Severn Trent Plc · LSE:SVT
Severn Trent — FY2005 Earnings Presentation
69 slides from Severn Trent's earnings presentation, Jun 7, 2005
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: Contact Details - Investor Relations
Contact Details - Investor Relations Julian Wais Tel: +44 (0)121 722 4295 Fax: +44 (0)121 722 4294 E-mail: julian.wais@stplc.com 2297 Coventry Road Birmingham B26 3PU United Kingdom www.severntrent.com
Slide 3: Preliminary Results
Preliminary Results Year ended 31 March 2005 Presentation - 7 June 2005
Slide 4: Sir John Egan
SEVERN TRENT ENVIRONMENTAL LEADERSHIP Bo Sir John Egan Chairman
Slide 5: Mark Wilson
Mark Wilson Group Finance Director
Slide 6: Satisfactory Group results overall after incremental pension charges
Satisfactory Group results overall after incremental pension charges 2004/05 2003/04 Change £m £m % Profit before interest, tax 438.6 440.6 (0.5)% and goodwill amortisation (PBITA*) Profit before tax and 262.2 272.6 (3.8)% goodwill amortisation (PBTA*) Adjusted basic EPS** 55.6p 61.4p (9.4)% * Exclu
Slide 7: Dividend increase
Dividend increase Year ended 31 March 2005 Pence per share 2004/05 2003/04 % increase Interim 18.21 17.77 +2.5 Final 30.30 29.27 +3.5 48.51 47.04 +3.1 Final dividend payment date advanced by one month to 31 August 2005
Slide 8: Group turnover up 3.3% to £2081m
Group turnover up 3.3% to £2081m 1015 957 696 633 £m 211 208 170 163 147 87 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 Water & Sew erage 2004Bif f2005 a 2004 2005 Laboratories 2004 2005 Services 2004 Other2005 Water and Biffa* Laboratories* Services* Other businesses* sewerage* 2004 2005
Slide 9: Regulated and non-regulated PBITA
Regulated and non-regulated PBITA 337.9 339.9 £m 123.4 123.0 2004 2005 2004 2005 2004Water & 2005 Waterand Non-regulated 2005 2004 Non-regulated Sew erage** Bus ines s es ** sewerage* businesses* +0.6% -0.3% ** Excluding corporate overheads, inter segment unrealised profit and exceptional items
Slide 10: Non-regulated businesses – total PBITA broadly flat
Non-regulated businesses – total PBITA* broadly flat 8 3 .4 79.2 £m 2 1 .7 1 9 .8 1 7 .0 1 5 .0 5 .5 4 .8 Bif f a Laboratories Serv ic es ** Other Bus ines s es Biffa Laboratories Services Other businesses +5.3% -30.9% +16.5% -12.7% * Excluding exceptional items 2005 2005 2004 2005 2004 2004 2005 20
Slide 11: Incremental pension charges have impacted profit
Incremental pension charges have impacted profit Incremental pension charges 2004/05 £m Water and sewerage 21.7 Biffa 4.1 Laboratories 0.6 Services 0.6 Other businesses 2.5 Corporate overheads 1.8 31.3 FRS17 deficit: - before deferred tax £309m (£368m) - after deferred tax £217m (£257m)
Slide 12: Group net debt and interest up
Group net debt and interest up Net Debt Interest £176.4m 176.4 £2890m 2890 £168.0m 168.0 £2749m 2749 2003/04 2004/05 2003/04 2004/05 66% at fixed interest rate Effective rate 6% (6%) Gearing 57% (net debt/net debt & equity) Interest cover: - 4.3x PBITDA* - 2.3x PBIT* * Excluding exceptional
Slide 13: Current Taxation rate of 17.2%, will rise in 2005/06
Current Taxation rate of 17.2%,* will rise in 2005/06 30.0% 25.0% Effective 20.0% current tax rate range 15.0% 2005/06 10.0% 5.0% 0.0% 2004/05 2005/06 *Attributable to PBT excluding exceptional items
Slide 14: Exceptional items
Exceptional items £m 2004/05 Severn Trent Water redundancy costs (13.0) Profit on sale of Indaqua 4.3 Profit on sale of fixed assets 7.6 Closure Costs: Engineering consultancy: Haswell (3.1) Systems (0.7) Reduction of Net Assets (4.9) Goodwill previously written off to reserves: Engineering Consulta
Slide 15: Businesses generate £220m free cash flow after £483m capex
Businesses generate £220m free cash flow after £483m capex £m 300 Services* Laboratories* Other* Interest & Biffa* -£4.3m +£14.6m -£22.4m Financing 250 +£67.4m -£165.4m Water & 200 sewerage* +£164.3m 150 100 Tax -£36.5m Dividends Increase 50 -£162.0m In Net Debt +£140.9m 0 -50 Acqns/ -100 Disposals
Slide 16: Update on International Accounting Standards
Update on International Accounting Standards ■ Changes to results and financial position - Retirement benefits - Fixed assets and renewals accounting - Deferred tax - Dividend - Financial instruments - Business combinations ■ Impact is to reduce net assets and increase earnings volatility
