Interim Results
Severn Trent PLC
11 December 2002
11 December 2002
Interim Results for the six months to 30 September 2002
SOLID PERFORMANCE FROM SEVERN TRENT WATER
LEADERSHIP POSITIONS IN WASTE AND ANALYTICAL SERVICES
Financial and operating highlights
Group
• Profit after interest, before goodwill amortisation, exceptional items and
tax up 1.2% to £131.8m (£130.2m), but boosted by rephasing
• Turnover up 1.0% to £906.0m (£896.7m)
• PBITA before exceptional items down 0.3% to £210.0m (£210.6m)
• Adjusted EPS down 6.2% to 30.3p (32.3p)
• Half year dividend 17.34p (17.34p)
• Dividend policy enhanced
• First half reduction in net debt of £32m
• Net debt £2,380m (£2,329m); interest costs lower
Severn Trent Water
• Turnover up 2.2% to £456.8m (£447.0m)
• PBIT up 1.3% to £171.4m (£169.2m)
• Continued Opex and Capex outperformance, though cost pressures continuing
• New eco-tariffs and billing changes have 'brought forward' £4m of turnover
and profit from the second half to the first half - no impact on full year
profits
• £169m invested; AMP3 regulatory outputs on track
Biffa
• Turnover up 2.1% to £257.6m (£252.4m)
• PBITA down 3.6% to £34.4m (£35.7m), but no profit contribution from
foot-and-mouth in 2002/03
• Solid performance in difficult UK market conditions; well positioned to
capitalise on market developments
• Biffa is UK's largest supplier of integrated waste management services
Services
• Turnover up 0.8% to £190.7m (£189.1m)
• PBITA before exceptional items down 13.3% to £15.7m (£18.1m) given the
continuing weak economic environment
• Exceptional charge of £41.4m for impairment
• Analytical services performed well with organic PBITA growth of
approximately 5%; cost reductions implemented in water purification and
operating services
• Market leader in analytical services in US and UK
David Arculus, Chairman, Severn Trent Plc, said:
'The Board considers that the Group's overall performance for the first half
year is broadly consistent with market expectations for the Group's 2002/03 full
year profit after interest but before goodwill amortisation, exceptional items
and tax.'
'From the year 1999/2000 the Board established a base full year dividend of
45.0p. The Board has now decided to enhance its dividend policy to the effect
that it is the Board's intention that for the period up to 31 March 2005,
barring unforeseen circumstances, full year dividends per share would be a
minimum of 45.9p (this being the full year dividend for 2001/02).'
'The Board has declared a half year dividend of 17.34p per share.'
Robert Walker, Group Chief Executive, Severn Trent Plc, said:
'I am pleased to report satisfactory performance overall across the Group, with
profit after interest but before goodwill amortisation, exceptional items and
tax ahead by 1.2% compared to the first half of last year.'
'Our three principal businesses have all done well given difficult market
conditions. Severn Trent Water has once again out-performed its regulatory
targets, although this was offset by ongoing cost pressures. Biffa in the UK,
and Severn Trent Laboratories in both the US and the UK, have consolidated their
leadership positions and competitively are in robust shape.'
'The initial stages of the next water pricing review are now underway and are
starting in a more constructive and positive atmosphere than previously. It is
important that the process is managed in an open and transparent manner, that
all parties recognise the need to maintain the quality of the water and sewerage
infrastructure and that the industry can provide an adequate return to
investors.'
'Severn Trent Water is expected to continue to outperform its regulatory targets
for gross operating cost efficiencies, but offsetting cost pressures will also
continue. While the markets for Biffa and Services are expected to remain
difficult into the second half of the financial year, the strength of their
market positions in waste in the UK and analytical services in both the US and
the UK should provide platforms for future growth when the economic climate
improves.'
Enquiries:
Robert Walker Severn Trent Plc 020 7404 5959 (on the day)
Group Chief Executive 0121 722 4775
Alan Perelman Severn Trent Plc 020 7404 5959 (on the day)
Group Finance Director 0121 722 4176
Peter Gavan Severn Trent Plc 020 7404 5959 (on the day)
Director of Corporate Affairs 0121 722 4310
Julian Wais Severn Trent Plc 020 7404 5959 (on the day)
Head of Investor Relations 0121 722 4295
Simon Holberton Brunswick Group Ltd 020 7404 5959
or Mike Smith
Chairman's statement
Overall, the Group's performance has been satisfactory. While boosted by the
rephasing of turnover and profit in Severn Trent Water, the Group's profit after
interest but before goodwill amortisation, exceptional items and tax increased
by 1.2% to £131.8m. Severn Trent Water has continued to outperform its
regulatory targets for gross operating cost efficiencies although there have
been offsetting cost pressures. Severn Trent Water's profit before interest and
tax at £171.4m was 1.3% above the prior half year; this is a commendable
performance in a half year where prices have been broadly unchanged. Biffa has
delivered a solid performance, however its results reflect a weaker UK waste
market and the absence of any profit from foot-and-mouth in 2002/03. Although
Services has continued to be impacted by the difficult economic environment,
analytical services performed well with organic PBITA growth of approximately
5%. There is an exceptional charge of £41.4m in the half year, representing a
write down for impairment in the net book value of some businesses within
Services.
