Final Results
Severn Trent Plc
7 June 2005
Preliminary Results for the year to 31 March 2005
SATISFACTORY GROUP RESULTS
Financial and operating highlights
Group
- Turnover up 3.3% to £2,081.2m (£2,015.1m)
- PBITA* down 0.5% to £438.6m (£440.6m) but up 6.7% before incremental
pension charges; PBIT of £393.7m (£422.4m)
- Profit* before tax and goodwill amortisation down 3.8% to £262.2m (£272.6m)
- Net exceptional charge of £14.8m (profit of £11.6m); PBT of £217.3m
(£254.4m)
- Adjusted basic EPS** down 9.4% to 55.6p (61.4p); Basic EPS of 40.3p (53.5p)
- Full year dividend increased by 3.1% to 48.51p (47.04p)
- Net debt £2,890m (£2,749m); interest costs up £8.4m to £176.4m
Water and sewerage
- Turnover up 6.1% to £1,015.1m (£956.7m)
- PBITA* up 0.6% to £339.9m (£337.9m); up 7.0% before incremental pension
charges
- Exceptional restructuring costs £13.0m and profit from fixed asset sales
£7.6m (profit from fixed asset sales £19.8m); PBIT of £334.5m (£356.4m)
- AMP3 regulatory outputs delivered; £452m of capital investment
Waste management
- Turnover up 10.0% to £696.3m (£633.1m)
- Turnover from Collection up 9.3%, Landfill up 9.9%, Special Waste up 11.6%
and Belgium up 12.8%
- PBITA* up 5.3% to £83.4m (£79.2m) up 10.5% before incremental pension
charges; PBIT of £60.5m (£47.0m)
Laboratories
- Turnover down 4.4% to £162.6m (£170.1m)
- PBITA* down 30.9% to £15.0m (£21.7m), down 28.1% before incremental pension
charges; PBIT of £10.9m (£17.7m)
- Excluding the impact of exchange rates, Laboratories' PBITA* down 26.7%;
down 24.0% before incremental pension charges
Water Purification and Operating Services, including Aquafin
- Turnover down 1.4% to £208.1m (£211.1m)
- PBITA* up 16.5% to £19.8m (£17.0m), up 20.0% before incremental pension
charges
- Excluding the impact of exchange rates and the associate Aquafin, Water
Purification and Operating Services' PBITA* up 52.4%. Up 61.9% before
incremental pension charges
- PBITA* from Aquafin £10.7m (£10.7m)
- Exceptional profit on sale of associated company £4.3m; PBIT of £21.0m
(£13.8m)
Other businesses
- Includes Systems, Property, Engineering consultancy and Insurance. Turnover
down 41.0% to £86.8m (£147.1m); PBITA* £4.8m (£5.5m)
- Systems' turnover down 16.0% to £53.4m (£63.6m); PBITA* loss £1.6m (profit
£2.3m)
- Property, Engineering consultancy and Insurance turnover down 60.0% to
£33.4m (£83.5m); with PBITA* £6.4m (£3.2m), of which Property contributed
turnover of £13.8m (£58.3m) and PBITA* of £11.4m (£8.9m)
- Exceptional charge on termination of operations £13.7m. PBIT loss of £8.9m
(profit £8.2m)
* excluding exceptional items ** excluding exceptional items and
deferred tax
Sir John Egan, Chairman Severn Trent Plc, said:
'We have delivered an overall satisfactory result for 2004/05. The businesses
are in overall good shape and the Board's confidence is reflected in our final
year dividend increase of 3.5%. We have also advanced our dividend payment by
one month to 31 August.'
'We are determined to ensure that customers get the benefit of high quality and
cost effective services while investors receive an appropriate return.'
'We intend to maintain, as a minimum, dividends in real terms at least up to
2009/10. Our objective is of course to do better than that with real growth
over the AMP4 period.'
Colin Matthews, Group Chief Executive Severn Trent Plc, said:
'After four months as Group Chief Executive I can lay out the top two
priorities for myself and my management team. The first is to deliver the
operational performance required by the regulatory settlement for Severn Trent
Water from 2005 to 2010. The second is to build on our waste company's
operational success story by re-focusing on organic growth and return on
investment.'
'We are already analysing and scrutinising all our businesses in great detail
both to ensure continual improvement but also to be certain we can demonstrate
their value to the Group as a whole going forward.'
Enquiries:
Colin Matthews Severn Trent Plc 020 7404 5959 (on the day)
Group Chief Executive 0121 722 4947
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
Preliminary Results Presentation and Webcast
There will be a preliminary results presentation at 9.30am on Tuesday 7 June
2005. 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 Preliminary 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*.
Overall, the Severn Trent Group has delivered a satisfactory performance in
2004/05, with Group profit before tax, goodwill amortisation and exceptional
items at £262.2m, a decrease of 3.8% after incremental pension charges of
£31.3m. Group profit before tax and exceptional items was £232.1m (£242.8m) and
Group profit before tax was £217.3m (£254.4m).
Severn Trent Water continues to manage its costs actively and turnover
benefited from the interim price determination awarded in 2003. Its PBITA* was
up 0.6% to £339.9m after incremental pension charges of £21.7m. Biffa's results
include a full year's contribution from the acquisition of Hales. Its PBITA*
was up 5.3% to £83.4m after incremental pension charges of £4.1m. Laboratories'
PBITA* was down 30.9% to £15.0m after incremental pension charges of £0.6m.
Excluding the impact of exchange rates, Laboratories' PBITA* was down 26.7%.
