Interim Results
Severn Trent PLC
09 December 2003
9 December 2003
Interim Results for the six months to 30 September 2003
STRONG FIRST HALF RESULTS
INCREASED OVERALL PROFITS FROM NON-REGULATED BUSINESSES
SEVERN TRENT WATER CONTINUES TO OUTPERFORM
Financial and operating highlights
Group
•Turnover up 11.0% to £1,006.0m (£906.0m)
•PBITA* up 11.7% to £234.5m (£210.0m); PBIT of £223.8m (£155.3m)
•Profit* before tax and goodwill amortisation up 14.6% to £151.1m
(£131.8m)
•Net exceptional profit of £4.2m (charge of £41.4m); PBT of £140.4m
(£77.1m)
•Adjusted basic EPS** up 12.5% to 34.1p (30.3p); Basic EPS of 31.1p (9.8p)
•Interim dividend increased by 2.5% to 17.77p (17.34p)
•Net debt £2,639m (£2,380m); interest costs up £5.2m to £83.4m
Severn Trent Water
•Turnover up 4.6% to £477.8m (£456.8m)
•IDOK price increase from April 2003 - contributed c. £8m to turnover
•PBITA* up 4.3% to £178.8m (£171.4m); PBIT of £186.2m (£171.4m)
•Management of costs continues
•£203m of capital investment; AMP3 regulatory outputs on track
•Exceptional profit from land and property sales of £8.7m
Non-Regulated Businesses
•Contributed 55% of Group turnover and 27% of Group PBITA*
•PBITA* up 32.7% to £65.7m (£49.5m); PBIT of £47.6m (loss of £5.2m)
•Acquisitions strengthen Biffa and Laboratories
•PBITA* contribution of £6.2m (loss of £0.6m) from Systems and Property,
Engineering consultancy and Insurance
Biffa
•Turnover up 19.8% to £308.7m (£257.6m)
•PBITA* up 13.4% to £39.0m (£34.4m); PBIT of £24.6m (£26.1m)
•Hales contribution to PBITA* of £3.0m
•Hales integration: to date, timing is ahead of plan; exceptional costs of
£4.5m
Services
•Turnover up 1.3% to £193.2m (£190.7m)
•PBITA* up 30.6% to £20.5m (£15.7m); PBIT of £16.8m (loss of £30.7m)
•P&K contribution to PBITA* of £1.8m
* excluding exceptional items ** excluding exceptional items and deferred tax
David Arculus, Chairman Severn Trent Plc, said:
'The Group has delivered a good overall performance in the first half of 2003/
04, and I am particularly pleased with the increased contribution from the
non-regulated businesses.'
'These Group results, and our confidence in our core businesses, has led the
Board to increase the interim dividend to 17.77p per share.'
Robert Walker, Group Chief Executive, Severn Trent Plc, said:
'These are a strong set of results demonstrating the benefits of a focused
strategy and disciplined management.'
'Severn Trent Water has continued its efforts to manage costs while benefiting
from the IDOK. We believe that our preferred Business Plan for the AMP4 price
review strikes the right balance between benefits to customers and adequate
returns for investors.'
'Biffa's underlying performance was good with profits 7.3% ahead
half-year-on-half-year. I am also pleased with the progress of Services, which
reflects the management actions taken.'
'We believe that Biffa UK and Laboratories have competitive advantages in their
markets.'
'Our core businesses - Severn Trent Water, Biffa and Laboratories - give us a
good platform for the future.'
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 Tim Grey
Interim Results Presentation
There will be an interim results presentation at 9.30am on Tuesday 9 December
2003. This presentation, together with the presentation slides, will be
available as a simultaneous webcast on the Severn Trent web site
(www.severntrent.com) and will remain on the web site for subsequent viewing.
Interview with Group Chief Executive
An interview with Robert Walker, Group Chief Executive, Severn Trent Plc, will
be available from 7.00am on Tuesday 9 December 2003 on the Severn Trent web site
(www.severntrent.com) and the Cantos web site (www.cantos.com).
Chairman's statement
In this Interim Results announcement: PBIT is profit before interest and tax;
PBITA is profit before interest, tax and goodwill amortisation; PBITA* is PBITA
excluding exceptional items; sales margins are based on PBITA*; PBTA* is profit
before tax and goodwill amortisation but excluding exceptional items.
The Severn Trent Group has delivered a good overall performance in the first
half of 2003/04, with Group profit before tax, goodwill amortisation and
exceptional items at £151.1m, an increase of 14.6%. Group profit before tax and
exceptional items was £136.2m (£118.5m) and Group profit before tax was £140.4m
(£77.1m).
Severn Trent Water has benefited from the IDOK and has continued its efforts to
manage costs; its PBITA* was up 4.3% to £178.8m. The Group's non-regulated
businesses increased their PBITA* by 32.7% to £65.7m, being 27% of the Group's
PBITA*. Biffa's PBITA* was £39.0m, up 13.4%, including the first time
contribution from the acquisition of Hales. Services PBITA* was up 30.6% to
£20.5m, including the first time contribution from the acquisition of P&K
Microbiology Services. Overall, Systems and Property, Engineering consultancy
and Insurance increased their PBITA* to £6.2m (loss of £0.6m). The main driver
of this increased profit was Property which contributed a PBITA* of £4.9m (loss
of £1.1m).
There was a net exceptional profit of £4.2m in the half-year, representing an
£8.7m profit from the sale of fixed assets offset by a £4.5m charge for Hales
integration costs.
The Board currently expects that the proportion of the Group's full year PBTA*
arising in the first half-year will be greater in 2003/04 than it was in 2002/03
(see Outlook).