The Group's strategy continues to be to increase shareholder value by
establishing Severn Trent as the UK's leading integrated environmental services
business. Management aims to build on the Group's leadership positions of Biffa
in the UK waste market and of analytical services in both the US and the UK,
with Severn Trent Water continuing to outperform is regulatory targets.
Severn Trent is committed to achieving exacting environmental standards within
its operations. This is both a pre-requisite for establishing the Group's
credentials as a leading supplier of environmental services and a driver of
shareholder value.
For the second year running Severn Trent was named as the leading utility in the
Dow Jones Sustainability Index which rates companies' social and environmental
activity alongside their economic performance.
Group Results
Group turnover was £906.0m, an increase of 1.0%. Turnover from water and
sewerage increased by £9.8m to £456.8m, while in the non-regulated businesses
turnover increased by £4.5m to £493.6m.
Group profit before goodwill amortisation, interest, exceptional items and tax
was down by 0.3% to £210.0m.
The contribution to the Group from the non-regulated businesses was 51.9%
(52.2%) of turnover and 22.4% (22.3%) of profit before goodwill amortisation,
interest, exceptional items and tax.
After interest charges of £78.2m (£80.4m), Group profit before goodwill
amortisation, exceptional items and tax was £131.8m, an increase of 1.2%.
Goodwill amortisation was £13.3m (£12.4m). Group profit after goodwill
amortisation and interest but before exceptional items and tax was £118.5m
(£117.8m).
There was an exceptional charge of £41.4m, representing a write down for
impairment in the net book value of businesses within Services (previous half
year net exceptional charge of £13.5m). The charge for impairment has no impact
on cash flows. The charge for current tax was £14.2m (£7.1m), an effective rate
of 12.0% (6.0%) on profit after goodwill amortisation and interest but before
exceptional items and tax. The deferred tax charge was £28.8m (£34.1m).
Basic earnings per share were 9.8p (18.4p). Adjusted basic earnings per share
(before exceptional items and deferred tax) were 30.3p (32.3p).
In the half year, net debt was reduced by £32m. Net debt at 30 September 2002
was £2,380 m (£2,329m). Gearing, reflecting the provision for deferred tax, was
106%. The Group's net interest charge was covered 4.5 times (4.4 times) by
profit before depreciation, goodwill amortisation, interest, tax and exceptional
items.
Dividend
From the year 1999/2000 the Board established a base full year dividend of
45.0p. The Board has decided to enhance its dividend policy to the effect that
it is the Board's intention that for the period up to 31 March 2005, barring
unforeseen circumstances, full year dividends per share would be a minimum of
45.9p (this being the full year dividend for 2001/02).
The Board has declared a half year dividend of 17.34p per share (17.34p) to be
paid on 7 April 2003.
Operational Review
In this Operational Review, PBITA is profit before goodwill amortisation,
interest, exceptional items and tax and sales margins are based on PBITA.
Water and sewerage
Turnover from water and sewerage increased by 2.2% to £456.8m. Profit before
interest and tax was up by 1.3% to £171.4m. This is a commendable performance in
a half year where prices were broadly flat given the low RPI (0.9%) and the 'K'
of minus one percent.
The introduction this year of new eco-tariffs combined with billing changes, has
resulted in approximately £4m of Severn Trent Water's turnover and profit being
'brought forward' from the second half to the first half. The structure of the
new eco-tariffs result in large industrial and commercial customers being
charged higher amounts for summer consumption but compensating lower charges
apply in winter. Thus, the impact of these changes should reverse in the second
half and hence not affect turnover or profit for the full year. These changes
have unduly flattered the comparison of turnover and profit for the first half
of 2002/03 with the first half of 2001/02.
Direct operating costs (excluding corporate management charges) of Severn Trent
Water were £171.3m, a reduction in real terms of £2.0m, or 1.2%. Excluding the
impact of inflation, gross operating cost efficiencies in the first half of 2002
/03 amounted to £8.4m, a reduction in operating costs of 4.9% compared to the
previous half year. However, these efficiencies were offset by cost pressures of
£6.4m.
