Severn Trent PLC · LSE:SVT
Severn Trent — H1 2006/07 Earnings Presentation
54 slides from Severn Trent's earnings presentation, Dec 7, 2006
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: Interim Results: 6 Months to 30 September 2006
Interim Results 6 Months to 30 September 2006 Presentation – 7 December 2006
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: Highlights – ex Biffa (unless stated)
Highlights – ex Biffa (unless stated) H1 2005/06 H1 2006/07 Change £m £m % Group Turnover 722 746 3.3% Profit Before Interest and Tax 233 219 (6.0)% (PBIT*) Profit Before Tax (PBT**) 151 143 (5.3)% # Adjusted Basic EPS (pence) 44.7p 42.2p (5.6)% Basic EPS (pence) 49.6p 55.8p 12.5% from continuing an
Slide 6: Dividend growth is central to our investment proposition
Dividend growth is central to our investment proposition Progressive dividend policy: - Growth of 3% above inflation for AMP4 period No dilution of dividend as result of demerger this year: - New Severn Trent dividend based on 2005/06 dividend, less amount Biffa would have paid, and - Adjusted f
Slide 7: Group turnover up 3.2% to £746m
Group turnover up 3.2% to £746m Group turnover £m +4.6% 610 584 +5.4% 142 150 Water and Sew erage Water Technologies and Services H1 2005/06 H1 2006/07 Business segment turnover is stated gross i.e. including inter segment trading
Slide 8: Water and Sewerage PBIT
Water and Sewerage PBIT Water and Sewerage PBIT £m -6.1% 39.5 240.2 (3.2) (6.9) (16.7) 225.6 (9.6) (3.5) (6.3) (7.6) A Vo H C N Le In D H En ll o 1 us et ep 1 fr lu ak er 20 20 as w to C re m ag gy ed os 05 06 tr u ci m e e at /0 er tI /0 co /M Pr ct m io 6 7 nc st re ur ic ix an n s re ba e e ag (R
Slide 9: Other businesses PBIT performance
Other businesses PBIT performance Other PBIT £m +11.1% 9.0 8.1 +61.8% -1.3 -3.4 Water Technologies and Services Other Businesses H1 2005/06 Numbers shown before exceptional items H1 2006/07
Slide 10: Water Technologies and Services performance
Water Technologies and Services performance PBIT £m* Return* On Invested Capital ** CAGR 24% 18.4 10% 16.5 9% 13.5 8% 9.6 6% 2003/04 2004/05 2005/06 LTM 2003/04 2004/05 2005/06 LT M * PBIT before exceptional items ** Net operating assets plus gross goodwill from acquisitions LTM Last Twelve Months
Slide 11: Cash Flow
W at er an d Se w £m er ag e W 172.9 as te M gm W t. at U er S 43.0 Te La ch bo ra Cash Flow no to lo rie gi es s 6.1 an d Se O rv th ic er es (i n 3.5 c. C or po O ra pe H1 2006/07 operating cash flow te ra ) tin g C (25.6) as h Fl ow 199.9 In t er e st (59.6) Ta x (21.1) Pr D iv oc id ee en ds ds
Slide 12: Group finance charges and net debt
Group finance charges and net debt Net finance costs Net debt £m £m 118.0 64.2 33.7 2,887 2,961 2,867 84.3 77.5 -13.3 30 Sept 2005 31 Mar 2006 30 Sept 2006 H1 2005/06 H12006/07 Net Interest IAS 39 Net Debt Effective rate circa 5.8 % * 76% at fixed interest rates* Interest cover*: Average mat
Slide 13: Gearing target on track, aim to maintain
Gearing target on track, aim to maintain 60% Target gearing Debt to 2006/7 RCV (%)* Ofwat Raising gearing assumption Net cash outflows Short term costs of improvement plans 60% 52% Lowering gearing Disposal proceeds Longer term benefits of improvement plans RCV growth Severn Trent Demerger
Slide 14: Effective rate of tax reduced by pension contributions
Effective rate of tax reduced by pension contributions Effective current tax rate* % 31.8 3.1 Impact of pension contributions 30.6 anticipated in FY 2006/07 is to reduce 28.7 effective rate by 3.1% in H1 2006/07 H1 2005/06 H1 2006/07 2006/7 full year Severn Trent Group in range of 26-29% taking acco
Slide 15: Financial summary
