annual report and accounts 2006
annual report and accounts 2006 severn trent plc
severn trent plc
registered ofﬁce
2297 coventry road
birmingham b26 3pu
telephone 44 0121 722 4000
wwwseverntrentcom
registered number 2366619 contents
governance
30 board of directors
biographical details of the directors
32 directors’ report
35 corporate governance report
role of the board board committees
internal control and risk management
40 directors’ remuneration report
directors’ emoluments pensions and 
service agreements
group ﬁnancial statements
52 independent auditors’ report 
53 consolidated income statement
54 consolidated balance sheet
55 consolidated cash ﬂow statement
56 consolidated statement of recognised
income and expense
57 notes to the group ﬁnancial statements
company ﬁnancial statements
102 independent auditors’ report
103 company balance sheet
104 company statement of total recognised
gains and losses
105 notes to the company ﬁnancial statements
other information
115 five year summary
comparisons on proﬁt and loss 
net assets dividends and share price
116 information for shareholders
financial calendar shareholder analysis 
and company information
quick read
1 financial highlights
group ﬁnancial highlights for 200506
2 at a glance
overview and facts about our businesses
direction
4 chairman’s statement
sir john egan comments on severn trent’s
results performance and outlook and
corporate responsibility
6 group chief executive’s review
strategic overview biffa demerger and
operational performance
8 business focuses
focus highlights and outlook for each of
severn trent’s main businesses
performance review
16 water and sewerage
performance information for severn trent
water in 200506 and progress on its ofwat
targets for 200510
18 waste management
performance information for biffa a review
of its market position and a summary of 
its collection landﬁll special waste and
power generation activities
20 laboratories
performance information for stl in the us
and uk and overviews of market conditions
outlook and the businesses’ market strategies
21 water puriﬁcation and operating services
performance information for water
puriﬁcation and operating services
and an overview of its increasing 
presence in growth markets
22 other businesses
performance information for severn trent’s
systems and property businesses
23 corporate responsibility
overview of our corporate responsibility
programme business ethics environmental
impacts and health and safety
26 financial review
overview of severn trent’s results 
ﬁnancial position and cash ﬂows
2 severn trent plc annual report and accounts 2006
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designed and produced by tayburn financial highlights
quick read
severn trent plc annual report and accounts 2006  1
group turnover
up 139 to
£22950m
2005 £20144m
group proﬁt before tax
up 180 to
£2700m
2005 £2288m
group proﬁt
up 395 to
£3224m
2005 £2311m
 encouraging group
results
 new strategy
 dividend raised
 intention to return capital
earnings per share
up 376 to
772p
2005 561p
final dividend
3197p
total for the year 5113p
total shareholder return
220
200
180
160
140
120
100
80
60
40
20
0
310301 310302 310303 310304 310305 310306
severn trent plc
value £
ftse 100 index
this graph shows the value at 31 march 2006 of £100 invested in severn trent
on 31 march 2001 compared with the value of £100 invested in the ftse 100
index the other points plotted are the values at intervening ﬁnancial year ends
 before tax exceptional items and ias 39 fair value 
adjustments see income statement
 from continuing operations before exceptional items 
ias 39 fair value adjustments and deferred tax see note 13 at a glance
severn trent is a leading 
ftse 100 water group with
revenues of £23 billion
we intend to create value 
through a strategy that will 
focus on water we intend to
demerge biffa by the end of
october increase gearing and
return capital to shareholders 
by concentrating our efforts 
on raising standards customers
will receive the beneﬁts of
reliable high quality and 
cost effective services for 
clean water and sewerage
you can ﬁnd out more about
severn trent plc and the
businesses within our group 
at wwwseverntrentcom
group
turnover
£22950m
16312 employees
quick read
2 severn trent plc annual report and accounts 2006 water and sewerage
turnover
£11509m
488
of group turnover
5188 employees
waste management
turnover
£7123m
302
of group turnover
5552 employees
laboratories
turnover
£1670m
71
of group turnover
2797 employees
water puriﬁcation and
operating services
turnover
£2678m
114
of group turnover
2425 employees
quick read
severn trent plc annual report and accounts 2006  3
severn trent water provides
water and sewerage services to
around 37 million household
and business properties in
england and wales
biffa is one of the largest
integrated waste management
companies in the uk it provides
collection recycling landﬁll and
hazardous waste services to
commercial industrial and 
local authority customers
severn trent laboratories
provides environmental testing
services in the uk and the us
from service centres and
laboratories across the us and
uk it serves a client portfolio of
bluechip companies
water puriﬁcation and operating
services is one of the world’s
largest water and wastewater
treatment companies its
operational efﬁciency and
investment in technology and
product development have
delivered an excellent track
record of organic growth
key strengths
 strong and sustained track
record in ofwat efﬁciency and
performance assessments
 drinking and wastewater
quality consistently above
average
 leadership role in its sector
and region on climate change
adaptation
 excellent record in
biodiversity community
investment and education
key strengths
 competitive advantage 
in commercial and 
industrial collections
 modern specialist ﬂeet 
with high levels of fuel 
and operational efﬁciency
 35 landﬁll sites throughout
the uk all with iso14001
certiﬁcation
 excellent special waste
capabilities covering
hazardous and 
nonhazardous waste
key strengths
 market leaders in the us 
and uk with strong brand
recognition
 reputation for technical
excellence and responsive
customer service
 record of innovation and
being at the forefront of 
new markets such as 
vapour intrusion 
 good progress on major it
projects which will further
improve customer service 
and help us exploit scale
key strengths
 strong market position and
brand recognition
 strategy of focusing on high
margin business opportunities
 continually expanding
product and technology base
 emphasis on cost control and
operational efﬁciency
 strong product and
technology base in growing
markets such as arsenic
removal and global metering
products
for further information please visit
wwwstwatercouk
for further information please visit
wwwbiffacouk
for further information please visit
wwwstlinccom
wwwstlltdcouk
for further information please visit
wwwseverntrentservicescom
wwwstwaterinternationalcom
 before elimination of intragroup sales chairman’s statement
we have unveiled a new comprehensive strategy 
for the severn trent group of companies which 
will have at its heart a focus on water
our uk integrated waste management business
biffa is to be demerged from the severn trent group
of companies subject to shareholder approval
the board of severn trent plc ﬁrmly believes 
that the creation of two separate listed companies
severn trent plc and biffa plc each with dedicated
boards and experienced management teams
focused on continued strategic and operational
development with access to their own capital will
deliver greater beneﬁts to shareholders customers
and employees
following the proposed demerger severn trent plc
is expected to remain the uk’s second largest listed
water company and a constituent of the ftse 100
continuing to focus on delivering investment
programmes improving efﬁciencies and customer
service levels
our strategy also means that severn trent 
laboratories us is no longer considered a 
core activity so we shall look to improve its
business performance while we consider how to
best realise its value for shareholders severn trent
laboratories uk will remain in the group as it plays 
an important role working with severn trent water
our water puriﬁcation and operating services
business while a small proportion of the group 
is proﬁtable and growing and has synergy with our
water business so will be allowed to develop under
close management and tight budgetary control
our new strategy also allows us to become more
ﬁnancially efﬁcient by increasing our debt to
regulated capital value ratio to 60 by 2010 
the start of the next regulatory review period
we also expect to return cash to shareholders 
the amount and timing of which is still to be
determined
our chief executive colin matthews outlines in the
next two pages the reasons behind our new strategy
group results
overall the severn trent group has delivered 
an encouraging performance in 200506 with
group proﬁt from continuing operations before 
tax ias 39 fair value adjustments and exceptional
items at £3224 million an increase of 395 
and group proﬁt from continuing operations 
before tax was £2700 million £2288 million 
an increase of 18
the board is proposing a ﬁnal dividend of 
3197 pence 3030 pence to be paid on 
2 august 2006 this would give a total dividend 
for the year of 5113 pence an increase of 54
corporate responsibility
our ambition is to make severn trent the best
water company in the uk and restore the trust 
of our customers and ofwat we are determined 
that the unacceptable mistakes of 20002004
however caused will not be repeated
we have accepted the conclusions of ofwat’s interim
report concerning allegations of false reporting
made against severn trent water in 2004
ofwat’s interim report found that we had
overcharged our customers during 200405 
and had set prices too high for 200510
our internal investigations and ofwat’s
investigations have been thorough and lengthy
requiring complex judgements our judgements
have not been identical to ofwat’s in every aspect
but in the interests of making amends as soon as
possible we concluded it was sensible to proceed
by agreement and have apologised unreservedly
having considered ofwat’s ﬁndings we agreed 
that customer accounts should be credited as 
soon as possible and bills altered appropriately 
in subsequent years
as the ofwat report acknowledges the board of
severn trent plc and the new senior management
team started in 2004 to make major changes to
organisation structure to people and to processes
and controls the intense drive to improve severn
trent water will continue to be a top priority 
for its new managing director tony wray and 
his management team as well as for myself 
colin matthews and the rest of the severn 
trent plc board
direction
4 severn trent plc annual report and accounts 2006
sir john egan
chairman direction
as a result of a referral by ofwat the serious 
fraud ofﬁce is undertaking a criminal investigation
into alleged reporting irregularities made to ofwat
by severn trent water between 2000 and 2003
concerning leakage severn trent is supporting
ofwat in its review of these allegations and will 
cooperate fully with the serious fraud ofﬁce
we acknowledge that ofwat may expect further
amends to be made to customers ofwat has stated
that this penalty will be discussed with severn
trent water on completion of the serious fraud
ofﬁce investigation into leakage
the board has also provided ofwat with an interim
report into the misreporting of customer relations
data over several years
we will cooperate fully with ofwat to restore
conﬁdence in severn trent water going forward
we have taken and will continue to take all actions
we think appropriate to ensure the maintenance of
both high ethical and professional standards and
resilient and effective controls throughout all group
companies
board management and staff
john mcadam a nonexecutive director stepped
down from the board in september 2005 after ﬁve
years of valued service for which i thank him
derek osborn a nonexecutive director retired 
from the board in march 2006 after seven years 
of valuable contributions particularly concerning
environmental issues and i wish him well
martin flower senior independent nonexecutive
director and deputy chairman stood down from
the board in june after ten years’ service i am
extremely grateful for his support particularly in
ensuring continuity on the board and support for
our new management team
mark wilson group finance director stood 
down from the board in december 2005 after 
ten years at the heart of three regulatory reviews 
i am grateful to mark for his contribution to the
group’s success
mark’s successor as group finance director 
mike mckeon joined us in december 2005
formerly group finance director of novar plc 
the building materials group mike worked with
rolls royce plc and has had extensive international
business experience for carnaudmetalbox 
elf atochem and price waterhouse
we also welcomed two new nonexecutive 
directors richard davey and bernard bulkin 
from january 2006
richard a former head of investment banking for
nm rothschild  sons is a nonexecutive director
of yorkshire building society and amlin plc he 
was appointed senior independent nonexecutive
director and chairman of the remuneration
committee with effect from 11 june 2006
bernard is chairman of aea technology plc 
and is a commissioner on the uk sustainable
development commission he retired from 
bp plc as chief scientist in 2003
fiona smith joined as general counsel and
company secretary in february 2006 having been
general counsel for transport for london and
previously the national grid group she replaced
peter davies who retired with our best wishes
we again carried out rigorous board effectiveness
reviews with the help of independent consultants
which have generated a number of actions to
secure improvements to board performance
i would also thank our dedicated and hard working
staff whose commitment during a particularly
intense year has ensured we continue to achieve
our business objectives
outlook
our objective over the next four years is to ensure
customers in our water businesses get the beneﬁts
of high quality and cost effective services while
ensuring investors receive an appropriate return
we believe that the newly focused water group 
will be able to pay a progressive dividend as a
consequence
our dividend policy will therefore be to increase
dividends by 3 above rpi inﬂation until 2010
severn trent plc annual report and accounts 2006  5 group chief executive’s review
strategic overview
when i took over as group chief executive in
february 2005 i said i would concentrate on
operational improvements for all our businesses
but particularly severn trent water and biffa as
they account for some 96 of group proﬁt
since then my new team and i have undertaken
the most detailed examination of all aspects of 
our activities to understand the business drivers 
so we can be certain of the foundations of our
future direction
focus on water
severn trent water is one of the country’s largest
water and sewerage companies the company 
has great experience and strengths along with
important plans for improvement by concentrating
our efforts on raising standards across the entire
business customers will receive the beneﬁts of
reliable high quality and cost effective services 
for clean water and sewerage 
in addition these strategic changes particularly 
the demerger of biffa will support a more efﬁcient
balance sheet allowing a return of capital to
shareholders we intend to increase group debt 
to 60 of regulated capital value as soon as
practicable after the demerger the amount
mechanism and timing of any returns will be
communicated in due course and will depend on
future decisions around the debt structure of the
demerged biffa pension fund contributions and
ﬁnal costs of the demerger 
moreover these improvements should lead to strong
ﬁnancial returns we believe the group will be able
to deliver enhanced growth in dividends and our
new policy will therefore be to increase dividends
by 3 above rpi inﬂation through the remainder
of the current amp4 period that is until 2010
biffa
the most signiﬁcant transaction required to achieve
this group transformation is the demerger of biffa
which was separately announced on 4 april 2006
biffa is itself a leading business in an attractive
market and we believe that greater shareholder
value will be realised by the creation of a separately
listed company focusing all its attention on
developing the waste management business 
in 200506 organic growth within biffa has been
reignited and we believe the prospects for the
business are strong we have recently announced
bob davies as the new chairman for biffa and we
expect the demerger to be completed by the end of
october 2006 we will provide further details in
due course 
other businesses
us laboratories is no longer regarded as being 
a core business for the future us laboratories 
is a strong market leading company engaged in
environmental testing the long term prospects for
market growth are good although the last 2 years
have been challenging we are conﬁdent that the
ﬁrm actions already in hand will lead to a recovery
in margins and as we see these results being
achieved we will consider the appropriate actions
to realise shareholder value
the group announced on 12 may that biffa belgium
has been sold to veolia for €45 million completion
of this sale is expected by the end of june and is
subject to belgian competition clearance
certain other smaller activities have either 
already been closed to new business haswell 
sold aseriti or are being prepared for sale 
severn trent property
being closely associated with water uk laboratories
and water puriﬁcation and operating services will
remain part of the group together these business
account for some 3 of group proﬁt
severn trent post demerger
after the demerger severn trent will be a focused
water group generating more than 95 of group
proﬁts compared with less than 80 today
it will be the second largest listed uk player in the
water industry whose investment proﬁle will generate
expectations of growth and attractive returns
severn trent management will be able to focus on
the regulated water and sewerage business
there will still be other businesses in the group which
do have synergies with our core water operations
we shall keep severn trent laboratories uk there
are few competitors capable of supplying severn
trent water with the necessary high quality testing
service so it is felt appropriate to retain the business
our water puriﬁcation and operating services
business which includes a uk contract for managing
ministry of defence sites is proﬁtable growing and
improving and has signiﬁcant synergy with the
water business and as it is relatively small it will
not distract management from a focus on water
the creation of a new strategy will allow us to
increase our gearing to a more ﬁnancially efﬁcient
level while still remaining prudent with an eye on
regulatory developments into the next amp period
in 2010 and beyond
direction
6 severn trent plc annual report and accounts 2006
colin matthews
group chief executive direction
health and safety
i deeply regret to report two fatalities a biffa
contractor was hit by a biffa vehicle and a biffa
employee was struck by a car biffa management
has implemented the most rigorous investigation
across all its operations as a result with an
independent audit and has made signiﬁcant
changes to reduce the possibility of such 
incidents happening again
overall the severn trent group reported a 275
reduction in the riddor reportable incident rate
per 1000 employees
not only is safety important in its own right but it
is also important as a broad indication of quality
across the group we will continue to concentrate
heavily on improving our safety performance
water and sewerage
in 200506 severn trent water began the ﬁrst year
of the amp4 contract which covers the period
200510 ofwat has set us exacting efﬁciency
targets for this period and during the year we
began to implement the organisational changes
necessary to achieve them
progress was good we reduced employee numbers
removed management layers in order to improve
information ﬂow reviewed and consolidated ofﬁce
accommodation in order to control overheads and
began a programme to streamline our procurement
process 
we aimed to meet the ofwat determination overall
getting our costs down to the ofwat proﬁle in two
years excluding energy costs we have done rather
better than that however the current outlook for
energy has more than offset that advantage we will
be striving to get back in line with the ofwat proﬁle
capital expenditure is more positive capex and
infrastructure renewals amounted to £434 million
adjusting for changes agreed with ofwat and
timing differences we have generated
approximately 6 efﬁciency over and above the
determination we plan to maintain similar out
performance over the rest of amp4
waste management
biffa worked in 200506 on a major review of how
the uk waste market is developing and biffa’s
position within it as part of the demerger preparation
we have a competitive advantage in the industrial
and commercial collection market a good position
in landﬁll and excellent special waste capabilities
through our treatment centres biffa has the
potential to develop recycling revenues signiﬁcantly
biffa enjoys a leading position in a dynamic market
place i suggested a target of 8 for renewed
organic growth six months ago i am pleased 
that the result 11 comfortably beats that
biffa has a sustainable strong position within the
waste industry we shall use our scale in collection
to deliver improving service and efﬁciencies we
can develop recycling opportunities as the market
evolves while carefully managing our pricing and
capacity in landﬁll
having spent more time in biffa than when i ﬁrst
reported last year i am convinced that there is a
great opportunity to bring about the same ‘process
improvement’ revolution that worked through
factory environments over recent decades and is
now revolutionising service industries
laboratories
severn trent laboratories provides environmental
testing services in the us and the uk in the us
market conditions were challenging in 200506
federal funding for environmental projects
continued to be impacted by the diversion of funds
to military activities in iraq and to hurricane relief 
in the uk market conditions were more favourable
with legislation like the landﬁll directive creating
new business opportunities
water puriﬁcation and operating services
the business produced good results in 200506
increasing turnover and proﬁts we maintained our
strategy of concentrating on higher margin business
and growth markets
environment
i am pleased that the group’s climate change
programme has continued to develop over the 
last 12 months we have continued to expand
renewable energy generation within both severn
trent water and biffa and in july 2005 working
with the carbon trust we published a carbon
management report which investigated the 
long term challenges and opportunities that 
climate change presents for the uk water 
and waste industries
outlook
performance at severn trent water has been 
good in the ﬁrst year of amp4 with operating 
costs reduced to within £4 million of the ofwat
determination the outlook for the coming year is
for continuing progress in meeting and improving
on the amp4 contract for operating costs across
most areas of performance with an additional 
£5 million to £10 million of savings identiﬁed
however the industry faces a signiﬁcant challenge
with rising energy prices at present the outlook 
for energy prices in 200607 mean that increased
costs in this area are expected to impact severn
trent water by around £25 million in relation to
capital expenditure we aim to maintain around 
6 efﬁciency out performance over the remaining
amp4 period
severn trent plc annual report and accounts 2006  7 water and sewerage
severn trent water
direction
8 severn trent plc annual report and accounts 2006
focus
200506 was the ﬁrst year of the amp4 contract
we began work to deliver our ﬁve year £26 billion
capital investment programme to maintain and
improve water supply and quality sewage
treatment and to meet our other regulatory
targets for 200510 direction
severn trent plc annual report and accounts 2006  9
highlights
 turnover up 134 to £11509 million 
 we implemented organisational changes that
will cut overheads and increase efﬁciency
 we appeared in the top category in the 
dwi’s water quality tables for the eighth
successive year
outlook
after good progress on the ﬁrst year of the 
amp4 programme we are on track to meet 
our regulatory obligations for 200510 
the organisational changes cost controls 
and improved procurement procedures we
introduced during 200506 will help us deliver
those obligations and achieve our targets
laying the groundwork to 
improve efﬁciencies and make
investments necessary to 
achieve ambitious targets waste management
biffa
direction
10 severn trent plc annual report and accounts 2006
focus
biffa undertook a major review of the uk 
market and its market position in 200506 
this conﬁrmed its strengths in commercial
industrial collection landﬁll and special 
waste treatment it also showed good scope 
for developing recycling revenues
strength and scale to 
take advantage of emerging
opportunities in a growing
marketplace direction
severn trent plc annual report and accounts 2006  11
highlights
 turnover up 132 to £7123 million
  new national accounts in collection 
with well known brands and chains
  rising unit revenues in landﬁll
  increased renewable energy generation
capacity
outlook
severn trent plc announced its intention to
demerge biffa in 2006 a dedicated board and
access to its own capital will provide biffa with 
a strong platform for maintaining its record of
solid organic growth and serving customers laboratories
stl
direction
12 severn trent plc annual report and accounts 2006
focus
severn trent laboratories continued to focus on
service standards cost controls and operating
efﬁciency in 200506 in the us and the uk 
we also continued to seek out and maximise 
new opportunities and markets in 
environmental testing
highlights
 turnover up 77 to £323 million 
in the uk business
 strong activity in air testing in the us 
and contaminated soils testing in the uk
 new laboratory project in ecuador and an
acquisition in new orleans in 200506
developing a competitive 
edge and improving standards 
for a challenging environment  direction
severn trent plc annual report and accounts 2006  13
outlook
good market conditions in the uk look likely to
continue and we expect growth in some market
sectors in the us severn trent laboratories’
reputation for service and innovation should 
help it compete strongly in those areas water puriﬁcation and operating services
direction
14 severn trent plc annual report and accounts 2006
focus
both divisions of the water puriﬁcation and
operating services business have produced good
results in 200506 strong market position and
brand recognition combined with an emphasis on
cost control and operational efﬁciency puts the
business at the forefront of emerging markets
delivering good results 
with a clear focus on 
higher margin business 
in growth markets direction
severn trent plc annual report and accounts 2006  15
highlights
 turnover up 287 to £2678 million
 large contracts in the middle east to supply
domestic water meters
 200506 was the ﬁrst year of the 25 year 
£1 billion pfi contract with the uk’s ministry 
of defence
outlook
there are good growth prospects across the
water puriﬁcation and operating services
business positive market conditions are 
expected to continue and we believe we have 
the reputation expertise and technology base 
to capitalise on those opportunities review of operations
water and sewerage
performance
2006 2005
£m £m 
turnover 11509 10151 134
proﬁt 4004 3075 302
before interest tax and exceptional items see note 4
health and safety
23 improvement in riddor

reportable injuries
200506 36
200405 47
riddor – reporting of injuries diseases and dangerous
occurrences regulations
water quality
overall compliance with
drinking water quality 9996
200405 9994
severn trent water met its ﬁnancial targets for 
the year 200506 turnover increased by 134 
to £11509 million the allowed increase in charges
for 200506 including inﬂation was 152
in reviewing our prices ofwat takes account of
 the need to maintain existing standards 
of our products and services
 our levels of compliance with standards
achieved over the last ﬁve years
 the need to secure our water resources in 
the event of prolonged dry weather conditions
 areas of concern identiﬁed by customers 
as being of highest priority
 all new legislation affecting drinking water 
and environmental improvements
 the need to provide a reasonable return 
for our investors
 the affordability of our proposed plans
proﬁt before interest tax and exceptional items 
was up 302 to £4004 million this was after 
a provision for £106 million the expected cost
relating to 200506 and prior years of the
agreement made with ofwat to credit each
customer account during 200607 following 
the regulator’s interim report of 7 march 2006
improving the efﬁciency of the business
in 200506 severn trent water began the ﬁrst 
year of the amp4 contract which covers the 
period 200510 
ofwat has set us exacting efﬁciency targets for 
this period and during the year we began to
implement the organisational changes necessary 
to achieve them 
progress was good we reduced employee numbers
removed management layers in order to improve
information ﬂow reviewed and consolidated ofﬁce
accommodation in order to control overheads and
began a programme to streamline our procurement
processes the last of those measures involves
establishing long term relationships with a reduced
number of suppliers incentivising them to make
continuous improvements and standardising
designs where possible 
we also carried out two major insourcing projects
at the end of 200405 severn trent plc announced
that the haswell engineering consultancy business
would cease bidding for external work and
engineers working on our amp4 programme would
be absorbed into severn trent water in addition
some 270 staff from aseriti transferred to severn
trent water bringing our it systems activities in
house in both cases the transitions progressed
smoothly and we are seeing beneﬁts from bringing
engineering and it expertise back into the business
working towards amp4 targets
our contract for 200510 includes a capital
investment programme of approximately 
£26 billion this includes
 more than £400 million on maintaining 
water supplies
 £150 million on improving drinking 
water quality
 around £850 million on maintaining and
improving river quality
 more than £350 million improving sewers 
and dealing with sewer ﬂooding
our focus in the ﬁrst year was to implement the
new procurement and supply chain processes that
we will use in the programme and to mobilise the
900 projects that we are due to manage net capital 
expenditure excluding spending on infrastructure
maintenance was £305 million for the year
performance review
16 severn trent plc annual report and accounts 2006
tony wray
managing director 
severn trent water performance review
the one area of the amp4 contract where our
200506 results were disappointing was leakage
the dry summer of 2005 contributed to this
performance causing higher than average levels of
burst pipes reported actual leakage has increased
by approximately 17 megalitres per day 3
greater than 200405 we have now increased the
resources dedicated to detection and reduction of
leakage and we believe that by the end of the
amp4 period we can reduce our leakage ﬁgures to
below the target level set by ofwat
we own and operate over 1000 sewage treatment
works treating the wastewater from the equivalent
of over 10 million people the discharges from all
except the very smallest of these works are the
subject of stringent quality testing during 200506
9986 of those works complied with the important
regulatory sanitary standards this is and has
always been at or close to the best level of
compliance in the industry
serving our customers
customers’ views gathered in market research have
been used extensively in the development of our
strategy this research has been in place for over a
decade and includes regular tracking of customers’
attitudes and opinions every six months 
our customers tell us that their top priority is the
safety and reliability of their drinking water in july
2005 the drinking water inspectorate’s dwi
league table on water quality again showed that