The programme for reducing costs in Severn Trent Water has continued to make
good progress. Since the beginning of AMP3, gross operating cost efficiencies
have amounted to £55m, offset by cost pressures amounting to £42m. The £55m of
gross operating cost efficiencies is £15m ahead of the OFWAT target. By the end
of AMP3, gross operating efficiencies are expected to amount to around £75m
although there will be offsetting cost pressures.
Severn Trent Water also continued to deliver efficiencies against the
approximate £2 billion investment programme for the five-year period 2000/01 to
2004/05. For completed capital schemes in AMP3 to date, average capex
efficiencies of around 7% have been achieved against the OFWAT targets. In the
half year, £169m was invested; the full year amount is expected to be
approximately £420m. The delivery of the AMP3 regulatory outputs is on track.
This year's investment programme mainly consists of a large number of small
schemes and includes the completion of a programme to install cryptosporidium
treatment at many water treatment works. The company has also started several
schemes, for example in Stoke and Birmingham, which will improve urban drainage
and reduce water pollution.
In light of cost pressures, an application has been made to OFWAT for an Interim
Determination of K (an 'IDOK'). Since the draft determination, which proposed
not to increase pricing, was published in November, Severn Trent has continued
to press its case with OFWAT. OFWAT is expected to announce its final
determination of the IDOK application shortly.
The processes leading to the AMP4 pricing review have now commenced. It is
important that these processes are conducted in an open and transparent manner,
recognise the need to maintain the quality of the water and sewerage
infrastructure and provide an adequate return to investors. Climate change makes
the management of water resources a key topic for AMP4. The water and sewerage
systems need further significant investment to cope with the increased
variability in both supply and demand that are expected to occur.
OFWAT has recently published its initial consultative framework document on
AMP4. Severn Trent welcomes the confirmation in this document that the notice
period for its licence has now been extended to 25 years.
Severn Trent Utility Services has been awarded preferred bidder status to form a
joint venture with Solihull Metropolitan Borough Council as a vehicle for the
delivery of various council services.
Waste management
Waste management's turnover increased by 2.1% to £257.6m. However, PBITA reduced
by 3.6% to £34.4m, reflecting the absence of any profit from foot-and-mouth in
2002/03. Biffa continues to deliver good overall sales margins of 13.4% (14.1%),
reflecting the synergies that have been secured from the successful acquisition
and integration of UK Waste.
Biffa has delivered a solid performance in difficult market conditions. The UK
waste market has been impacted by the economic environment, particularly in the
industrial/commercial sector which is the largest segment of the waste market.
This impact is felt across all of Biffa's UK divisions. Biffa's activities in
the other market segments of municipal, pre-treatment and electricity generation
have performed well.
Biffa is the largest supplier of integrated waste management services in the UK.
Its position as an integrated supplier - with collection, landfill and special
waste capabilities - offers a competitive advantage in terms of helping
industrial/commercial customers meet their legislative targets and helping
municipal authorities with the implications of the Government's waste strategy.
As part of this strategy, Biffa is expanding its pre-treatment capabilities
within the collection division to be able to pre-sort and segregate industrial
and commercial waste streams.
In addition, Biffa is targeting an increasing number of tenders for integrated
municipal waste services, as local authorities seek to meet the demands placed
upon them by the introduction of the Landfill Directive. In this context,
Biffa's experience and demonstrated success on the Isle of Wight has proved
valuable. Biffa has recently been chosen as the preferred bidder for the
Leicester City Council contract. This is a twenty five year contract which is
expected to commence in 2004.
Turnover for Biffa in the UK increased by 0.4% to £231.5m.
Collection turnover in the UK increased to £134.9m (£132.4m). Although there has
been some reduction in industrial/commercial volumes, municipal contracts and
pre-treatment activities have performed well. Industrial/commercial volumes
within collection were down by around 3% while sales margins fell slightly from
16.8% to 16.5%. The collection division contributed a PBITA of £22.3m (£22.3m).
During the first half, collection implemented a major IT project which uses
mobile phone and web technology to both improve fleet efficiency and deliver
enhanced customer service.
Landfill turnover in the UK fell by 5.3% to £74.4m. Landfill volumes reduced by
around 7%, with lower industrial/commercial volumes being a significant
contributor to this reduction. Excluding closed sites, landfill volumes were
down by approximately 3%. Average unit revenues (excluding the impact of
foot-and-mouth) were up by around 2%. PBITA from the landfill division was
£15.0m (£17.1m). Sales margins of 20.2% were down on last year (21.8%).
