TIDMSVT
RNS Number : 9932N
Severn Trent PLC
22 May 2015
Preliminary Announcement of Annual Results
22 May 2015
Results for the year to 31 March 2015
Successful end to AMP5, ready for AMP6
Highlights
-- Good financial performance:
o Adjusted EPS up 15.9% year on year
o Underlying group PBIT GBP540.3 million, up 3.2% year on
year
o Reported group PBIT up 2.6% year on year
-- Focus on operational improvement
o Improved or stable performance on 12 out of 14 Ofwat KPIs year
on year
o Achieved target of 10% reduction in leakage over AMP5
-- Invested a further GBP547.4 million to complete AMP5
programme of GBP2.6 billion; RCV(1) GBP7.7 billion at April
2015
-- Customer bills remain the lowest in Britain at an average
combined bill of GBP329 for 2015/16
-- Severn Trent Services re-focused - disposal of Water
Purification business (US$ 81.2 million(2) )
-- Industry leader in renewable energy - self generation
equivalent to 28% of Severn Trent Water's energy needs
-- Reported group PBT GBP148.2 million, reflecting fair value losses on financial instruments
-- Well positioned for AMP6
o Largest investment programme ever - GBP3.3(3) billion capital
investment
o New organisational structure and management team
o GBP300 million of GBP372 million(3) target efficiencies
already locked in
o Focused on outperformance
o 2015/16 dividend 80.66 pence, followed by annual growth of no
less than RPI until 2020
1. Regulatory Capital Value
2. Severn Trent Plc share of total enterprise value. See announcement 13 May 2015
3. At 12/13 prices
Liv Garfield, Chief Executive Severn Trent Plc, said:
"I am pleased to have closed out AMP5 with a good all round
performance. Underlying group PBIT was up 3.2% year on year to
GBP540.3 million. Our focus remains on the customer and with
average bills falling year on year and the lowest average bills in
Britain until at least 2020, our customers are receiving good value
for money. We are pleased to have launched our "Big Difference
Scheme", helping more customers who struggle to pay their bill over
the next five years.
Our performance over the last year has also demonstrated where
we are strong and the areas we need to focus on to drive
improvement. Water quality remains a key focus area for us. We have
hit our target of a 10% reduction in leakage over AMP5 and improved
our customer service performance, creating 100 new front line roles
in the process.
We've made some significant cultural and operational changes to
get our business in the best possible shape for AMP6. As a result,
we are facing the future with confidence, despite one of the
toughest price settlements in our history. The strategy we have put
in place over the last year is designed to deliver an outstanding
customer experience, the best value service and environmental
leadership. In doing so we will create long term value for our
customers, our communities and our investors.
We have also re-focused our non-regulated business on our core
activities - operating water and waste water assets, retail and
renewables - leading to the sale of the Water Purification
business. I would like to thank all of my colleagues for the work
they have done over the last 12 months to get our business ready
for what has the potential to be a fantastic five years ahead of
us."
Group Results
Underlying performance 2015 2014 Increase/
Restated(4) (decrease)
GBPm GBPm
--------------------------- -------- ------------ ------------
Group turnover 1,801.3 1,756.7 2.5%
Underlying group PBIT(1) 540.3 523.8 3.2%
Underlying group profit
before tax(2) 300.4 276.1 8.8%
--------------------------- -------- ------------ ------------
pence/ pence/
share share
--------------------------- -------- ------------ ------------
Adjusted basic eps from
continuing operations(3) 107.2 92.5 15.9%
Total ordinary dividends 84.90 80.40 5.6%
--------------------------- -------- ------------ ------------
Reported results 2015 2014 Increase/
Restated(4) (decrease)
GBPm GBPm
--------------------------- -------- ------------ ------------
Group PBIT 521.6 508.6 2.6%
Group profit before tax 148.2 318.9 (53.5%)
Group profit for the year 120.2 434.9 (72.4%)
--------------------------- -------- ------------ ------------
pence/ pence/
share share
--------------------------- -------- ------------ ------------
Basic earnings per share 49.9 182.1 (72.6%)
--------------------------- -------- ------------ ------------
(1) before exceptional items (see note 3)
(2) before exceptional items and gains/losses on financial
instruments
(3) before exceptional items, gains/losses on financial
instruments and deferred tax
(4) restated due to discontinued operations (see note 1)
Enquiries:
0207 353 4200
Liv Garfield Severn Trent Plc (on the day)
Chief Executive 02477 715000
0207 353 4200
James Bowling Severn Trent Plc (on the day)
Chief Financial
Officer 02477 715000
0207 353 4200
John Crosse Severn Trent Plc (on the day)
Head of Investor
Relations 02477 715000
0207 353 4200
Rob Salmon Severn Trent Plc (on the day)
Head of Communications 02477 715000
Martha Walsh/Chris
Hughes Tulchan Communications 0207 353 4200
Preliminary Results Presentation and Webcast
There will be a presentation of these results at 9:30am on
Friday 22 May at BAFTA, 195 Piccadilly, London W1J 9LN. This
presentation will be available as a simultaneous webcast on the
Severn Trent website (www.severntrent.com) and will remain on the
website for subsequent viewing.
Chief Executive's Review
The past year has been one of change. Back in May 2014 I
outlined my focus areas for the year - transforming our culture,
driving operational excellence, putting customers at the heart of
what we do, managing a successful price review and getting the
business ready to deliver in AMP6. The changes we have made over
the last year have been built on those foundations.
I have been out to meet everyone in our business personally, to
listen to their views and share our vision of the kind of company
we want to create. We have a new executive team and new
organisational structure, with fewer management layers, meaning we
will be a more responsive business.
We have maintained a constructive dialogue with Ofwat and our
final determination, whilst tough, is one we believe we can
outperform against. For customers, we continue to have the lowest
bills in Britain and have again improved our levels of customer
service. We have also continued to drive operational improvements,
with 12 out of 14 Ofwat KPIs stable or improving year on year. This
puts us in a good position for the new era of outcome delivery
incentives. Over the past 5 years we have reinvested over GBP250
million for the benefit of customers.
As outlined at our capital markets day, the changes we have made
mean we are ready for AMP6, and we have now locked in GBP300
million of our target efficiencies for AMP6 of GBP372 million
(12/13 prices).
Regulated - Severn Trent Water
Severn Trent Water delivered a good financial performance in
2014/15, with growth of 3.9% to GBP539 million in underlying PBIT
year on year. Turnover was stronger than expected due to higher
measured consumption, increasing 2.4%, to GBP1,581 million. We have
had at or below inflation increases in our customer bills for six
consecutive years, and Severn Trent Water's customers continue to
benefit from the lowest average combined water and sewerage bills
in Britain.
We have made improvements in managing our bad debt, reducing the
bad debt charge to 2.0% of turnover, one of the lowest levels in
the industry through better credit management.
We also continue to offer customers support through a wide range
of social tariff and support options such as the WaterSure and
WaterDirect tariffs, the Severn Trent Trust Fund, and bill
reductions for single occupiers.
We successfully completed our GBP2.6 billion AMP5 capital
programme, with investment over the year of GBP547 million (UK
GAAP, net of grants and contributions), improving our trunk mains,
cleansing sewers, and investing more at our water treatment works
to deliver further operational improvements. Over AMP5 our RCV has
grown by 21% or GBP1.3 billion, to reach GBP7,683 million at 1
April 2015. We also made some early investments for our AMP6
programme, bringing forward GBP15m of capital expenditure and
progressing with our Birmingham resilience project by concluding
our first land purchases.
During the year we made good progress on a number of Ofwat's key
performance indicators (KPIs), including a 20% decline in internal
sewer flooding incidents, pollution incidents down by 18%, a 4%
reduction in greenhouse gas emissions and a 38% reduction in supply
interruptions greater than 3 hours. We also delivered on our
leakage reduction target of 10% over the AMP5 regulatory period and
saw improvement in our customer service levels, with our SIM
(Service Incentive Mechanism) quantitative score improving for the
third year in a row and our qualitative score, based on Ofwat's new
methodology, placing us sixth among 18 companies in our sector, up
from thirteenth last year. During the year we created 100 new front
line roles and have had a real focus on resolving customer issues
faster. The number of written complaints has decreased by 22%, but
still need to continue improving our performance.
Water quality remains a key focus for us. We provide our
customers with very high quality water, achieving 99.96%
compliance, but we want to be even better. We are implementing a
seven point improvement plan and prioritising GBP35 million of
investment to water quality. The investment will replace and
refurbish water quality assets, as well as provide a greater degree
of resilience in both our networks and our water treatment
works.
We will continue to focus on reducing sewer blockages and whilst
our performance improved by over 8% year on year, it remains above
the challenging target agreed with Ofwat.
Of the 20 serviceability measures, these two are performing
below our expectations and have led to a marginal serviceability
assessment for sewerage infrastructure and deteriorating for water
non-infrastructure for this year. Serviceability on both sewerage
non-infrastructure and water infrastructure is assessed as stable.
The serviceability assessments are consistent with the AMP5 legacy
adjustments to RCV in the Final Determination.
From 2015/16 we will be reporting on our performance against our
27 ODIs (Outcome Delivery Incentives) and 45 associated performance
commitments and any associated rewards or penalties.
