Interim Results
Severn Trent PLC
29 November 2004
29 November 2004
Interim Results for the six months to 30 September 2004
OVERALL SATISFACTORY FIRST HALF RESULTS
SEVERN TRENT WATER CONTINUES TO OUTPERFORM
BIFFA BENEFITS FROM HALES ACQUISITION
SERVICES FLAT BEFORE CURRENCY IMPACT
Financial and operating highlights
Group
• Turnover up 3.3% to £1,038.9m (£1,006.0m)
• PBITA* down 2.2% to £229.3m (£234.5m); up 4.2% before incremental
pension charges; PBIT of £214.2m (£223.8m)
• Incremental pension charges £15.1m and reduction in Other businesses'
PBITA affect year on year result by £22.0m
• PBTA* down 6.5% to £141.3m (£151.1m); PBT of £126.2m (£140.4m)
• There were no exceptional profits (£4.2m)
• Adjusted basic EPS** down 15.0% to 29.0p (34.1p); Basic EPS of 22.7p
(31.1p)
• Interim dividend increased by 2.5% to 18.21p (17.77p)
• Net debt £2,735m (£2,749m at 31 March 2004); interest costs up £4.6m to
£88.0m
Severn Trent Water
• Turnover up 5.8% to £505.7m (£477.8m)
• PBITA* up 1.3% to £181.2m (£178.8m); up 7.4% before incremental pension
charges; PBIT of £181.2m (£186.2m)
• Management of costs continues; AMP3 regulatory outputs on track
• Awaiting AMP4 Final Determination, due 2 December 2004
Biffa
• Turnover up 14.4% to £353.0m (£308.7m)
• PBITA* up 12.3% to £43.8m (£39.0m); up 15.9% before incremental pension
charges; PBIT of £32.4m (£24.6m)
• Growth in PBITA largely from Hales contribution and delivery of planned
acquisition synergies.
Services
• Turnover down 2.9% to £187.6m (£193.2m)
• PBITA* down 8.8% to £18.7m (£20.5m); down 6.3% before incremental
pension charges; PBIT of £15.0m (£16.8m)
• Excluding the impact of exchange rates PBITA* down 2.0%; up 0.5% before
incremental pension charges
Other businesses
• Includes Systems, Property, Engineering consultancy and Insurance.
Turnover down 50.3% to £36.6m (£73.6m); PBITA* loss of £2.0m (profit £6.2m)
• Systems turnover down 18.3% to £25.0m (£30.6m); PBITA* loss £1.9m
(profit £0.7m)
• Property, Engineering consultancy and Insurance turnover down 73% to
£11.6m (£43.0m) of which Property contributed £1.4m (£27.5m); PBITA* loss
£0.1m (profit £5.5m)
* excluding exceptional items
** excluding exceptional items and deferred tax
David Arculus, Chairman Severn Trent Plc, said:
'The Group has delivered a satisfactory overall performance in the first half of
2004/05, with PBITA down 2.2% after the effect of incremental pension charges.
'These Group results, and our confidence in our core businesses, has led the
Board to increase the interim dividend to 18.21p per share.'
Robert Walker, Group Chief Executive, Severn Trent Plc, said:
'Severn Trent Water has continued to manage costs while maintaining excellent
customer service and delivering its AMP3 obligations. We await the Price
Determination on 2 December, which we will carefully assess to establish whether
it enables us to deliver the services our customers require and provide adequate
returns to investors.'
'Biffa's performance has benefited from the completion of the Hales integration
with profits 12.3% ahead half-year-on-half-year.'
'I am satisfied with the underlying progress of Services, albeit the performance
has been impacted by difficult market conditions in the US and the impact of a
falling dollar exchange rate.'
'We have a strong platform on which the new leadership team can build and take
the group further forward. On Thursday we will know the outcome of the Final
Determination and Severn Trent Water is well advanced in planning the next five
years. Biffa is now the largest integrated waste company in the UK and is poised
to take full advantage of the new waste regulations.'
Enquiries:
Robert Walker Severn Trent Plc 020 7404 5959 (on the day)
Group Chief Executive 0121 722 4775
Mark Wilson Severn Trent Plc 020 7404 5959 (on the day)
Group Finance Director 0121 722 4267
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 Eilis Murphy
Interim Results Presentation
There will be an interim results presentation at 11.00am on Monday 29 November
2004. 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.
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 and excluding exceptional items.
The Severn Trent Group has delivered a satisfactory overall performance in the
first half of 2004/05, with Group profit before tax, goodwill amortisation and
exceptional items at £141.3m, a decrease of 6.5% after incremental pension
charges of £15.1m. Group profit before tax and exceptional items was £126.2m
(£136.2m) and Group profit before tax was £126.2m (£140.4m).
Severn Trent Water has continued its efforts to manage costs; its PBITA* was up
1.3% to £181.2m after incremental pension charges of £10.8m. Biffa's results
include a full six months contribution from the acquisition of Hales. Its PBITA*
was up 12.3% to £43.8m after incremental pension charges of £1.4m. Services
PBITA* was down 8.8% to £18.7m, after incremental pension charges of £0.5m.
Excluding the impact of exchange rates, Services PBITA* was down 2% to £20.1m.
