TIDMSVT
RNS Number : 9958G
Severn Trent PLC
26 November 2015
Half Yearly Financial Report
26 November 2015
Interim Results for the six months to 30 September 2015
Severn Trent Plc
Good start to new regulatory period
-- Good start to the year, underpinning our intention to outperform our Final Determination:
- Group turnover of GBP896.1 million, flat year on year
- Group PBIT of GBP281 million, up 2.6% on an underlying(1) basis
- Underlying(1) basic earnings per share of 58.6p, up 11.4%
-- We continue to reinforce the customer's place at the heart of our business
- Lowest combined customer bills in Britain with an average bill of GBP329
- A number of initiatives launched to keep customers informed,
including new digital services, Track My Job and In My Street, a
24/7 Twitter channel and web chat for customer contact
- Increased commitment to support customers, with overall
complaints reduced by 35% and a significant increase in the number
of customers helped through social tariffs
-- Confident of continued outperformance through our five levers:
1. Good progress in all operational metrics, with 83% showing improvements
-- GBP10 million net reward now expected from ODI outperformance
for 2015/16
2. Full GBP372 million(2) of efficiencies now secured for AMP6(3)
-- Up to GBP50 million more to be locked in by May 2016
-- Opportunity for further efficiencies
3. Wholesale totex of GBP467.1 million
-- Opex down through the efficiency programme
-- Good start to AMP6 capital programme, with GBP236 million(4)
invested in the first half;
4. 32% of Regulated Water and Waste Water's energy needs now
generated through our renewable energy programme, and on target for
50% by 2020
5. Good progress on our financing strategy
-- Average cost of debt now 4.6%, down from 5.5% in 2014/15
-- Completed GBP471 million(5) debut US private placement in
November
-- Interim dividend of 32.26p per share in line with policy
1. Underlying PBIT excludes exceptional operating items.
Underlying EPS is set out in note 8 to the financial statements
2. Efficiencies, at 12/13 prices, set out in the Final Determination for AMP6
3. AMP6 - regulatory period 2015 to 2020
4. Includes infrastructure maintenance expenditure of GBP52 million
5. Equivalent sterling value of total sterling and US dollar denominated debt
Liv Garfield, Chief Executive Severn Trent Plc, said:
"I am pleased to report strong progress in the first half of the
year, marking a good start to the new regulatory period. As we
continue to become an even more customer focused business we have
delivered some great improvements, evidenced by the decline in
customer complaints, and we continue to have the lowest combined
bills in Britain.
We are committed to delivering continued outperformance for the
benefit of our customers, colleagues and shareholders, having
already delivered tangible results in the first half. Thanks to the
great work of our teams we have now secured all GBP372 million of
our targeted AMP6 efficiencies while also delivering better service
to our customers. Through more intensive management of our network
we are seeing reduced supply interruptions, lower sewer flooding
incidents and faster incident response times. Our renewable energy
programme continues its rapid roll out and we are on track to
generate the equivalent of 50% of our energy needs by 2020.
With our operational metrics showing strong improvement, I would
like to thank all of my colleagues across the group for their
continued hard work in delivering great service for our customers
each and every day."
Group results from continuing operations
Underlying performance 2015 2014 Increase/
Six months ended 30 September (restated)(4) (Decrease)
GBPm GBPm %
--------------------------------------- ------- -------------- -----------
Group turnover 896.1 898.3 (0.2)
Underlying group PBIT(1) 281.0 273.8 2.6
Underlying group profit before tax(2) 174.7 154.7 12.9
--------------------------------------- ------- -------------- -----------
pence/ pence/
share share
--------------------------------------- ------- -------------- -----------
Underlying basic EPS(3) 58.6 52.6 11.4
Interim dividend declared 32.26 33.96 (5.0)
--------------------------------------- ------- -------------- -----------
Reported results 2015 2014 Increase/
Six months ended 30 September (restated)(4) (Decrease)
GBPm GBPm %
--------------------------------------------- ------- -------------- -----------
Group PBIT 281.0 280.3 0.2
Group profit before tax 186.2 137.1 35.8
Group profit for the period from continuing
operations 146.9 107.2 37.0
--------------------------------------------- ------- -------------- -----------
pence/ pence/
share share
--------------------------------------------- ------- -------------- -----------
Basic earnings per share from continuing
operations 60.5 44.8 35.0
--------------------------------------------- ------- -------------- -----------
1. Before exceptional items (see note 3)
2. Before exceptional items and net gains/(losses) on financial instruments
3. Before exceptional items, net gains/(losses) on financial
instruments, current tax on exceptional items and on financial
instruments and deferred tax (see note 8)
4. Restated due to discontinued operations (see note 6)
Enquiries
Investors & Analysts
0207 353 4200 (on the
David Lloyd-Seed Severn Trent Plc day)
Head of Investor Relations 02477 715000
0207 353 4200 (on the
Richard Tunnicliffe Severn Trent Plc day)
Investor Relations Manager 02477 715000
Media
0207 353 4200 (on the
Simon Harris Severn Trent Plc day)
Head of Communications 02477 71500
Martha Walsh/Chris Hughes Tulchan Communications 0207 353 4200
Interim Results Presentation and Webcast
There will be a presentation of these results at 9:30am on
Thursday 26 November at The Lincoln Centre, 18 Lincoln's Inn
Fields, London WC2A 3ED. 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 foundations we laid in preparing for AMP6 - transforming our
culture, driving operational excellence, improving the business
through the use of digital technology, and putting customers at the
heart of what we do - have ensured a good start. This has been
reflected in a good financial performance in the first half with
underlying profit before interest and tax up 2.6% at GBP281
million.
Our more streamlined organisational structure is enabling us to
speed up our decision making and approval processes while
empowering our colleagues to make the right decisions for
customers, for example when deploying our capital spend. In
addition, all our teams now have new digital devices which,
combined with our own apps, enables greater operational efficiency
and even higher right-first-time service delivery.
Our strong foundations are enabling us to deliver on our five
areas of potential outperformance: outcome delivery incentives
(ODIs); efficiency; total expenditure (totex); energy; and
financing, while continuing to improve services for customers.
Customers
We have made good progress in reinforcing the customer's place
at the heart of our business as we improve our services for them,
with operational metrics showing significant improvements.
Our customers benefit from the lowest combined bills in Britain
and will continue to do so throughout this AMP. In addition, we
have increased our commitment to support customers in need through
social tariffs, significantly increasing the number of customers we
have helped.
We have also launched a number of new digital services to
improve the service we deliver and to keep customers informed of
our ongoing activity. These include 'Track My Job', which enables
customers to track the progress of ongoing work, and 'In My
Street', which provides customers with information on scheduled
works near their homes to help them plan around any disruption.
We are the only company in the sector to offer 24/7 contact via
Twitter and have been benchmarked as offering highly effective
responses through this channel.
Increasing numbers of customers are choosing to engage with us
through our Webchat service, preferring the convenience, simplicity
and ease of use of this form of communication, from our youngest
customers in their first rental property to our oldest customers in
their nineties. We are able to see where customers need help online
and offer a quick, friendly and efficient service.
(MORE TO FOLLOW) Dow Jones Newswires
November 26, 2015 02:00 ET (07:00 GMT)
As we continue to drive improvements across all aspects of our
customer service, it is pleasing to see that we have seen the
number of complaints reduce again by a further 35%.
ODIs
We have made good progress in driving outperformance on our ODI
measures and expect to deliver GBP10 million of net rewards for
2015/16. ODIs are an important focus for us as they are based on
customer feedback on service improvements. With tougher targets in
the early years we have started strongly and are committed to
delivering further outperformance throughout AMP6. While customers
are benefitting from improved service levels today, we will, in the
main, receive the rewards through the pricing mechanism on a two
year lag basis.
Ofwat recently increased the value of ODIs by grossing them up
for tax. As a result, the incentive to outperform and deliver even
better service for customers is up to GBP70 million before tax each
year. We are working hard on all our ODI measures, with a
particular focus on the top ten that our customers told us were
most important to them.
As a result of the great work being done across the business we
have, for example, reduced internal sewer flooding instances by
35%, external sewer flooding instances by 24% and supply
interruptions by 33%. These improvements have come as we work
smarter, fix things quicker and take pre-emptive actions to prevent
issues arising in the first place.
Efficiency
Since our preliminary results announcement in May we have
secured a further GBP72 million of efficiency savings, meaning we
have now locked in all GBP372 million (2012/13 prices) of our
target efficiencies for AMP6. These additional savings primarily
come from working with our capital programme suppliers to drive
greater efficiencies in our contracts.
Through strategic programming and batching of our capital
programme, we have improved economies of scale and shortened
timescales for delivery. We have also introduced greater
competition between our framework suppliers and external
benchmarking for key batches of work to drive further savings.
We expect to lock in up to a further GBP50 million of
efficiencies by May and continue to work on further
opportunities.