severn trent water is achieving a quality level above
the industry average this is the eighth successive
year that we have appeared in the top category
the dwi also praised the accessibility of water
quality information on severn trent water’s website
despite a dry summer we maintained water supply
to our customers across the whole of our region
and did not need to impose hosepipe bans water
levels in our reservoirs were good at the yearend
we continued to promote water efﬁciency among
domestic and business customers since evidence
suggests that dry years are likely to become more
frequent our amp4 programme includes measures
to improve security of water supply and to make
sure that we have sufﬁcient water resources to
meet customers’ future needs 
we also understand that customers feel that
improvements to drainage in order to prevent
ﬂooding of properties by our sewers are important
our commitment for the amp4 period is to achieve
a net reduction of 158 in the number of properties
at risk of ﬂooding from our sewers more than 
once in ten years our programme of works 
to permanently reduce the risk of internal 
and external ﬂooding will beneﬁt an estimated
1300 properties
in 200506 we continued to implement our new
customer service technologies the target billing
system and ice improving customer experience
the rollout of the systems coincided with the price
rises introduced at the start of the amp4 period
and this increased the levels of customer contacts
and complaints we received this proved
challenging at times but we did succeed in
transferring all our customers to the new system
and we are satisﬁed that it is serving them well
in march 2006 the ofwat interim report into
allegations of false reporting found that we had
overcharged our customers during 200405 and
had set prices too high for 200510 immediately
following the report we apologised unreservedly to
all our customers we have agreed with ofwat a
mechanism for rebating them and we had already
voluntarily proposed to raise prices by £7 million
less than allowed under the 200607 price limits
ofwat measures the service that we provide to
customers by a series of indicators known as dg2
to dg9 these cover water supply pressure
interruptions and restrictions sewer ﬂooding
problems speed of response to three types of
contact with customers and the proportion of
metered customers who receive a bill based on an
actual meter reading further details along with the
levels of service for the water industry can be found
in the ofwat annual report on wwwofwatgovuk 
at the end of february 2006 we also began an
investigation into misreporting of customer
relations data to ofwat the data concerns the
handling of customer billing queries and telephone
contacts over several years we have kept ofwat
fully informed on the progress of the investigation
corporate responsibility
there is a strong focus on corporate responsibility
cr in severn trent water and the tangible 
results of this in 200506 included energy
management and generation programmes 
support for community and education projects
progress on our biodiversity action plan and
improvements to our health and safety performance 
more details on severn trent water’s cr programme
can be found in the corporate responsibility section
of this report
outlook
in 200506 severn trent water made a good start
to amp4 although it is too early after just one year
of the ﬁve year period to forecast our eventual
performance on the contract we are conﬁdent
about our ability to control operating costs and
deliver our ﬁve year capital programme we believe
we are on track to deliver the amp programme and
meet our regulatory obligations 
severn trent water
management have
focused on improving
quality of operations
and strengthening and
streamlining internal
controls
severn trent plc annual report and accounts 2006  17 review of operations 
waste management
performance
2006 2005
£m £m 
turnover 7123 6295 132
proﬁt 892 789 131
before interest and tax 
power generation
turnover up 322 
to £189 million
biffa had another year of good organic growth in
200506 turnover in the uk was £7123 million
up 132 
in the uk proﬁt before interest tax and 
exceptional items was 131 higher than 
200405 at £892 million 
collection
biffa has one of the largest waste collection
networks in the uk with over 65 depots and more
than 1600 vehicles we collect 35 million tonnes 
of waste each year from about 80000 industrial
and commercial customers and from over 1 million
households which include two fully integrated
waste management contracts under the private
finance initiative with isle of wight and leicester
city councils
the industrial and commercial collection business
grew strongly in 200506 and the division secured
a number of new national accounts across various
market sectors including retail leisure and ﬁnance
new accounts included well known highstreet
names such as sainsbury’s dsg international plc
currys pc world the link and dixons and boots
our ability to provide nationwide coverage and
bespoke recycling services was instrumental in
several of these contract wins 
there were new contract wins in the municipal
sector too biffa won a recycling contract 
for 56000 properties in bridgend wales and 
a three year contract with vale of glamorgan
covering the managing and processing of
recyclable materials and servicing ‘bring banks’
biffa’s contract with south staffordshire was
extended for a further six years
biffa worked with its local authority customers to
help them meet their targets on value efﬁciency
and recycling for example in burnley mole valley
south shropshire south staffordshire and woking
this took the form of introducing alternative weekly
and fortnightly collections incorporating green
waste and dry waste collection services
gross turnover in the collection division was
£4290 million up 148 proﬁt before interest 
and tax was £601 million up 165 industrial 
and commercial margins remained ﬁrm and
absorbed cost increases arising from the road
transport directive which came into force in 2005
this restricted the number of hours that drivers
can work and led us to renegotiate pay structures
with our drivers
landﬁll
government targets on diversion from landﬁll are
reducing the amount of waste going to landﬁll 
and landﬁll volumes were down 82 in 200506
however unit revenues from landﬁll rose with the
result that turnover in the landﬁll division was up
143 to £3028 million proﬁt before interest and
tax was up 28 to £408 million
the landﬁll division continued to take advantage of
new market opportunities in 200506 in 200405
biffa formed a strategic alliance with biogenie site
remediation to remove and treat contaminated soil
from brownﬁeld construction sites following that
alliance we opened our ﬁrst soil facility at risley
warrington in november 2005 and we plan to open
two further facilities in the southeast of england
initial tonnages at risley were encouraging 
in addition during 200506 biffa’s composting
sites accepted approximately 47000 tonnes of
green waste 
biffa won its ﬁrst signiﬁcant landﬁll contract 
in northern ireland in early 2006 the new
cottonmount ii landﬁll site will receive over
700000 tonnes of waste over an initial 29 
month period from the arc21 partnership a 
group of 11 northern irish councils we also 
won a four year disposal contract with
warwickshire county council
performance review
18 severn trent plc annual report and accounts 2006
martin bettington
managing director biffa performance review
special waste
biffa’s special waste division provides a range of
services and technologies for managing hazardous
waste streams 
one of the biggest changes affecting the special
waste division in 200506 was the entry into force
of the eu hazardous waste regulations in july 2005
as a result of the legislation many companies had
to register as hazardous waste producers for the
ﬁrst time and our special waste division set up a
helpline and registration service to assist them 
turnover in special waste was up 51 in 200506
to £492 million proﬁt before interest and tax was
£19 million up 188
power generation
gross turnover from power generation was up
322 to £189 million and proﬁt before interest
and tax was up 471 to £75 million
the division which uses landﬁll gas to generate
electricity is a signiﬁcant provider of renewable
energy in the uk during 200506 we added new
power generation capacity at a number of sites
bringing total generation capacity up to 108mw
compared with 101mw at march 2005
belgium
on 12 may 2006 the group agreed to sell biffa
belgium to veolia for €45 million the transaction
is conditional upon clearance from the belgian
competition authorities and is expected to
complete before the end of june 2006
biffa belgium has been classiﬁed as a discontinued
operation its turnover in 200506 was £584
million £667 million and its loss before interest
and tax was £41 million proﬁt £33 million
corporate responsibility
i deeply regret to report two fatalities a biffa
contractor was hit by a biffa vehicle and in a
separate incident a biffa employee died after 
being struck by a car we have implemented 
the most rigorous investigations and made
signiﬁcant changes to reduce the possibility 
of such incidents happening again 
an awareness of biffa’s duty towards the
environment our workforce and the communities
around our sites is embedded in our operations
and culture evidence of that awareness in 200506
included renewable energy generation activities an
energy efﬁciency programme in ﬂeet and
community and education activities
as in 200405 we have continued to run a
company wide health and safety culture change
programme involving all employees the
importance of health and safety initiatives was
recognised with the introduction this year of the
biffa health and safety awards scheme which
acknowledged employees’ contributions to making
their working environment a safer place we have
also improved communication of health and safety
issues including the distribution of several new
videos and dvds covering alcohol and drugs misuse
awareness manual handling and employees talking
about the effect an incident has made on their lives 
several biffa employees were also recognised
through the group health and safety champions
awards with a biffa employee winning the overall
champion award his idea for developing a simpler
and safer operating technique has been applied
across the business
more details on biffa’s cr programme can be found
in the corporate responsibility section of this report
outlook
at the end of the 200506 ﬁnancial year the board
of severn trent plc announced its intention to
demerge biffa in the uk by the end of 2006 this
was based on the belief that the creation of a
separately listed company biffa plc would deliver
greater beneﬁts to shareholders customers and
employees 
biffa will continue to guide our customers through
the requirements of new eu and uk legislation 
as one of the uk’s leading waste management
businesses we will also continue to beneﬁt from
scale and development opportunities 
during 200506 the business undertook a major
review of how the uk waste market is developing
and biffa’s position within it the review indicated
that we have a competitive advantage in the
industrial and commercial collection market a
good position in landﬁll and excellent special waste
capabilities through our treatment centres it also
showed that biffa can develop recycling revenues
signiﬁcantly 
our strengths in collection landﬁll and special
waste are a strong basis for delivering our strategy
of organic growth both before and after the
demerger 
biffa is well positioned
in the largest and 
most attractive market
segments
severn trent plc annual report and accounts 2006  19 review of operations 
laboratories
performance
2006 2005
£m £m 
turnover 1670 1626 27
proﬁt 111 152 270
before interest and tax 
in 200506 market conditions in the us were 
very difﬁcult for severn trent laboratories stl
federal funding for environmental projects was
impacted by the continued rise in the federal
deﬁcit as well as the diversion of funds to 
military activities outside of the us whilst the 
worst hurricane season on record took stl’s
environmental consulting clients away from their
normal scope of work to engage in hurricane 
relief and repair efforts these factors led to serious
price erosion which impacted proﬁt margins
in the uk market conditions were more favourable
exempliﬁed by the landﬁll directive legislation
which created new business opportunities
around 81 of severn trent laboratories’ turnover
derives from the us so the 200506 results were
affected by the challenging market conditions
described above turnover in the us increased by
16 to £1347 million and proﬁt before interest
and tax was down 433 to £59 million 
market strategy
in the us stl continues to pursue a long term
strategy centred around service excellence coupled
with tight cost controls and continued operating
efﬁciency improvements stl will work to rebuild
the margin shortfall a programme of cost
reductions took place in 200506 and this will
beneﬁt performance in 200607 and beyond
stl continued to implement a new information
management system in the us which will bring 
all locations onto a single it platform this will help
exploit stl’s unmatched scale in the us market
further improve service by reducing project turn
around times and improve the delivery of complex
electronic data the system has been rolled out to
more than half of the us laboratories
in 2005 stl set up a new laboratory for a major
us client in ecuador this facility will enable stl to
address local testing needs and also gives stl the
potential to expand activities in south america if
suitable opportunities are identiﬁed
us markets
whilst the general market picture in the us is
challenging speciﬁc areas remain vibrant there 
is strong activity in the air testing market and
within that there are good opportunities in 
vapour intrusion testing there are also good
growth prospects in sediment testing related 
to harbourport cleanup and transportation
infrastructure in 200506 stl started work on a
large 25 million sediment testing project on the
new orleans harbour and though work on this was
interrupted by hurricane katrina it is expected to
resume in 200607
the new orleans harbour project was not the only
aspect of stl work affected by the severe hurricane
season of 2005 stl has six laboratories within the
hurricane belt of the southern us and all
experienced problems related to hurricane activity
such as disruptions to power supply and reduced
sample collection and delivery activity however
following the experience of the previous year stl
had contingency plans in place and these did help
to address the impact of the hurricanes on stl
business activities
stl also decided to expand its base in new
orleans by acquiring the business of
environmental analytical services inc this facility
will enable stl to better support clients affected by
last year’s hurricanes in the gulf coast region
in the uk market conditions were more favourable
turnover was up by 77 to £323 million and proﬁt
before interest and tax was up 83 to £52 million
the uk business is strongly focused on the testing 
of samples from uk water clients including severn
trent water but stl also saw strong demand for
contaminated soils testing arising from the
provisions of the landﬁll directive stl created a
dedicated waste acceptance criteria laboratory at
its site in the midlands this helps waste producers
comply with the uk’s waste acceptance criteria
which also arise from the landﬁll directive
outlook
we do not expect any major increase in us federal
environmental budgets in 200607 nor do we
expect signiﬁcant growth in sectors that are driven
by regulation however we have positive
expectations about continuing growth in certain
segments of the market including air testing and
vapour intrusion as well as testing for sediments
and endocrine disrupters we also have positive
expectations for continued growth in the sale of
groundwater sampling equipment and remediation
pumps through stl’s us subsidiary qed
environmental systems and expect strong market
conditions in the uk soils testing market to
continue
performance review
20 severn trent plc annual report and accounts 2006
signiﬁcant progress on
laboratory it systems
standardisation
rachel brydon jannetta
president and ceo stl review of operations 
water puriﬁcation and operating services
performance review
performance
2006 2005
£m £m 
turnover 2678 2081 287
proﬁt 120 89 348
before interest tax and exceptional items see note 4
water puriﬁcation and operating services’ divisions
both produced good results in 200506 increasing
turnover and proﬁts both divisions maintained
their strategy of concentrating on higher margin
business and growth markets
turnover in water puriﬁcation and operating
services was up by 287 to £2678 million
around 62 of that arose in the us proﬁt before
interest tax and exceptional items increased to
£120 million a rise of 348 the impact of
exchange rates on the ﬁgures was immaterial
alongside the business concentration on achieving
organic growth in 200506 was an intense focus 
on health and safety performance
water puriﬁcation
the water puriﬁcation division’s turnover rose by
147 in 200506 to £1041 million proﬁt before
interest tax and exceptional items was up 112
these ﬁgures now include turnover and proﬁt from
the metering services business formerly part of 
the operating services division
metering services performed well in 200506 
two trends made a major contribution to this 
in the uk we saw rising demand for domestic
meter installation and in the middle east we 
won large contracts in abu dhabi and qatar to
supply our smartmeter™ domestic meters
performance in the other businesses within the
water puriﬁcation division was slightly down on 
the previous year although they had some success
in particular the ﬁltration and electrochlorination
business arsenic removal is a growing market for
severn trent services and our partnership with
lanxess on sorb 33® arsenic removal technology
and bayoxide® e33 arsenic removal media gives
us a strong market position in 200506 we were
delighted to have reached agreement on the
extension of our partnership with lanxess on
arsenic removal in the industrial and municipal
water sector for another ﬁve years we expect to
see further opportunities in arsenic removal not
just in our existing markets in the us and europe
but in new markets like india
in parts of the us new regulations on ballast water
will come into force in 200607 and there are
good commercial opportunities ahead in january
2006 severn trent de nora’s balpure system was
the ﬁrst commercial product to be selected by the
us coast guard and the us environmental
protection agency for validation at the naval
research laboratory ballast water treatment
testing facilities in florida
operating services
this division comprises our contract operations
business which carries out operating and
maintenance contracts in the us our pipeline
services business and severn trent water
international stwi which provides management
and consultancy services in europe and the
developing world
turnover in this division was up 396 to £1638
million proﬁt before interest tax and exceptional
items was up 672 these ﬁgures include coast 
to coast water c2c the 25year £1 billion pfi
contract with the uk ministry of defence which
commenced on 30 march 2005 
in the contract operations business in the us we
saw some signiﬁcant contract wins and extensions
we also secured a three year contract in jordan 
in the middle east our ﬁrst contract in the region
contract operations continues to beneﬁt from
market conditions in the us where tight ﬁscal
constraints mean that states and municipalities 
are looking to outsourcing and public private
partnership solutions for improving operational
performance
on 2 june 2006 we signed heads of terms 
to sell our interest in aquaﬁn nv to the flemish
government for approximately £30 million the
sale is expected to be completed in july 2006
outlook
there are good growth prospects across all 
of water puriﬁcation and operating services’
businesses the water puriﬁcation market will
continue to grow both in the us and uk and in
the developing world our product technologies 
and strong brand recognition will help us compete
vigorously in that market we also plan to increase
our direct presence in the global marketplace
expanding our sales and distribution channels
in operating services we expect the positive
market conditions to continue we have a strong
position in the operating and maintenance
contracts market and we intend to capitalise 
on that position and grow our business further 
we also expect to see good results coming from 
the coast to coast contract in the uk which will
grow in terms of both importance and size
severn trent plc annual report and accounts 2006  21
len graziano
president and ceo 
water puriﬁcation 
and operating services
the water puriﬁcation
market will continue to
grow both in the us
and uk and in the
developing world review of operations 
other businesses
performance review
the group has
continued to rationalise
its other activities 
22 severn trent plc annual report and accounts 2006
other businesses’ turnover was down 312 to
£597 million £868 million they incurred a 
loss before interest tax and exceptional items of
£35 million proﬁt of £70 million there were 
no signiﬁcant property transactions contributing to
proﬁt in 200506 after exceptional restructuring
costs of £31 million £38 million other
businesses incurred a loss before interest 
and tax of £66 million proﬁt of £32 million
systems 
the termination of external sales of the uk it
service business which was announced in last
year’s preliminary announcement was completed
and this business is now refocused entirely to
provide solutions to internal group companies 
the group’s remaining systems businesses 
were sold to logica in february 2006
property
during the year severn trent property sold its
interest in the tournament fields ofﬁce scheme at
warwick and the remaining land at the direct 2
oldbury west midlands both realising an
acceptable proﬁt
at daventry international rail freight terminal
where planning permission has been granted 
for a further 2 million sq ft work continues on
infrastructure design and costing marketing of 
the site will begin shortly with the aim of securing
substantial prelettings before construction work
commences
at midpoint park in birmingham a site of 
90 acres owned by severn trent water a resolution
to grant planning permission has been issued by
birmingham city council formal consent should
be issued shortly and initial infrastructure works
will then commence
following a strategic review it has been decided
that severn trent’s property business is a noncore
business and a sale process has recently
commenced
engineering consultancy
the group’s engineering consultancy business has
ceased taking on new external business but will
complete existing contracts its expertise has been
transferred to severn trent water to support that
company’s capital programme
insurance
derwent insurance severn trent’s captive insurer
provides insurance cover to severn trent group
companies review of operations 
corporate responsibility
performance review
severn trent plc’s corporate responsibility cr
programme focuses on delivering environmental
improvements and making a positive difference to
the social and economic welfare of our communities
the programme is steered by severn trent’s
corporate responsibility committee chaired by the
group chief executive a set of detailed policies
and targets deﬁnes how the group’s cr vision and
values are incorporated into our business activities
the vision values and current targets are set out 
in detail on severn trent’s website
in 2005 severn trent was named as the utilities
sector leader in the dow jones sustainability 
world index for the ﬁfth consecutive year the
ranking acknowledges severn trent’s sustainability
leadership and our determination to deliver 
highquality environmental services in a responsible
manner 
the key performance indicators presented in the
graphs and tables in this cr section have been
independently veriﬁed by acona as part of our 
cr veriﬁcation programme
business ethics
corporate responsibility starts with getting core
business standards right in this regard we faced 
a signiﬁcant challenge in 2005 in the form of our
own and ofwat’s investigations into allegations
made against severn trent water in 2004 of false
reporting of regulated data the investigations
found evidence of a limited number of staff who
became aware of wrong behaviour but did not raise
any concerns and we accept that this was partly
due to weaknesses in severn trent water’s system
of controls culture and business ethics at that time
with the arrival of the new management team at
severn trent water in 2004 and 2005 we have
been strengthening internal processes controls
ethics and culture as a result of a comprehensive
review of all severn trent water’s business activities
we are undertaking a further investigation into 
misreporting of customer relations data to ofwat
the ongoing change programme within severn
trent water includes promoting a culture based 
on openness and evaluation of all aspects of
performance bad as well as good where every
member of staff practises proper business ethics
we have developed a new group policy on ethical
behaviour at work which includes mechanisms 
and safeguards for whistle blowing to support 
the revised code of conduct 
we will continue our efforts to review and improve
severn trent’s culture and ethics in 200607 and
beyond
environment
severn trent’s greatest environmental impacts are
related to climate change and resource
management in 200506 we continued to drive
forward our responsible management of those
impacts targets for each of these areas are
detailed on our website
the waste and water sectors are signiﬁcant
emitters of greenhouse gases the majority of
severn trent’s greenhouse gas emissions
measured as carbon dioxide co
2
 equivalent arise
from methane emissions from landﬁlls indirect
emissions from purchased electricity and emissions
from transport our work to control these includes
improving landﬁll gas capture a comprehensive
review of energy efﬁciency within severn trent
water and the introduction of biodiesel to biffa’s
transport ﬂeet we reduce net emissions by
generating renewable energy and in 200506 we
continued to expand generation capacity at the
end of march 2006 installed generating capacity 
at biffa’s sites was 108mw compared to 101mw 
at march 2005 severn trent water also increased
its energy generation capacity from 27mw at
march 2005 to 28mw a year later 
group renewable energy generation 
increased by 136
200506 691668 mwh
200405 608779 mwh
data is for sites under group control 200405 data is restated
severn trent aims to lead the policy debate on
climate change in the waste and water industries
in 2005 we published the carbon management
report describing the results of the carbon
management study we undertook with the support
of the carbon trust the study developed a set of
projections for our greenhouse gas emissions
through to 2020 with the aim of improving our
understanding of future emissions trends and
priority areas we need to address we face a
challenge to control emissions in the future due 
to the requirements of environmental legislation
such as recycling targets and the water framework
directive the full carbon management report
appears on our website
in 200506 we subsequently worked on two further
studies to improve our control of net emissions
again with the support of the carbon trust the
ﬁrst looked at how severn trent might explore
other renewables technologies in order to reduce
net emissions and this has fed into our business
planning processes 
severn trent plc annual report and accounts 2006  23
severn trent was named
as the utilities sector
leader in the dow jones
sustainability world
index for the ﬁfth
consecutive year review of operations 
corporate responsibility continued
performance review
24 severn trent plc annual report and accounts 2006
key sources of greenhouse gas emissions
co
2
equivalent
the second investigated the potential greenhouse
gas emissions and related energy cost implications
of different technology choices for water and waste
treatment in analysing our long term investment
choices in the context of greenhouse gas emissions
we aim to put climate change at the very heart of
our business
adaptation is the other theme of severn trent’s
climate change programme severn trent water
took a leading role in sustainability west midlands’
climate change partnership helping the west
midlands to understand and adapt to the potential
impacts arising from climate change biffa
completed a series of adaptation workshops in
200506 assessing how climate change could
affect key areas of the business 
our work on resource management focuses on two
principal elements reducing our own consumption
of natural resources and helping our customers
manage resources through activities like recycling
reducing leakage is an important part of both our
own and our customers’ management of resources
in our corporate responsibility report published
later this year and following the june return to
ofwat we will provide a breakdown of demand and
leakage for severn trent water we will also outline
our work with domestic and industrial customers
and our education programme to improve water
conservation 
biffa handled 112 million tonnes of solid waste for
recycling and recovery 122 of the total amount
of solid waste directly disposed of developments in
200506 included extending commercial glass
collections nationwide and increasing composting
activities 
both severn trent water and biffa continued to
expand their biodiversity action plans in 200506 
proportion of waste recycled or recovered 
by biffa was 122 in 200506
workplace
as described earlier we devoted considerable
management time to workplace ethics in 200506
working to entrench a culture of openness and
honesty alongside that we continued a rigorous
programme to improve health and safety
performance across the group tragically the
importance of health and safety was underlined by
two fatalities a biffa contractor was hit by a biffa
vehicle and a biffa employee was struck by a car
biffa management has implemented the most
rigorous investigation and made signiﬁcant
changes to reduce the possibility of such incidents
happening again
among a wide range of measures implemented
during 200506 were restructuring the businesses’
health and safety departments to align them 
more closely with divisional structures introducing
a health and safety multiplier in directors’
performance bonuses and launching groupwide
‘champion of safety’ awards
our strong focus on health and safety in 200405
and 200506 led to a great improvement in our
performance in 200506 the riddor reportable
incident rate for the group as a whole was 
173 per 1000 employees a reduction of 
276 compared to the previous year 
severn trent believes that a diverse workforce is
important to the success of the company we
regularly review our working practices to ensure
equality of opportunity and we promote the
importance of good working relations based on
fairness equality and inclusiveness we are aware
that we must do more to improve our diversity
performance over the coming months our work to
achieve this includes monitoring diversity proﬁles
across the group targeted recruitment initiatives
diversity awareness training for staff and managers
and benchmarking our policies and practices
against best practice organisations
20042005 20052006 20052006 20042005
163
153
037 036
012 013
026
030
offset by 
energy generation
group
waste recycled 
or recovered by biffa
total waste 
landﬁlled at biffa’s sites
113 112
805
877
10
8
6
4
2
0
million tonnes million tonnes co
2 e
20
15
10
05
0
05
methane from
landﬁll biffa
electricity use
severn trent
water
transport
biffa performance review
full details of our 
cr programme can be
found on our website
wwwseverntrentcom
severn trent plc annual report and accounts 2006  25
health and safety performance
276 reduction in riddor
reportable incident rate 
per 1000 
employees
200506 173
200405 239
200405 data is restated
most group companies have their own intranets
and magazines which form a major communication
channel with their employees employee opinion
surveys are used to provide feedback on a range 
of issues 
group companies continue to maintain positive
relationships with the recognised trade unions and
with other elected representatives the group’s
meeting of its european consultative council 
is an annual opportunity to promote dialogue 