Dividend
The Board has increased the interim dividend by 2.5% to 17.77 pence per share
(17.34 pence) to be paid on 6 April 2004.
Operational Review
Water and sewerage
Turnover from water and sewerage increased by 4.6% to £477.8m. The price
increases resulting from the IDOK award in December 2002 were implemented from
April 2003 and have benefited turnover in the first half of 2003/04 by c. £8m.
PBITA* was up 4.3% to £178.8m. Goodwill amortisation was £1.3m (nil) - being the
write down of goodwill. PBIT excluding exceptional items was £177.5m (£171.4m).
Including an exceptional profit from the sale of fixed assets (land and
property) of £8.7m, PBIT was £186.2m (£171.4m). Given its magnitude, the profit
from the sale of fixed assets was not treated as exceptional in 2002/03. There
is an additional pension charge of £1.1m for water and sewerage in the first
half of 2003/04 to reflect the valuation of pension schemes (see Financial
Review - pensions).
The programme for delivering gross operating cost efficiencies in Severn Trent
Water has continued to make good progress.
Direct operating costs in the first half of 2003/04 (excluding corporate
management charges) of Severn Trent Water were £178.0m, a reduction in real
terms of £0.3m, or 0.2%. Excluding the impact of inflation, gross operating cost
efficiencies in the first half of 2003/04 amounted to £5.9m although these
efficiencies were offset by cost pressures of £5.6m.
At 30 September 2003, total AMP3 gross operating cost efficiencies amounted to
around £67m, some £19m ahead of the OFWAT target, but were offset by cost
pressures amounting to around £57m. Total AMP3 gross operating cost efficiencies
are expected to amount to around £75m in 2004/05, although there will be
offsetting cost pressures.
Severn Trent Water continued to deliver efficiencies against its investment
programme of approximately £2 billion for the five-year period 2000/01 to 2004/
05. The programme is expected to deliver average capex efficiencies over the
AMP3 period of around 5% as measured against the RPI index or around 12% as
measured against the Construction Output Price Index. In the first half of 2003/
04, approximately £203m was invested; the delivery of the AMP3 regulatory
outputs is on track. Severn Trent Water believes that the timely and complete
delivery of its capital programme is part of its regulatory contract and its
obligations to customers. Severn Trent Water has delivered high levels of
performance in terms of customer service and drinking water and wastewater
quality.
Profit from the sale of fixed assets was £8.7m (£2.0m), arising from the sale of
land and property. In previous years the profit from the sale of fixed assets
has been included within (and has therefore reduced) the operating costs of
Severn Trent Water. In this half-year, as the profit from the sale of fixed
assets is significantly larger than in the first half of last year, the
continuance of this treatment would unduly flatter the half-year-on-half-year
trends. Thus the figures for operating costs (as set out above) have been
determined excluding any benefit from fixed asset disposals for both 2003/04 and
previous years.
In August 2003 Severn Trent Water submitted its draft AMP4 business plan to
OFWAT. This plan sets out the proposed investment plans for the period 2005 to
2010, taking into account the state of existing assets and new legislation which
has to be met. Extracts from the draft business plan are available on the Severn
Trent Water web site (www.stwater.co.uk).
The water and sewerage networks need further significant investment to cope with
the increased variability in both supply and demand that are expected to occur,
due in part to the impact of climate change. In addition, further investment
will be needed to meet the requirements of the new UK and European legislation
and obligations to reduce sewerage flooding. Severn Trent Water's business plan
also takes into account increases in operating costs.
It is important that the AMP4 price review recognises the need to provide an
adequate return and incentives for equity investors.
Waste management
Waste management's turnover increased by 19.8% to £308.7m, benefiting from the
first time contribution from the acquisition of Hales. Turnover in the UK
increased by 20.4% to £278.7m, while Belgian turnover increased by 14.9% to
£30.0m.
Biffa's PBITA* (including Biffa Belgium) was up 13.4% to £39.0m. Goodwill
amortisation was £9.9m (£8.3m). There was an exceptional charge of £4.5m for
Hales integration costs. PBIT was £24.6m (£26.1m). There is an additional
pension charge of £1.0m for waste management in the first half of 2003/04 to
reflect the valuation of pension schemes (see Financial Review - pensions).
On 19 June 2003 Biffa acquired Hales from RMC (UK) Limited for approximately
£126m and paid approximately £15m (exclusive of VAT) to ING to purchase vehicles
and equipment used in the Hales business, being a total consideration of
approximately £141m (excluding transaction costs). In the first half of 2003/04,
Hales contributed an estimated £3.0m to waste management's PBITA*.
Biffa is pleased with the acquisition of Hales. The integration process is
proceeding well and to date the timing is ahead of plan. The anticipated cost of
integrating the Hales business into Biffa remains as originally estimated at
around £10m, with targeted synergies of around £7.5m per annum.
Excluding the impact of acquisitions (Hales £3.0m, other acquisitions £0.1m) and
of increased pension charges, waste management's PBITA* was up by 7.3% compared
to the first half of last year.
The results for the first half-year include the costs of settling a legal
dispute and an insurance credit (of a broadly similar scale). These two items
have been allocated to UK central costs so as to provide more comparable
figures, half-year-on-half-year, for the three UK business units of Collection,
Landfill and Special Waste.
In the first half of 2003/04, Collection turnover in the UK increased to £171.8m
(£134.9m). For industrial/commercial within Collection, excluding the estimated
impact of Hales, volumes were down by around 2%, but unit revenues were up by
around 7%. The Collection division contributed a PBITA* of £26.0m (£22.3m), up
16.6%. Sales margins were lower at 15.1% (16.5)%, in part reflecting the
inclusion of the lower margin Hales business. Excluding the estimated
contribution from Hales, Collection's PBITA* was up by around 3%.