Totex
Wholesale Totex in the first half was GBP467.1 million,
benefitting from our efficiency programme. In our Regulated Water
and Waste Water business, our capital programme for this AMP has
got off to a good start with capital expenditure of GBP184 million
and infrastructure maintenance expenditure of GBP52 million in the
first half.
Our engineering, commercial and wholesale teams are working
together to ensure that we deliver the best and most cost effective
solution for our customers and the business. They continue to
explore new ways of working - for example partnering with farmers
to reduce the impact on the local water catchment, cutting the need
for capital expenditure on water treatment as well as, in many
cases, reducing ongoing operational expenditure. We are exploring
how to maximise the utilisation of our existing assets to reduce
the need for new or replacement assets. We are working hard to
eliminate the causes of blockages in our sewer network to reduce
flooding instances and damage. The 'Love our Network' programme
engages with customers to help them understand what they can do to
help prevent blocked drains. We have piloted a scheme with a major
fast food restaurant chain, installing fat traps to reduce the
build-up of fat in drain networks.
Work on our most significant capital programme, the Birmingham
Resilience project, to ensure continuity of water supply to the
city, is making good progress. The enabling work is progressing
well and we remain on target to complete the project by the end of
2019.
Energy
In the first half of the year we have made further investments
in renewable energy sources and are now self-generating the
equivalent of 32% of our energy needs. Through our GBP190 million
AMP6 programme we are on target to generate the equivalent of 50%
of our energy needs by 2020. This enables us to both self supply
electricity to our own facilities without pass-through costs, as
well as to feed energy directly into the grid. We will have nine
solar arrays up and generating by Christmas, with a further 35
sites to be completed before the end of the financial year,
generating together around 25 GWh per annum. The recent changes in
incentives for solar generation mean this will complete our solar
programme for the time being. We have also just completed our final
two wind turbine sites in Nottingham and Lichfield, generating a
further annual output of 5GWh. The remainder of our renewables
investment programme will be centered on anaerobic digestion using
food waste, crops and thermal hydrolysis of sewage sludge.
Financing
We continue to make good progress on our financing strategy to
reduce costs, diversify our sources of debt funding and spread our
debt maturity profile. This month we completed our first US Private
Placement, raising the equivalent of GBP471 million at competitive
pricing with maturities ranging from 11 to 15 years. At the half
year our average cost of debt was 4.6%, down from 5.5% in 2014/15.
This will continue to decline as we replace maturing fixed rate
debt with lower floating rate financing.
Business Services
As previously outlined, we have brought together our
non-regulated businesses - Operating Services US, Operating
Services UK (including Severn Trent Water non-household retail),
and renewable energy - into our new "Business Services" division.
We completed the sale of the Water Purification business in the
first half.
The business continues to perform in line with expectations.
In the USA, with the total value of contracts secured in the
first half worth over GBP4 million, our contract renewal rates are
on target and we are pleased to be winning new business. In the UK
the MOD contract continues to perform well and we are pleased to
have made a very solid start in the first six months of our
contract with the Coal Authority.
In retail, we continue to prepare for the opening of further
competition in the non-household market in 2017. Our existing
customer base provides a great platform for growth. We are
participating succesfully in the Scottish retail market and have
had several good contract wins recently including Apex Hotels,
Greggs and Mitchells & Butlers. We were particularly pleased
that Sainsbury's chose to renew their relationship with us for a
further three years. With recent contract wins we will be serving
over 1,000 sites in Scotland and this provides invaluable
experience for us.
Technical Guidance 2015/16
There has been no material change to outlook for 2015/16 since
the trading update on 15 July.
-- Regulated Water and Waste Water:
o Revenues are expected to be in the range of GBP1.49 billion to
GBP1.51 billion.
o Wholesale Totex(1) is expected to be GBP1.03 billion to
GBP1.06 billion, of which 34.7% will be capitalised onto the
RCV.
o Operating costs under IFRS are expected to be lower year on
year due to the impact of the organisational changes and supply
chain efficiencies already announced.
o 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.
o We expect to earn net rewards for 2015/16 ODI outperformance
of GBP10 million, however these are received on a two year lag
basis.
-- In Business Services we continue to expect growth in revenues and PBIT year on year.
-- The group interest charge is now expected to be lower year on
year, with lower interest rates on new floating rate debt and lower
inflation reducing the cost of index-linked debt.
-- The effective current tax rate for the group for 2015/16 is
expected to be between 17% and 19%.
-- In line with our announced policy, the dividend for 2015/16
will be 80.66p and will grow by at least RPI annually over
AMP6.
1. Excludes retail costs, includes regulated renewables
Severn Trent Plc will announce its Q3 trading update on 3
February 2016.
Chief Financial Officer's Review
The group has delivered a strong financial performance in the
first six months of 2015/16, showing good margin improvement in our
Regulated Water and Waste Water business - and revenue growth on a
continuing operations basis in Business Services.
We continue to make good progress on our financing strategy, to
take advantage of currently low floating interest rates for new
debt, diversify our funding base and reduce future refinancing
risk. This month we have secured GBP471 million of floating rate
funding from the US Private Placement market, with a range of
maturities and deferred drawdown to coincide with Eurobond and EIB
maturities in spring 2016. Following the successful liability
management and refinancing exercises at the start of the year, our
effective interest rate has continued to fall to 4.6% for the half
year (2014/15: 5.5%).
A brief overview of our financial performance for the six month
period is as follows:
-- Group turnover from continuing operations was GBP896.1
million (2014/15: GBP898.3 million), a decrease of 0.2% -- after
absorbing the price reduction in our regulated water and waste
water business.
-- Underlying PBIT(1) increased by 2.6% to GBP281.0 million
(2014/15: GBP273.8 million) as we saw improving margins from our
focus on operational cost efficiencies.
-- Reported group PBIT(1) was GBP281.0 million (2014/15: GBP280.3 million).
-- There were no exceptional items in the period (2014/15: credit of GBP6.5 million).
-- Net finance costs were GBP106.3 million (2014/15: GBP119.1 million).
1. PBIT is profit before interest and tax; underlying PBIT
excludes exceptional items as set out in note 3.
Changes to segmental presentation
(MORE TO FOLLOW) Dow Jones Newswires
November 26, 2015 02:00 ET (07:00 GMT)
The group is now organised into two main business segments,
Regulated Water and Waste Water and Business Services. Regulated
Water and Waste Water comprises Severn Trent Water's wholesale
operations and household retail activities and related support
functions. Business Services comprises the Operating Services
businesses in the USA, UK, Ireland and Italy, the group's renewable
energy business and Severn Trent Water's non-household retail
business. The Water Purification business, which was sold on 2 July
2015, has been treated as a discontinued operation.
The tables below reconcile our results for the period ended 30
September 2015 under the old segmental basis (Severn Trent Water,
Severn Trent Services, and Corporate and Other) to the new
basis.
Regulated Water and Waste Regulated
Water Severn Renewable Additional Water
Trent energy Non household inter-segment and Waste
Water (regulated) retail sales Water
GBPm GBPm GBPm GBPm GBPm
--------------------------- ---------- -------------------- ----------------- --------------- -------------
Total sales 781.0 (12.0) (200.3) 185.7 754.4
--------------------------- ---------- -------------------- ----------------- --------------- -------------
Underlying PBIT 283.0 (6.5) (6.3) - 270.2
--------------------------- ---------- -------------------- ----------------- --------------- -------------
Business Services Renewable
Severn energy Additional
Trent (regulated Non household inter-segment Business
Services and non-regulated) retail sales Services
GBPm GBPm GBPm GBPm GBPm
--------------------------- ---------- -------------------- ----------------- --------------- -------------
Total sales 113.2 15.9 200.3 7.9 337.3
--------------------------- ---------- -------------------- ----------------- --------------- -------------
Underlying PBIT 4.9 6.1 6.3 - 17.3
--------------------------- ---------- -------------------- ----------------- --------------- -------------
Corporate and Other Corporate Renewable Additional Corporate
and Other energy inter-segment and Other
(old basis) (non-regulated) sales (new basis)
GBPm GBPm GBPm GBPm
--------------------------- ---------- -------------------- ----------------- --------------- -------------
Total sales 6.9 (3.9) - 3.0
--------------------------- ---------- -------------------- ----------------- --------------- -------------
Underlying PBIT (6.2) 0.4 - (5.8)
--------------------------- ---------- -------------------- ----------------- --------------- -------------
The new segments reflect the way we have organised and are
managing the group. Our renewable energy business, including the
electricity and gas generating assets owned by Severn Trent Water's
regulated business, is now all managed in Business Services. In
preparation for further competition for non-household retail from
April 2017, we have transferred management responsibility for these
activities to Business Services. This creates a clear separation
between our regulated wholesale and non-regulated retail
activities.