Biffa has been successful in obtaining planning consents for approximately 8m
cubic metres of void space on four existing landfill sites. In addition, Biffa
opened a new landfill site at Skelton Grange near Leeds (the first Biffa site
under the new IPPC regulations) to replace Howley Park, which was closed.
The special waste division in the UK, which includes the important power
generation activity, delivered a 13.3% increase in turnover to £22.2m and
contributed PBITA of £2.4m (£3.0m). The sales margins have reduced to 10.8%
(15.3%) reflecting the very competitive state of the special waste market. In
particular, this is a result of the cost pressures in the manufacturing sector
which is the main customer for special waste services. Biffa currently has
interests in approximately 77MW of electricity generation in the UK (including
from Biffa sites leased to third parties).
Special waste has developed a range of treatment solutions for hazardous waste
streams, and is seeking to expand these ahead of the 2004 deadline requiring
hazardous waste streams to be pre-treated before final disposal in a landfill
site.
In Belgium, turnover increased by 19.7% to £26.1m. The improving trends noted in
the second half of 2001/02 have continued into the current year. Biffa Belgium
increased its PBITA to £1.3m (£0.3m).
Services
Services' turnover increased by 0.8% to £190.7m. PBITA fell by 13.3% to £15.7m.
In addition, there was an exceptional charge of £41.4m, representing a write
down for impairment in the net book value of water purification and operating
services (principally in pipeline services). The charge for impairment has no
impact on cash flows. Excluding the impact of exchange rates, services turnover
increased by 5.1% and PBITA fell by 11.6%.
The USA is both the division's base and its largest market; some 83% of
services' turnover arose in the USA. Overall, services' PBITA in 2002/03
continued to be adversely affected by the continuing weak economic environment.
After eliminating the share of associated undertakings' profit, where the
corresponding turnover is not consolidated into services' results, the sales
margin reduced to 5.7% (7.3%).
Analytical services, the largest business, performed well, with turnover
increasing by 3.7% to £88.6m; turnover in the USA grew by 4.6% excluding the
impact of exchange rates. The business has responded well to a challenging
market, seeking new areas to counter softness in traditional sectors and
representation in new geographic territories. In addition, new areas of work
have been secured at higher margins. The business has delivered organic PBITA
growth of approximately 5%. Analytical services is the market leader in both the
USA and the UK.
Water purification's turnover decreased by 9.2% to £39.3m, and its PBITA
performance reflected its difficult market place. The water purification
business is a market leader in the USA in disinfection services where the market
has been relatively better than in filtration. In the half year, disinfection
turnover arising in the USA was up by approximately 10% (measured in US$).
Turnover in operating services increased by 4.0% to £62.8m. Performance was
mixed, with contract operations proving, as would be expected, to be more
resilient to the economic conditions than pipeline services. Contract operations
delivered organic turnover growth of around 9%. Operating services also includes
the results of Severn Trent Water International and Aquafin, an associated
undertaking in Belgium, which provides sewerage services for Flanders.
Associated undertakings contributed £4.8m (£4.3m) of PBITA to the results of
operating services.
Although market conditions have been difficult, the overall performance of water
purification and pipeline services has not been satisfactory. Cost reductions
have been implemented but it is important that further improvements are made.
The aim must be to deliver value for Severn Trent shareholders.
Systems
Total turnover for systems reduced to £28.5m (£31.6m). The systems business
generated PBITA of £0.5m (loss of £5.0m).
As previously described, Severn Trent Systems has experienced problems with some
CIS-Open Vision contracts in the USA, with implementation taking longer than
anticipated and involving extra resources and much higher costs. £25.0m was
recognised as an exceptional charge in the full year 2001/02 to cover the
anticipated total costs of completing these loss-making contracts. Significant
progress has been made in resolving these problems, but discussions are
continuing.
Property, Engineering Consultancy and Insurance
Total turnover from these businesses in the year was £16.8m (£16.0m) generating
a loss before interest and tax of £1.1m (loss of £0.1m).
Severn Trent Property's two largest developments are the Daventry International
Rail Freight Terminal and the Thorpe Park business park near Leeds. Charles
Haswell & Partners is an engineering design consultancy. Derwent Insurance,
based in Guernsey, provides insurance cover to Severn Trent Group companies.
Supplementary Information
For supplementary information, including the Group's presentation to analysts,
see the Severn Trent web site at www.severntrent.com.