Water Purification and Operating Services' PBITA* was up 16.5% to £19.8m after
incremental pension charges of £0.6m. The Group's Belgian associate Aquafin
contributed £10.7m (£10.7m) to PBITA*. Excluding the impact of exchange rates,
Water Purification and Operating Services' PBITA* was up 20.6%. Overall,
Systems, Property, Engineering consultancy and Insurance PBITA* decreased to
£4.8m (£5.5m).
There was a net exceptional charge of £14.8m in the year, representing a £13.0m
charge for redundancy costs arising from Severn Trent Water's plans to meet the
efficiency targets set in the AMP4 price review; a £13.7m charge relating to
the closures of the Engineering consultancy business and of certain Systems
businesses; offset by a £4.3m profit from the sale of the Group's interest in
an associated company in Portugal; and a profit of £7.6m from the sale of fixed
assets in Water and sewerage.
Dividend
The Board is proposing a final dividend of 30.30p (29.27p) up 3.5%, in line
with the Board's dividend policy to maintain, as a minimum, Group dividends in
real terms at least up to 2009/10. This would give a total dividend for the
year of 48.51p, an increase of 3.1%. The final dividend payment date has been
advanced by one month from last year and that dividend will now be paid on 31
August.
Operational Review
Water and sewerage
Turnover from water and sewerage increased by 6.1% to £1,015.1m. Of this,
£999.3m arises in Severn Trent Water, an increase of 5.7%, from an allowed
increase in charges, including inflation, of 4.7%. Severn Trent Water earned
additional turnover from a number of sources including increased consumption
and improved billing following the introduction of a new billing system. The
new business ventures also showed further growth up to £15.8m (£11.6m).
PBITA* was up 0.6% to £339.9m after incremental pension charges of £21.7m. PBIT
excluding exceptional items was £339.9m (£336.6m). Including an exceptional
charge for restructuring costs of £13.0m and an exceptional profit from the
sale of fixed assets of £7.6m (exceptional profit from the sale of fixed assets
of £19.8m), PBIT was £334.5m (£356.4m).
Severn Trent Water anticipated operating cost increases in the final year of
AMP3 arising both from the completion of the AMP3 programme and from the
incremental pension charges. Operating costs have arisen in accordance with
those expectations partly offset by Severn Trent Water's continued progress on
delivering operating cost efficiencies.
Direct operating costs in 2004/05 (excluding corporate management charges) of
Severn Trent Water were £420.1m, an increase of £41.8m. This reflected a real
increase of £29.7m after the incremental pension charges, or £8.0m before such
charges.
Severn Trent Water continued to deliver efficiencies against its investment
programme for the five-year period 2000/01 to 2004/05. The approximate £2 bn
programme delivered 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 2004/05, approximately £452m was invested;
the AMP3 regulatory outputs have been delivered. 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
continued to deliver high levels of performance in terms of customer service
and drinking water and wastewater quality, and was one of the five WASCS to
receive an overall performance assessment award in the Final Determination.
As previously announced on 20 January 2005, Severn Trent Water accepted Ofwat's
Final Price Determination for 2005-2010. Ofwat's publication 'Future water and
sewerage charges 2005-2010, Final Determination' includes much information but
for convenience we highlight only certain matters. Ofwat's financial
projections, prepared under Regulatory Accounting Guidelines, which underpin
the price limits, include the following five year aggregates (2005-10) in 2002/
03 prices: turnover £5,482m, operating costs £2,062m, infrastructure renewals
charge £394m, current cost depreciation £1,199m, Return on capital (including
financeability and Overall Performance Assessment (OPA) enhancement) £1,476m
and taxation £351m. The year-average regulatory capital value 'RCV' for each
year 2005/06 to 2009/10, re-calibrated to 2002/3 average prices, (which is the
RCV used for price setting), is:
£m (2002-03 financial year 2005-06 2006-07 2007-08 2008-09 2009-10
average prices)
Regulatory capital value
year-average 4,760 4,851 4,977 5,080 5,172
The fully post tax weighted average cost of capital used to set prices was
5.1%. Ofwat enhanced this return by the OPA award noted above, of a 0.1%
increment to K in 2005/6 and a financing adjustment largely to be received in
the last 2 years 2008/9 and 2009/10, in accordance with the Ofwat methodology.
The methodology provides for projected taxation to be reimbursed through K on a
cash paid basis, leading to a lag in revenue particularly in the first year
whilst the tax charge is rising.
Ofwat's Determination assumes (in common with all other WASC's) an opening
gearing level, net debt to RCV, of 55% for 2005/06 and calculates for Severn
Trent Water that this opening assumed gearing would increase to 58% by 31 March
2010. Actual gearing for Severn Trent Water at 31 March 2005, net debt to RCV,
was 47.7%.
The Determination also included the latest relative efficiency analysis and
identified leading companies. Severn Trent Water was identified as being at the
Efficiency Frontier for sewerage capital expenditure and within 5% of the
Efficiency Frontier for water and sewerage operating expenditure and for water
capital expenditure. Consequently, it was at or close to the efficiency
frontier in all the four defined efficiency areas for overall capital and
operating expenditure.
Waste management
Waste management's turnover increased by 10.0% to £696.3m. Turnover in the UK
increased by 9.7% to £629.5m, while Belgian turnover increased by 12.8% to
£66.8m.
Biffa's PBITA* (including Biffa Belgium) was up 5.3% to £83.4m. Goodwill
amortisation was £22.9m (£21.3m). There was no exceptional charge (£10.9m).
PBIT was £60.5m (£47.0m).
There was an incremental pension charge of £4.1m for waste management in 2004/
05 to reflect the valuation of pension schemes (see Financial Review -
pensions).