with employee representatives and enhance 
their understanding of the issues facing our
businesses in europe
training is also essential to the continuing success
of the group we are continually expanding our
staff development programmes and tools which
include learning resource centres elearning
audiovisual materials and programmes with leading
business schools such as warwick and aston
we continued to encourage share ownership 
in 200506 and we offer a number of plans
including a save as you earn scheme and 
a share incentive plan
community
we maintained our commitment to community
investment and community liaison in 200506 
our community investment programme continued
to focus on three main areas environmental
education the built environment and the natural
environment we worked with nine partner
charities wateraid birmingham cares leicester
cares cromford venture centre bridlegate
stonebridge city farm vso crashit and ackers 
biffa’s landﬁll tax credit scheme biffaward
distributed almost £86 million in 200506 to over
200 individual projects they included for example
urban regeneration projects a project to double 
the population of the brown hare and a grant 
for the roald dahl museum and story centre
education remained a priority of severn trent’s
community activities severn trent water continued
the besmart initiative which encourages school
children to learn about water and the important
role it plays in our lives biffa’s interactive
educational cd on waste won two prestigious
communications awards 
marketplace
supply chain assessment has been the object 
of increasing public attention in recent years as
companies seek to understand their responsibilities
and improve performance within their sphere 
of inﬂuence we intensiﬁed our focus on supply
chain assessment after we expressed support 
for the un global compact principles in 2004 
severn trent agreed group supply chain
assessment objectives and targets in may 2005
and these are published on our website later in
the ﬁnancial year we conducted a comprehensive
review of the different businesses’ supply chain
assessment processes the review covered ﬁve
areas of cr concern environment human rights
health and safety bribery and corruption and
working with minority or small and mediumsized
enterprises 
the review was completed in february 2006 and 
in 200607 we will use its ﬁndings to build on
existing good practice within the group and to
identify priority areas for improvement in the
individual businesses
severn trent is sensitive to issues of affordability
and the needs of vulnerable customers especially
given the price increases scheduled for 200510
one of the ways in which we provide for those
customers is a substantial annual grant to the
severn trent trust fund an independent charity
established in 1997 to help customers in genuine
economic difﬁculty
each year around 8000 people in severn trent
water’s region apply for the trust’s help with
paying water and other utility bills and over 70
of those applicants receive ﬁnancial assistance  financial review
group turnover from continuing operations was
£22950 million £20144 million an increase of
139 over last year the growth in turnover was
mainly due to the price increases in severn trent
water strong growth in landﬁll and collection at
biffa and the new ministry of defence contract in
operating services which were partially offset 
by the reduction in activity in the other businesses
group proﬁt from continuing operations before
interest tax and exceptional items was up 224 
to £4882 million £3988 million there was 
a net exceptional charge of £157 million 
£23 million – see below group proﬁt from
continuing operations before interest and tax 
was £4725 million £3965 million
after net interest charges of £1679 million £1695
million and share of results of associates and joint
ventures of £21 million £18 million group proﬁt
from continuing operations before tax exceptional
items and ias 39 fair value adjustments was up
395 to £3224 million £2311 million group
proﬁt from continuing operations before tax was
£2700 million £2288 million
the total tax charge for the year was £427 million
£715 million of which current tax represented
£488 million £338 million and deferred tax was
a credit of £60 million charge of £294 million
proﬁt for the period from continuing operations
was £2273 million £1573 million
basic earnings per share from continuing
operations were 652 pence 454 pence adjusted
basic earnings per share before exceptional items
ias 39 fair value adjustments and deferred tax
were 772 pence 561 pence an increase of 376
biffa belgium the sale of which was announced on
12 may 2006 and was classiﬁed as a discontinued
operation incurred a loss of £43 million proﬁt of
£08 million
exceptional items
there was an exceptional charge in the year of
£157 million which comprised
 a charge of £79 million for restructuring costs
including £48 million in water and sewerage
and £31 million in other businesses and 
demerger and related costs of £78 million 
in corporate
in 200405 there was a net exceptional charge of
£23 million which comprised
 a charge of £104 million relating to
restructuring costs in water and sewerage
 a charge of £38 million resulting from the
closure of systems’ us cis business and the
termination of external sales from systems’ uk
it services business and engineering
consultancy
 a £43 million credit from the disposal of water
puriﬁcation and operating services’ investment
in an associated company in portugal and
 a £76 million credit from the proﬁt on sale of
ﬁxed assets in water and sewerage
performance review
26 severn trent plc annual report and accounts 2006
group results 
financial highlights
2006 2005  change
turnover £m 2295 2014 139
proﬁt before interest and exceptionals £m 488 399 224
proﬁt before interest £m 473 397 192
proﬁt before tax exceptionals and ias 39 £m 322 231 395
proﬁt before tax £m 270 229 180
earnings per share before exceptionals ias 39 and deferred tax p 772 561 376
earnings per share p 639 457 398
gearing  609 610
final dividend p 3197 3030 55
interim dividend p 1916 1821 52
total dividend for the year p 5113 4851 54
from continuing operations see notes 4 and 13
michael mckeon
group finance director performance review
taxation
the charge for current tax on continuing operations
was £487 million £379 million the current tax
charge has beneﬁted from a release of £391
million charged in prior years following the
agreement of the corporation tax computations for
years up to and including 200203 200405
release of £115 million the effective rate of
current tax calculated on proﬁt before tax
exceptional items and ias 39 fair value
adjustments was 287 210 tax bulletin 53
which changes the tax treatment of deferred
revenue expenditure in severn trent water
increased the effective rate of tax by approximately
34 and permanent differences increased the
effective rate by a further 64 these impacts
were partially offset by lump sum pension
contributions which reduced the effective rate of
current tax in the year by 45
going forward we would expect the effective rate 
of tax for the current group structure to be in the
range of 30 to 35 the planned demerger of
biffa along with other announced changes will
impact this expectation
cash ﬂow
2006 2005
£m £m
cash generated from 
operations 7589 6233
net capital expenditure 3959 4064
net interest paid 1801 1511
tax paid 683 365
other cash ﬂows 02 25
free cash ﬂow 1144 318
dividends 2343 1620
acquisitions and disposals 13 34
financing 116 14
change in net debt from 
cash ﬂows 1070 1254
cash generated from operations was £7589 
million £6233 million capital expenditure 
net of grants and proceeds of sales of ﬁxed assets 
was £3959 million £4064 million including
capital expenditure in severn trent water of 
£3053 million £3191 million interest paid
increased to £1801 million £1511 million 
due to additional payments of interest on ﬁnance
leases tax payments increased as a result of the
higher underlying effective rate of tax 
the acceleration of dividend payments resulted in
an additional dividend payment of £665 million 
in 200506
net debt at 31 march 2006 was £29611 million
£28946 million year end balance sheet gearing
is 609 610 and the group net debt to rcv 
is 574 577 the group’s net interest charge
excluding ias 39 fair value adjustments was
covered 46 times 40 times by proﬁt before
interest tax depreciation and exceptional items 
and 29 times 24 times by proﬁt before interest
tax and exceptionals
accounting policies
these are the ﬁrst full year results that the 
group has reported under international financial
reporting standards ifrs the impacts of ifrs 
on the group’s results and balance sheet were 
set out in a presentation on 19 september 2005
which is available on the group’s website the
group has taken advantage of the exemption
available in ias 32 and ias 39 not to restate
comparative information for the impact of those
standards the opening reserves at 1 april 2005
have been restated to reﬂect the impact of
adopting ias 32 and ias 39 
severn trent plc annual report and accounts 2006  27 financial review continued
earnings per share and dividend
earning per share from continuing operations
adjusted to exclude exceptional items ias 39 fair
value adjustments and deferred tax increased by
376 to 772p 561p basic earnings per share
from continuing operations were 652p 454p
an interim dividend of 1916p 1821p up 52
was paid on 25 january 2006 the board is
recommending the payment of a ﬁnal dividend of
3197p 3030p up 55 to make a total dividend
of 5113p 4851p
treasury management 
the group’s treasury affairs are managed centrally
and in accordance with its treasury procedures
manual and policy statement the treasury
operation’s primary role is to manage liquidity
funding investment and the group’s ﬁnancial risk
including risk from volatility in interest and to a
lesser extent currency rates and counterparty
credit risk its activities are subject to a set of
controls commensurate with the magnitude of the
borrowings and investments under its
management the board determines matters of
treasury policy and its approval is required for
certain treasury transactions
it is the group’s strategy to access a broad range 
of sources of ﬁnance to obtain both the quantum
required and the lowest cost compatible with the
need for continued availability
the group uses ﬁnancial derivatives solely for the
purposes of managing risk associated with
ﬁnancing its normal business activities the group
does not hold or issue derivative ﬁnancial
instruments for ﬁnancial trading purposes the
group uses a limited number of currency swaps
and interest rate swaps to redenominate external
borrowings into the currencies and interest rate
coupon required for group purposes
the group’s policy for the management of interest
rate risk requires that no less than 50 of the
group’s borrowings should be at ﬁxed interest
rates or hedged through the use of interest rate
swaps or forward rate agreements at 31 march
2006 interest rates for some 72 of the group’s
net debt of £2961 million were so ﬁxed at a
weighted average interest rate of 57 for a
weighted average period of 146 years this policy
has been implemented by entering into a portfolio
of long dated interest rate swaps that hedge the
group’s economic exposure to changes in interest
rates however these swaps are not designated to
particular liabilities and hence do not meet the
criteria for hedge accounting under ias 39 
performance review
28 severn trent plc annual report and accounts 2006
pensions
the group has four deﬁned beneﬁt pension
schemes of which the severn trent pension
scheme stps is by far the largest formal
actuarial valuations were undertaken for the stps
and another scheme the severn trent senior staff
pension scheme as at 31 march 2004
on an ias 19 basis the estimated net position
before deferred tax of all of the group’s deﬁned
beneﬁt pension schemes and the group’s unfunded
pension liabilities for senior staff was a deﬁcit of
£2219 million as at 31 march 2006 this compares
with a deﬁcit of £3175 million as at 31 march
2005 the reduction in the deﬁcit arose because
the increase in assets from higher than expected
investment returns and increased contributions
exceeded the increase in liabilities from a reduction
in the discount rate total cash contributions to the
schemes in the year was £1052 million £623
million this included a payment of £444 million
relating to the year 200607
the key actuarial assumptions were
2006 2005
discount rate 49 55
inﬂation 27 275
expected return on equities 80 825
life expectancy at age 65 years
men 189 189
women 218 218
for future pensioners
net of deferred tax the estimated net deﬁcit on an
ias 19 basis as at 31 march 2006 was approximately
£155 million on an ias 19 basis the funding level
has improved from around 77 at 31 march 2005
to around 86 at 31 march 2006
as at 31 march 2006 the group’s deﬁned beneﬁt
pension schemes had total assets of approximately
£1403 million of which around 65 was invested
in equities
further details of the group’s pension position are
contained in note 27 to the accounts performance review
consequently the swaps are revalued at each
balance sheet date and the change in fair value is
taken to the income statement as a ﬁnance cost 
in the year ended 31 march 2006 £367 million
was charged to ﬁnance costs in respect of such 
fair value movements
the group’s business does not involve signiﬁcant
exposure to foreign exchange transactions cross
currency swaps are employed to exchange foreign
currency borrowings for sterling the group also
has investments in various assets denominated in
foreign currencies principally the us dollar and the
euro the group’s current policy is to hedge an
element of the currency translation risk associated
with certain foreign currency denominated assets
the long term credit ratings of severn trent plc
and severn trent water limited are
long term credit ratings
severn trent severn trent
water limited plc 
moody’s a2a3 
standard  poor’s a a– 
further details of the group’s borrowings
investments and ﬁnancial instruments are
contained in note 19 to the accounts
exchange rates
approximately 2 of the group’s proﬁt before
interest tax and exceptional items and 4 of 
its net operating assets are denominated in 
us dollars and approximately 05 of its proﬁt
before interest tax and exceptional items and 
1 of its net operating assets are denominated in
euros the trading results of overseas subsidiaries
are translated to sterling at the average rate of
exchange ruling during the year and their net
assets are translated at the closing rate on the
balance sheet date 
supplementary information 
for supplementary information including the
group’s preliminary results presentation see the
severn trent website wwwseverntrentcom
michael mckeon 
group finance director 
severn trent plc annual report and accounts 2006  29 board of directors
sir john egan kbe msc beng 66
sir john joined the board in october 2004 and became
chairman on 1 january 2005 he is a director of warwick
castle park trust ltd and was until recently chairman of
inchcape plc and harrison lovegrove  co ltd sir john
worked in the motor industry until 1990 at general
motors massey ferguson and british leyland rising to
become chairman and chief executive of jaguar plc he
was chief executive of baa plc from 1990 to 1999 and
chairman of mepc from 1998 to 2000 he was also
president of the confederation of british industry from
2002 to 2004 sir john was knighted in the queen’s
birthday honours list in 1986 and is a deputy lieutenant
of the county of warwickshire
colin matthews ma ceng mba 50
colin joined the board in october 2003 becoming group
chief executive on 1 february 2005 he is a chartered
engineer and worked for the american general electric
company and then for british airways ﬁrst as director 
of engineering then as director of technical operations
responsible for all aircraft maintenance it and procurement
colin was group managing director of transco from 2001
to 2002 and ceo of hays plc from 2002 to 2004
michael mckeon ma ca 49
michael joined the board on 13 december 2005 as group
finance director prior to that he was group finance
director of the buildings materials group novar plc he
worked for rolls royce plc from 1997 to 2000 in various
senior roles including finance director of the aerospace
group michael has extensive international business
experience having worked overseas for carnaudmetalbox
elf atochem and price waterhouse he is a member of the
institute of chartered accountants of scotland
tony wray bsc hons 44
tony joined the board in march 2005 he is managing
director of severn trent water ltd prior to that he was
director of networks at eircom the republic of ireland’s
telephone operator he joined british gas in 1983 and held
various managerial positions before becoming head of
asset management in 2000 tony moved to transco ﬁrst
as director of asset management then as national
operations director before being appointed to implement
the merger integration of lattice transco and national
grid group into national grid transco
martin bettington bsc mecheng mba 53 
martin joined the board in november 1994 he is the
managing director of biffa plc severn trent’s waste
management business martin was previously employed by
bet plc biffa’s former holding company he holds an mba
from manchester business school
rachel brydon jannetta fcca 46
rachel joined the board in september 2004 she is
president and ceo of severn trent’s us and uk
laboratories businesses a fellow of the chartered
association of certiﬁed accountants rachel qualiﬁed as an
accountant in 1984 with gerber landa and gee an
accounting ﬁrm based in glasgow she then spent eight
years in retail management latterly with an asda plc group
company before joining severn trent in 1993 as managing
director of its uk laboratories operation she is also a
director of wateraid america the us arm of the wateraid
charity
martin flower ba 59 
martin joined the board in june 1996 and was appointed
deputy chairman in july 2004 he is the senior
independent nonexecutive director he is also chairman 
of croda international plc and has been a director of 
the morgan crucible company plc since december 2004
martin retired as chairman of coats ltd in may 2004
where he had previously been group chief executive
martin retires from the board on 10 june 2006
john smith fcca hon friba 48
john joined the board in november 2003 he is chief
operating ofﬁcer of the bbc and chief executive of its
trading arm bbc worldwide he is also vice president of
the royal television society john has held a nonexecutive
directorship with vickers plc was a member of the
advisory board of zurich financial services uk and 
served for three years on the accounting standards 
board until november 2004 
marisa cassoni bsc aca 54
marisa joined the board in september 2001 until recently
she was group finance director of royal mail group plc
and on 26 june 2006 will be appointed finance director
of the john lewis partnership she is a nonexecutive
director of gfi group inc a company listed on the
nasdaq and wsp group plc marisa is also a member of
the cbi economic affairs committee and a member of the
financial reporting council’s accounting standards board
she qualiﬁed as an accountant with deloitte haskins 
sells rising to corporate finance manager she moved to
the prudential corporation and later became group
finance director at britannic assurance plc 
martin houston bsc msc dic 48
martin joined the board in september 2003 he is
executive vice president and managing director of bg
group’s north american caribbean and global liqueﬁed
natural gas business and a member of the group
executive committee he joined bg group in 1983 and
has held a number of technical and commercial roles with
a predominantly international focus he is a fellow of the
geological society of london
richard davey 57
richard joined the board on 1 january 2006 and becomes
senior independent nonexecutive director on 11 june
2006 he is a nonexecutive director of yorkshire building
society and amlin plc he also served as a nonexecutive
director of freeserve plc from 1999 to 2001 and of
scottish widows fund and life assurance society from
1996 to 2000 the majority of richard’s executive career
was spent in investment banking at n m rothschild 
sons where he served in various roles including head of
investment banking prior to that he worked at various
organisations including merrill lynch international limited
and exco international plc
bernard bulkin bs phd frsc frsa fie 64
bernard joined the board on 1 january 2006 he is
chairman of aea technology plc and a nonexecutive
director of accelergy corporation in california he is 
also a venture partner at vantage point an international
venture capital ﬁrm bernard is a commissioner on the 
uk sustainable development commission and a board
member of the uk centre for economic and environmental
development he is also a member of the dti sustainable
energy policy advisory board in 2003 he retired as chief
scientist at bp plc where he had worked for eighteen years 
nonexecutive director
membership of board and operating
committees is as detailed below
board committees
audit committee
j b smith chairman
b bulkin
m l cassoni
r h davey
f b smith secretary
remuneration committee
m c flower 
chairman until 10 june 2006
r h davey 
chairman from 11 june 2006
m l cassoni
m j houston
f b smith secretary
nominations committee
sir john egan chairman 
b bulkin c
m l cassoni
r h davey
m c flower c
m j houston
c s matthews
j b smith c
f b smith secretary
c  core members
corporate responsibility committee
c s matthews chairman
m j bettington
r s brydon jannetta
b bulkin
sir john egan
p j gavan
l f graziano
a p smith
a p wray
f b smith secretary
operating committee
executive committee
c s matthews chairman 
m j bettington
r s brydon jannetta
p j gavan
l f graziano
m j e mckeon
a p smith
f b smith and secretary
p k tandon
j van den arend schmidt
a p wray
senior independent nonexecutive
director
m c flower until 10 june 2006
r h davey from 11 june 2006
group general counsel and 
company secretary
f b smith
governance
30 severn trent plc annual report and accounts 2006 governance
severn trent plc annual report and accounts 2006  31
left to right
sir john egan 
colin matthews 
michael mckeon
tony wray 
martin bettington
rachel brydon jannetta
martin flower
john smith
marisa cassoni
martin houston
richard davey
bernard bulkin
nonexecutive director directors’ report
the directors present their report together with 
the audited ﬁnancial statements of the group for
the year ended 31 march 2006
principal activities 
the principal activities of the group are the supply
of water and sewerage services waste management
and the provision of environmental services 
details of the principal joint venture associated 
and subsidiary undertakings of the group at 
31 march 2006 appear in notes 17 18 and 40 to
the ﬁnancial statements on pages 76 77 and 96
business review
the chairman’s statement the group chief
executive’s review the business focuses for 
the group’s main businesses and the review 
of operations on pages 4 to 29 provide detailed
information relating to the group and its strategy
the operation of its businesses and the results and
ﬁnancial position for the year ended 31 march 2006
details of the principal risks and uncertainties facing
the group are set out in the corporate governance
report on page 39
research and development
expenditure on research and development
including amounts capitalised as tangible ﬁxed
assets related to research and development
amounted to £54 million 2005 £53 million
treasury management
the disclosures required under the eu fair 
value directive in relation to the use of ﬁnancial
instruments by the company are set out in 
note 19 j to the accounts on page 81
post balance sheet events
on 4 april 2006 the company announced its
intention to demerge biffa its uk integrated 
waste management business
on 7 april 2006 the company announced it was
giving ofwat an interim report into misreporting 
of customer relations data by severn trent water
on 12 may 2006 the company announced it 
had agreed to sell biffa belgium to veolia for 
€45 million
on 2 june 2006 the group signed heads of terms
to sell its interest in aquaﬁn nv to the flemish
government for approximately £30 million
dividends 
an interim dividend of 1916 pence per ordinary
share was paid on 25 january 2006 the directors
recommend a ﬁnal dividend of 3197 pence per
ordinary share to be paid on 2 august 2006 to
shareholders on the register on 30 june 2006 
this would bring the total dividend for 200506 
to 5113 pence per ordinary share 2005 4851p
the payment of the ﬁnal dividend is subject to
shareholder approval at the annual general meeting 
directors and their interests
details of changes to the board during the 
year and of the directors offering themselves 
for reappointment at the annual general meeting
are set out on page 35
details of directors’ service contracts are set out 
in the directors’ remuneration report on page 46
the interests of the directors in the shares of the
company are shown on page 50
biographies of the directors currently serving on
the board are set out on page 30 
directors’ responsibilities statement
the directors are responsible for preparing the
ﬁnancial statements the directors have chosen to
prepare the ﬁnancial statements for the group in
accordance with international financial reporting
standards ifrs and for the company in
accordance with united kingdom generally
accepted accounting practice uk gaap 
in the case of uk gaap ﬁnancial statements 
the directors are required to prepare ﬁnancial
statements for each ﬁnancial year that give a true
and fair view of the state of affairs of the company
and of the proﬁt or loss of the company for that
period in preparing the ﬁnancial statements the
directors are required to select suitable accounting
policies and then apply them consistently make
judgements and estimates that are reasonable 
and prudent state whether applicable accounting
standards have been followed subject to any
material departures disclosed and explained in 
the ﬁnancial statements and prepare the ﬁnancial
statements on a going concern basis unless it 
is inappropriate to presume that the group will
continue in business
in the case of ifrs ﬁnancial statements
international accounting standard 1 requires that
the ﬁnancial statements present fairly for each
ﬁnancial year the company’s ﬁnancial position
ﬁnancial performance and cash ﬂows directors 
are also required to properly select and apply
accounting policies present information including
accounting policies in a manner that provides
relevant reliable comparable and understandable
information provide additional disclosures when
compliance with the speciﬁc requirements in
international financial reporting standards is
insufﬁcient to enable users to understand the
impact of particular transactions other events 
and conditions on the entity’s performance 
and prepare the ﬁnancial statements on a going
concern basis unless having assessed the ability 
of the company to continue as a going concern
management either intends to liquidate the entity
or to cease trading or have no realistic alternative
but to do so
governance
32 severn trent plc annual report and accounts 2006 governance
the directors are responsible for ensuring that the
company keeps proper accounting records which
disclose with reasonable accuracy at any time the
ﬁnancial position of the company the directors are
also responsible for safeguarding the assets of the
company and the group taking reasonable steps
for the prevention and detection of fraud and other
irregularities the preparation of the report of the
directors and the directors’ remuneration report
which comply with the requirements of the
companies act 1985 and ensuring the
maintenance and integrity of the company’s
corporate website
directors indemnities
the company’s articles of association provide that
directors of the company shall be indemniﬁed by
the company against any costs incurred by them 
in carrying out their duties including defending 
any proceedings brought against them arising 
out of their positions as directors in which they 
are acquitted or judgement is given in their favour
or relief from any liability is granted to them by 
the court
supplier payment policy 
individual operating companies within the group
are responsible for establishing appropriate policies
with regard to the payment of their suppliers 
the companies agree terms and conditions under
which business transactions with suppliers are
conducted it is group policy that provided a
supplier is complying with the relevant terms and
conditions including the prompt and complete
submission of all speciﬁed documentation
payment will be made in accordance with agreed
terms it is also group policy to ensure that
suppliers know the terms on which payment will
take place when business is agreed details of
supplier payment policies can be obtained from 
the individual companies at the addresses shown 
in note 40 to the ﬁnancial statements on page 96 
trade creditors for the group at the yearend are
estimated as representing no greater than 30 days’
purchases 2005 no greater than 30 days trade
creditors for the company at the yearend are
estimated as representing nil days’ purchases
2005 34 days 
contributions for political and charitable purposes 
donations to charitable organisations during the
year amounted to £487422 2005 £378825 the
company focuses on the development of long term
partnerships with charities close to its major sites
and which reﬂect the company’s value of
environmental leadership the work focuses on
environmental education the preservation and
enhancement of the natural environment or
addressing social exclusion issues in the built
environment the company is also committed to
supporting wateraid the uk’s only major charity
dedicated to providing safe domestic water and
sanitation to the world’s poorest people
the company’s policy is not to make any donations
to political parties however the political parties
elections and referendums act 2000 the relevant
provisions of which are now contained in part xa of
the companies act 1985 requires certain types of
expenditure on political events to be preapproved
by shareholders at the 2005 annual general
meeting shareholders gave the company authority
to cover such expenditure pursuant to that
authority during the year ended 31 march 2006
the group incurred costs of £6000 2005 £2500
as follows
 biffa waste services limited paid a subscription
fee of £1000 to the socialist environment and
resources association sera an organisation
which aims to promote sustainable
environmental policies within the labour
movement and labour party to ensure
sustainable development is central to the work
of the government and
 biffa waste services limited paid a subscription
fee of £5000 to the fabian society a left of
centre think tank which is afﬁliated to the
labour party but is editorially and
organisationally independent
as in previous years resolutions to renew the
authority will be proposed at this year’s annual
general meeting for the company and its principal
subsidiaries
substantial shareholdings 
as at 2 june 2006 the company had been notiﬁed
of the following substantial shareholdings 
number of ordinary 
shares of 65 
5
⁄ 19p each 
legal  general 11259833 326
investment management 
limited 
barclays plc 10762602 310
severn trent plc annual report and accounts 2006  33 directors’ report continued
share capital
the company was given authority at its annual
general meeting in 2005 to make market
purchases of ordinary shares up to a maximum
number of 34749599 shares similar authority will
again be sought from shareholders at this year’s
annual general meeting no market purchases
were made by the company during the year ended
31 march 2006
details of movements in share capital are shown in
note 29 to the ﬁnancial statements on page 88
employees 
the average number of employees within the group
is shown in note 8 to the ﬁnancial statements on
page 68
details of arrangements relating to employee
involvement are described in the corporate
responsibility report on page 25
auditors
in the case of each of the persons who are
directors of the company at the date when this
report was approved
 so far as each of the directors is aware there is
no relevant audit information as deﬁned in the
companies act 1985 of which the company’s
auditors are unaware and
 each of the directors has taken all the steps 
that heshe ought to have taken as a director 
to make himselfherself aware of any relevant
audit information as deﬁned and to establish
