Interim Results
Severn Trent PLC
4 December 2001
4 December 2001
Interim Results for the six months to 30 September 2001
STRONG PERFORMANCE FROM GROWTH BUSINESSES, WHILE SEVERN TRENT WATER CONTINUES
TO OUTPERFORM
Financial and operating highlights:
GROUP:
* Turnover up 13.4% to £896.7 million
* PBITA before exceptional items up 10.6% to £210.6 million
* Net exceptional costs of £13.5 million
* Half year dividend 17.34p, up 2%
* Adjusted EPS 32.3p, up 5.6%
* 68.1% lift in PBITA from growth businesses
* Severn Trent rated as world utility leader in Dow Jones Sustainability
World Index
SEVERN TRENT WATER:
* Turnover up 1.1% to £447.0 million
* PBIT £169.2 million (£168.1 million)
* Direct operating costs reduced by £2.0 million (£6.0 million in real
terms)
to £172.6 million, cumulative savings £8 million ahead of OFWAT target
* CAPEX £140.2 million with 7% efficiency gains above the OFWAT target
GROWTH BUSINESSES:
Biffa:
* Turnover up 64.9% to £252.4 million
* PBITA up 120.4% to £35.7 million
* Underlying growth estimated at around 11%
* UK Waste integration substantially completed, on track to deliver £15
million pa of synergies
Severn Trent Services:
* Turnover up 12.4% to £189.1 million
* PBITA up 14.6% to £18.1 million
* Continued growth in Analytical Services
* Strong recovery in Water Purification
David Arculus, Chairman, Severn Trent Plc, said:
'We have continued actively and successfully to implement our business
strategy to establish Severn Trent as a leading environmental services
business. Whilst Severn Trent remains committed to the equity model for the
water industry we watch with interest the development of alternative financing
structures and the regulatory response. The problem for the industry remains
the low return on capital that the Company is allowed if it achieves the
Regulator's operating and capital targets.
'Looking ahead, Severn Trent continues to be well supported by the stable
earnings profile of our water business, while enjoying the benefits of the
platform for growth we have built with our waste and services businesses.'
Robert Walker, Group Chief Executive, Severn Trent Plc, said:
'Our growth businesses, Biffa and Severn Trent Services, both produced good
results and benefited from integration of business acquisitions completed in
the second half of last year. We are particularly pleased with the success of
our acquisition of UK Waste in September 2000.
'While Severn Trent is well positioned in its chosen markets, there are key
issues in both the waste and water industries that need to be resolved. In
waste we welcome the Government's initiatives announced at the recent waste
summit and look forward to faster progress in moving from low cost waste
disposal to a planned resource management activity as the UK catches up with
Europe's recycling levels. In water, the key challenge for government,
regulators and the industry is to co-operate fully to develop a long-term
water strategy which will help determine among other issues, how to provide a
proper balance for the role of equity and debt.'
Enquiries:
Robert Walker Severn Trent Plc 020 7404 5959 (on the day)
Group Chief Executive 0121 722 4775
Alan Costin Severn Trent Plc 020 7404 5959 (on the day)
Group Finance Director 0121 722 4429
Peter Gavan Severn Trent Plc 020 7404 5959 (on the day)
Director of Corporate Affairs 0121 722 4310
Simon Holberton Brunswick Group 020 7404 5959
Catherine Bertwistle
Chairman's statement
Over the past six months we have continued to actively and successfully
implement our business strategy to establish Severn Trent as a leading
environmental services business.
Our growth businesses, Biffa and Severn Trent Services, both produced good
results and benefited from integration of business acquisitions completed in
the second half of last year. We are particularly pleased with the success of
our acquisition of UK Waste in September 2000. The results from the enlarged
business have fully lived up to our expectations, achieving underlying growth
at the same time as delivering the anticipated synergies.
Severn Trent Water again met the challenge of delivering further cost
efficiencies whilst maintaining high standards of service to its customers and
improvements to the environment. Despite another 1% real reduction in average
prices charged to water customers from 1 April 2001, profit before interest
and tax was marginally higher than achieved in the corresponding period last
year.
We are actively pursuing opportunities to exploit our growing capability as a
group to deliver a broad range of environmental solutions to customers in the
UK. In this way we can create value from our developing reputation in the
environmental business community, which was recently acknowledged in the Dow
Jones Sustainability World Index where we were rated first for social,
environmental and economic performance amongst utilities world-wide.
Group results
Group turnover was £896.7 million, an increase of 13.4% over the first half of
last year. Group profit before interest, taxation, goodwill amortisation and
exceptional items was £210.6 million, £20.1 million (10.6%) higher than in the
corresponding period last year. After goodwill amortisation of £12.4 million
(first six months 2000/01 £4.5 million) and interest charges of £80.4 million
(£73.2 million) profit before tax and exceptional items was £117.8 million
(£112.8 million), an increase of 4.4%.