Biffa completed the integration process of Hales in August 2004, ahead of
schedule. No further integration costs were incurred during the year. The
planned annualised synergies from combining Hales with Biffa of £7.5m are being
delivered.
In 2004/05, Collection turnover in the UK increased to £394.2m (£360.6m). The
Collection division contributed a PBITA* of £54.0m (£51.6m), up 4.7%. Sales
margins were lower at 13.7% (14.3%) in part reflecting the inclusion of the
lower margin Hales business.
Landfill turnover in the UK was up 9.9% to £179.3m. PBITA* from the Landfill
division was up 13.8% to £38.7m (£34.0m). Landfill volumes were up by around
5%. Unit revenues (excluding Landfill Tax) were up by around 5%.
The Special Waste division in the UK, which includes the important power
generation activity, delivered an 11.6% increase in turnover to £56.0m and
contributed PBITA* of £8.2m (£7.0m). Biffa has interests in around 101MW of
electricity generation in the UK (including from Biffa sites leased to third
parties).
In Belgium, turnover increased by 12.8% to £66.8m. Biffa Belgium's PBITA* was
£3.3m (£3.2m).
Laboratories
Turnover in Laboratories was down 4.4% to £162.6m, but excluding the impact of
exchange rates turnover increased by 2.7%. Turnover in the USA (in US$) was up
by 1.9% and turnover in the UK (in £) was up by 6.4%. Around 82% of
Laboratories' turnover arose in the USA.
Laboratories' PBITA* decreased by 30.9% to £15.0m (£21.7m). Excluding the
impact of exchange rates, PBITA* decreased by 26.7%, or decreased 24.0% before
incremental pension charges of £0.6m. Goodwill amortisation was £4.1m (£4.0m).
PBIT was £10.9m (£17.7m).
Laboratories' sales margin decreased to 9.2% (12.8%). Market conditions in the
US are challenging mainly because lower Federal environmental spending is
driving pricing pressure within the US environmental testing market. This was
only partially offset by a strong performance from UK Laboratories.
Water Purification and Operating Services
Turnover from Water Purification and Operating Services decreased by 1.4% to
£208.1m, but excluding the impact of exchange rates turnover increased by 5.2%.
Water Purification and Operating Services contributed a PBITA* of £19.8m
(£17.0m) up 16.5%. Excluding the impact of exchange rates, PBITA* increased by
20.6% or increased 24.1% before incremental pension charges of £0.6m. Goodwill
amortisation was £3.1m (£3.2m). Including an exceptional credit of £4.3m (£nil)
in respect of the disposal of an investment in an associated company, PBIT was
£21.0m (£13.8m).
Water Purification's turnover was down by 7.5% to £76.7m, but excluding the
impact of exchange rates turnover was down by around 1%.
Turnover in Operating Services increased by 2.5% to £131.4m, but excluding the
impact of exchange rates turnover was up by around 9%. Over half of this arose
in the US based Contract Operations business whose turnover in US $ increased
by 9%. Operating Services includes the results of Aquafin, an associated
undertaking in Belgium, which provides sewerage services for Flanders, and
which contributed PBITA of £10.7m (£10.7m).
The UK Ministry of Defence awarded a 25 year PFI contract worth approximately
£1 bn to a consortium between Severn Trent Water International and Costain,
called Coast to Coast Water. This ground-breaking deal - called Project
Aquatrine (Package C) - is for the provision of water and wastewater services
to MoD sites in England. Project Aquatrine commenced on 30 March 2005.
Other businesses: Systems, Property, Engineering consultancy and Insurance
Total turnover for Systems decreased to £53.4m (£63.6m). Systems' PBITA* was a
loss of £1.6m (profit of £2.3m). Its PBIT was a loss of £11.2m (profit of
£5.0m) after an exceptional charge of £9.6m (exceptional credit of £2.7m). The
charge arises from both the closure of the US CIS business (Systems will
continue to market CIS and service existing clients from the UK), and the
termination of external sales of the UK IT Service business, which will be
refocused entirely to provide solutions to internal Group companies. The
exceptional charge includes £8.8m relating to goodwill that had previously been
written off directly to reserves.
Total turnover from Property, Engineering consultancy and Insurance was £33.4m
(£83.5m) generating PBITA* of £6.4m (£3.2m). This increase in profits reflects
the disposal of the Group's interest in the development at Thorpe Park, Leeds.
After an exceptional charge of £4.1m arising from the termination of external
sales of the Group's Engineering consultancy business, PBIT was £2.3m (£3.2m).
The exceptional charge includes £1.1m relating to goodwill that had previously
been written off directly to reserves.
The aggregate incremental pension charges for the Other businesses amounted to
£2.5m.
Financial Review
Group Results
Group turnover was £2,081.2m (£2,015.1m), an increase of 3.3% over last year.
The growth in turnover was mainly due to the contributions of Severn Trent
Water and Biffa which were partially offset by exchange rate impacts in
Laboratories and Services and lower activity in Property.
Group profit before interest, tax, goodwill amortisation and exceptional items
was down 0.5% to £438.6m (£440.6m).
Goodwill amortisation was £30.1m (£29.8m). There was a net exceptional charge
of £14.8m (profit of £11.6m) - see below.
Group profit before interest, tax and exceptional items was £408.5m (£410.8m).
Group profit before interest and tax was £393.7m (£422.4m).
After net interest charges of £176.4m (£168.0m), Group profit before tax,
goodwill amortisation and exceptional items was down 3.8% to £262.2m (£272.6m).
Group profit before tax and exceptional items was £232.1m (£242.8m), a decrease
of 4.4%. Group profit before tax was £217.3m (£254.4m).
