Severn Trent PLC · LSE:SVT
Severn Trent — H1 2002/03 Earnings Presentation
57 slides from Severn Trent's earnings presentation, Dec 11, 2002
Slide 1: Interim Results Presentation
Interim Results Presentation 11th December 2002
Slide 2: David Arculus, Chairman
SEVERN TRENT ENVIRONMENTAL LEADERSHIP David Arculus Chairman
Slide 3: Alan Perelman, Group Finance Director
Alan Perelman Group Finance Director
Slide 4: Group Financial Highlights
Group Financial Highlights Six months ended 30 September 2002 • Group turnover up 1.0% to £906m (£950m gross*) • Non regulated businesses: Biffa up 2.1%; Services up 0.8% • Water & sewerage up 2.2%: 48% of group total Gross Turnover* (£m) H1 2000/01 H1 2001/02 H1 2002/03 67.3 47.6 190.7 45.3 168.3 1
Slide 5: Group Financial Highlights
Group Financial Highlights Six months ended 30 September 2002 • Group PBITA* down 0.3% to PBITA*# (£m) £210.0m 300 • Non regulated businesses: 250 – Biffa PBITA down 3.6% to 15.7 18.1 £34.4m 200 15.8 35.7 34.4 16.2 – Services PBITA* down 150 13.3% to £15.7m 100 • Water & sewerage PBIT up 168.1 169.2
Slide 6: Group Financial Highlights
Group Financial Highlights Six months ended 30 September 2002 • Interest £78.2m, down £2.2m • PBTA* £131.8m, up 1.2% • PBT* £118.5m, up 0.6% • Adjusted EPS** 30.3 pence, down 6.2% • Interim dividend 17.34 pence per share * Pre exceptionals ** Pre exceptionals and deferred tax
Slide 7: Exceptional Items
Exceptional Items Six months ended 30 September 2002 • Impairment in services – Water purification – Operating services (principally in pipeline services) • Exceptional impairment charge of £41.4m
Slide 8: Severn Trent Water Turnover
Severn Trent Water* Turnover Six months ended 30 September 2002 £m % Six months ended 30 Sept. 2001 444.2 RPI - K - - Growth New customers 2.8 0.6 Income initiatives 3.7 0.8 Conservation Metering impact (2.3) (0.5) Reduced consumption (1.1) (0.2) 447.3 0.7 Timing impact of billing 4.2 0.9 Six months
Slide 9: Interest
Interest Six months ended 30 September 2002 % average Fixed rate • Net cost £78.2m, effective 8 80 as % of cost of total Group down £2.2m Group debt debt 7 70 • Average effective cost of debt – Group 6.2% 6 60 – STW 6.1% 5 50 • STW is below OFWAT assumed 4 40 cost of debt • Covers (times) pre except
Slide 10: Taxation
Taxation Six months ended 30 September 2002 • Effective current tax rate* Current tax rate* (%) 15 12.0% (6.0%) • Deferred tax charge £28.8m 10 5 0 1998 1999 2000 2001 2002 H1 2003 * Based on PBT pre exceptionals
Slide 11: Net Debt
Net Debt At 30 September 2002 • £31.6m reduction in net debt in H1 • Net debt £2380m • Group gearing (net debt : net equity)*: 106% • PBITDA cover (times) pre-exceptionals: 4.5 * Post impact of FRS19: Deferred Tax
Slide 12: Cash Flow
Cash Flow Six months ended 30 September 2002 £m STW Biffa Services Other Group PBITA (post exceptionals) 171 34 16 (11) 210 Depreciation 111 24 7 2 144 Capex (176) (20) (8) (1) (205) Working capital and other 35 4 (3) (13) 23 141 42 12 (23) 172 Interest (77) Tax (5) Dividends (59) Other (including n
Slide 13: Robert Walker, Group Chief Executive
Robert Walker Group Chief Executive
Slide 14: Highlights
Highlights • Satisfactory performance overall • Biffa and Analytical services positioned well in difficult markets • Regulatory outperformance continues in Severn Trent Water • Benefits from environmental services strategy beginning to show through
Slide 15: Water & Sewerage - P&L Highlights
Water & Sewerage - P&L Highlights Six months ended 30 September 2002 Sept 2002 Sept 2001 Change £m £m % Turnover Severn Trent Water 451.5 444.2 1.6 Retail and Utility Services 6.1 2.8 117.9 Intra segment trading (0.8) - - 456.8 447.0 2.2 Operating Costs Severn Trent Water* (280.7) (275.7) (1.8) Reta