Net exceptional costs of £13.5 million arose in Severn Trent Systems, as we
made progress with the repositioning of the business which we announced a year
ago. Consequently, profit before tax for the half year was £104.3 million
(£112.8 million).
The charge for current taxation was £7.1 million (£7.9 million). In
compliance with FRS 19, the group has for the first time provided for deferred
taxation, giving rise to a charge of £34.1 million (£32.0 million) and a
provision in the Balance Sheet amounting to £357.5 million. The results for
the prior year and prior half-year have been restated to reflect the
application of FRS 19. Neither the charge for deferred taxation nor the
provision will impact upon the future cash flows of the group. Profit after
tax and minority interests was £63.0 million (£72.9 million).
Basic earnings per share for the half year was 18.4 pence (21.3 pence) or 32.3
pence (30.6 pence) before exceptional items and deferred taxation.
Net debt at 30 September 2001 was £2329 million. Gearing was 101.6%.
Interest cover was maintained at a healthy level, with net interest charges
covered 4.4 times by profit before interest, tax, depreciation, goodwill
amortisation and exceptional items.
Dividend
The Board has declared an interim dividend of 17.34 pence per share (17.0
pence), to be paid on 8 April 2002.
Following the announcement of the OFWAT price determination for the period
2001-2005, the Board stated its intention that for the period up to 31 March
2005, barring unforeseen circumstances, dividends per share would as a minimum
be maintained at the same level as was paid for the year ended 31 March 2000,
ie a full year dividend of 45.0 pence.
The Board now considers that the increase in the interim dividend is
appropriate given the growth in profits from Biffa and Severn Trent Services
and the outperformance achieved by Severn Trent Water against the efficiency
targets built into the regulatory price determination.
Leadership in Environmental Services
Severn Trent is strongly committed to achieving exacting environmental
standards within its own operations. This is both a business value in its own
right and a pre-requisite to establishing the group's credentials as a leading
supplier of environmental services. Progress continues on broadening our
customer base by marketing more pro-actively the Group's broader environmental
capabilities.
We are therefore delighted that Innovest, the US based institutional
investment research firm, gave Severn Trent the only AAA rating awarded in the
water, wastewater and solid waste sector. Severn Trent is included in the
FTSE4Good UK, European and Global indices.
Water
Severn Trent Water's profit before interest and tax for the half year was
£169.2 million (£168.1 million).
Turnover was £447.0 million (£442.3 million). The 1.1% increase was less than
that allowed under the regulatory formula (RPI -K), amounting to 2.2%. Direct
operating costs of the regulated water business were £172.6 million, £2.0
million lower than in the corresponding period last year. This 1.1% reduction
was achieved despite inflation of 2.3% and the impact of the climate change
levy and additional operating costs associated with new investment schemes,
equivalent to another 1.7%. Gross cost efficiencies achieved amounted to £9.0
million equivalent to 5.2%.
The programme for reducing costs in Severn Trent Water has continued to make
good progress and since the beginning of AMP3 is now cumulatively £8 million
ahead of the OFWAT target. On a like-for-like basis headcount has been
reduced by over 1100 since the end of November 1999 when our intention to
restructure was announced in response to the OFWAT price determination. In
addition, important savings have also been made in a number of bought in
commodities and services including power, chemicals, IT costs, transport and
accommodation.
With the significant reduction in headcount, the decision was taken to close a
number of local offices and consolidate onto fewer, larger sites. This
process has now been completed and has resulted in significant savings, as
well as income from the sale of the surplus sites.
Depreciation charges for the half-year were £105.3 million (£100.7 million).
Capital expenditure in Severn Trent Water amounted to £140.2 million and is
expected to be around £350 million for the full year. This amount is slightly
less than the amount originally budgeted for the period and resulted
principally from the impact of the foot-and-mouth epidemic which prevented
access to farmland in much of the company's area for virtually the whole of
the six month period. This lack of access has resulted in scheme delays, some
of which will be made up in the second half year. Foot-and-mouth also
impacted many operational activities, such as biosolids disposal, meter
reading and burst repairs. Despite the slippage in capital expenditure, the
company is confident that regulatory physical outputs and scheme completions
will be achieved. The capital investment programme continues to be delivered
very efficiently, with 7% efficiency gains over and above the target set by
OFWAT.
The capital investment programme has delivered clear benefits for customers.
The initial phase of the Derby Sewage Works reconstruction, the biggest single
scheme in the AMP3 period, has been commissioned at a cost of £30 million.
Improvements at Goscote sewage treatment works and Leicester Northgates
combined sewer overflows cost £3.2 million and £4.1 million respectively, and
£4.0 million was invested to improve flooding and pollution controls at
Pershore. A continued high level of capital investment is essential to the
achievement of the high quality water and sewerage services Severn Trent Water
delivers to its customers. Overall compliance with water quality standards
has been sustained at above 99.9% for the half-year, and sanitary standards
for waste water were maintained at 100%.