The total tax charge for the year was £77.8m (£69.6m) of which current tax
represented £40.9m (£33.3m) and deferred tax was £36.9m (£36.3m). Minority
interests were £0.7m (£0.7m). Profit after tax and minority interests was
£138.8m (£184.1m).
Earnings per share, adjusted to exclude exceptional items and deferred tax,
decreased by 9.4% to 55.6p (61.4p) as a result of increased pensions, interest
and tax charges. Basic earnings per share are 40.3p (53.5p).
Operating activities generated a net cash inflow of £699.2m (£733.1m). The main
cash outflows were capital expenditure and financial investment of £483.1m
(£484.3m), equity dividends of £162.0m (£157.7m) and net financing costs of
£151.3m (£148.3m). The increase in net debt was £140.9m (£243.5m).
Net debt at 31 March 2005 was £2,890.0m (£2,749.1m). Year end balance sheet
gearing is 57% (55%), and the Severn Trent Water net debt to RCV is 48% (49%).
The Group's net interest charge was covered 4.3 times (4.4 times) by profit
before interest, tax, depreciation, goodwill amortisation and exceptional
items, and 2.3 times (2.4 times) PBIT before exceptionals.
Exceptional items
There was a net exceptional charge in the year of £14.8m, which reduced net
assets by £4.9m. The loss comprised the net of:
- a charge of £13.0m for redundancy costs in Severn Trent Water in relation
to planned manpower reductions arising from the AMP4 price review;
- a charge of £13.7m, of which £9.9m relates to goodwill previously written
off to reserves, resulting from the closure of Systems' US CIS business and
the termination of external sales from Systems' UK IT Services business and
Engineering consultancy;
- a £4.3m credit from the disposal of the Group's investment in an associated
company in Portugal; and
- a £7.6m credit from the profit on sale of fixed assets in Severn Trent
Water.
In 2003/04 there was an exceptional profit of £11.6m comprising the net of a
£19.8m profit on the sale of fixed assets, arising from the sale of land and
property by Severn Trent Water; a £2.7m credit from the release of part of the
exceptional charge made in 2001/02 in respect of certain of Systems'
CIS-OpenVision contracts in the USA; and a charge of £10.9m in waste management
for Hales' integration costs.
Taxation
The charge for current tax was £40.9m (£33.3m), of which £1.0m (£2.4m) was
attributable to exceptional items. The current tax charge of £39.9m
attributable to profit after interest and goodwill amortisation but before
exceptional items is an effective rate of 17.2% (12.7%). 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 2004/05.
The Group has four defined benefit pension schemes, of which the Severn Trent
Pension Scheme (STPS) is by far the largest. Formal actuarial valuations have
been undertaken for the STPS and another scheme, the Severn Trent Senior Staff
Pension Scheme, as at 31 March 2004. As a result of these valuations there are
incremental pension charges of £31.3m for the Group in 2004/05.
On an FRS17 basis, the estimated net position (before deferred tax) of all of
the Group's defined benefit pension schemes and the Group's unfunded pension
liabilities for senior staff was a deficit of approximately £309m as at 31
March 2005. This compares to a deficit of approximately £368m as at 31 March
2004 with the value of assets increasing over the last year by a greater amount
than the value of liabilities. Net of deferred tax, the estimated net deficit
on an FRS17 basis as at 31 March 2005 was approximately £217m. On an FRS17
basis, the funding level has improved from around 72% at 31 March 2004 to
around 78% at 31 March 2005.
As at 31 March 2005 the Group's defined benefit pension schemes had total
assets of approximately £1,079m, of which around 69% was invested in equities.
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 31
March 2005, interest rates for some 66% of the Group's net debt of £2,890.0m
were so fixed at a weighted average interest rate of 6% for a weighted average
period of 17.4 years.
Exchange rates
Approximately 3.1% of the Group's PBITA* and 1.9% of its net operating assets
are denominated in US Dollars and approximately 3.6% of its PBITA* and 0.7% of
its net operating assets are denominated in Euros. The trading results of
overseas subsidiaries are translated to sterling at the average rate of
exchange ruling during the year and their net assets are translated at the
closing rate on the balance sheet date.
International Accounting Standards
The Group continues to prepare for the adoption of IAS in 2005/06. Significant
changes are expected to arise for the accounting treatment of retirement
benefits, fixed assets and renewals accounting, deferred tax, dividends,
goodwill and financial instruments. It is expected that the overall net impact
will be to reduce net assets and increase earnings volatility. Further details
will be made available on 19 September 2005.
Supplementary Information
For supplementary information, including the Group's preliminary results
presentation, see the Severn Trent web site (www.severntrent.com).
Outlook
The finalisation of the AMP4 Determination provides greater certainty for
Severn Trent Water going forward and sets challenging but clear financial and
service targets, which the Company is well positioned to deliver. Biffa
anticipates organic growth within the competitive waste sector in the UK as a
result of its technology, its scale and through new opportunities driven by
waste legislation. Continued reduced Federal spending on the environment is
expected to continue the difficult market conditions for Laboratories in the US
in 2005/6. The UK market for Laboratories is expected to remain strong. The
Services business is expected to continue to grow in line with favourable
market conditions.
The objective over the next five years is to ensure customers in the Group's
regulated and non-regulated businesses get the benefits of high quality and
cost effective services while ensuring that investors receive an appropriate
return.
The Group is highly focused on improving operational performance and management
is already analysing and scrutinising all the businesses in greater detail both
to ensure continual improvement but also to be certain that management can
demonstrate the businesses' value to the Group as a whole going forward.
