joint ventures and associates Continuing operations 8.6 9.3 ------------------------------------------------------------------------------ Profit before interest Before exceptional costs 459.4 461.7 Total exceptional costs (above) (64.7) (11.0) ------- ----- 394.7 450.7 Net interest payable (120.7) (100.3) ------------------------------------------------------------------------------ Profit on ordinary activities before taxation 274.0 350.4 Taxation on profit on ordinary activities 1(d) (22.1) (46.6) ------------------------------------------------------------------------------ Profit for the financial year 251.9 303.8 Dividends (including non-equity dividends) 1(e) (154.0) (147.0) ------------------------------------------------------------------------------ Retained profit for the financial year 97.9 156.8 ------------------------------------------------------------------------------ Earnings per share (pence) Basic 1(f) 73.8 89.2 Diluted 1(f) 73.5 88.5 Basic before Year 2000 and restructuring costs 1(f) 92.8 92.4 Diluted before Year 2000 and restructuring costs 1(f) 92.3 91.7 There is no difference between the profit on ordinary activities before taxation and the retained profit for the financial year stated above, and their historical cost equivalents. Balance Sheet At 31 March 2000 2000 1999 £m £m Fixed assets Intangible assets - goodwill 138.0 56.6 Tangible assets 4,630.9 4,237.9 Investments in joint ventures Share of gross assets 7.3 5.9 Share of gross liabilities (6.9) (6.2) Loans to joint ventures 4.5 4.7 ------- ------- 4.9 4.4 Investments in associates 16.3 17.2 Other investments 4.5 3.1 ------- ------- Total investments 25.7 24.7 ------------------------------------------------------------------------------ 4,794.6 4,319.2 Current Assets Stocks 77.3 82.2 Debtors 353.8 284.9 Short-term deposits 35.8 22.9 Cash at bank and in hand 8.4 9.3 ------------------------------------------------------------------------------ 475.3 399.3 Creditors: amounts falling due within one year (1,089.2) (923.4) ------------------------------------------------------------------------------ Net current liabilities (613.9) (524.1) ------------------------------------------------------------------------------ Total assets less current liabilities 4,180.7 3,795.1 Creditors: amounts falling due after more than one year (1,537.7) (1,306.2) Provisions for liabilities and charges (96.0) (42.7) ------------------------------------------------------------------------------ Net assets 2,547.0 2,446.2 ------------------------------------------------------------------------------ Capital and reserves Called up share capital 231.7 231.1 Share premium account 12.2 5.4 Capital redemption reserve 147.0 147.0 Profit and loss account 2,155.8 2,062.4 ------------------------------------------------------------------------------ Total shareholders' funds 2,546.7 2,445.9 Equity shareholders' funds 2,537.6 2,436.8 Non-equity shareholders' funds 9.1 9.1 Minority shareholders' interest (equity) 0.3 0.3 ------------------------------------------------------------------------------ 2,547.0 2,446.2 ------------------------------------------------------------------------------ Group cash flow statement Year ended 31 March 2000 2000 1999 Notes £m £m £m £m Net cash inflow from operating activities 1(g) 671.5 628.0 Dividends received from associates and joint ventures 1.5 1.6 Returns on investments and servicing of finance (94.5) (79.1) Taxation (49.3) (209.6) Capital expenditure and financial investment (575.5) (609.7) Acquisitions (145.1) (81.3) Equity dividends paid (247.1) (35.7) ----- ----- Net cash outflow before use of liquid resources and financing (438.5) (385.8) Management of liquid resources (13.8) 10.1 Financing Increase in debt 428.0 364.2 Issue of shares 3.6 2.9 ----- ----- 431.6 367.1 ----- ----- Decrease in cash (20.7) (8.6) ----- ----- Reconciliation