Comparative financial information for the prior year on the new
basis is not available across all segments and so the commentary
that follows describes year on year performance on the old
basis.
Regulated Water and Waste Water
Turnover for the new Regulated Water and Waste Water segment was
GBP754.4 million and underlying PBIT was GBP270.2 million.
On a like for like basis, turnover decreased by 1.5%, primarily
as a result of the price reduction in our Final Determination,
offset by modest consumption increases and tariff mix effects.
Underlying PBIT increased by 2.9% as our management of operational
costs more than offset the decline in turnover.
New basis Old basis
-------------------------------------
Six months ended 30 September 2015 2015 2014 Better/(worse)
GBPm GBPm GBPm GBPm %
------------------------------- ---------- -------- -------- --------- ------
Turnover 754.4 781.0 793.0 (12.0) (1.5)
Net labour costs (141.7) (154.5) (155.7) 1.2 0.8
Bad debts (12.8) (14.8) (15.7) 0.9 5.7
Power (35.6) (35.7) (34.9) (0.8) (2.3)
Infrastructure maintenance (52.0) (52.0) (64.6) 12.6 19.5
Depreciation (152.1) (153.5) (152.6) (0.9) (0.6)
Other costs (90.0) (87.5) (94.4) 6.9 7.3
------------------------------- ---------- --------
Underlying PBIT 270.2 283.0 275.1 7.9 2.9
---------- -------- --------- ------
Adjustment for new segmental
basis (12.8)
Underlying PBIT (new basis) 270.2
-------- -------- --------- ------
Net labour costs were GBP1.2 million (0.8%) lower period on
period. Employee costs decreased by GBP8.2 million reflecting the
benefits of the reorganisation implemented in the previous year and
the closure of the defined benefit pension schemes to future
accrual. These offset additional costs provided for the new
company-wide incentive scheme launched at the beginning of the
year. Hired and contracted costs increased by GBP3.2 million due to
earlier costs incurred on project design and feasibility work. The
amount of own labour capitalised was GBP3.8 million lower
reflecting marginally lower activities on our capital works
programme in the first half of this year compared to the same
period in 2014/15.
Bad debt charges were 1.9% of turnover in the period (2014/15:
2.0%) and fell by GBP0.9 million (on the old basis which includes
both household and non-household retail), driven by improved credit
management practices.
Power costs were up slightly year on year reflecting higher unit
price costs offset by lower volumes used. The group manages its
power costs through a combination of self generation, forward price
contracts and financial derivatives.
Infrastructure maintenance expenditure was GBP12.6 million lower
in the period as the company mobilised its leaner, more efficient
programme for AMP6 while continuing to meet all service
obligations. The changes implemented are expected to deliver
economies of scale and shorter lead times throughout AMP6.
Depreciation was GBP0.9 million higher period on period, and
other costs decreased by GBP6.9 million, largely due to a rebate of
GBP4.4 million from the Environment Agency and a profit of GBP3.4
million on property disposals.
Business Services
Turnover for the new Business Services segment was GBP337.3
million and underlying PBIT was GBP17.3 million.
On a like for like basis, and at constant currencies, turnover
in the non-regulated Operating Services (formerly "Severn Trent
Services") continuing business increased by GBP4.1 million to
GBP113.2 million and underlying PBIT increased by GBP0.5 million to
GBP4.9 million.
Six months ended 30 September 2015 2014 Increase/
(restated) (decrease)
GBPm GBPm GBPm
-------------------------------------- ------ ----------- -----------
Turnover
As reported 113.2 104.5 8.7
Impact of exchange rate fluctuations - 4.6 (4.6)
-------------------------------------- ------ -----------
On constant exchange rates 113.2 109.1 4.1
-------------------------------------- ------ ----------- -----------
Underlying PBIT
As reported 4.9 4.5 0.4
Impact of exchange rate fluctuations - (0.1) 0.1
-------------------------------------- ------ -----------
On constant exchange rates 4.9 4.4 0.5
-------------------------------------- ------ ----------- -----------
These results above exclude the Water Purification business,
which was sold during the period and has been classified as a
discontinued operation in the current and previous periods.
Corporate and Other
Corporate and Other incurred a net charge before interest, tax
and exceptional items of GBP5.8 million for the six months ended 30
September 2015.
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November 26, 2015 02:00 ET (07:00 GMT)
On a like for like basis net charges for the six month period
were GBP6.2 million (2014/15: GBP7.6 million) reflecting corporate
overheads GBP1.0 million lower than the prior period.
Exceptional items before tax
There were no exceptional items relating to continuing
operations in the six months to 30 September 2015 (2014/15: credit
of GBP6.5 million -- see note 3).
Net finance costs
The group's net finance costs for the six month period were
GBP106.3 million, GBP12.8 million lower than the prior period
(GBP119.1 million). The reduction was due to lower inflation in the
period which has led to lower finance costs on index linked debt,
and also lower costs on new floating rate debt. Finance costs
capitalised were lower than the prior year due to a lower level of
capital work in progress.
The effective interest rate, including index linked debt, for
the period to September 2015 was 4.6% (2014/15: 5.5%). The
effective cash cost of interest (excluding the RPI uplift on index
linked debt) was 4.3% (2014/15: 4.8%).
The group's net interest charge, excluding net gains/(losses) on
financial instruments and net finance costs from pensions, was
covered 4.4 times (2014/15: 3.9 times) by profit before interest,
tax, depreciation, profit on sale of fixed assets, deferred income
release and exceptional items, and 2.8 times (2014/15: 2.5 times)
by underlying PBIT.
Derivative financial instruments
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 strict 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 as the change in
value of the derivative, then an accounting mismatch arises and
there is a net charge or credit to the income statement.
Where the derivatives are held for their full term, these
mismatches are expected to net out. Furthermore, the changes in
value that are recorded during the lives of the derivatives, unless
crystallised, do not represent cash flows.
An analysis of the amounts charged to the income statement in
the period is presented in note 4 to the financial statements.
Taxation
Note 5 in the financial statements sets out the tax charges and
credits in the period, which are described in more detail
below.
The current tax charge for the period was GBP31.5 million
(2014/15: GBP29.6 million).
Our underlying effective current tax rate was in line with
guidance at 18.4% (2014/15: 19.1%). The effective rate is
calculated as current tax, excluding prior year charges,
exceptional tax, and current tax on exceptional items and on
financial instruments, divided by profit before tax, exceptional
items and net gains/(losses) on financial instruments.
Profit for the period and earnings per share
Profit for the period from continuing operations increased by
37% to GBP146.9 million (2014/15: GBP107.2 million), a greater
increase than group PBIT due to the positive impact of lower
financing costs, net gains in the period on financial instruments
and the lower tax rate.
The loss for the period from discontinued operations was GBP0.7
million (2014/15: profit of GBP1.1 million).
Total profit for the period including discontinued operations
was GBP146.2 million (2014/15: GBP108.3 million).
Basic earnings per share from continuing operations increased by
35% to 60.5 pence (2014/15: 44.8 pence). Underlying basic earnings
per share (before exceptional items, net gains/(losses) on
financial instruments, current tax on exceptional items and on
financial instruments and deferred tax) were 58.6 pence (2014/15:
52.6 pence). For further details see note 8.
Cash flow
Six months ended 30 September 2015 2014
GBPm GBPm
-------------------------------------- ------------- ---------- -------------
Cash generated from operations 495.5 486.3
Net capital expenditure (190.2) (212.8)
Net interest paid (70.4) (79.0)
Proceeds on disposal of discontinued
operations 47.1 -
Tax paid (7.9) (15.3)
Other cash flows - (1.6)
-------------------------------------- ------------- ---------- -------------
Free cash flow 274.1 177.6
Dividends (121.2) (115.5)
Issue of shares 7.0 6.2
Purchase of own shares (66.8) (2.5)
-------------
Change in net debt from cash flows 93.1 65.8
Non-cash movements 22.3 (1.1)
-------------------------------------- ------------- ---------- -------------
Change in net debt 115.4 64.7
Net debt as at 1 April (4,752.6) (4,447.5)
-------------------------------------- ------------- ---------- -------------
Net debt as at 30 September (4,637.2) (4,382.8)
-------------------------------------- ------------- ---------- -------------
Net debt comprises:
30 September 31 March 30 September
2015 2015 2014
GBPm GBPm GBPm
-------------------------------------- ------------- ---------- -------------
Cash and cash equivalents 57.2 176.7 154.1
Bank overdrafts (2.6) - (0.6)
Bank loans (1,125.1) (1,279.2) (595.8)
Other loans (3,432.2) (3,467.5) (3,786.1)
Finance leases (142.6) (180.0) (180.7)
Cross currency swaps hedging debt 8.1 (2.6) 26.3
-------------------------------------- ------------- ---------- -------------
Net debt (4,637.2) (4,752.6) (4,382.8)
-------------------------------------- ------------- ---------- -------------
At 30 September 2015 the group had GBP57.2 million (31 March
2015: GBP176.7 million) in cash and cash equivalents. Average debt
maturity is around 15 years. Including committed facilities, the
group's cash flow requirements are funded until January 2018.