The Board of Severn Trent Plc intends to maintain, as a minimum, Group
dividends in real terms at least up to 2009/10. Shareholders can be confident
in this as a dividend 'floor' for the next five years. The objective is of
course to do better with real growth over the AMP4 period.
Sir John Egan
Chairman
Group profit and loss account
Year ended 31 March 2005
2005 2004
-------------------
Notes £m £m
Turnover: group and share of joint ventures 2,084.2 2,018.5
Less: share of joint ventures' turnover (3.0) (3.4)
-----------------------------------------------------------------------
Group turnover 2 2,081.2 2,015.1
Operating costs before goodwill amortisation
and exceptional items (1,654.3) (1,586.4)
Goodwill amortisation 2 (30.1) (29.8)
Exceptional restructuring costs 2&3 (13.0) -
Exceptional integration costs 2&3 - (10.9)
Exceptional provision release 2&3 - 2.7
-----------------------------------------------------------------------
Total operating costs (1,697.4) (1,624.4)
Group operating profit 383.8 390.7
Share of operating profit of joint ventures
and associates 11.7 11.9
Exceptional net loss on sale and termination
of operations 3&4 (9.4) -
Exceptional profit on disposal of fixed
assets 2&3 7.6 19.8
------------------
Profit before interest, goodwill amortisation
and exceptional items 2 438.6 440.6
Goodwill amortisation 2 (30.1) (29.8)
------------------
Profit before interest and exceptional items 2 408.5 410.8
Exceptional items 2&3 (14.8) 11.6
------------------
Profit before interest 2 393.7 422.4
Net interest payable (176.4) (168.0)
-----------------------------------------------------------------------
Profit after interest before goodwill amortisation ------------------
and exceptional items 262.2 272.6
Goodwill amortisation 2 (30.1) (29.8)
------------------
Profit after interest before exceptional items 232.1 242.8
Exceptional items 2&3 (14.8) 11.6
------------------
Profit on ordinary activities before taxation 217.3 254.4
Taxation on profit on ordinary
activities - current tax 5 (40.9) (33.3)
- deferred tax 5 (36.9) (36.3)
-----------------------------------------------------------------------
Total taxation 5 (77.8) (69.6)
Profit on ordinary activities after taxation 139.5 184.8
Equity minority interests (0.7) (0.7)
-----------------------------------------------------------------------
Profit for the financial year 138.8 184.1
Dividends 6 (167.4) (162.0)
-----------------------------------------------------------------------
Retained (loss)/profit for the financial year (28.6) 22.1
-----------------------------------------------------------------------
Earnings per share (pence)
Basic 7 40.3 53.5
Diluted 7 40.0 53.3
Adjusted basic before exceptional items and
deferred tax 7 55.6 61.4
Adjusted diluted before exceptional items and
deferred tax 7 55.2 61.2
There is no difference between the profit on ordinary activities before
taxation and the retained (loss)/profit for the financial years stated above,
and their historical cost equivalents.
Group balance sheet
At 31 March 2005
2005 2004
Restated
---------------------
Fixed assets £m £m
Intangible assets
Goodwill 469.5 497.6
Other intangible assets 14.2 -
Tangible assets 5,440.6 5,278.0
------------------------------------------------------------------
Investments in joint ventures:
Share of gross assets 5.8 7.2
Share of gross liabilities (7.0) (6.5)
Loans to joint ventures 10.7 8.9
------------------------------------------------------------------
9.5 9.6
Investments in associates 16.3 17.7
Other investments 0.7 1.0
------------------------------------------------------------------
Total Investments 26.5 28.3
---------------------------------------------------------------------
5,950.8 5,803.9
Current assets
Stocks 66.0 80.4
Debtors 499.4 452.8
Short-term deposits 40.4 70.8
Cash at bank and in hand 50.4 44.5
---------------------------------------------------------------------
656.2 648.5
Creditors: amounts falling due within one year (1,225.5) (1,223.7)
---------------------------------------------------------------------
Net current liabilities (569.3) (575.2)
---------------------------------------------------------------------
Total assets less current liabilities 5,381.5 5,228.7
Creditors: amounts falling due after more than
one year (2,557.3) (2,440.6)
Provisions for liabilities and charges ---------------------
Deferred tax (499.8) (462.9)
Other provisions (124.4) (109.1)
---------------------
(624.2) (572.0)
---------------------------------------------------------------------
Net assets 2,200.0 2,216.1
---------------------------------------------------------------------
Capital and reserves
Called up share capital 225.8 225.2
Share premium account 38.4 33.5
Capital redemption reserve 156.1 156.1
Profit and loss account 1,777.8 1,798.9
---------------------------------------------------------------------
Total equity shareholders' funds 2,198.1 2,213.7
Minority shareholders' interest (equity) 1.9 2.4
---------------------------------------------------------------------
2,200.0 2,216.1
---------------------------------------------------------------------
Group cash flow statement
Year ended 31 March 2005
2005 2004
Restated
Notes £m £m £m £m
-----------------------------------
Net cash inflow from operating
activities 9 699.2 733.1
Dividends received from
associates and joint ventures 3.5 1.9
Returns on investments and
servicing of finance (151.3) (148.3)
Taxation (36.5) (19.5)
Capital expenditure and