Landfill turnover in the UK was up 11.7% to £83.1m. Excluding the estimated
impact of Hales, Landfill volumes were up by around 5%, but unit revenues
(excluding Landfill Tax) were down by around 1%, reflecting a change in the mix
of sites. Landfill's PBITA in the first half-year benefited from a higher level
than expected of better margin special and contaminated waste work. PBITA* from
the Landfill division was up 12.7% to £16.9m (£15.0m). Excluding the estimated
contribution from Hales, Landfill's PBITA* was up by around 7%.
The Special Waste division in the UK, which includes the important power
generation activity, delivered a 7.2% increase in turnover to £23.8m and
contributed PBITA* of £3.3m (£2.4m). Excluding the estimated contribution from
Hales, Special Waste's PBITA* was up by around £0.7m. Biffa has interests in
around 80MW of electricity generation in the UK (including from Biffa sites
leased to third parties).
In Belgium, turnover increased by 14.9% to £30.0m. Following a change in Belgian
legislation, turnover in 2003/04 is now reported gross of the recovery for
environmental taxes (this is consistent with the treatment in the UK); excluding
this change, Belgium's turnover would have been up by around 10%. Biffa
Belgium's PBITA was £1.3m (£1.3m).
Services
Services' turnover increased by 1.3% to £193.2m. Some 80% of Services turnover
arose in the USA. Excluding the impact of exchange rates, Services' turnover
increased by around 7%.
Services' PBITA* increased by 30.6% to £20.5m, driven by improved contributions
from Water Purification and Operating Services and the first time contribution
of £1.8m from P&K Microbiology Services. Excluding the impact of exchange rates,
PBITA* increased by around 33%. Goodwill amortisation was £3.7m (£5.0m). There
were no exceptional items in the half-year (charge of £41.4m). PBIT was £16.8m
(loss of £30.7m).
After eliminating the share of associated undertakings' profit, where the
corresponding turnover is not consolidated into Services' results, Services'
sales margin increased to 7.9% (5.7%).
On 4 April 2003 Laboratories acquired P&K Microbiology Services, a microbiology
and mycology testing business based in New Jersey. P&K gives Laboratories a
leading position in the expanding mould testing market in the USA providing
further opportunities for profitable growth.
Turnover in Laboratories, the largest business within Services, was up 0.3% to
£88.9m, with turnover in the USA (in US$) up by around 7% and turnover in the UK
(in £) down by around 1%. Over 80% of Laboratories' turnover arose in the USA.
Laboratories' sales margins were up half-year-on-half-year, benefiting from the
inclusion of P&K.
Water Purification's turnover increased by 0.8% to £39.6m. Cost reductions have
been implemented and improvements have been delivered; the resulting gains in
the second half of 2002/03 have continued into 2003/04 and are reflected in
Water Purification's improved performance compared to the first half of last
year.
Turnover in Operating Services increased by 3.0% to £64.7m. Contract operations
delivered organic turnover growth of around 3%. 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 £5.2m (£4.8m) of PBITA to the results of
Operating Services.
In November 2003, the C2C Consortium, established by Severn Trent, Costain and
Arup was selected by the Ministry of Defence as the preferred bidder for Package
C of Project Aquatrine. This contract would commence in the second half of 2004/
05.
Systems and Property, Engineering consultancy and Insurance
Total turnover for Systems increased to £30.6m (£28.5m). Systems' PBIT (and
PBITA*) was £0.7m (£0.5m).
Total turnover from Property, Engineering consultancy and Insurance was £43.0m
(£16.8m) generating PBIT (and PBITA*) of £5.5m (loss of £1.1m). The main driver
of this increased profit was Property which contributed a PBITA* of £4.9m (loss
of £1.1m).
Overall, Systems and Property, Engineering consultancy and Insurance increased
their PBITA* to £6.2m (loss of £0.6m).
Financial Review
Group Results
Group turnover was £1,006.0m (£906.0m), an increase of 11.0% over last year. The
growth in turnover was mainly due to the contribution of the non-regulated
businesses which benefited from the acquisitions made in the half-year. The
turnover of the non-regulated businesses increased by 16.6% to £575.5m
(£493.6m), representing 54.6% (51.9%) of the Group total (before the elimination
of inter segment trading). Turnover from water and sewerage increased by 4.6% to
£477.8m (£456.8m).
Goodwill amortisation was £14.9m (£13.3m). There was a net exceptional profit of
£4.2m (loss of £41.4m) - see below.
Group profit before interest, tax, goodwill amortisation and exceptional items
was up 11.7% to £234.5m (£210.0m). The water and sewerage business was up by
4.3% to £178.8m (£171.4m). The Group's non-regulated businesses in total were up
32.7% to £65.7m (£49.5m), representing 26.9% (22.4%) of the Group total (before
unrealised profit on inter segment trading and corporate overheads).
Group profit before interest, tax and exceptional items was £219.6m (£196.7m).
Group profit before interest and tax was £223.8m (£155.3m).
After interest charges of £83.4m (£78.2m), Group profit before tax, goodwill
amortisation and exceptional items was up 14.6% to £151.1m (£131.8m). Group
profit before tax and exceptional items was £136.2m (£118.5m), an increase of
14.9%. Group profit before tax was £140.4m (£77.1m).
The total tax charge for the half-year was £33.5m (£43.0m) of which current tax
represented £20.1m (£14.2m) and deferred tax was £13.4m (£28.8m). Minority
interests were £0.1m (£0.3m). Profit after tax and minority interests was
£106.8m (£33.8m).