that the company’s auditors are aware of that
information
this conﬁrmation is given and should be
interpreted in accordance with the provisions 
of section 234za of the companies act 1985
deloitte  touche llp has indicated its willingness
to continue as auditors accordingly a resolution 
to reappoint them will be proposed at this year’s
annual general meeting 
the reappointment of deloitte  touche llp has
been approved by the audit committee who will
also be responsible for determining their audit fee
on behalf of the directors
accounts of severn trent water limited 
regulatory accounts for severn trent water limited
are prepared and sent to the director general of
water services a copy of these accounts will be
available from the website of severn trent water
limited wwwstwatercouk or on written request to
the company secretary at the address given on
the back cover there is no charge for this
publication
going concern 
the board has a reasonable expectation that 
the group and the company have adequate
resources to continue in operational existence for
the foreseeable future accordingly the ﬁnancial
statements set out on pages 53 to 101 and 103 
to 114 have been prepared on the going concern
basis
annual general meeting
the annual general meeting of the company 
will be held at the international convention centre
broad street birmingham b1 2ea at 1100am 
on tuesday 25 july 2006 the notice convening 
the meeting together with details of the business
to be considered and explanatory notes for each
resolution is distributed separately to shareholders
it is also available on the company’s website
wwwseverntrentcom
by order of the board 
fiona smith 
group general counsel and company secretary 
5 june 2006 
governance
34 severn trent plc annual report and accounts 2006 corporate governance report
governance
corporate governance
the company attaches great signiﬁcance to the
maintenance of good corporate governance
procedures and adherence to best practice
recognising that they play their part in creating 
a framework which can provide increased 
beneﬁts for shareholders
compliance statement
the report set out on pages 35 to 39 describes
how the company has applied the principles of
good corporate governance as set out in section 1
of the combined code on corporate governance
issued by the financial reporting council in july
2003 the “combined code” in respect of the
year ended 31 march 2006 and the period up 
to the date of approving the accounts the board
considers that the company has complied with 
the provisions set out in the combined code
the board 
board structure
the board consists of a nonexecutive chairman
ﬁve executive directors and six nonexecutive
directors in accordance with the combined code
separate individuals sir john egan and colin
matthews are appointed to the positions of
chairman and group chief executive respectively
martin flower is the senior independent non
executive director he retires from the board on 
10 june 2006 and will be replaced in that role by
richard davey
the board has reviewed the status of the non
executive directors and considers them all to be
independent in character and judgement and
within the deﬁnition of this term in the combined
code the test of independence is not appropriate
in relation to the chairman
the chairman and the nonexecutive directors
contribute external expertise and experience in
areas of importance to the group such as corporate
ﬁnance general ﬁnance corporate strategy
environmental matters general management 
and corporate governance they also provide
independent challenge and rigour to the board’s
deliberations
collectively the board is satisﬁed it has all of the
necessary skills experience and qualities to lead
the company 
directors and their interests
michael mckeon was appointed as an executive
director on 13 december 2005
bernard bulkin and richard davey were appointed
as nonexecutive directors on 1 january 2006
john mcadam mark wilson and derek osborn 
retired from the board on 1 september 2005 
13 december 2005 and 31 march 2006 respectively
martin flower will retire from the board on 
10 june 2006 
biographies of the directors currently serving 
on the board are set out on page 30
all directors who joined the board during the year
have undertaken induction training furthermore
the training needs of all directors are kept under
review and appropriate training identiﬁed as part 
of a continuing process
details of the directors’ service agreements
emoluments the interests of directors and their
immediate families in the shares of the company
and in awards or options over such shares granted
under the company’s long term incentive plans
and sharesave scheme are shown in the directors’
remuneration report on pages 40 to 51
operation of the board
the board has ultimate responsibility for ensuring
that the company is properly managed and
achieves the strategic objectives it sets it has an
agreed schedule of matters reserved to it which
includes setting long term strategic and business
objectives overseeing the company’s internal
control systems and ensuring that appropriate
resources are in place to enable the company to
meet its objectives 
the board meets at least ten times in each
calendar year and convenes additional meetings as
and when required details of the number of board
and committee meetings and the attendance of the
directors at those meetings are shown on page 37
the chairman has prime responsibility for the
effective workings of the board and agrees the
agenda in consultation with the group chief
executive and company secretary papers
including minutes of board committees held since
the previous board meeting and reports from each
of the executive directors responsible for the
group’s operating businesses or key central
functions are circulated in advance of each
meeting in addition to the board meetings the
chairman meets with the nonexecutive directors
without the executive directors present the non
executive directors also have an annual meeting
where there is an opportunity for them to meet
without the chairman 
the group chief executive is responsible for the
executive management of all of the group’s
businesses and for implementing board strategy
and policy within approved budgets and
timescales the group chief executive is supported
by the executive committee membership of the
executive committee is shown on page 30 and
comprises the executive directors and senior
managers responsible for key central functions  
procedures are in place which allow directors to
take independent professional advice in the course
of their duties and all directors have access to the
advice and services of the company secretary
where a director has a concern over any
unresolved business heshe is entitled to require
the company secretary to minute that concern
should heshe later resign over this issue the
chairman will bring it to the attention of the board
severn trent plc annual report and accounts 2006  35 corporate governance report
the company purchases directors and ofﬁcers
liability and indemnity insurance to cover its
directors and ofﬁcers against the costs of defending
themselves in civil proceedings taken against them
in that capacity and in respect of damages resulting
from the unsuccessful defence of any proceedings
board committees
the board has established an effective 
committee structure to assist in the discharge 
of its responsibilities the terms of reference 
of the audit remuneration and nominations
committees the “principal committees” comply
with the provisions of the combined code and 
are available for inspection on the company’s
website wwwseverntrentcom or may be 
obtained on written request from the company
secretary at the address given on the back cover 
each of the principal committees has reviewed 
its effectiveness and terms of reference during 
the year and any necessary actions have been
identiﬁed and reported to the board
the membership of all board committees is set out
on page 30
audit committee 
the audit committee is chaired by john smith 
its membership comprises bernard bulkin marisa
cassoni and richard davey only independent non
executive directors may serve on the committee
john smith and marisa cassoni have been
identiﬁed by the board as having recent and
relevant ﬁnancial experience 
the committee meets with the group’s external
auditors the “auditors” at least four times a year
by invitation of the committee other individuals
such as the chairman group chief executive
group finance director and group director of
internal audit will normally be in attendance for all
or part of those meetings the committee and the
auditors also hold separate meetings without the
attendance of executive management
in their assessment of the independence of the
auditors the committee receives annually in writing
details of relationships between the auditors and
the group which may bear on the auditors’
independence and receives conﬁrmation that 
they are independent of the group as required 
by international auditing standard 260
the committee annually reviews the level of 
the auditors’ fees in respect of the audit of 
the ﬁnancial statements of the group and its
subsidiaries at the same time as considering the
adequacy of the auditors’ proposed audit plan 
a formal policy which includes fee limits has 
been adopted for nonaudit services any material
project work where fees payable to the auditors 
are likely to exceed £100000 must be approved by
the audit committee where fees are expected to
exceed £500000 the project work would normally
be the subject of a competitive selection process
the level of nonaudit services provided by the
auditors and the associated fees are considered
annually by the committee in the context of the 
auditors’ independence as part of the committee’s
review of the adequacy and objectivity of the audit
process an analysis of fees payable to the auditors
in respect of audit and nonaudit services is
provided on page 67 
it is the group’s policy to seek rotation of the
auditors’ principal engagement partner as a matter
of course every ﬁve years and of other key
members of the audit team where deemed
appropriate by the audit committee 
the audit committee has reviewed risk
management and the effectiveness of the 
system of internal control during the year 
ended 31 march 2006 and has reported 
to the board on the outcome of this review 
the effectiveness of the group’s internal audit
function has been reviewed by the audit
committee
the audit committee reviews annually the group’s
formal whistle blowing policy that deals with
allegations from employees relating to breaches 
of the group’s code of business principles and
conduct
remuneration committee 
the remuneration committee is chaired by martin
flower he retires from the board on 10 june 2006
and will be replaced in that role by richard davey
the other members of the committee are marisa
cassoni and martin houston only independent
nonexecutive directors may serve on the
committee the chairman and the group chief
executive attend remuneration committee
meetings at the invitation of the remuneration
committee chairman the committee will normally
meet at least four times a year 
the remuneration committee determines on
behalf of the board the company’s policy on the
remuneration of executive directors and the
chairman of the board and is consulted by the
group chief executive regarding remuneration for a
number of the company’s senior executives 
further information on the activities of the
remuneration committee is given in the directors’
remuneration report on pages 40 to 51 
the directors’ remuneration report also describes
how the principles of the combined code are
applied in respect of remuneration matters and
includes a statement on the company’s policy on
directors’ and senior executives’ remuneration
beneﬁts share scheme entitlements and pension
arrangements
a resolution to approve the directors’ remuneration
report will be proposed at the annual general
meeting
governance
36 severn trent plc annual report and accounts 2006 governance
nominations committee 
the nominations committee is chaired by 
sir john egan and its members are the group
chief executive and all nonexecutive directors 
the committee’s core members are bernard
bulkin martin flower and john smith all other
nonexecutive directors will attend meetings subject
to their availability other executive directors senior
management and external advisors may be invited
to attend meetings as considered appropriate 
the nominations committee has responsibility 
for considering the size structure and composition 
of the board of the company retirements and
appointments of additional and replacement
directors succession planning and making
recommendations so as to maintain an appropriate
balance of skills and experience on the board the
committee meets at least three times a year
the board appointments made during the year in
respect of michael mckeon bernard bulkin and
richard davey were undertaken using an external
search consultancy 
corporate responsibility committee 
the corporate responsibility committee is chaired
by the group chief executive its main responsibility
is to develop review and promote policies to further
the group’s environmental values in its business
workplace and community engagement activities
the committee’s terms of reference may be viewed
on the company’s website wwwseverntrentcom
details of the group’s corporate responsibility
activities may be found on pages 23 to 25 
meetings
details of the board and principal committees
meetings attended by each director during the 
year are as follows 
plc board audit remun nomi
eration nations
number 13689
of meetings
sir john egan 13 – – 9
m j bettington 13–––
r s brydon 13–––
jannetta
b bulkin
2
4–– 2
m l cassoni 12 6 6 –
r h davey
3
3– 1–
m c flower 12 – 8 8
m j houston 12 – 5 –
j d g mcadam
4
5 –33
m j e mckeon
1
4–––
c s matthews 13–––
f a osborn
5
13 6 – 8
j b smith
7
96 –1
m r wilson
6
8–––
a p wray 13–––
1 – appointed 131205 5 – resigned 310306
2 – appointed 010106 6 – resigned 131205
3 – appointed 010106 7 – appointed nominations
4 – resigned 010905 committee 011205
directors’ interests in contracts
no director had a material interest at any time
during the year in any contract of signiﬁcance
other than a service contract as shown in the
directors’ remuneration report on pages 40 to 51
with the company or any of its subsidiary
undertakings 
remuneration
the directors’ remuneration report which includes
a statement on the company’s policy on directors’
and senior executives’ remuneration is set out 
on pages 40 to 51 
reappointment
the company’s articles of association require all
directors to submit themselves for reappointment
at least every three years this provision also
ensures that as a minimum one third of the board
of directors together with any director appointed
since the last annual general meeting retires each
year and if eligible and so desires stands for
reappointment at the annual general meeting
directors retire on the basis of their length of
service since their last election
martin houston colin matthews and john smith
retire by rotation bernard bulkin richard davey
and mike mckeon have been appointed since the
last annual general meeting all six directors offer
themselves for reappointment
the nomination committee has formally reviewed
the performance contribution and commitment of
each of the retiring directors and has recommended
their reappointment to the board
performance and effectiveness reviews 
during the year the board with the help of an
outside facilitator carried out a formal evaluation of
its performance and that of its committees since
the board has undergone a number of changes
with three new directors joining the board and a
new company secretary being appointed in the
latter part of the year a review of individual
performance was not done each director and the
company secretary answered a questionnaire on
hisher perception of the composition operation
and effectiveness of the board and its committees
and on the performance of the chairmen of the
board and principal committees in addition they
were interviewed by the facilitator to explore 
certain issues in greater depth and to identify 
areas requiring improvement finally the 
process reviewed progress against actions
identiﬁed in last year’s review
shareholders
relations with shareholders
the board recognises the importance of representing
and promoting the interests of its shareholders and
that it is accountable to shareholders for the
performance and activities of the company
the annual report and accounts is the principal
means of communicating with shareholders the
company’s website wwwseverntrentcom contains
complete versions of such reports along with other
information relevant to shareholders
severn trent plc annual report and accounts 2006  37 corporate governance report
continued
in respect of the company’s annual general
meeting the board encourages shareholders 
to attend and exercise their right to vote the 
notice of meeting and related papers are sent to
shareholders at least 20 working days before the
meeting separate resolutions are proposed on
each substantially separate issue details of the
proxy votes for and against each resolution and 
the number of abstentions are indicated after 
the result of the vote on a show of hands
shareholders are given the opportunity to meet
with the board before and after the annual
generally meeting presentations are made on the
group’s activities and performance prior to the
formal business of the meeting shareholders have
the opportunity to ask questions of the board and
present their views the chairmen of the audit
remuneration and nominations committees
together with all other directors will normally
attend the annual general meeting 
the company announces its results on a half yearly
basis presentations are made to analysts and
shareholders following the release of the interim
and yearend results the group chief executive
and group finance director meet shareholders
during the year the chairman and if appropriate
the senior independent nonexecutive director are
available to meet shareholders if required the
board receives written feedback following meetings
with institutional shareholders
internal control 
internal control and risk management 
the board has overall responsibility for the group’s
system of internal control and for reviewing its
effectiveness the board has formally established
policies and processes for identifying and
evaluating the signiﬁcant risks faced by the group
the policies and processes are designed to manage
risks rather than eliminate them and can only
provide reasonable but not absolute assurance
against material errors losses or fraud or breaches
of laws or regulations 
there are procedures for managing these
signiﬁcant risks of which the key elements are 
an organisation structure with clear lines of
accountability regular structured reviews of
business risk by senior management a scheme of
delegated authority preapproval of plans budgets
and signiﬁcant investments monthly reporting 
and monitoring of ﬁnancial results and other key
business measures and independent assurance
provided by both internal and external auditors
the senior management teams of each of the
principal business units have identiﬁed the risks
facing their businesses and have made an
assessment of the impact and likelihood of those
risks they also have a process to identify changes
to the risk proﬁle and to identify weaknesses in
internal control the controls that are in place to
manage each of the more signiﬁcant risks in each
unit have been identiﬁed and an assessment has
been made of the effectiveness of these controls
each business unit reports regularly to the group
chief executive on its risks and controls the
executive committee reviews these risks as well 
as carrying out a process to identify any other
signiﬁcant risks affecting the group considers the
controls in place to mitigate the risks faced by the
group and ensures that its focus is on managing
the most important risks and meeting any changes
in the risk proﬁle 
the board reviews risk management and the
effectiveness of the system of internal control
through the audit committee they also keep
under review ways in which to enhance the control
and audit arrangements in the group the audit
committee receives reports every six months from
the group chief executive on the signiﬁcant risks
faced by the group an assessment of the
effectiveness of controls over each of those risks
and an action plan to improve controls where this
has been assessed as necessary any signiﬁcant
control weaknesses that have been identiﬁed are
also reported to the audit committee the auditors
also report on signiﬁcant control issues to this
committee the internal audit department provides
objective assurance and advice on risk
management and control and monitors the risk
management process the group’s internal audit
department has been reorganised with a dedicated
group director of internal audit appointed and
more resources made available to it in addition its
reporting lines have been changed and its
processes strengthened to provide an independent
review of severn trent water’s controls and
reporting new external auditors were appointed at
the annual general meeting in 2005
during the year the audit committee and the
board considered certain weaknesses in controls 
in particular on 31 october 2005 the group
announced that the serious fraud ofﬁce was
undertaking a criminal investigation into alleged
false reporting of leakage ﬁgures to ofwat by
severn trent water and that it is cooperating fully
with the serious fraud ofﬁce on 7 march 2006 the
conclusions of ofwat’s interim report concerning
allegations of false reporting made against severn
trent water in 2004 were accepted and on 7 april
2006 it was announced that the company was
giving ofwat an interim report into misreporting 
of customer relations data to address these issues
a thorough review of control processes in severn
trent water was embarked upon and substantial
action has already been taken to implement its
recommendations this work continues to improve
processes and behaviour as part of this deloitte
and touche conducted a review of key controls 
in the water company and substantially all their
recommendations have now been implemented
the remainder will be completed during this year
the directors conﬁrm that there is an ongoing
process for the identiﬁcation evaluation and
management of the signiﬁcant risks faced by the
group this process has been in place throughout
the year ended 31 march 2006 and up to the date
of approval of the annual report and accounts it
accords with the guidance in the report on guidance
on internal control the turnbull guidance 
governance
38 severn trent plc annual report and accounts 2006 governance
principal risks
through its business operations the group is
exposed to a number of commercial risks and
uncertainties which could have a material impact
on our businesses ﬁnancial condition operations
and reputation as well as the value and liquidity of
our securities not all of these factors are within our
control and in addition other factors besides those
listed below may have an adverse effect on the group 
in 200607 one of the most signiﬁcant risks that the
group faces will be to deliver the new comprehensive
strategy for the group which has at its core a
focused water company and therefore includes 
the demerger of biffa from the severn trent group
the delivery of this strategy will be a key focus 
of our risk management process in this context 
the following speciﬁc risks have been identiﬁed
changes in law or regulation in the areas in which
we operate could have an adverse effect on our
business and operations
regulatory decisions in relation to our businesses
eg on whether licences or approvals to operate are
renewed whether market developments have been
satisfactorily implemented on the level of
permitted revenues for our businesses whether
there has been any breach of the terms of a licence
or an approval could have an adverse impact on
the results of our operations cash ﬂows ﬁnancial
condition of our businesses and the ability to
develop those businesses in the future
the results of our operations depend on a number
of factors relating to business performance including
the ability to outperform regulatory targets and
deliver anticipated cost and efﬁciency savings
earnings from our regulated water business 
will be affected by our ability to meet or better 
our regulatory targets set by ofwat environment
agency drinking water inspectorate and other
regulators to meet these targets we must 
continue to improve management and operational
performance in addition earnings from a regulated
business also depend on meeting service quality
standards set by regulators to meet these standards
we must improve service reliability and customer
service if we do not meet these targets and
standards both our results and our reputation 
may be adversely affected
various government environmental protection and
health and safety laws and regulations govern our
businesses
these laws and regulations establish amongst other
things standards for drinking water and discharges
into the environment which affect our operations 
in addition our businesses are required to obtain
various environmental permissions from regulatory
agencies for their operation environmental laws
and regulations are complex and change
frequently these laws and their enforcement have
tended to become more stringent over time both in
relation to their requirements and in the levels of
proof required to demonstrate compliance and
while we believe we have taken account of the
future capital and operating expenditure necessary
to achieve and maintain compliance with current
and foreseeable changes in laws and regulations it
is possible that new or stricter standards could be
imposed or current interpretation of existing
legislation amended which will increase the
group’s operating costs or capital expenditure by
requiring changes and modiﬁcations to its
operations in order to comply with any new
environmental laws and regulations
the failure of our assets or our inability to carry
out critical operations could have a signiﬁcant
impact on our ﬁnancial position and our reputation
we may suffer a major failure in our assets which
could arise from a failure to deliver the capital
investment programme for our businesses or to
maintain the health of our systems any failure
could cause us to be in breach of a licence or
approval and even incidents that do not amount to
a breach could result in adverse regulatory action
and ﬁnancial consequences as well as harming our
reputation severn trent water’s regulated business
controls and operates water and sewerage networks
and undertakes maintenance of the associated
assets with the objective of providing a continuous
service the failure of a key asset could cause a
signiﬁcant interruption to the supply of services
which may have an adverse effect on the group’s
operating results or ﬁnancial position in addition
water supplies may inter alia be subject to
contamination including contamination from the
development of naturally occurring compounds
and pollution from manmade sources and these
may have an adverse effect on our operating
results or ﬁnancial position the group could also
be held liable for human exposure to hazardous
substances or other environmental damage
in addition we are subject to other risks which are
largely outside our control such as the energy costs
impact of climate change weather or unlawful acts
of third parties including terrorist attacks sabotage
or other intentional acts which may also physically
damage our business or otherwise signiﬁcantly
affect corporate activities and as a consequence
affect the results of our operations
external factors could affect the group’s pension
schemes and adversely impact on our ﬁnancial
position
pension assets and liabilities pre tax of £1403
million and £1625 million are held in the group’s
balance sheet as at 31 march 2006 movements in
equity markets interest rates and life expectancy
could materially affect the level of surpluses and
deﬁcits in the schemes and could prompt the 
need for the group to make additional pension
contributions in the future the key assumptions
used to value our pension liabilities are set out in
note 27 on page 85
the group’s ﬁnancial position and business results
could be adversely affected if its existing funding
arrangements are materially altered
the main risks faced by the group in its treasury
operations relate to material external changes to
current arrangements in the debt markets factors
such as borrowing restrictions or changes to credit
ratings could mean we were unable to ﬁnance
ourselves or be forced to pay too high a price for
that ﬁnance in terms of our borrowings a signiﬁcant
proportion is subject to variable interest rates and
any increase in those rates could substantially
increase our borrowing costs in addition we
undertake ﬁnancial transactions with a number of
institutions and we could suffer a ﬁnancial loss if
any of those counterparties were to fail 
severn trent plc annual report and accounts 2006  39 group chief 
executive
finance 
director
md 
st water
md 
biffa
president  
st laboratories
directors’ remuneration report
this report provides the information required by
the directors’ remuneration report regulations
2002 it also describes how the principles of the
financial services authority’s combined code on
corporate governance the ‘combined code’ are
applied by the company in relation to directors’
remuneration and sets out the remuneration policy
for the year ended 31 march 2006 and the current
and forthcoming ﬁnancial years 
remuneration committee
the remuneration committee determines 
on behalf of the board the company’s policy on
the remuneration of executive directors and the
chairman of the board the committee determines
the total remuneration packages and contractual
terms and conditions for these individuals the
committee is also consulted on the remuneration
policy for the next band of seven senior executives
the policy framework for remunerating all senior
executives is consistent with the approach taken 
for executive directors
the committee is comprised exclusively of
independent nonexecutive directors of the
company the members of the committee 
during the year were
 martin flower chairman
 marisa cassoni
 richard davey from 030306
 martin houston from 010905
 john mcadam until 010905
richard davey will become chairman of the
committee when martin flower retires from 
the board on 10 june 2006
the committee members have no personal
ﬁnancial interest other than as shareholders in the
matters to be decided the constitution and operation
of the committee comply with the combined code
in setting performance related remuneration the
committee has regard to the provisions set out in
schedule a to the combined code 
advisers
to ensure that the company’s remuneration
practices are market competitive the committee has
access to detailed external research on market data
and trends from experienced specialist consultants 
the committee has received material advice 
from new bridge street consultants llp hay
management consultants watson wyatt ltd and
pricewaterhousecoopers llp which have been
appointed by the committee for the purpose 
of providing this advice in relation to other 
services provided to the group watson wyatt 
ltd and pricewaterhousecoopers llp provided
pensions related advice each of watson wyatt ltd
pricewaterhousecoopers llp and hay management
consultants provides employee beneﬁts services
andor remuneration advice to the group below
board level new bridge street consultants llp 
the principal adviser to the committee has not
provided any other services to the company
the chairman of the board sir john egan the
group chief executive colin matthews the group
human resources director andy smith and the
group director of internal audit pramod tandon
also attended some meetings to provide advice and
respond to speciﬁc questions such attendances
speciﬁcally exclude any matter concerning their
own remuneration the company secretary acts 
as secretary to the committee 
the committee’s terms of reference can be viewed
on the company’s website at wwwseverntrentcom
or requested from the company secretary at the
address on the back cover the terms of
appointment for new bridge street consultants
llp are also available on request from the
company secretary
remuneration policy
the company’s continuing remuneration policy 
for executive directors is to provide remuneration 
in a form and amount which will attract retain
motivate and reward high calibre individuals the