of net cash flow to movement in net debt 2000 1999 £m £m £m £m Decrease in cash (as above) (20.7) (8.6) Cash flow from movement in net debt and financing (428.0) (364.2) Cash flow from movement in liquid resources 13.8 (10.1) ----- ----- Change in net debt resulting from cash flows (434.9) (382.9) Net debt assumed with acquisitions (14.9) (1.5) Inception of finance leases (11.3) (15.5) Rolled up interest on debt (0.2) - Currency translation differences 0.4 3.4 ----- ----- Increase in net debt (460.9) (396.5) Opening net debt (1478.5) (1082.0) ------ ------ Closing net debt (1939.4) (1478.5) ------ ------ Statement of total recognised gains and losses Year ended 31 March 2000 2000 1999 £m £m Profit for the financial year - group 250.0 301.7 - joint ventures 0.8 0.6 - associates 1.1 1.5 ----- ----- Total profit for the financial year 251.9 303.8 Currency translation differences (0.7) 3.9 ----- ----- Total recognised gains and losses for the year 251.2 307.7 ----- ----- Reconciliation of movements in shareholders' funds 2000 1999 £m £m Profit for the financial year 251.9 303.8 Dividends (including non-equity dividends) (154.0) (147.0) ----- ----- 97.9 156.8 Other recognised gains and losses relating to the year (0.7) 3.9 Shares issued 3.6 2.9 Scrip dividend - 3.4 Goodwill written off direct to reserves - (1.5) ------- ------- Net addition to shareholders' funds 100.8 165.5 Opening shareholders' funds 2,445.9 2,280.4 ------- ------- Closing shareholders' funds 2,546.7 2,445.9 ------- ------- Segmental analysis Analysis of turnover and profit before interest by geographical origin and type of business Other-principally United Kingdom USA and Europe Group 2000 1999 2000 1999 2000 1999 £m £m £m £m £m £m Group turnover Water and sewerage 982.1 952.7 - - 982.1 952.7 Waste management 248.3 203.3 42.8 44.5 291.1 247.8 Services 52.9 53.5 189.9 95.1 242.8 148.6 Systems 71.2 63.4 15.5 17.0 86.7 80.4 Property, Engineering Consultancy and Insurance 77.1 60.0 0.6 0.5 77.7 60.5 Inter segment trading (113.5) (123.8) (0.3) (1.9) (113.8) (125.7) ------- ------- ----- ----- ------- ------- 1,318.1 1,209.1 248.5 155.2 1,566.6 1,364.3 ------- ------- ----- ----- ------- ------- Group profit before interest and exceptional costs Water and sewerage 423.5 423.9 - - 423.5 423.9 Waste management - underlying 25.7 26.4 7.1 7.8 32.8 34.2 Depreciation adjustment (note 1a) (1.8) - - - (1.8) - ----- ----- ----- ----- ----- ----- Waste management 23.9 26.4 7.1 7.8 31.0 34.2 Services (0.3) 1.4 16.0 9.6 15.7 11.0 Systems (2.6) (0.8) - 0.9 (2.6) 0.1 Property, Engineering Consultancy and Insurance 7.9 6.3 - - 7.9 6.3 Unrealised profit on inter segment trading (2.5) (3.2) - - (2.5) (3.2) ------- ------- ----- ----- ------- ------- 449.9 454.0 23.1 18.3 473.0 472.3 ------- ------- ----- ----- Corporate overheads (13.6) (10.6) ------- ------- 459.4 461.7 ------- ------- Exceptional costs Water and sewerage (Year 2000) (8.6) (11.8) - - (8.6) (11.8) Water and sewerage (Restructuring) (52.5) - - - (52.5) - Services (Restructuring) (0.9) - (2.6) - (3.5) - Property, Engineering Consultancy and Insurance (Restructuring) (0.1) - - - (0.1) - Elimination of inter segment profit (Year 2000) - 0.8 - - - 0.8 ------- ------ ----- ----- ------- ------- (62.1) (11.0) (2.6) - (64.7) (11.0) ------- ------- ----- ----- ------- ------- Group profit before interest Water and sewerage 362.4 412.1 - - 362.4 412.1 Waste management - underlying 25.7 26.4 7.1 7.8 32.8 34.2 Depreciation adjustment (note 1a) (1.8) - - - (1.8) - ----- ----- ----- ----- ----- ----- Waste management 23.9 26.4 7.1 7.8 31.0 34.2 Services (1.2) 1.4 13.4 9.6 12.2 11.0 Systems (2.6) (0.8) - 0.9 (2.6) 0.1 Property, Engineering Consultancy and Insurance 7.8 6.3 - - 7.8 6.3 Unrealised profit on inter segment trading (2.5) (2.4) - - (2.5) (2.4) ------- ------- ----- ----- ------- ------- 387.8 443.0 20.5 18.3 408.3 461.3 ------- ------- ----- ----- Corporate overheads (13.6) (10.6) ------- ------- Group profit before interest 394.7 450.7 ------- ------- The segmental analysis has been amended to exclude from Services the results of Severn Trent Systems which are now shown separately. In addition, Services' overseas profit before interest in 2000 is shown after deducting US corporate overheads of £1.8 million. Services' comparative figures have been amended to reflect a charge of £0.7 million previously reported within Corporate overheads. The segmental analysis includes the following amounts in respect of businesses acquired during the year: Other-principally United Kingdom USA and Europe Total £m £m £m Turnover Waste management 19.2 - 19.2 Services - 61.7 61.7 Systems - 0.7 0.7 -------------- ---------------- ----- 19.2 62.4 81.6 -------------- ---------------- ----- Other-principally United Kingdom USA and Europe Total £m £m £m Operating Profit Waste management 0.3 - 0.3 Services - 7.4 7.4 Systems - (0.2) (0.2) -------------- ---------------- ----- 0.3 7.2 7.5 -------------- ---------------- ----- Waste management operating profit in the table above is after charging £0.3 million of the £1.8 million depreciation adjustment referred to in note 1a. Notes 1 Financial information a Results The results have been extracted from the audited financial statements of the group for the year ended 31 March 2000. These audited statements incorporate an unqualified audit report. The results do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 March 1999, which incorporated an unqualified auditors' report, have been filed with the Registrar of Companies. Adoption of FRS15 'Tangible Fixed Assets' this year has necessitated a change in the depreciation method applied by the group to its UK landfill sites. As a result of changing methodology, an additional £1.8 million depreciation has been expensed in the current year's results. This book adjustment has no impact on the group's cash flows. b Turnover - Water and sewerage Water and sewerage turnover is shown net of customer rebates as follows: 2000 1999 £m £m Gross turnover 1000.1 970.5 Customer rebate (18.0) (17.8) ------ ----- 982.1 952.7 ------ ----- c Exceptional Year 2000 and restructuring costs Exceptional Year 2000 charges in the year ended 31 March 2000 of £8.6 million (1999: £11.0 million) relate to the costs of ensuring that all group computer and operating systems are Millennium compliant. Exceptional restructuring costs of £56.1 million (1999: Nil) relate to the costs of restructuring Severn Trent Water following the AMP3 determination, and a restructuring of Severn Trent Services. d Taxation 2000 1999 £m £m UK corporation tax - current year at 30% (31%) 22.4 135.0 - prior year (3.3) (16.8) Double taxation relief (0.9) (1.0) Overseas taxation - current year 3.3 4.3 - prior year - (0.1) Share of taxation charges - joint ventures 0.1 - - associates 1.0 1.2 Advance corporation tax - current year - (86.3) - prior year (0.5) 10.3 ---- ---- Total taxation 22.1 46.6 ---- ---- e Dividends An interim dividend of 17.0 pence net per share was paid on 6 April 2000. The Directors recommend a final dividend of 28.0 pence net per share, which it is intended will be paid on 2 October 2000. The final dividend will be payable to shareholders on the register on 18 August 2000 and shares will be traded 'ex-dividend' with effect from 14 August 2000. The cost of the proposed equity dividends to the company's shareholders for the year ended 31 March 2000 was £153.7 million (1999: £146.5 million). Dividends received or receivable by the company from its subsidiaries comprised £145.0 million from Severn Trent Water Limited (1999: £138.0 million) plus a special dividend of £125.0 million to effect a capital restructuring following the AMP3 determination and £11.6 million from non regulated businesses (1999: £5.1 