Basic earnings per share were 31.1 pence (9.8 pence). Adjusted basic earnings
per share (before exceptional items and deferred tax) were 34.1 pence (30.3
pence), an increase of 12.5%.
Operating activities generated a net cash inflow of £398.0m. The main cash
outflows were capital expenditure and financial investment of £238.4m, equity
dividends of £59.5m and net financing costs of £78.5m. The increase in net debt
was £133.7m.
Net debt at 30 September 2003 was £2,639m (£2,380m). Gearing, reflecting the
provision for deferred tax, was 117% (106%). The Group's net interest charge was
covered 4.6 times (4.5 times) by profit before interest, tax, depreciation,
goodwill amortisation and exceptional items.
Exceptional items
There was a net exceptional profit in the half-year of £4.2m comprising the net
of:
•an £8.7m profit from the sale of fixed assets, arising from the sale of
land and property by Severn Trent Water. Given its magnitude, the profit
from the sale of fixed assets was not treated as exceptional in 2002/03.
•a charge of £4.5m in waste management for Hales integration costs.
The total Hales integration costs are estimated at around £10m. Having charged
£4.5m of the Hales integration costs in the first half-year, the balance is
expected to be charged in subsequent periods. However, the requirements of FRS12
may prevent all of the Hales integration costs being charged in 2003/04.
In the first half of last year there was an exceptional charge of £41.4m
representing a write down for impairment in the net book value of some
businesses within Services (this impairment charge was increased to £46.8m in
the full year of 2002/03).
Taxation
The charge for current tax was £20.1m (£14.2m), of which £1.3m was attributable
to exceptional items. The current tax charge of £18.8m attributable to profit
after interest and goodwill amortisation but before tax and exceptional items is
an effective rate of 13.8% (12.0%). The current tax rate has benefited from an
adjustment in respect of prior periods.
Pensions
SSAP24, the applicable standard for Severn Trent, uses the results of the last
formal actuarial valuations to determine the pension charge in the Group's
accounts. This principle has been followed in determining the Group's pension
charge for 2003/04.
The Group has four defined benefit pension schemes, viz: the Severn Trent Water
Pension Scheme (STWPS) which is by far the largest of the Group's defined
benefit pension schemes, the Severn Trent Mirror Image Pension Scheme (STMIPS),
the UK Waste Pension Scheme (UKWPS) and the Severn Trent Senior Staff Pension
Scheme (STSSPS).
Formal actuarial valuations are being undertaken for the STMIPS as at 31 March
2003 and for the UKWPS as at 6 April 2003. Given the deterioration in the
funding position of these two schemes since their previous formal actuarial
valuations, there is an additional pension charge of £2.3m for the Group in the
first half of 2003/04 to reflect the estimated results of these valuations.
The pension charges for the STWPS and the STSSPS are based on their last formal
actuarial valuations as at 31 March 2001 which in total, at that time, had a net
surplus. The next formal actuarial valuations for these two schemes must be
undertaken as at a date that is no later than 31 March 2004. On an FRS17 basis,
as at 31 March 2003, the estimated net position (before amounts irrecoverable
and deferred tax) of the STWPS and STSSPS combined was a deficit of the order of
around £300m. If the value of investments has not improved relative to
liabilities at the time of the next formal valuations of the STWPS and the
STSSPS, such valuations would be expected to result in a significant increase in
the Group's pension charge.
For further information on the Group's pension and retirement benefits, see
Severn Trent's Annual Report and Accounts 2003.
Treasury management
The Group's policy for the management of interest rate risk requires that no
less than 50% of the group's borrowings should be at fixed interest rates, or
hedged through the use of interest rate swaps or forward rate agreements. At 30
September 2003, interest rates for some 72% of the Group's net debt of £2,639m
were so fixed. In addition, the Group had £90m of forward start interest rate
swaps (floating to fixed) that commence during 2003/04 and 2004/05, but after 30
September 2003.
Supplementary Information
For supplementary information, including the Group's interim results
presentation, see the Severn Trent web site (www.severntrent.com).
Outlook
The Board expects Severn Trent Water to continue to outperform its regulatory
contract and Biffa and Laboratories to have a solid second half. However, the
Board currently expects that the proportion of the Group's full year PBTA*
arising in the first half-year will be greater in 2003/04 than it was in 2002/
03. Half year and full year comparisons of 2003/04 and 2002/03 are complicated
by a number of factors, including:
•In the second half of 2002/03 there was a net one-off income gain in
Severn Trent Water of £3.7m, mainly due to a catch up of a backlog of meter
readings.
•In the first half year of 2003/04, there has been a significant increase,
half-year-on-half-year, in the contribution from Systems and Property,
Engineering consultancy and Insurance. Their PBITA* in the first half was
£6.2m (loss of £0.6m).
•The profit from the sale of fixed assets is being treated as exceptional
in 2003/04. However, given its magnitude, in previous years such profit was
not treated as exceptional. In 2002/03, the profit from the sale of fixed
assets was second half weighted, viz: £2.0m in the first half and £4.3m in
the second half.
For the longer term, the Board believes that Biffa UK and Laboratories have
competitive advantages in their markets. Overall, the Group's core businesses -
Severn Trent Water, Biffa and Laboratories - provide a good platform for the
future.
