7th Jun 2005 06:00
Severn Trent Plc7 June 2005Preliminary Results for the year to 31 March 2005SATISFACTORY GROUP RESULTSFinancial and operating highlightsGroup - 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 ‚£176.4mWater 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 investmentWaste 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 chargesWater 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 taxSir John Egan, Chairman Severn Trent Plc, said:"We have delivered an overall satisfactory result for 2004/05. The businessesare in overall good shape and the Board's confidence is reflected in our finalyear dividend increase of 3.5%. We have also advanced our dividend payment byone month to 31 August.""We are determined to ensure that customers get the benefit of high quality andcost effective services while investors receive an appropriate return.""We intend to maintain, as a minimum, dividends in real terms at least up to2009/10. Our objective is of course to do better than that with real growthover 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 twopriorities for myself and my management team. The first is to deliver theoperational performance required by the regulatory settlement for Severn TrentWater from 2005 to 2010. The second is to build on our waste company'soperational success story by re-focusing on organic growth and return oninvestment.""We are already analysing and scrutinising all our businesses in great detailboth to ensure continual improvement but also to be certain we can demonstratetheir 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 WebcastThere will be a preliminary results presentation at 9.30am on Tuesday 7 June2005. This presentation, together with the presentation slides, will beavailable 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 statementIn this Preliminary Results announcement: PBIT is profit before interest andtax; PBITA is profit before interest, tax and goodwill amortisation; PBITA* isPBITA excluding exceptional items; sales margins are based on PBITA*.Overall, the Severn Trent Group has delivered a satisfactory performance in2004/05, with Group profit before tax, goodwill amortisation and exceptionalitems 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) andGroup profit before tax was ‚£217.3m (‚£254.4m).Severn Trent Water continues to manage its costs actively and turnoverbenefited from the interim price determination awarded in 2003. Its PBITA* wasup 0.6% to ‚£339.9m after incremental pension charges of ‚£21.7m. Biffa's resultsinclude 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 afterincremental pension charges of ‚£0.6m. The Group's Belgian associate Aquafincontributed ‚£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 ‚£13.0mcharge for redundancy costs arising from Severn Trent Water's plans to meet theefficiency targets set in the AMP4 price review; a ‚£13.7m charge relating tothe closures of the Engineering consultancy business and of certain Systemsbusinesses; offset by a ‚£4.3m profit from the sale of the Group's interest inan associated company in Portugal; and a profit of ‚£7.6m from the sale of fixedassets in Water and sewerage.DividendThe Board is proposing a final dividend of 30.30p (29.27p) up 3.5%, in linewith the Board's dividend policy to maintain, as a minimum, Group dividends inreal terms at least up to 2009/10. This would give a total dividend for theyear of 48.51p, an increase of 3.1%. The final dividend payment date has beenadvanced by one month from last year and that dividend will now be paid on 31August.Operational ReviewWater and sewerageTurnover 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 allowedincrease in charges, including inflation, of 4.7%. Severn Trent Water earnedadditional turnover from a number of sources including increased consumptionand improved billing following the introduction of a new billing system. Thenew 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. PBITexcluding exceptional items was ‚£339.9m (‚£336.6m). Including an exceptionalcharge for restructuring costs of ‚£13.0m and an exceptional profit from thesale of fixed assets of ‚£7.6m (exceptional profit from the sale of fixed assetsof ‚£19.8m), PBIT was ‚£334.5m (‚£356.4m).Severn Trent Water anticipated operating cost increases in the final year ofAMP3 arising both from the completion of the AMP3 programme and from theincremental pension charges. Operating costs have arisen in accordance withthose expectations partly offset by Severn Trent Water's continued progress ondelivering operating cost efficiencies.Direct operating costs in 2004/05 (excluding corporate management charges) ofSevern Trent Water were ‚£420.1m, an increase of ‚£41.8m. This reflected a realincrease of ‚£29.7m after the incremental pension charges, or ‚£8.0m before suchcharges.Severn Trent Water continued to deliver efficiencies against its investmentprogramme for the five-year period 2000/01 to 2004/05. The approximate ‚£2 bnprogramme delivered average capex efficiencies over the AMP3 period of around5% as measured against the RPI index or around 13% as measured against theConstruction Output Price Index. In 2004/05, approximately ‚£452m was invested;the AMP3 regulatory outputs have been delivered. Severn Trent Water believesthat the timely and complete delivery of its capital programme is part of itsregulatory contract and its obligations to customers. Severn Trent Water hascontinued to deliver high levels of performance in terms of customer serviceand drinking water and wastewater quality, and was one of the five WASCS toreceive an overall performance assessment award in the Final Determination.As previously announced on 20 January 2005, Severn