We continue to press for government departments and the regulatory bodies to
develop a long-term vision for the water industry to ensure that we can fully
embrace all aspects of the sustainability agenda. We believe such a vision
would provide greater clarity for the company and all its stakeholders;
suppliers would have a better understanding of investment needs; customers
would have greater certainty about service levels and prices; and investors
would be provided with a greater degree of certainty than is currently
available to them.
Over the last two years, through its Severn Trent Retail Services subsidiary,
the company has developed a range of non-regulated service offerings to
generate further value from the Severn Trent brand. These now include energy
supplies, a fixed price telecommunications service, insurance products, and
provision of data to conveyancing solicitors. Market reaction to these
products has been encouraging. Together with Severn Trent Utility Services,
which is responsible for marketing selected Severn Trent Water core
capabilities, these businesses are contributing to the company's growth
agenda.
Waste
Biffa's profit before interest, taxation and goodwill amortisation, for the
half-year was £35.7 million (£16.2 million). After goodwill amortisation of
£7.7 million, profit before interest and taxation was £28.0 million (£15.8
million). Performance from the UK business was excellent, reflecting
underlying growth in addition to the benefit of the acquisition of UK Waste.
In the UK, turnover of £230.6 million was up 73.5% . Profit before interest,
taxation and goodwill amortisation was up 140.8% to £35.4 million. Whilst
this increase reflected the significant contribution from UK Waste, which was
not included in the corresponding period last year, we estimate that the
enlarged Biffa achieved underlying profit growth of around 11%, maintaining
its track record of growing profits in the UK in eight of the last nine years.
In addition, the results from the enlarged business benefited from an
estimated £7 million of synergies in the half-year, derived from the
integration of UK Waste. We remain confident that savings of at least £15
million will be achieved in a full year once the integration has finally been
completed around the end of the year. These synergies contributed
significantly to the increase in profit margin on sales (before interest,
taxation and goodwill amortisation) to 15.4% (11.1%).
With the UK Waste business now substantially integrated into Biffa, divisional
performance comparisons on a like for like basis with the first half of last
year are not possible. However, the scale of profit increase in all three
divisions was such as to clearly indicate continued underlying growth in all
three divisions in the UK.
Industrial and commercial collection volumes were up 61% and average unit
revenues increased by 5.5%. The much smaller municipal collection division
also produced a good performance, and with the majority of synergy benefits
arising in the Collection division, overall profit before interest, taxation
and goodwill amortisation was up 101%.
Landfill volumes were up 46% with the benefit of UK Waste (3% up on a
like-for-like basis), and average unit revenues were up 35%. The increase
reflected the higher average unit revenues achieved in the acquired UK Waste
landfills where 70% of volumes are secured on long-term contracts, and the
benefit of providing the fast response required to deal with waste emanating
from the foot-and-mouth outbreak. 55% of volumes into the enlarged landfill
division are now either on long term contracts or arising from our own
collection activities. Profit from the Landfill division, before interest,
taxation and goodwill amortisation, was up 147%.
The Special Waste division, which includes the important power generation
activity, achieved a 200% increase in profit before interest, taxation and
goodwill amortisation.
The waste market in the UK continues to develop. As local authorities seek to
meet the demands placed upon them by the introduction of the Landfill
Directive, Biffa is responding to an increasing number of tenders for
integrated municipal waste services. We are also working with some of our big
industrial customers to explore alternative means of disposal for their
hazardous waste streams. However, we are concerned about the slow pace at
which European Waste Directives are being implemented here in the UK. Biffa's
ability to capture new business opportunities depends critically on timely
implementation of new waste legislation.
In Belgium, Biffa's profit before interest, taxation and goodwill amortisation
fell by £1.2 million to £0.3 million. This result was attributable to
problems in the Collection division. Disposal costs increased sharply as
restrictions on Flemish landfill sites necessitated the use of more expensive
disposal options. After the difficult market conditions experienced last
year, results from the landfill operations in Belgium stabilised, with volumes
in the period being in line with the second half of last year.
Services
Severn Trent Services' profit before interest, taxation and goodwill
amortisation was £18.1 million (£15.8 million), an increase of 14.6% over the
first half of last year.
After several years of growth generated by a significant programme of
acquisitions, the focus has now turned to organic growth and margin
improvement. Only one acquisition was completed in the half year, a small
addition to the Purification division.
Turnover in the half-year totalled £189.1 million (£168.3 million). Some 85%
of Severn Trent Services' turnover arose in the USA, which continues to be the
focus of the business' activities. Excluding the impact of exchange rate
variances and businesses acquired part way through last year, Services
turnover in the USA showed a small underlying increase.
After eliminating our share of associated undertakings' profit, where the
corresponding turnover is not consolidated into our results, the profit margin
on sales (before interest, taxation and goodwill amortisation) improved to
7.3% (7.1%).
Turnover in analytical services, the largest division, increased by 15.4% to
£85.4 million, with the USA growing 17.2% to £75.7 million and the UK up 7.4%.