Overall, PBITA* for Systems and Property, Engineering consultancy and Insurance
decreased to a loss of £2.0m (profit of £6.2m) after incremental pension charges
of £1.3m and a much reduced contribution from Property.
There were no exceptional items in the half-year (£4.2m profit).
Dividend
The Board has increased the interim dividend by 2.5% to 18.21 pence per share
(17.77 pence) to be paid on 6 April 2005.
Operational Review
Water and sewerage
Turnover from water and sewerage increased by 5.8% to £505.7m, from an allowed
increase in charges, including inflation, of 4.7%.
PBITA* was up 1.3% to £181.2m after incremental pension charges of £10.8m. PBIT
excluding exceptional items was £181.2m (£177.5m).
Profit from sale of fixed assets of £2.5m has been included within the operating
profits of Severn Trent Water. In 2003/04, the profit from the sale of fixed
assets was unusually large and thus classified as an exceptional item and
excluded from operating profits.
Severn Trent Water anticipated operating cost increases in the final year of
AMP3 arising both from completion of the AMP3 programme and from the incremental
pension charges (see Financial Review - pensions). Operating costs have arisen
in accordance with those expectations partly offset by STW's continued progress
on delivering operating cost efficiencies.
Direct operating costs in the first half of 2004/05 (excluding corporate
management charges) of Severn Trent Water were £200.3m, an increase of £22.3m.
This reflected a real increase of £17.3m, after the incremental pension charges,
or £6.5m before such charges being operating cost efficiencies in the first half
of 2004/05 of £3.0m offset by cost pressures of £9.5m.
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 13% as
measured against the Construction Output Price Index. In the first half of 2004/
05, approximately £194m was invested; the delivery of the AMP3 regulatory
outputs is substantially on track. Severn Trent Water believes that the
successful delivery of its capital programme is part of its regulatory contract
and its obligations to customers. Severn Trent Water has continued to deliver
high levels of performance in terms of customer service and drinking water and
wastewater quality.
At 30 September 2004, in real terms, total AMP3 gross operating cost
efficiencies amounted to around £72m, but were offset by cost pressures
amounting to around £81m (around £70m before incremental pensions).
Ofwat's Draft Determination published on 5 August 2004 included the latest
relative efficiency analysis and identified leading companies. Severn Trent
Water was identified as being at The Efficiency Frontier for water operating
expenditure and sewerage capital expenditure and within 5% of The Efficiency
Frontier for water capital expenditure, an overall result equalled by only one
other Water and Sewerage Company.
Ofwat's Draft Determination differed in certain material aspects from Severn
Trent Water's own plan published in May 2004. Some of these differences
represented a change in circumstances whilst others involved a transfer of costs
and risks to the company. Robust representation has been made to Ofwat on those
aspects of the Draft Determination that Severn Trent Water believes should be
amended.
The Final Determination is due on 2 December 2004 and the decision as to whether
or not to accept the Determination must be made by 1 February 2005.
Waste management
Waste management's turnover increased by 14.4% to £353.0m. Turnover in the UK
increased by 14.9% to £320.1m, while in Belgium turnover increased by 9.7% to
£32.9m.
Biffa's PBITA* (including Biffa Belgium) was up 12.3% to £43.8m or 15.9% before
incremental pension charges of £1.4m. Goodwill amortisation was £11.4m (£9.9m).
There was no exceptional charge (£4.5m). PBIT was £32.4m (£24.6m).
Biffa completed the integration process of Hales in August 2004, ahead of
schedule. No further integration costs were incurred in the period. The planned
annualised synergies from combining Hales with Biffa of £7.5m are being
delivered, indicating an underlying PBITA* growth in Biffa before the Hales
transaction of around 2%.
In the first half of 2004/05, Collection turnover in the UK increased to £196.4m
(£171.8m). The Collection division contributed a PBITA* of £28.8m (£26.0m), up
10.8%. Sales margins were lower at 14.7% (15.1)%, in part reflecting the
inclusion of the lower margin Hales business.
Landfill turnover in the UK was up 14.8% to £95.4m. PBITA* from the Landfill
division was up 24.3% to £21.0m (£16.9m). Landfill volumes were up by around
13%, or 5% excluding sites acquired with Hales. Unit revenues (excluding
Landfill Tax) were up by around 5%. Landfill's PBITA in the first half-year
benefited from an increase of higher margin contaminated waste work prior to
implementation of The Landfill (England and Wales) Regulations on 16 July 2004.
The Special Waste division in the UK, which includes the important power
generation activity, delivered a 18.9% increase in turnover to £28.3m and
contributed PBITA* of £3.7m (£3.3m). Biffa has interests in around 95MW of
electricity generation in the UK (including from Biffa sites leased to third
parties).
In Belgium, turnover increased by 9.7% to £32.9m. Biffa Belgium's PBITA* was
£1.3m (£1.3m). Excluding the impact of exchange rates, PBITA* increased by
around 4.4%.
Services
Services' turnover decreased by 2.9% to £187.6m. Some 82% of Services' turnover
arose in the USA. Excluding the impact of exchange rates, Services' turnover
increased by around 6.4%.
Services' PBITA* decreased by 8.8% to £18.7m. Excluding the impact of exchange
rates, PBITA* decreased by around 2% or increased 0.5% before incremental
pension charges of £0.5m. Goodwill amortisation was £3.7m (£3.7m). PBIT was
£15.0m (£16.8m).
