Severn Trent Plc · LSE:SVT
Severn Trent — FY2007 Earnings Presentation
51 slides from Severn Trent's earnings presentation, Jun 6, 2007
Slide 1: Disclaimers
Disclaimers For the purposes of the following disclaimers, references to this "document" shall be deemed to include references to the presenters' speeches, the question and answer session and any other related verbal or written communications. This document contains certain “forward-looking statemen
Slide 2: Full Year Results
Full Year Results Full Year to 31 March 2007 Presentation – 6 June 2007
Slide 3: Sir John Egan, Chairman
SEVERN TRENT Po Sir John Egan Chairman
Slide 4: Mike McKeon, Group Finance Director
Mike McKeon Group Finance Director
Slide 5: Financial Highlights
Financial Highlights 2005/06 2006/07 Change £m £m % Group Turnover 1,455 1,480 1.7% Profit Before Interest and Tax 393 405 3.1% (PBIT*) Profit Before Tax (PBT**) 230 252 9.5% # Adjusted Basic EPS (pence) 71.4p 82.4p 15.4% Basic EPS (pence) 95.9p 114.7p 19.6% from continuing and discontinued operatio
Slide 6: Water and Sewerage Turnover
Water and Sewerage Turnover Water and Sewerage Turnover £m +5.8% 78.4 4.3 (13.5) (2.0) 1,218.1 1,150.9 C R 20 20 A Vo us et llo 06 05 lu a t w il om m /0 /0 ed a 7 6 e nd er /M Pr re Ut ic ix b e il at ity (R e PI Se ac + cr rv K ua cei ) l s Business segment turnover is stated gross (i.e. including
Slide 7: Water and Sewerage PBIT
Water and Sewerage PBIT Water and Sewerage PBIT £m +3.1% 67.2 (17.4) 413.0 400.4 (23.5) (3.6) (10.1) Tu N In D 20 En 20 et ep f 05 06 rn ra er C re s ov /0 gy /0 os tu c 6 7 e ia ct ti r tio u m re n pa ct Numbers shown before exceptional items
Slide 8: Water Technologies and Services performance
Water Technologies and Services performance PBIT £m* Return* On Invested Capital ** CAGR 24% 12% 19.7 17.1 9% 13.5 8% 9.6 6% 2003/04 2004/05 2005/06 2006/07 2003/04 2004/05 2005/06 2006/07 Turnover 31 March 31 March 2007 2006 £m £m Turnover 288.9 299.8 Pipeline Services (5.1) (14.0) 283.8 285.8 Exch
Slide 9: Corporate & Other Businesses PBIT performance
Corporate & Other Businesses PBIT performance 2005/06 2006/07 Change £m £m % Profit Before Interest and Tax (PBIT*) (25.7) (26.3) 2.3% Integration of Head Office functions well advanced On track to deliver £6m - £10m of recurring savings over the next 12 months * Excluding exceptional items
Slide 10: Cash Flow
Cash Flow 2006/07 operating cash flow £m Includes: £m £m 05/06 Final Ordinary 111.4 Share Issues 10.0 06/07 Interim Ordinary 52.9 IAS 39 adj 32.2 06/07 Special dividend 575.2 Rolled up interest (15.4) 168.8 739.5 Exchange movement (1.0) 222.5 (156.4) Disposals 0.4 138.0 (739.5) Other 1.1 27.3 53.7 (
Slide 11: Group finance charges and net debt
Group finance charges and net debt Net finance costs Net debt £m £m 166.7 165.8 2.8 12.0 163.9 163.9 3,128 153.8 153.8 2,961 2,867 2005/06 2006/07 31 Mar 2006 30 Sept 2006 31 Mar 2007 Net interest as reported Pensions (non cash) Effective rate circa 5.8% * 68% at fixed interest rates* Interest
Slide 12: Effective rate of tax
Effective rate of tax 2005/06 Effective current tax rate*% 2006/07 Effective current tax rate*% 6.2% 3.7% 32.9% 26.7% 26.9% 23.2% Effective rate Prior year adjustments 2005/06 as reported Effective rate Prior year adjustments 2006/07 as reported 2007/08 Severn Trent Group in range of 25%-28% *Attrib
Slide 13: Financial summary
Financial summary Strategic transformation complete Special dividend of £575 million paid Clear commitment to move to 60% gearing Delivering on 3% real growth in dividends On track to deliver overhead cost savings of £6-10 million over the next 12 months Continued organic growth in Water Te
Slide 14: Colin Matthews, Group Chief Executive