We have broadened our product offering in the USA to encompass sampling
equipment services and supplies in addition to the laboratory testing which
forms the heart of the operation. The good half-year result in the USA was
achieved despite some downturn in the federal related segment of the market,
driven by delays in finalising budget allocations following the change in
Administration.
Turnover in operating services at £57.5 million was in line with the first
half of last year. A 4.1% increase in the USA to £48.2 million was offset by
a reduction in the UK and Europe. Aquafin, our associated undertaking in
Belgium which provides sewerage services for Flanders, achieved another good
result in the half-year. We also continue to be particularly encouraged by
the performance and potential of our business in Italy.
Turnover in the purification division was up 25.9% to £46.2 million. In the
USA, turnover grew 58.3%, an encouraging recovery as the strong order book
generated at the end of last year was converted to billable sales in this
period. Turnover in the UK reduced following the decision to exit certain
lower margin business, coupled with lower sales to Severn Trent Water.
Severn Trent Services' primary market is the USA, where its headquarters and
most of its operations are located. The events of 11 September have
inevitably damaged the short-term prospects for the US economy, which were
already uncertain.
Systems
As we announced last year, we are repositioning our Systems business. We are
making progress with the transition: Stoner Associates was sold in May for an
exceptional profit of £8 million and we continue to examine the strategic
options for our other software products, Work Management and CIS-Open Vision.
We have confirmed the role of the IT Services division as a valuable group
resource, developing systems and applications to provide other Severn Trent
companies with competitive advantage within their markets.
Turnover in Severn Trent Systems was £31.6 million for the half year, 19.8%
lower than in the corresponding period. The business generated a £5.0 million
loss (£2.6 million loss) before interest, taxation, goodwill amortisation and
exceptional items.
As we indicated at our annual general meeting, we have continued to experience
problems with some CIS-Open Vision contracts in the USA, with implementation
taking longer than anticipated and involving extra resources and much higher
costs. We have provided £21.5 million as an exceptional charge in the
half-year's accounts to cover the anticipated costs of completing these loss
making contracts. We will rigorously pursue our entitlements under these
contracts. The net impact of exceptional items on the half-year results,
including the profit from the sale of Stoner Associates, was £13.5 million.
Despite problems in the USA, the system has been successfully implemented in
other locations, not least in the UK for Severn Trent Water.
We anticipate that a further small trading loss before interest and tax will
arise from Severn Trent Systems in the second half of the year.
Property, Engineering Consultancy and Insurance
Severn Trent Property, together with Charles Haswell & Partners and Derwent
Insurance, the group's captive insurance company, produced a £0.1 million loss
before interest and taxation in the half year (£0.4 million profit).
Although no new buildings were completed in the period at DIRFT, Severn Trent
Property's largest development site at Daventry, Northants, a new office
building for Cable & Wireless was successfully completed at Thorpe Park,
Leeds. Agreement was also reached with IBM for a new 32,000 sq ft facility at
this location, which is due for completion in the current financial year.
Charles Haswell & Partners achieved a very significant increase in its
business with external clients, more than offsetting a reduction in work
undertaken for Severn Trent Water.
Management
We were very pleased to announce the appointment of Alan Perelman as Group
Finance Director designate from 1 October 2001. Alan Perelman, who was
formerly Group Finance Director of Whitbread PLC, will succeed Alan Costin as
Group Finance Director on 5 December 2001. After nine and a half years with
Severn Trent, Alan Costin will retire from the Board on 21 December. We thank
Alan for his invaluable contribution to the development of our Group.
We were also very pleased to announce the appointment of Marisa Cassoni as a
non-executive director of Severn Trent Plc with effect from 1 September 2001.
Marisa is Group Finance Director of Consignia Plc.
Outlook
At a time when many businesses are severely impacted by events beyond their
control, Severn Trent continues to benefit from the stability of our water and
sewerage operations. Biffa is well positioned to benefit from the legislative
changes that will continue to drive the development of the UK waste industry.
Whilst economic uncertainty, particularly in the USA, will have some impact
upon second half results from Severn Trent Services, the business has a solid
base from which to take advantage of the good growth potential offered by our
chosen markets.
Alternative financing structures are emerging amongst regulated water
companies in the UK. Whilst we remain committed to the equity model, and are
encouraged by recent statements on this subject by the regulator, we
constantly pursue ways of achieving financial efficiency consistent with the
long-term capital requirements of the business.
We will continue to pursue the enhancement of shareholder value through the
growth of our waste and services businesses and outperformance by Severn Trent
Water against the efficiency targets built into the current OFWAT price
determination.