financial investment (483.1) (484.3)
Acquisitions and disposals 3.4 (170.6)
Equity dividends paid (162.0) (157.7)
--------------------------------------------------------------------
Net cash outflow before use of
liquid resources and financing (126.8) (245.4)
Management of liquid resources 30.4 (45.2)
Financing
Increase in debt 106.1 283.1
Issue of shares 5.5 5.6
Shares purchased by employee
share trust (4.1) (3.2)
--------------------------------------------------------------------
107.5 285.5
--------------------------------------------------------------------
Increase/(decrease) in cash 11.1 (5.1)
--------------------------------------------------------------------
Reconciliation of net cash flow to movement
in net debt 2005 2004
Notes £m £m £m £m
-----------------------------------------
Increase/(decrease) in cash
(as above) 11.1 (5.1)
Cash flow from movement in net
debt and financing (106.1) (283.1)
Cash flow from movement in
liquid resources (30.4) 45.2
----------------------------------------------------------------------
Change in net debt resulting from
cash flows (125.4) (243.0)
Net cash assumed with acquisitions - 0.3
Movement in rolled up interest on
finance leases (7.5) 2.2
Currency translation differences 0.7 6.0
Other non cash items (8.7) (9.0)
----------------------------------------------------------------------
Increase in net debt (140.9) (243.5)
Opening net debt (2,749.1) (2,505.6)
----------------------------------------------------------------------
Closing net debt 8 (2,890.0) (2,749.1)
----------------------------------------------------------------------
Statement of total recognised gains and losses
Year ended 31 March 2005
2005 2004
----------------
£m £m
Profit for the financial year
- group 137.0 182.1
- joint ventures 0.1 0.6
- associates 1.7 1.4
----------------------------------------------------------------
Total profit for the financial year 138.8 184.1
Exchange movement on translation of overseas
results and net assets (4.0) (35.6)
Translation differences on foreign currency
hedging 0.8 10.3
Tax on translation difference on foreign currency
hedging (0.2) (3.1)
----------------------------------------------------------------
Total recognised gains and losses for the
year 135.4 155.7
----------------------------------------------------------------
Reconciliation of movements in shareholders' funds
2005 2004
Restated
--------------------
£m £m
Opening shareholders' funds as
previously reported 2,216.9 2,217.6
Prior year adjustment (see note 1) (3.2) (1.2)
----------------------------------------------------------------
Opening equity shareholders' funds
as restated 2,213.7 2,216.4
----------------------------------------------------------------
Profit for the financial year 138.8 184.1
Dividends (167.4) (162.0)
----------------------------------------------------------------
Retained (loss)/profit for the financial
year (28.6) 22.1
Other recognised gains and losses relating to
the year (3.4) (28.4)
Goodwill previously written off to reserves,
taken to profit and loss account on
termination of operations (see note 4) 10.7 -
Shares issued 5.5 5.6
Own shares purchased (4.1) (3.2)
Credit arising from own shares charge 4.3 1.2
----------------------------------------------------------------
Net reduction in shareholders' funds (15.6) (2.7)
----------------------------------------------------------------
Closing equity shareholders' funds 2,198.1 2,213.7
----------------------------------------------------------------
Notes
1 Basis of preparation
The results for the year ended 31 March 2005 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
has adopted UITF38 - 'Accounting for ESOP Trusts' and UITF17 - 'Employee Share
Schemes' (revised 2003). The Group balance sheet incorporates the shares held
by the Severn Trent Employee Share Ownership Trust (the Trust) which have not
vested unconditionally at the balance sheet date. In line with UITF38, the
consideration paid for these shares is shown as a deduction in arriving at
shareholders' funds whereas previously such shares were included within
investments. The prior year figures have been restated accordingly. A deduction
of £1.2 million has been made to opening reserves at 31 March 2003. At 31 March
2004, this has led to a £3.2 million reduction in the value of investments in
the Group balance sheet, with a corresponding reduction in shareholders' funds.
In addition £3.2 million spent purchasing shares in 2003/04 has been
reclassified in the cash flow statement from Capital expenditure and financial
investment to Financing.
The results have been extracted from the audited financial statements of the
group for the year ended 31 March 2005. These audited statements incorporate an
unqualified audit report. The results do not constitute statutory accounts
within the meaning of Section 240 of the Companies Act 1985. Statutory accounts
for the year ended 31 March 2004, which incorporated an unqualified auditors'
report, have been filed with the Registrar of Companies.
2 Segmental analysis
Analysis of turnover and profit before interest by geographical origin and type
of business
In previous years, Laboratories and Water Purification and Operating Services
were combined under the heading 'Services' and Systems was disclosed as a
separate segment. The directors consider that the segmental disclosure adopted
in the current year provides a more useful analysis of the Group's operations.