Outlook
Severn Trent Water is expected to continue to outperform its regulatory targets
for gross operating cost efficiencies, but offsetting cost pressures will also
continue. While the markets for Biffa and Services are expected to remain
difficult into the second half of the financial year, the strength of their
market positions in waste in the UK and analytical services in both the US and
the UK should provide platforms for future growth when the economic climate
improves.
The Board considers that the Group's overall performance for the first half year
is broadly consistent with market expectations for the Group's 2002/03 full year
profit after interest but before goodwill amortisation, exceptional items and
tax.
David Arculus
Chairman
Group profit and loss account
Six months ended 30 September 2002
Unaudited Unaudited Audited
6 months to 6 months to Year ended
30 Sept 2002 30 Sept 2001 31 Mar 2002
Notes £m £m £m
Turnover: group and share of joint
ventures 908.1 899.1 1,799.1
Less: share of joint ventures' turnover (2.1) (2.4) (4.8)
Turnover 2 906.0 896.7 1,794.3
Operating costs before goodwill
amortisation and exceptional costs (701.1) (690.9) (1,385.4)
Goodwill amortisation (13.3) (12.4) (26.5)
Exceptional impairment of fixed assets 3 (41.4) - -
Exceptional contract costs 3 - (21.5) (25.0)
Total operating costs (755.8) (724.8) (1,436.9)
Operating profit 150.2 171.9 357.4
Share of operating profit of joint ventures
and associates 5.1 4.8 9.9
Exceptional profit on disposal of business 3 - 8.0 8.0
Profit before interest, goodwill
amortisation and exceptional items 2 210.0 210.6 418.8
Goodwill amortisation 2 (13.3) (12.4) (26.5)
Profit before interest and exceptional items 2 196.7 198.2 392.3
Exceptional costs 2 (41.4) (21.5) (25.0)
Exceptional profits 2 - 8.0 8.0
Profit before interest 2 155.3 184.7 375.3
Net interest payable (78.2) (80.4) (159.0)
Profit after interest before goodwill
amortisation and exceptional items 131.8 130.2 259.8
Goodwill amortisation (13.3) (12.4) (26.5)
Profit after interest before exceptional
items 118.5 117.8 233.3
Exceptional items 2 (41.4) (13.5) (17.0)
Profit on ordinary activities before
taxation 77.1 104.3 216.3
Taxation on profit on ordinary activities
- current tax 4 (14.2) (7.1) (16.1)
- deferred tax 4 (28.8) (34.1) (42.3)
Total taxation 4 (43.0) (41.2) (58.4)
Profit on ordinary activities after
taxation 34.1 63.1 157.9
Equity minority interests (0.3) (0.1) (0.6)
Profit for the financial period 33.8 63.0 157.3
Dividends 6 (59.6) (59.5) (157.6)
Retained (loss)/profit (25.8) 3.5 (0.3)
Earnings per share (pence)
Basic 5 9.8 18.4 45.9
Diluted 5 9.8 18.3 45.7
Adjusted basic before exceptional items
and deferred tax 5 30.3 32.3 63.2
Adjusted diluted before exceptional items
and deferred tax 5 30.2 32.1 62.9
There is no difference between the profit on ordinary activities before taxation
and the retained profit/loss for the financial periods stated above, and their
historical cost equivalent. All items dealt with in arriving at operating profit
relate to continuing activities.
Group balance sheet
At 30 September 2002
Unaudited Unaudited Audited
30 Sept 2002 30 Sept 2001 31 Mar 2002
£m £m £m
Fixed assets
Intangible assets - goodwill 416.7 450.8 474.8
Tangible assets 4,918.3 4,815.7 4,891.8
Investments in joint ventures:
Share of gross assets 4.5 7.1 6.0
Share of gross liabilities (3.7) (5.4) (4.6)
Loans to joint ventures 4.2 2.7 4.7
5.0 4.4 6.1
Investments in associates 17.1 17.8 17.3
Other investments 5.6 3.7 5.7
Total Investments 27.7 25.9 29.1
5,362.7 5,292.4 5,395.7
Current assets
Stocks 101.9 97.3 97.2
Debtors 420.4 427.0 390.5
Short-term deposits 42.2 73.7 19.1
Cash at bank and in hand 36.7 13.1 28.9