After eliminating the share of associated undertakings' profit, where the
corresponding turnover is not consolidated into Services' results, Services'
sales margin decreased to 7.2% (7.9%) reflecting difficult market conditions for
Laboratories in the US, whilst Water Purification and Operating Services
continued to perform well.
Turnover in Laboratories, the largest business within Services, was down 4.4% to
£85.0m. The reduction was entirely due to the weakening US $ exchange rate as
turnover in the USA (in US$) was up by around 5% and turnover in the UK (in £)
was up by around 6%. Over 82% of Laboratories' turnover arose in the USA.
Water Purification's turnover decreased by 7.3% to £36.7m. Excluding the impact
of exchange rates, Water Purification's turnover increased by 1.8%.
Turnover in Operating Services increased by 1.9% to £65.9m. Excluding the impact
of exchange rates, Operating Services' turnover increased by 10.8%. Over half of
this arose in the US based Contract Operations business whose turnover in US $
increased by 10.4%. 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 (£5.2m) of PBITA to the results of Operating Services.
Other businesses: Systems and Property, Engineering consultancy and Insurance
Total turnover for Systems decreased to £25.0m (£30.6m). Systems' PBIT (and
PBITA*) was a loss of £1.9m (profit of £0.7m). The reduction largely arose from
reduced sales in the small Worksuite division in the US. The timing of such
sales is uneven.
Total turnover from Property, Engineering consultancy and Insurance was £11.6m
(£43.0m) generating PBIT (and PBITA*) loss of £0.1m (profit of £5.5m). Property
turnover reduced by £26.1m to £1.4m. There were no significant sales this
period, whereas the first half 2003/04 benefited from three significant
transactions.
The incremental pension charges for Other businesses included in the above
amounted to £1.3m.
Financial Review
Group Results
Group turnover was £1,038.9m (£1,006.0m), an increase of 3.3% over last year.
The growth in turnover was due to the contributions of Severn Trent Water and
Biffa which were partially offset by exchange rate impacts in Services and lower
activity in Property.
Goodwill amortisation was £15.1m (£14.9m). There were no exceptional items
(profit of £4.2m) - see below.
Group profit before interest, tax and exceptional items was £214.2m (£219.6m), a
decrease of 2.5%. Group profit before interest and tax was £214.2m (£223.8m), a
decrease of 4.3%.
Group profit before tax, goodwill amortisation and exceptional items was down
6.5% to £141.3m (£151.1m) after interest charges of £88.0m (£83.4m) and
incremental pension charges of £15.1m. Group profit before tax and exceptional
items was £126.2m (£136.2m) a decrease of 7.3%. Group profit before tax was
£126.2m (£140.4m).
The total tax charge for the half-year was £47.7m (£33.5m) of which current tax
represented £26.0m (£20.1m) and deferred tax £21.7m (£13.4m). Minority interests
were £0.4m (£0.1m). Profit after tax and minority interests was £78.1m
(£106.8m).
Basic earnings per share were 22.7 pence (31.1 pence). Adjusted basic earnings
per share (before exceptional items and deferred tax) were 29.0 pence (34.1
pence), a decrease of 15.0%.
Operating activities generated a net cash inflow of £390.8m (£398.0m). The main
cash outflows were capital expenditure and financial investment of £220.0m
(£238.4m), acquisition and disposals £2.2m (£155.4m), equity dividends of £61.1m
(£59.5m) and net financing costs of £79.7m (£78.5m). The movement in net debt
for the six months was a reduction of £13.8m (increase of £133.7m) and for the
12 months from 30 September 2003 an increase of £96.0m.
Net debt at 30 September 2004 was £2,735m (£2,639m). Gearing, reflecting the
provision for deferred tax, was 122% (117%). The Group's net interest charge was
covered 4.4 times (4.6 times) by profit before interest, tax, depreciation,
goodwill amortisation and exceptional items.
Exceptional items
There were no exceptional items in the half-year. 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, and a charge of £4.5m in waste management for Hales integration costs.
Taxation
The charge for current tax was £26.0m (£20.1m). The current tax charge of £26.0m
attributable to profit after interest and goodwill amortisation but before tax
and exceptional items is an effective rate of 20.6% (13.8%). The main reason for
the increase is that last year's charge benefited from the utilisation of tax
losses and reductions to prior years' charges, an effect which is not so
significant for this year. The increased charge is in line with Board
expectations.
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 2004/05.
The Group has four defined benefit pension schemes, viz: the Severn Trent
Pension Scheme (STPS) 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 were undertaken for the STMIPS as at 31 March 2003
and for the UKWPS as at 6 April 2003. The pension charges in respect of these
two schemes have been based on the results of these valuations.
Formal actuarial valuations have been undertaken for the STPS and the STSSPS as
at 31 March 2004. The valuations of these two schemes are substantially complete
and combined show at 31 March 2004 assets of £836m, liabilities of £1,072m and a
net deficit of £236m. As a result of these valuations, there are incremental
pension charges of £15.1m for the Group in the first half of 2004/05. The
incremental charges for the full year are estimated to be approximately £32m.