Other-principally
United Kingdom USA & Europe Group
----------------------------------------------------
2005 2004 2005 2004 2005 2004
Restated Restated Restated
--------------------------------------------------------------------------------
£m £m £m £m £m £m
Group turnover
Water and sewerage 1,015.1 956.7 - - 1,015.1 956.7
Waste management 629.5 573.9 66.8 59.2 696.3 633.1
Laboratories 30.0 28.2 132.6 141.9 162.6 170.1
Water purification and
operating services 32.6 35.4 175.5 175.7 208.1 211.1
Other businesses 76.1 132.0 10.7 15.1 86.8 147.1
Inter segment trading (86.9) (102.1) (0.8) (0.9) (87.7) (103.0)
--------------------------------------------------------------------------------
1,696.4 1,624.1 384.8 391.0 2,081.2 2,015.1
--------------------------------------------------------------------------------
Group profit before interest, goodwill amortisation
and exceptional items
Water and sewerage 339.9 337.9 - - 339.9 337.9
Waste management 80.1 76.0 3.3 3.2 83.4 79.2
Laboratories 4.7 4.6 10.3 17.1 15.0 21.7
Water purification and
operating services 0.8 - 19.0 17.0 19.8 17.0
Other businesses 8.2 6.6 (3.4) (1.1) 4.8 5.5
Unrealised profit on
inter segment trading (0.9) (2.4) - - (0.9) (2.4)
Corporate overheads (23.4) (18.3) - - (23.4) (18.3)
--------------------------------------------------------------------------------
409.4 404.4 29.2 36.2 438.6 440.6
--------------------------------------------------------------------------------
Goodwill amortisation (23.5) (23.2) (6.6) (6.6) (30.1) (29.8)
--------------------------------------------------------------------------------
Group profit before interest and exceptional items
Water and sewerage 339.9 336.6 - - 339.9 336.6
Waste management 57.3 54.9 3.2 3.0 60.5 57.9
Laboratories 4.0 3.8 6.9 13.9 10.9 17.7
Water purification and
operating services 0.8 - 15.9 13.8 16.7 13.8
Other 8.2 6.6 (3.4) (1.1) 4.8 5.5
Unrealised profit on
inter segment trading (0.9) (2.4) - - (0.9) (2.4)
Corporate overheads (23.4) (18.3) - - (23.4) (18.3)
--------------------------------------------------------------------------------
385.9 381.2 22.6 29.6 408.5 410.8
--------------------------------------------------------------------------------
Exceptional items
--------------------------------------------------------------------------------
Exceptional restructuring
costs-Water and sewerage (13.0) - - - (13.0) -
Exceptional profit on
disposal of fixed assets
- Water and sewerage 7.6 19.8 - - 7.6 19.8
Exceptional integration
costs - Waste management - (10.9) - - - (10.9)
Exceptional profit on
disposal of associate-Water
purification and operating
services - - 4.3 - 4.3 -
Exceptional contract
provision release
- Other businesses - - - 2.7 - 2.7
Exceptional loss on
termination of operations
- Other businesses (6.6) - (7.1) - (13.7) -
--------------------------------------------------------------------------------
(12.0) 8.9 (2.8) 2.7 (14.8) 11.6
--------------------------------------------------------------------------------
Group profit before interest
Water and sewerage 334.5 356.4 - - 334.5 356.4
Waste management 57.3 44.0 3.2 3.0 60.5 47.0
Laboratories 4.0 3.8 6.9 13.9 10.9 17.7
Water purification and
operating services 0.8 - 20.2 13.8 21.0 13.8
Other businesses 1.6 6.6 (10.5) 1.6 (8.9) 8.2
Unrealised profit on
inter segment trading (0.9) (2.4) - - (0.9) (2.4)
Corporate overheads (23.4) (18.3) - - (23.4) (18.3)
--------------------------------------------------------------------------------
373.9 390.1 19.8 32.3 393.7 422.4
--------------------------------------------------------------------------------
Turnover by origin and destination do not differ materially.
'Other businesses' comprises Systems, Property, Engineering consultancy and
Insurance.
Analysis of net operating assets by geographical location and type of business
Other -
principally
United Kingdom USA & Europe Group
---------------------------------------------------
2005 2004 2005 2004 2005 2004
Restated Restated Restated
----------------------------------------------------
£m £m £m £m £m £m
Water and
sewerage 4,866.5 4,726.1 - - 4,866.5 4,726.1
Waste management 270.2 257.8 18.2 21.4 288.4 279.2
Laboratories 8.3 - 57.6 59.9 65.9 59.9
Water purification and
operating services 25.5 15.5 66.6 64.6 92.1 80.1
Other businesses 48.8 15.0 (4.7) (2.0) 44.1 13.0
----------------------------------------------------
Net operating
assets 5,219.3 5,014.4 137.7 143.9 5,357.0 5,158.3
------------------------------------------------------------------------
Goodwill:
Waste management 370.2 390.7
Laboratories 64.0 67.8
Water purification and operating services 35.3 39.1
Short term deposits, cash, borrowings, taxation (3,626.5) (3,439.8)
and dividends payable
-------------------
2,200.0 2,216.1
-------------------
'Other businesses' comprises Systems, Property, Engineering consultancy and
Insurance.
3 Exceptional items
A net exceptional charge of £14.8 million arose in 2004/05. This comprises:
A £13.0 million charge relating to restructuring, an exceptional profit of £7.6
million on disposal of fixed assets and a net loss on disposal and closure of
businesses of £9.4 million.
An exceptional charge of £13.0 million arose during 2004/05 relating to
restructuring of Severn Trent Water.
The exceptional profit of £7.6 million from the disposal of fixed assets
consisted of a £6.1 million profit on sale of land and buildings by Severn
Trent Water and a £1.5 million profit on disposal of a fixed asset investment.
In addition to this, a net loss on sale and termination of operations of £9.4
million arose. This is further analysed in note 4.
A net exceptional credit arose during 2003/04 of £11.6 million. This is further
analysed below.
Exceptional items in 2003/04 comprise a £19.8 million profit from the disposal
of fixed assets and a £2.7 million credit from the release of part of an
exceptional charge made in 2001/02, offset by a £10.9 million charge for Hales'
integration costs
The exceptional profit on disposal of fixed assets during 2003/04 of £19.8
million relates to the disposal of land and property by Severn Trent Water,
which is disclosed on the face of the profit and loss account.
Operating costs in 2003/04 include a £10.9 million charge in respect of
integration costs associated with the acquisition of Hales. This is offset by a
£2.7 million release of part of the £25.0 million charge made in 2001/02 in
respect of certain Systems' CIS-OpenVision contracts in the USA.
4 Net loss on sale and termination of operations
2005 2004
£m £m
-------- --------
Profit on sale of operations 4.3 -
Loss on termination of operations (13.7) -
-------- --------
(9.4) -
-------- --------
The profit on sale of operations arose from the disposal of the Group's
interest in its associated undertaking, Indaqua Industria e Gestao de Aguas.