601.2 611.1 535.7
Creditors: amounts falling due
within one year (1,213.8) (1,106.5) (1,112.8)
Net current liabilities (612.6) (495.4) (577.1)
Total assets less current liabilities 4,750.1 4,797.0 4,818.6
Creditors: amounts falling due
after more than one year (1,995.4) (2,038.5) (2,042.8)
Provisions for liabilities and
charges (502.3) (466.3) (480.4)
Net assets 2,252.4 2,292.2 2,295.4
Capital and reserves
Called up share capital 224.4 224.0 224.0
Share premium account 28.3 24.1 24.4
Capital redemption reserve 156.1 156.1 156.1
Profit and loss account 1,841.8 1,886.7 1,889.5
Total equity shareholders' funds 2,250.6 2,290.9 2,294.0
Minority shareholders' interest
(equity) 1.8 1.3 1.4
2,252.4 2,292.2 2,295.4
Group cash flow statement
Six months ended 30 September 2002
Unaudited Unaudited Audited
30 Sept 2002 30 Sept 2001 31 Mar 2002
Notes £m £m £m £m £m £m
Net cash inflow from operating
activities 9 374.3 347.6 665.5
Dividends received from
associates and joint ventures 1.4 1.2 1.2
Returns on investments and
servicing of finance (77.0) (70.7) (144.9)
Taxation (4.9) (6.8) (6.7)
Capital expenditure and
financial investment (204.3) (159.5) (352.1)
Acquisitions and disposals (9.8) 17.0 -
Equity dividends paid (59.4) (58.2) (154.1)
Net cash inflow before use of
liquid resources and financing 20.3 70.6 8.9
Management of liquid resources (23.0) 7.3 62.0
Financing
Increase/(decrease) in debt 5.2 (107.1) (81.5)
Issue of shares 3.0 3.4 3.4
8.2 (103.7) (78.1)
Increase/(decrease) in cash 5.5 (25.8) (7.2)
Reconciliation of net cash flow Unaudited Unaudited Audited
to movement in net debt 30 Sept 2002 30 Sept 2001 31 Mar 2002
Notes £m £m £m
Increase/(decrease) in cash
(as above) 5.5 (25.8) (7.2)
Cash flow from movement in net
debt and financing (5.2) 107.1 81.5
Cash flow from movement in
liquid resources 23.0 (7.3) (62.0)
Change in net debt resulting from
cash flows 23.3 74.0 12.3
Net debt assumed with
acquisitions - - (8.7)
Movement in rolled up interest on
finance leases 0.8 7.4 (2.2)
Currency translation differences 5.1 0.3 (0.7)
Other non cash items 2.4 (0.5) (1.9)
Decrease/(increase) in net debt 31.6 81.2 (1.2)
Opening net debt (2,411.7) (2,410.5) (2,410.5)
Closing net debt 8 (2,380.1) (2,329.3) (2,411.7)
Statement of total recognised gains and losses
Six months ended 30 September 2002
Unaudited Unaudited Audited
30 Sept 2002 30 Sept 2001 31 March 2002
£m £m £m
Profit for the financial period
- group 32.7 62.0 155.7
- joint ventures 0.2 0.4 0.6
- associates 0.9 0.6 1.0
Total profit for the financial period 33.8 63.0 157.3
Currency translation differences (20.6) (9.0) (1.4)
Goodwill written off to reserves on pre April
1998 acquisition (earn-out consideration) - - (0.7)
Goodwill charged to profit on disposal,
previously written off to reserves pre
April 1998 - 3.1 3.1
Total recognised gains and losses for
the period 13.2 57.1 158.3
Reconciliation of movements in shareholders' funds
Six months ended 30 September 2002
Unaudited Unaudited Audited
30 Sept 2002 30 Sept 2001 31 Mar 2002
£m £m £m
Profit for the financial period 33.8 63.0 157.3
Dividends (59.6) (59.5) (157.6)
(25.8) 3.5 (0.3)
Other recognised gains and losses
relating to the period (20.6) (5.9) 1.0
Shares issued 3.0 3.4 3.4
Net (reduction in)/addition to
shareholders' funds (43.4) 1.0 4.1
Opening shareholders' funds 2,294.0 2,289.9 2,289.9
Closing shareholders' funds 2,250.6 2,290.9 2,294.0
Notes
1 Basis of preparation
The unaudited interim results for the six months ended 30 September 2002 have
been prepared on the basis of accounting policies consistent with those adopted
for the year ended 31 March 2002, as set out in the financial statements of the
group.