Slide 16: Severn Trent Water Outperformance Continues
Severn Trent Water Outperformance Continues …… • Opex – First half 2002/2003, cumulative gross Opex efficiencies of £55m v OFWAT target of £40m – Forecast cumulative AMP3 gross Opex efficiencies of £75m by 2004/05 – But upward cost pressures continue • Capex outperformance continues at 7% • High lev
Slide 17: Continued Outperformance on Gross Opex Efficiencies
Continued Outperformance on Gross Opex Efficiencies … £m 80 75 STW 70 actual/forecast Now £15m ahead 60 55 50 47 40 Cum. H1 Target £m 2001/02 2002/03 2004/5 30 26 OFWAT Water supply 6 1 9 Sewage treatment 11 1 15 assumed Networks 15 - 20 Customer relations 3 - 10 20 Support areas 12 6 13 Stretch - -
Slide 18: But Upward Cost Pressures Remain
But Upward Cost Pressures Remain ... GENERAL COSTS WATER SPECIFIC COSTS – Climate Change Levy – Sludge Regulations – Rates and Taxes – Nitrate Vulnerable Zones (NVZs) – Insurance Increases – British Waterways Board – Bad Debts – Cryptosporidium – Enhanced Security – Sewer Flooding Protection
Slide 19: Gross Opex Efficiencies and Upward Cost Pressures
Gross Opex Efficiencies and Upward Cost Pressures 80 75 70 60 55 47 42 50 40 36 30 26 18 20 10 0 2001 2002 H1 2003 2005 Gross Opex efficiencies Opex upward pressures • IDOK process reflects upward pressures
Slide 20: IDOK Update
IDOK Update Issues STW OFWAT Comments Claim Allowed* (£m NPV) (£m NPV) NVZs 43.8 - Still challenging narrow OFWAT interpretation BWB Charges 24.6 - AMP3 settlement now provides better cost base Bad Debts 74.3 61.1 Revenue loss accepted Sewer Flooding 22.9 10.0 Additional capex programme likely to be
Slide 21: Capital Expenditure
Capital Expenditure • Forecast investment for year, £420m AMP3 Investment Cycle (Outturn prices) £m • Half year out-turn £169.2m 500 425 420 405 • On target for programme delivery despite 400 350 challenging sewerage programme 320 300 • Completed schemes in AMP3 to date 200 deliver 7% outperformance
Slide 22: AMP4 Process Now Under Way
AMP4 Process Now Under Way … • Severn Trent welcomes OFWAT framework document on AMP4 – Real progress on significant issues • However, it is important to: – Improve coordination of demands on AMP4 capital programme – Conduct process in transparent manner – Encourage equity back to the sector
Slide 23: Biffa Performance Highlights
Biffa … Performance Highlights • Turnover £257.6m, +2.1% Divisional PBITA (+1.4% excl landfill tax) Profit £m Change % • PBITA £34.4m, -3.6% Collection 22.3 - Landfill 15.0 (12.3) • UK Waste synergies maintained Special Waste 2.4 (20.0) Central overheads (6.6) 5.7 • Continuing progress in Belgium To
Slide 24: Biffa UK - Solid Performance in Difficult Market
Biffa UK - Solid Performance in Difficult Market … • Collection revenues up 2%, margins 16.5% (16.8%) – Industrial/commercial volumes down 3% – Municipal contracts/pre-treatment performing well • Landfill revenues (net of tax) down 13%, PBITA down 12% – Volumes down 7% (3% excluding closed sites) –
Slide 25: Biffa UK - A Strong Business Model
Biffa UK - A Strong Business Model • Industrial/commercial collection – New regional and national accounts – Improved customer retention • Additional recycling services help expand municipal contracts • Annual target for replacement of void space already achieved • Cost reductions and management reo
Slide 26: Biffa - Positioning for Impact of Legislation
Biffa - Positioning for Impact of Legislation … • New pre-treatment division set-up for industrial/commercial streams – Combining transfer stations and recycling activities – Expanding processing capabilities • Tendering for large integrated municipal contracts – Preferred bidder status for Leiceste