For further information on the Group's pension and retirement benefits, see
Severn Trent's Annual Report and Accounts 2004.
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 2004, interest rates for some 66% of the Group's net debt of £2,735m
were so fixed.
International Accounting Standards (IAS)
We continue to prepare for the adoption of IAS in 2005/06. Potential significant
changes are expected to arise for the accounting treatment of pensions, fixed
assets and renewals accounting, deferred tax and financial instruments. It is
expected that the overall net impact will be to reduce net assets and increase
earnings volatility. Details will be made available in summer 2005.
Supplementary Information
For supplementary information, including the Group's interim results
presentation, see the Severn Trent web site (www.severntrent.com).
Outlook
The outcome of the AMP4 price review is a key event for both Severn Trent Water
and the Group and the next step is Ofwat's announcement of its Final
Determination, expected on 2 December 2004.
Ofwat's Draft Determination made certain material changes to our Business Plan;
some of which represent a change in circumstances and others a transfer of costs
and risks to the company. We will consider Ofwat's Final Determination carefully
before announcing our decision to the market. The licence provides that the
decision be made by 1 February 2005.
The Board anticipates that PBITA* for the year 2004/05 for Severn Trent Water
and Biffa will be broadly in line with its expectations, and that Services will
be below its expectations due to difficult market conditions for Laboratories in
the US and the weakening of the US Dollar to £ Sterling exchange rate. On the
other hand, the profitability of Other Businesses, and specifically Property,
may be assisted by sales transactions.
David Arculus
Chairman
Group profit and loss account
Six months ended 30 September 2004
Unaudited Unaudited Audited
6 months to 6 months to Year ended
30 Sept 2004 30 Sept 2003 31 Mar 2004
Notes £m £m £m
------ --------- --------- --------
Turnover: group and share of joint
ventures 1,040.4 1,007.4 2,018.5
Less: share of joint ventures'
turnover (1.5) (1.4) (3.4)
------------------------- --------- --------- --------
--------
Group turnover 2 1,038.9 1,006.0 2,015.1
---------------------------------------------
Operating costs before goodwill
amortisation and exceptional
items (815.4) (777.3) (1,586.4)
Goodwill amortisation 2 (15.1) (14.9) (29.8)
Exceptional integration costs 3 - (4.5) (10.9)
Exceptional contract provision
release 3 - - 2.7
------------------------- --------- --------- --------
Total operating costs (830.5) (796.7) (1,624.4)
------------------------- --------- -------- ---------
Operating profit 208.4 209.3 390.7
Share of operating profit of joint ventures
and associates 5.8 5.8 11.9
Exceptional profit on disposal of
fixed assets 2&4 - 8.7 19.8
---------------------------------------------
----------------------
Profit before interest, goodwill
amortisation and exceptional
items 2 229.3 234.5 440.6
Goodwill amortisation 2 (15.1) (14.9) (29.8)
--------- --------- --------
Profit before interest and
exceptional items 2 214.2 219.6 410.8
Exceptional costs 2&3 - (4.5) (10.9)
Exceptional profits 2&3 - 8.7 22.5
--------- --------- --------
Profit before interest 2 214.2 223.8 422.4
Net interest payable (88.0) (83.4) (168.0)
---------------------------------------------
----------------------
Profit after interest before goodwill
amortisation and exceptional items 141.3 151.1 272.6
Goodwill amortisation (15.1) (14.9) (29.8)
--------- --------- --------
Profit after interest before exceptional
items 126.2 136.2 242.8
Exceptional items 2&3 - 4.2 11.6
--------- --------- --------
Profit on ordinary activities before
taxation 126.2 140.4 254.4
Taxation on profit on ordinary activities
- current tax 5 (26.0) (20.1) (33.3)
- deferred tax 5 (21.7) (13.4) (36.3)
------------------------ ---- --------- --------- --------
Total taxation 5 (47.7) (33.5) (69.6)
Profit on ordinary activities after
taxation 78.5 106.9 184.8
Equity minority interests (0.4) (0.1) (0.7)
------------------------- --------- --------- --------
Profit for the financial period 78.1 106.8 184.1
Dividends 9 (62.8) (61.1) (162.0)
------------------------- --------- --------- --------
Retained profit 15.3 45.7 22.1
---------------------------------------------
Earnings per share (pence)
Basic 8 22.7 31.1 53.5
Diluted 8 22.5 31.0 53.3
Adjusted basic before exceptional
items and deferred tax 8 29.0 34.1 61.4
Adjusted diluted before exceptional
items and deferred tax 8 28.8 34.0 61.2
There is no difference between the profit on ordinary activities before taxation
and the retained profit for the financial periods stated above, and their
historical cost equivalent.