David Arculus
Chairman
Group profit and loss account
Six months ended 30 September 2001
Unaudited Unaudited Audited
6 months to 6 months to Year ended
30 Sept 01 30 Sept 00 31 March 01
(restated) (restated)
Notes £m £m £m
Turnover: group and share of
joint ventures 899.1 792.9 1,685.9
Less: share of joint ventures'
turnover (2.4) (2.1) (4.3)
-----------------------------------------------------------------------------
Turnover 2 896.7 790.8 1,681.6
-----------------------------------------------------------------------------
Operating costs before goodwill
amortisation and exceptional costs (690.9) (604.5) (1,290.2)
Goodwill amortisation (12.4) (4.5) (17.4)
Exceptional contract costs 3 (21.5) - -
Exceptional restructuring costs 3 - - (15.5)
-----------------------------------------------------------------------------
Total operating costs (724.8) (609.0) (1,323.1)
-----------------------------------------------------------------------------
Operating profit 171.9 181.8 358.5
Share of operating profit of joint
ventures and associates 4.8 4.2 8.8
Exceptional profit on disposal of
business 3 8.0 - -
-----------------------------------------------------------------------------
Profit before interest, goodwill
and exceptional items 2 210.6 190.5 400.2
Goodwill amortisation 2 (12.4) (4.5) (17.4)
----------------------------------
Profit before interest and
exceptional items 2 198.2 186.0 382.8
Exceptional costs 2 (21.5) - (15.5)
Exceptional profits 2 8.0 - -
----------------------------------
Profit before interest 2 184.7 186.0 367.3
Net interest payable (80.4) (73.2) (161.1)
-----------------------------------------------------------------------------
Profit after interest before
exceptional items 117.8 112.8 221.7
Exceptional items 2 (13.5) - (15.5)
----------------------------------
Profit on ordinary activities
before taxation 104.3 112.8 206.2
Taxation on profit on
ordinary activities
- current tax 4 (7.1) (7.9) (12.4)
- deferred tax 4 (34.1) (32.0) (52.4)
-----------------------------------------------------------------------------
Total taxation 4 (41.2) (39.9) (64.8)
Profit on ordinary activities
after taxation 63.1 72.9 141.4
Equity minority interests (0.1) - (0.4)
-----------------------------------------------------------------------------
Profit for the financial period 63.0 72.9 141.0
Dividends (including non-equity
dividends) 6 (59.5) (58.4) (154.5)
-----------------------------------------------------------------------------
Retained profit/(loss) 3.5 14.5 (13.5)
-----------------------------------------------------------------------------
Earnings per share (pence)
Basic 5 18.4 21.3 41.2
Diluted 5 18.3 21.2 41.0
Adjusted basic before exceptional
items and deferred tax 5 32.3 30.6 61.0
Adjusted diluted before exceptional
items and deferred tax 5 32.1 30.5 60.7
The results for the six months ended 30 September 2000 and the year ended 31
March 2001 have been restated as a result of applying FRS 19 'Deferred Tax'
(note 1).
All items dealt with in arriving at operating profit relate to continuing
activities.
Group balance sheet
At 30 September 2001
Unaudited Unaudited Audited
30 Sept 01 30 Sept 00 31 March 01
(restated) (restated)
£m £m £m
Fixed assets
Intangible assets
Goodwill 450.8 435.6 466.6
Tangible assets 4,815.7 4,798.3 4,815.6
Investments in joint ventures
Share of gross assets 7.1 5.1 6.6
Share of gross liabilities (5.4) (4.5) (5.4)
Loans to joint ventures 2.7 4.6 3.8
-----------------------------------------------------------------------------
4.4 5.2 5.0
Investment in associates 17.8 15.8 17.2
Other investments 3.7 3.4 5.4
-----------------------------------------------------------------------------
Total investments 25.9 24.4 27.6
-----------------------------------------------------------------------------
5,292.4 5,258.3 5,309.8
Current assets
Stocks 97.3 81.9 82.6
Debtors 427.0 420.4 414.7
Short-term deposits 73.7 25.8 81.0
Cash at bank and in hand 13.1 16.2 35.0
-----------------------------------------------------------------------------
611.1 544.3 613.3
Creditors: amounts falling due
within one year (1,106.5) (990.4) (1,444.0)
-----------------------------------------------------------------------------
Net current liabilities (495.4) (446.1) (830.7)
-----------------------------------------------------------------------------
Total assets less current liabilities 4,797.0 4,812.2 4,479.1
Creditors: amounts falling due after
more than one year (2,038.5) (2,090.9) (1,770.0)
Provisions for liabilities and charges (466.3) (406.8) (418.0)
-----------------------------------------------------------------------------
Net assets 2,292.2 2,314.5 2,291.1
-----------------------------------------------------------------------------
Capital and reserves
Called up share capital 224.0 232.6 223.6
Share premium account 24.1 19.1 20.2
Capital redemption reserve 156.1 147.0 156.1
Profit and loss account 1,886.7 1,915.5 1,890.0
-----------------------------------------------------------------------------
Total shareholders' funds 2,290.9 2,314.2 2,289.9
-----------------------------------
Equity shareholders' funds 2,290.9 2,305.1 2,289.9
Non-equity shareholders' funds - 9.1 -
-----------------------------------
Minority shareholders' interest (equity) 1.3 0.3 1.2
-----------------------------------------------------------------------------
2,292.2 2,314.5 2,291.1
-----------------------------------------------------------------------------
The balance sheets at 30 September 2000 and 31 March 2001 have been restated
as a result of applying FRS 19 'Deferred Tax' (note 1).