Slide 17: Year-on-year changes
Year-on-year changes ■ Water and sewerage PBITA ■ Biffa PBITA ■ Laboratories and Services turnover and PBITA ■ Group PBITA and PBTA
Slide 18: Water and sewerage PBITA – year-on-year changes
Water and sewerage PBITA* – year-on-year changes £m 70 Opex Income Inflation 60 +£54.2m -£12.1m Net Upward 50 Cost Pressures -£29.7m 40 30 20 Depreciation -£11.9m New Business Net 10 Ventures Increase +£1.5m +£2.0m 0 Water and sewerage PBITA* - up £2.0m to £339.9m (£337.9m) * Excluding exceptional i
Slide 19: Biffa PBITA – year-on-year changes
Biffa PBITA* – year-on-year changes £m 14 12 10 Special Waste Belgium Central Costs +£1.2m +£0.1m -£4.2m 8 Landfill +£4.7m 6 Net Increase +£4.2m 4 Collection +£2.4m 2 0 Biffa PBITA* - up £4.2m to £83.4m (£79.2m) * Excluding exceptional items
Slide 20: Laboratories and Services – turnover and PBITA
Laboratories and Services – turnover and PBITA* £m Laboratories Services** Aquafin Total TURNOVER 2003/04 170.1 211.1 n/a 381.2 Trading Movements 4.6 11.0 n/a 15.6 Forex (12.1) (14.0) n/a (26.1) 2004/05 162.6 208.1 n/a 370.7 PBITA 2003/04 21.7 6.3 10.7 38.7 Trading Movements (5.2) 3.9 0.2 (1.1) Fore
Slide 21: Group PBITA & PBTA – year-on-year changes
Group PBITA & PBTA* – year-on-year changes £m 15 10 Biffa Laboratories Corporate & Water & +£4.2m -£6.7m Other Net Net unrealised 5 sewerage Services businesses Decrease Decrease profit +£2.0m +£2.8m -£0.7m in PBITA* in PBTA* -£3.6m -£2.0m Interest -£10.4m 0 -£8.4m -5 -10 -15 Group PBTA* - down £10.
Slide 22: Strong performance in AMP3 leading to…
Strong performance in AMP3 leading to… ■ 5 year actual operating costs on Ofwat target, before 2004/05 incremental pension charges ■ Capital out performance of 13% (COPI), 5% (RPI); regulatory outputs achieved ■ At or within 5% of the efficiency frontier in all of the 4 efficiency assessments (sourc
Slide 23: AMP4 Determination
AMP4 Determination Details to support the AMP4 price allowances are set out in the announcement
Slide 24: Colin Matthews
Colin Matthews Group Chief Executive
Slide 25: Management Priorities are as follows…
Management Priorities are as follows… ■ Severn Trent Water – AMP4 performance ■ Biffa – growth and return on investment improvement
Slide 26: Started with Water…the previous management structure…
Started with Water…the previous management structure… Managing Director D D D D D D HoD HoD HoD HoD HoD HoD HoD HoD HoD HoD HoD HoD HoD HoD HoD HoD Operations D = Director HoD = Head of Department
Slide 27: …has been replaced with a flatter structure
…has been replaced with a flatter structure Tony Wray Managing Director D D D D D D D D D Operations D = Director
Slide 28: Restructuring is now well advanced
Restructuring is now well advanced SM SM SM SM SM SM SM SM SM SM SM SM SM SM SM Area Managers Area Managers Works Managers Works Managers Local Managers Assistant Managers Assistant Managers 150 employees identified out of up to 350 manpower reduction SM = Senior Managers
Slide 29: Water continues to deliver on operational performance
Water continues to deliver on operational performance Improving health & safety performance Improving environmental performance Annual Average Accidents per Thousand Employees Annual Category 1 & 2 Pollution Incidents 11 11 20 20 88 88 2003/04 2003/04 2004/05 2004/05 2003/04 2003/04 2004/05 2004/05
Slide 30: And will be delivering opex efficiencies in AMP4…
And will be delivering opex efficiencies in AMP4… Headcount reduction ■ IT applications - customer relationship mgt. - automated telemetry - finance & purchasing ■ Work scheduling and field deployment Overhead reduction ■ Accommodation rationalisation - 6 closures ■ Depot rationalisation - 4 closure
Slide 31: The Ofwat opex challenge will be met
The Ofwat opex* challenge will be met 500 490 480 470 £m 460 450 440 430 2005/06 2006/07 2007/08 2008/09 2009/10 STW forecast Ofwat assumed *At outturn prices
Slide 32: …Will also deliver capital efficiencies
…Will also deliver capital efficiencies ■ £2.6bn capital programme; 900 significant projects ■ Strategic delivery partners reduced from 50 to 20 ■ Contract framework and operation redesigned to deliver - Standardised templates for design - High quality feasibility studies - Design freeze and target