Colin Matthews Group Chief Executive
Slide 15: Focus on Water
Focus on Water Transformation complete Biffa Demerger 9 October 2006 Disposal of non-core businesses Integration of “Group” and “Water” leadership Focus on Water Securing the basics Radical improvement Higher standards Greater efficiency Continuous improvement
Slide 16: Securing the Basics
Securing the Basics Progressing investigations Strengthening controls Tackling operational performance
Slide 17: Strengthening Internal Control Environment
Strengthening Internal Control Environment Controls Reviewer Improvement actions Capitalisation External 15 Accruals & Provisions External 22 Income & Billing External 35 Close the Books External 11 Statutory & Regulatory Reporting External 21 Procurement External 58 Customer Relations/ Guaranteed E
Slide 18: Good performance in some key areas
Good performance in some key areas… Pollution incidents Good Water Quality improving Safety improving Mean zonal compliance Category 1, 2 and 3 Reportable accidents per 100,000 hours 100 GOOD GOOD GOOD 0.5 99.9 500 0.4 Per 100,000 hours 99.8 Number %age 0.3 99.7 400 0.2 99.6 0.1 99.5 300 0 2005 2006
Slide 19: but managing leakage has been challenging
but managing leakage has been challenging…. DMA leakage profile** September 05 to April 07 520 500 480 460 MLD Winter 05/06 Winter 06/07 440 420 400 380 Nov-05 May-06 Nov-06 Mar-06 Jul-06 Mar-07 Sep-05 Jan-06 Sep-06 Jan-07 The summer dry spell diverted resources, to maintain supply Increased foc
Slide 20: and we have increased our investment in leakage management
and we have increased our investment in leakage management Total expenditure £m 27% Increased spend on leakage across capex, opex and infrastructure renewals £91.9m £72.4m 2005/06 2006/07 Mains renewal programme: At £45m, represents 49% of total spend in 2006/07, 29% greater than Ofwat Determinati
Slide 21: and improving customer services has been demanding
and improving customer services has been demanding Customer written complaints per 1000 properties 3 2 1 0 A pr- M ay- Jun- Jul- A ug- Sep- Oct- N o v- D ec- Jan- F eb- M ar- A pr- 06 06 06 06 06 06 06 06 06 07 07 07 07 Implementation of higher quality standards of responses to customer enquires l
Slide 22: Operational Performance
Operational Performance Operational costs vs. Ofwat Final Determination 2006/07 £m UK GAAP 479.1 460.2 0.4 18.5 er l gy FD ua th er ct 7 O En /0 A 06 70 20 0 6/ 20 2007/08: We aim to meet the Ofwat Final Determination for 2007/08 Energy costs now fixed for 2007/08, £17m lower than 2006/07 Impr
Slide 23: On track to deliver required outputs and 6% capex efficiency
We remain on track to deliver required outputs and achieve 6% capex efficiency Outperformance subject to Ofwat agreement of change UK GAAP protocol CAPEX, gross* at outturn prices, £m 6% forecast efficiency over AMP 4 £990m £936m 528 502 2006/07 2005/06 462 434 Ofwat FD inc change STW actual protoco
Slide 24: Focus on Water
Focus on Water Dec 2006 Feb 2007 Today Group restructuring – focus on water Diagnose, evaluate options and build plans New Deliver on KPI’s Organisation Benchmark our performance Separate Clean Water and Wastewater operations Prioritise and validate options Detailed process reviews Start i
Slide 25: Greater efficiency through organisational alignment
Greater efficiency through organsational alignment Asset Asset Asset Asset Water Water Water Water WATER Strategy Delivery Delivery Treatment Treatment Distribution Strategy Distribution Customer Contact Processes WASTE Asset Asset Asset Asset Waste Waste Water Water Waste Waste Water Water WATER St
Slide 26: Driving higher standards