Prepared for AMP6
We accepted Ofwat's final determination in January. This means
that our customers will continue to have the lowest combined
average bills in the land until at least 2020. We are also making
provision to help four times as many customers who struggle to pay
their bill over the next five years and we have launched our new
"Big Difference Scheme" in partnership with the Citizens Advice
Bureau, offering eligible customers discounts on their bill.
Over the next 5 years we are committed to our largest ever five
year expenditure programme, totalling GBP6.2 billion (12/13
prices), the majority of which will help to support the economy in
the Midlands. This includes our largest ever capital investment
programme of GBP3.3 billion (12/13 prices) to improve service and
quality for customers. Our RCV is expected to grow to c. GBP9.6
billion by 2020(1) .
In accepting Ofwat's final determination, we also took the
opportunity to look at the implications for our capital structure
and dividend policy. After careful consideration, we decided to
reduce the dividend by 5% in the 2015/16 financial year, with a
policy of growth in subsequent years by at least RPI until 2020. We
also announced that we would commence a GBP100 million share buy
back programme in order to move closer to Ofwat's guideline 62.5%
gearing. To date, this programme is around 40% complete, with the
remaining shares expected to be repurchased by November this
year.
Over the year we made important organisational changes,
including significant reductions in our cost base and de-layering
of management levels, which will deliver GBP100 million of savings
in AMP6. At our capital markets day in March we outlined an
additional GBP100 million of supply chain efficiencies, and today
we are pleased to announce a further GBP100 million, which includes
a new single supplier contract on waste water and additional
contracts delivering further capital efficiencies. This equates to
GBP300 million of efficiencies already locked in for the coming
five year period, demonstrating excellent progress towards the
GBP372 million (12/13 prices) target in our final determination. We
will relentlessly pursue further efficiency opportunities in our
drive to outperform our AMP6 targets.
We've worked hard over the last 12 months to ensure we're
prepared. It's the start of a brand new regulatory period and we
feel we're in a good place. The strategy we have implemented over
the last year is designed to deliver an outstanding customer
experience, the best value service and environmental leadership. In
doing so, we will create long term value for our customers, our
communities and our investors.
1. Assumes average of 2.7% year end RPI for 2015-2020, based on
Office of Budget Responsibility forecasts
Non-regulated - Severn Trent Services
As outlined at our capital markets day, we have reorganised and
brought together our non-regulated businesses - Operating Services
US, Operating Services UK (including Severn Trent Water
non-household retail), and renewable energy - into a new "Business
Services" division. As part of this reorganisation, Water
Purification was considered non-core and as a result we have sold
this business. While we have delivered on our commitment to return
the Water Purification business to profitable growth this year, the
business is best placed to fulfil its future potential under a new
owner. These operations have been classified as discontinued in our
reported results.
This reorganisation will allow the management team to focus on
creating value from our core activities - operating water and waste
water assets, retail and renewables.
Operating Services saw revenue grow year on year, driven by
contract wins in the US and new business wins in the UK, including
a 10 year contract with the Coal Authority. The Ministry of Defence
contract also continued to perform well. Investment in business
development in US concessions impacted profit year on year, and we
have taken the opportunity to reduce the cost base of this
business, the benefits of which will be seen next year. This, along
with a number of one-off favourable items in the prior year,
resulted in lower underlying PBIT in 2014/15.
We announced in March a GBP190 million investment in renewable
energy to take self generation from an equivalent 28% of Severn
Trent Water's gross energy consumption to around 50% by 2020. We
are already making good progress on this - we were trending towards
30% as an exit rate position for 2014/15 and we will commission and
build our first solar arrays this year. Our wind turbines at Derby
are now turning, and we are on track to produce 25 GWh p.a. from
wind by March 2016. Our food waste anaerobic digestion plant at
Coleshill is ahead of plan, with 14 GWh planned generation in
2015/16 and our next site is well on track.
Technical Guidance 2015/16
Regulated business
Prices at Severn Trent Water decreased by 1.8% from April
2015
Wholesale Totex (total expenditure) is expected to be GBP1,030
million to GBP1,060 million, of which 34.7% will be capitalised
onto the RCV.
Operating costs under IFRS are expected to be lower year on year
due to the impact of the organisational changes and the supply
chain efficiencies already secured.
We estimate net capital expenditure (cash) under IFRS will be
GBP410 million to GBP430 million. In addition, we expect a further
GBP125 million to GBP135 million of net infrastructure renewals
expenditure, which will be charged to the income statement.
Business Services
From 2015/16 onwards, we will report a new segment called
"Business Services", which will include our Operating Services
business in the US and UK (including Severn Trent Water
non-household retail) and the non-regulated part of our renewables
business.
For 2015/16 we expect growth in revenues and PBIT.
Group
The group interest charge is expected to be higher year on year,
with lower average interest costs offset by a higher level of net
debt.
The effective current tax rate for the group for 2015/16 is
expected to be between 17% and 19%.
As announced on 28 January 2015 the dividend is set to be 80.66p
for 2015/16. The Board's policy is then to grow the dividend
annually by at least RPI until March 2020.
A Q1 trading update will be published on the date of our AGM,
Wednesday 15 July 2015.
Severn Trent Plc will announce its Interim results for the
period ending 30 September 2015 on 26 November 2015.
Chief Financial Officer's Review
The group has delivered a good financial performance in 2014/15,
underpinned by continuing improvements and growth in our regulated
business, and continued revenue growth in our non-regulated Severn
Trent Services business.
On 13 May we announced the sale of our Water Purification
business to Industrie De Nora. The disposal follows a successful
turnaround of the business, and will enable our reorganised
Business Services division to focus on its core strengths in water,
waste, retail and renewables. The Water Purification business has
been classified as a discontinued operation, and our prior year
results have been restated to reflect this.
We made some important changes to our financing structure at the
end of the year, to reduce short term financing risk and increase
exposure to currently low floating interest rates. These included
replacing our revolving credit facility with a new GBP900 million
facility and negotiating and drawing down on a new GBP530 million
EIB facility. In addition, we cancelled some floating to fixed
interest rate swaps and purchased EUR183 million of our fixed rate
EUR700 million Eurobond loan, due for repayment in March 2016,
which resulted in a one time financing charge of GBP6.6 million in
2014/15. As a result, we have reduced the interest cost on GBP415
million of debt and swaps from an average interest rate of 5.1% to
a floating rate, currently 1%. This has moved the proportion of our
debt that is at floating rates to 10%, in line with our stated
policy for AMP6 to increase the level of variable rate debt.
Further details are set out in the Treasury management and
liquidity section below.
A brief overview of our financial performance for the year is as
follows:
Group turnover from continuing operations was GBP1,801.3 million
(2013/14: GBP1,756.7 million), an increase of 2.5%.
Underlying PBIT(1) increased by 3.2% to GBP540.3 million
(2013/14: GBP523.8 million).
Net exceptional charges before tax totalled GBP18.7 million
(2013/14: GBP15.2 million).
Reported group PBIT(1) was GBP521.6 million (2013/14: GBP508.6
million).
Net finance costs were GBP240.0 million (2013/14: GBP247.9
million).
(1) PBIT is profit before interest and tax; underlying PBIT
excludes exceptional items as set out in note 3.
Regulated - Severn Trent Water
In Severn Trent Water, underlying PBIT increased by 3.9% to
GBP539.0 million (2013/14: GBP518.6 million).
Turnover increased by GBP36.4 million, or 2.4% to GBP1,581.2
million as a result of price increases of 1.5% (GBP23.0 million);
higher consumption from metered commercial customers (GBP1.9
million); growth, net of meter optants (GBP1.0 million) and other
increases including tariff mix effects of GBP10.5 million.
Operating costs, excluding depreciation and infrastructure
maintenance expenditure, increased in line with expectations by
3.1% to GBP619.1 million.
2015 2014 Increase/ (decrease)
GBPm GBPm GBPm %
------------------------------- ------- ------- ----------- ----------
Employee costs 248.4 242.0 6.4 2.6
Hired and contracted 163.8 154.1 9.7 6.3
Costs capitalised (92.4) (92.6) 0.2 (0.2)
Raw materials and consumables 47.4 42.5 4.9 11.5
Power 63.9 65.3 (1.4) (2.1)
Bad debts 28.4 31.3 (2.9) (9.3)
Rates and service charges 113.2 112.3 0.9 0.8
Other 46.4 45.4 1.0 2.2
------------------------------- ------- ------- ----------- ----------
619.1 600.3 18.8 3.1
------------------------------- ------- ------- ----------- ----------
Employee costs were 2.6% higher, broadly in line with annual pay
inflation. The benefits of the recent re-organisation, which
included a reduction of 500 roles, will be seen from 2015/16. Hired
and contracted costs were 6.3% higher as we invested in key
operational areas, such as sewer blockages and mains cleaning, to
make a fast start in AMP6. The benefits of this will flow through
to 2015/16. Raw materials and consumables increased by GBP4.9
million due to inflation and additional spending on water quality
improvements.
Power costs decreased by GBP1.4 million. We continue to make
good progress on our renewable energy generation, and generated the
equivalent of 28% of gross consumption from self generation in the
year, providing an effective hedge against energy price
volatility.