Slide 33: Ofwat’s assumed capex profile is as follows…
Ofwat’s assumed capex* profile is as follows… 561 560 541 526 442 £m 2005/06 2006/07 2007/08 2008/09 2009/10 *Capex is at outturn prices after deduction of grants & contributions
Slide 34: In summary
In summary ■ Continue to improve operating standards, thereby reduce operating costs further ■ Deliver capital programme effectively Confident of at least meeting the Final Determination at operating profit level
Slide 35: Biffa’s growth has come largely from Hales…
Biffa’s growth has come largely from Hales… ■ Hales integration completed Divisional PBITA £m % August 2004 Change ■ Like-for-like landfill volumes Collection 54.0 +4.7 up 5%, unit prices up 5% Landfill 38.7 +13.8 ■ Operational and permitted Special Waste 8.2 +17.1 void 78m cubic metres* Overheads (
Slide 36: Regulatory change will drive future growth…
Regulatory change will drive future growth… Batteries English and Directive LAs to meet Welsh statutory landfills Hazardous recycling subject to Waste targets PPC Regulations Cooked WEEE Scottish Ban on UK UK meats into Ban on liquids Regulation landfills Co-disposal ELV WEEE ABP and shredded target
Slide 37: …with management focus on organic turnover growth…
…with management focus on organic turnover growth… Net Turnover 800 700 600 UK Waste/Hales acquisitions 500 £m 400 300 200 100 0 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05
Slide 38: …and focus on improving return on investment
…and focus on improving return on investment Re turn* on Tota l Inve stm e nt** 12% 10% 8% 6% 4% 2% 0% 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 * Before interest, tax, goodwill amortisation and exceptional items ** Net operating assets plus tota
Slide 39: Laboratories – return on investment has gone down …
Laboratories – return on investment has gone down … Re turn* on T otal Inv e stment** 15% 15% 10% 10% 2003/04 2003/04 2004/05 2004/05 * Before interest, tax, goodwill amortisation and exceptional items ** Net operating assets plus total gross goodwill from acquisitions
Slide 40: …but there are initiatives in place to improve performance
…but there are initiatives in place to improve performance STL developing industry leading data system which will: ■ Faster turnround times ■ Standardised reporting ■ Value added data management access ■ Reduced costs to support one system ■ Efficiency gains available simultaneously ■ Improve flexib
Slide 41: Services… smaller businesses but on an improving trend
Services… smaller businesses but on an improving trend R e turn* on T otal Inv e stme nt** 4% 4% 3% 3% 2003/04 2003/04 2004/05 2004/05 * Before interest, tax, goodwill amortisation and exceptional items and excluding Aquafin ** Net operating assets plus gross goodwill from acquisitions
Slide 42: A number of opportunities to tidy-up the small businesses
A number of opportunities to tidy-up the small businesses ■ Severn Trent Systems – restructuring, IT Services being brought in-house ■ Charles Haswell and Partners – downsized and merged into Severn Trent Water ■ Investment in Portugal - sold
Slide 43: New executive team will drive Group forward
New executive team will drive Group forward Colin Matthews Chief Executive Business Heads Rachel Len Martin Tony Wray Brydon Graziano Bettington Water Jannetta Services Biffa Laboratories Corporate Heads Peter Davies Johan van Pramod Peter Gavan Andy Smith Mark Wilson General den Arend Tandon Corpor
Slide 44: Positive outlook overall
Positive outlook overall ■ Well positioned to deliver challenging AMP4 targets ■ Biffa focused on organic growth ■ Difficult market conditions for US Laboratories. UK Laboratories remains strong ■ Services growth continues in favourable market conditions
Slide 45: SEVERN
SEVERN TRENT ENVIRONMENTAL LEADERSHIP Po SEVERN CTRENT
Slide 46: Appendix
Appendix SEVERN TRENT ENVIRONMENTAL LEADERSHIP
Slide 47: Group Profit & Loss summary
Group Profit & Loss summary Year ended 31 March 2005 2004/05 2003/04 % increase £m £m /(decrease) Turnover 2,081.2 2,015.1 3.3 Profit before interest, goodwill and exceptional items 438.6 440.6 (0.5) Goodwill amortisation (30.1) (29.8) 1.0 Profit before interest and exceptional items 408.5 410.8 (0.