Financial summary Appropriate financial structure for water business Cost challenges remain Delivering on commitment of dividend growth
Slide 16: Colin Matthews, Group Chief Executive
Colin Matthews Group Chief Executive
Slide 17: Focus on water
Focus on water Completed phase 1: Group restructuring - Biffa demerger complete - “Non-core” disposals - Efficient balance sheet Fully engaged in phase 2: Focus on water - Securing the basics - Developing plans for fundamental transformation Higher standards greater efficiency Continuous improve
Slide 18: Biffa demerger and special dividend returned 31% of the equity
Biffa demerger and special dividend returned 31% of the equity into the hands of our shareholders Return of value through demerger and special dividend (pence) 165p 436p 31% (2) 271p Biffa share price (1) Special dividend Total (1) Based on the average closing price for Biffa for the 20 business day
Slide 19: Non-core disposals have simplified group and will realise £217m
“Non-core” disposals have simplified group and will realise £217m £217.3m Biffa Belgium 30.0 Sold Aquafin 30.6 Sold Property 71.7 Sold US Laboratories 85.0 Agreed subject to US regulatory approval Proceeds Total net surplus on disposal £28m
Slide 20: Securing the basics: some positives
Securing the basics has turned out to be a major undertaking: there have been some positives Pollution incidents Good Water Quality well controlled Safety improving Mean zonal compliance Category 1 and 2 Reportable accidents per 100,000 hours 100 14 0.4 12 99.9 10 0.3 Per 100,000 hours 99.8 Number 8
Slide 21: Securing the basics: improvements are in hand
Securing the basics has turned out to be a major undertaking: improvements are in hand Leakage - £6m of additional investment full year 2006/07 - Downward volume trend restored Customer relations compliance - Compliance with DG standards - Recovery of OPA ranking Controls “end to end” - 5 majo
Slide 22: Energy and leakage spend have driven opex above final determination
Energy and spend on leakage have driven opex above the final determination Operational costs* vs. Ofwat Final Determination UK GAAP £m 500 Upward pressures include: Energy £19m Leakage management £6m Net of efficiencies 400 2005/06 2006/07 Ofw at Final Determination ** STW original Plan Actual
Slide 23: On track to deliver required outputs and achieve 6% capex efficiency
We remain on track to deliver required outputs and achieve 6% capex efficiency AMP4 capex subject to Ofwat agreement of change protocol UK GAAP CAPEX, gross* at outturn prices, £m 6% forecast efficiencies over AMP4 £2,850m £2,675m 2005/06 actual - £434m 2006/07 forecast - £500m Final Determination S
Slide 24: Focus is now on improving Water and Wastewater operations
Following the Group restructuring focus is now on improving the Water and Wastewater operations Today June 2007 Group restructuring – focus on water Diagnose, evaluate options and build plans Implementation Benchmark our performance Prioritise and validate options Start implementing quick wins
Slide 25: First step was to define how to measure success
First step was to define how to measure success STW gap to Benchmark/Target Level 1 KPIs Low Medium Large Safety Water quality (mean zonal compliance) Water availability Leakage Sewer flooding incidents Pollution incidents (Cat 1, 2 & 3) Sewage treatment works compliance Customer written complaints
Slide 26: Improvements targeted across the business in standards and efficiency
Improvements are targeted across the business in terms of standards and efficiency Level 1 KPIs Example Improvement Opportunity Incidents / failures on network improved telemetry - automation and remote control of site operations – Faster response times Sewer flooding incidents Water availability