Trent Water accepted Ofwat'sFinal Price Determination for 2005-2010. Ofwat's publication "Future water andsewerage charges 2005-2010, Final Determination" includes much information butfor convenience we highlight only certain matters. Ofwat's financialprojections, prepared under Regulatory Accounting Guidelines, which underpinthe price limits, include the following five year aggregates (2005-10) in 2002/03 prices: turnover ‚£5,482m, operating costs ‚£2,062m, infrastructure renewalscharge ‚£394m, current cost depreciation ‚£1,199m, Return on capital (includingfinanceability and Overall Performance Assessment (OPA) enhancement) ‚£1,476m and taxation ‚£351m. The year-average regulatory capital value 'RCV' for eachyear 2005/06 to 2009/10, re-calibrated to 2002/3 average prices, (which is theRCV used for price setting), is:‚£m (2002-03 financial year 2005-06 2006-07 2007-08 2008-09 2009-10average prices) Regulatory capital value year-average 4,760 4,851 4,977 5,080 5,172The fully post tax weighted average cost of capital used to set prices was5.1%. 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 inthe 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 acash 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 openinggearing level, net debt to RCV, of 55% for 2005/06 and calculates for SevernTrent Water that this opening assumed gearing would increase to 58% by 31 March2010. 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 andidentified leading companies. Severn Trent Water was identified as being at theEfficiency Frontier for sewerage capital expenditure and within 5% of theEfficiency Frontier for water and sewerage operating expenditure and for watercapital expenditure. Consequently, it was at or close to the efficiencyfrontier in all the four defined efficiency areas for overall capital andoperating expenditure.Waste managementWaste management's turnover increased by 10.0% to ‚£696.3m. Turnover in the UKincreased 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. Goodwillamortisation 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 ofschedule. No further integration costs were incurred during the year. Theplanned annualised synergies from combining Hales with Biffa of ‚£7.5m are beingdelivered.In 2004/05, Collection turnover in the UK increased to ‚£394.2m (‚£360.6m). TheCollection division contributed a PBITA* of ‚£54.0m (‚£51.6m), up 4.7%. Salesmargins were lower at 13.7% (14.3%) in part reflecting the inclusion of thelower margin Hales business.Landfill turnover in the UK was up 9.9% to ‚£179.3m. PBITA* from the Landfilldivision was up 13.8% to ‚£38.7m (‚£34.0m). Landfill volumes were up by around5%. Unit revenues (excluding Landfill Tax) were up by around 5%.The Special Waste division in the UK, which includes the important powergeneration activity, delivered an 11.6% increase in turnover to ‚£56.0m andcontributed PBITA* of ‚£8.2m (‚£7.0m). Biffa has interests in around 101MW ofelectricity generation in the UK (including from Biffa sites leased to thirdparties).In Belgium, turnover increased by 12.8% to ‚£66.8m. Biffa Belgium's PBITA* was ‚£3.3m (‚£3.2m).LaboratoriesTurnover in Laboratories was down 4.4% to ‚£162.6m, but excluding the impact ofexchange rates turnover increased by 2.7%. Turnover in the USA (in US$) was upby 1.9% and turnover in the UK (in ‚£) was up by 6.4%. Around 82% ofLaboratories' turnover arose in the USA.Laboratories' PBITA* decreased by 30.9% to ‚£15.0m (‚£21.7m). Excluding theimpact of exchange rates, PBITA* decreased by 26.7%, or decreased 24.0% beforeincremental 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 theUS are challenging mainly because lower Federal environmental spending isdriving pricing pressure within the US environmental testing market. This wasonly partially offset by a strong performance from UK Laboratories.Water Purification and Operating ServicesTurnover 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 by20.6% or increased 24.1% before incremental pension charges of ‚£0.6m. Goodwillamortisation 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 theimpact of exchange rates turnover was down by around 1%.Turnover in Operating Services increased by 2.5% to ‚£131.4m, but excluding theimpact of exchange rates turnover was up by around 9%. Over half of this arosein the US based Contract Operations business whose turnover in US $ increasedby 9%. Operating Services includes the results of Aquafin, an associatedundertaking in Belgium, which provides sewerage services for Flanders, andwhich 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 ProjectAquatrine (Package C) - is for the provision of water and wastewater servicesto MoD sites in England. Project Aquatrine commenced on 30 March 2005.Other businesses: Systems, Property, Engineering consultancy and InsuranceTotal turnover for Systems decreased to ‚£53.4m (‚£63.6m). Systems' PBITA* was aloss 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). Thecharge arises from both the closure of the US CIS business (Systems willcontinue to market CIS and service existing clients from the UK), and thetermination of external sales of the UK IT Service business, which will berefocused entirely to provide solutions to internal Group companies. Theexceptional charge includes ‚£8.8m relating to goodwill that had previously beenwritten 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 reflectsthe 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 externalsales of the Group's Engineering consultancy business, PBIT was ‚£2.3m (‚£3.2m).The exceptional charge includes ‚£1.1m relating to goodwill that had previouslybeen written off directly to reserves.The aggregate incremental pension charges for