David Arculus
Chairman
Group profit and loss account
Six months ended 30 September 2003
Unaudited Unaudited Audited
6 months to 6 months to Year ended
30 Sept 2003 30 Sept 2002 31 Mar 2003
--------------------------------------------------------------------------------
Notes £m £m £m
Turnover: group and share
of joint ventures 1,007.4 908.1 1,855.8
Less: share of joint ventures'
turnover (1.4) (2.1) (3.8)
--------------------------------------------------------------------------------
--------- --------- ---------
Continuing operations 971.4 906.0 1,852.0
Acquisitions 34.6 - -
--------------------------------------------------------------------------------
Turnover 2 1,006.0 906.0 1,852.0
--------------------------------------------------------------------------------
Operating costs before goodwill
amortisation and exceptional
items (777.3) (701.1) (1,453.0)
Goodwill amortisation (14.9) (13.3) (25.2)
Exceptional integration
costs 3 (4.5) - -
Exceptional impairment of
fixed assets 3 - (41.4) (46.8)
Exceptional contract provision
release 3 - - 6.0
--------------------------------------------------------------------------------
Total operating costs (796.7) (755.8) (1,519.0)
--------------------------------------------------------------------------------
Operating profit/(loss)
--------- --------- --------
Continuing operations 210.7 150.2 333.0
Acquisitions (1.4) - -
--------------------------------------------------------------------------------
209.3 150.2 333.0
Share of operating profit of joint
ventures and associates 5.8 5.1 10.8
Exceptional profit on disposal
of fixed assets 3&4 8.7 - -
--------------------------------------------------------------------------------
Profit before interest, goodwill
amortisation and exceptional ---------------------------------------
items 2 234.5 210.0 409.8
Goodwill amortisation 2 (14.9) (13.3) (25.2)
---------------------------------------
Profit before interest and
exceptional items 2 219.6 196.7 384.6
Exceptional costs 2 (4.5) (41.4) (46.8)
Exceptional profits 2 8.7 - 6.0
---------------------------------------
Profit before interest 2 223.8 155.3 343.8
Net interest payable (83.4) (78.2) (159.4)
--------------------------------------------------------------------------------
Profit after interest before
goodwill amortisation and ----------------------------------------
exceptional items 151.1 131.8 250.4
Goodwill amortisation (14.9) (13.3) (25.2)
---------------------------------------
Profit after interest before
exceptional items 136.2 118.5 225.2
Exceptional items 2&3 4.2 (41.4) (40.8)
---------------------------------------
Profit on ordinary activities before
taxation 140.4 77.1 184.4
Taxation on profit on ordinary
activities
- current tax 5 (20.1) (14.2) (24.8)
- deferred tax 5 (13.4) (28.8) (59.5)
--------------------------------------------------------------------------------
Total taxation 5 (33.5) (43.0) (84.3)
Profit on ordinary activities
after taxation 106.9 34.1 100.1
Equity minority interests (0.1) (0.3) (0.9)
--------------------------------------------------------------------------------
Profit for the financial period 106.8 33.8 99.2
Dividends 8 (61.1) (59.6) (157.6)
--------------------------------------------------------------------------------
Retained profit/(loss) 45.7 (25.8) (58.4)
--------------------------------------------------------------------------------
Earnings per share (pence)
Basic 7 31.1 9.8 28.9
Diluted 7 31.0 9.8 28.8
Adjusted basic before exceptional
items and deferred tax 7 34.1 30.3 58.1
Adjusted diluted before exceptional
items and deferred tax 7 34.0 30.2 57.9
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.
Group balance sheet
At 30 September 2003
Unaudited Unaudited Audited
30 Sept 2003 30 Sept 2002 31 Mar 2003
£m £m £m
--------------------------------------------
Fixed assets
Intangible assets - 508.1 416.7 401.5
goodwill
Tangible assets 5,169.3 4,918.3 5,048.6
Investments in joint ventures:
Share of gross assets 6.4 4.5 3.1
Share of gross liabilities (6.0) (3.7) (2.6)
Loans to joint ventures 9.4 4.2 4.7
-----------------------------------------------------------------------
9.8 5.0 5.2
Investments in associates 16.9 17.1 17.6
Other investments 6.9 5.6 7.7
-----------------------------------------------------------------------
Total Investments 33.6 27.7 30.5
-----------------------------------------------------------------------
5,711.0 5,362.7 5,480.6
Current assets
Stocks 93.3 101.9 91.0
Debtors 480.4 420.4 423.2
Short-term deposits 31.6 42.2 25.7
Cash at bank and in hand 48.8 36.7 43.2
-----------------------------------------------------------------------
654.1 601.2 583.1
Creditors: amounts falling
due within one year (1,303.0) (1,213.8) (1,219.2)
-----------------------------------------------------------------------
Net current liabilities (648.9) (612.6) (636.1)
-----------------------------------------------------------------------
Total assets less current
liabilities 5,062.1 4,750.1 4,844.5