Bad debt charges improved to 2.0% of turnover (UK GAAP) - down
from 2.2% in 2013/14 as we saw the benefit of improved collection
of older household debt and a range of social tariffs which help
customers pay their bills.
Depreciation increased by GBP2.7 million due to the growing
asset base. Infrastructure maintenance expenditure declined GBP5.5
million due to operational efficiencies and programme phasing as we
closed out AMP5.
We completed our planned capital programme for AMP5, investing
GBP547.4 million (UK GAAP, net of grants and contributions) during
the year. Included in this total was net infrastructure maintenance
expenditure of GBP134.8 million, which is charged to the income
statement under IFRS.
Non-regulated - Severn Trent Services
2015 2014 Increase/
Restated (decrease)
GBPm GBPm %
-------------------------------------- ------ --------- -----------
Turnover
Services as reported 216.3 210.2 2.9%
Impact of exchange rate fluctuations - (3.5)
-------------------------------------- ------ --------- -----------
Like for like 216.3 206.7 4.6%
-------------------------------------- ------ --------- -----------
Underlying PBIT
Services as reported 9.7 13.3 (27.1%)
-------------------------------------- ------ --------- -----------
Like for like 9.7 13.3 (27.1%)
-------------------------------------- ------ --------- -----------
The results above exclude the Water Purification business, which
has been classified as a discontinued operation.
In Severn Trent Services we saw good growth in turnover, up 4.6%
on a constant currency basis to GBP216.3 million.
Underlying PBIT was down GBP3.6 million to just under GBP10
million. This was due to business development investment in US
concessions and a number of one off favourable items in the prior
year.
Corporate and other
Corporate overheads totalled GBP13.2 million (2013/14: GBP13.6
million). Our other businesses generated a net profit of GBP1.1
million (2013/14: GBP2.5 million).
Exceptional items before tax
Net exceptional operating costs totalled GBP18.7 million
(2013/14: GBP15.2 million) and included:
-- In our regulated business:
o GBP28.3 million of restructuring costs to transform the
business for AMP6, reducing the cost base and de-layering the
management levels; offset by
o GBP7.7 million of profit on disposal of property.
-- In our non-regulated business:
o GBP4.4 million of restructuring costs to prepare the business
for retail competition in AMP6 and to reduce the cost base; offset
by
o The release of a GBP6.3 million provision previously made against accounts receivable in Italy.
Net finance costs
The group's net finance costs were GBP240.0 million, down from
GBP247.9 million in the prior year. The benefits of lower interest
rates (in particular on our RPI-linked debt) were partially offset
by higher levels of net debt.
In addition, in March 2015 the group reduced 2015/16 financing
risk by purchasing approximately 26% of the EUR700 million, fixed
rate Eurobond which is due for repayment in March 2016. This led to
a charge of GBP6.6 million in finance costs.
Treasury management and liquidity
The group's principal treasury management objectives are:
-- to access a broad range of sources of finance to obtain both
the quantum required and lowest cost compatible with the need for
continued availability;
-- to manage exposure to movements in interest rates to provide
an appropriate degree of certainty as to its cost of funds;
-- to minimise counterparty credit exposure risk;
-- to provide the group with an appropriate degree of certainty
as to its foreign exchange exposure;
-- to maintain an investment grade credit rating; and
-- to maintain a flexible and sustainable balance sheet structure.
In February and March 2015, the group took a number of financing
steps in readiness for AMP6, aimed at reducing short term
refinancing risk and increasing exposure to currently low floating
interest rates. These steps included:
-- Entering into a new GBP530 million, floating rate,
nine year facility with the European Investment
Bank. At 31 March 2015, GBP200 million of the facility
had been drawn, with the balance drawn down in April
2015.
-- On 31 March 2015 the group purchased EUR182.6 million
of its EUR700 million Eurobond which is due for
repayment in March 2016. On the same date the equivalent
amount of the corresponding swap, paying fixed rate
6.325%, was cancelled.
In March 2015 the group cancelled floating to fixed
-- interest rate swaps with a notional principal amount
of GBP275 million, for a cash payment of GBP139.2
million. The average fixed rate interest on the
swaps was 5.2%. The cash payment was charged against
the fair value liability on the balance sheet, and
GBP11 million that had been recognised in reserves
was recycled through the income statement.
-- On 19 March 2015 the group amended and extended
the revolving credit facility which was due to mature
in October 2018. The new GBP900 million facility
has a period of five years, with two one year extension
options exercisable with lender consent. At 31 March
2015 GBP485 million of the facility was drawn.
The group continues to ensure it has adequate liquidity to
support business requirements and provide headroom for downside
risk. At 31 March 2015 the group had GBP176.7 million (2013/14:
GBP123.2 million) in cash and cash equivalents and committed
undrawn facilities amounting to GBP745 million (2013/14: GBP500
million).
The group is funded for its projected investment and cash flow
needs up to at least July 2016.
Cash is invested in deposits with financial institutions
benefiting from high credit ratings and the list of counterparties
is reviewed regularly.
The group's policy for the management of interest rate risk
requires that not less than 45% of the group's borrowings should be
at fixed interest rates, or hedged through the use of interest rate
swaps or forward rate agreements. Going forward, the group intends
to manage its existing debt portfolio and future debt issuance to
increase the proportion of debt which is at floating rates. At 31
March 2015, interest rates for 67%(2013/14: 77%) of the group's net
debt of GBP4,752.6 million were at fixed rates of interest.
The group uses financial derivatives solely to hedge risks
associated with its normal business activities including:
-- Exchange rate exposure on borrowings denominated in foreign currencies;
-- Interest rate exposures on floating rate borrowings; and
-- Exposures to increases in electricity prices.
Accounting rules require that these derivatives are revalued at
each balance sheet date and, unless the criteria for cash flow
hedge accounting are met, the changes in value are taken to the
income statement. If the risk that is being hedged does not impact
the income statement in the same period, then an accounting
mismatch arises from the hedging activities and there is a net
charge or credit to the income statement.
Derivatives are typically held to their full term and mismatches
will net out over the life of the instrument. The changes in value
that are recorded during the lives of the derivatives, unless
crystallised, do not represent cash flows. Therefore the group
presents adjusted earnings figures that exclude these non-cash
items. In exceptional circumstances the group may terminate swap
contracts before their maturity date. The payments or receipts
arising from the cancellations are charged or credited against the
liability or asset on the balance sheet, and amounts previously
recognised in reserves are recycled through the income
statement.
The group holds interest rate swaps with a net notional
principal of GBP583.6 million and cross currency swaps with a net
notional principal of GBP396.6 million which economically act to
hedge the interest rate risk on floating rate debt or the exchange
rate risk on certain foreign currency borrowings. However, the
swaps do not meet the hedge accounting rules of IAS 39 and
therefore the changes in fair value are taken to gains/(losses) on
financial instruments in the income statement. During the year
there was a charge of GBP183.4 million in relation to these
instruments.
An analysis of the amounts charged to the income statement in
the period is presented in note 5 to the financial statements.
The group manages its electricity costs through a combination of
self generation, forward price contracts and financial derivatives.
The group has fixed around 100% of the wholesale energy cost for
the first two years of AMP6 and around 50% of the energy cost for
the third year of AMP6.
The group's long term credit ratings are:
Severn Severn
Trent Trent
Long term ratings Plc Water
-------------------- ------- -------
Moody's Baa1 A3
Standard and Poor's BBB- BBB+
-------------------- ------- -------
The outlook is stable for Standard and Poor's, negative for
Moody's
Taxation
The total tax charge for the year was GBP32.7 million (2013/14:
credit of GBP152.9 million).
The current year tax charge for 2014/15 was GBP37.8 million
(2013/14: GBP55.8 million before exceptional tax). The deferred tax
credit was GBP5.1 million (2013/14: charge of GBP21.5 million
before exceptional tax).
In the prior year there was an exceptional current tax credit of
GBP59.2 million and an exceptional deferred tax credit of GBP171.0
million.
See note 6 for further detail.
The underlying effective rate of current tax on continuing
operations, excluding prior year credits, exceptional tax credits
and tax on exceptional items and financial instruments, calculated
on profit from continuing operations before tax, exceptional items
before tax and gains/(losses) on financial instruments was 17.6%
(2013/14: 17.3%).
We expect the effective rate of current tax, as defined above,
for 2015/16 to be in the range of 17% to 19%.
Reported group profit for the period and earnings per share
After a profit of GBP4.7 million (2013/14: loss of GBP36.9
million) from discontinued operations, reported group profit for
the period was GBP120.2 million (2013/14: GBP434.9 million). The
decrease was a result of a fair value loss on financial
instruments, largely due to lower expectations for future interest
rates, and an exceptional tax credit in the prior year which arose
from an agreement with HMRC on a long standing discussion regarding
overpayments of tax in prior periods.
Adjusted basic earnings per share (from continuing operations,
before exceptional items, gains/(losses) on financial instruments,
current tax on gains/(losses) on financial instruments and deferred
tax) was 107.2 pence (2013/14: 92.5 pence) (see note 9). The main
drivers of the increase were an increase in underlying PBIT, as
described above, a lower interest charge due to lower RPI year on
year, and a lower current tax charge arising from adjustments of
prior year computations.