Slide 27: Integration of head office into water is progressing
Integration of head office into water is progressing 3 out of 4 teams now integrated - Company Secretarial - HR - Corporate Affairs/Communication Finance team planning integration 1st quarter 2007 £6m to £10m reduction in head office costs expected over coming 18 months
Slide 28: Faster response times from automation and remote control of sites
Faster response times and improved efficiency from further automation and remote control of sites Today Today Future Future Tittesworth Tittesworth Bamford Ogston Bamford Ogston Homesford Homesford L Eaton L Eaton Shelton Shelton C Wilne C Wilne Melbourne Melbourne Cropston Cropston Trimpley Trimple
Slide 29: Two examples of how we can improve customer service
Two examples of how we can improve the customer service Different billing profile will reduce week-to- Better match of staffing and call volume will week call centre congestion reduce daily queues Bills and Inbound reminders calls per week Number of calls Call agents rostered Unsatisfied Underutilis
Slide 30: Focus on water
Focus on water Clear strategy implemented Management driving improvement Investment fuelling growth
Slide 31: Severn Trent
SEVERN TRENT tT SEVERN TRENT
Slide 32: Q&A
SEVERN TRENT Po Q&A
Slide 33: Severn Trent
SEVERN TRENT tT SEVERN TRENT
Slide 34: Appendix
SEVERN TRENT Po Appendix
Slide 35: 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 [email protected] www.severntrent.com
Slide 36: Group income statement summary
Group income statement summary Six Months to 30 September 2006 Group as Biffa Plc Consolidation Group ex Variance to H1 2005/06, Reported £m Eliminations £m Biffa Plc Group Ex Biffa Plc £m £m £m % Turnover 1,118.8 376.5 (3.9) 746.2 24.0 3.3 Operating costs (850.0) (326.7) 3.9 (527.2) (38.1) (7.8) Pr
Slide 37: Group Earnings
Group Earnings Six months to 30 September 2006 H1 2005/06 H1 2006/07 £m £m 114.8 Profit for the period 130.4 114.5 Attributable to - Equity holders of the company 129.5 0.3 - Minority Interests 0.9 Variance Variance Pence Pence pence % Basic earnings per share from continuing operations 44.7 Adjuste
Slide 38: Share Consolidation and dividend rebasing
Share Consolidation and dividend rebasing Effective 9 October 2006 No. of Share Price Rebasing Pence shares (m) Severn Trent Plc closing share price Friday 6 October 1,417 349.5 Less Biffa Plc opening share price Monday 9 October (260) Less special dividend entitlement (paid 20 October) (165) Before
Slide 39: Group balance sheet
Group balance sheet 30 September 2006 Group ex Group as Biffa Plc Consol. Group ex Group as Biffa Plc Consol. Biffa Plc Reported £m Elims. Biffa plc Reported £m Elims. 31 Mar £m £m 30 Sept £m £m 2006 £m 2006 £m 5,743.1 335.5 - 5,407.6 Property, plant and equipment 5,748.9 339.6 - 5,409.3 618.7 391.8
Slide 40: Group cashflow and movement in net debt
Group cashflow and movement in net debt Six months to 30 September 2006 H1 2005/06 H1 2006/07 £m £m 425.5 Cash generated from operations 392.5 (190.7) Capital expenditure (net) (192.7) (97.8) Interest and tax payments (80.7) 1.0 Other cash flows 0.4 138.0 Free cash flow 119.5 (167.8) Equity dividend
Slide 41: Movements on Severn Trent shareholders' equity
Movements on Severn Trent shareholders’ equity Six months to 30 September 2006 H1 2005/06 H1 2006/07 £m £m 1849.5 At 31 March as previously stated 1,899.0 Change of accounting policy – IAS 32 and IAS _ (57.8) 39 1,791.7 At 1 April restated 1,899.0 89.2 Total recognised income for the financial perio
Slide 42: Credit ratings
Credit ratings At 30 September 2006 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 special dividend.