Cash is invested in deposits with highly rated banks and
liquidity funds and the list of counterparties is regularly
reviewed and reported to the Board.
Net debt at 30 September 2015 was GBP4,637.2 million (31 March
2015: GBP4,752.6 million). Balance sheet gearing (net debt/net debt
plus equity) at the half year was 83.3% (31 March 2015: 85.2%). Net
debt, expressed as a percentage of estimated Regulatory Capital
Value at 30 September 2015 was 59.7% (31 March 2015: 61.9%).
The estimated fair value of debt at 30 September 2015 was GBP498
million higher than book value (31 March 2015: GBP892.8 million
higher). The decrease in the difference to book value is largely
due to the increase in the discount rates applied, driven by market
expectations of higher interest rates.
Pensions
The group operates two defined benefit pension schemes, of which
the Severn Trent Pension Scheme (STPS) is by far the largest.
Formal triennial actuarial valuations and funding agreements were
last undertaken for the STPS as at 31 March 2013. The defined
benefit schemes closed to future accrual on 31 March 2015.
On an IAS 19 basis, the estimated net position (before deferred
tax) of all of the group's defined benefit pension schemes was a
deficit of GBP382.4 million as at 30 September 2015. This compares
to a deficit of GBP468.9 million as at 31 March 2015. The decrease
in the deficit was the result of an increase in the discount rate
by 0.5 percentage points, partly offset by the falling value of
equities since the previous year end.
The movements in the net deficit during the period were:
Defined Fair value
benefit of plan
obligations assets Net deficit
GBPm GBPm GBPm
----------------------------- ------------- ----------- ------------
At 1 April 2015 (2,555.7) 2,086.8 (468.9)
Employer contributions 0.2 4.2 4.4
Employee contributions (0.3) 0.3 -
Benefits paid 50.3 (50.3) -
Scheme administration costs - (0.6) (0.6)
Net finance cost (41.4) 33.8 (7.6)
Actuarial gains and losses 218.3 (128.0) 90.3
At 30 September 2015 (2,328.6) 1,946.2 (382.4)
----------------------------- ------------- ----------- ------------
On an IAS 19 basis, the funding level has marginally improved to
84% (31 March 2015: 82%).
Exchange rates
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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 the
subsidiaries trading results was immaterial.
Dividends
The Board has declared an interim ordinary dividend of 32.26p
per share (2014/15: 33.96p per share), which will be paid on 8
January 2016 to shareholders on the register at 4 December
2015.
Principal risks and uncertainties
The Board considers the principal risks and uncertainties
affecting the business activities of the group for the remainder of
the financial year 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.
Legal and Regulatory Environment:
-- 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:
-- Failure of our assets or processes, resulting in injury to an
employee, contractor, customer or member of the public.
-- 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.
Condensed consolidated income statement
Six months ended 30 September 2015
2015 2014
(restated)
Notes GBPm GBPm
--------------------------------------------------- ------ -------- -----------
Turnover 2 896.1 898.3
Operating costs before exceptional items (615.1) (624.5)
Exceptional operating items 3 - 6.5
--------------------------------------------------- ------ -------- -----------
Total operating costs (615.1) (618.0)
Profit before interest, tax and exceptional
items 2 281.0 273.8
Exceptional items 3 - 6.5
--------------------------------------------------- ------ -------- -----------
Profit before interest and tax 281.0 280.3
Finance income 34.4 40.5
Finance costs (140.7) (159.6)
--------------------------------------------------- ------ -------- -----------
Net finance costs (106.3) (119.1)
Net gains/(losses) on financial instruments 4 11.5 (24.1)
Profit before tax, net gains/(losses) on
financial instruments and exceptional items 174.7 154.7
Exceptional items - 6.5
Net gains/(losses) on financial instruments 4 11.5 (24.1)
--------------------------------------------------- ------ -------- -----------
Profit on ordinary activities before taxation 186.2 137.1
Current tax 5 (31.5) (29.6)
Deferred tax 5 (7.8) (0.3)
Taxation on profit on ordinary activities 5 (39.3) (29.9)
--------------------------------------------------- ------ -------- -----------
Profit for the period from continuing operations 146.9 107.2
(Loss)/profit for the period from discontinued
operations 6 (0.7) 1.1
--------------------------------------------------- ------ -------- -----------
Profit for the period 146.2 108.3
Attributable to:
Owners of the company 143.7 107.5
Non-controlling interests 2.5 0.8
--------------------------------------------------- ------ -------- -----------
146.2 108.3
--------------------------------------------------- ------ -------- -----------
Earnings per share (pence)
From continuing operations
Basic 8 60.5 44.8
Diluted 8 60.3 44.7
From continuing and discontinued operations
Basic 8 60.3 45.1
Diluted 8 60.0 44.9
--------------------------------------------------- ------ -------- -----------
Condensed consolidated statement of comprehensive
income
Six months ended 30 September 2015 2015 2014
GBPm GBPm
------------------------------------------------------------ -------- -----------
Profit for the period 146.2 108.3
------------------------------------------------------------ -------- -----------
Other comprehensive income/(loss)
Items that will not be reclassified to the income
statement:
Net actuarial gains/(losses) on defined benefit
pension schemes 90.3 (31.4)
Tax on net actuarial gains/losses (18.1) 6.2
72.2 (25.2)
------------------------------------------------------------ -------- -----------
Items that may be reclassified to the income statement:
Loss on cash flow hedges (0.6) (12.2)
Deferred tax on loss on cash flow hedges 0.1 2.4
Amounts on cash flow hedges transferred to the
income statement in the period 6.8 6.0
Deferred tax on transfers to income statement (1.4) (1.2)
Disposal of minority interest (13.7) -
Exchange movement on translation of overseas results
and net assets (3.4) 2.2
Cumulative exchange losses transferred to income 11.7 -
statement
(0.5) (2.8)
------------------------------------------------------------ -------- -----------
Other comprehensive income/(loss) for the period 71.7 (28.0)
------------------------------------------------------------ -------- -----------
Total comprehensive income for the period 217.9 80.3
------------------------------------------------------------ -------- -----------
Attributable to:
Owners of the company 229.0 79.4
Non-controlling interests (11.1) 0.9
------------------------------------------------------------ -------- -----------
217.9 80.3
------------------------------------------------------------ -------- -----------
Condensed consolidated statement of changes in equity
Six months ended 30 September 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 2014 233.9 94.2 82.2 667.3 1,077.6 12.5 1,090.1
--------------------- -------- -------- --------- ---------- ------------------ ------------------- ----------
Profit for the
period - - - 107.5 107.5 0.8 108.3
Loss on cashflow
hedges - - (12.2) - (12.2) - (12.2)
Deferred tax on loss
on cashflow hedges - - 2.4 - 2.4 - 2.4
Amounts on cash flow
hedges transferred
to
the income
statement - - 6.0 - 6.0 - 6.0
Deferred tax on
transfers
to the income
statement - - (1.2) - (1.2) - (1.2)
Exchange movement on
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November 26, 2015 02:00 ET (07:00 GMT)
translation of
overseas
results and net
assets - - 2.1 - 2.1 0.1 2.2
Net actuarial losses - - - (31.4) (31.4) - (31.4)
Tax on net actuarial
losses - - - 6.2 6.2 - 6.2
Total comprehensive
income for the
period - - (2.9) 82.3 79.4 0.9 80.3
Share options and
LTIPs
- proceeds from
shares
issued 0.7 5.5 - - 6.2 - 6.2
- value of
employees'
services - - - 4.0 4.0 - 4.0
- own shares
purchased - - - (2.5) (2.5) - (2.5)
Current tax on share
based payments - - - 0.6 0.6 - 0.6
Deferred tax on
share
based payments - - - (0.4) (0.4) - (0.4)
Dividends paid - - - (115.5) (115.5) (1.6) (117.1)
--------------------- -------- -------- --------- ---------- ------------------ ------------------- ----------
At 30 September 2014 234.6 99.7 79.3 635.8 1,049.4 11.8 1,061.2
--------------------- -------- -------- --------- ---------- ------------------ ------------------- ----------
At 1 April 2015 233.7 100.2 98.2 377.8 809.9 13.4 823.3
--------------------- -------- -------- --------- ---------- ------------------ ------------------- ----------
Profit for the
period - - - 143.7 143.7 2.5 146.2
Loss on cashflow
hedges - - (0.6) - (0.6) - (0.6)
Deferred tax on loss
on cashflow hedges - - 0.1 - 0.1 - 0.1
Amounts on cash flow
hedges transferred
to
the income
statement - - 6.8 - 6.8 - 6.8
Deferred tax on
transfers
to the income
statement - - (1.4) - (1.4) - (1.4)
Exchange movement on
translation of
overseas
results and net
assets - - (3.5) - (3.5) 0.1 (3.4)
Cumulative exchange
losses transferred
to
income statement - - 11.7 - 11.7 - 11.7
Disposal of minority
interest - - - - - (13.7) (13.7)
Net actuarial gains - - - 90.3 90.3 - 90.3
Tax on net actuarial
gains - - - (18.1) (18.1) - (18.1)
Deferred tax arising - - - - - - -
from rate change
-------- -------- --------- ---------- ------------------ ------------------- ----------
Total comprehensive
income for the
period - - 13.1 215.9 229.0 (11.1) 217.9
Share options and