The comparative figures for the year ended 31 March 2002 and other financial
information contained therein do not constitute statutory accounts within the
meaning of Section 240 of the Companies Act 1985. Statutory accounts for the
year ended 31 March 2002, 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
United Kingdom Other-principally Group
USA and Europe
2002 2001 2002 2001 2002 2001
Six months ended 30 September £m £m £m £m £m £m
Group turnover
Water and sewerage 456.8 447.0 - - 456.8 447.0
Waste management 231.5 230.6 26.1 21.8 257.6 252.4
Services 25.9 20.8 164.8 168.3 190.7 189.1
Systems 24.9 26.9 3.6 4.7 28.5 31.6
Property, Engineering consultancy
and Insurance 16.8 16.0 - - 16.8 16.0
Inter segment trading (44.2) (39.4) (0.2) - (44.4) (39.4)
711.7 701.9 194.3 194.8 906.0 896.7
Group profit before interest,
goodwill amortisation and
exceptional items
Water and sewerage 171.4 169.2 - - 171.4 169.2
Waste management 33.1 35.4 1.3 0.3 34.4 35.7
Services 1.3 0.1 14.4 18.0 15.7 18.1
Systems 0.8 1.4 (0.3) (6.4) 0.5 (5.0)
Property, Engineering consultancy
and Insurance (1.1) (0.1) - - (1.1) (0.1)
Unrealised profit on inter segment
trading (1.3) (1.0) - - (1.3) (1.0)
Corporate overheads (9.6) (6.3) - - (9.6) (6.3)
194.6 198.7 15.4 11.9 210.0 210.6
Goodwill amortisation (8.6) (8.0) (4.7) (4.4) (13.3) (12.4)
Group profit before interest and
exceptional items
Water and sewerage 171.4 169.2 - - 171.4 169.2
Waste management 24.9 27.7 1.2 0.3 26.1 28.0
Services 0.9 (0.2) 9.8 13.6 10.7 13.4
Systems 0.8 1.4 (0.3) (6.4) 0.5 (5.0)
Property, Engineering consultancy
and
Insurance (1.1) (0.1) - - (1.1) (0.1)
Unrealised profit on inter segment
trading (1.3) (1.0) - - (1.3) (1.0)
Corporate overheads (9.6) (6.3) - - (9.6) (6.3)
186.0 190.7 10.7 7.5 196.7 198.2
Exceptional items
Exceptional impairment of fixed
assets - Services (3.1) - (38.3) - (41.4) -
Exceptional contract costs - Systems - - - (21.5) - (21.5)
Profit on disposal of business
- Systems - - - 8.0 - 8.0
(3.1) - (38.3) (13.5) (41.4) (13.5)
Group profit before interest
Water and sewerage 171.4 169.2 - - 171.4 169.2
Waste management 24.9 27.7 1.2 0.3 26.1 28.0
Services (2.2) (0.2) (28.5) 13.6 (30.7) 13.4
Systems 0.8 1.4 (0.3) (19.9) 0.5 (18.5)
Property, Engineering consultancy
and Insurance (1.1) (0.1) - - (1.1) (0.1)
Unrealised profit on inter segment
trading (1.3) (1.0) - - (1.3) (1.0)
Corporate overheads (9.6) (6.3) - - (9.6) (6.3)
182.9 190.7 (27.6) (6.0) 155.3 184.7
3 Exceptional Items
Exceptional costs in the half year to 30 September 2002 related to a £41.4m
charge for the impairment of fixed assets in Severn Trent Services; the
impairment was determined in accordance with FRS 11 'Impairment of fixed assets
and goodwill'. The impairment restates the relevant assets to value in use using
a pre-tax discount rate of 10%. £37.8m of this impairment charge was a write
down of goodwill, the remaining £3.6m was a write down of tangible fixed assets.
Exceptional items in the half year to 30 September 2001 were a net charge of
£13.5m. This represented a £21.5m exceptional charge in respect of CIS-Open
Vision contracts in the USA, offset by a £8.0m profit from the disposal of
Stoner Associates. The full year exceptional charge in respect of these CIS-Open
Vision contracts for the year ended 31 March 2002 was £25.0m (£3.5m charged in
the second six month period).
