|
Article Excerpt
SIR JOHN EGAN, CHAIRMAN, SEVERN TRENT PLC: Well, good morning to you all. And welcome to our interim results presentation for the six months to September 30, 2008. I'm pleased to report on a period of good progress. In a moment Mike will outline the key numbers and then Tony will update you on our journey to raise standards, ensuring continuous improvements across all areas of our Severn Trent Water business, measured by our 20 key performance indicators.
We remain on track to deliver around 3% annual out-performance against the Ofwat determination for operating costs in 2008 and '09, and also for the following year 2009/10, notwithstanding significant increases in commodity prices in the first six months of this financial year.
The capital program is proceeding according to plan. And we expect that the previously announced efficiencies of around 6% over the Ofwat determination continue to be deliverable over the remaining AMP4 period.
Severn Trent Services continues to focus on organic growth and building global presence, building on brand recognition and reputation, a strong market position, international scale and advanced technologies.
The Group has a strong liquidity position and is funded for its investment and cash flow needs until the end of the AMP4 period in March 2010.
Severn Trent continues to believe that the appropriate long-term gearing level for the Company is 60% net debt to regulated asset value. However, given the current and ongoing uncertainties in the credit markets, the Board believes it's prudent in the near term for the Company to retain as much liquidity and flexibility as possible. As such, the Board does not expect to reach the target gearing level until the credit market improves.
Severn Trent is a high-quality business whose investment program drives strong growth prospects. The management team has a clear and focused strategy and is engaged in the single-minded pursuit of higher standards as the means to achieve both higher levels of customer satisfaction, but also sustain strong financial returns to our shareholders.
In conclusion, the Board is proposing an interim ordinary dividend of 26.9p(Sic-see press release), an increase of 8% over the 2007/08 interim ordinary dividend. This is in line with our policy of growing dividends by 3% above the rate of inflation until March 2010.
And now let's go over to Mike for the numbers. Mike?
MIKE MCKEON, FINANCE DIRECTOR, SEVERN TRENT PLC: Well, good morning everyone. And thank you Chairman. As the Chairman has highlighted, this has been a period of continuous progress and improvement. And I'd like to take you through what these numbers show as we go through the next 15 or 20 minutes.
Let me start, first of all, with the key highlights in the first half of this year. Turnover was up just over 5%, mainly reflecting the net price increases at Severn Trent Water. Excluding net exceptional charges of GBP4.4m which I will discuss later in the presentation, PBIT was around 5% higher than the last half year, at GBP262m.
Profit before tax, which also excludes losses on financial instruments of GBP12m, was GBP155m, and down 4%.
Now, as before, I show here two earnings per share figures. Our preferred measure is adjusted basic earnings per share which we calculate as earnings before exceptional items, gains or losses on financial instruments and deferred tax. This was 50p. Adjusted basic earnings per share was up 5%.
For the Group, basic earnings per share was a loss of 35.8p. But this includes the impact of an exceptional charge to deferred tax of GBP186m in relation to the phased withdrawal of industrial building allowances.
And finally, turning on this page to dividends. The Board, as the Chairman has indicated, has declared an interim dividend of 26.29p per share, an increase of 3% above RPI inflation at the end of September, which was 5%.
So if we move to the underlying segment performance of the Group, let me first start with our largest segment, which is Water and Sewerage. And after allowing for the transfer of the Retail and Utility Services small business to the Severn Trent Services segment, turnover in this segment rose by 5% over the last half year. And identified here in front of you are the main drivers of the increase.
So if we go from left to right, firstly, and by far the biggest at GBP32m, is the impact of the allowed increase in charges, including inflation of 5.07%.
Secondly, the decline in consumption across our measured income base, which is an issue that we've flagged before, has reduced turnover by about GBP5m. Now we anticipate that the full year impact of this decline should be in the order of GBP12m to GBP15m.
Thirdly, the net impact of new properties and meter optants increased turnover by nearly GBP3m against that of the previous half year.
Next, through our drive to raise standards and improvements in our bidding processes, these have generated a further GBP4m in turnover in the period. And then finally there were some small other changes of just under GBP1m. Slide 38 in the appendices in front of you will give you more detail on these movements.
Turning now to operating profit or PBIT before exceptional items, and after allowing again for the transfer of the smaller Retail and Utility Services business, total Water and [Services] PBIT was up over 4% to GBP255.3m.
Identified again here on the chart, and moving from left to right, some of the main movements. I've just explained the movements in turnover, at GBP34m. But if we go to the cost side, the key items were as follows.
A net cost increase of GBP3.5m compared to the prior period. Now this is made up of an increase around inflation of around GBP9m on the base costs, less operating efficiencies of around GBP5m.
The impact of price increases on the small proportion of our energy requirements that were unhedged in the first half, along with significant increases in other commodity prices in the first half, was around GBP8m. We now have 100% of our energy cost hedged for this current financial year of 2008/09, and we have 91% by volume fixed for energy cost for the final year of this AMP period.
We have increased our bad debts provisions by GBP2.7m over the prior period. We have not, as yet, seen any material deterioration in customer debt or cash collection performance yet, but have chosen to use a more rigorous approach to the methodology for calculating bad debts, and hence accelerated a portion of the full year charge that we expect into the first half.
Expenditure on maintaining our infrastructure networks increased by GBP11m or 23% in the first half year. And finally, depreciation fell on aggregate by GBP1m.
Overall this produces a net increase in Water and Sewage PBIT of GBP11m over the prior period, or 4.4%.
Turning to Severn Trent Services business which we previously reported as Water Technologies & Services, this chart sets out the key financial performance.
This business has continued to grow and deliver profit growth over the period. Turnover has increased by 2.5% over the prior period. And if we exclude the impact of Retail and Utility Services where profits have fallen due to declining property markets in the UK, PBIT before exceptional items increased nearly 10% in the business you would recognize previously. And return on invested capital has been maintained at a healthy 14%.
As I mentioned earlier, in the period to date September 30, we have incurred net exceptional charges of GBP4.4m. And importantly in a number of categories these charges draw a line under some of the issues...
|