Slide 48: Group Balance Sheet
Group Balance Sheet Year ended 31 March 2005 Movement since 31/3/05 31/3/04 31/3/04 £m £m £m Tangible fixed assets 5441 5278 163 Goodwill and intangibles 484 498 (14) Investments 26 28 (2) Working Capital/provisions (123) (148) 25 Capital employed 5828 5656 172 Tax creditor (70) (66) (4) Deferred ta
Slide 49: Group cashflow
Group cashflow Year ended 31 March 2005 2004/05 2003/04 £m £m Cash flow from operations (inc. dividend from associates) 702.7 735.0 Capital expenditure (net) (483.1) (484.3) Interest paid (151.3) (148.3) Tax payments (36.5) (19.5) Total before acquisitions and disposals 31.8 82.9 Acquisitions and di
Slide 50: Credit ratings
Credit ratings Year ended 31 March 2005 Long-Term Severn Trent Water Severn Trent Plc Moodys A2 A3 Standard & Poors A A- Short-Term Severn Trent Water Severn Trent Plc Moodys P1 P2 Standard & Poors A1 A1
Slide 51: Deferred taxation
Deferred taxation Year ended 31 March 2005 2004/05 £m Origination and reversal of timing differences (37.7) Increase in discount 0.8 Total deferred tax charge (36.9) Provision at 31/3/04 (462.9) Deferred tax charge for period (above) (36.9) Provision at 31/3/05 (499.8)
Slide 52: Segmental analysis of capital employed, including goodwill
Segmental analysis of capital employed, including goodwill Year ended 31 March 2005 Net operating Goodwill Total assets £m £m £m Water 4866.5 - 4866.5 Biffa 288.4 370.2 658.6 Laboratories 65.9 64.0 129.9 Services 92.1 35.3 127.4 Other 44.1 - 44.1 Total 5357.0 469.5 5826.5 Note: prior to April 1998,
Slide 53: PBITDA analysis
PBITDA* analysis Year ended 31 March 2005 UK US/Europe Group £m 2004/05 2003/04 2004/05 2003/04 2004/05 2003/04 Water & sewerage 585.0 570.1 - - 585.0 570.1 Waste management 136.7 126.6 9.8 7.7 146.5 134.3 Laboratories 6.2 6.1 16.8 23.7 23.0 29.8 Services 1.3 0.5 23.1 21.6 24.4 22.1 Other (17.2) (14
Slide 54: Depreciation analysis
Depreciation analysis Year ended 31 March 2005 UK US/Europe Group £m 2004/05 2003/04 2004/05 2003/04 2004/05 2003/04 Water & sewerage (245.1) (232.2) - - (245.1) (232.2) Waste management (56.6) (50.6) (6.5) (4.5) (63.1) (55.1) Laboratories (1.5) (1.5) (6.5) (6.6) (8.0) (8.1) Services (0.5) (0.5) (4.