Group balance sheet
At 30 September 2004
Unaudited Unaudited Audited
30 Sept 2004 30 Sept 2003 31 Mar 2004
(restated-note (restated-note
1) 1)
Notes £m £m £m
------ ---------- ----------- -----------
Fixed assets
Intangible assets - goodwill 486.8 508.1 497.6
Tangible assets 5,332.4 5,169.3 5,278.0
Investments in joint ventures:
Share of gross assets 7.5 6.4 7.2
Share of gross liabilities (6.8) (6.0) (6.5)
Loans to joint ventures 9.6 9.4 8.9
--------------------- ---------- ----------- -----------
10.3 9.8 9.6
Investments in associates 17.4 16.9 17.7
Other investments 0.7 1.3 1.0
--------------------- ---------- ----------- -----------
Total investments 28.4 28.0 28.3
--------------------- ---------- ----------- -----------
5,847.6 5,705.4 5,803.9
Current assets
Stocks 88.8 93.3 80.4
Debtors 479.6 485.8 452.8
Short-term deposits 41.0 31.6 70.8
Cash at bank and in hand 33.9 48.8 44.5
--------------------- ---------- ----------- -----------
643.3 659.5 648.5
Creditors: amounts falling
due within one year (1187.4) (1,303.0) (1,223.7)
--------------------- ---------- ----------- -----------
Net current liabilities (544.1) (643.5) (575.2)
--------------------- ---------- ----------- -----------
Total assets less current
liabilities 5,303.5 5,061.9 5,228.7
Creditors: amounts falling
due after more than one year (2,468.2) (2,239.8) (2,440.6)
Provisions for liabilities and
charges
Deferred tax provision (484.4) (439.2) (462.9)
Other provisions (109.3) (119.8) (109.1)
--------------------- ---------- ----------- -----------
Net assets 2,241.6 2,263.1 2,216.1
-----------------------------------------------
Capital and reserves
Called up share capital 225.7 225.1 225.2
Share premium account 37.1 33.0 33.5
Capital redemption reserve 156.1 156.1 156.1
Profit and loss account 7 1,820.3 1,846.7 1,798.9
----------------------- -------- ----------- -----------
Total equity shareholders' funds 2,239.2 2,260.9 2,213.7
Minority shareholders' interest (equity) 2.4 2.2 2.4
----------- -----------
--------------------- ----------
2,241.6 2,263.1 2,216.1
--------------------- ---------- ----------- -----------
Group cash flow statement
Six months ended 30 September 2004
Unaudited Unaudited Audited
30 Sept 2004 30 Sept 2003 31 Mar 2004
(restated (restated
- note 1) - note 1)
Notes £m £m £m £m £m £m
------ ------ ------ ----- ------ ------ ------
Net cash inflow from operating
activities 11 390.8 398.0 733.1
Dividends received from
associates and joint ventures 1.4 1.5 1.9
Returns on investments and
servicing of finance (79.7) (78.5) (148.3)
Taxation (13.2) (5.8) (19.5)
Capital expenditure and
financial investment (220.0) (238.4) (484.3)
Acquisitions (2.2) (155.4) (170.6)
Equity dividends paid (61.1) (59.5) (157.7)
----------------------------------------------
Net cash inflow/(outflow) before use of
liquid resources and financing 16.0 (138.1) (245.4)
Management of liquid resources 29.8 (5.9) (45.2)
Financing
(Decrease)/increase in debt (58.9) 142.3 283.1
Issue of shares 4.1 5.0 5.6
Share purchase by employee
share 7 - - (3.2)
trust
------ ------ ------
(54.8) 147.3 285.5
----------------------- ------ ------ ------ ------ ------ ------
(Decrease)/increase in cash (9.0) 3.3 (5.1)
----------------------------------------------
Reconciliation of net cash flow to
movement in net debt
Unaudited Unaudited Audited
30 Sept 2004 30 Sept 2003 31 Mar 2004
Notes £m £m £m
------ --------- --------- ---------
(Decrease)/increase in cash (as
above) (9.0) 3.3 (5.1)
Cash flow from movement in net
debt and financing 58.9 (142.3) (283.1)
Cash flow from movement in
liquid resources (29.8) 5.9 45.2
----------------------------------------------
Change in net debt resulting from
cash flows 20.1 (133.1) (243.0)
Net debt assumed with
acquisitions - - 0.3
Movement in rolled up interest on
finance leases (1.5) 2.2 2.2
Currency translation differences (1.1) 1.9 6.0
Other non cash items (3.7) (4.7) (9.0)
-------------------------- --------- --------- ---------
Decrease/(increase) in net debt 13.8 (133.7) (243.5)
Opening net debt (2,749.1) (2,505.6) (2,505.6)
----------------------- ----- --------- --------- ---------
Closing net debt 10 (2,735.3) (2,639.3) (2,749.1)
----------------------- ----- --------- --------- ---------
Statement of total recognised gains and losses
Six months ended 30 September 2004
Unaudited Unaudited Audited
30 Sept 2004 30 Sept 2003 31 March 2004
£m £m £m
-------- -------- ---------
Profit for the financial period
- group 77.0 105.9 182.1
- joint ventures 0.5 0.4 0.6
- associates 0.6 0.5 1.4
-------------------------- -------- -------- ---------
Total profit for the financial 78.1 106.8 184.1
period
Exchange movement on translation
of overseas results and net
assets 5.0 (9.9) (35.6)
Translation differences on foreign
currency hedging (1.5) 2.7 10.3
Tax on translation differences on
foreign currency hedging 0.4 - (3.1)
----------------------------------------------
Total recognised gains and losses for
the period 82.0 99.6 155.7
-------------------------- -------- -------- ---------
In the six months to 30 September 2004, in accordance with UITF19, a tax credit
of £0.4 million, arising on foreign currency borrowings hedging investments in
foreign businesses, has been reflected in the Statement of total recognised
gains and losses above. In the six months to 30 September 2003, a tax charge of
£0.8 million, relating to such gains of £2.7 million, was instead charged to the
profit and loss account. Had the £0.8 million charge been properly treated as in
the current year, adjusted earnings per share in the six months to 30 September
2003 would have been improved by 0.3 pence from 34.1 pence to 34.4 pence. Given
the magnitude of the numbers, no restatement has been applied to the 30
September 2003 figures.