Basic earnings per share were 49.9 pence (2013/14: 182.1
pence).
Group cash flow
2015 2014
GBPm GBPm
----------------------------------------- --------- ---------
Cash generated from operations 760.1 730.2
Net capital expenditure (416.1) (463.9)
Net interest paid (218.2) (204.5)
Payment to close out interest rate swaps (139.2) -
Tax (paid)/received (28.6) 27.2
Other cash flows (1.4) (0.6)
----------------------------------------- --------- ---------
Free cash flow (43.4) 88.4
Acquisitions and disposals - (11.4)
Dividends (196.9) (185.3)
Net issue of shares (16.7) 2.3
----------------------------------------- --------- ---------
Change in net debt from cash flows (257.0) (106.0)
Non cash movements (48.1) (44.2)
----------------------------------------- --------- ---------
Change in net debt (305.1) (150.2)
Net debt at 1 April (4,447.5) (4,297.3)
----------------------------------------- --------- ---------
Net debt at 31 March (4,752.6) (4,447.5)
----------------------------------------- --------- ---------
Net debt comprises:
Cash and cash equivalents 176.7 123.2
Bank loans (1,279.2) (594.9)
Other loans (3,467.5) (3,826.0)
Finance leases (180.0) (201.2)
Cross currency swaps (2.6) 51.4
----------------------------------------- --------- ---------
(4,752.6) (4,447.5)
----------------------------------------- --------- ---------
Tax paid was GBP28.6 million (2013/14: received GBP27.2
million). The group has obtained agreement with HMRC to offset
quarterly tax payments for the current year against a refund of
overpayment of tax in prior periods, as outlined in the prior year
results announcement.
Net debt at 31 March 2015 was GBP4,752.6 million (2013/14:
GBP4,447.5 million). Balance sheet gearing (net debt/net debt plus
equity) at the year end was 85.2% (2013/14: 80.3%). Net debt,
expressed as a percentage of RCV at 31 March 2015 of GBP7,740
million was 61.4% (2013/14: 58.4%). The group's net interest
charge, excluding gains/(losses) on financial instruments and net
finance costs from pensions, was covered 3.5 times (2013/14: 3.3
times) by profit before interest, tax, depreciation and exceptional
items, and 2.3 times (2013/14: 2.1 times) by underlying PBIT.
The fair value of net debt at 31 March 2015 is estimated to be
GBP5,645.4 million (2013/14: GBP4,799.7 million) compared to the
book value of GBP4,752.6 million (2013/14: GBP4,447.5 million). The
difference between the book value and fair value of debt arises
from fixed rate and index linked debt where the interest rate on
the debt is higher than prevailing market rates at the year
end.
Pensions
The group operates two defined benefit pension schemes for its
UK employees, of which the UK Severn Trent Pension Scheme (STPS) is
by far the largest. The most recent formal triennial actuarial
valuations and funding agreements were carried out as at 31 March
2013 for both schemes. As a result, deficit reduction contributions
of GBP40 million in 2013/14, GBP35 million in 2014/15, GBP15
million in 2015/16 and GBP12 million per annum in subsequent years
to 2024/25 were agreed. Further payments of GBP8 million per annum
through an asset backed funding arrangement will also continue to
31 March 2032.
As previously announced, the defined benefit schemes closed to
future accrual on 31 March 2015. On 1 April 2015, members of the
defined benefit schemes were transferred to the defined
contribution Severn Trent Group Personal Pension Scheme, which was
opened on 1 April 2012.
The key actuarial assumptions for the defined benefit schemes
have been updated for these accounts. On an IAS 19 basis, the
estimated net position of the schemes was a deficit of GBP468.9
million as at 31 March 2015. This compares to a deficit of GBP348.3
million as at 31 March 2014. The movements in the net deficit can
be summarised as follows:
GBPm
-------------------------------------------- -------
Present value at 1 April 2014 (348.3)
Change in actuarial assumptions (336.8)
Asset outperformance 193.4
Contributions in excess of income statement
charge 22.8
-------------------------------------------- -------
Present value at 31 March 2015 (468.9)
-------------------------------------------- -------
The funding level has decreased to 81.7% (2013/14: 84.0%).
Exchange rates
The trading results of overseas subsidiaries are translated to
sterling at the average rate of exchange ruling during the period
and their net assets are translated at the closing rate on the
balance sheet date. The impact of changing exchange rates on net
assets was immaterial. Details of the impact of changing exchange
rates on turnover and underlying PBIT are set out in the commentary
on Severn Trent Services above.
Dividend
In line with its AMP5 policy of increasing the dividend by
RPI+3% until March 2015, using November RPI of the prior year, the
board has proposed a final ordinary dividend of 50.94 pence
(2013/14: 48.24 pence). This would give a total ordinary dividend
for the year of 84.90 pence, an increase of 5.6% over the 2013/14
total ordinary dividend of 80.40 pence. The final ordinary dividend
is payable on 24 July 2015 to shareholders on the register at 19
June 2015.
Regulatory Update
We continue to engage in the regulatory debate. We are
collaborating constructively on Water 2020, the body that debates
future reform and we are working with Ofwat, through an industry
working group, on various position papers covering RPI/CPI, RCV
allocation and access pricing.
We also work closely with other companies on thought leadership
issues - for example, our recent report with Wessex Water and South
West Water on catchment management and contestable catchment
services.
We are fully engaged with Defra and Ofwat to make the
implementation of the Water Act successful. We have seconded our
people to support the Open Water programme and are active on
various technical working groups to define the evolving detail of
how the non retail household market will work from 2017.
We are engaging constructively with the Welsh government on Silk
Commission proposals for devolving water policy.
On 25 March Ofwat published its consultation on the "PR14
reconciliation rulebook". The reconciliation rulebook seeks to
explain how Ofwat will take into account performance over 2015-20,
along with those factors not reconciled from the 2009 price review
(PR09), at the 2019 price review (PR19). We disagree with Ofwat's
proposed methodology, and believe no overnight adjustment to RCV is
warranted in March 2020. We have submitted our representations on
this issue and await Ofwat's conclusions.
Principal risks and uncertainties
The board considers the principal risks and uncertainties
affecting the business activities of the group to be those detailed
below:
Customer Perception:
-- Effectively improving and maintaining our levels of customer
service in order to deliver what our customers tell us they
want.
-- Taking full advantage of the opportunities presented by the
opening up of the business retail market to competition.
Legal and Regulatory Environment:
-- Effectively anticipating and/or influencing future
developments in the UK Water industry in order for our business
plans to remain sustainable.
-- The regulatory landscape is complex and subject to on-going
change. There is a risk that processes may fail or that our
processes may not effectively keep pace with changes in
legislation, leading to the risk of non-compliance.
Operations, assets and people:
-- Loss of data or interruptions to our key business systems as a result of cyber threats.
-- Achieving all our regulatory targets from Ofwat in relation
to ongoing operational performance of our assets failure of which
may result in regulatory penalties.
-- Inability to provide a continuous supply of quality water to
large populations within our area, or asset failure resulting in
damage to third party property or in injury to an employee,
contractor, customer or member of the public.
Financial risks:
-- Changing demographics and fluctuations in the investment
market may affect our ability to fund pensions promises
sustainably.
Further information
For further information, including the group's preliminary
results presentation, see the Severn Trent website
(www.severntrent.com).