the Other businesses amounted to‚£2.5m.Financial ReviewGroup ResultsGroup 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 TrentWater and Biffa which were partially offset by exchange rate impacts inLaboratories and Services and lower activity in Property.Group profit before interest, tax, goodwill amortisation and exceptional itemswas down 0.5% to ‚£438.6m (‚£440.6m).Goodwill amortisation was ‚£30.1m (‚£29.8m). There was a net exceptional chargeof ‚£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 decreaseof 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 taxrepresented ‚£40.9m (‚£33.3m) and deferred tax was ‚£36.9m (‚£36.3m). Minorityinterests 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, interestand tax charges. Basic earnings per share are 40.3p (53.5p).Operating activities generated a net cash inflow of ‚£699.2m (‚£733.1m). The maincash 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 sheetgearing 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 profitbefore interest, tax, depreciation, goodwill amortisation and exceptionalitems, and 2.3 times (2.4 times) PBIT before exceptionals.Exceptional itemsThere was a net exceptional charge in the year of ‚£14.8m, which reduced netassets 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 andproperty by Severn Trent Water; a ‚£2.7m credit from the release of part of theexceptional 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 managementfor Hales' integration costs.TaxationThe charge for current tax was ‚£40.9m (‚£33.3m), of which ‚£1.0m (‚£2.4m) wasattributable to exceptional items. The current tax charge of ‚£39.9mattributable to profit after interest and goodwill amortisation but beforeexceptional items is an effective rate of 17.2% (12.7%). The current tax ratehas benefited from an adjustment in respect of prior periods.PensionsSSAP24, the applicable standard for Severn Trent, uses the results of the lastformal actuarial valuations to determine the pension charge in the Group'saccounts. This principle has been followed in determining the Group's pensioncharge for 2004/05.The Group has four defined benefit pension schemes, of which the Severn TrentPension Scheme (STPS) is by far the largest. Formal actuarial valuations havebeen undertaken for the STPS and another scheme, the Severn Trent Senior StaffPension Scheme, as at 31 March 2004. As a result of these valuations there areincremental pension charges of ‚£31.3m for the Group in 2004/05.On an FRS17 basis, the estimated net position (before deferred tax) of all ofthe Group's defined benefit pension schemes and the Group's unfunded pensionliabilities for senior staff was a deficit of approximately ‚£309m as at 31March 2005. This compares to a deficit of approximately ‚£368m as at 31 March2004 with the value of assets increasing over the last year by a greater amountthan the value of liabilities. Net of deferred tax, the estimated net deficiton an FRS17 basis as at 31 March 2005 was approximately ‚£217m. On an FRS17basis, the funding level has improved from around 72% at 31 March 2004 toaround 78% at 31 March 2005.As at 31 March 2005 the Group's defined benefit pension schemes had totalassets of approximately ‚£1,079m, of which around 69% was invested in equities.Treasury managementThe Group's policy for the management of interest rate risk requires that noless than 50% of the group's borrowings should be at fixed interest rates, orhedged through the use of interest rate swaps or forward rate agreements. At 31March 2005, interest rates for some 66% of the Group's net debt of ‚£2,890.0mwere so fixed at a weighted average interest rate of 6% for a weighted averageperiod of 17.4 years.Exchange ratesApproximately 3.1% of the Group's PBITA* and 1.9% of its net operating assetsare denominated in US Dollars and approximately 3.6% of its PBITA* and 0.7% ofits net operating assets are denominated in Euros. The trading results ofoverseas subsidiaries are translated to sterling at the average rate ofexchange ruling during the year and their net assets are translated at theclosing rate on the balance sheet date.International Accounting StandardsThe Group continues to prepare for the adoption of IAS in 2005/06. Significantchanges are expected to arise for the accounting treatment of retirementbenefits, fixed assets and renewals accounting, deferred tax, dividends,goodwill and financial instruments. It is expected that the overall net impactwill be to reduce net assets and increase earnings volatility. Further detailswill be made available on 19 September 2005.Supplementary InformationFor supplementary information, including the Group's preliminary resultspresentation, see the Severn Trent web site (www.severntrent.com).OutlookThe finalisation of the AMP4 Determination provides greater certainty forSevern Trent Water going forward and sets challenging but clear financial andservice targets, which the Company is well positioned to deliver. Biffaanticipates organic growth within the competitive waste sector in the UK as aresult of its technology, its scale and through new opportunities driven bywaste legislation. Continued reduced Federal spending on the environment isexpected to continue the difficult market conditions for Laboratories in the USin 2005/6. The UK market for Laboratories is expected to remain strong. TheServices business is expected to continue to grow in line with favourablemarket conditions.The objective over the next five years is to ensure customers in the Group'sregulated and non-regulated businesses get the benefits of high quality andcost effective services while ensuring that investors receive an appropriatereturn.The Group is highly focused on improving operational performance