Slide 27: Services Affected by Continuing Weak Economy in the US
Services Affected by Continuing Weak Economy in the US … Divisional Turnover First Half First Half 2002/03 2001/02 % change £m £m Analytical svs 88.6 85.4 3.7 Operating svs 62.8 60.4 4.0 Water purification 39.3 43.3 (9.2) Total 190.7 189.1 0.8 • PBITA down 13.3% at £15.7m • Strong progress in analyt
Slide 28: Analytical Services - Strong Progress
Analytical Services - Strong Progress £m • Federal, state and local 200 Turnover environmental budget cuts 160 • Lower levels of corporate activity …BUT 120 • New large scale projects and business opportunities e.g. 80 (Ground Zero, SafetyKleen) • Competitor lab closures 40 • Organic PBITA growth of
Slide 29: Analytical Services - Expanding its Activities
Analytical Services - Expanding its Activities ... • Seeking new areas of business (e.g. drinking water, aquatic toxicity and specialist mould testing) • Establishing strategic partnerships • Expanding to 16 local service centres • Now serving 46 local markets in the US • $10m increased annualised r
Slide 30: Operating Services - Resilient Contract Operations
Operating Services ... Resilient Contract Operations - Pipeline Weak • Operating contracts, organic turnover growth of 9% Half Year Net no. of contract gains 27 • Gross margins on renewals and new business continue to improve • Pipeline services impacted by economic downturn, lower municipal spendin
Slide 31: Water Purification - Performance Reflects a Difficult Market
Water Purification - Performance Reflects a Difficult Market ... • Turnover and profit continues to be impacted by downturn in economy • Problems focused on filtration business … larger disinfection business grew US turnover • Overhead reduced, tighter production and cost controls implemented
Slide 32: Update on Integrated Environmental Services
Update on Integrated Environmental Services ... • Group-wide national account team • Testing extranet initiative • Preferred bidder status for Leicester waste and Solihull contracts
Slide 33: Summary
Summary • Satisfactory first half performance overall • Full year broadly consistent with market expectations
Slide 34: Severn Trent Environmental Leadership
SEVERN TRENT ENVIRONMENTAL LEADERSHIP
Slide 35: Appendix
SEVERN ENVIRONMENTAL LEADERSHIP Appendix
Slide 36: Group Profit & Loss Summary
Group Profit & Loss Summary Six months ended 30 September 2002 H1 H1 2002/03 2001/02 % increase £m £m /(decrease) Turnover 906.0 896.7 1.0 Profit before interest, goodwill and exceptional items 210.0 210.6 (0.3) Profit before interest and exceptional items 196.7 198.2 (0.8) Exceptional Items (41.4)
Slide 37: Group Balance Sheet
Group Balance Sheet At 30 September 2002 Movement since 30/9/02 31/3/02 31/3/02 £m £m £m Fixed Assets 4918 4892 26 Goodwill 417 475 (58) Investments 28 29 (1) Working Capital/provisions (127) (124) (3) Capital employed 5236 5272 (36) Tax creditor (51) (41) (10) Deferred tax provision (395) (366) (29
Slide 38: Group Cashflow
Group Cashflow Six months ended 30 September 2002 2002/03 2001/02 £m £m Cash flow from operations (inc. dividend from associates) 375.7 348.8 Capital expenditure (net) (204.3) (159.5) Interest paid (77.0) (70.7) Tax payments (4.9) (6.8) Total before acquisitions and disposals 89.5 111.8 Acquisitions
Slide 39: Deferred Taxation
Deferred Taxation Six months ended 30 September 2002 2002/03 £m Origination and reversal of timing differences (27.3) Decrease in discount (1.5) Total deferred tax charge (28.8) Provision at 31/3/02 (366.5) Deferred tax charge for period (above) (28.8) Exchange/Other (0.2) Provision at 30/9/02 (395.