Driving higher standards Key Area Objective Measure Relative Performance Worst Best Provide a safe working environment Lost time incidents Employee Develop a confident & productive workforce Employee motivation Provide a world class product Water Quality (Mean Zonal compliance) Customer Written Comp
Slide 27: Outlook for the remainder of AMP4
Outlook for the remainder of AMP4 Opex: Meet Ofwat Final Determination for 2007/08 Plan to outperform by around 3% for the balance of the AMP4 Reduction of 130 heads in 2007/08 Overhead costs On track to deliver £6m - £10m of recurring savings over the next 12 months Exceptional costs
Slide 28: Focus on water
Focus on water Securing the basics Implementing radical improvement plan Good start to multi year programme
Slide 29: Q&A
SEVERN TRENT Po Q&A
Slide 30: SEVERN
SEVERN TRENT Po /SEVERN_ | TRENT
Slide 31: Appendix
SEVERN TRENT Po Appendix
Slide 32: Contact Details – Investor Relations
Contact Details – Investor Relations Jonathan Davies Head of Investor Relations Severn Trent Plc 2297 Coventry Road Birmingham B26 3PU United Kingdom Tel: +44 (0)121 722 4295 Fax: +44 (0)121 722 4294 e:mail jonathan.davies@stplc.com www.severntrent.com
Slide 33: Key Performance Indicators 1 of 2
Measuring our performance – Key Performance Indicators 1 of 2 Basis Note Lower Upper Description Median Quartile Quartile Lost Time Incidents Per 100,000 hrs worked MAT 4 0.50 Annual 3 Employee Motivation survey 76% Water Quality (mean zonal compliance)% MAA 1,9 99.98% Customer Written Complaints pe
Slide 34: Key Performance Indicators 2 of 2
Measuring our performance – Key Performance Indicators 2 of 2 Notes: All measures are for the period to 31 March 2007, except as stated. MAT = Moving Annual Total MAA = Moving Annual Average 1. As reported in June Return to Ofwat. Performance figures are provisional at this stage as the June Return
Slide 35: Group income statement summary
Group income statement summary Year ended 31 March 2007 31 Mar 31 Mar 2006 2007 Variance Variance £m £m £m % 1,455.3 Turnover 1,480.2 24.9 1.7 (1,062.3) Operating costs (1,074.9) (12.6) (1.2) 393.0 Profit before exceptional items, interest and tax 405.3 12.3 3.1 (15.7) Exceptional operating costs 24
Slide 36: Group Earnings
Group Earnings Year ended 31 March 2007 2005/06 2006/07 £m £m 223.0 Profit for the period 268.6 221.6 Attributable to - Equity 267.1 1.4 - Minority Interests 1.5 Variance Variance Pence Pence pence % Basic earnings per share from continuing operations 71.4 Adjusted basic EPS (before Biffa Plc, excep
Slide 37: Group balance sheet
Group balance sheet Year ended 31 March 2007 31 March 31 March Movement since 2006 2007 31 March 2006 £m £m £m 5,743.1 Property, plant and equipment 5,521.1 (222.0) 618.7 Intangible assets 150.3 (468.4) 29.8 Other non-current assets 4.1 (25.7) (482.5) Working Capital/provisions (357.9) 124.6 5,909.1
Slide 38: Movements on Severn Trent shareholders' equity
Movements on Severn Trent shareholders’ equity Year ended 31 March 2007 2005/06 2006/07 £m £m 1,847.6 At 1 April as previously stated 1,896.4 Change of accounting policy – IAS 32 and IAS - (57.8) 39 1,789.8 At 1 April restated 1,896.4 261.4 Total recognised income for the financial period 243.7 (171
Slide 39: Group debt funding
Group debt funding Maturity Profile* £m 700 Structure of current portfolio * 600 23% bonds 14% EIB 36% EMTN 500 13% Leases 14% other 400 Of which, 17% is RPI 300 linked debt 200 100 0 <12 months AMP4 AMP5 AMP6 AMP7 AMP8 Beyond Maturities Recent issuance, post 31 Mar 2007: 2 tranches 50
Slide 40: Credit ratings
Credit ratings At 31 March 2007 Long-Term Severn Trent Water Severn Trent Plc Moody’s A2 A3 Standard & Poor’s A A- Short-Term Severn Trent Water Severn Trent Plc Moody’s P1 P2 Standard & Poor’s A1 A1 Confirmed by Rating Agencies post demerger and return of capital.