LTIPs
- proceeds from
shares
issued 0.7 6.3 - - 7.0 - 7.0
- value of
employees'
services - - - 2.7 2.7 - 2.7
- own shares
purchased - - - (1.7) (1.7) - (1.7)
Current tax on share
based payments - - - 1.1 1.1 - 1.1
Deferred tax on
share
based payments - - - (0.1) (0.1) - (0.1)
Share cancellation (0.1) - 0.1 - - - -
Dividends paid - - - (121.2) (121.2) - (121.2)
--------------------- -------- -------- --------- ---------- ------------------ ------------------- ----------
At 30 September 2015 234.3 106.5 111.4 474.5 926.7 2.3 929.0
--------------------- -------- -------- --------- ---------- ------------------ ------------------- ----------
Condensed consolidated balance sheet
At 30 September 2015 30 September 31 March
Notes 2015 2015
(restated)
GBPm GBPm
---------------------------------------------------------------- ----------- ---------------------- -----------------
Non-current assets
Goodwill 14.1 14.3
Other intangible assets 66.7 66.7
Property, plant and equipment 7,581.6 7,520.0
Interests in joint ventures and associates 4.7 4.6
Derivative financial instruments 13.2 13.5
Available for sale financial assets 0.1 0.1
---------------------------------------------------------------- ----------- ---------------------- -----------------
7,680.4 7,619.2
---------------------------------------------------------------- ----------- ---------------------- -----------------
Current assets
Inventory 16.2 16.7
Trade and other receivables 506.0 492.0
Current tax receivable - 11.2
Derivative financial instruments 2.3 13.5
Cash and cash equivalents 57.2 176.7
Assets held for sale 6 - 107.9
---------------------------------------------------------------- ----------- ---------------------- -----------------
581.7 818.0
---------------------------------------------------------------- ----------- ---------------------- -----------------
Total assets 8,262.1 8,437.2
---------------------------------------------------------------- ----------- ---------------------- -----------------
Current liabilities
Borrowings 9 (562.5) (463.0)
Derivative financial instruments (6.6) (32.2)
Trade and other payables (546.6) (494.0)
Current income tax liabilities (11.3) -
Provisions for liabilities and charges (11.6) (15.9)
Liabilities associated with assets held for
sale 6 - (35.3)
---------------------------------------------------------------- ----------- ----------------------
(1,138.6) (1,040.4)
---------------------------------------------------------------- ----------- ---------------------- -----------------
Non-current liabilities
Borrowings 9 (4,140.0) (4,463.7)
Derivative financial instruments (160.3) (175.1)
Trade and other payables (838.9) (822.2)
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Deferred tax (652.4) (625.1)
Retirement benefit obligations 11 (382.4) (468.9)
Provisions for liabilities and charges (20.5) (18.5)
---------------------------------------------------------------- ----------- ---------------------- -----------------
(6,194.5) (6,573.5)
---------------------------------------------------------------- ----------- ---------------------- -----------------
Total liabilities (7,333.1) (7,613.9)
---------------------------------------------------------------- ----------- ---------------------- -----------------
Net assets 929.0 823.3
---------------------------------------------------------------- ----------- ---------------------- -----------------
Equity
Called up share capital 12 234.3 233.7
Share premium account 106.5 100.2
Other reserves 111.4 98.2
Retained earnings 474.5 377.8
---------------------------------------------------------------- ----------- ---------------------- -----------------
Equity attributable to owners of the company 926.7 809.9
Non-controlling interests 2.3 13.4
---------------------------------------------------------------- ----------- ---------------------- -----------------
Total equity 929.0 823.3
---------------------------------------------------------------- ----------- ---------------------- -----------------
Condensed consolidated cash flow statement
Six months ended 30 September 2015 2015 2014
Notes GBPm GBPm
---------------------------------------------------------------- ------ ---------------- --------------------
Cash generated from operations 13 495.5 486.3
Tax paid (7.9) (15.3)
---------------------------------------------------------------- ------ ---------------- --------------------
Net cash generated from operating activities 487.6 471.0
---------------------------------------------------------------- ------ ---------------- --------------------
Investing activities
Interest received 0.6 1.1
Proceeds on disposal of discontinued operations 6 47.1 -
Proceeds on disposal of property, plant and
equipment 5.4 0.5
Purchases of intangible assets (11.5) (4.4)
Purchases of property, plant and equipment (206.7) (226.2)
Contributions and grants received 22.6 17.3
---------------------------------------------------------------- ------ ---------------- --------------------
Net cash used in investing activities (142.5) (211.7)
---------------------------------------------------------------- ------ ---------------- --------------------
Financing activities
Interest paid (69.3) (77.4)
Interest element of finance lease payments (1.7) (2.7)
Dividends paid to shareholders of the parent (121.2) (115.5)
Dividends paid to non-controlling interests - (1.6)
Repayments of borrowings (527.7) (15.5)
Repayments of obligations under finance leases (37.4) (20.5)
New loans raised 330.7 -
Issues of shares 7.0 6.2
Share buy back (65.1) -
Purchase of own shares (1.7) (2.5)
---------------------------------------------------------------- ------ ---------------- --------------------
Net cash used in financing activities (486.4) (229.5)
---------------------------------------------------------------- ------ ---------------- --------------------
Net (decrease)/increase in cash and cash equivalents (141.3) 29.8
Net cash and cash equivalents at beginning
of period 176.7 123.2
Amounts in assets held for sale at beginning
of period 6 19.3 -
Effect of foreign exchange rates (0.1) 0.5
---------------------------------------------------------------- ------ ---------------- --------------------
Net cash and cash equivalents at end of period 54.6 153.5
---------------------------------------------------------------- ------ ---------------- --------------------
Net cash and cash equivalents
Cash and cash equivalents 57.2 154.1
Bank overdrafts (2.6) (0.6)
---------------------------------------------------------------- ------ ---------------- --------------------
54.6 153.5
---------------------------------------------------------------- ------ ---------------- --------------------
Notes to the condensed interim financial information
1 General information
The interim report has been prepared in accordance with the
recognition and measurement criteria of IFRS and the disclosure
requirements of the Listing Rules.
The information for the year ended 31 March 2015 does not
constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006. A copy of the statutory accounts for that
year prepared under IFRS has been delivered to the Registrar of
Companies. The auditor's report on those accounts was unqualified,
did not draw attention to any matters by way of emphasis and did
not contain statements under section 498 (2) or (3) of the
Companies Act 2006.
Accounting policies
The interim financial information has been prepared on the going
concern basis using accounting policies consistent with
International Financial Reporting Standards and in accordance with
IAS 34 "Interim Financial Reporting" as adopted by the European
Union. The same accounting policies, presentation and methods of
computation are followed in the interim financial information as
applied in the group's annual financial statements for the year
ended 31 March 2015.
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 6.
The comparative balance sheet has been restated to reflect a
reclassification between property plant and equipment and
non-current trade and other payables. Contributions, which had been
received in previous years in relation to infrastructure assets,
and which had a carrying value of GBP280.2 million as at 31 March
2015, were identified as being deducted from the carrying value of
property plant and equipment. In order to comply with the
requirements of IAS 16 and IAS 18, these contributions have been
reclassified from property plant and equipment to non-current trade
and other payables.
As a consequence of this reclassification, the cumulative
depreciation charge recognised in retained earnings as at 31 March
2015 has increased by GBP25.3 million with a corresponding increase
of the same amount in the cumulative release of deferred income to
the income statement.
Going concern
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Including undrawn committed credit facilities, the group is
fully funded for its investment and cash flow needs until January
2018. After making enquiries the directors have a reasonable
expectation that the group has adequate resources to continue in
operational existence for the foreseeable future and hence the
interim financial information has been prepared on a going concern
basis.
Seasonality
The group's businesses are not seasonal in nature.
2 Segmental analysis
The group is organised into two main business segments:
Regulated Water and Waste Water includes the wholesale water and
waste water activities of the group's regulated subsidiary Severn
Trent Water Limited and its retail services to domestic
customers.