remuneration package is based on the following
principles
 incentives are aligned with the interests of
shareholders and seek to reward the creation 
of long term value
 reward elements are designed to reinforce the
link between performance and reward
performance related elements should form a
signiﬁcant proportion of the total remuneration
package and typically comprise at least 50 of
total remuneration if paid at the maximum
 the total remuneration package for on target
performance should be fully competitive 
but not excessive in the relevant market
 packages are structured ﬂexibly to meet critical
resource needs and retain key executives
total remuneration package
the chart below shows the expected values of
salary bonus and longterm incentives for target
performance for the executive directors 
the committee considers the mix between 
ﬁxed and performance pay to be appropriate 
in respect of the managing director of biffa 
given the announced plan to demerge that
business and the president of st laboratories 
in view of the need to focus on a shortterm
turnaround of the us laboratories business all 
of their performance pay will be delivered through
annual bonus in 200607 although the overall 
split of ﬁxed to performance pay has not altered
materially
governance
40 severn trent plc annual report and accounts 2006
0 20 40 60 80 100
salary target bonus expected value of longterm incentives governance
personal shareholdings
the company operates shareholding guidelines
under which executive directors are expected to
build and maintain a minimum holding of shares 
in the company the group chief executive is
expected to build and maintain a holding of shares
to the value of 15 x base salary and other executive
directors 1 x base salary executive directors are
expected to retain at least half of the shares they
receive through the long term incentive plans 
or other share based plans to enable them to 
meet the guideline holdings within ﬁve years 
if insufﬁcient shares are awarded within ﬁve 
years then this timescale will be extended 
through a variety of share schemes all employees
are encouraged to hold shares in the company 
external directorships
executive directors are encouraged to take on
external nonexecutive directorships though
normally only one other ftse 100 appointment 
in order to avoid any conﬂicts of interest all such
appointments are subject to the approval of the
nominations committee executive directors are
normally only permitted to retain the fees arising
from one such appointment 
chairman and other nonexecutive directors
the remuneration policy for nonexecutive
directors other than the chairman is determined
by the board within the limits set out in the
articles of association
a review of the fees for the chairman and non
executive directors took place in march 2006 and
the fees that apply from 1 april 2006 are shown 
in the table above
during the year sir john egan was paid fees of
£215000 for his role as chairman this included
£16125 paid in the form of shares sir john is
provided with a company car but does not
participate in any of the company’s pension
arrangements share or bonus schemes
during the year martin flower was paid fees 
of £100000 for his role as deputy chairman 
this included £5000 paid in the form of shares
he does not participate in any of the company’s
pension arrangements share or bonus schemes 
or receive beneﬁts in kind his fees include 
the premiums for chairing the remuneration
committee and being senior independent 
nonexecutive director
nonexecutive directors are not eligible to participate
in incentive plans nor is any pension provision made
save for john smith whose total fees are paid
directly to his employer nonexecutive directors
receive payment of part of their fees in the form 
of shares in the company which are expected to 
be retained for the duration of their appointment 
the nonexecutive directors do not have service
contracts or consultancy agreements with any group
company but they do have letters of appointment
remuneration arrangements for executive directors
the remuneration arrangements for executive
directors comprise the following elements
 base salary and beneﬁts
 annual bonus plan
 long term incentive plans
 post retirement beneﬁts
details of each of the above elements are as follows
base salaries and beneﬁts
base salaries are a ﬁxed cash sum payable monthly
the company’s policy is to set the salary for each
executive director having regard to the market median
for similar roles in publicly quoted companies of a
comparable size and so far as practical undertaking
similar activities salaries for individual directors
are reviewed annually by the committee and
generally take effect on 1 april salaries are set with
reference to individual performance experience and
contribution together with developments in the
relevant employment market and internal relativities
executive directors’ salaries have recently been
reviewed for the ﬁnancial year 200607 other 
than in respect of martin bettington where given
the decision to demerge biffa the committee
concluded it was more appropriate to defer any
review until the terms of the demerger are ﬁnalised
with any new salary taking effect on demerger
they are as follows
director salary wef increase
april 06
martin bettington £325000 0
rachel brydon jannetta 385000 0
colin matthews £560000 77
michael mckeon £370000 0
appointed december 2005
tony wray £275000 11
role fee 200506 fee 200607
chairman £215000 per annum £230000 per annum
deputy chairman £100000 per annum £100000 per annum
senior independent nonexecutive director na £10000 per annum
nonexecutive director – base fee £30000 per annum £40000 per annum
chairman of board committee
– audit and remuneration committees £10000 per committee £15000 per committee
– other board committees £7500 per committee na
member of board committee
1
£3000 per committee £3000 per committee 
1
from 1 april 2006 no fees are paid for membership of the nominations committee
severn trent plc annual report and accounts 2006  41 directors’ remuneration report
continued
it should be noted that only two of the ﬁve
executive directors received an increase it is not
the committee’s policy to award increases in the
year of joining as an executive settles into their role
so michael mckeon received no increase while tony
wray received a slightly higher than normal level of
increase reﬂecting the time elapsed since joining
the company colin matthews’ increase largely
reﬂected the outcome of the review to position him
at the relevant market level given he has now held
the position of group chief executive for just over a
year rachel brydon jannetta’s salary was reviewed
but not increased in view of the ﬁnancial
performance of the laboratories business
in 200506 there were seven executives
immediately below board level who were paid
between £150000 and £250000 per annum 
salary £000 number of executives
150175 1
176200 4
201225 1
226250 1
the non salary beneﬁts for executive directors
comprise the use of company car or allowance
fuel private medical insurance life assurance and
an incapacity beneﬁts scheme private medical
insurance and some other beneﬁts may be ﬂexed
under the company’s ﬂexible beneﬁts scheme 
as they are ﬂexing within the same value of overall
package their individual choices are not reﬂected
in the table of directors’ emoluments on page 48
michael mckeon
as referred to above michael mckeon’s salary was
set at £370000 on joining the company and is 
not due to be reviewed again before april 2007
the other terms of his package are as follows
 his annual bonus opportunity was originally 
set at 60 of salary with the bonus for the
200506 ﬁnancial year being prorated to the
period employed he has no entitlement to 
any guaranteed bonus amount
 michael was entitled to an ltip award over
36405 shares on joining and to participate 
in the normal 2006 award however as the
company has been in a prohibited period 
since his date of joining it has not been
possible to make the initial award and it is
currently envisaged that he will receive the
initial award when the 2006 ltip awards are
made reﬂecting both commitments the terms
of that award will be consistent with the awards
to all other participants in next year’s directors’
remuneration report a detailed description of
the terms of the award will be included as it 
will exceed the normal limit under the ltip 
of 125 of salary 
 the company is also meeting the direct costs
associated with michael’s relocation and an
amount in respect of tax arising on the beneﬁt
£38137 in respect of this is included within the
table of directors’ emoluments on page 48 
having taken advice from new bridge street
consultants llp in structuring the package the
committee considers the package to be appropriate
annual bonus plan
executive directors are eligible for annual bonuses
to encourage improved performance measured by
reference to both ﬁnancial and non ﬁnancial
factors performance targets are established by the
committee to align executive directors’ interests
with shareholders and comprise proﬁtability plus
return on capital employed for martin bettington
the achievement of personal objectives and speciﬁc
targets relating to health and safety performance
annual bonus payments are not taken into account in
calculating executive directors’ pension entitlements 
given the outcome of the strategic review detailed
in the chairman’s statement on page 4 and the
demands the execution of the strategy will place
upon executives the committee has concluded that
it is appropriate to increase bonus opportunity to
broadly the mid point between ftse 100 and pure
water companies
the committee is also conscious that it may be
appropriate to modify the remuneration
arrangements again once the strategy review has
been fully implemented and it has notiﬁed
executives accordingly
in addition given the decision to demerge biffa
and the decision that us laboratories is non core
the committee does not consider it appropriate to
include the managing director of biffa and the
president of st laboratories within the annual
award of long term incentives accordingly in
respect of 200607 only their annual bonus
potential will be set at 150 of base salary the
committee considers that this has approximately
the same expected value as the combination of
historic annual bonus and ltip awards the
additional bonus potential will be focused on the
delivery of superior proﬁt growth which is
considered to be the most demonstrable way of
measuring the enhancement of shareholder value
in the forthcoming year and in the lead up to the
demerger
the maximum bonus potential for executive
directors is shown below 
200506 200607
martin bettington 75 150
rachel brydon jannetta 75 150
colin matthews 60 80
michael mckeon 60 70
mark wilson 50 –
tony wray 50 70
governance
42 severn trent plc annual report and accounts 2006 governance
it is not the committee’s policy to award transaction
related bonuses and there is no current intention 
to pay transaction related bonuses to any executive
director linked to the successful demerger of biffa
annual bonus – maximum value of bonus
elements as  of base salary
200506
max 
non      bonus 
director financial  ﬁnancial value
martin bettington 50 25 75
rachel brydon jannetta 50 25 75
colin matthews 40 20 60
michael mckeon 40 20 60
mark wilson 30 20 50
tony wray 33 17 50
200607
max 
non      bonus 
director financial  ﬁnancial value
martin bettington 100 50 150
rachel brydon jannetta 100 50 150
colin matthews 53 27 80
michael mckeon 47 23 70
tony wray 47 23 70
given the prime importance which the board and
the committee place on health and safety issues
the indicative bonus is then adjusted by a multiplier
based on health and safety performance but in all
cases subject to the overall bonus maximum
the maximum bonus payable to executives below
board level differs according to the businesses in
which they operate but in all cases are generally
no higher than the bonus opportunity enjoyed by
the executive director to whom they report
the committee considers that the performance
requirements are stretching the actual bonuses
awarded by the committee for the year ended 
31 march 2006 are shown in the table of directors’
emoluments on page 48 the following table shows
how the split of the bonuses paid in respect of the
year ended 31 march 2006 related to the targets
set at the start of the year as disclosed in last
year’s remuneration report
 
 salary
salary paid in
paid in respect health  
respect of of non safety overall
ﬁnancial ﬁnancial multiplier salary
director targets targets achieved achieved
martin bettington 95 14 075
1
1763
rachel brydon 
jannetta 0 9 15 135
colin matthews 32 18 1
1
50
michael mckeon 32 20 131 60
mark wilson
2
na na na 50
tony wray 15 8 15 35
1
the remuneration committee reduced the multiplier from
15 to 075 for martin bettington as a result of their
assessment of biffa’s overall safety performance similarly
colin matthews was restricted from 131 to 1 given 
his ultimate responsibility for safety across the group
2
mark wilson’s bonus was paid based upon delivery of key
objectives agreed with him as part of his termination package
long term incentives
at the 2005 annual general meeting shareholders
approved the introduction of the long term
incentive plan 2005 ltip 2005 which replaced
the 1997 long term incentive plan under the ltip
2005 annual conditional awards of performance
shares may be made to executive directors and
senior staff up to an annual maximum limit of
shares worth 125 of base salary in 2005 the
group chief executive received an award over
shares worth 100 of salary with other executive
directors and senior staff receiving lower awards 
in 2006 it is proposed that the group chief
executive receives an award of shares worth 
125 of base salary with other executive directors
receiving up to 100 other than the managing
director of biffa and president of st laboratories
who as explained in the section headed annual
bonus plan will not receive any award in 2006 
the number of shares subject to an award will
increase to reﬂect dividends paid through the
performance period on the basis of such notional
dividends being reinvested at the then prevailing
share price awards will normally vest as soon 
as the committee determines that the performance
conditions have been met provided that the
participant remains in employment at the end 
of the performance period 
severn trent plc annual report and accounts 2006  43 220
200
180
160
140
120
100
80
60
40
20
0
severn trent plc ftse 100 index
directors’ remuneration report
continued
governance
44 severn trent plc annual report and accounts 2006
value £
2005 ltip awards
in respect of awards made to executive directors 
in 2005 the vesting of 50 is dependent on
performance against group economic proﬁt ep
targets and the remaining 50 is dependent on 
a total shareholder return tsr target both over
a ﬁxed three year period beginning on the ﬁrst day
of the ﬁnancial year in which the award was made
there is no retesting of either condition the ep
targets relate in the case of below board level
executives in the operating businesses to the ep 
of their speciﬁc business 
these conditions were chosen because the
committee considered ep to be a key driver of
severn trent’s ﬁnancial performance whilst tsr
was considered to be the most appropriate means
of aligning the interests of the executives with
investors through generating superior shareholder
returns 
for median tsrthreshold ep levels of
performance 25 of that part of the award will
vest and for upper quartile tsr stretch ep levels
of performance 100 of that part of the award will
vest vesting between 25 and 100 will be on a
straightline basis between ranking points for both
parts of the award in addition for awards to vest
the committee must verify that the company’s 
tsr is reﬂective of the company’s underlying
performance
for the half of the award which is dependent 
on ep targets the approach for setting the
performance conditions was discussed with key
institutional investors who acknowledged that 
due to the commercially sensitive nature of the 
ep performance conditions it was not appropriate
for them to be publicly disseminated 
the committee has conﬁrmed that the minimum
threshold level of vesting in respect of the water
business over the ﬁve year cycle will not be lower
than that implied in the most recently published
ofwat determination the maximum level of vesting
was set at a level which is in the view of the
committee comparably stretching to the upper
quartile tsr condition
for those executives below board level in the 
nonwater core subsidiaries 75 of their 
awards were set by reference to ep targets 
the extent to which the ep performance condition
is satisﬁed will be calculated internally but as with
the previous ltip independently reviewed
the tsr comparator group comprises water 
and waste companies and ftse 100 high 
yield companies excluding ﬁnancial and retail
companies or other sectors which might result 
in an undue bias in the sample ‘high yield’ was
deﬁned as companies which had an average gross
yield that was greater than base rate minus 075
in the calendar month preceding the start of the
performance period and their use as comparators
recognises the fact that at least in part
shareholders choose to invest in the company 
for the dividend income it produces 
after the end of the performance period the tsr
performance condition will be measured and
independently veriﬁed by new bridge street
consultants llp on behalf of the committee
the constituents of the tsr comparator group for
the 2005 award are
awg pennon group
boc group rentokil initial
bt group scottish  newcastle
diageo scot  southern energy
kelda group scottish power
national grid shanks group
northumbrian water unilever
pearson united utilities
2006 ltip awards
the committee considers that given the outcome
of the strategic review of the group’s operations 
tsr will more clearly represent an alignment of
executives’ interests with those of shareholders 
the awards to be made in 2006 therefore 
will be based exclusively on tsr
the committee intends to use a similar methodology
for selecting the comparator group as it did for 
the 2005 awards again the committee will review
the proposed constituents before making any
award to ensure that overall they are appropriate
calculation of ep performance during transition to
international financial reporting standard ifrs
for unvested awards made prior to 2006 the basis
for measuring the proﬁts that underpin the ep
calculation was set under uk gaap whereas the
end of the performance period will be reported
under ifrs the committee has restated the 
base conditions for the 2005 awards under 
ifrs to ensure that the targets are measured 
on a consistent basis and as originally intended
the 2003 and 2004 awards will continue to be
measured and set on a uk gaap basis given the
difﬁculty in restating the base ﬁgures and the
committee will ensure that the end ﬁgures are
measured consistently
performance graph
this graph shows the value by 31 march 2006 
of £100 invested in severn trent plc on 31 march
2001 compared with the value of £100 invested 
in the ftse 100 index the ftse 100 was chosen
as the comparator because the company is a
constituent of that index 
total shareholder return
310301     310302     310303     310304     310305     310306 governance
hedging policy for employee share incentive
schemes
details of the company’s shares that are held in
trust on behalf of participants of certain of the
employee share schemes are given on page 89 in
respect of the ltips the company’s hedging policy
is to purchase and hold in trust 50 of the total
number of shares that could potentially vest from
all outstanding ltip awards the requirement to
purchase shares to maintain the 50 hedge is
calculated and carried out shortly after each
annual award 
awards made under the company’s share incentive
plan have no attached performance condition and
all of the shares taken up by employees at each
invitation are purchased and placed in trust
immediately 
the committee is satisﬁed that the overall dilution
limits provide sufﬁcient headroom for all the
company’s share schemes
post retirement beneﬁts
of the current executive directors martin bettington
colin matthews and tony wray participate in the
senior staff pension scheme as did mark wilson
prior to his departure the scheme is a funded
inland revenue approved ﬁnal salary occupational
pension scheme which provides
 a normal retirement age of 60 years
 an overall pension at normal retirement age 
of twothirds of ﬁnal pensionable salary which
for executive directors is deﬁned as base salary
only subject to the completion of 20 years’
pensionable service
 life cover of 4 x pensionable earnings
 a pension payable in the event of retirement on
grounds of ill health
 a dependant’s pension on death of two thirds of
the member’s pension
colin matthews and tony wray participate up to
the level of the inland revenue earnings cap “the
cap” which in 200506 was £105600 in 200607
a scheme speciﬁc cap of £108600 will apply 
members’ contributions are payable at the rate 
of 6 of pensionable earnings early retirement 
is available after the age of 50 with the consent of
the company any pension would be subject to a
reduction that the trustee considers appropriate
acting on actuarial advice to reﬂect the expected
longer payment of the pension in the event of
incapacity early retirement is available on an
unreduced basis allowing for pensionable service 
to age 60
under the trust deed and rules pensions in
payment in excess of any guaranteed minimum
pension are guaranteed to increase in line with
price inﬂation subject to a maximum of 5 each
year in the calculation of individual cash equivalent
transfer values allowance is made for such
increases
the company has a future obligation in respect of
mark wilson who joined the scheme after 1 june
1989 and was therefore subject to the cap to pay
the difference between his pension entitlement
based upon the relevant portion of his salary 
and the maximum amount payable had the cap
not been in place the obligation is unfunded 
having taken account of the new tax regime the
remuneration committee allowed partial roll in of
unfunded arrangements into the funded scheme
there is no additional cost to the company
the current service cost charged to the income
statement in the year for the future unfunded
obligation was £325000
as disclosed in last year’s remuneration report 
the company has reviewed its pension policy for
directors and employees as a result of the pensions
act 2004 finance act 2004 and the results of 
the triennial valuation of two of its main schemes
during 2004 as a result of this review new
executives are offered an allowance expressed 
as a percentage of base salary to fund their own
pension provision the individual is able to choose
whether the allowance is paid to the company’s
registered deﬁned contribution dc scheme taken
as cash or paid to a personal pension arrangement
this reﬂects the wish of the committee to remove
future exposure to deﬁned beneﬁt schemes for
senior executives
the new arrangements were applied for michael
mckeon’s appointment at 40 of base salary 
in addition in order to align executive director
pension provision rachel brydon jannetta chose 
to become a deferred member of the severn trent
pension scheme from 1 december 2005 and was
provided with a cash allowance in lieu of pension
scheme membership applied at 40 of base salary
colin matthews and tony wray are also provided 
with a cash supplement in lieu of the unfunded
arrangement at 40 of their respective salaries
above the cap
forward looking statement
the committee will keep the existing remuneration
arrangements as detailed in this report under
review during the next year to ensure that the
company’s reward programmes remain competitive
and provide appropriate incentives no signiﬁcant
changes to the reward arrangements for executive
directors are anticipated prior to the completion
and implementation of the strategic review and the
committee proposes to review the arrangements
again at that time
however there will be the normal individual reviews
of base salary annual bonus and ltip award levels
the performance targets for incentive arrangements
will continue to be reviewed to ensure alignment
with group strategy and will maintain a signiﬁcant
emphasis on the achievement of health and safety
performance targets 
severn trent plc annual report and accounts 2006  45 directors’ remuneration report
continued
governance
46 severn trent plc annual report and accounts 2006
directors’ service agreements and letters of engagement
a new model service contract was approved by the committee in 2004 all current executive directors have
signed the model contract and accordingly service agreements for all executive directors have notice
periods of 12 months they also provide for a maximum damages payment in the case of redundancy 
or termination in breach of the agreement by the company of up to 175 of base salary which was
calculated as a conservative preestimate of the value of salary ﬁxed beneﬁts and on target bonus
the reference to 175 is a cap and any damages payments will not be made automatically but will 
be subject to both phasing and mitigation unless in the circumstances the committee considers it
appropriate to achieve a clean break through payment of a lump sum in which case it will require some
discount for early payment contracts also permit the committee to take into account a view of the extent
of poor performance on the part of the executive director any payment will not include amounts in
respect of awards which have been made under the company’s ltips over which the committee retains
discretion there are no speciﬁc contractual payments or beneﬁts which would be triggered in the event 
of a change in control of the company the committee believes that the contracts provide as much scope
as is feasible to protect the interests of shareholders when negotiating a termination at which time it
would address the duty of mitigation
the service contract for rachel brydon jannetta who is based in the us and employed by a us
subsidiary is in the same format as for other executive directors but modiﬁed to reﬂect prevailing 
us employment legislation
the dates of the current executive directors’ agreements the dates on which their appointments 
became effective and the current expiry dates of their agreements are as follows
executive directors date of agreement effective date expiry date
martin bettington 10 june 2004 10 june 2004 terminable on 12 months’ notice
rachel brydon jannetta 30 june 2004 1 september 2004 terminable on 12 months’ notice
colin matthews 3 june 2004 6 september 2004 terminable on 12 months’ notice
michael mckeon 6 december 2005 13 december 2005 terminable on 12 months’ notice
tony wray 19 january 2005 7 march 2005 terminable on 12 months’ notice
colin matthews and michael mckeon are the subject of reappointment as executive directors at the
forthcoming agm
details for the executive director who retired from the board during the year are as follows
executive director date of agreement effective date expiry date
mark wilson 5 may 2004 1 september 2004 terminated on 31 december 2005
mark wilson retired from the board on 13 december 2005 and his employment was terminated 
by mutual consent on 31 december 2005 with the original decision to terminate having been announced
in july 2005 mark agreed to remain actively employed while a successor was found and he remained 
in full time employment until 31 december 2005 and received a bonus prorated for the period employed  his termination package therefore reﬂected loss of earnings under the contract for the balance of the
notice period approximately ﬁve months in view of his continued commitment over this period the
committee agreed to pay his termination payment on a lump sum basis rather than on a phased monthly
basis but reduced the payment by 10 to reﬂect mitigation further given that mark worked for a majority
of his notice period the committee concluded in the circumstances that it should treat him as a good
leaver under the ltip in respect of the 2003 and 2004 awards so the awards would continue to normal
maturity with the performance conditions assessed at that time although the committee may conclude
that it is not necessary to then reduce the 2004 award on a prorata basis there will be no prorating 
of the 2003 award in any event however given the period between his departure and the making of 
the 2005 award the committee did not exercise its discretion and that award lapsed on his departure 
payments to mark are detailed in the table of directors’ emoluments on page 48 he received a total
termination payment of £299095 as disclosed in that table no cash contribution to his pension scheme
was required no further payments in terms of salary pay in lieu of notice bonus or beneﬁts in kind were
or will be made he has no further contractual or consultancy arrangements with the company and has no
personal interest in the company other than as a deferred pension scheme member and as a shareholder
in respect of the chairman and current nonexecutive directors the dates on which their appointments
took effect and the current expiry dates are as follows
chairman and 
nonexecutive directors initial appointment current appointment current expiry date
sir john egan 1 october 2004 1 october 2004 31 december 2007
bernard bulkin 1 january 2006 1 january 2006 31 december 2008
marisa cassoni 1 september 2001 1 september 2004 31 august 2007
richard davey 1 january 2006 1 january 2006 31 december 2008
martin flower 11 june 1996 11 june 2005 10 june 2006
martin houston 1 september 2003 1 september 2003 31 august 2006
john smith 3 november 2003 3 november 2003 2 november 2006
subject to the requirements of the company’s articles of association for the reappointment of directors at 
annual general meetings
details for the nonexecutive directors who retired from the board during the year are as follows
nonexecutive directors initial appointment last appointment date retired
john mcadam 18 september 2000 18 september 2003 1 september 2005
derek osborn 21 september 1998 21 september 2005 31 march 2006
it is the normal practice of the company for nonexecutive directors to serve three threeyear terms 
nonexecutive directors have no right to compensation on the early termination of their appointments
the text and tables that follow comprise the auditable part of the directors’ remuneration report 
being the information required by part 3 of schedule 7a to the companies act 1985
governance
severn trent plc annual report and accounts 2006  47 directors’ remuneration report
continued
directors’ emoluments
basic salary and fees
1
beneﬁts annual total total 
cash shares total in kind
2
bonus other
3
200506 200405
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
chairman and other 
nonexecutive directors
david arculus ––––––– 1422
chairman – retired 311204
sir john egan 1989 161 2150 26 – – 2176 621
chairman – appointed 011004
4
marisa cassoni 364 19 383 – – 08 391 424
martin flower 950 50 1000 – – 12 1012 902
martin houston 324 16 340––– 340 308
colin matthews
5
––––––– 134
john mcadam retired 010905 151 – 151 – – 06 157 355
derek osborn retired 310306 413 22 435––– 435 528
john smith
6
400 – 400––– 400 438
bernard bulkin appointed 010106 83 – 83––– 83 –
richard davey appointed 010106 83 – 83––– 83 –
executive directors
john banyard retired 301204 ––––––– 2510
martin bettington 3250 – 3250 272 573 02 4097 5196
rachel brydon jannetta 2155 – 2155 90 294 768 3307 1376
brian duckworth retired 310804 ––––––– 1823
colin matthews
5
5200 – 5200 100 2600 1838 9738 5341
alan perelman retired 310804 ––––––– 2486
robert walker retired 020205 ––––––– 7082
mark wilson retired 131205 2063 – 2063 171 1036 3234 6504 2033
tony wray 2500 – 2500 166 875 612 4153 231
michael mckeon 1121 – 1121 07 648 873 2649 –
appointed 131205
total emoluments 21046 268 21314 832 6026 7353 35525 33210
1
included within fees for the nonexecutive directors are amounts to be received by way of shares rather than emoluments 
to encourage participation in line with corporate governance best practice the gross value of shares is recorded in the table
above nonexecutive directors who were either appointed or retired during the year received a time apportioned award 
the number of shares received by each nonexecutive director was 
 sir john egan – 1253 marisa cassoni – 106 martin flower – 290 martin houston – 90 derek osborn – 163
2
beneﬁts in kind for sir john egan comprise the use of a company car beneﬁts in kind for executive directors comprise 