Consolidated income statement
Year ended 31 March 2015
2015 2014
Restated
Notes GBPm GBPm
------------------------------------------------ ----- --------- ---------
Turnover 2 1,801.3 1,756.7
------------------------------------------------ ----- --------- ---------
Operating costs before exceptional items (1,261.0) (1,232.9)
Exceptional operating costs 3 (18.7) (15.2)
------------------------------------------------ ----- --------- ---------
Total operating costs (1,279.7) (1,248.1)
------------------------------------------------ ----- --------- ---------
Profit before interest, tax and exceptional
items 2 540.3 523.8
Exceptional items before interest and
tax 3 (18.7) (15.2)
------------------------------------------------ ----- --------- ---------
Profit before interest and tax 521.6 508.6
------------------------------------------------ ----- --------- ---------
Finance income 4 81.7 80.8
Finance costs 4 (321.7) (328.7)
------------------------------------------------ ----- --------- ---------
Net finance costs 4 (240.0) (247.9)
(Losses)/gains on financial instruments 5 (133.5) 58.0
Share of results of associates and joint
ventures 0.1 0.2
------------------------------------------------ ----- --------- ---------
Profit before tax, (losses)/gains on financial
instruments and exceptional items 300.4 276.1
Exceptional items before tax 3 (18.7) (15.2)
(Losses)/gains on financial instruments 5 (133.5) 58.0
------------------------------------------------ ----- --------- ---------
Profit on ordinary activities before taxation 148.2 318.9
------------------------------------------------ ----- --------- ---------
Current tax excluding exceptional credit 6 (37.8) (55.8)
Deferred tax excluding exceptional credit 6 5.1 (21.5)
Exceptional tax credit 6 -- 230.2
------------------------------------------------ ----- --------- ---------
Total taxation on profit on ordinary activities 6 (32.7) 152.9
------------------------------------------------ ----- --------- ---------
Profit for the year from continuing operations 115.5 471.8
Profit/(loss) for the year from discontinued
operations 8 4.7 (36.9)
Profit for the year 120.2 434.9
------------------------------------------------ ----- --------- ---------
Attributable to:
Owners of the company 119.1 433.8
Non-controlling interests 1.1 1.1
------------------------------------------------ ----- --------- ---------
120.2 434.9
------------------------------------------------ ----- --------- ---------
Earnings per share (pence)
From continuing operations
Basic 9 48.3 198.5
Diluted 9 48.1 197.6
------------------------------------------------ ----- --------- ---------
From continuing and discontinued operations
Basic 9 49.9 182.1
Diluted 9 49.6 181.3
------------------------------------------------ ----- --------- ---------
Consolidated statement of comprehensive income
Year ended 31 March 2015
2015 2014
GBPm GBPm
------------------------------------------------ ------- ------
Profit for the year 120.2 434.9
------------------------------------------------ ------- ------
Other comprehensive loss
Items that will not be reclassified to the
income statement:
Net actuarial (loss)/gain on defined benefit
pension schemes (143.4) 3.7
Tax on net actuarial loss/gain 28.8 (0.8)
Deferred tax arising on change of rate - (12.3)
------------------------------------------------ ------- ------
(114.6) (9.4)
------------------------------------------------ ------- ------
Items that may be reclassified to the income
statement:
(Loss)/gain on cash flow hedges (13.8) 15.1
Deferred tax on loss/gain on cash flow hedges 2.8 (3.0)
Amounts on cash flow hedges transferred
to the income statement in the year 23.6 8.1
Deferred tax on transfers to income statement (4.7) (1.6)
Exchange movement on translation of overseas
results and net assets 8.9 (9.7)
------------------------------------------------ ------- ------
16.8 8.9
------------------------------------------------ ------- ------
Other comprehensive loss for the year (97.8) (0.5)
------------------------------------------------ ------- ------
Total comprehensive income for the year 22.4 434.4
------------------------------------------------ ------- ------
Attributable to:
Owners of the company 19.6 434.3
Non-controlling interests 2.8 0.1
------------------------------------------------ ------- ------
22.4 434.4
------------------------------------------------ ------- ------
Consolidated statement of changes in equity
Year ended 31 March 2015
Equity attributable to owners
of the company
-------------------------------------------------
Non-
Share Share Other Retained controlling Total
capital premium reserves earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- -------- -------- --------- --------- ------- ------------ -------
At 1 April 2013 233.3 89.7 72.3 437.9 833.2 10.8 844.0
-------------------------------- -------- -------- --------- --------- ------- ------------ -------
Profit for the period -- -- -- 433.8 433.8 1.1 434.9
Gains on cash flow
hedges -- -- 15.1 -- 15.1 -- 15.1
Deferred tax on gains
on cash flow hedges -- -- (3.0) -- (3.0) -- (3.0)
Amounts on cash flow
hedges transferred
to the income statement -- -- 8.1 -- 8.1 -- 8.1
Deferred tax on transfers
to the income statement -- -- (1.6) -- (1.6) -- (1.6)
Exchange movement
on translation of
overseas results and
net assets -- -- (8.7) -- (8.7) (1.0) (9.7)
Actuarial gains -- -- -- 3.7 3.7 -- 3.7
Tax on actuarial gains -- -- -- (0.8) (0.8) -- (0.8)
Deferred tax arising
from rate change -- -- -- (12.3) (12.3) -- (12.3)
-------------------------------- -------- -------- --------- --------- ------- ------------ -------
Total comprehensive
income for the period -- -- 9.9 424.4 434.3 0.1 434.4
Share options and
LTIPs
- proceeds from shares
issued 0.6 4.5 -- -- 5.1 -- 5.1
- value of employees'
services -- -- -- 5.8 5.8 -- 5.8
- own shares purchased -- -- -- (2.8) (2.8) -- (2.8)
Current tax on share
based payments -- -- -- 1.0 1.0 -- 1.0
Adjustment arising
from change in non-controlling
interest -- -- -- (13.7) (13.7) 2.2 (11.5)
Dividends paid -- -- -- (185.3) (185.3) (0.6) (185.9)
-------------------------------- -------- -------- --------- --------- ------- ------------ -------
At 31 March 2014 233.9 94.2 82.2 667.3 1,077.6 12.5 1,090.1
-------------------------------- -------- -------- --------- --------- ------- ------------ -------
Profit for the period -- -- -- 119.1 119.1 1.1 120.2
Losses on cash flow
hedges -- -- (13.8) -- (13.8) -- (13.8)
Deferred tax on losses
on cash flow hedges -- -- 2.8 -- 2.8 -- 2.8
Amounts on cash flow
hedges transferred
to the income statement -- -- 23.6 -- 23.6 -- 23.6
Deferred tax on transfers
to the income statement -- -- (4.7) -- (4.7) -- (4.7)
Exchange movement
on translation of
overseas results and
net assets -- -- 7.2 -- 7.2 1.7 8.9
Actuarial losses -- -- -- (143.4) (143.4) -- (143.4)
Tax on actuarial losses -- -- -- 28.8 28.8 -- 28.8
-------------------------------- -------- -------- --------- --------- ------- ------------ -------
Total comprehensive
income for the period -- -- 15.1 4.5 19.6 2.8 22.4
Share options and
LTIPs
- proceeds from shares
issued 0.7 6.0 -- -- 6.7 -- 6.7
- value of employees'
services -- -- -- 7.7 7.7 -- 7.7
- own shares purchased -- -- -- (5.9) (5.9) -- (5.9)
Current tax on share
based payments -- -- -- 0.7 0.7 -- 0.7
Deferred tax on share
based payments -- -- -- (0.1) (0.1) -- (0.1)
Share buy back -- -- -- (100.0) (100.0) -- (100.0)
Share cancellation (0.9) -- 0.9 -- -- -- --
Transfer -- -- -- 0.5 0.5 (0.5) --
Dividends paid -- -- -- (196.9) (196.9) (1.4) (198.3)
-------------------------------- -------- -------- --------- --------- ------- ------------ -------
At 31 March 2015 233.7 100.2 98.2 377.8 809.9 13.4 823.3
-------------------------------- -------- -------- --------- --------- ------- ------------ -------
Consolidated balance sheet
At 31 March 2015
2015 2014
Note GBPm GBPm
--------------------------------------------- ---- --------- ---------
Non-current assets
Goodwill 14.3 14.8
Other intangible assets 66.7 80.2
Property, plant and equipment 7,239.8 7,023.5
Interests in joint ventures and associates 4.6 5.2
Derivative financial assets 13.5 72.4
Available for sale financial assets 0.1 0.1
--------------------------------------------- ---- --------- ---------
7,339.0 7,196.2
--------------------------------------------- ---- --------- ---------
Current assets
Inventory 16.7 27.2
Trade and other receivables 492.0 513.2
Current tax receivable 11.2 16.5
Derivative financial assets 13.5 12.9
Cash and cash equivalents 176.7 123.2
Assets held for sale 8 107.9 -
--------------------------------------------- ---- --------- ---------
818.0 693.0
--------------------------------------------- ---- --------- ---------
Total assets 8,157.0 7,889.2
--------------------------------------------- ---- --------- ---------
Current liabilities
Borrowings (463.0) (206.1)
Derivative financial liabilities (32.2) (24.8)
Trade and other payables (494.0) (412.7)
Provisions for liabilities and charges (15.9) (12.1)
Liabilities associated with assets held
for sale 8 (35.3) -
--------------------------------------------- ---- --------- ---------
(1,040.4) (655.7)
--------------------------------------------- ---- --------- ---------
Non-current liabilities
Borrowings (4,463.7) (4,416.0)
Derivative financial liabilities (175.1) (206.2)
Trade and other payables (542.0) (492.4)
Deferred tax (625.1) (654.0)
Retirement benefit obligations 10 (468.9) (348.3)
Provisions for liabilities and charges (18.5) (26.5)
--------------------------------------------- ---- --------- ---------
(6,293.3) (6,143.4)
--------------------------------------------- ---- --------- ---------
Total liabilities (7,333.7) (6,799.1)
--------------------------------------------- ---- --------- ---------
Net assets 823.3 1,090.1
--------------------------------------------- ---- --------- ---------
Equity
Called up share capital 233.7 233.9
Share premium account 100.2 94.2
Other reserves 98.2 82.2
Retained earnings 377.8 667.3
--------------------------------------------- ---- --------- ---------
Equity attributable to owners of the company 809.9 1,077.6
Non-controlling interests 13.4 12.5
--------------------------------------------- ---- --------- ---------
Total equity 823.3 1,090.1
--------------------------------------------- ---- --------- ---------
Consolidated cash flow statement
Year ended 31 March 2015
2015 2014
Note GBPm GBPm
------------------------------------------------- ---- ------- -------
Cash generated from operations 11 760.1 730.2
Tax (paid)/received (28.6) 27.2
------------------------------------------------- ---- ------- -------
Net cash generated from operating activities 731.5 757.4
------------------------------------------------- ---- ------- -------
Investing activities
Interest received 1.8 6.5
Acquisition of non-controlling interests -- (11.4)
Proceeds on disposal of property, plant
and equipment and intangible assets 11.6 10.3
Purchases of intangible assets (17.7) (13.9)
Purchases of property, plant and equipment (446.2) (490.6)
Contributions and grants received 36.2 30.3
------------------------------------------------- ---- ------- -------
Net cash used in investing activities (414.3) (468.8)
------------------------------------------------- ---- ------- -------
Financing activities
Interest paid (213.1) (206.9)
Payments to close out interest rate swaps (139.2) --
Interest element of finance lease payments (6.9) (4.2)
Dividends paid to owners of the company (196.9) (185.3)
Dividends paid to non-controlling interests (1.4) (0.6)
Repayments of borrowings (334.2) (172.4)
Repayments of obligations under finance
leases (21.2) (0.4)
New loans raised 685.0 0.7
Issue of shares 6.7 5.1
Share buy back (17.5) --
Purchase of own shares (5.9) (2.8)
------------------------------------------------- ---- ------- -------
Net cash used in financing activities (244.6) (566.8)
------------------------------------------------- ---- ------- -------
Increase/(decrease) in cash and cash equivalents 72.6 (278.2)
Net cash and cash equivalents at beginning
of period 123.2 403.2
Effect of foreign exchange rates 0.2 (1.8)
Transferred to assets held for sale 8 (19.3) --
------------------------------------------------- ---- ------- -------
Net cash and cash equivalents at end of
period 176.7 123.2
------------------------------------------------- ---- ------- -------
Net cash and cash equivalents comprise:
Cash at bank and in hand 24.9 46.4
Short term deposits 151.8 76.8
------------------------------------------------- ---- ------- -------
Net cash and cash equivalents at end of
period 176.7 123.2
------------------------------------------------- ---- ------- -------
Notes
1 Basis of preparation
a) Basis of preparation
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS), International
Accounting Standards (IAS) and IFRIC interpretations issued and
effective and ratified by the European Union as at 31 March 2015
and those parts of the Companies Act 2006 applicable to companies
reporting under IFRS as adopted by the European Union.