Group cash flow statement
Six months ended 30 September 2001
Unaudited Unaudited Audited
30 Sept 01 30 Sept 00 31 March 01
Notes £m £m £m £m £m £m
Net cash inflow from
operating activities 8 347.6 303.7 617.8
Dividends received from
associates and joint ventures 1.2 1.3 1.0
Returns on investments and
servicing of finance (70.7) (50.0) (126.8)
Taxation (6.8) (1.3) (6.4)
Capital expenditure and
financial investment (159.5) (196.0) (365.7)
Acquisitions and disposals 17.0 (404.6) (427.9)
Equity dividends paid (58.2) (57.9) (153.7)
-----------------------------------------------------------------------------
Net cash inflow/(outflow) before use of
liquid resources and financing 70.6 (404.8) (461.7)
Management of liquid resources 7.3 10.0 (44.9)
Financing
(Decrease)/increase in debt (107.1) 362.6 515.7
Redemption of shares - - (9.1)
Issue of shares 3.4 5.8 6.7
----- ----- -----
(103.7) 368.4 513.3
-----------------------------------------------------------------------------
(Decrease)/increase in cash (25.8) (26.4) 6.7
-----------------------------------------------------------------------------
Reconciliation of net cash flow
to movement in net debt
Unaudited Unaudited Audited
30 Sept 01 30 Sept 00 31 March 01
Notes £m £m £m
(Decrease)/increase in cash
(as above) (25.8) (26.4) 6.7
Cash flow from movement in net
debt and financing 107.1 (362.6) (515.7)
Cash flow from movement in
liquid resources (7.3) (10.0) 44.9
-----------------------------------------------------------------------------
Change in net debt resulting
from cash flows 74.0 (399.0) (464.1)
Net cash assumed with acquisitions - 13.8 13.7
Movement in rolled up interest on
finance leases 7.4 (7.3) (14.4)
Movement in rolled up interest on
debt (0.5) - (0.3)
Currency translation differences 0.3 (0.2) (6.0)
-----------------------------------------------------------------------------
Decrease/(increase) in net debt 81.2 (392.7) (471.1)
Opening net debt (2,410.5) (1,939.4) (1,939.4)
-----------------------------------------------------------------------------
Closing net debt 7 (2,329.3) (2,332.1) (2,410.5)
-----------------------------------------------------------------------------
Reconciliation of movements in shareholders' funds
Six months ended 30 September 2001
Unaudited Unaudited Audited
30 Sept 01 30 Sept 00 31 March 01
(restated) (restated)
£m £m £m
Profit for the financial period 63.0 72.9 141.0
Dividends (including non-equity) (59.5) (58.4) (154.5)
-----------------------------------------------------------------------------
3.5 14.5 (13.5)
Other recognised gains and losses
relating to the period (9.9) 13.8 25.7
Shares issued 4.3 5.8 6.7
Redemption of shares - - (9.1)
Goodwill previously written off to
reserves recognised through profit
on disposal of business 3.1 - -
-----------------------------------------------------------------------------
Net addition to shareholders' funds 1.0 34.1 9.8
Opening shareholders' funds 2,289.9 2,280.1 2,280.1
-----------------------------------------------------------------------------
Closing shareholders' funds 2,290.9 2,314.2 2,289.9
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The reconciliation of movements in shareholders funds for the six months ended
20 September 2000 and the year ended 31 March 2001 have been restated as a
result of applying FRS 19 'Deferred Tax' (note 1).
Notes
1 Basis of preparation
The unaudited interim results for the six months ended 30 September 2001 have
been prepared on the basis of accounting policies consistent with those
adopted for the year ended 31 March 2001, as set out in the financial
statements of the group, except for the adoption in the period of two new
financial reporting standards, FRS 18 'Accounting Policies' and FRS 19
'Deferred Tax', which the group will adopt in its full year accounts to 31
March 2002. FRS 19 introduces a form of full provisioning for deferred tax
replacing the partial provision method previously followed under SSAP 15.
The profit and loss account, balance sheet and reconciliation of movements in
shareholders' funds have been amended to reflect the adoption of FRS 19. The
prior period figures have been restated to reflect a full provision for
deferred tax on timing differences. As a consequence, a prior year adjustment
has introduced a deferred tax provision of £266.6 million at 31 March 2000
with a corresponding reduction in shareholders' funds. The tax charge for the
year ended 31 March 2001 increased by £52.4 million (of which £32.0 million
was the impact on the interim results to 30 September 2000) and the tax charge
in the period to 30 September 2001 increased by £34.1 million as a result of
adopting the new policy. An additional £5.3 million of goodwill has been
capitalised in respect of prior-year acquisitions as a result of the
implementation of FRS 19. As permitted by the Standard, discounting has been
applied.