Reconciliation of movements in shareholders' funds
Six months ended 30 September 2004
Unaudited Unaudited Audited
30 Sept 2004 30 Sept 2003 31 Mar 2004
(restated (restated
- note 1) - note 1)
£m £m £m
---------- ---------- ----------
Profit for the financial period 78.1 106.8 184.1
Dividends (62.8) (61.1) (162.0)
-------------------------- -------- ---------- ----------
15.3 45.7 22.1
Other recognised gains and losses
relating to the period 3.9 (7.2) (28.4)
Shares issued 4.1 5.0 5.6
Own shares reissued/(purchased) 3.3 0.9 (3.2)
Amortisation of own shares (1.1) 0.1 1.2
-----------------------------------------------
Net addition to/(reduction in)
equity shareholders' funds 25.5 44.5 (2.7)
Opening equity shareholders' funds
(as previously reported) 2,216.9 2,217.6 2,217.6
Adjustment to opening shareholders'
funds for holding of own shares
(note 7) (3.2) (1.2) (1.2)
--------------------------- ------ ---------- ----------
Opening equity shareholders' funds
(as restated) 2,213.7 2,216.4 2,216.4
-------------------------- -------- ---------- ----------
Closing equity shareholders' funds 2,239.2 2,260.9 2,213.7
-------------------------- -------- ---------- ----------
Notes
1 Basis of preparation
The unaudited interim results for the six months ended 30 September 2004 have
been prepared on the basis of accounting policies consistent with those adopted
for the year ended 31 March 2004, as set out in the financial statements of the
Group except that the Group balance sheet incorporates the shares held by the
Severn Trent Employee Share Ownership Trust (the Trust) and which have not
vested unconditionally by the balance sheet date. In line with UITF38 -
Accounting for ESOP Trusts, which is applicable to accounting periods ending on
or after 22 June 2004, the cost of shares held by the Trust is accounted for as
a deduction in arriving at shareholders' funds. Comparative figures have been
amended as laid out in note 7. The Group has also adopted UITF17 - Employee
Share Schemes, but this has not led to any restatement of prior year results.
The comparative figures for the year ended 31 March 2004 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 2004, 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
----------- ---------- ----------
2004 2003 2004 2003 2004 2003
Six months ended 30 £m £m £m £m £m £m
September ------ ------- ------ ------ ------ ------
---------------------
Group turnover
Water and sewerage 505.7 477.8 - - 505.7 477.8
Waste management 320.1 278.7 32.9 30.0 353.0 308.7
Services 33.0 29.8 154.6 163.4 187.6 193.2
Systems 21.1 24.6 3.9 6.0 25.0 30.6
Property, Engineering consultancy
and Insurance 11.5 43.0 0.1 - 11.6 43.0
Inter segment
trading (43.6) (46.8) (0.4) (0.5) (44.0) (47.3)
--------------------- ------ ------- ------ ------ ------ ------
847.8 807.1 191.1 198.9 1,038.9 1,006.0
----------------------------------------------
Group profit before interest,
goodwill amortisation and
exceptional items
Water and sewerage 181.2 178.8 - - 181.2 178.8
Waste management 42.5 37.7 1.3 1.3 43.8 39.0
Services 2.7 2.1 16.0 18.4 18.7 20.5
Systems - 0.5 (1.9) 0.2 (1.9) 0.7
Property, Engineering consultancy
and Insurance 0.1 5.5 (0.2) - (0.1) 5.5
Unrealised profit on inter segment
trading 0.2 (1.2) - - 0.2 (1.2)
Corporate overheads (12.6) (8.8) - - (12.6) (8.8)
--------------------- ------ ------- ------ ------ ------ ------
214.1 214.6 15.2 19.9 229.3 234.5
--------------------- ------ ------- ------ ------ ------ ------
Goodwill
amortisation (11.7) (11.5) (3.4) (3.4) (15.1) (14.9)
--------------------- ------ ------- ------ ------ ------ ------
Group profit before interest and
exceptional items
Water and sewerage 181.2 177.5 - - 181.2 177.5
Waste management 31.2 27.9 1.2 1.2 32.4 29.1
Services 2.3 1.7 12.7 15.1 15.0 16.8
Systems - 0.5 (1.9) 0.2 (1.9) 0.7
Property, Engineering consultancy and
Insurance 0.1 5.5 (0.2) - (0.1) 5.5
Unrealised profit on inter segment
trading 0.2 (1.2) - - 0.2 (1.2)
Corporate overheads (12.6) (8.8) - - (12.6) (8.8)
--------------------- ------ ------- ------ ------ ------ ------
202.4 203.1 11.8 16.5 214.2 219.6
----------------------------------------------
Exceptional items
Exceptional profit on disposal of fixed
assets - Water and - 8.7 - - - 8.7
sewerage
Exceptional integration costs
- Waste management - (4.5) - - - (4.5)
--------------------- ------ ------- ------ ------ ------ ------
- 4.2 - - - 4.2
----------------------------------------------
Group profit before interest
Water and sewerage 181.2 186.2 - - 181.2 186.2
Waste management 31.2 23.4 1.2 1.2 32.4 24.6
Services 2.3 1.7 12.7 15.1 15.0 16.8
Systems - 0.5 (1.9) 0.2 (1.9) 0.7
Property, Engineering consultancy
and Insurance 0.1 5.5 (0.2) - (0.1) 5.5
Unrealised profit on inter segment
trading 0.2 (1.2) - - 0.2 (1.2)
Corporate overheads (12.6) (8.8) - - (12.6) (8.8)
--------------------- ------ ------- ------ ------ ------ ------
202.4 207.3 11.8 16.5 214.2 223.8
--------------------- ------ ------- ------ ------ ------ ------
There have been no significant acquisitions in the six months to 30 September
2004.