The financial statements have been prepared on the going concern
basis under the historical cost convention as modified by the
revaluation of certain financial assets and liabilities (including
derivative instruments) at fair value.
The preparation of financial statements in conformity with IFRS
requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amount of revenues and
expenses for the reporting period. Although these estimates are
based on management's best knowledge of the amount, event or
actions, actual results may ultimately differ from those
estimates.
The financial information set out in this announcement does not
constitute the company's statutory accounts, within the meaning of
section 430 of the Companies Act 2006, for the years ended 31 March
2015 or 2014, but is derived from those accounts. Statutory
accounts for 2014 have been delivered to the Registrar of Companies
and those for 2015 will be delivered following the company's annual
general meeting. The auditors have reported on those accounts;
their reports were unqualified and did not contain statements under
section 498(2) or (3) of the Companies Act 2006.
The auditors have consented to the publication of the
Preliminary Announcement as required by Listing Rule 9.7a having
completed their procedures under APB bulletin 2008/2.
b) Prior year restatement
Prior year figures in the consolidated income statement and
related notes have been restated to present separately amounts
relating to operations classified as discontinued in the current
year. For details see note 8.
2 Segmental analysis
The group is organised into two main segments:
Severn Trent Water
Provides water and sewerage services to domestic and commercial
customers in England and Wales.
Severn Trent Services
Provides services and products associated with water and waste
water principally in the US, UK and Europe.
a) Segmental results
2015 2014
------------------ ------------------
Severn Severn Severn Severn
Trent Trent Trent Trent
Water Services Water Services
Restated
GBPm GBPm GBPm GBPm
------------------------------------ ------- --------- ------- ---------
External sales 1,579.1 216.2 1,542.6 209.9
Inter-segment sales 2.1 0.1 2.2 0.3
------------------------------------ ------- --------- ------- ---------
Total sales 1,581.2 216.3 1,544.8 210.2
------------------------------------ ------- --------- ------- ---------
Profit before interest, tax and
exceptional items 539.0 9.7 518.6 13.3
Exceptional items (20.6) 1.9 8.2 (2.3)
------------------------------------ ------- --------- ------- ---------
Profit before interest and tax 518.4 11.6 526.8 11.0
------------------------------------ ------- --------- ------- ---------
Profit before interest, tax and
exceptional items is stated after:
Amortisation of intangible assets 22.2 1.0 28.0 0.9
Depreciation of property, plant
and equipment 276.7 3.5 267.5 3.2
Profit on disposal of fixed assets (0.4) (0.1) (0.3) (0.2)
------------------------------------ ------- --------- ------- ---------
The segmental profit before interest tax and exceptional items
is reconciled to the consolidated income statement below:
2015 2014
Restated
GBPm GBPm
---------------------------------------------- ------- --------
Underlying PBIT
- Severn Trent Water 539.0 518.6
- Severn Trent Services 9.7 13.3
- Corporate and other costs (12.1) (11.5)
Consolidation adjustments 3.7 3.4
---------------------------------------------- ------- --------
Group underlying PBIT 540.3 523.8
Exceptional items allocated to segments
- Severn Trent Water (20.6) 8.2
- Severn Trent Services 1.9 (2.3)
- Corporate and other -- (21.1)
Share of results of associates and joint
ventures 0.1 0.2
Net finance costs (240.0) (247.9)
(Losses)/gains on financial instruments (133.5) 58.0
---------------------------------------------- ------- --------
Profit before tax and discontinued operations 148.2 318.9
---------------------------------------------- ------- --------
b) Segmental capital employed
The segmental analysis of capital employed was as follows:
2015 2014
-------------------- --------------------
Severn Severn Severn Severn
Trent Trent Trent Trent
Water Services Water Services
GBPm GBPm GBPm GBPm
-------------------------------- --------- --------- --------- ---------
Operating assets 7,679.9 100.9 7,442.2 172.8
Goodwill 1.3 14.3 1.3 14.8
Interests in joint ventures and
associates 0.1 4.5 0.1 5.0
-------------------------------- --------- --------- --------- ---------
Segment assets 7,681.3 119.7 7,443.6 192.6
Segment operating liabilities (1,350.1) (58.8) (1,155.7) (92.2)
-------------------------------- --------- --------- --------- ---------
Capital employed 6,331.2 60.9 6,287.9 100.4
-------------------------------- --------- --------- --------- ---------
Operating assets comprise other intangible assets, property
plant and equipment, inventory and trade and other receivables.
Operating liabilities comprise trade and other payables,
retirement benefit obligations and provisions.
Additions to other intangible assets and property plant and
equipment were as follows:
2015 2014
----------------- -----------------
Severn Severn Severn Severn
Trent Trent Trent Trent
Water Services Water Services
GBPm GBPm GBPm GBPm
------------------------------ ------ --------- ------ ---------
Other intangible assets 15.4 1.0 8.2 5.5
Property, plant and equipment 481.3 2.7 519.6 6.9
------------------------------ ------ --------- ------ ---------
3 Exceptional items before tax
2015 2014
Restated
GBPm GBPm
-------------------------------------------------- ----- --------
Severn Trent Water
Restructuring costs 28.3 -
Profit on disposal of fixed assets (7.7) (8.2)
-------------------------------------------------- ----- --------
20.6 (8.2)
-------------------------------------------------- ----- --------
Severn Trent Services
Restructuring costs 4.4 2.3
Release of bad debt provision (6.3) -
-------------------------------------------------- ----- --------
(1.9) 2.3
-------------------------------------------------- ----- --------
Corporate and Other
Professional fees related to LongRiver proposal - 18.7
Provision for terminated operations and disposals - 2.4
-------------------------------------------------- ----- --------
- 21.1
-------------------------------------------------- ----- --------
Total exceptional operating items before tax 18.7 15.2
-------------------------------------------------- ----- --------
Exceptional tax is disclosed in note 6.