Slide 55: Goodwill amortisation analysis
Goodwill amortisation analysis Year ended 31 March 2005 UK US/Europe Group £m 2004/05 2003/04 2004/05 2003/04 2004/05 2003/04 Water & sewerage - (1.3) - - - (1.3) Waste management (22.8) (21.1) (0.1) (0.2) (22.9) (21.3) Laboratories (0.7) (0.8) (3.4) (3.2) (4.1) (4.0) Services - - (3.1) (3.2) (3.1)
Slide 56: Capital expenditure (net cash)
Capital expenditure (net cash)* Year ended 31 March 2005 2004/05 2003/04 £m £m Water & sewerage (395.5) (392.7) Biffa (65.9) (75.6) Laboratories (6.8) (9.9) Services (18.5) (5.1) Other 3.6 3.9 (483.1) (479.4) * Net of grants received and proceeds of sale
Slide 57: Water & sewerage - P&L highlights
Water & sewerage - P&L highlights Year ended 31 March 2005 2004/05 2003/04 Change £m £m % Turnover Severn Trent Water 999.3 945.1 5.7 Retail and Utility Services 18.2 13.8 31.9 Intra segment trading (2.4) (2.2) (9.1) 1015.1 956.7 6.1 Operating Costs Severn Trent Water** (660.9) (607.2) (8.8) Retail
Slide 58: Severn Trent Water - turnover
Severn Trent Water - turnover Year ended 31 March 2005 £m % Year ended 31 March 2004 945.1 RPI - K 44.7 4.7 989.8 4.7 Growth New customers 4.3 0.5 Income initiatives 5.2 0.6 Power generation 1.5 0.2 Conservation Metering impact (3.5) (0.4) Reduced consumption (2.8) (0.3) 994.5 5.2 One off changes Fi
Slide 59: Severn Trent Water - operating costs
Severn Trent Water - operating costs Year ended 31 March 2005 2004/05 2003/04 change £m £m % Direct operating costs* (420.1) (378.3) (11.1) Depreciation** (182.7) (172.3) (6.0) Infrastructure renewals (58.1) (56.6) (2.7) Total (660.9) (607.2) (8.8) * Net of other income but excluding management char
Slide 60: Severn Trent Water - direct operating costs
Severn Trent Water - direct operating costs Year ended 31 March 2005 Real £m Cost Increase 2004/05 % % Year ended 31 March 2004* (378.3) Inflation (12.1) (3.2) (390.4) (3.2) Accounting reclassification (1.1) (0.3) Upward cost pressures (35.6) (9.4) Efficiencies 7.0 1.8 Year ended 31 March 2005* (420
Slide 61: Severn Trent Water – RCV
Severn Trent Water – RCV Year ended 31 March 2005 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 – often referred to as RAV). The actual outcome for the RCV fr
Slide 62: Severn Trent Water - gearing
Severn Trent Water - gearing Year ended 31 March 2005 2004/05 2003/04 Closing RCV £5009m £4688m Closing Debt £2387m £2292m Debt/RCV 47.7% 48.9%
Slide 63: Non-regulated businesses - total PBITA
Non-regulated businesses*# - total PBITA** Year ended 31 March 2005 123.4 123.0 100.8 104.5 82.8 58.4 52.9 45.1 40.8 27.9 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 * Biffa, Laboratories, Services & Other businesses ** Excluding exceptional items # Excludes corporate overheads and inter segme
Slide 64: Non-regulated businesses - total PBIT
Non-regulated businesses*# - total PBIT** Year ended 31 March 2005 94.9 92.9 79.4 74.3 65.4 51.6 52.0 45.1 40.8 27.9 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 * Biffa, Laboratories, Services & Other businesses ** Excluding exceptional items # Excludes corporate overheads and inter segment un
Slide 65: Biffa turnover - analysis
Biffa turnover - analysis Year ended 31 March 2005 394.2 360.6 270.7 260.8 £m 212.7 179.3 163.1 147.4 141.6 113.2 66.8 50.2 56.0 53.6 59.2 2001 2002 2003 2004 2005 41.3 45.0 2004 2005 42.3 45.3 2001 2002 2003 2004 2005 2001 27.8 20022003 2003 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 20
Slide 66: Biffa PBITA - analysis
Biffa PBITA* - analysis Year ended 31 March 2005 54.0 51.6 45.3 43.6 38.7 34.1 34.0 28.9 28.1 20.1 8.2 6.1 5.9 7.0 3.6 3.9 3.1 3.2 3.3 Central O’heads £m 1.3 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 20
Slide 67: Laboratories & Services turnover - analysis
Laboratories & Services turnover - analysis Year ended 31 March 2005 171.6 171.8 170 .1 16 2 .6 155.2 12 8 .2 13 1.4 12 2 .2 12 0 .6 12 6 .1 £m 8 9 .4 8 7.5 8 2 .9 73 .0 76 .7 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 Laboratories Water Purif ication Operating Servic
Slide 68: Laboratories & Services return on sales - analysis
Laboratories & Services* return** on sales – analysis Year ended 31 March 2005 £m Turnover PBITA* Return on Sales 2004/05 2003/04 2004/05 2003/04 2004/05 2003/04 Severn Trent Laboratories 162.6 170.1 15.0 21.7 9.2% 12.8% Services 208.1 211.1 9.1 6.3 4.4% 3.0% Total 370.7 381.2 24.1 28.0 6.5% 7.3% *E
Slide 69: SEVERN
SEVERN TRENT ENVIRONMENTAL LEADERSHIP Po SEVERN CTRENT