the use of a company car fuel private medical insurance life assurance and an incapacity beneﬁts scheme
3
other emoluments represent expenses chargeable to uk income tax car allowances ﬂexible beneﬁts and amounts in lieu 
of pension contributions or in lieu of entry into the supplementary pension scheme for those earning earning above the 
pension cap limit included in other emoluments are
 rachel brydon jannetta – cash allowance of £76752 in lieu of pension contributions
 colin matthews – cash payment of £165760 in lieu of entry to supplementary pension scheme
 michael mckeon – relocation expenses of £38137 and a cash allowance in lieu of pension allowance of £44594
 mark wilson – £299095 of termination payments and £24327 for holiday not taken 
 tony wray – cash payment of £57760 in lieu of entry to the supplementary pension scheme 
4
sir john egan was appointed chairman from 1 january 2005
5
colin matthews was appointed group chief executive designate on 6 september 2004 and group chief executive on 
1 february 2005
6
john smith’s total fees are paid directly to his employer
governance
48 severn trent plc annual report and accounts 2006 governance
directors’ pension provisions
the disclosure of pension beneﬁts is made under the requirements of the listing rules of the uk listing
authority the “rules” and also the requirements of the directors’ remuneration report regulations 2002
the “regulations” these are shown in separate tables below
the rules require information to cover the period during which a director was a board member whilst the
regulations require information to cover the ﬁnancial year the information below sets out the disclosures
required by the regulations
increase
increase decrease
service in accrued in transfer 
completed increase pension transfer transfer value
in years in accrued during value of  value of over the 
including accrued pension the year accrued accrued year net 
transferred pension at during net of pension at pension at of directors’
in service 310306 the year inﬂation
1
310306
2
310305
2
contributions
credits £pa £pa £pa £000 £000 £000
martin bettington 24 166715 15193 11102 23813 19173 4445
rachel brydon jannetta 14 25107 2155 1536 1450 1844 403
colin matthews 1 5503 3575 3523 623 194 365
mark wilson 10 92590 24219 22373 9673 6412 3198
tony wray 1 3749 3525 3519 312 17 231
the information below sets out the disclosures required by the rules
transfer 
increase in value of increase 
increase in accrued pension in accrued beneﬁts 
accrued pension accrued pension during the year net of directors’ 
at 310306 during the year net of inﬂation
1
contributions
2
£pa £pa £pa £000
martin bettington 166715 15193 11102 1975
rachel brydon jannetta 25107 2155 1536 116
colin matthews 5503 3575 3523 341
mark wilson 92590 24219 22373 2467
tony wray 3749 3525 3519 230
1
inﬂation over the year is measured by reference to the increase in the retail price index between march 2005 or the month 
prior to appointment and march 2006 or the earlier date of leaving
2
the transfer values have been calculated in accordance with actuarial guidance note gn11 published by the institute of 
actuaries and faculty of actuaries
the pensions shown above will be provided through the severn trent senior staff pension scheme 
the severn trent supplemental pension scheme and the severn trent pension scheme 
severn trent plc annual report and accounts 2006  49 directors’ remuneration report
continued
beneﬁcial holdings
the directors of the company at 31 march 2006 and their beneﬁcial interests in the shares of the
company were as follows
i beneﬁcial holdings
at 1 april 2005
or subsequent
date of appointment at 31 march 2006 at 5 june 2006
number of number of number of
ordinary shares of ordinary shares of ordinary shares of 
65 519p each 65 519p each 65 519p each
chairman and other nonexecutive directors
sir john egan chairman 6035 7288 7288
bernard bulkin – – –
marisa cassoni 814 920 920
richard davey – – –
martin flower 2073 2363 2363
martin houston 1313 1403 1403
john smith – – –
executive directors
martin bettington 24405 40883 40883
rachel brydon jannetta 20032 36114 36114
colin matthews 1034 1059 1059
michael mckeon – – –
tony wray – – –
rachel brydon jannetta martin bettington colin matthews and tony wray have further interests in the
company’s ordinary shares of 65
5
⁄ 19p each by virtue of having received contingent awards of shares under
the severn trent plc long term incentive plans the ‘ltips’ on 13 august 2003 15 december 2004 and 
5 september 2005 
the ltips operate on a three year rolling basis the severn trent employee share ownership trust is
operated in conjunction with the ltips awards do not vest until they have been held in trust for three
years and speciﬁc performance criteria have been satisﬁed 
the performance criteria are speciﬁc to each award the details of performance criteria for the 2005 
and 2006 awards are explained on page 44 for the 2003 award the comparator group consists of 
awg plc kelda plc pennon group plc shanks plc united utilities plc northumbrian water plc and 
waste recycling group plc the same comparator group minus waste recycling group plc was used 
for the 2004 award
the 2003 and 2004 ltip awards will be triggered if the company’s tsr performance is at the median 
or above and the ep meets the scaled targets set ep is calculated by reference to a post tax rate of 
return of 75
governance
50 severn trent plc annual report and accounts 2006 governance
the individual interests for the named directors and for the directors who left during the year which
represent the maximum aggregate number of shares to which each individual could become entitled 
are as follows
at 1 april 2005 at 31 march
or subsequent 2006 or
date of earlier date
appointment of leaving
number market number 
of ordinary awards market price awards of ordinary
shares of vested price gain on awarded at time lapsed shares of 
65 519p during at time of vesting during of 2005   during 65 519p 
each year vesting p £000 year award p year each
martin bettington 82020 27888 102975 2872 23333 1017 – 77465
rachel brydon jannetta 54369 16282 102975 1677 7935 1017 – 46022
colin matthews 52600 – – – 53333 1017 – 105933
mark wilson 43339 11952 102975 1231 19743 1017 19743 31387
tony wray – – – – 17948 1017 – 17948
the awards that vested during the year were awarded on 24 september 2002 at a market price of 5985p
no further awards have been made under the ltips as at 5 june 2006
the performance period for allocations of shares made in 2003 ended on 31 march 2006 the
remuneration committee has subsequently determined based on the company’s total shareholder
return over the three year performance period that participants are not entitled to an award 
there has been no change in directors’ interests between 31 march 2006 and the date of this report
ii options over ordinary shares
at 
the start
of the
year or at the 
subsequent end of the 
date of exercised cancelled granted year or
appoint during during during earlier date
ment the year the year the year of leaving year date 
no of no of no of no of no of of grant exercise from which
shares shares shares shares shares of option price p exercisable expiry date
sharesave
1
martin bettington 1248 – – – 1248 2005 759 may 2008 oct 2008
mark wilson 3020 – – – 3020 2002 548 jan 2006 jun 2006
1
the executive directors in common with all eligible uk employees of the group are entitled to participate in the company’s
inland revenue approved sharesave scheme the terms and conditions applicable to these options are those provided in that
scheme the options have no performance conditions as such conditions are not permitted by legislation
2
no executive share options in respect of executive directors were granted or lapsed during the year 
at 31 march 2006 there were 145 other executives participating in the group’s share option scheme 2005 181
3
at the close of business on 31 march 2006 the midmarket price of the company’s shares was 1117p 31 march 2005 915p
and the range during the year was 916
1
⁄ 2p to 1183p
signed on behalf of the board who approved the directors’ remuneration report on 5 june 2006
martin flower
chairman of the remuneration committee
severn trent plc annual report and accounts 2006  51 independent auditors’ report to the members of severn trent plc
we have audited the group ﬁnancial statements of severn trent plc for the year ended 31 march 2006 which comprise the consolidated
income statement the consolidated balance sheet the consolidated cash ﬂow statement the consolidated statement of recognised income and
expense and the related notes 1 to 41 these group ﬁnancial statements have been prepared under the accounting policies set out therein we
have also audited the information in the directors’ remuneration report that is described as having been audited 
we have reported separately on the individual company ﬁnancial statements of severn trent plc for the year ended 31 march 2006
this report is made solely to the company’s members as a body in accordance with section 235 of the companies act 1985 our audit work
has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report
and for no other purpose to the fullest extent permitted by law we do not accept or assume responsibility to anyone other than the company
and the company’s members as a body for our audit work for this report or for the opinions we have formed
respective responsibilities of directors and auditors
the directors’ responsibilities for preparing the annual report the directors’ remuneration report and the group ﬁnancial statements in
accordance with applicable law and international financial reporting standards ifrss as adopted for use in the european union are set out
in the directors’ responsibilities statement
our responsibility is to audit the group ﬁnancial statements and the part of the directors’ remuneration report described as having been
audited in accordance with relevant united kingdom legal and regulatory requirements and international standards on auditing uk and
ireland 
we report to you our opinion as to whether the group ﬁnancial statements give a true and fair view in accordance with the relevant ﬁnancial
reporting framework and whether the group ﬁnancial statements and the part of the directors’ remuneration report described as having been
audited have been properly prepared in accordance with the companies act 1985 and article 4 of the ias regulation we report to you
whether in our opinion the information given in the directors’ report is consistent with the group ﬁnancial statements we also report to you if
we have not received all the information and explanations we require for our audit or if information speciﬁed by law regarding directors’
transactions with the company and other members of the group is not disclosed
we also report to you if in our opinion the company has not complied with any of the four directors’ remuneration disclosure requirements
speciﬁed for our review by the listing rules of the financial services authority these comprise the amount of each element in the
remuneration package and information on share options details of long term incentive schemes and money purchase and deﬁned beneﬁt
schemes we give a statement to the extent possible of details of any noncompliance
we review whether the corporate governance statement reﬂects the company’s compliance with the nine provisions of the 2003 frc
combined code speciﬁed for our review by the listing rules of the financial services authority and we report if it does not we are not
required to consider whether the board’s statement on internal control covers all risks and controls or form an opinion on the effectiveness of
the group’s corporate governance procedures or its risk and control procedures
we read the other information contained in the annual report for the above year as described in the contents section including the unaudited
part of the directors’ remuneration report and we consider the implications for our report if we become aware of any apparent misstatements
or material inconsistencies with the group ﬁnancial statements 
basis of audit opinion
we conducted our audit in accordance with international standards on auditing uk and ireland issued by the auditing practices board an
audit includes examination on a test basis of evidence relevant to the amounts and disclosures in the group ﬁnancial statements and the part
of the directors’ remuneration report described as having been audited it also includes an assessment of the signiﬁcant estimates and
judgements made by the directors in the preparation of the group ﬁnancial statements and of whether the accounting policies are appropriate
to the company’s circumstances consistently applied and adequately disclosed
we planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide
us with sufﬁcient evidence to give reasonable assurance that the group ﬁnancial statements and the part of the directors’ remuneration report
described as having been audited are free from material misstatement whether caused by fraud or other irregularity or error in forming our
opinion we also evaluated the overall adequacy of the presentation of information in the group ﬁnancial statements and the part of the
directors’ remuneration report described as having been audited
opinion
in our opinion
 the group ﬁnancial statements give a true and fair view in accordance with ifrss as adopted for use in the european union of the state of
the group’s affairs as at 31 march 2006 and of its proﬁt for the year then ended and
 the group ﬁnancial statements and the part of the directors’ remuneration report described as having been audited have been properly
prepared in accordance with the companies act 1985 and article 4 of the ias regulation and
 the information given in the directors’ report is consistent with the group ﬁnancial statements
deloitte  touche llp
chartered accountants and registered auditors
london
united kingdom
5 june 2006
group ﬁnancial statements
52 severn trent plc annual report and accounts 2006 consolidated income statement
year ended 31 march 2006
group ﬁnancial statements
2006 2005
notes £m £m
turnover 4 5 22950 20144
operating costs before exceptional items 18068 16156
exceptional restructuring costs and termination of operations 7 79 142
exceptional demerger costs 7 78 –
exceptional proﬁt on disposal of property and investments 7 – 119 
total operating costs 6 18225 16179 
proﬁt before interest tax and exceptional items 4882 3988
exceptional items 7 157 23 
operating proﬁt 4 4725 3965 
finance income 9 79 35 
finance costs 9 1758 1730 
net ﬁnance costs before fair value movements on treasury instruments 9 1679 1695 
fair value movements on treasury instruments 9 367 – 
total net ﬁnance costs 9 2046 1695 
share of results of associates and joint ventures 41718 21 18 
proﬁt before tax fair value movements on treasury instruments and exceptional items 3224 2311
exceptional items 7 157 23 
fair value movements on treasury instruments 9 367 –
proﬁt on ordinary activities before taxation 2700 2288 
taxation on proﬁt on ordinary activities – current tax 10 487 379 
– deferred tax 10 60 336 
total taxation 10 427 715 
proﬁt for the period from continuing operations 2273 1573 
discontinued operations
lossproﬁt for the period from discontinued operations 11 43 08
proﬁt for the period 2230 1581 
attributable to
equity holders of the company 2216 1574 
equity minority interests 14 07 
2230 1581 
earnings per share pence
from continuing operations
basic 13 652 454 
diluted 13 647 451 
from continuing and discontinued operations
basic 13 639 457 
diluted 13 635 453 
severn trent plc annual report and accounts 2006  53 consolidated balance sheet
at 31 march 2006
notes 2006 2005
£m £m
non current assets
goodwill 14 5063 4991 
other intangible assets 15 1124 1258 
property plant and equipment 16 57431 56394 
interests in joint ventures 17 97 95 
interests in associates 18 196 163 
derivative ﬁnancial instruments 19 37 –   
available for sale ﬁnancial assets 20 05 07 
63953 62908 
current assets
inventory 21 544 660 
trade and other receivables 22 4815 4925 
derivative ﬁnancial instruments 19 108 –   
cash and cash equivalents 23 1426 908
6893 6493 
assets held for sale 11 415 –
total assets 71261 69401 
current liabilities
borrowings 24 8082 4865
derivative ﬁnancial instruments 19 1144 –   
trade and other payables 25 5406 5780
current income tax liabilities 488 696
provisions for other liabilities and charges 27 301 322
liabilities directly associated with assets classiﬁed as held for sale 11 285 –
15706 11663
noncurrent liabilities
borrowings 24 22955 24989
derivative ﬁnancial instruments 19 301 –   
trade and other payables 25 1587 1292
deferred tax liabilities 26 8702 8881
retirement beneﬁt obligations 27 2219 3175
provisions for other liabilities and charges 28 801 906
36565 39243
total liabilities 52271 50906
net assets 18990 18495 
capital and reserves attributable to the company’s equity shareholders
called up share capital 29 2272 2258
share premium account 30 486 384
other reserves 31 4324 4673
retained earnings 32 11882 11161
equity attributable to the company’s equity shareholders 32 18964 18476 
minority interests 32 26 19 
total equity 32 18990 18495 
signed on behalf of the board who approved the accounts on 5 june 2006
sir john egan michael mckeon
chairman group finance director
group ﬁnancial statements
54 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  55
consolidated cash ﬂow statement
year ended 31 march 2006
2006 2005
notes £m £m
cash generated from operations 35 7589 6233 
interest paid 1394 1363
interest element of ﬁnance lease rental payments 451 168
tax paid 683 365
net cash generated from operating activities 5061 4337 
investing activities
interest received 44 20 
dividends received from associates and joint ventures 27 35 
net loans advanced to associates and joint ventures 23 18
net cash inﬂow from available for sale ﬁxed asset investments 02 14 
acquisition of subsidiaries net of cash acquired 03 31
proceeds on disposal of subsidiary 16 –
proceeds on disposal of associate – 65 
proceeds on disposal of property plant and equipment 84 156 
purchases of intangible assets 296 342
purchases of property plant and equipment 4075 4178
contributions and grants received 328 300 
net cash used in investing activities 3896 3979 
financing activities
dividends paid to shareholders of the parent 2343 1620
dividends paid to minority interests 08 06
repayments of borrowings 5002 4424
receipts from sale and lease back transactions 1702 –
repayment of obligations under ﬁnance leases 1677 81
new loans raised 6488 5566
purchases of own shares – 41
issue of shares 116 55 
net cash used in ﬁnancing activities 724 551 
increasedecrease in cash and cash equivalents 441 193 
net cash and cash equivalents at beginning of the period 644 832 
effect of foreign exchange rates 19 05 
net cash and cash equivalents at the end of the period 35 1104 644
net cash and cash equivalents comprise
cash and cash equivalents 35 1426 908 
bank overdrafts 35 322 264
net cash and cash equivalents at the end of the period 35 1104 644 consolidated statement of recognised income and expense
year ended 31 march 2006
2006 2005
notes £m £m
losses on cash ﬂow hedges taken to equity 03 –    
exchange movement on translation of overseas results and net assets 216 36
exchange differences on hedges of net investment 53 08 
tax on exchange differences on foreign currency hedging 18 02
actuarial gains on deﬁned beneﬁt pension schemes 263 432 
deferred tax on items posted directly to equity 80 130
net income recognised directly in equity 3031 367 272 
transfers
transfers to income statement on cashﬂow hedge 45 –
deferred tax on transfers to income statement 14 –
proﬁt for the period 2230 1581
total recognised income and expense for the period 2628 1853 
attributable to
equity holders of the parent 2614 1846 
minority interest 14 07 
total recognised income and expense for the period 2628 1853 
change in accounting policy on adoption of ias32 and ias39 
all attributable to equity holders of the parent 3132 578 –   
group ﬁnancial statements
56 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  57
notes to the group ﬁnancial statements
1 general information
the severn trent group has a number of operations these are described in the segmental analysis in note 4
severn trent plc is a company incorporated and domiciled in the united kingdom the address of its registered ofﬁce is shown on the back
of the cover of the annual report and accounts
severn trent plc is listed on the london stock exchange
2 accounting policies
a basis of preparation
the ﬁnancial statements have been prepared in accordance with international financial reporting standards ifrs international
accounting standards ias and ifric interpretations issued and effective and ratiﬁed by the european union as at 31 march 2006 
and those parts of the companies act 1985 applicable to companies reporting under ifrs as adopted by the european union 
the ﬁnancial statements have been prepared under the historical cost convention as modiﬁed by the revaluation of ﬁnancial assets and
liabilities including derivative instruments at fair value through proﬁt and loss
the preparation of ﬁnancial statements in conformity with ifrs requires the use of estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the ﬁnancial statements and the reported amount of revenues and expenses for the
reporting period although these estimates are based on management’s best knowledge of the amount event or actions actual results 
may ultimately differ from those estimates
b first time adoption of ifrs
the group’s date of transition to ifrs is 1 april 2004 and all comparative information in the ﬁnancial statements has been restated to
reﬂect the group’s adoption of ifrs except where otherwise required or permitted by international financial reporting standard 1 – 
‘first time adoption of international financial reporting standards’ ifrs 1 details of this transition are given in note 41
ifrs 1 requires an entity to comply with each ifrs effective at the reporting date for its ﬁrst ifrs ﬁnancial statements as a general principle
ifrs 1 requires the standards effective at the reporting date to be applied retrospectively however retrospective application is prohibited in
some areas in addition there are a number of optional exemptions from full retrospective application of ifrss within ifrs 1
group policy on optional ifrs 1 exemptions is as follows
 not to apply international financial reporting standard 3 – ‘business combinations’ ifrs 3 retrospectively to past business
combinations
 to establish a deemed cost for the opening balance sheet carrying value of the water and wastewater infrastructure ﬁxed assets by
reference to the fair value of these assets at the date of transition to ifrs 1 april 2004
 to recognise all cumulative actuarial gains and losses relating to deﬁned beneﬁt pension schemes at the date of transition
 to deem cumulative translation differences for all foreign operations to be zero at the date of transition
 not to apply the requirements of international financial reporting standard 2 – ‘share based payments’ ifrs 2 to options granted
under the group’s save as you earn schemes prior to 7 november 2002 the requirements of ifrs 2 have been applied to shares
conditionally awarded under the group’s long term incentive plan schemes before 7 november 2002 but not vested or lapsed before 
1 april 2004 since the fair values of these awards has been publicly disclosed previously
c basis of consolidation
the ﬁnancial statements include the results of severn trent plc and its subsidiaries joint ventures and associated undertakings
minority interests in the net assets of consolidated subsidiaries are identiﬁed separately from the group’s equity therein minority interests
consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity
since that date losses attributable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the
interests of the group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover
the losses
the results of subsidiaries joint ventures and associated undertakings are included from the date of acquisition or incorporation and
excluded from the date of disposal the results of subsidiaries are consolidated where the group has the power to control a subsidiary the
results of joint venture undertakings are accounted for on an equity basis where the company exercised joint control under a contractual
arrangement the results of associates are accounted for on an equity basis where the company holding is 20 or more and the company
has the power to exercise signiﬁcant inﬂuence d revenue recognition
revenue represents the fair value of consideration receivable excluding value added tax trade discounts and intercompany sales 
in the ordinary course of business for goods and services provided
revenue is not recognised until the service has been provided to the customer or the goods to which the sale relates have either been
despatched to the customer or where they are held on the customer’s behalf title has passed to the customer
in respect of long term contracts revenue is recognised based on the value of work carried out during the year with reference to the total
sales value and the stage of completion of these contracts
turnover includes an estimate of the amount of mains water and wastewater charges unbilled at the year end the accrual is estimated
using a deﬁned methodology based upon a measure of unbilled water consumed by tariff which is calculated from historical billing
information
interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable dividend
income from investments is recognised when the shareholders’ rights to receive payment have been established interest and dividend
income are included in ﬁnance income
e segmental reporting
each of the group’s business and geographical segments provide services that are subject to risks and returns that are different from those
of the other business segments
f property plant and equipment
property plant and equipment comprises
i infrastructure assets
infrastructure assets are included at cost or deemed cost on transition to ifrs less accumulated depreciation the costs of day to day
servicing of infrastructure components are recognised in the proﬁt and loss account as they arise where it is probable that the money
spent will cause future economic beneﬁts to ﬂow to the group then costs are capitalised infrastructure assets are depreciated over their
useful economic lives which are as follows
years
impounding reservoirs 250
raw water aqueducts 250
mains 80150
sewers 150200
ii landﬁll sites
landﬁll sites are included within land and buildings at cost less accumulated depreciation
the cost of landﬁll sites includes the cost of acquiring developing and engineering sites but does not include interest the cost of the
asset is depreciated over the estimated life of the site on the basis of the usage of void space
iii other assets
other assets are included at cost less accumulated depreciation freehold land is not depreciated other assets are depreciated over
their estimated economic lives to their residual value which are principally as follows
years
buildings 3060
operational structures 4080
fixed plant 2040
vehicles mobile plant and computers 215
assets in the course of construction are not depreciated until commissioned
interest costs of debt raised to ﬁnance new property plant and equipment are not included within the cost of those ﬁxed assets 
but are expensed to the income statement as they arise
group ﬁnancial statements
58 severn trent plc annual report and accounts 2006
notes to the group ﬁnancial statements
continued group ﬁnancial statements
severn trent plc annual report and accounts 2006  59
g leased assets
where assets are ﬁnanced by leasing arrangements which transfer substantially all the risks and rewards of ownership of an asset to the
lessee ﬁnance leases the lower of the fair value of the leased asset or the present value of the minimum lease payments is capitalised as
an asset with a corresponding liability representing the obligation to the lessor lease payments are treated as consisting of a capital
element and a ﬁnance charge the capital element reducing the obligation to the lessor and the ﬁnance charge being written off to the
income statement at a constant rate over the period of the lease in proportion to the capital amount outstanding depreciation is charged
over the shorter of the estimated useful life and the lease period
where assets are ﬁnanced by leasing arrangements where substantially all the risks and rewards of ownership remain with the lessor these
are classiﬁed as operating leases rental costs arising under operating leases are expensed on a straight line basis over the term of the
lease leases of land are normally treated as operating leases unless ownership is transferred at the end of the lease
h grants and contributions
grants and contributions received in respect of noncurrent assets including charges made for new connections to the water and sewerage
networks are treated as deferred income and released to the income statement over the useful economic life of those assets 
where grants and contributions are given for the purpose of compensation for expenses incurred with no future related costs then these
are recognised in the income statement in the period that they become receivable
i impairment of noncurrent assets
if the recoverable amount of goodwill an item of property plant and equipment or any other noncurrent asset is estimated to be less 
than its carrying amount the carrying amount of the asset is reduced to its recoverable amount where the asset does not generate cash
ﬂows that are independent from other assets the group estimates the recoverable amount of the cash generating unit to which the asset
belongs recoverable amount is the higher of fair value less costs to sell or estimated value in use at the date the impairment review is
undertaken fair value less costs to sell represents the amount obtainable from the sale of the assets in an arm’s length transaction
between knowledgeable and willing third parties less costs of disposal value in use represents the present value of future cash ﬂows
expected to be derived from a cash generating unit discounted using a pretax discount rate that reﬂects current market assessments 
of the cost of capital of the cash generating unit or asset
the discount rate used is based on the group’s cost of capital adjusted for the risk proﬁles of individual businesses
goodwill is tested for impairment on an annual basis impairment reviews are also carried out if there is some indication that an
impairment may have occurred or where otherwise required to ensure that noncurrent assets are not carried above their estimated
recoverable amounts
impairments are recognised in the income statement
j investments
the group followed the transitional provisions of ifrs and adopted international accounting standard 39 – ‘financial instruments
recognition and measurement’ ias 39 and international accounting standard 32 – ‘financial instruments disclosure and presentation’ 
ias 32 from 1 april 2005
after initial recognition at cost being the fair value of the consideration paid investments which are classiﬁed as held for trading or
available for sale are measured at fair value with gains or losses recognised in income or equity respectively when an available for sale
investment is disposed of or impaired the gain or loss previously recognised in equity is taken to the income statement
other investments are classiﬁed as held to maturity when the group has the positive intention and ability to hold to maturity investments
held for an undeﬁned period are excluded from this classiﬁcation such investments and those held to maturity are subsequently
measured at amortised cost using the effective interest method with any gains or losses being recognised in the income statement
prior to 1 april 2005 the group held investments at historical cost less any provision for impairment k inventory
inventory and work in progress is stated at the lower of cost and net realisable value cost includes labour materials transport and
attributable overheads
development land and properties are included at the lower of cost and net realisable value cost includes the cost of acquiring and
developing the sites
the net realisable value of development land is based upon its value as a serviced site after taking account of the cost of providing
infrastructure services
income and attributable proﬁts on properties under development are determined by reference to valuation of work carried out to date
l cash and cash equivalents