The loss on termination of operations arises from the decision to close one of
the Group's US Systems businesses and to cease trading with external customers
for the Group's UK IT Services business and its Engineering consultancy
business. It includes costs of closure of £3.8 million and goodwill previously
written off directly to reserves of £9.9 million.
5 Taxation
2005 2004
£m £m
Current tax
UK corporation tax - current year at 30% 48.4 39.0
UK corporation tax - prior year (12.7) (8.3)
Double taxation relief (0.4) (0.6)
Overseas taxation - current year 3.2 1.9
Overseas taxation - prior year 1.2 -
Share of taxation charges of joint ventures
and associates 1.2 1.3
---------------
Total current tax 40.9 33.3
Deferred tax 36.9 36.3
---------------
Total tax charge 77.8 69.6
---------------
Of the current tax charge for 2004/05, £1.0 million (2003/04: £2.4 million)
relates to tax charges arising on exceptional items.
The group's current tax charge of £39.9 million (2004: £30.9 million), excluding
£1.0 million (2004: £2.4 million) of tax on exceptional items, represents 17.2%
(2004: 12.7%) of the group's profit after interest but before exceptional
items.
6 Dividends
An interim dividend of 18.21p per ordinary share (2004: 17.77p) was paid on 6
April 2005. The Board is proposing a final dividend of 30.30p per ordinary
share (2004: 29.27p) to be paid on 31 August 2005. The shares will be traded
'ex-dividend' with effect from 22 June 2005.
The cost of the proposed equity dividends to the company's shareholders for the
year ended 31 March 2005 amounts to £167.4 million (2004: £162.0 million).
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 year, excluding those held in the Severn Trent Employee Share
Ownership Trust which are treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all 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
year.
Supplementary, adjusted earnings per share figures are presented. These exclude
the effects of exceptional items and deferred tax in both 2005 and 2004. The
Directors consider that the adjusted figures provide a useful additional
indication of performance.
Year ended 31 March 2005 Year ended 31 March 2004
---------------------------------------------------
Weighted Weighted
average average
number Per number Per
of share of share
Earnings shares amount Earnings shares amount
£m m pence £m m pence
---------------------------------------------------------------------------
Basic earnings per
share 138.8 344.7 40.3 184.1 343.8 53.5
Effect of dilutive
options - 2.5 (0.3) - 1.5 (0.2)
---------------------------------------------------------------------------
Diluted earnings per
share 138.8 347.2 40.0 184.1 345.3 53.3
---------------------------------------------------------------------------
Adjusted earnings per share
---------------------------------------------------------------------------
Basic earnings per
share 138.8 344.7 40.3 184.1 343.8 53.5
Effect of:
Exceptional profit on
disposal of fixed assets (7.6) - (2.2) (19.8) - (5.8)
Exceptional
restructuring costs 13.0 - 3.8 - - -
Exceptional
integration costs - - - 10.9 - 3.2
Exceptional net loss on
sale and termination of
operations 9.4 - 2.7 - - -
Exceptional contract
provision release - - - (2.7) - (0.8)
Tax related to
exceptional items 1.0 - 0.3 2.4 - 0.7
Deferred tax 36.9 - 10.7 36.3 - 10.6
---------------------------------------------------------------------------
Adjusted basic earnings per
share before exceptional
items and deferred tax 191.5 344.7 55.6 211.2 343.8 61.4
---------------------------------------------------------------------------
Diluted earnings per
share 138.8 347.2 40.0 184.1 345.3 53.3
---------------------------------------------------------------------------
Effect of:
Exceptional profit on
disposal of fixed assets (7.6) - (2.2) (19.8) - (5.7)
Exceptional
restructuring costs 13.0 - 3.8 - - -
Exceptional
integration costs - - - 10.9 - 3.2
Exceptional net loss on
sale and termination
of operations 9.4 - 2.7 - - -
Exceptional contract
provision release - - - (2.7) - (0.8)
Tax related to
exceptional items 1.0 - 0.3 2.4 - 0.7
Deferred tax 36.9 - 10.6 36.3 - 10.5
---------------------------------------------------------------------------
Adjusted diluted earnings
per share before exceptional
items and deferred tax 191.5 347.2 55.2 211.2 345.3 61.2
---------------------------------------------------------------------------
8 Analysis of net debt
2005 2004
£m £m
Cash at bank and in hand 50.4 44.5
Short-term deposits 40.4 70.8
Overdrafts (26.4) (32.1)
Debt due within one year (436.6) (442.4)
Debt due after one year (2,017.2) (1,888.7)
Finance leases due within one year (23.5) (12.4)
Finance leases due after one year (477.1) (488.8)
----------------------
Net debt (2,890.0) (2,749.1)
----------------------
9 Reconciliation of operating profit to operating cash flows
2005 2004
£m £m
Operating profit 383.8 390.7
Depreciation charge 319.9 299.9
Amortisation of intangibles 0.2 -
Amortisation of goodwill 30.1 29.8
Deferred income movement (1.4) (2.1)
Provisions for liabilities and charges 33.5 23.1
Utilisation of provisions for liabilities
and charges (25.5) (28.6)
Movement in working capital (41.4) 20.3
-----------------
Net cash inflow from operating activities 699.2 733.1
-----------------
10 Annual Report
The 2005 Annual Report will be sent to shareholders in late June. Copies may be
obtained from the Company Secretary, Severn Trent Plc, 2297 Coventry Road,
Birmingham B26 3PU.
11 Annual General Meeting
The Annual General Meeting will be held at the International Convention Centre,
Birmingham, on 26 July 2005 at 11.00am.
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
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.
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).
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