The adoption of FRS 18 has had no impact on the group's financial statements.
The comparative figures for the year ended 31 March 2001 and other financial
information contained herein do not constitute statutory accounts within the
meaning of Section 240 of the Companies Act 1985. Statutory accounts for the
year ended 31 March 2001, incorporating an unqualified auditors' report, have
been filed with the Registrar of Companies.
2 Segmental analysis of turnover and profit before interest by geographical
origin and type of business
Other -
principally
United Kingdom USA & Europe Group
---------------------------------------------
Six months ended 30 September 2001 2000 2001 2000 2001 2000
£m £m £m £m £m £m
-----------------------------------------------------------------------------
Group turnover
Water and sewerage 447.0 442.3 - - 447.0 442.3
Waste management 230.6 132.9 21.8 20.2 252.4 153.1
Services 20.8 24.5 168.3 143.8 189.1 168.3
Systems 26.9 30.7 4.7 8.7 31.6 39.4
Property, Engineering
consultancy and Insurance 16.0 27.9 - - 16.0 27.9
Inter segment trading (39.4) (40.0) - (0.2) (39.4) (40.2)
-----------------------------------------------------------------------------
701.9 618.3 194.8 172.5 896.7 790.8
-----------------------------------------------------------------------------
Group profit before interest,
goodwill amortisation and exceptional items
Water and sewerage 169.2 168.1 - - 169.2 168.1
Waste management 35.4 14.7 0.3 1.5 35.7 16.2
Services 0.1 (0.8) 18.0 16.6 18.1 15.8
Systems 1.4 0.5 (6.4) (3.1) (5.0) (2.6)
Property, Engineering
consultancy and Insurance (0.1) 0.4 - - (0.1) 0.4
Unrealised profit on
inter segment trading (1.0) (1.6) - - (1.0) (1.6)
Corporate overheads (6.3) (5.8) - - (6.3) (5.8)
-----------------------------------------------------------------------------
198.7 175.5 11.9 15.0 210.6 190.5
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Goodwill amortisation (8.0) (0.6) (4.4) (3.9) (12.4) (4.5)
-----------------------------------------------------------------------------
Group profit before interest
and exceptional items
Water and sewerage 169.2 168.1 - - 169.2 168.1
Waste management 27.7 14.3 0.3 1.5 28.0 15.8
Services (0.2) (1.0) 13.6 12.8 13.4 11.8
Systems 1.4 0.5 (6.4) (3.2) (5.0) (2.7)
Property, Engineering
consultancy and Insurance (0.1) 0.4 - - (0.1) 0.4
Unrealised profit on
inter segment trading (1.0) (1.6) - - (1.0) (1.6)
Corporate overheads (6.3) (5.8) - - (6.3) (5.8)
-----------------------------------------------------------------------------
190.7 174.9 7.5 11.1 198.2 186.0
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Exceptional items
Exceptional contract costs
- Systems - - (21.5) - (21.5) -
Profit on disposal of business
- Systems - - 8.0 - 8.0 -
-----------------------------------------------------------------------------
- - (13.5) - (13.5) -
-----------------------------------------------------------------------------
Group profit before interest
Water and sewerage 169.2 168.1 - - 169.2 168.1
Waste management 27.7 14.3 0.3 1.5 28.0 15.8
Services (0.2) (1.0) 13.6 12.8 13.4 11.8
Systems 1.4 0.5 (19.9) (3.2) (18.5) (2.7)
Property, Engineering
consultancy and Insurance (0.1) 0.4 - - (0.1) 0.4
Unrealised profit on
inter segment trading (1.0) (1.6) - - (1.0) (1.6)
Corporate overheads (6.3) (5.8) - - (6.3) (5.8)
-----------------------------------------------------------------------------
190.7 174.9 (6.0) 11.1 184.7 186.0
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The basis on which the geographical analysis of Systems' results is determined
has been modified to more appropriately reflect the performance of operations
by territory. Comparative figures have been amended accordingly.
3 Exceptional items
Exceptional contract costs of £21.5 million in the six months to 30 September
2001, arising in Severn Trent Systems, relate to the costs of completing
onerous software contracts in the USA.
In May 2001, the Group sold Stoner Associates (part of the Severn Trent
Systems business) for USD26 million, realising a gain of £8.0 million on
disposal. No current tax arises on the gain as a result of available tax
losses.
There were no exceptional costs in the six months ended 30 September 2000.
Exceptional restructuring costs of £15.5 million in the full year to 31 March
2001 related to the costs of restructuring Biffa Waste Services following the
acquisition of UK Waste.
4 Taxation
Six months to Six months to
30 September 2001 30 September 2000
£m £m
Current tax
UK corporation tax at 30% 7.8 4.9
UK corporation tax prior year (2.4) -
Double taxation relief (0.3) (0.4)
Overseas taxation 1.5 2.9
Share of taxation charges of joint
ventures and associates 0.5 0.5
------ ------
7.1 7.9
Deferred taxation (note 1) 34.1 32.0
------ ------
41.2 39.9
------ ------
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.