for the purpose of the cash ﬂow statement cash and cash equivalents include highly liquid investments that are readily convertible to
known amounts of cash and which are subject to an insigniﬁcant risk of change in value such investments are normally those with less
than three months’ maturity  from the date of acquisition and include cash and balances at central banks treasury bills and other eligible
bills loans and certiﬁcates of deposit cash and cash equivalents also include overdrafts repayable on demand
m provisions
provisions are made where there is a present obligation as a result of a past event and it is probable that there will be an outﬂow of
economic beneﬁts to settle this obligation and a reliable estimate of this amount can be made the group’s policy on provisions for speciﬁc
areas is as follows
 landﬁll restoration costs provision for the cost of restoring landﬁll sites is made over the operational life of each landﬁll site and
charged to the income statement on the basis of the usage of void space
 environmental control and aftercare costs environmental control and aftercare costs are incurred over the operational life of each
landﬁll site and may be incurred for a considerable period thereafter provision for all such costs is made over the operational life of the
site and charged to the proﬁt and loss account on the basis of the usage of void space material environmental control and aftercare
costs are discounted by applying an appropriate discount rate
 insurance provision is made for claims notiﬁed and for claims incurred but which have not yet been notiﬁed based on advice from the
group’s independent insurance advisers
n pension costs
the group operates both deﬁned beneﬁt and deﬁned contribution pension schemes
deﬁned beneﬁt pension scheme assets are measured using bid price deﬁned beneﬁt pension scheme liabilities are measured at the
balance sheet date by an independent actuary using the projected unit method and discounted at the current rate of return on high quality
corporate bonds of equivalent term and currency to the liability the increase in the present value of the liabilities of the group’s deﬁned
beneﬁt pension schemes expected to arise from employee service in the period is charged to operating proﬁt the expected return on the
scheme’s assets and the increase during the period in the present value of the scheme’s liabilities arising from the passage of time are
included in other ﬁnance income or cost
actuarial gains and losses arising from experience adjustments changes in actuarial assumptions and amendments to pension plans are
charged or credited to equity and recorded in the statement of recognised income and expense
costs of deﬁned contribution pension schemes are charged to the income statement in the period in which they fall due
o foreign currency
the results of overseas subsidiary and associated undertakings are translated into the presentational currency of the group sterling using
average rates of exchange ruling during the year
the net investments in overseas subsidiary and associated undertakings are translated into sterling at the rates of exchange ruling at the
yearend exchange differences thus arising are treated as movements in equity on disposal of a foreign currency denominated subsidiary
the deferred cumulative amount recognised in equity since 1 april 2004 under the transitional rule of ifrs 1 – see note 2b relating to
that entity is recognised in the income statement
exchange differences arising in respect of foreign exchange instruments taken out as hedges of overseas investments are also treated as
movements in equity to the extent that the hedge is effective see note 2u
all other foreign currency denominated assets and liabilities of the company and its united kingdom subsidiary undertakings are 
translated into sterling at the rates of exchange ruling at the yearend any exchange differences so arising are dealt with through 
the income statement foreign currency transactions arising during the year are translated into sterling at the rate of exchange ruling 
on the date of the transaction all proﬁts and losses on exchange arising during the year are dealt with through the income statement
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
60 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  61
p research and development
research expenditure is expensed when it is incurred development expenditure is capitalised and written off over its expected useful
economic life where the following criteria are met
 an asset is created that can be identiﬁed
 it is probable that the asset created will generate future economic beneﬁts and
 the development cost can be measured reliably
expenditure on property plant and equipment relating to research and development projects is capitalised and written off over the
expected useful life of those assets
q deferred taxation
deferred taxation is provided in full using the liability method on taxable temporary differences between the tax basis of assets and
liabilities and their carrying amounts in the ﬁnancial statements a deferred tax asset is only recognised to the extent it is probable that
sufﬁcient taxable proﬁts will be available in the future to utilise it deferred taxation is measured on a nondiscounted basis using the tax
rates and laws that have then been enacted or substantially enacted by the balance sheet date and are expected to apply when the related
deferred income tax asset is realised or the deferred tax liability is settled
r goodwill
goodwill represents the excess of the fair value of purchase consideration over the fair value of the net assets acquired goodwill arising on
acquisition of subsidiaries is included in intangible assets whilst goodwill arising on acquisition of associates is included in investments in
associates if an acquisition gives rise to negative goodwill this is credited directly to the income statement
goodwill arising on all acquisitions prior to 1 april 1998 was written off to reserves under uk gaap and remains eliminated against
reserves purchased goodwill arising on acquisitions after 31 march 1998 is treated as an intangible ﬁxed asset
goodwill is tested for impairment in accordance with the policy set out above and carried at cost less accumulated impairment losses
goodwill is allocated to the cash generating unit that derives beneﬁt from the goodwill for impairment testing purposes
fair value accounting adjustments are made in respect of acquisitions fair value adjustments based on provisional estimates are amended
within one year of the acquisition if required with a corresponding adjustment to goodwill
where goodwill forms part of a cashgenerating unit and all or part of that unit is disposed of the associated goodwill is included in the
carrying amount of that operation when determining the gain or loss on disposal of the operation
s intangible noncurrent assets
intangible assets acquired separately are capitalised at cost and when acquired in a business combination are capitalised at fair value at
the date of acquisition following initial recognition the historical cost model is applied to intangible assets amortisation charged on assets
with ﬁnite lines is taken to the income statement through operating expenses
finite life intangible assets are amortised on a straight line basis over their estimated useful economic lives as follows
years
software 310
other assets 220
intangible assets are reviewed for impairment where indicators of impairment exist
t trade receivables
trade receivables are measured at fair value on initial recognition and are subsequently measured at amortised cost using the effective
interest rate method unless there there is objective evidence that the asset is impaired where it is written down to is recoverable amount
and the irrecoverable amount is recognised as an expense
noncurrent assets classiﬁed as held for sale are measured at the lower of carrying amount and fair value less costs to sell depreciation is
not charged on such assets
u financial instruments
the group has taken advantage of the ifrs 1 exemption from application of ias 32 and ias 39 has applied these standards from 1 april 2005
comparative information for ﬁnancial instruments has been presented in accordance with the uk financial reporting standard 13 – ‘financial
instruments’ under this standard derivative ﬁnancial instruments were recognised at historical cost and were not remeasured at fair value
except that where currency swaps were used to hedge foreign currency investments the future currency exchange in such contracts was
revalued to the rate of exchange at the balance sheet date and the related gain or loss was taken directly to equity
the accounting policy after 1 april 2005 is as follows
i debt instruments
all loans and borrowings are initially recognised at cost being the net fair value of the consideration received after initial recognition
interestbearing loans and borrowings are subsequently measured at amortised cost using the effective interest method where a loan 
or borrowing is in a fair value hedging relationship it is remeasured for changes in fair value of the hedged risk at the balance sheet
date with gains or losses being recognised in the income statement see below
gains and losses are recognised in the income statement when the liabilities are derecognised or impaired as well as through the
amortisation process u financial instruments continued
ii derivative ﬁnancial instruments and hedging activities
the group uses derivative ﬁnancial instruments such as cross currency swaps forward currency contracts and interest rate swaps to
hedge its risks associated with foreign currency and interest rate ﬂuctuations such derivative instruments are initially recorded at cost
and subsequently remeasured at fair value for the reported balance sheet the fair value of cross currency swaps interest rate swaps
and forward currency contracts is calculated by reference to market exchange rates and interest rates at the period end
in relation to fair value hedges which meet the conditions for hedge accounting the gain or loss on the hedging instrument is taken to
the income statement where the effective portion of the hedge will offset the gain or loss on the hedged item see above
in relation to cash ﬂow hedges which meet the conditions for hedge accounting the portion of the gain or loss on the hedging
instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion in the income
statement the gains or losses deferred in equity in this way are recycled through the income statement in the same period in which the
hedged underlying transaction or ﬁrm commitment is recognised in the income statement
forward currency contracts and foreign currency borrowings are used to hedge net investments in foreign currency denominated
operations and to the extent that they are designated and effective as net investment hedges are matched in equity against changes in
value of the related assets any ineffectiveness is taken to the income statement
for derivatives that do not qualify for hedge accounting gains or losses are taken directly to the income statement in the period
hedge accounting is discontinued when the hedging instrument expires is sold terminated or exercised or no longer qualiﬁes for hedge
accounting at that date any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecast
transaction occurs or transferred to the income statement if the forecast transaction is no longer expected to occur
derivatives embedded in other ﬁnancial instruments or other host contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of the host contract and the host contract is not carried at fair value with gains and losses
reported in the income statement
the accounting policy prior to 1 april 2005 is as follows
iii debt instruments
the ﬁnancial costs of debt instruments are charged to the income statement over the term of the debt at a constant rate on the
carrying amount such costs include the cost of issue and any discount to face value arising on issue or any premium arising on
maturity
differences arising from the movement in exchange rates during the year on translation into sterling of the foreign currency borrowings
and similar instruments used to ﬁnance longterm equity investments are taken directly to equity and reported in the statement of
recognised income and expense
iv derivative ﬁnancial instruments
financial instruments in particular interest rate swaps and to a lesser extent currency swaps are used to manage the ﬁnancial risks
arising from the business activities of the group and the ﬁnancing of those activities there is no trading activity in ﬁnancial instruments
financial instruments are accounted for as follows
 interest rate swaps are used to hedge the group’s exposure to movements in interest rates the interest payable or receivable on
such swaps is accrued in the same way as interest arising on deposits or borrowings interest rate swaps are not revalued to fair
value prior to maturity
 currency swaps are used to hedge foreign currency investments the future currency exchange within such contracts is revalued 
to the rate of exchange at the balance sheet date and any unrealised gain or loss is matched with that on the underlying asset 
or liability in reserves the interest coupon on such swaps is accrued in the same way as that on borrowings and deposits
v sharebased payments
the group operates a number of equity settled sharebased compensation plans for employees the fair value of the employee services
received in exchange for the grant is recognised as an expense over the vesting period of the grant
the fair value of employee services is determined by reference to the fair value of the awards granted calculated using an appropriate
pricing model excluding the impact of any non market vesting conditions the number of awards that are expected to vest takes into
account non market vesting conditions including where appropriate continuing employment by the group the change is adjusted to
reﬂect shares that do not vest as a result of failing to meet a nonmarket condition
w precontract costs
precontract costs are expensed as incurred except where it is virtually certain that the contract will be awarded in which case they are
recognised as an asset which is written off to the income statement over the life of the contract
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
62 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  63
x discontinued operations and assets held for sale
where an asset or group of assets a disposal group is available for immediate sale and the sale is highly probable and expected to occur
within one year then the disposal group is deemed as held for sale the disposal group is measured at the lower of the carrying amount
and fair value less costs to sell
where a group of assets a component which comprises operations that can be clearly distinguished operationally and for ﬁnancial
reporting purposes from the rest of the group has been disposed of or classiﬁed as held for sale and
 represents a separate major line of business or geographical area of operations or
 is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations or
 is a subsidiary acquired exclusively with a view to resale 
then the component is classiﬁed as a discontinued operation
y purchase of own shares
the group balance sheet incorporates the shares held by the severn trent employee share ownership trust the trust and which have not
vested unconditionally by the balance sheet date these are shown as a deduction from shareholders’ funds until such time as they vest
z current tax
the tax currently payable is based on taxable proﬁt for the year taxable proﬁt differs from net proﬁt as reported in the income statement
because it excludes items of income and expenses that are taxable in other years and it further excludes items that are never taxable or
deductible the group’s liability for current tax is calculated using tax rates that have been enacted or substantially enacted by the balance
sheet date
aatrade payables
trade payables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate
method
abexceptional items
exceptional items are income or expenditure which individually or if of a similar type in aggregate need to be disclosed by virtue of their
size or nature if the ﬁnancial statements are to give a true and fair view
3 new accounting policies and future requirements
the following statements have been issued by the international accounting standard board and are likely to affect future ﬁnancial statements
international financial reporting standard 7 – ‘financial instruments disclosures’ ifrs 7 was issued in august 2005 and is required to
be implemented by severn trent from 1 april 2007 the standard incorporates the disclosure requirements of ias 32 which it supersedes
and adds further quantitative and qualitative disclosures in relation to ﬁnancial instruments
international financial reporting interpretation committeeinterpretation 4 – ‘determining whether an arrangement contains a lease’ 
ifric 4 was issued in december 2004 and is required to be implemented by severn trent from 1 april 2006 the interpretation requires
arrangements that may have the nature but not the legal form of a lease to be accounted for in accordance with international accounting
standard 17 – ‘leases’ this interpretation is not expected to have a material impact on the group
the directors assess that the other standards issued but not yet effective are not applicable to the group
4 segmental analysis
the group is organised into four main business segments
water and sewerage
provides water and sewerage services to domestic and commercial customers in england and wales
waste management
provides collection landﬁll and special waste services to industrial and commercial customers and local authorities in the uk
laboratories
provides environmental testing services in the us and uk
water puriﬁcation and operating services
provides services and products associated with water waste water and contaminated land principally in the us uk and europe
other businesses include it services and solutions engineering consultancy severn trent property and derwent insurance the external it
services and engineering consultancy activities were sold or terminated during the year
the group is also organised into geographical regions uk us and europe geographical information is classiﬁed by the location of the
principal operations of each business unit a primary reporting format – business segment
turnover united kingdom united states europe total
2006 2005 2006 2005 2006 2005 2006 2005
£m £m £m £m £m £m £m £m
continuing operations
water and sewerage 11509 10151 –   –   –  –   11509 10151 
waste management 7123 6295 –   –   –  –   7123 6295 
laboratories 323 300 1347 1326 –  –   1670 1626 
water puriﬁcation and operating services 717 342 1639 1489 322 250 2678 2081 
other businesses 506 801 91 67 –  – 597 868 
eliminations 607 869 20 08 –  – 627 877
group – continuing operations 19571 17020 3057 2874 322 250 22950 20144 
proﬁt before interest tax and exceptional items united kingdom united states europe total
2006 2005 2006 2005 2006 2005 2006 2005
£m £m £m £m £m £m £m £m
continuing operations
water and sewerage 4004 3075 –  –   –   –   4004 3075 
waste management 892 789 –  –   –   –   892 789 
laboratories 52 48 59 104 –   –   111 152 
water puriﬁcation and operating services 50 07 52 67 18 15 120 89 
other businesses 27 100 08 30 –   –   35 70 
corporate 222 178 –  –   –   –   222 178
eliminations 12 09 –  –   –   – 12 09
group – continuing operations 4761 3832 103 141 18 15 4882 3988 
exceptional items note 7 united kingdom united states europe total
2006 2005 2006 2005 2006 2005 2006 2005
£m £m £m £m £m £m £m £m
continuing operations
water and sewerage 48 28 –   –   –   –   48 28
waste management –   –   –   –   –   –   –   –   
laboratories –   –   –   –   –   –   –   –   
water puriﬁcation and operating services –   –   –   –   –   43 –   43 
other businesses 59 34 28 04 –   –   31 38
corporate 78 –   –   –   –   –   78 –   
eliminations –   –   –   –   –   –   –   –   
group – continuing operations 185 62 28 04 – 43 157 23
proﬁt before interest and tax united kingdom united states europe total
2006 2005 2006 2005 2006 2005 2006 2005
£m £m £m £m £m £m £m £m
continuing operations
water and sewerage 3956 3047 –   –   –   –   3956 3047
waste management 892 789 –   –   –   –   892 789 
laboratories 52 48 59 104 –   –   111 152 
water puriﬁcation and operating services 50 07 52 67 18 58 120 132 
other businesses 86 66 20 34 –   –   66 32 
corporate 300 178 –   –   –   –   300 178
eliminations 12 09 –   –   –   –   12 09
group – continuing operations 4576 3770 131 137 18 58 4725 3965 
total net ﬁnance costs 2046 1695
share of post tax results of associates and joint ventures
waste management 10 11 
water puriﬁcation and operating services 16 17 
other businesses 05 10
21 18 
proﬁt before tax 2700 2288 
tax 427 715
proﬁt from continuing operations 2273 1573 
lossproﬁt from discontinued operations 43 08 
proﬁt for the period 2230 1581 
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
64 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  65
other segment items are
capital expenditure depreciation 
and amortisation
2006 2005 2006 2005
£m £m £m £m
water and sewerage 3356 3699 2197 2074
waste management 795 694 582 636
laboratories 92 82 90 82
water puriﬁcation and operating services 56 187 51 46
other businesses 02 10 34 19 
corporate – 01 06 08 
eliminations 33 47 43 39
4268 4626 2917 2826 
intersegment transfers or transactions are entered into under normal commercial terms and conditions that would also be available to
unrelated third parties
the segment assets and liabilities are as follows
investments in associates 
assets segment assets and joint ventures total
2006 2005 2006 2005 2006 2005
£m £m £m £m £m £m
water and sewerage 56774 55654 04 04 56778 55658 
waste management 8841 9078 06 08 8847 9086 
laboratories 1626 1503 – –  1626 1503 
water puriﬁcation and operating services 2340 1984 197 164 2537 2148 
other businesses 249 864 86 82 335 946 
69830 69083 293 258 70123 69341 
assets held for sale 415 –
unallocated corporate assets 723 60 
group total assets 71261 69401
liabilities segment liabilities 
2006 2005
£m £m
water and sewerage 6823 6329
waste management 2071 2421
laboratories 185 181
water puriﬁcation and operating services 658 538
other businesses 477 725
10214 10194
assets held for sale 285 –
unallocated corporate liabilities 41772 40712
group total liabilities 52271 50906
segment assets comprise goodwill and other intangible assets property plant and equipment inventories derivatives designated as hedges 
for future transactions receivables and operating cash they exclude deferred taxation investments and derivatives designated as hedges 
of borrowings
segment liabilities comprise operating liabilities but exclude items such as taxation and corporate borrowings and related hedging
derivatives discontinued operations comprises the belgian waste management activities the total revenue results assets and liabilities of the waste
management segment are set out below further details are given in note 11
gross turnover intersegment sales total turnover
2006 2005 2006 2005 2006 2005
£m £m £m £m £m £m
continuing operations 7123 6295 –  –  7123 6295 
discontinued operations 584 667 –  –  584 667 
total 7707 6962 – – 7707 6962 
segment result before segment result after 
exceptional items exceptional items exceptional items
2006 2005 2006 2005 2006 2005
£m £m £m £m £m £m
continuing operations 892 789  –  892 789 
discontinued operations 41 33  –  41 33 
total 851 822 – – 851 822 
secondary reporting format  geographical segments
the group’s revenue analysed by geographical market by destination was as follows
2006 2005
£m £m
turnover
uk 19589 16967 
us 2742 2621 
europe 368 308 
other 251 248 
22950 20144
the carrying amount of the group’s assets and additions to property plant and equipment analysed by the geographical area in which the
assets are located was as follows 
total assets – based on location capital expenditure
2006 2005 2006 2005
£m £m £m £m
uk 67577 65764 4111 4503 
us 2711 2546 124 102 
europe 558 1091 33 21 
70846 69401 4268 4626 
assets held for sale europe 415 – 
71261 69401 
5 revenue
2006 2005
£m £m
water and sewerage services 11377 9993
other services 10912 9822
sales of goods 629 493
revenue from long term contracts 659 713
eliminations 627 877
total turnover 22950 20144
interest receivable note 9 41 35
sales from discontinued operations note 11 584 667
total revenue 23575 20846
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
66 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  67
6 operating costs
2006 2005
£m £m
wages and salaries 4420 4276
social security costs 365 333
pension costs 437 479
total employee costs 5222 5088
power 439 413
raw materials and consumables 1790 1519
rates 648 583
impairment of trade debtors 263 221
service charges 275 257
waste disposal costs 907 836
depreciation of property plant and equipment 2624 2539
amortisation of intangible ﬁxed assets 293 223
hired and contracted services 1543 1218
environmental and landﬁll restoration costs 92 84
operating lease rentals
– land and buildings 128 122
– other 119 106
hire of plant and machinery 203 194
research and development expenditure 39 27
proﬁt on disposal of ﬁxed assets 33 75
foreign exchange losses 01 04
water and sewerage infrastructure maintenance expenditure 945 772
other operating costs 3448 3056
18944 17187
government grants released from deferred income 06 06
own work capitalised 713 1002
total operating costs 18225 16179
operating costs include £157 million 2005 £23 million of exceptional costs further details are given in note 7 the pension costs shown
above are included in operating costs pension costs reported elsewhere interest costs expected returns on assets and actuarial gains and
losses are excluded
during the year the following fees were charged by the auditors
2006 2005
£m £m
audit related
group statutory 10 09
regulatory 01 01
11 10
taxation services
compliance – 01
advisory 02 01
02 02
other services 09 20
total fees 22 32
the amounts charged in the year ended 31 march 2006 relate to deloitte  touche llp and its afﬁliates and in the year ended 31 march
2005 relate to pricewaterhousecoopers llp and its afﬁliates
taxation services include compliance services such as tax return preparation and advisory services
in 2006 other services primarily include a controls review within severn trent water and an investigation into environmental taxes in biffa
belgium in 2005 other services primarily included forensic accounting services and provision of advice related to transition to ifrs
included in auditors’ remuneration above is £135000 2005 £105000 in respect of the audit of the company
details of directors’ remuneration are set out in the remuneration report on pages 40 to 51 7 exceptional items
an exceptional charge of £157 million arose in the year ending 31 march 2006 this comprises
an exceptional restructuring charge of £79 million arose comprising
 £48 million arising in severn trent water as a result of costs associated with a redundancy programme undertaken to meet 
amp4 efﬁciency targets
 a net £31 million arising in systems relating to the cessation of trading with external customers and disposal of the worksuite 
and cis operations
£78 million of costs arose relating to the demerger of biffa and other strategic reviews undertaken
in the year ended 31 march 2005 restructuring costs and termination of operations of £142 million comprised a charge of £104 million
relating to restructuring of severn trent water and losses on termination of operations amounting to £38 million the loss on termination 
of operations arose from decisions to close one of the group’s us systems businesses and to cease trading with external customers 
for the group’s uk it services and engineering consultancy businesses
in the year ended 31 march 2005 a proﬁt of £119 million on the disposal of properties and investments arose this comprised £61 million
on the sale of land and buildings by severn trent water £43 million on the disposal of the group’s interest in its associated undertaking
indaqua industria e gestao de aguas and £15 million on disposal of a noncurrent asset investment by severn trent water
8 employee numbers
average number of employees including executive directors during the year full time equivalent
2006 2005
number number
by type of business
water and sewerage 5188 5106
waste management 5552 5353
laboratories 2797 2756
water puriﬁcation and operating services 2425 2343
other businesses and corporate 350 816
16312 16374
by geographical location
uk 11522 11569
other – principally us and europe 4790 4805
16312 16374
9 net ﬁnance costs
2006 2005
£m £m
investment income
interest receivable on bank deposits 41 35
net ﬁnance income on deﬁned beneﬁt pension share 38 –
79 35
finance costs
interest on bank loans and overdrafts 245 294
interest on other loans 1210 1135
interest on ﬁnance leases 260 240
total borrowing costs 1715 1669
interest cost on discounted provisions 23 23
net ﬁnance cost on deﬁned beneﬁt pension scheme – 12
other ﬁnancial expenses 20 26
total ﬁnance costs 1758 1730
fair value movements on treasury instruments 367 –
net ﬁnance costs 2046 1695
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
68 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  69
10 taxation
a analysis of tax charge in the year
2006 2005
£m £m
current tax
continuing operations
current year at 30 878 494
prior year at 30 391 115
total current tax relating to continuing operations 487 379
current tax relating to discontinued operations 01 18
total current tax 488 397
deferred tax
continuing operations
origination and reversal of temporary differences – current year 51 194
origination and reversal of temporary differences – prior year 111 142
total deferred tax relating to continuing operations 60 336
deferred tax relating to discontinued operations 02 09
total deferred tax 58 345
total tax charge relating to continuing operations 427 715
total tax charge relating to discontinued operations 03 27
total tax charge 430 742
b factors affecting the tax charge in the year
the tax expense for the current year is lower than the standard rate of corporation tax in the uk 2006 and 2005 30 the differences
are explained below
2006 2005
£m £m
proﬁt on ordinary activities before tax
continuing operations 2700 2288
discontinued operations 40 35
2660 2323
proﬁt on ordinary activities multiplied by the standard rate of corporation tax in the uk 2006 and 2005 30 798 697
effects of
tax effect of share of results of associates and joint ventures 03 03
tax effect of expenditure not deductible in determining taxable proﬁt 149 12
effect of different rates of tax in overseas jurisdictions 13 03
adjustments in respect of prior years 507 27
total tax charge 430 742
c tax charged directly to equity
in addition to the amount charged to the income statement the following amounts of tax have been charged directly to equity
2006 2005
£m £m
current tax
tax on exchange differences on foreign currency hedging 18 02
total current tax charged directly to equity 18 02
deferred tax
tax on actuarial gainslosses 80 130
tax on cash ﬂow hedging 14 –
tax on share based payments 08 04
86 134
deferred tax asset arising on adoption of ias 39 credited directly to equity 212 – 11 discontinued operations
on 12 may 2006 the group agreed to sell biffa belgium to veolia for €45 million it is expected that this transaction will be completed
before the end of june 2006 the transaction is conditional upon clearance from the belgian competition authorities
a proﬁt from discontinued operations
2006 2005
£m £m
turnover 584 667
expenses 625 634
lossproﬁt before interest and tax 41 33
net ﬁnancing income 01 02
tax 03 27
post tax results 43 08
b assets and liabilities of disposal group
goodwill 21
property plant and equipment 227
intangible assets 02
current assets 148
current income tax 07
deferred tax assets 10
total assets 415
trade and other payables 185
current income tax –
provisions 100
total liabilities 285
c cash ﬂows from discontinued operations
2006 2005
£m £m
net cash ﬂows from operating activities 67 73
net cash ﬂows from investing activities 29 18
net cash ﬂows from ﬁnancing activities – –
38 55
d earnings per share from discontinued operations
weighted weighted
average 2006 average 2005
number per share number per share
earnings of shares amount earnings of shares amount
£ m m pence £ m m pence
basic earnings per share from discontinued operations 43 3466 13 08 3447 03
diluted earnings per share from discontinued operations 43 3489 12 08 3472 03
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
70 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  71