Slide 40: Segmental Analysis of Capital Employed, Including Goodwill
Segmental Analysis of Capital Employed, Including Goodwill Six months ended 30 September 2002 Net operating Goodwill Total assets £m £m £m Water 4400 2 4402 Biffa 219 297 516 Services 188 118 306 Other 12 - 12 Total 4819 417 5236 Note: prior to April 1998, in accordance with UK GAAP, goodwill on acq
Slide 41: PBITDA Analysis
PBITDA Analysis Six months ended 30 September 2002 Profit* before depreciation, goodwill amortisation & interest UK US/Europe Group £m 2002/03 2001/02 2002/03 2001/02 2002/03 2001/02 Water & sewerage 282.3 274.5 - - 282.3 274.5 Waste management 54.4 60.3 4.2 2.7 58.6 63.0 Services 2.4 1.2 20.8 23.9
Slide 42: Depreciation Analysis
Depreciation Analysis Six months ended 30 September 2002 UK US/Europe Group £m 2002/03 2001/02 2002/03 2001/02 2002/03 2001/02 Water & sewerage (110.9) (105.3) - - (110.9) (105.3) Waste management (21.3) (24.9) (2.9) (2.4) (24.2) (27.3) Services (1.1) (1.1) (6.4) (5.9) (7.5) (7.0) Systems (0.7) (1.0
Slide 43: Goodwill Analysis
Goodwill Analysis Six months ended 30 September 2002 UK US/Europe Group £m 2002/03 2001/02 2002/03 2001/02 2002/03 2001/02 Water & sewerage - - - - - - Waste management (8.2) (7.7) (0.1) - (8.3) (7.7) Services (0.4) (0.3) (4.6) (4.4) (5.0) (4.7) Systems - - - - - - Property etc - - - - - - Corporate
Slide 44: Capital Expenditure (Net Cash)
Capital Expenditure* (Net Cash) Six months ended 30 September 2002 2002/03 2001/02 £m £m Water & sewerage (176.1) (130.9) Biffa (19.4) (20.1) Services (8.1) (6.1) Systems (0.4) (0.9) Property etc (0.3) (1.5) (204.3) (159.5) * Excluding financial investment
Slide 45: Water & Sewerage
Water & Sewerage Profit before interest, tax, exceptional items and management charges Six months ended 30 September 2002 £m 500 423.9 423.5 400.8 411.0 416.4 400 362.6 324.6 330.5 334.1 300 200 206.0 210.6 207.8 216.9 212.7 100 167.0 183.1 168.1 169.2 171.4 0 1994 1995 1996 1997 1998 1999 2000 2001
Slide 46: Water & Sewerage - P&L Highlights
Water & Sewerage - P&L Highlights Six months ended 30 September 2002 Sept 2002 Sept 2001 Change £m £m % Turnover Severn Trent Water 451.5 444.2 1.6 Retail and Utility Services 6.1 2.8 117.9 Intra segment trading (0.8) - - 456.8 447.0 2.2 Operating Costs Severn Trent Water* (280.7) (275.7) (1.8) Reta
Slide 47: Severn Trent Water Turnover
Severn Trent Water* Turnover Six months ended 30 September 2002 £m % Six months ended 30 Sept. 2001 444.2 RPI - K - - Growth New customers 2.8 0.6 Income initiatives 3.7 0.8 Conservation Metering impact (2.3) (0.5) Reduced consumption (1.1) (0.2) 447.3 0.7 Timing impact of billing 4.2 0.9 Six months
Slide 48: Severn Trent Water - Operating Costs
Severn Trent Water* - Operating Costs Six months ended 30 September 2002 2002/03 2001/02 change £m £m % Direct operating costs** (171.3) (170.4) (0.5) Depreciation (81.1) (77.7) (4.4) Infrastructure renewals (28.3) (27.6) (2.5) Total (280.7) (275.7) (1.8) * Regulated business ** Net of other income