4 Net finance costs
2015 2014
GBPm GBPm
----------------------------------------------------- -------- --------
Investment income
Bank deposits 0.6 1.8
Other financial income 1.0 3.0
----------------------------------------------------- -------- --------
Total interest revenue 1.6 4.8
Interest income on defined benefit scheme
assets 80.1 76.0
----------------------------------------------------- -------- --------
Total investment income 81.7 80.8
----------------------------------------------------- -------- --------
Finance costs
Interest on bank loans and overdrafts (17.1) (22.0)
Interest on other loans (201.8) (205.0)
Interest on finance leases (6.9) (7.7)
----------------------------------------------------- -------- --------
Total borrowing costs (225.8) (234.7)
Other financial expenses (1.4) (2.3)
Interest cost on defined benefit scheme obligations (94.5) (91.7)
----------------------------------------------------- -------- --------
Total finance costs (321.7) (328.7)
----------------------------------------------------- -------- --------
Net finance costs (240.0) (247.9)
----------------------------------------------------- -------- --------
5 (Losses)/gains on financial instruments
2015 2014
GBPm GBPm
------------------------------------------------ ------- ------
Loss on cross currency swaps used as hedging
instruments in fair value hedges (2.6) (26.5)
Gain arising on adjustment for foreign currency
debt in fair value hedges - 21.9
Exchange gain on other loans 73.3 24.2
Loss on cash flow hedges transferred from
equity (23.6) (8.1)
Hedge ineffectiveness on cash flow hedges 2.8 2.0
(Loss)/gain arising on swaps where hedge
accounting is not applied (183.4) 44.5
------------------------------------------------ ------- ------
(133.5) 58.0
------------------------------------------------ ------- ------
6 Taxation
2015 2014
Restated
------ ------------ ----------- --------
Before
exceptional Exceptional
Total tax tax Total
GBPm GBPm GBPm GBPm
--------------------------------- ------ ------------ ----------- --------
Current tax
Current year at 21% (2014: 23%) 46.4 46.5 - 46.5
Prior years at 23% (2014: 24%) (8.6) 9.3 (59.2) (49.9)
--------------------------------- ------ ------------ ----------- --------
Total current tax 37.8 55.8 (59.2) (3.4)
--------------------------------- ------ ------------ ----------- --------
Deferred tax
Origination and reversal of
temporary differences - current
year (11.3) 30.2 - 30.2
Origination and reversal of
temporary differences - prior
year 6.2 (8.7) (56.2) (64.9)
Exceptional credit arising from
rate change - - (114.8) (114.8)
--------------------------------- ------ ------------ ----------- --------
Total deferred tax (5.1) 21.5 (171.0) (149.5)
--------------------------------- ------ ------------ ----------- --------
32.7 77.3 (230.2) (152.9)
--------------------------------- ------ ------------ ----------- --------
The current tax charge was GBP37.8 million (2014: GBP55.8
million before exceptional tax). This includes a credit of GBP8.6
million (2014: charge of GBP9.3 million) arising from adjustments
to prior year tax computations.
In the prior year an exceptional current tax credit of GBP59.2
million was recognised, reflecting the anticipated refund of
overpayment of tax in prior periods. This was following an
agreement with HMRC that certain capital expenditure within our
water and waste water treatment works is eligible for capital
allowances as plant and machinery. This also resulted in an
exceptional deferred tax credit of GBP56.2 million.
The Finance Act 2013 was enacted in the prior year which
implemented a reduction in the corporation tax rate from 23% to 21%
with effect from 1 April 2014 and then to 20% with effect from 1
April 2015. This resulted in an additional exceptional deferred tax
credit of GBP114.8 million in the income statement and a deferred
tax charge of GBP12.3 million in reserves.
7 Dividends
Amounts recognised as distributions to owners of the company in
the period:
2015 2014
----------------- -----------------
Pence Pence
per share GBPm per share GBPm
---------------------------------- ---------- ----- ---------- -----
Final dividend for the year ended
31 March 2014 (2013) 48.24 115.5 45.51 108.6
Interim dividend for the year
ended 31 March 2015 (2014) 33.96 81.4 32.16 76.7
---------------------------------- ---------- ----- ---------- -----
Total dividends 82.20 196.9 77.67 185.3
---------------------------------- ---------- ----- ---------- -----
Proposed final dividend for the
year ended 31 March 2015 50.94
---------------------------------- ---------- ----- ---------- -----
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting and has not been
included as a liability in these financial statements.
8 Discontinued operations
On 23 January 2015 the board approved a process to dispose of
the group's Water Purification business which formed part of the
Severn Trent Services segment. These operations were classified as
discontinued and as a disposal group held for sale as at 31 March
2015. The results of discontinued operations are disclosed
separately in the income statement and the assets and liabilities
of the disposal group are presented separately in the balance
sheet.
On 12 May 2015 the group entered into a binding agreement to
sell the business to Industrie De Nora. The proceeds of disposal
are expected to exceed the carrying value of the group's share of
the disposal group's net assets and hence no impairment loss has
been recognised on the classification of these operations as held
for sale.
The results of the discontinued operations were as follows:
2015 2014
GBPm GBPm
----------------------------------------- ------- -------
Turnover 108.2 100.0
----------------------------------------- ------- -------
Operating costs before exceptional items (103.3) (107.0)
Exceptional operating items -- (29.2)
----------------------------------------- ------- -------
Total operating costs (103.3) (136.2)
----------------------------------------- ------- -------
Profit/(loss) before interest and tax 4.9 (36.2)
Finance costs -- --
----------------------------------------- ------- -------
Profit/(loss) before tax 4.9 (36.2)
Attributable tax expense (0.2) (0.7)
----------------------------------------- ------- -------
Profit/(loss) for the year 4.7 (36.9)
----------------------------------------- ------- -------
Attributable to:
Owners of the company 3.7 (39.1)
Non-controlling interests 1.0 2.2
----------------------------------------- ------- -------
4.7 (36.9)
----------------------------------------- ------- -------
The major classes of assets and liabilities comprising the
operations classified as held for sale are as follows:
2015
GBPm
---------------------------------------------- ------
Goodwill 1.8
Other intangible assets 7.2
Property, plant and equipment 5.0
Inventories 17.3
Trade and other receivables 57.3
Cash and bank balances 19.3
---------------------------------------------- ------
Total assets classified as held for sale 107.9
---------------------------------------------- ------
Trade and other payables (33.6)
Tax liabilities (0.2)
Bank overdrafts -
Other borrowings -
Provisions for liabilities and charges (1.5)
---------------------------------------------- ------
Total liabilities associated with assets held
for sale (35.3)
---------------------------------------------- ------
Net assets of disposal group 72.6
---------------------------------------------- ------
Cash flows arising from the disposal group were as follows:
2015 2014
GBPm GBPm
-------------------------------- ----- -----
Net cash flows attributable to:
- operating activities 1.8 (8.3)
- investing activities (2.1) (4.3)
- financing activities 3.6 12.9
-------------------------------- ----- -----
3.3 0.3
-------------------------------- ----- -----
Basic and diluted earnings per share from discontinued
operations are as follows:
2015 2014
-------- ---------- --------- -------- ---------- ---------
Weighted Weighted
average average
number Per share number Per share
Earnings of shares amount Earnings of shares amount
GBPm m pence GBPm m pence
--------------------------- -------- ---------- --------- -------- ---------- ---------
Basic earnings per share 3.7 238.8 1.5 (39.1) 238.2 (16.4)
Diluted earnings per share 3.7 239.9 1.5 (39.1) 239.3 (16.3)
--------------------------- -------- ---------- --------- -------- ---------- ---------
9 Earnings per share
a) Basic and diluted earnings per share
Basic earnings per share are 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.
Basic and diluted earnings per share from continuing and
discontinued operations are calculated on the basis of profit from
continuing and discontinued operations attributable to the equity
holders of the company.
The calculation of basic and diluted earnings per share is based
on the following data:
Earnings for the purpose of basic and diluted earnings per share
from continuing operations
2015 2014
GBPm GBPm
-------------------------------------------------- ------ ------
Profit for the period attributable to owners
of the company 119.1 433.8
Adjusted for (profit)/loss from discontinued
operations (see note 8) (3.7) 39.1
-------------------------------------------------- ------ ------
Profit for the period from continuing operations
attributable to owners of the company 115.4 472.9
-------------------------------------------------- ------ ------
Number of shares
2015 2014
m m
----------------------------------------------- ----- -----
Weighted average number of ordinary shares
for the purpose of basic earnings per share 238.8 238.2
Effect of dilutive potential ordinary shares
- share options and LTIPs 1.1 1.1
----------------------------------------------- ----- -----
Weighted average number of ordinary shares
for the purpose of diluted earnings per share 239.9 239.3
----------------------------------------------- ----- -----
b) Adjusted earnings per share from continuing operations
2015 2014
pence pence
------------------------------------ ----- -----
Adjusted basic earnings per share 107.2 92.5
------------------------------------ ----- -----
Adjusted diluted earnings per share 106.7 92.1
------------------------------------ ----- -----
Adjusted earnings per share figures are presented for continuing
operations. These exclude the effects of deferred tax, exceptional
tax, losses/gains on financial instruments, current tax related to
losses/gains on financial instruments, exceptional items and
current tax related to exceptional items. The directors consider
that the adjusted figures provide a useful additional indicator of
performance. The denominators used in the calculations of adjusted
basic and diluted earnings per share are the same as those used in
the unadjusted figures set out above.