3 Exceptional Items
Exceptional profit on disposal of fixed assets in the year ended 31 March 2004
of £19.8 million (six months to 30 September 2003 - £8.7 million) related to the
disposal of land and property by Severn Trent Water (see note 4 below).
Exceptional costs in the year ended 31 March 2004 of £10.9 million (six months
to 30 September 2003 - £4.5 million) related to the costs of integrating the
acquired Hales business with Biffa Waste Services. This is offset by a £2.7
million release (six months to 30 September 2003 - £nil) of part of the £25.0
million charge made in 2001/02 in respect of certain Systems CIS-OV 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 2004 30 Sept 2003 31 Mar 2004
£m £m £m
--------- ---------
--------
Profits on disposal of tangible
fixed assets 2.5 8.7 19.8
-------- --------- ---------
In the year ended 31 March 2004 profits on disposal of fixed assets amounting to
£19.8 million (six months to 30 September 2003 - £8.7 million) were 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 the current
period such profits on disposal (shown above) were not treated as exceptional
and are reported within operating costs, given their relative magnitude.
5 Taxation
Six months Six months
ended ended
30 Sept 2004 30 Sept 2003
£m £m
Current tax
UK corporation tax at 30% 25.8 23.6
UK corporation tax prior year (2.7) (4.8)
Double tax relief (0.3) (0.4)
Overseas tax 2.6 1.1
Share of tax charges of joint
ventures and associates 0.6 0.6
------------ -------------
26.0 20.1
Deferred taxation 21.7 13.4
------------ -------------
47.7 33.5
------------ -------------
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 that period.
6 Acquisitions
The Group has not made any significant acquisitions in the six months to 30
September 2004.
The Group made the following acquisitions in the year ended 31 March 2004:
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 £145.7 million. The provisional fair value of net assets
acquired was £25.4 million, giving rise to a provisional figure for purchased
goodwill of £120.3 million at the year end.
The Group also made some smaller acquisitions in the period. The total
provisional fair values attributable to these businesses were consideration of
£24.3 million, net assets acquired £6.7 million and goodwill £17.6 million.
7 Prior period adjustment
The prior period adjustment relates to the Group's adoption of UITF38 -
Accounting for ESOP Trusts, which became mandatory for all accounting periods
ending on or after 22 June 2004.
Under previous accounting policy, shares held by employee related share trusts
were denoted as 'Investments - Own shares' and classified within fixed assets.
UITF38 requires that shares held by employee related share trust be stated at
cost and treated as a deduction when arriving at shareholders' funds.
Investments in own shares have been reclassified from investments to profit and
loss reserves. At 31 March 2003, 30 September 2003 and 31 March 2004 the amounts
classified as investments in own shares were £6.5 million, £5.6 million and £9.7
million respectively.
As a result of the change in balance sheet classification, the cash flows
resulting from the purchase of shares by the employee related share trust in
respect of the six months ended 30 September 2003 and the year ended 31 March
2004 have been reclassified from capital expenditure and financial investment to
financing.
There is no impact on previously reported figures for the profit and loss
account.