million). The group also received dividends of £1.5 million from associates and joint ventures (1999: £1.6 million). Severn Trent Water Limited's dividend policy is to declare dividends which are consistent with its regulatory obligations and at a level which is decided each year after consideration of a number of factors, including regulatory uncertainty, market expectations, actual and potential efficiencies, future cash flow requirements and balance sheet considerations. The amount declared is expected to vary each year as the impact of these factors changes. f 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 year, excluding those held in the Severn Trent Employee Share Ownership Trust which are treated as cancelled. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potential dilutive ordinary shares. These represent share options granted to employees where the exercise price is less than the average market price of the Company's shares during the year. Supplementary earnings per share figures are presented. These exclude the effects of exceptional Year 2000 costs in 1999 and 2000 and exceptional restructuring costs in 2000. The directors consider that the supplementary figures provide a useful additional indication of performance. 2000 Weighted Per average share Earnings number of amount £m shares(m) pence Basic earnings per share 251.5 340.8 73.8 Effect of dilutive securities Options - 1.6 (0.3) ----- ----- ---- Diluted earnings per share 251.5 342.4 73.5 ----- ----- ---- Supplementary earnings per share Basic earnings per share 251.5 340.8 73.8 Effect of: Exceptional Year 2000 costs 8.6 - 2.5 Exceptional restructuring costs 56.1 - 16.5 ----- ----- ---- Basic earnings per share before Year 2000 and restructuring costs 316.2 340.8 92.8 ----- ----- ---- Diluted earnings per share 251.5 342.4 73.5 Effect of: Exceptional Year 2000 costs 8.6 - 2.5 Exceptional restructuring costs 56.1 - 16.3 ----- ----- ---- Diluted earnings per share before Year 2000 and restructuring costs 316.2 342.4 92.3 ----- ----- ---- 1999 Weighted Per average share Earnings number of amount £m shares(m) pence Basic earnings per share 303.3 340.0 89.2 Effect of dilutive securities Options - 2.6 (0.7) ----- ----- ---- Diluted earnings per share 303.3 342.6 88.5 ----- ----- ---- Supplementary earnings per share Basic earnings per share 303.3 340.0 89.2 Effect of: Exceptional Year 2000 costs 11.0 - 3.2 Exceptional restructuring costs - - - ----- ----- ---- Basic earnings per share before Year 2000 and restructuring costs 314.3 340.0 92.4 ----- ----- ---- Diluted earnings per share 303.3 342.6 88.5 Effect of: Exceptional Year 2000 costs 11.0 - 3.2 Exceptional restructuring costs - - - ----- ----- ---- Diluted earnings per share before Year 2000 and restructuring costs 314.3 342.6 91.7 ----- ----- ---- g Cash flow statement - reconciliation of profit before interest to operating cash flows 2000 1999 £m £m Profit before interest 394.7 450.7 Share of operating profit of associates and joint ventures (8.6) (9.3) Depreciation charge 252.1 232.1 Amortisation of goodwill 6.4 1.3 Profit on sale of tangible fixed assets (2.5) (1.0) Profit on sale of fixed asset investments - (0.2) Deferred income received 0.8 0.9 Deferred income written back (4.6) (2.7) Provisions for liabilities and charges 67.8 8.4 Utilisation of provisions for liabilities and charges (26.2) (15.0) Working capital increase (8.4) (37.2) ----- ----- Net cash inflow from operating activities 671.5 628.0 ----- ----- 2 Annual Report The 2000 Annual Report will be sent to shareholders in early July. Copies may be obtained from the Company Secretary, Severn Trent Plc, 2297 Coventry Road, Birmingham B26 3PU. 3 Annual General Meeting The Annual General Meeting will be held at The International Convention Centre, Birmingham, on 1 August 2000 at 2.30pm.

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