Business Services includes the group's Operating Services
businesses in the US and the UK, Severn Trent Water Limited's
non-household retail activities and the group's renewable energy
business.
In the prior year interim results all of Severn Trent Water
Limited's activities comprised a single segment and Severn Trent
Services comprised the group's Operating Services and Water
Purification businesses. Comparative information for the new
segmentation is not available and the cost to develop it would be
excessive. Therefore the current year results have been presented
on both the old basis and new basis of segmentation in accordance
with IFRS 8.
The Water Purification business was classified as a discontinued
operation in the year ended 31 March 2015 and the sale of this
business was completed on 2 July 2015. The prior year segmental
results have been restated to present the Water Purification
business as a discontinued operation.
The tables below show the changes from the old to the new
segmentation for turnover and PBIT for the six month period ended
30 September 2015:
Regulated Water and Waste Regulated
Water Severn Renewable Additional Water
Trent energy Non household inter-segment and Waste
Water (regulated)(1) retail(2) sales(3) Water
GBPm GBPm GBPm GBPm GBPm
---------------------------- ------------- ----------------------- -------------- --------------- -------------
External sales 780.5 (12.0) (200.3) - 568.2
Inter-segment sales 0.5 - - 185.7 186.2
----------------------------
Total sales 781.0 (12.0) (200.3) 185.7 754.4
---------------------------- ------------- ----------------------- -------------- --------------- -------------
Profit before interest and
tax 283.0 (6.5) (6.3) - 270.2
---------------------------- ------------- ----------------------- -------------- --------------- -------------
Business Services Renewable
Severn energy Additional
Trent (regulated Non household inter-segment Business
Services and non-regulated)(1) retail(2) sales(4) Services
GBPm GBPm GBPm GBPm GBPm
---------------------------- ------------- ----------------------- -------------- --------------- -------------
External sales 113.2 14.3 200.3 - 327.8
Inter-segment sales - 1.6 - 7.9 9.5
----------------------------
Total sales 113.2 15.9 200.3 7.9 337.3
---------------------------- ------------- ----------------------- -------------- --------------- -------------
Profit before interest and
tax 4.9 6.1 6.3 - 17.3
---------------------------- ------------- ----------------------- -------------- --------------- -------------
Corporate and Other Corporate Renewable Additional Corporate
and Other energy Non household inter-segment and Other
(old basis) (non-regulated)(1) retail(2) sales (new basis)
GBPm GBPm GBPm GBPm GBPm
---------------------------- ------------- ----------------------- -------------- --------------- -------------
External sales 2.4 (2.3) - - 0.1
Inter-segment sales 4.5 (1.6) - - 2.9
----------------------------
Total sales 6.9 (3.9) - - 3.0
---------------------------- ------------- ----------------------- -------------- --------------- -------------
Profit before interest and
tax (6.2) 0.4 - - (5.8)
---------------------------- ------------- ----------------------- -------------- --------------- -------------
1. The electricity generating assets owned by Severn Trent's
regulated and non-regulated businesses are now managed by the
Business Services segment
2. Management of the non-household retail activities in England
has been transferred to the Business Services segment
3. The additional inter-segment sales in Regulated Water and
Waste Water represent the wholesale water and waste water charges
to non-household retail within Business Services
4. The additional inter-segment sales in Business Services
represent sales from the Regulated Renewable Energy business to
Regulated Water and Waste Water
The following table shows the segmental turnover and PBIT on the
old segmentation:
Six months ended 30 September 2015 2014
(restated)
------------------- -------------------
Severn Severn Severn Severn
Trent Trent Trent Trent
Water Services Water Services
GBPm GBPm GBPm GBPm
--------------------------------- ------- ---------- ------- ----------
External sales 780.5 113.2 792.2 104.5
Inter-segment sales 0.5 - 0.8 -
---------------------------------
Total sales 781.0 113.2 793.0 104.5
--------------------------------- ------- ---------- ------- ----------
Profit before interest, tax and
exceptional items 283.0 4.9 275.1 4.5
Exceptional items (see note 3) - - - 6.5
---------------------------------
Profit before interest and tax 283.0 4.9 275.1 11.0
--------------------------------- ------- ---------- ------- ----------
The reportable segments' external turnover is reconciled to
group turnover as follows:
Six months ended 30 September 2015 2015 2014
(new basis) (old basis) (restated)
GBPm GBPm GBPm
--------------------------------- ------------ ------------ -----------
Severn Trent Water - 780.5 792.2
Severn Trent Services - 113.2 104.5
Regulated Water and Waste Water 568.2 - -
Business Services 327.8 - -
Corporate and other 0.1 2.4 1.6
896.1 896.1 898.3
--------------------------------- ------------ ------------ -----------
Segmental underlying PBIT is reconciled to the group's profit
before tax as follows:
Six months ended 30 September 2015 2015 2014
(new basis) (old basis) (restated)
GBPm GBPm GBPm
--------------------------------------------- ------------ ------------ -----------
Underlying PBIT:
Severn Trent Water - 283.0 275.1
Severn Trent Services - 4.9 4.5
Regulated Water and Waste Water 270.2 - -
Business Services 17.3 - -
Corporate and other (5.8) (6.2) (7.6)
Consolidation adjustments (0.7) (0.7) 1.8
---------------------------------------------- ------------ ------------ -----------
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November 26, 2015 02:00 ET (07:00 GMT)
Group underlying PBIT 281.0 281.0 273.8
Exceptional items:
Severn Trent Services - - 6.5
Net finance costs (106.3) (106.3) (119.1)
Net gains/(losses) on financial instruments 11.5 11.5 (24.1)
----------------------------------------------
Profit before tax 186.2 186.2 137.1
---------------------------------------------- ------------ ------------ -----------
The tables below show the changes from the old to the new
segmentation for capital employed as at 30 September 2015:
Regulated Water and Waste Regulated
Water Severn Renewable Non Inter-segment Water
Trent energy household payables and Waste
Water (regulated) retail & receivables Water
GBPm GBPm GBPm GBPm GBPm
------------------------------- ---------- -------------------- ----------- --------------- -----------
Operating assets 8,016.5 (61.6) (101.3) 29.7 7,883.3
Goodwill 1.3 - - - 1.3
Interests in joint ventures
and associates 0.1 - - - 0.1
Segment assets 8,017.9 (61.6) (101.3) 29.7 7,884.7
Segment operating liabilities (1,678.5) 3.0 10.3 (3.8) (1,669.0)
-------------------------------
Capital employed 6,339.4 (58.6) (91.0) 25.9 6,215.7
------------------------------- ---------- -------------------- ----------- --------------- -----------
Business Services Renewable
Severn energy Non Inter-segment
Trent (regulated household payables Business
Services and non-regulated) retail & receivables Services
GBPm GBPm GBPm GBPm GBPm
------------------------------- ---------- -------------------- ----------- --------------- -----------
Operating assets 103.5 118.5 101.3 3.8 327.1
Goodwill 14.1 - - - 14.1
Interests in joint ventures
and associates 4.6 - - - 4.6
Segment assets 122.2 118.5 101.3 3.8 345.8
Segment operating liabilities (61.9) (4.6) (10.3) (29.7) (106.5)
-------------------------------
Capital employed 60.3 113.9 91.0 (25.9) 239.3
------------------------------- ---------- -------------------- ----------- --------------- -----------
The following table shows the segmental capital employed on the
old segmentation:
30 September
2015 31 March 2015
---------------------- ----------------------
Severn Severn Severn Severn
Trent Trent Trent Trent
Water Services Water Services
GBPm GBPm GBPm GBPm
--------------------------------- ---------- ---------- ---------- ----------
Operating assets 8,016.5 103.5 7,960.1 100.9
Goodwill 1.3 14.1 1.3 14.3
Interests in joint ventures and
associates 0.1 4.6 0.1 4.5
Segment assets 8,017.9 122.2 7,961.5 119.7
Segment operating liabilities (1,678.5) (61.9) (1,630.3) (58.8)
Capital employed 6,339.4 60.3 6,331.2 60.9
--------------------------------- ---------- ---------- ---------- ----------
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.
3 Exceptional items before tax
The group classifies items of income or expenditure as
exceptional if individually or, if of a similar type, in aggregate
they should, in the opinion of the directors, be disclosed by
virtue of their size or nature if the financial statements are to
give a true and fair view. In this context materiality is assessed
at the segment level.