Adjustments to earnings
The adjustments to earnings that are made in calculating
adjusted earnings per share are as follows:
2015 2014
Restated
GBPm GBPm
------------------------------------------------ ------ ---------
Earnings for the purpose of basic and diluted
earnings per share from continuing operations 115.4 472.9
Adjustments for
- exceptional items before tax 18.7 15.2
- current tax related to exceptional items (4.7) (0.9)
- loss/(gain) on financial instruments 133.5 (58.0)
- current tax related to loss/(gain) on
financial instruments (1.8) (0.1)
- deferred tax excluding exceptional charge (5.1) 21.5
- exceptional tax - (230.2)
------------------------------------------------ ------ ---------
Earnings for the purpose of adjusted basic
and diluted earnings per share 256.0 220.4
------------------------------------------------ ------ ---------
10 Retirement benefit obligations
Movements in the present value of the defined benefit obligation
were as follows:
2015 2014
GBPm GBPm
---------------------------------------------- -------- --------
Present value at 1 April (348.3) (383.7)
Service cost (22.8) (22.5)
Past service cost (18.1) -
Net interest cost (14.4) (15.7)
Contributions from the sponsoring companies 81.0 73.0
Actuarial losses recognised in the statement
of comprehensive income (143.4) 3.6
Scheme administration costs (2.9) (3.0)
---------------------------------------------- -------- --------
Present value at 31 March (468.9) (348.3)
---------------------------------------------- -------- --------
The major assumptions used in the valuation of the defined
benefit pension schemes were as follows:
2015 2014
------------------------------------------------- ----- -----
Price inflation 3.0% 3.3%
Pension increases in payment 3.0% 3.3%
Pension increases in deferment 3.0% 3.3%
Discount rate 3.3% 4.4%
Remaining life expectancy for members currently
aged 65 (years)
- men 21.4 21.3
- women 24.5 24.4
Remaining life expectancy for members currently
aged 45 upon retirement at 65 (years)
- men 22.7 22.6
- women 26.1 26.0
------------------------------------------------- ----- -----
The following table summarises the estimated impact on scheme
liabilities resulting from changes to key actuarial assumptions
whilst holding all other assumptions constant:
Assumption Change in assumption Impact on scheme liabilities
----------- ---------------------------- -----------------------------
Discount Increase/decrease by Decrease/increase by
rate 0.1% GBP50 million
Price Increase/decrease by Decrease/increase by
inflation 0.1% GBP45 million
Mortality Increase in life expectancy Increase by GBP75 million
by 1 year
----------- ---------------------------- -----------------------------
11 Cash flow statement
a) Reconciliation of operating profit to operating cash
flows
2015 2014
GBPm GBPm
------------------------------------------------ ------ ------
Profit before interest and tax from continuing
operations 521.6 508.6
Profit/(loss) before interest and tax from
discontinued operations 4.9 (36.2)
------------------------------------------------ ------ ------
Profit before interest and tax 526.5 472.4
------------------------------------------------ ------ ------
Depreciation of property, plant and equipment 281.6 270.0
Amortisation of intangible assets 24.2 29.3
Impairment 0.2 29.5
Pension service cost 40.9 22.5
Defined benefit pension scheme administration
costs 2.9 3.0
Pension contributions (81.0) (73.0)
Share based payments charge 7.7 6.2
Profit on sale of property, plant and equipment
and intangible assets (8.6) (8.6)
Deferred income movement (10.1) (9.5)
Provisions charged to the income statement 20.0 11.0
Utilisation of provisions for liabilities
and charges (26.0) (13.8)
------------------------------------------------ ------ ------
Operating cashflows before movements in working
capital 778.3 739.0
(Increase)/decrease in inventory (5.7) 4.4
Increase in amounts receivable (32.5) (17.2)
Increase in amounts payable 20.0 4.0
------------------------------------------------ ------ ------
Cash generated from operations 760.1 730.2
Tax (paid)/received (28.6) 27.2
------------------------------------------------ ------ ------
Net cash generated from operating activities 731.5 757.4
------------------------------------------------ ------ ------
b) Exceptional cash flows
2015 2014
GBPm GBPm
------------------------------------------------- ------ ------
Restructuring costs (25.4) (4.3)
Disposal of fixed assets 9.4 9.4
Disposal of subsidiaries (3.5) -
Settlement of customer contractual disputes - (1.9)
Obligations arising from disposal of businesses - (1.6)
Professional fees relating to LongRiver proposal - (18.7)
------------------------------------------------- ------ ------
(19.5) (17.1)
------------------------------------------------- ------ ------
c) Reconciliation of movement in cash and cash equivalents to
movement in net debt
As at Fair RPI uplift Other As at
1 April Cash value on index-linked Foreign non cash 31 March
2014 flow adjustments debt exchange movements 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- --------- ------- ------------ ---------------- --------- ---------- ---------
Net cash and cash
equivalents 123.2 72.6 - - 0.2 (19.3)(1) 176.7
Bank loans (594.9) (683.0) - (1.3) - - (1,279.2)
Other loans (3,826.0) 332.2 - (20.7) 73.3 (26.3) (3,467.5)
Finance leases (201.2) 21.2 - - - - (180.0)
Cross currency swaps 51.4 - (78.1) - - 24.1 (2.6)
--------------------- --------- ------- ------------ ---------------- --------- ---------- ---------
Net debt (4,447.5) (257.0) (78.1) (22.0) 73.5 (21.5) (4,752.6)
--------------------- --------- ------- ------------ ---------------- --------- ---------- ---------
1. Other non cash movements on cash and cash equivalents
represent amounts transferred to assets held for sale (see note
8)
12 Contingent liabilities
Bonds and guarantees
Group undertakings have entered into bonds and guarantees in the
normal course of business. No liability is expected to arise in
respect of either bonds or guarantees.
The group has given certain guarantees in respect of the
borrowings of its associate, Servizio Idrico Integrato S.c.p.a. The
guarantees are limited to EUR5.1 million (2014: EUR5.1 million).
The group does not expect any liabilities that are not provided for
in these financial statements to arise from these arrangements.
13 Related party transactions
There have been no related party transactions that materially
affected the financial position or performance of the group during
the period.
14 Post balance sheet events
Following the year end the board of directors has proposed a
final dividend of 50.94 pence per share. Further details of this
are shown in note 7.
On 12 May 2015 the group entered into a binding agreement to
sell the business to Industrie De Nora. The proceeds of disposal
are expected to exceed the carrying value of the group's share of
the disposal group's net assets and hence no impairment loss has
been recognised on the classification of these operations as held
for sale. Further details of this are shown in note 8.
15 Annual report
The annual report will be made available to shareholders in
June. Copies may be obtained from the Company Secretary, Severn
Trent Plc, PO Box 5309, Coventry CV3 9FH.
16 Annual general meeting
The Annual General Meeting will be held at the International
Convention Centre, Broad Street, Birmingham B1 2EA at 11am on
Wednesday 15 July 2015.
Ofwat KPI performance 2014/15 vs. 2013/14
Ofwat measures all water and sewerage companies against a suite
of KPIs. Our performance against these operational KPIs is set out
in the table below.
KPI 2015 2014
------------------------------------- -------------- ---------
Water Quality compliance(1,2) 99.96% 99.96%
------------------------------------- -------------- ---------
Water Serviceability - Deteriorating Marginal
Non infrastructure(4)
------------------------------------- -------------- ---------
Water supply interruptions(3)
(per properties, mins) 10 16
------------------------------------- -------------- ---------
Leakage (ml/day) 441 441
------------------------------------- -------------- ---------
Security of Supply 100 100
------------------------------------- -------------- ---------
Water Serviceability - Stable Marginal
Infrastructure(4)
------------------------------------- -------------- ---------
Internal sewer flooding 164 204
------------------------------------- -------------- ---------
Sewerage serviceability Marginal Marginal
- Infrastructure(4)
------------------------------------- -------------- ---------
Service Incentive Mechanism
- (Quantitative)(6) 105 143
------------------------------------- -------------- ---------
Pollution incidents
(Infrastructure Category
1,2,3, per 10,000km network)(2,5,) 63.88 77.97
------------------------------------- -------------- ---------
Serious pollution incidents
(Infrastructure Category
1,2 per 10,000km network)(2,5) 1.62 1.27
------------------------------------- -------------- ---------
Discharge permit compliance(2) 99.86% 99.29%
------------------------------------- -------------- ---------
Sewerage serviceability Stable Stable
- Non infrastructure(4)
------------------------------------- -------------- ---------
Greenhouse gas emissions
(ktCO2e) 490.6 510.9
------------------------------------- -------------- ---------
Satisfactory sludge disposal 100% 100%
------------------------------------- -------------- ---------
Notes:
1. Not a required Ofwat KPI but still reported
2. Measured on a calendar year basis
3. Number of minutes lost due to supply interruptions
for 3 hours or longer per property served
4. Ofwat serviceability score assesses how effectively
we are maintaining our network and assets against
a range of measures. Assessed as either improving,
stable, marginal or deteriorating.
5. Number of incidents adjusted to reflect company
size.
6. The SIM qualitative score this year is not compatible
with prior years due to a methodology change,
so only the quantitative score is presented.
Cautionary statement regarding Forward Looking Statements
This document contains statements that are, or may be deemed to
be, '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', 'will', 'would',
'should', 'expects', 'believes', 'intends', 'plans', 'projects',
'potential', 'reasonably possible', 'targets', 'goal' or
'estimates' and, in each case, their negative or other variations
or comparable terminology. Any forward-looking statements in this
document are based on Severn Trent's current expectations and, 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 may or may
not occur in the future.
Forward-looking statements are not guarantees of future
performance and no assurances can be given that the forward-looking
statements in this document will be realised. There are a number of
factors, many of which are beyond Severn Trent's control, that
could cause actual results, performance and developments to differ
materially from those expressed or implied by these forward-looking
statements. These factors include, but are not limited to: the
Principal Risks disclosed in our Annual Report as at May 2013
(which have not been updated since); 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. Subject to compliance with applicable laws and
regulations, Severn Trent does not intend to update these
forward-looking statements and does not undertake any obligation to
do so,
Nothing in this document should be regarded as a profits
forecast.
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).
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EADSFAEKSEAF
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