Slide 43: Segmental analysis of capital employed
Segmental analysis of capital employed Six months to 30 September 2006 Total Total Net operating Goodwill Total 30 Sept 31 March assets 30 Sept 30 Sept 2005 2006 30 Sept 2006 2006 2006 £m £m £m £m £m 4,919.7 5,037.6 Water and Sewerage 5,050.4 0 5,050.4 Water Technologies and 183.7 178.4 100.2 50.9 1
Slide 44: EBITDA analysis
EBITDA* analysis Six months to 30 September 2006 UK US/Europe Group £m UK US/Europe Group H1 H1 H1 H1 H1 H1 2005/06 2005/06 2005/06 2006/07 2006/07 2006/07 338.1 - 338.1 Water and Sewerage 333.6 - 333.6 Water Technologies and 5.5 5.8 11.3 5.2 6.5 11.7 Services (11.5) (0.9) (12.4) Other (17.0) (0.7)
Slide 45: Depreciation analysis
Depreciation* analysis Six months to 30 September 2006 UK US/Europe Group £m UK US/Europe Group H1 H1 H1 H1 H1 H1 2005/06 2005/06 2005/06 2006/07 2006/07 2006/07 100.4 - 100.4 Water and Sewerage 108.0 - 108.0 Water Technologies and 1.1 1.8 2.9 0.8 2.0 2.8 Services 0.7 - 0.7 Other (2.2) - (2.2) 102.2
Slide 46: Capital expenditure (net cash)
Capital expenditure (net cash)* Six months to 30 September 2006 H1 2005/06 H1 2006/07 £m £m (150.2) Water and Sewerage (159.5) (2.2) Water Technologies and Services (2.8) 2.6 Other 3.0 (149.8) (159.3) (36.5) Waste Management (31.8) (4.4) US Laboratories (1.6) (190.7) Group (192.7) * Net of grants re
Slide 47: Water and Sewerage – income statement highlights
Water and Sewerage – income statement highlights Six months to 30 September 2006 H1 2005/06 H1 2006/07 Change Change £m £m £m % Turnover 576.0 Severn Trent Water 605.4 29.4 5.1 8.7 Retail and Utility Services 6.8 (1.9) (21.8) (1.2) Intra segment trading (1.8) (0.6) (50.0) 583.5 610.4 26.9 4.6 Operat
Slide 48: Severn Trent Water – turnover
Severn Trent Water – turnover Six months to 30 September 2006 £m % Six months to 30 September 2005 576.0 RPI + K 39.5 6.9 615.5 6.9 Growth New customers 3.7 0.6 Income initiatives 0.1 - Conservation Metering impact (2.6) (0.5) Reduced consumption (3.1) (0.5) 613.6 6.5 Other (5.0) (0.8) 608.6 5.6 Reb
Slide 49: Severn Trent Water – operating costs
Severn Trent Water – operating costs Six months to 30 September 2006 H1 H1 Variance Variance 2005/06 2006/07 £m % £m £m 200.5 Direct operating costs* 230.9 30.4 15.2 100.1 Depreciation** 107.7 7.6 7.6 36.2 Infrastructure renewals 42.5 6.3 17.4 336.8 Total 381.1 44.3 13.2 * Net of other income £1.5m
Slide 50: Severn Trent Water – direct operating costs
Severn Trent Water – direct operating costs Six months to 30 September 2006 H1 2006/07 % of total £m change Six months ended 30 September 2005 200.5 Inflation 7.2 3.6 207.7 Real opex increases 23.2 11.6 Six months ended 30 September 2006 230.9 15.2 * Net of other income £1.5m (£2.0m) but excluding m
Slide 51: Severn Trent Water – capex reconciliation
Severn Trent Water – capex reconciliation Six months to 30 September 2006 H1 2006/07 £m UK GAAP gross capex 199.8 Less grants and contributions ( 16.5 ) UK GAAP net capex* 183.3 Treated as IFRS infrastructure operating expenditure (42.5) 140.8 Movement on capital creditors 22.5 Proceeds of sale of f
Slide 52: Severn Trent Water – RCV
Severn Trent Water – RCV Six months to 30 September 2006 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/forecast outcome for the RCV from the Dece
Slide 53: Discontinued Operations income statement summary
Discontinued Operations income statement summary Six months to 30 September 2006 H1 Variance Variance H1 2006/07 £m % 2005/06 US Laboratories £m £m 67.9 Turnover 64.1 (3.8) (5.6) (63.2) Operating costs (58.6) 4.6 7.3 4.7 Profit before interest and tax 5.5 0.8 17.0 (0.2) Net interest (0.1) 0.1 50.0 4
Slide 54: Severn Trent
SEVERN TRENT tT SEVERN TRENT