Creditors: amounts falling
due after more than one
year (2,239.8) (1,995.4) (2,101.6)
Provisions for liabilities
and charges (559.0) (502.3) (523.1)
-----------------------------------------------------------------------
Net assets 2,263.3 2,252.4 2,219.8
-----------------------------------------------------------------------
Capital and reserves
Called up share capital 225.1 224.4 224.4
Share premium account 33.0 28.3 28.7
Capital redemption reserve 156.1 156.1 156.1
Profit and loss account 1,846.9 1,841.8 1,808.4
-----------------------------------------------------------------------
Total equity shareholders'
funds 2,261.1 2,250.6 2,217.6
Minority shareholders'
interest (equity) 2.2 1.8 2.2
-----------------------------------------------------------------------
2,263.3 2,252.4 2,219.8
-----------------------------------------------------------------------
Group cash flow statement
Six months ended 30 September 2003
Unaudited Unaudited Audited
30 Sept 2003 30 Sept 2002 31 Mar 2003
Notes £m £m £m £m £m £m
--------------------------------------------------------
Net cash inflow from operating
activities 10 398.0 374.3 682.7
Dividends received from
associates and joint ventures 1.5 1.4 1.6
Returns on investments and
servicing of finance (78.5) (77.0) (146.7)
Taxation (5.8) (4.9) (14.3)
Capital expenditure and
financial investment (238.4) (204.3) (454.0)
Acquisitions (155.4) (9.8) (11.5)
Equity dividends paid (59.5) (59.4) (157.5)
--------------------------------------------------------------------------------
Net cash (outflow)/inflow before use
of liquid resources and financing (138.1) 20.3 (99.7)
Management of liquid resources (5.9) (23.0) (6.5)
Financing
Increase in debt 142.3 5.2 114.1
Issue of shares 5.0 3.0 3.3
------ ----- ------
147.3 8.2 117.4
--------------------------------------------------------------------------------
Increase in cash 3.3 5.5 11.2
--------------------------------------------------------------------------------
Reconciliation of net cash flow to
movement in net debt
Unaudited Unaudited Audited
30 Sept 2003 30 Sept 2002 31 Mar 2003
Notes £m £m £m
-----------------------------------------------------
Increase in cash (as above) 3.3 5.5 11.2
Cash flow from movement in net
debt and financing (142.3) (5.2) (114.1)
Cash flow from movement in
liquid resources 5.9 23.0 6.5
--------------------------------------------------------------------------------
Change in net debt resulting
from cash flows (133.1) 23.3 (96.4)
Net debt assumed with
acquisitions - - (0.4)
Movement in rolled up interest
on finance leases 2.2 0.8 1.3
Currency translation differences 1.9 5.1 2.6
Other non cash items (4.7) 2.4 (1.0)
--------------------------------------------------------------------------------
(Increase)/decrease in net debt (133.7) 31.6 (93.9)
Opening net debt (2,505.6) (2,411.7) (2,411.7)
--------------------------------------------------------------------------------
Closing net debt 9 (2,639.3) (2,380.1) (2,505.6)
--------------------------------------------------------------------------------
Statement of total recognised gains and losses
Six months ended 30 September 2003
Unaudited Unaudited Audited
30 Sept 2003 30 Sept 2002 31 March 2003
----------------------------------------------
£m £m £m
Profit for the financial period
- group 105.9 32.7 97.3
- joint ventures 0.4 0.2 0.5
- associates 0.5 0.9 1.4
--------------------------------------------------------------------------------
Total profit for the
financial period 106.8 33.8 99.2
Currency translation differences (7.2) (20.6) (21.3)
--------------------------------------------------------------------------------
Total recognised gains and losses
for the period 99.6 13.2 77.9
--------------------------------------------------------------------------------
Reconciliation of movements in shareholders' funds
Six months ended 30 September 2003
Unaudited Unaudited Audited
30 Sept 2003 30 Sept 2002 31 Mar 2003
£m £m £m
--------------------------------------------------------------------------------
Profit for the financial
period 106.8 33.8 99.2
Dividends (61.1) (59.6) (157.6)
--------------------------------------------------------------------------------
45.7 (25.8) (58.4)
Other recognised gains and
losses relating to the period (7.2) (20.6) (21.3)
Shares issued 5.0 3.0 3.3
--------------------------------------------------------------------------------
Net addition to/(reduction in)
shareholders' funds 43.5 (43.4) (76.4)
Opening shareholders' funds 2,217.6 2,294.0 2,294.0
--------------------------------------------------------------------------------
Closing shareholders' funds 2,261.1 2,250.6 2,217.6
--------------------------------------------------------------------------------
Notes
1 Basis of preparation
The unaudited interim results for the six months ended 30 September 2003 have
been prepared on the basis of accounting policies consistent with those adopted
for the year ended 31 March 2003, as set out in the financial statements of the
group.