and managementis already analysing and scrutinising all the businesses in greater detail bothto ensure continual improvement but also to be certain that management candemonstrate the businesses' value to the Group as a whole going forward.The Board of Severn Trent Plc intends to maintain, as a minimum, Groupdividends in real terms at least up to 2009/10. Shareholders can be confidentin this as a dividend 'floor' for the next five years. The objective is ofcourse to do better with real growth over the AMP4 period.Sir John EganChairmanGroup profit and loss accountYear 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 beforetaxation and the retained (loss)/profit for the financial years stated above,and their historical cost equivalents.Group balance sheetAt 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 statementYear 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 lossesYear 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 ----------------------------------------------------------------Notes1 Basis of preparationThe results for the year ended 31 March 2005 have been prepared on the basis ofaccounting policies consistent with those adopted for the year ended 31 March2004, as set out in the financial statements of the Group except that the Grouphas adopted UITF38 - "Accounting for ESOP Trusts" and UITF17 - "Employee ShareSchemes" (revised 2003). The Group balance sheet incorporates the shares heldby the Severn Trent Employee Share Ownership Trust (the Trust) which have notvested unconditionally at the balance sheet date. In line with UITF38, theconsideration paid for these shares is shown as a deduction in arriving atshareholders' funds whereas previously such shares were included withininvestments. The prior year figures have been restated accordingly. A deductionof ‚£1.2 million has been made to opening reserves at 31 March 2003. At 31 March2004, this has led to a ‚£3.2 million reduction in the value of investments inthe Group balance sheet, with a corresponding reduction in shareholders' funds.In addition ‚£3.2 million spent purchasing shares in 2003/04 has beenreclassified in the cash flow statement from Capital expenditure and financialinvestment to Financing.The results have been extracted from the audited financial statements of thegroup for the year ended 31 March 2005. These audited statements incorporate anunqualified audit report. The results do not constitute statutory accountswithin the meaning of Section 240 of the Companies Act 1985. Statutory accountsfor the year ended 31 March 2004, which incorporated an unqualified auditors'report, have been filed with the Registrar of Companies.2 Segmental analysisAnalysis of turnover and profit before interest by geographical origin and typeof businessIn previous years, Laboratories and Water Purification and Operating Serviceswere combined under the heading 'Services' and Systems was disclosed as aseparate segment. The directors consider that the segmental disclosure adoptedin 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 andInsurance.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 andInsurance.3 Exceptional itemsA 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 ‚£7.6million on disposal of fixed assets and a net loss on disposal and closure ofbusinesses of ‚£9.4 million.An exceptional charge of ‚£13.0 million arose during 2004/05 relating torestructuring of Severn Trent Water.The exceptional profit of ‚£7.6 million from the disposal of fixed assetsconsisted of a ‚£6.1 million profit on sale of land and buildings by SevernTrent 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 furtheranalysed below.Exceptional items in 2003/04 comprise a ‚£19.8 million profit from the disposalof fixed assets and a ‚£2.7 million credit from the release of part of anexceptional charge made in 2001/02, offset by a ‚£10.9 million charge for Hales'integration costsThe exceptional profit on disposal of fixed assets during 2003/04 of ‚£19.8million 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 ofintegration 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 inrespect 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'sinterest in its associated undertaking, Indaqua Industria e Gestao de Aguas.The loss on termination of operations arises from the decision to close one ofthe Group's US Systems businesses and to cease trading with external customersfor the Group's UK IT Services business and its Engineering consultancybusiness. It includes costs of closure of ‚£3.8 million and goodwill previouslywritten 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 exceptionalitems.6 DividendsAn interim dividend of 18.21p per ordinary share (2004: 17.77p) was paid on 6April 2005. The Board is proposing a final dividend of 30.30p per ordinaryshare (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 theyear ended 31 March 2005 amounts to ‚£167.4 million (2004: ‚£162.0 million).7 Earnings per shareBasic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares inissue during the year, excluding those held in the Severn Trent Employee ShareOwnership Trust which are treated as cancelled.For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all potentially dilutive ordinaryshares. These represent share options granted to employees, where the exerciseprice is less than the average market price of the company's shares during theyear.Supplementary, adjusted earnings per share figures are presented. These excludethe effects of exceptional items and deferred tax in both 2005 and 2004. TheDirectors consider that the adjusted figures provide a useful additionalindication 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.Related Shares:
Severn Trent