Slide 41: Segmental analysis of capital employed
Segmental analysis of capital employed Year ended 31 March 2007 Total Net operating Goodwill Total 31 March assets 31 March 31 March 2006 31 March 2007 2007 2007 £m £m £m £m 5,037.6 Water and Sewerage 5,386.9 - 5,386.9 Water Technologies and 178.4 106.2 49.1 155.3 Services (79.3) Other (224.6) - (22
Slide 42: PBITD analysis
PBITD* analysis Year ended 31 March 2007 Total Total 2005/06 2006/07 £m £m 620.1 Water and sewerage 654.2 23.8 Water Technologies & Services 26.3 (24.8) Other (30.6) 619.1 Group** 649.9 * Profit before interest, tax, depreciation and amortisation of intangible assets, excluding exceptional items **
Slide 43: Disposals
Disposals Year ended 31 March 2007 Net Proceeds surplus on on disposal disposal 2006/07 2006/07 £m £m Biffa Belgium 23.7 9.5 Aquafin 29.3 14.7 Property 31.9 5.4 US Laboratories 77.1 (2.4) Impairment of goodwill - (31.5) Total 162.0 (4.3) Sale of properties in Severn Trent Water* 41.0 36.2 * Includes
Slide 44: Exceptional items
Exceptional items Year ended 31 March 2007 Total Total 2005/06 2006/07 £m £m Severn Trent Water programme to restructure and realign business Write off of decommissioned assets (11.9) Restructuring costs (3.0) (4.8) Redundancy program undertaken to meet AMP4 efficiency targets Demerger and related c
Slide 45: Water and Sewerage – income statement highlights
Water and Sewerage – income statement highlights Year ended 31 March 2007 2005/06 2006/07 Change Change £m £m £m % Turnover 1,137.7 Severn Trent Water 1,206.9 69.2 6.1 15.6 Retail and Utility Services 13.7 (1.9) (12.2) (2.4) Intra segment trading (2.5) (0.1) (4.2) 1150.9 1,218.1 67.2 5.8 Operating C
Slide 46: Severn Trent Water – turnover
Severn Trent Water – turnover Year ended 31 March 2007 £m % Year to 31 March 2006 1,137.7 RPI + K 78.4 6.9 1,216.1 6.9 Growth New customers 8.7 0.7 Income initiatives (0.7) - Conservation Metering impact (5.6) (0.5) Reduced consumption (9.2) (0.8) 1,209.3 6.3 Other (6.7) (0.6) 1,202.6 5.7 Rebate acc
Slide 47: Severn Trent Water – operating costs
Severn Trent Water – operating costs Year ended 31 March 2007 2005/06 2006/07 Variance Variance £m £m £m % 430.4 Direct operating costs* 474.5 44.1 10.2 215.1 Depreciation** 225.2 10.1 4.7 94.5 Infrastructure renewals 98.1 3.6 3.8 740.0 Total 797.8 57.8 7.8 • Net of other income £3.6m (£3.5m) and pr
Slide 48: Severn Trent Water – UK GAAP to IFRS reconciliation
Severn Trent Water – UK GAAP to IFRS reconciliation Year ended 31 March 2007 Total Total 2006/07 2006/07 £m £m 446.7 UK GAAP Operating costs, per comparison to FD 479.1 (3.5) Other income (3.6) (0.7) Exceptional costs (3.0) (2.5) Profits on disposal 440.0 UK GAAP Operating costs* 472.5 (11.6) Pensio
Slide 49: Severn Trent Water – direct operating costs
Severn Trent Water – direct operating costs Year ended 31 March 2007 2006/07 % of total £m change Full year ended 31 March 2006 430.4 Inflation 16.1 3.7% 446.5 Real opex increases 28.0 6.5% Six months ended 31 March 2007 474.5 10.3% * Net of other income £3.6m £(3.5m) but excluding management charge
Slide 50: Severn Trent Water – RCV
Severn Trent Water – RCV Year ended 31 March 2007 At each price review, Ofwat sets price limits which it considers will enable companies to earn a reasonable return on capital. Ofwat bases that return on the regulatory capital value (RCV). The actual outcome for the RCV from the December 2004 determ
Slide 51: SEVERN
SEVERN TRENT to SEVERN PT RENT