The comparative figures for the year ended 31 March 2003 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 2003, 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
--------------------------------------------------------------------------------
Six months ended 2003 2002 2003 2002 2003 2002
30 September £m £m £m £m £m £m
--------------------------------------------------------------------------------
Group turnover
Water and sewerage 477.8 456.8 - - 477.8 456.8
Waste management 278.7 231.5 30.0 26.1 308.7 257.6
Services 29.8 25.9 163.4 164.8 193.2 190.7
Systems 24.6 24.9 6.0 3.6 30.6 28.5
Property, Engineering
consultancy and
Insurance 43.0 16.8 - - 43.0 16.8
Inter segment trading (46.8) (44.2) (0.5) (0.2) (47.3) (44.4)
--------------------------------------------------------------------------------
807.1 711.7 198.9 194.3 1,006.0 906.0
--------------------------------------------------------------------------------
Group profit before interest,
goodwill amortisation and
exceptional items
Water and sewerage 178.8 171.4 - - 178.8 171.4
Waste management 37.7 33.1 1.3 1.3 39.0 34.4
Services 2.1 1.3 18.4 14.4 20.5 15.7
Systems 0.5 0.8 0.2 (0.3) 0.7 0.5
Property, Engineering
consultancy and
Insurance 5.5 (1.1) - - 5.5 (1.1)
Unrealised profit on
inter segment
trading (1.2) (1.3) - - (1.2) (1.3)
Corporate overheads (8.8) (9.6) - - (8.8) (9.6)
--------------------------------------------------------------------------------
214.6 194.6 19.9 15.4 234.5 210.0
--------------------------------------------------------------------------------
Goodwill amortisation (11.5) (8.6) (3.4) (4.7) (14.9) (13.3)
--------------------------------------------------------------------------------
Group profit before interest and
exceptional items
Water and sewerage 177.5 171.4 - - 177.5 171.4
Waste management 27.9 24.9 1.2 1.2 29.1 26.1
Services 1.7 0.9 15.1 9.8 16.8 10.7
Systems 0.5 0.8 0.2 (0.3) 0.7 0.5
Property, Engineering
consultancy and
Insurance 5.5 (1.1) - - 5.5 (1.1)
Unrealised profit on inter
segment trading (1.2) (1.3) - - (1.2) (1.3)
Corporate overheads (8.8) (9.6) - - (8.8) (9.6)
--------------------------------------------------------------------------------
203.1 186.0 16.5 10.7 219.6 196.7
--------------------------------------------------------------------------------
Exceptional items
Exceptional profit on disposal
of fixed assets - Water
and sewerage 8.7 - - - 8.7 -
Exceptional integration
costs - Waste management (4.5) - - - (4.5) -
Exceptional impairment of fixed
assets - Services - (3.1) - (38.3) - (41.4)
--------------------------------------------------------------------------------
4.2 (3.1) - (38.3) 4.2 (41.4)
--------------------------------------------------------------------------------
Group profit before interest
Water and sewerage 186.2 171.4 - - 186.2 171.4
Waste management 23.4 24.9 1.2 1.2 24.6 26.1
Services 1.7 (2.2) 15.1 (28.5) 16.8 (30.7)
Systems 0.5 0.8 0.2 (0.3) 0.7 0.5
Property, Engineering
consultancy and
Insurance 5.5 (1.1) - - 5.5 (1.1)
Unrealised profit on
inter segment
trading (1.2) (1.3) - - (1.2) (1.3)
Corporate overheads (8.8) (9.6) - - (8.8) (9.6)
--------------------------------------------------------------------------------
207.3 182.9 16.5 (27.6) 223.8 155.3
--------------------------------------------------------------------------------
The segmental analysis includes the following amounts in respect of businesses
acquired during the six months to 30 September 2003:
Turnover Operating profit
----------------------------- -------------------------------
Other - Other -
principally principally
United USA & United USA &
Kingdom Europe Total Kingdom Europe Total
------------------------------ ------------------------------
£m £m £m £m £m £m
Waste
management 31.1 - 31.1 (3.0) - (3.0)
Services - 3.5 3.5 - 1.6 1.6
--------------------------------------------------------------------------------
Total 31.1 3.5 34.6 (3.0) 1.6 (1.4)
--------------------------------------------------------------------------------
Waste management and Services' operating profit in the table above is after
charging goodwill amortisation of £1.6 million and £0.2 million respectively,
and in relation to Waste management is after charging £4.5 million of
exceptional integration costs (see below).
3 Exceptional Items
Exceptional profit on disposal of fixed assets in the half year to 30 September
2003 of £8.7 million relates to the disposal of land and property by Severn
Trent Water (see note 4 below).
Exceptional costs in the half year to 30 September 2003 of £4.5 million relate
to the costs of integrating the acquired Hales business with Biffa Waste
Services.
Exceptional costs in the half year to 30 September 2002 related to a £41.4
million exceptional charge for the impairment of fixed assets in Severn Trent
Services. £37.8 million of this impairment charge was a write down of goodwill,
the remaining £3.6 million was a write down of tangible fixed assets.
Exceptional costs in the full year to 31 March 2003 related to a £46.8 million
exceptional charge for the impairment of fixed assets in Severn Trent Services;
being a revision of the half-year estimate above. £42.5 million of this
impairment charge was a write down of goodwill, the remaining £4.3 million was a
write down of tangible fixed assets. The impairments were determined in
accordance with FRS 11 'Impairment of fixed assets and goodwill'. The impairment
restated the relevant assets to value in use using a pre-tax discount rate of
10%.
The exceptional contract provision release of £6.0 million in the full year to
31 March 2003 related to the release of part of a £25.0 million exceptional
charge made in 2001/02 in respect of certain Systems CIS-Open Vision contracts
in the USA.
4 Profit on disposal of fixed assets
Profits on disposal of fixed assets, expressed on a like for like basis,
comprising only sales of land and property, have arisen as follows in the
reported periods:
Unaudited Unaudited Audited
Six months to Six months to Year ended
30 Sept 2003 30 Sept 2002 31 Mar 2003
£m £m £m
Profits on disposal -------------------------------------------------------
of fixed assets 8.7 2.0 6.3
-------------------------------------------------------
In the current period, profits on disposal of fixed assets amounting to £8.7
million have been shown separately as exceptional on the face of the profit and
loss account, after operating profit, due to the materiality of the amounts
involved. In previous periods such profits on disposal (shown above) were not
treated as exceptional and were reported within operating costs, given their
relative magnitude.
Changes in analysis
(i) In prior periods, profits on disposal of fixed assets other than land and
property were also reported within operating costs as part of a total figure for
profits on disposals of fixed assets. Because they are now regarded more
appropriately as minor adjustments to depreciation, £0.3 million of such items
in the current period have been included within the depreciation charge. £0.3
million of such profits arose in the six months to 30 September 2002 and £0.2
million in the year to 31 March 2003.
(ii) Profits on disposal of fixed assets in the six months to 30 September 2002
were previously reported at £1.5 million. If stated on a basis consistent with
the current period, the total amount of profits on disposal of fixed assets
would be £2.0 million (as shown above).
As such changes in analysis are not material for the group and would have no
impact on the overall profit or cash flow of the group in prior periods, no
changes have been effected to comparative figures.