Year ended 31 March 2003
Profit and
loss
account
£m
-------------------------------------- ---------
At 31 March 2003 as previously reported 1,808.4
Reclassification of cost of shares held by ESOP trust in profit and
loss account at 31 March 2003 (6.5)
Reclassification of cumulative amortisation of ESOP shares at
31 March 2003 5.3
-------------------------------------- ---------
Net adjustment to reserves (1.2)
-------------------------------------- ---------
At 31 March 2003 (restated) 1,807.2
-------------------------------------- ---------
Year ended 31 March 2004
Profit and
loss
account
£m
-------------------------------------- ---------
At 31 March 2004 as previously reported 1,802.1
Reclassification of cost of shares held by ESOP trust in profit and
loss account (9.7)
Reclassification on amortisation of ESOP shares at 31 March 2003 5.3
Reclassification on amortisation of ESOP shares for the year
ended 31 March 2004 1.2
---------------------------------------- -------
Net adjustment to reserves (3.2)
---------------------------------------- -------
At 31 March 2004 (restated) 1,798.9
---------------------------------------- -------
8 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 2004
------------------------
---------- ----------
Weighted
average Per
number share
Earnings of shares amount
£m m pence
------------------------- --------- ---------- ----------
Basic earnings per share 78.1 344.5 22.7
Effect of dilutive options - 2.0 (0.2)
------------------------- --------- ---------- ----------
Diluted earnings per share 78.1 346.5 22.5
Adjusted earnings per share
-----------------------------------------------
Basic earnings per share 78.1 344.5 22.7
Effect of:
Exceptional integration costs - - -
Exceptional profit on disposal
of fixed assets - - -
Deferred tax 21.7 - 6.3
-----------------------------------------------
Adjusted basic earnings per
share before exceptional items
and deferred tax 99.8 344.5 29.0
------------------------- --------- ---------- ----------
Diluted earnings per share 78.1 346.5 22.5
Effect of:
Exceptional integration costs - - -
Exceptional profit on disposal
of fixed assets - - -
Deferred tax 21.7 - 6.3
-----------------------------------------------
Adjusted diluted earnings per
share before exceptional items
and deferred tax 99.8 346.5 28.8
------------------------- --------- ---------- ----------
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)
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)
Deferred tax 13.4 - 3.9
-----------------------------------------------
Adjusted diluted earnings per
share before exceptional items
and deferred tax 117.3 345.1 34.0
------------------------- -------- ---------- ----------
9 Interim Dividend
The Board has declared an interim dividend of 18.21p per ordinary share (2003:
17.77p) to be paid on 6 April 2005. The shares will be traded 'ex-dividend' with
effect from 15 December 2004.
The cost of the interim dividend amounts to £62.8 million (2003: £61.1 million).
10 Analysis of net debt
30 Sept 2004 30 Sept 2003 31 March 2004
£m £m £m
Cash at bank and in hand 33.9 48.8 44.5
Short-term deposits 41.0 31.6 70.8
Overdrafts (31.8) (32.1) (32.1)
Debt due within one year (361.3) (501.8) (442.4)
Debt due after one year (1,920.9) (1,681.8) (1,888.7)
Finance leases due within
one year (10.5) (10.2) (12.4)
Finance leases due after
one year (485.7) (493.8) (488.8)
---------- ---------- -----------
Net debt (2,735.3) (2,639.3) (2,749.1)
---------- ---------- -----------
11 Reconciliation of operating profit to operating cash flows
Six months Six months
ended ended
30 Sept 2004 30 Sept 2003
£m £m
Operating profit 208.4 209.3
Depreciation charge 159.8 151.3
Amortisation of goodwill 15.1 14.9
Profit on sale of tangible fixed assets*
(exceptional in prior period) (2.5) -
Profit on sale of investments (1.4) -
Deferred income movement (1.2) (1.6)
Provisions for liabilities and charges 8.5 12.3
Utilisation of provisions for liabilities
and charges (9.8) (11.2)
Movement in working capital 13.9 23.0
------------
----------
Net cash inflow from operating activities 390.8 398.0
---------- ------------
* See note 4.
12 Interim Statement
The interim report and accounts were approved by a committee of the Board of
Directors on 28 November 2004.
Further copies of this interim statement may be obtained from the Company
Secretary, Severn Trent Plc, 2297 Coventry Road, Birmingham B26 3PU.
13 Forward-Looking Statements
This document contains certain 'forward-looking statements' with respect to
Severn Trent's financial condition, results of operations and business, and
certain of Severn Trent's plans and objectives with respect to these items.
Forward-looking statements are sometimes, but not always, identified by their
use of a date in the future or such words as 'anticipates', 'aims', 'due',
'could', 'may', 'should', 'expects', 'believes', 'intends', 'plans', 'targets',
'goal' or 'estimates'. By their very nature forward-looking statements are
inherently unpredictable, speculative and involve risk and uncertainty because
they relate to events and depend on circumstances that will occur in the future.
There are a number of factors that could cause actual results and developments
to differ materially from those expressed or implied by these forward-looking
statements. These factors include, but are not limited to, changes in the
economies and markets in which the Group operates; changes in the regulatory and
competition frameworks in which the Group operates; the impact of legal or other
proceedings against or which affect the Group; and changes in interest and
exchange rates.
All written or verbal forward-looking statements, made in this document or made
subsequently, which are attributable to Severn Trent or any other member of the
Group or persons acting on their behalf are expressly qualified in their
entirety by the factors referred to above. Severn Trent does not intend to
update these forward-looking statements.
14 Not an offer
This document is not an offer to sell, exchange or transfer any securities of
Severn Trent Plc or any of its subsidiaries and is not soliciting an offer to
purchase, exchange or transfer such securities in any jurisdiction. Securities
may not be offered, sold or transferred in the United States absent registration
or an applicable exemption from the registration requirements of the US
Securities Act of 1933 (as amended).
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. This 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 2004.
PricewaterhouseCoopers LLP, Chartered Accountants, Birmingham
28 November 2004
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.
The Chairman's statement, Interim accounts, Interim results presentation and
webcast, are available on www.severntrent.com.
A large format version of the unaudited full interim accounts can be obtained by
writing to the Company Secretary, Severn Trent Plc, 2297 Coventry Road,
Birmingham B26 3PU.
This information is provided by RNS
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