Six months ended 30 September 2015 2014
GBPm GBPm
---------------------------------------------- ------ ------
Severn Trent Services
Release of provision for bad debts - (6.5)
Total exceptional operating items before tax - (6.5)
---------------------------------------------- ------ ------
4 Net gains/(losses) on financial instruments
Six months ended 30 September 2015 2014
GBPm GBPm
---------------------------------------------------------- ------ -------
Loss on cross currency swaps used as hedging instruments
in fair value hedges (4.0) (3.4)
Gain arising on adjustment for foreign currency
debt in fair value hedges 2.4 1.5
Exchange (loss)/gain on other loans (8.3) 35.0
Loss on cash flow hedges transferred from equity (6.8) (6.0)
Ineffectiveness of cashflow hedges 0.5 2.6
Gain/(loss) arising on swaps where hedge accounting
is not applied 27.7 (53.8)
----------------------------------------------------------
11.5 (24.1)
---------------------------------------------------------- ------ -------
5 Tax
Six months ended 30 September 2015 2014
GBPm GBPm
--------------------------------------------------- ----- -----
Current tax
Current year 31.5 29.6
Total current tax 31.5 29.6
--------------------------------------------------- ----- -----
Deferred tax
Origination and reversal of temporary differences
- current year 7.8 0.3
Total deferred tax 7.8 0.3
--------------------------------------------------- ----- -----
39.3 29.9
--------------------------------------------------- ----- -----
Income tax for the period is charged in the income statement at
21.1% (2014: charged at 21.8% based on restated profit before tax),
representing the best estimate of the annual average effective
income tax rate expected for the full year applied to the pre-tax
income for the six month period.
The effective rate of current tax, excluding prior year charges
and current tax on exceptional items and on financial instruments,
calculated on profit before tax, exceptional items and net gains
(2014: losses) on financial instruments was 18.4% (2014: 19.1%
based on restated profit before tax).
Current tax credits of GBP1.1 million (2014: GBP0.6 million) and
deferred tax charges of GBP19.5 million (2014: GBP7.0 million
credit) have been taken to reserves in the period.
On 8th July 2015, the Government announced the main rate of
corporation tax would reduce to 19% with effect from 1 April 2017
and 18% with effect from 1 April 2020. These rate reductions were
substantively enacted on 26th October 2015. As this was after the
balance sheet date, deferred tax assets and liabilities have not
been remeasured in this reporting period.
6 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 sale was completed on 2
July 2015.
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The profit for the period from discontinued operations was as
follows:
Six months ended 30 September 2015 2014
GBPm GBPm
------------------------------------------------ ------- -------
Turnover 29.7 49.3
Operating costs (27.6) (48.2)
Profit before tax 2.1 1.1
Attributable tax expense (0.1) -
------------------------------------------------ ------- -------
Profit after tax 2.0 1.1
Loss recognised on sale of disposal group (2.7) -
------------------------------------------------ ------- -------
(Loss)/profit for the period from discontinued
operations (0.7) 1.1
------------------------------------------------ ------- -------
Attributable to:
Owners of the company (0.6) 0.5
Non-controlling interests (0.1) 0.6
(0.7) 1.1
------------------------------------------------ ------- -------
The major classes of assets and liabilities comprising the
operations classified as held for sale were:
31 March
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)
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:
Six months ended 30 September 2015 2014
GBPm GBPm
--------------------------------- ------- ------
Net cash flows attributable to:
- operating activities (0.5) 4.2
- investing activities (11.6) (1.0)
- financing activities (6.4) 4.5
(18.5) 7.7
--------------------------------- ------- ------
Basic and diluted earnings per share from discontinued
operations are:
Six months ended
30 September 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 (0.6) 238.5 (0.3) 0.5 238.6 0.2
Diluted earnings
per share (0.6) 239.4 (0.3) 0.5 239.5 0.2
-------------------- --------- ----------- ---------- --------- ----------- ----------
The net assets of the business at the date of disposal were:
Total
GBPm
---------------------------------------- -------
Goodwill 1.8
Other intangible assets 6.5
Property, plant and equipment 3.6
Investments 0.1
Inventories 14.6
Trade and other receivables 59.9
Cash and bank balances 11.0
Trade and other payables (36.1)
Tax liabilities (0.2)
Intercompany borrowings (18.1)
Provisions for liabilities and charges (1.5)
41.6
---------------------------------------- -------
Attributable to:
Owners of the company 27.9
Non-controlling interest 13.7
41.6
---------------------------------------- -------
The net loss on disposal is calculated as follows:
Total
GBPm
----------------------------------------------------- -------
Consideration 42.8
Net assets attributable to owners of the company (27.9)
Disposal costs (4.8)
Provisions arising on disposal (1.1)
Net gain on disposal before foreign exchange losses 9.0
Foreign exchange losses recycled from reserves (11.7)
Net loss on disposal (2.7)
----------------------------------------------------- -------
The net cash flows arising from disposal in the period were:
Total
GBPm
----------------------------------------------------- -------
Consideration received in cash and cash equivalents 42.8
Settlement of intercompany loans 18.1
Disposal costs paid in cash and cash equivalents (2.8)
Cash and bank balances disposed of (11.0)
47.1
----------------------------------------------------- -------
7 Dividends
Amounts recognised as distributions to owners of the company in
the period:
Six months ended 30 September 2015 2014
------------------- -------------------
Pence Pence
per share GBPm per share GBPm
----------------------------------- ----------- ------ ----------- ------
Final dividend for the year ended
31 March 50.94 121.2 48.24 115.5
----------------------------------- ----------- ------ ----------- ------
The proposed interim dividend of 32.26p per share (2014: 33.96p
per share) was approved by the Board on 25 November 2015 and has
not been included as a liability as at 30 September 2015.
8 Earnings per share
a) Basic and diluted earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the period, excluding
those held in the Severn Trent Employee Share Ownership Trust which
are treated as cancelled.
For diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
potentially dilutive ordinary shares. These represent share options
granted to employees where the exercise price is less than the
average market price of the company's shares during the period.
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 owners
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
Six months ended 30 September 2015 2014
GBPm GBPm
--------------------------------------------------------- ------ ------
Profit for the period attributable to owners of
the company 143.7 107.5
Adjusted for loss/(profit) from discontinued operations
(see note 6) 0.6 (0.5)
Profit for the period from continuing operations
attributable to owners of the company 144.3 107.0
--------------------------------------------------------- ------ ------
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Number of shares
Six months ended 30 September 2015 2014
m m
------------------------------------------------ ------ ------
Weighted average number of ordinary shares for
the purpose of basic earnings per share 238.5 238.6
Effect of dilutive potential ordinary shares:
- share options and LTIPs 0.9 0.9
------------------------------------------------ ------ ------
Weighted average number of ordinary shares for
the purpose of diluted earnings per share 239.4 239.5
------------------------------------------------- ------ ------
b) Underlying earnings per share
Six months ended 30 September 2015 2014
(restated)
Pence Pence
--------------------------------------- ------ -----------
Underlying basic earnings per share 58.6 52.6
--------------------------------------- ------ -----------
Underlying diluted earnings per share 58.4 52.4
--------------------------------------- ------ -----------
Underlying earnings per share figures are presented for
continuing operations. These exclude the effects of exceptional
items, net gains/(losses) on financial instruments, current tax on
exceptional items and on net gains/(losses) financial instruments
and deferred tax in both 2015 and 2014. The directors consider that
the underlying figures provide a useful additional indicator of
performance. The denominators used in the calculations of
underlying basic and diluted earnings per share are the same as
those used in the unadjusted figures set out above.
The adjustments to earnings are as follows:
Six months ended 30 September 2015 2014
(restated)
GBPm GBPm
-------------------------------------------------------- ------- -----------
Earnings for the purpose of basic and diluted earnings
per share 144.3 107.0
Adjustments for:
- exceptional items before tax - (6.5)
- current tax on exceptional items - 0.2
- net (gains)/losses on financial instruments (11.5) 24.1
- current tax on net gains/losses on financial
instruments (0.9) 0.4
- deferred tax 7.8 0.3
Earnings for the purpose of underlying basic and
diluted earnings per share 139.7 125.5
-------------------------------------------------------- ------- -----------
9 Borrowings
30 September 31 March
2015 2015
GBPm GBPm
---------------------------------- ------------- ---------
Bank overdrafts 2.6 -
Bank loans 1,125.1 1,279.2
Other loans 3,432.2 3,467.5
Obligations under finance leases 142.6 180.0
----------------------------------
Borrowings 4,702.5 4,926.7
---------------------------------- ------------- ---------
The borrowings are repayable as follows:
30 September 31 March
2015 2015
GBPm GBPm
----------------------------------------------------- ------------- ---------
On demand or within one year - included in current
liabilities 562.5 463.0
Over one year - included in non-current liabilities 4,140.0 4,463.7
----------------------------------------------------- ------------- ---------
4,702.5 4,926.7
----------------------------------------------------- ------------- ---------
10 Fair value of financial instruments
a) Fair value measurements
The table below describes the valuation technique that the group
applies for each class of financial instrument which is measured at
fair value on a recurring basis. All techniques are classified as
Level 2 under the hierarchy defined by IFRS 13. There have been no
changes in the levels of classification during the period.