Slide 49: Severn Trent Water - Direct Operating Costs
Severn Trent Water* - Direct Operating Costs Six months ended 30 September 2002 H1 Real £m 2002/03 % % Six months ended 30 Sept. 2001** (170.4) Inflation - pay & price increases (2.9) (1.7) (173.3) Upward cost pressures (6.4) (3.8) Efficiencies 8.4 4.9 Six months ended 30 Sept. 2002** (171.3) (0.5)
Slide 50: Non Regulated Companies Pre Exceptional Profit Before Interest
Non Regulated Companies* Pre Exceptional Profit Before Interest Six months ended 30 September 2002 40 36.3 36.2 35 30 24.0** 25.2 25 21.3 22.0 20 17.0 15 10.9 9.7 10 7.1 5 0 94 95 H 96 H 97 H 98 H 99 H 00 H 01 H 02 03 19 19 19 19 19 19 20 20 20 20 1 1 1 1 1 1 1 1 1 1 H H H * Biffa, Services, Systems
Slide 51: Biffa - Turnover Divisional Analysis
Biffa - Turnover Divisional Analysis Six months ended 30 September 2002 £m 500 494.8 45.3 Belgium 450 41.3 Special UK 396.0 400 42.3 Landfill UK 350 27.8 147.4 Collection UK 300 291.1 42.8 113.2 252.4 257.6 250 21.8 26.1 22.0 19.6 22.2 200 74.7 260.8 78.6 74.4 150 212.7 100 134.9 151.6 132.4 50 0 20
Slide 52: Biffa PBITA Divisional Analysis
Biffa PBITA* Divisional Analysis Six months ended 30 September 2002 90 73.0 1.3 80 6.1 Belgium 70 Special UK Landfill UK 60 Collection UK £m 34.1 45.7 Central o'heads 50 3.9 3.6 35.7 34.4 40 31.6 0.3 1.3 3.0 2.4 30 7.1 20.1 1.8 17.1 15.0 20 10.0 45.3 22.3 22.3 10 28.1 20.0 0 -7.3 -10.0 -13.8 -7.0 -6
Slide 53: Severn Trent Services - Turnover Divisional Analysis
Severn Trent Services - Turnover Divisional Analysis Six months ended 30 September 2002 £m 200.0 171.6 155.2 150.0 114.7 116.5 100.0 95.3 88.6 84.6 85.4 78.280.0 78.7 60.4 62.8 50.0 43.3 39.3 0.0 2000 2001 2002 H1 2002 H1 2003 Operating services Water purification Analytical services
Slide 54: Severn Trent Services Margin on Sales - Total Services
Severn Trent Services Margin* on Sales - Total Services Six months ended 30 September 2002 £m Turnover PBITA Margin 2002/03 2001/02 2002/03 2001/02 2002/03 2001/02 As reported 190.7 189.1 15.7 18.1 8.23% 9.57% Aquafin and other associates - - (4.8) (4.3) Underlying trading margin 190.7 189.1 10.9 13
Slide 55: Severn Trent Services Margin on Sales - US & Europe Only
Severn Trent Services Margin* on Sales - Services US & Europe Only Six months ended 30 September 2002 Turnover PBITA Margin £m 2002/03 2001/02 2002/03 2001/02 2002/03 2001/02 As reported 164.8 168.3 14.4 18.0 8.74% 10.70% Aquafin and other associates - - (4.8) (4.3) Underlying trading margin 164.8 1
Slide 56: Disclaimers
Disclaimers This document contains certain “forward-looking statements” with respect to Severn Trent’s financial condition, results of operations and business and certain of Severn Trent’s plans and objectives with respect to these items. Forward-looking statements are sometimes but not always, iden
Slide 57: Severn Trent Environmental Leadership
SEVERN TRENT ENVIRONMENTAL LEADERSHIP