4 Taxation
Six months ended Six months ended
30 Sept 2002 30 Sept 2001
£m £m
Current tax
UK corporation tax at 30% 15.4 7.8
UK corporation tax prior year (3.0) (2.4)
Double tax relief (0.4) (0.3)
Overseas tax 1.5 1.5
Share of tax charges of joint
ventures and associates 0.7 0.5
14.2 7.1
Deferred tax 28.8 34.1
43.0 41.2
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 ended 30 September 2002
Weighted
average Per
number share
Earnings of shares amount
£m m pence
Basic earnings per share 33.8 343.2 9.8
Effect of dilutive options - 1.4 -
Diluted earnings per share 33.8 344.6 9.8
Adjusted earnings per share
Basic earnings per share 33.8 343.2 9.8
Effect of:
Exceptional impairment of
fixed assets 41.4 - 12.1
Exceptional profit on
disposal of business - - -
Exceptional contract costs - - -
Deferred tax 28.8 - 8.4
Adjusted basic earnings per
share before exceptional items
and deferred tax 104.0 343.2 30.3
Diluted earnings per share 33.8 344.6 9.8
Effect of:
Exceptional impairment of
fixed assets 41.4 - 12.0
Exceptional profit on
disposal of business - - -
Exceptional contract costs - - -
Deferred tax 28.8 - 8.4
Adjusted diluted earnings per
share before exceptional items
and deferred tax 104.0 344.6 30.2
Six months ended 30 September 2001
Weighted
average Per
number 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 impairment of
fixed assets - - -
Exceptional profit on
disposal of business (8.0) - (2.3)
Exceptional contract costs 21.5 - 6.3
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 impairment of
fixed assets - - -
Exceptional profit on
disposal of business (8.0) - (2.3)
Exceptional contract costs 21.5 - 6.2
Deferred tax 34.1 - 9.9
Adjusted diluted earnings per
share before exceptional items
and deferred tax 110.6 344.5 32.1
6 Interim Dividend
The Board has declared an interim dividend of 17.34p per ordinary share (2001:
17.34p) to be paid on 7 April 2003 to shareholders on the register at 20
December 2002. The shares will be traded 'ex-dividend' with effect from 18
December 2002.
The cost of the interim dividend amounts to £59.6m (2001: £59.5m).
7. Pensions
Given the significant fall in equity values, it is appropriate to provide an
update to the position of the group's defined benefit pension schemes. On an
FRS17 basis, as at 30 September 2002, the estimated overall net position of the
group's defined benefit pension schemes is a deficit of approximately £220m, as
compared to a net surplus of approximately £30m as at 31 March 2002, (in both
cases before amounts deemed irrecoverable and deferred tax). As at 30 September
2002 the group's defined benefit pension schemes had total assets of
approximately £760m of which around 68% was invested in equities.
SSAP24, the applicable standard for Severn Trent, uses the results of the last
formal actuarial valuations, which were in surplus overall, to determine the
pension charge in the group's accounts. The SSAP24 charge continues to be
derived on this basis until the next formal actuarial valuation. Thus,
notwithstanding the fall in equity values, this principle has been followed in
determining the group's pension charge for 2002/03.
For further information on the group's pensions and retirement benefits, see the
group's Annual Report and Accounts.
8 Analysis of net debt
30 Sept 2002 30 Sept 2001 31 March 2002
£m £m £m
Cash at bank and in hand 36.7 13.1 28.9
Short-term deposits 42.2 73.7 19.1
Overdrafts (28.5) (33.6) (31.2)
Debt due within one year (502.9) (406.0) (443.6)
Debt due after one year (1,467.5) (1,524.7) (1,521.3)
Finance leases due within
one year (4.4) (3.4) (4.7)
Finance leases due after
one year (455.7) (448.4) (458.9)
Net debt (2,380.1) (2,329.3) (2,411.7)
9 Reconciliation of operating profit to operating cash flows
Six months ended Six months ended
30 Sept 2002 30 Sept 2001
£m £m
Operating profit 150.2 171.9
Depreciation charge 144.2 141.5
Amortisation of goodwill 13.3 12.4
Exceptional impairment of fixed assets 41.4 -
Profit on sale of tangible fixed assets (1.5) (1.6)
Deferred income received - 0.2
Deferred income written back (2.6) (2.0)
Provisions for liabilities and charges 8.0 23.2
Utilisation of provisions for liabilities
and charges (16.3) (10.2)
Movement in working capital 37.6 12.2
Net cash inflow from operating activities 374.3 347.6
10 Interim Statement
The interim report and accounts were approved by the Board of Directors on 10
December 2002. Further copies of this interim statement may be obtained from the
Company Secretary, Severn Trent Plc, 2297 Coventry Road, Birmingham B26 3PU.
11 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
markets in which the Group operates; changes in the regulatory 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 subsequent written or verbal forward-looking statements 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.
Independent review report to Severn Trent Plc
Introduction
We have been instructed by the company to review the interim financial
information which comprises the group profit and loss account, the group balance
sheet, the group cash flow statement, the statement of total recognised gains
and losses and the related notes. 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.
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 should be 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 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 United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly we do not express
an audit opinion on the financial information. The report has been prepared for
and only for the company for the purpose of the Listing Rules of the Financial
Services Authority and for no other purpose. We do not, in producing this
report, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or in to whose hands it may come save where
expressly agreed by our prior consent in writing.
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 2002.
PricewaterhouseCoopers
Chartered Accountants
Birmingham
10 December 2002
ENDS
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