Fair value
as at
------------------------
30 September 31 March
Valuation techniques and key
2015 2015 inputs
GBPm GBPm
-------------------------- ------------- --------- -----------------------------------
Cross currency swaps Discounted cash flow
Future cash flows are estimated
Assets 13.2 22.6 based on forward
interest rates from observable
Liabilities (5.1) (25.2) yield curves at
the period end and contract
interest rates discounted at
a rate that reflects the credit
risk of counterparties. The
currency cash flows are translated
at the spot rate.
Interest rate swaps Discounted cash flow
Assets - 4.2 Future cash flows are estimated
based on forward
interest rates from observable
Liabilities (159.0) (181.1) yield curves at
the period end and contract
interest rates discounted at
a rate that reflects the credit
risk of counterparties.
Energy swaps Discounted cash flow
Future cash flows are estimated
Liabilities (2.0) (0.8) based on forward
electricity prices from observable
indices at
the period end and contract
prices discounted at
a rate that reflects the credit
risk of counterparties.
Foreign currency forward Discounted cash flow
contracts
Future cash flows are estimated
Assets 2.3 0.2 based on observable
forward exchange rates at the
Liabilities (0.8) (0.2) period end
and contract forward rates
discounted at a rate
that reflects the credit risk
of counterparties.
b) Comparison of fair value of financial instruments with their
carrying amounts
The directors consider that the carrying amounts of cash and
short term deposits, bank overdrafts, trade receivables and trade
payables are not materially different from their fair values.
Derivative financial instruments are carried at fair value. The
carrying values and estimated fair values of other non-derivative
financial instruments are set out below. This analysis does not
take into account the impact of interest rate swaps. At 30
September 2015 the group held interest rate swaps that converted
floating rate interest to fixed on a net principal amount of
GBP556.2 million (31 March 2015: GBP581.6 million).
30 September 31 March
2015 2015
--------- -------- --------- ---------
Carrying Fair Carrying Fair
value value value value
GBPm GBPm GBPm GBPm
-------------------- --------- -------- --------- ---------
Floating rate debt
Bank loans 829.3 830.0 984.3 970.3
Currency bonds 33.0 33.0 84.3 84.3
862.3 863.0 1,068.6 1,054.6
-------------------- --------- -------- --------- ---------
Fixed rate debt
Bank loans 188.1 186.9 188.5 204.4
Sterling bonds 1,856.3 2,164.2 1,855.3 2,268.4
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Currency bonds 380.8 390.7 370.8 391.3
Other loans 2.8 2.8 2.0 2.0
Finance leases 142.6 147.5 180.0 190.7
2,570.6 2,892.1 2,596.6 3,056.8
-------------------- --------- -------- --------- ---------
Index-linked debt
Bank loans 107.7 119.7 106.4 123.0
Sterling bonds 1,159.3 1,323.1 1,155.1 1,585.1
1,267.0 1,442.8 1,261.5 1,708.1
-------------------- --------- -------- --------- ---------
4,699.9 5,197.9 4,926.7 5,819.5
-------------------- --------- -------- --------- ---------
Fixed rate sterling and currency bonds are valued using market
prices.
Index-linked bonds are rarely traded and therefore quoted prices
are not considered to be a reliable indicator of fair value.
Therefore, these bonds are valued using discounted cash flow models
with discount rates derived from observed market prices for a
sample of bonds.
Fair values of the other debt instruments are also calculated
using discounted cash flow models.
11 Retirement benefit schemes
The group operates two defined benefit schemes being the Severn
Trent Pension Scheme and the Severn Trent Mirror Image Scheme.
These schemes closed to future accrual on 31 March 2015, therefore
there is no service cost in the current period. The group also has
an unfunded obligation to provide benefits to certain former
employees whose earnings were in excess of the pensions cap that
operated when the benefits were accrued.
The retirement benefit obligation as at 30 September 2015 has
been calculated on a year to date basis, using the actuarial
valuation update as at 31 March 2015. There have not been any
significant fluctuations or one time events since that date that
would require adjustment to the actuarial assumptions made at 31
March 2015. However, the market based assumptions have been updated
for conditions prevailing at the balance sheet date as follows:
30 September 31 March
2015 2015
--------------- ------------- ---------
Discount rate 3.8% 3.3%
RPI 3.0% 3.0%
--------------- ------------- ---------
The defined benefit assets have been updated to reflect their
market value as at 30 September 2015. Actuarial gains and losses on
the scheme assets and defined benefit obligations have been
reported in the statement of comprehensive income. Service cost,
and the cost of administrating the scheme, are recognised in
operating costs and interest cost is recognised in net finance
costs. Amounts recognised in the income statement in respect of
these defined benefit schemes are as follows:
Six months ended 30 September 2015 2014
GBPm GBPm
---------------------------------------------- ------ -------
Current service cost - (11.7)
Administration cost (0.6) (2.0)
Net interest cost (7.6) (7.6)
Total amount charged to the income statement (8.2) (21.3)
---------------------------------------------- ------ -------
The amount included in the balance sheet arising from the
group's obligations under defined benefit schemes was as
follows:
30 September 31 March
2015 2015
GBPm GBPm
-------------------------------------------------- ------------- ----------
Total fair value of assets 1,946.2 2,086.8
Present value of the defined benefit obligations
- funded schemes (2,319.3) (2,545.7)
Present value of the defined benefit obligations
- unfunded schemes (9.3) (10.0)
Liability recognised in the balance sheet (382.4) (468.9)
-------------------------------------------------- ------------- ----------
Movements in the liability recognised in the balance sheet were
as follows:
2015 2014
GBPm GBPm
------------------------------------------------------- -------- --------
At 1 April (468.9) (348.3)
Current service cost - (11.7)
Administration cost (0.6) (2.0)
Net interest cost (7.6) (7.6)
Contributions from the sponsoring companies 4.4 12.3
Net actuarial gain/(loss) recognised in the statement
of comprehensive income 90.3 (31.4)
------------------------------------------------------- -------- --------
At 30 September (382.4) (388.7)
------------------------------------------------------- -------- --------
12 Share capital
At 30 September 2015 the issued and fully paid share capital was
239.3 million shares of 97(17) /(19) p amounting to GBP234.3
million (31 March 2015: 238.7 million shares of 97(17) /(19) p
amounting to GBP233.7 million).
During the period the company issued 680,902 (2014: 657,416)
shares as a result of the exercise of employee share options and
repurchased 2,987,871 shares (2014: nil) under its share buy back
programme. Of these repurchased shares, 51,514 (2014: nil) were
cancelled and the remaining 2,936,357 (2014: nil) are held as
treasury shares.
13 Cash flow
a) Reconciliation of operating profit to operating cash
flows
Six months ended 30 September 2015 2014
GBPm GBPm
Profit before interest and tax from continuing
operations 281.0 280.3
Profit before interest and tax from discontinued
operations 2.1 1.1
-------------------------------------------------- ------- -------
Profit before interest and tax 283.1 281.4
Depreciation of property, plant and equipment 144.6 143.2
Amortisation of intangible assets 11.4 12.9
Pension service cost - 11.7
Defined benefit pension scheme administration
costs 0.6 2.0
Pension contributions (4.4) (12.3)
Share based payments charge 2.7 4.0
(Profit)/loss on sale of property, plant and (1.4) -
equipment
Deferred income movement (5.3) (5.0)
Provisions for liabilities and charges 2.8 3.6
Utilisation of provisions for liabilities and
charges (5.6) (6.6)
Decrease/(Increase) in inventory 2.5 (2.2)
Increase in receivables (19.2) (37.9)
Increase in payables 83.7 91.5
-------------------------------------------------- ------- -------
Cash generated from operations 495.5 486.3
Tax paid (7.9) (15.3)
-------------------------------------------------- ------- -------
Net cash generated from operating activities 487.6 471.0
-------------------------------------------------- ------- -------
b) Non-cash transactions
No additions to property, plant and equipment during the six
months to 30 September 2015 were financed by new finance leases
(2014: nil).
c) Exceptional cash flows
The following cash flows arose from items classified as
exceptional in the income statement:
Six months ended 30 September 2015 2014
GBPm GBPm
------------------------------ ------ -----
Restructuring costs (4.0) -
------------------------------ ------ -----
d) Reconciliation of movements in net debt
RPI As at
As at uplift Other 30
Fair
1 April Cash value on index Foreign non-cash September
linked
2015 flow adjustments debt exchange movements 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ---------- -------- ------------ --------- --------- ---------- ----------
19.3
Cash and cash equivalents 176.7 (138.7) - - (0.1) (1) 57.2
Bank overdrafts - (2.6) - - - - (2.6)
------------------------------- ---------- -------- ------------ --------- --------- ---------- ----------
Net cash and cash equivalents 176.7 (141.3) - - (0.1) 19.3 54.6
Bank loans (1,279.2) 155.4 - (1.3) - - (1,125.1)
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