5 Taxation
Six months Six months
ended ended
30 Sept 2003 30 Sept 2002
£m £m
Current tax
UK corporation tax at 30% 23.6 15.4
UK corporation tax prior year (4.8) (3.0)
Double tax relief (0.4) (0.4)
Overseas tax 1.1 1.5
Share of tax charges of joint
ventures and associates 0.6 0.7
---------------------------------
20.1 14.2
Deferred taxation 13.4 28.8
---------------------------------
33.5 43.0
---------------------------------
Included within UK corporation tax in the six months to 30 September 2003, is a
£1.3 million charge related to exceptional items arising in the period. No tax
was attributable to the exceptional items which arose in the six months to
September 2002.
6 Acquisitions
The Group made the following acquisitions in the period:
On 19 June 2003, Biffa (the Group's waste management business) acquired Hales
from RMC (UK) Ltd. The provisional fair value of consideration (including the
costs of acquiring from ING vehicles and equipment used in the business and
transaction costs) was £146.4 million. The provisional fair value of net assets
acquired was £30.9 million, giving rise to a provisional figure for purchased
goodwill of £115.5 million.
The Group also made some smaller acquisitions in the period. The total
provisional fair values attributable to these businesses were consideration of
£10.2 million, net assets acquired £0.8 million and goodwill £9.4 million.
The contribution to turnover and operating profit of these acquisitions, post
exceptional integration costs, are set out in note 2.
7 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 2003
--------------------------------------
Weighted
average Per
number share
Earnings of shares amount
£m m pence
-----------------------------------------------------------------------
Basic earnings per share 106.8 343.7 31.1
Effect of dilutive options - 1.4 (0.1)
-----------------------------------------------------------------------
Diluted earnings per share 106.8 345.1 31.0
-----------------------------------------------------------------------
Adjusted earnings per share
-----------------------------------------------------------------------
Basic earnings per share 106.8 343.7 31.1
Effect of:
Exceptional integration costs 3.2 - 0.9
Exceptional profit on disposal
of fixed assets (6.1) - (1.8)
Exceptional impairment of
fixed assets - - -
Deferred tax 13.4 - 3.9
-----------------------------------------------------------------------
Adjusted basic earnings per
share before exceptional items
and deferred tax 117.3 343.7 34.1
-----------------------------------------------------------------------
Diluted earnings per share 106.8 345.1 31.0
Effect of:
Exceptional integration costs 3.2 - 0.9
Exceptional profit on
disposal of fixed assets (6.1) - (1.8)
Exceptional impairment of
fixed assets - - -
Deferred tax 13.4 - 3.9
-----------------------------------------------------------------------
Adjusted diluted earnings per
share before exceptional items
and deferred tax 117.3 345.1 34.0
-----------------------------------------------------------------------
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 integration costs - - -
Exceptional profit on disposal
of fixed assets - - -
Exceptional impairment of
fixed assets 41.4 - 12.1
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 integration costs - - -
Exceptional profit on disposal
of fixed assets - - -
Exceptional impairment of
fixed assets 41.4 - 12.0
Deferred tax 28.8 - 8.4
-----------------------------------------------------------------------
Adjusted diluted earnings per
share before exceptional items
and deferred tax 104.0 344.6 30.2
-----------------------------------------------------------------------
8 Interim Dividend
The Board has declared an interim dividend of 17.77p per ordinary share (2002:
17.34p) to be paid on 6 April 2004. The shares will be traded 'ex-dividend' with
effect from 17 December 2003.
The cost of the interim dividend amounts to £61.1m (2002: £59.6m).
9 Analysis of net debt
30 Sept 2003 30 Sept 2002 31 March 2003
£m £m £m
Cash at bank and in hand 48.8 36.7 43.2
Short-term deposits 31.6 42.2 25.7
Overdrafts (32.1) (28.5) (31.8)
Debt due within one year (501.8) (502.9) (500.4)
Debt due after one year (1,681.8) (1,467.5) (1,581.1)
Finance leases due within
one year (10.2) (4.4) (5.4)
Finance leases due after
one year (493.8) (455.7) (455.8)
---------- ---------- ----------
Net debt (2,639.3) (2,380.1) (2,505.6)
---------- ---------- ----------
10 Reconciliation of operating profit to operating cash flows
Six months Six months
ended ended
30 Sept 2003 30 Sept 2002
£m £m
Operating profit 209.3 150.2
Depreciation charge 151.3 144.2
Amortisation of goodwill 14.9 13.3
Exceptional impairment of fixed assets - 41.4
Profit on sale of tangible fixed assets* - (1.5)
Deferred income movement (1.6) (2.6)
Provisions for liabilities and charges 12.3 8.0
Utilisation of provisions for liabilities
and charges (11.2) (16.3)
Movement in working capital 23.0 37.6
----------------------------
Net cash inflow from operating activities 398.0 374.3
----------------------------
* See note 4.
11 Interim Statement
The interim report and accounts were approved by the Board of Directors on 8
December 2003.
Further copies of this interim statement may be obtained from the Company
Secretary, Severn Trent Plc, 2297 Coventry Road, Birmingham B26 3PU.
12 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 written or verbal forward-looking statements, made in this document or made
subsequently, which are attributable to Severn Trent or any other member of the
Group or persons acting on their behalf are expressly qualified in their
entirety by the factors referred to above. Severn Trent does not intend to
update these forward-looking statements.
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, including the
conclusion, 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 2003.
PricewaterhouseCoopers LLP
Chartered Accountants
Birmingham
9 December 2003
Notes
(a) The maintenance and integrity of the Severn Trent Plc website is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
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