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.
Supplementary adjusted earnings per share figures are presented. These
exclude the effects of deferred tax and exceptional items. The Directors
consider that the adjusted figures provide a useful additional indication of
performance.
Six months to 30 September 2001
-------------------------------------
Weighted
average
number Per share
Earnings of shares amount
£m m pence
------------------------------------------------------------------------
Basic earnings per share 63.0 342.8 18.4
Effect of dilutive options - 1.7 (0.1)
------------------------------------------------------------------------
Diluted earnings per share 63.0 344.5 18.3
------------------------------------------------------------------------
Adjusted earnings per share
------------------------------------------------------------------------
Basic earnings per share 63.0 342.8 18.4
Effect of exceptional profit on
disposal of business (8.0) - (2.3)
Effect of exceptional contract costs 21.5 - 6.3
Effect of deferred tax 34.1 - 9.9
------------------------------------------------------------------------
Adjusted basic earnings per share before
exceptional items and deferred tax 110.6 342.8 32.3
------------------------------------------------------------------------
Diluted earnings per share 63.0 344.5 18.3
Effect of exceptional profit on
disposal of business (8.0) - (2.3)
Effect of exceptional contract costs 21.5 - 6.2
Effect of deferred tax 34.1 - 9.9
------------------------------------------------------------------------
Adjusted diluted earnings per share before
exceptional items and deferred tax 110.6 344.5 32.1
------------------------------------------------------------------------
Six months to 30 September 2000 (restated)
------------------------------------------
Weighted
average
number Per share
Earnings of shares amount
£m m pence
------------------------------------------------------------------------
Basic earnings per share 72.7 341.9 21.3
Effect of dilutive options - 1.6 (0.1)
------------------------------------------------------------------------
Diluted earnings per share 72.7 343.5 21.2
------------------------------------------------------------------------
Adjusted earnings per share
------------------------------------------------------------------------
Basic earnings per share 72.7 341.9 21.3
Effect of exceptional profit on
disposal of business - - -
Effect of exceptional contract costs - - -
Effect of deferred tax 32.0 - 9.3
------------------------------------------------------------------------
Adjusted basic earnings per share before
exceptional items and deferred tax 104.7 341.9 30.6
------------------------------------------------------------------------
Diluted earnings per share 72.7 343.5 21.2
Effect of exceptional profit on
disposal of business - - -
Effect of exceptional contract costs - - -
Effect of deferred tax 32.0 - 9.3
------------------------------------------------------------------------
Adjusted diluted earnings per share before
exceptional items and deferred tax 104.7 343.5 30.5
------------------------------------------------------------------------
6 Interim dividend
An interim dividend of 17.34p per ordinary share (2000: 17.0p) will be paid on
8 April 2002 to shareholders on the register at 21 December 2001. The shares
will be traded 'ex-dividend' with effect from 19 December 2001.
The cost of the interim dividend amounting to £59.5 million (2000: £58.2
million) was fully covered by dividends received by Severn Trent Plc from
subsidiary companies, which comprised £70.5 million from Severn Trent Water
(2000: £67.8 million) and £6.6 million from other group companies (2000: £6.6
million). There were no non-equity dividends paid in the six months to 30
September 2001 following the redemption of the B shares on 1 November 2000
(2000: non-equity dividends of £0.2 million).
7 Analysis of net debt
30 Sept 2001 30 Sept 2000 31 March 2001
£m £m £m
Cash at bank and in hand 13.1 16.2 35.0
Short-term deposits 73.7 25.8 81.0
Overdrafts (33.6) (41.0) (30.0)
Debt due within one year (406.0) (308.5) (785.7)
Debt due after one year (1,524.7) (1,566.9) (1,248.7)
Finance leases due within
one year (3.4) (1.1) (3.4)
Finance leases due after
one year (448.4) (456.6) (458.7)
-------- -------- --------
Net debt (2,329.3) (2,332.1) (2,410.5)
-------- -------- --------
8 Reconciliation of operating profit to net operating cash flows
Six months to Six months to
30 September 2001 30 September 2000
£m £m
Operating profit 171.9 181.8
Depreciation charge 143.5 127.4
Amortisation of goodwill 12.4 4.5
Profit on sale of tangible fixed assets (1.6) (1.4)
Deferred income received 0.2 3.0
Deferred income written back (2.0) (1.5)
Provisions for liabilities and charges 23.2 7.9
Utilisation of provisions for liabilities
and charges (10.2) (29.9)
Movement in working capital 10.2 11.9
-------- -------
Net cash inflow from operating activities 347.6 303.7
-------- -------
9 Interim statement
The interim report and accounts were approved by the Board of Directors on 3
December 2001
Further copies of this interim statement may be obtained from the Company
Secretary, Severn Trent Plc, 2297 Coventry Road, Birmingham B26 3PU.
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