12 dividends
pence 2006 pence 2005
per share £m per share £m
amounts recognised as distributions to equity holders in the period
final dividend for the year ended 31 march 20052004 3030 1048 2927 1009
interim dividend for the year ended 31 march 20062005 1916 665 1821 628
4946 1713 4748 1637
proposed ﬁnal dividend for the year ended 31 march 2006 3197 1113
the proposed ﬁnal dividend is subject to approval by shareholders at the annual general meeting and has not been included as a liability
in these ﬁnancial statements
13 earnings per share
basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number 
of ordinary shares in issue during the year excluding those held in the severn trent employee share ownership trust which are treated 
as cancelled
for diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially
dilutive ordinary shares these represent share options granted to employees where the exercise price is less than the average market price
of the company’s shares during the year
basic and diluted earnings per share from continuing operations are calculated on the basis of proﬁt from continuing operations
attributable to the equity holders of the company
from continuing operations
weighted weighted
average 2006 average 2005
number per share number per share
earnings of shares amount earnings of shares amount
£ m m pence £ m m pence
basic earnings per share 2259 3466 652 1566 3447 454
effect of dilutive options – 23 05 – 25 03
diluted earnings per share 2259 3489 647 1566 3472 451
from continuing and discontinued operations
2006 2005
earnings weighted per share earnings weighted per share
average amount average amount
number number
of shares of shares
£ m m pence £ m m pence
basic earnings per share 2216 3466 639 1574 3447 457
effect of dilutive options – 23 04 – 25 04
diluted earnings per share 2216 3489 635 1574 3472 453 supplementary earnings per share
supplementary adjusted earnings per share ﬁgures are presented these exclude the effects of deferred tax fair value movements on
treasury instruments and exceptional items in both 2006 and 2005 the directors consider that the supplementary ﬁgures provide a 
useful additional indicator of performance
weighted weighted
average 2006 average 2005
number per share number per share
earnings of shares amount earnings of shares amount
£m m pence £m m pence
basic earnings per share from continuing operations 2259 3466 652 1566 3447 454
effect of
exceptional restructuring costs and termination of operations 79 – 23 142 – 41
exceptional demerger and related costs 78 – 23 –––
exceptional proﬁt on disposal of property and investments ––– 119 – 35
tax related to exceptional items at 30 47 – 14 10 – 03
fair value movements on treasury instruments 367 – 106 –––
deferred tax 60 – 18 336 – 98
adjusted earnings per share from continuing operations 
before exceptional items fair value movements on
treasury instruments and deferred tax 2676 3466 772 1935 3447 561
diluted earnings per share from continuing operations 2259 3489 647 1566 3472 451
effect of
exceptional restructuring costs and termination of operations 79 – 23 142 – 41
exceptional demerger and related costs 78 – 23 –––
exceptional proﬁt on disposal of property and investments ––– 119 – 34
tax related to exceptional items at 30 47 – 13 10 – 03
fair value movements on treasury instruments 367 – 105 –––
deferred tax 60 – 18 336 – 96
adjusted diluted earnings per share from continuing 
operations before exceptional items fair value movements 
on treasury instruments and deferred tax 2676 3489 767 1935 3472 557
14 goodwill
2006 2005
£m £m
cost and net book value
at 1 april 4991 4976
acquisition of businesses 01 28
fair value adjustments prior year acquisitions – 04
disposal of business 01 –
additions 14 13
classiﬁed as held for sale 21 –
exchange adjustments 79 22
at 31 march 5063 4991
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
72 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  73
goodwill impairment tests
goodwill is allocated to the group’s cash generating units cgus identiﬁed according to country of operation and business segment
a segment level summary of the goodwill allocation is presented below
uk us europe
2006 2005 2006 2005 2006 2005 
£m £m £m £m £m £m
water and sewerage – – – – – –
waste management 3905 3905 – – – –
laboratories 123 123 623 558 – –
water puriﬁcation and operating services 02 02 346 318 64 85
other businesses – – – – – –
4030 4030 969 876 64 85
the recoverable amount of a cgu is determined using value in use calculations these calculations use cash ﬂow projections based on 
ﬁnancial budgets approved by management covering a ﬁve year period cash ﬂows beyond the ﬁve year period are extrapolated using 
an estimated nominal growth rate stated below the growth rate does not exceed the long term average growth rate for the economy in
which the cgu operates
nominal growth rate discount rate
2006 2005 2006 2005 
   
waste management 23 23 81 86
laboratories 30 15 110 93
water puriﬁcation and operating services 30 20 110 93
these assumptions have been used for the analysis of each cgu within the business segment the weighted average growth rates used are
consistent with the forecasts included in industry reports the discount rates used are pretax and reﬂect speciﬁc risks relating to the
relevant segments 15 intangible assets
computer other
software assets total
£m £m £m
cost
at 1 april 2004 1874 111 1985
disposal of business 31 01 32
additions 197 145 342
reclassiﬁcations and transfer 02 39 41
exchange adjustments – 02 02
at 1 april 2005 2042 292 2334
disposals 146 15 161
additions 278 12 290
acquired in business combination – 01 01
classiﬁed as held for sale 13 03 16
reclassiﬁcation and transfers 37 94 131
exchange adjustments 01 06 07
at 31 march 2006 2125 199 2324
amortisation
at 1 april 2004 800 55 855
amortisation for year 212 11 223
disposals 31 01 32
reclassiﬁcations and transfer – 30 30
at 1 april 2005 981 95 1076
amortisation for year 275 18 293
disposals 140 13 153
classiﬁed as held for sale 12 02 14
reclassiﬁcations and transfer 20 14 06
exchange adjustments 01 03 04
at 31 march 2006 1085 115 1200
net book value
at 31 march 2006 1040 84 1124
at 31 march 2005 1061 197 1258
other asset primarily comprise capitalised development costs brands and patents
intangible assets include internally generated software of £1124 million 2005 £1282 million additions during the year totalled 
£254 million 2005 £178 million
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
74 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  75
16 property plant and equipment
land and plant and
buildings equipment total
£m £m £m
cost
at 1 april 2004 21427 61744 83171
acquisition of businesses 08 08 –
fair value adjustments prior year acquisitions 02 – 02
disposal of business – 01 01
additions 1183 3101 4284
disposals 96 1309 1405
reclassiﬁcations and transfers 39 17 56
exchange adjustments 02 03 05
at 1 april 2005 22463 63523 85986
acquisition of businesses – 01 01
additions 1011 2967 3978
disposals 57 824 881
reclassiﬁcations and transfers 231 198 33
classiﬁed as held for sale 182 628 810
exchange adjustments 24 76 100
at 31 march 2006 23490 64917 88407
depreciation
at 1 april 2004 6735 21588 28323
charge for the year 626 1977 2603
disposals 69 1242 1311
reclassiﬁcations and transfers 23 46 23
exchange adjustments 01 01 –
at 1 april 2005 7316 22276 29592
charge for year 637 2042 2679
disposals 56 804 860
reclassiﬁcations and transfers 100 24 76
classiﬁed as held for sale 143 440 583
exchange adjustments 10 62 72
at 31 march 2006 7864 23112 30976
net book value
at 31 march 2006 15626 41805 57431
at 31 march 2005 15147 41247 56394
the carrying amount of property plant and equipment includes the following amounts in respect of assets held under ﬁnance leases
land and plant and total
buildings equipment
£m £m £m
net book value
at 31 march 2006 193 3601 3794
at 31 march 2005 180 2288 2468
plant and equipment includes £2253 million 2005 £2596 million in respect of assets in the course of construction for which no
depreciation is charged
at 31 march 2006 the group had entered into contractual commitments for the acquisition of property plant and equipment amounting 
to £1485 million 2005 £1742 million 17 interests in joint ventures
2006 2005
£m £m
group’s share of
long term assets 09 09
current assets 42 49
current liabilities 71 70
long term liabilities – –
amounts due from joint ventures 117 107
97 95
group’s share of
turnover 29 30
operating costs 19 24
operating proﬁt 10 06
finance costs 04 03
proﬁt before tax 06 03
tax 01 02
proﬁt after tax 05 01
the joint ventures have no signiﬁcant contingent liabilities to which the group is exposed and the group does not have any signiﬁcant
contingent liabilities in relation to its interests in the joint ventures the group has no capital commitments in relation to its interests in the
joint ventures
particulars of the group’s principal joint venture undertakings at 31 march 2006 are
percentage
nature of share a ordinary b ordinary
of business capital held shares of £1 shares of £1
biogeneration limited power generation 50 500 500
gmi rovinian limited property development 50 25000 25000
cognica limited asset management 50 100000 100000
east leeds development company limited property development 50 500 500
east leeds holdings limited property development 50 500 500
held by the group
the country of incorporation and main operation of the joint ventures is great britain and they are registered in england and wales
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
76 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  77
18 interests in associates
2006 2005
£m £m
at 1 april 163 177
additions 30 –
disposals – 10
loans repaid – 32
share of proﬁts 16 17
dividends receivable 15 15
other movements 02 06
at 31 march 196 163
group’s share of
total assets 3309 3131
total liabilities 3113 2968
196 163
turnover 419 423
proﬁt before tax 16 17
the year end of aquaﬁn nv one of the group’s associated companies is 31 december and the ﬁnancial statements for the year ended 
31 december 2005 have been used in applying the equity method of accounting for this associate since this is the most reliable ﬁnancial
information available
on 2 june 2006 the group signed heads of terms to sell its interest in aquaﬁn nv to the flemish government for approximately 
£30 million
the associates have no signiﬁcant contingent liabilities to which the group is exposed and the group does not have any signiﬁcant contingent
liabilities in relation to its interest in the associates the group has no capital commitments in relation to its interests in the associates
percentage
of share nature of
equity interest capital held business
eldc triangle limited 760 b ordinary shares of £1 38 property development
aquaﬁn nv 160000 shares of €124 20 sewerage undertaking
 held by east leeds holdings limited
the country of incorporation and main operation is great britain and of registration is england and wales with the exception of 
aquaﬁn nv belgium
19 financial instruments
the group’s policies in respect of foreign currency and interest rate risk management and the related use of ﬁnancial instruments 
which form part of these ﬁnancial statements are set out below 
a financial liabilities analysed by currency and interest rate after taking account of various currency and interest rate swaps entered
into by the group
at 31 march 2006
fixed borrowings
weighted
average
weighted period for
noninterest floating fixed average which
2006 bearing interest interest interest interest 
total liabilities rate rate rate is ﬁxed
currency £m £m £m £m  years
sterling 31129 437 9416 21276 57 146
euro 364 67 297 –
us dollar 138 91 47 –
total ﬁnancial liabilities at 31 march 2006 31631 595 9760 21276 at 31 march 2005
fixed borrowings
weighted
average
weighted period for
noninterest floating fixed average which
2005 bearing interest interest interest interest 
total liabilities rate rate rate is ﬁxed
currency £m £m £m £m  years
sterling 29443 409 10053 18981 60 174
euro 419 155 264 –
us dollar 637 81 556 –
total ﬁnancial liabilities at 31 march 2005 30499 645 10873 18981
noninterest bearing liabilities relate to onerous contracts and trade payables the weighted average period to maturity of the onerous
contracts is 15 years 20 years trade payables are all due in under 1 year
in addition to the ﬁxed debt above the group has entered into a number of forward start accruing interest rate swaps these had an initial
notional value of £17 million and commence accreting notional value between 31 march 2005 and 2032 the maximum notional value of
these swaps is £135 million these swaps are ﬂoating to ﬁxed and bear ﬁxed interest at between 526 and 552
the group has also entered into £318 million of forward start interest rate swaps ﬂoating to ﬁxed that commence between may 2006 and
may 2009 these swaps all terminate in 2010 and 2011 these interest rate swaps bear interest between 453 and 487
floating rate sterling denominated borrowings bear interest based on libor whilst euro denominated borrowings bear interest based on
euribor and dollar borrowings bear interest based on dollar libor
b investments in interest earning assets analysed by currency after taking account of various currency swaps entered into by the group
2006 2005
currency £m £m
sterling deposits 878 404
sterling cash at bank 548 504
1426 908
investments in interest earning assets comprise shortterm deposits placed on money markets and certiﬁcates of deposit with a
maturity date not exceeding one year
financial assets comprise £548 million of cash and £878 million of cash held on short term deposit sterling assets receive interest
based on libid
of the total £1426 million interest earning assets there is £341 million of cash held on short term deposit as security for external
insurance as part of derwent’s reinsurance obligations in addition severn trent water and biffa have a total of £40 million on short
term deposit £21 million for severn trent water and £19 million for biffa as security for self insurance obligations
c monetary assets and liabilities by currency excluding the functional currency
at 31 march 2006
net foreign currency monetary assets
us dollar euro other total
£m £m £m £m
functional currency of operation
sterling 57 07 – 64
at 31 march 2005
net foreign currency monetary assets
us dollar euro other total
£m £m £m £m
functional currency of operation
sterling 16 07 02 25
net currency gainslosses arising from monetary assetsliabilities not in the functional currency of an operation are recognised in its
income statement those arising from the translation of us dollar and euro functional currency ﬁnancial statements into sterling are
recognised in the statement of recognised income and expense
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
78 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  79
d financial liabilities analysed by maturity date
loans
payable by
instalments
any of which
are payable other other
after ﬁve repayment finance ﬁnancial 2006 2005
overdrafts years terms leases liabilities total total
£m £m £m £m £m £m £m
current ﬁnancial liabilities 322 33 7275 452 584 8666 5482
borrowings due after one year
between one and two years – – 1214 422 09 1645 1399
between two and ﬁve years – – 4068 1474 01 5543 6406
after more than ﬁve years – 222 13015 2540 – 15777 17212
non current ﬁnancial liabilities – 222 18297 4436 10 22965 25017
322 255 25572 4888 594 31631 30499
£345 million of funding instruments contain certain ﬁnancial covenants breach of which can trigger early repayment
e borrowing facilities
the group has the following undrawn committed borrowing facilities available all at ﬂoating rates
2006 2005
£m £m
expiring within one year – –
expiring in more than one but not more than two years – 2000
expiring in more than two but not more than ﬁve years 5000 5000
5000 7000
in addition the group also has overdraft facilities of £800 million 2005 £870 million of which nil 2005 £568 million remains
undrawn at the year end
f derivative contracts
2006
assets liabilities
£m £m
cross currency swaps – hedges of net investment ––
cross currency swaps – fair value hedges 31 370
cross currency swaps – not qualifying for hedge accounting 39 –
interest rate swaps – cash ﬂow hedges 06 30
interest rate swaps – not qualifying for hedge accounting 69 1045
total 145 1445
less noncurrent portion
cross currency swap – fair value hedges 31 271
interest rate swap – cashﬂow hedges 06 30
total 37 301
current portion 108 1144 interest rate swaps
the notional principal amounts of the outstanding interest rate swaps contracts at 31 march 2006 was £1232 million the ﬁxed interest
rates vary from 437 to 645 the main ﬂoating rate is libor
included within this are interest rate swaps with a notional value of £850 million which do not qualify for hedge accounting the group has
an ongoing debt requirement and these swaps aim to ﬁx the interest rates paid on a portfolio of variable debt of various terms as it is not
possible to speciﬁcally match these swaps to individual debt instruments they do not qualify for hedge accounting 
cross currency swaps
the notional principal amounts of the outstanding cross currency swap contracts at 31 march 2006 was £4676 million these swap a
variety of currencies into sterling
hedge of net investments in foreign entities
the group’s us dollar cross currency swap is designated as a hedge of net investment in the group’s us subsidiaries the fair value of the
swap at 31 march 2006 was £nil 2005 £02 million liability the foreign exchange loss of £52 million was recognised in retained
earnings reserves in shareholders’ equity
g fair values of ﬁnancial instruments
financial instruments by category
assetliability
2006 2005
book value fair value book value fair value
£m £m £m £m
primary ﬁnancial instruments held or issued to ﬁnance the group’s operations
shortterm deposits 878 878 404 404
cash at bank and in hand 548 548 504 504
borrowings falling due within one year 8082 7912 4801 4813
borrowings falling due after more than one year 22955 24686 24725 26165
provisions for onerous contracts 22 22 37 37
other noninterest bearing liabilities 573 573 608 608
derivative ﬁnancial instruments held to manage the currency and interest rate proﬁle
interest rate swaps and similar instruments 1000 1000 – 637
currency instrument – cross currency swaps 300 300 325 374
currency instrument – investment hedge –– 03 02
total net ﬁnancial liabilities 31506 33067 29591 31728
other longterm assets 
other ﬁxed asset investments 05 05 07 07
where available market rates have been used to determine fair values when market prices are not available fair values have been
calculated by discounting cash ﬂows at prevailing interest rates
h unrecognised gains and losses on hedges at 31 march 2005
total net
gains
gains losses losses
£m £m £m
unrecognised gains and losses on hedges at 1 april 2004 61 711 650
arising in previous years that were recognised in the year 21 52 31
arising before 1 april 2004 that were not recognised in the ﬁnancial year 82 763 681
unrecognised gains and losses arising during the ﬁnancial year 64 60 04
unrecognised gains and losses on hedges at 31 march 2005 18 703 685
expected to be recognised
in one year or less – 04 04
in later years 18 699 681
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
80 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  81
i financial risk factors
the group’s activities expose it to a variety of ﬁnancial risks market risk including currency risk credit risk liquidity risk and interest
rate risk the group’s overall risk management programme focuses on the unpredictability of ﬁnancial markets and seeks to minimise
potential adverse effects on the group’s ﬁnancial performance the group uses derivative ﬁnancial instruments to hedge certain risk
exposures
risk management is carried out by a central treasury department group treasury under policies approved by the board of directors
group treasury identiﬁes evaluates and hedges ﬁnancial risks in close cooperation with the group’s operating units the board provides
written principles for overall risk management as well as written policies covering speciﬁc areas such as foreign exchange risk interest
rate risk credit risk use of derivative ﬁnancial instruments and nonderivative ﬁnancial instruments and the investment of surplus funds
i market risk
the group operates internationally and is exposed to foreign exchange risk arising from net investments in foreign operations
primarily with respect to the us dollar and the euro in addition the group has a signiﬁcant value of foreign currency debt 
primarily in us dollars yen and euros
foreign exchange risk arises when transactions are denominated in a currency that is not the entity’s functional currency to manage
the foreign exchange risk arising from foreign currency debt the group enters into cross currency swaps with external parties
external foreign exchange contracts are designated at group level and company level as hedges of foreign exchange risk on speciﬁc
assets liabilities or future transactions on a gross basis
the group’s risk management policy is to hedge 100 of all foreign currency denominated debt
the group has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk currency
exposure arising from the net assets of the group’s foreign operations is managed through borrowings and forward foreign exchange
contracts denominated in the relevant foreign currencies
ii credit risk
operationally the group has no signiﬁcant concentrations of credit risk it has policies in place to ensure that sales of products are
made to customers with an appropriate credit history other than in severn trent water limited whose operating licence obliges it 
to continue to supply domestic customers even in cases where bills are not paid 
for ﬁnancing purposes derivative counterparties and cash transactions are limited to high credit quality ﬁnancial institutions 
the group has policies that limit the amount of credit exposure to any one ﬁnancial institution
iiiliquidity risk
prudent liquidity risk management implies maintaining sufﬁcient cash balances and the availability of funding through an adequate
amount of committed credit facilities and the ability to close out market positions due to the dynamic nature of the underlying
businesses group treasury aims to maintain ﬂexibility in funding by keeping committed credit lines available
ivcash ﬂow and fair value interest rate risk
the group’s income and operating cash ﬂows are substantially independent of changes in market interest rates
the group’s interest rate risk arises from longterm borrowings borrowings issued at variable rates expose the group to cash ﬂow
interest rate risk borrowings issued at ﬁxed rates expose the group to fair value interest rate risk group policy is to maintain over
50 of its borrowings in ﬁxed rate instruments currently some 72 of the group’s net debt is ﬁxed
the group manages its cash ﬂow interest rate risk by using ﬂoating to ﬁxed interest rate swaps such interest rate swaps have the
economic effect of converting borrowings from ﬂoating rates to ﬁxed rates under the terms of the interest rate swaps the group
agrees with other parties to exchange at speciﬁed intervals mainly semiannually the difference between ﬁxed contract and ﬂoating
rate interest rates calculated by reference to the agreed notional principal amounts the group has entered into a series of long
dated interest rate swaps to hedge future debt economically these act to ﬁx ﬂoating rate debt within the group but do not achieve
hedge accounting under the strict criteria of ias 39 this has led to a charge of £367 million in the income statement 
in 200506
j fair value estimation
the fair value of ﬁnancial instruments traded in active markets such as trading and availableforsale securities is based on quoted
market prices at the balance sheet date the quoted market price used for ﬁnancial assets held by the group is the current bid price
the fair value of ﬁnancial instruments that are not traded in an active market for example over the counter derivatives is determined
by using valuation techniques the group uses a variety of methods and makes assumptions that are based on market conditions
existing at each balance sheet date estimated discounted cash ﬂows are used to determine fair value for the debt the fair value of
interest rate swaps is calculated as the present value of the estimated future cash ﬂows the fair value of forward foreign exchange
contracts is determined using quoted forward exchange rates at the balance sheet date
the nominal value less impairment provision of trade receivables and payables are assumed to approximate their fair values the fair
value of ﬁnancial liabilities for disclosure purposes is estimated by discounting the future contractual cash ﬂows at the current market
interest rate that is available to the group for similar ﬁnancial instruments 20 available for sale investments
2006 2005
£m £m
investments in unquoted equity instruments 05 07
the fair values of the unquoted equity instruments cannot be measured reliably since there is no active market in the instruments hence
the investments are held at cost it is not possible to determine a range of estimates within which the fair values are highly likely to lie
21 inventory
2006 2005
£m £m
inventory and work in progress 341 332
development land and properties 203 328
544 660
22 trade and other receivables
2006 2005
£m £m
trade receivables 3727 3398
less provision for impairment of receivables 701 637
trade receivables – net 3026 2761
receivables from related parties 03 03
corporation tax recoverable 01 05
other amounts receivable 121 330
prepayments and accrued income 1664 1826
current trade and other receivables 4815 4925
the carrying values of trade and other receivables are reasonable approximations of their fair values
there is no concentration of credit risk with respect to trade receivables
prepayments includes £42 million in respect of amounts due from customers for contract work
the amount of contract costs plus recognised proﬁts was £517 million
23 cash and cash equivalents
2006 2005
£m £m
cash at bank and in hand 548 504
short term bank deposits 878 404
1426 908
of the £878 million of short term bank deposits £341 million is not available for use by the group further details are given in note 19b
cash and bank overdrafts include the following for the purposes of the cash ﬂow statement
2006 2005
£m £m
cash and cash equivalents 1426 908
bank overdrafts note 24 322 264
1104 644
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
82 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  83
24 borrowings
2006 2005
£m £m
bank overdrafts 322 264
bank loans 3814 4485
other loans 22013 20058
obligations under ﬁnance leases 4888 5047
borrowings 31037 29854
2006 2005
£m £m
the borrowings are repayable as follows
on demand or within one year included in current liabilities 8082 4865
in the second year 1636 1389
in the third to ﬁfth years inclusive 5542 6387
after ﬁve years 15777 17213
included in noncurrent liabilities 22955 24989
31037 29854
the group’s borrowings are denominated in the following currencies after taking account of cross currency swaps
2006 2005
£m £m
sterling 30694 29034
euro 296 264
us dollar 47 556
31037 29854
the fair values of the group’s borrowings were
2006 2005
£m £m
bank overdrafts 322 264
bank loans 3587 4590
other loans 23801 21077
obligations under ﬁnance leases 4888 5047
32598 30978
fair values are based on expected future cash ﬂows discounted using libor forward interest rates related to the expected timing of
payments
after taking into account interest and cross currency swaps 72 of the group’s net debt is at ﬁxed interest rates 2005 64 
the remainder of the group’s debt is held at ﬂoating rate sterling debt bears libor interest us dollar debt bears interest at us dollar
libor whilst euro debt bears interest at euribor
fixed debt has a weighted average interest rate of 57 2005 60 for a weighted average period of 146 years 2005 174 years
further details of bank facilities are given in note 19
obligations under ﬁnance leases are as follows
2006 2005
£m £m
gross obligations under ﬁnance leases 7216 8474
less future ﬁnance charges 2328 3427
present value of lease obligations 4888 5047 25 trade and other payables
2006 2005
£m £m
current liabilities
trade payables 573 608
dividends payable – 630
social security and other taxes 479 294
other payables 393 349
accruals and deferred income 3961 3899
5406 5780
noncurrent liabilities
deferred income 1515 1247
other payables 27 45
accrued expenses 45 –
1587 1292
the directors consider that the carrying value of trade payables is not materially different from their fair values
accruals and deferred income includes £07 million in respect of amounts due to customers for contract work
26 deferred tax
the following are the major deferred tax liabilities and assets recognised by the group and movements thereon during the current and prior
reporting period
fair 
retirement value of
accelerated tax beneﬁt ﬁnancial
depreciation obligation tax losses instruments other total
£m £m £m £m £m £m
at 1 april 2004 8782 1129 22   769 8400 
chargecredit to income 430 44 10   139 345 
chargecredit to equity   130     04 134 
exchange differences 01       01 02 
at 31 march 2005 9213 955 12   635 8881 
restatement on adoption of ias 39       212   212
at 1 april 2005 9213 955 12 212 635 8669 
chargecredit to income 102 209 01 110 262 60
chargecredit to equity   80   14 08 86 
acquisitionsdisposals 01         01 
assets held for sale     10     10 
exchange differences         04 04
at 31 march 2006 9316 666 01 308 361 8702
certain deferred tax assets and liabilities have been offset  the offset amounts are as follows
2006 2005
£m £m
deferred tax asset to be recovered after more than 12 months 689 318
deferred tax asset to be recovered within 12 months 30 71
719 389
deferred tax liability to be recovered after more than 12 months 9328 9270 
deferred tax liability to be recovered within 12 months 93   
9421 9270 
8702 8881 
in addition to the amounts disclosed above at the balance sheet date the group had unrecognised deferred tax assets in respect of 
unused tax losses of £103 million 2005 £91 million available for offset against future proﬁts
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
84 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  85
27 retirement beneﬁt schemes
deﬁned beneﬁt schemes
the group operates a number of deﬁned beneﬁt pension schemes in the uk covering the majority of uk employees the deﬁned beneﬁt
schemes are funded to cover future salary and pension increases and their assets are held in separate funds administered by trustees 
a formal actuarial valuation of each scheme is carried out at regular intervals by an independent professionally qualiﬁed actuary under 
the deﬁned beneﬁt schemes members are entitled to retirement beneﬁts calculated as a proportion varying between one thirtieth and 
one eightieth for each year of service of their salary for the ﬁnal year of employment with the group or if higher the average of the 
highest three consecutive years salary in the last ten years of employment the ﬁnal salary sections of all four of the pension schemes
listed below are closed to new entrants and the age proﬁle of scheme participants is expected to rise and hence service costs are also
expected to rise in the future
the uk deﬁned beneﬁt schemes and the date of their last formal actuarial valuation are as follows
uk deﬁned beneﬁt scheme date of last formal actuarial valuation
severn trent pension scheme “stps”  31 march 2004
severn trent senior staff pension scheme 31 march 2004
uk waste pension scheme 6 april 2003
severn trent water mirror image pension scheme 31 march 2003
 the stps is by far the largest of the group’s uk deﬁned beneﬁt schemes
beneﬁts are also provided by the group on an unfunded unapproved basis to a number of senior staff recruited since june 1989 whose
beneﬁts would otherwise have been restricted by the finance act 1989 earnings cap provision is made for such beneﬁts by annual charge
against the group’s earnings totalling in the current year £12 million 2005 £16 million
the major assumptions used in the valuation of the stps also the approximate weighted average of assumptions used for the valuations of
all group schemes were as follows
valuation at
2006 2005
price inﬂation 270 275
salary increases 420 425
pension increases in payment and deferment 270 275
discount rate 490 550
longevity at age 70 for current pensioners
– men 145 145
– women 167 167
longevity at age 65 for future pensioners
– men 189 189
– women 218 218
amounts recognised in the income statement in respect of these deﬁned beneﬁt schemes are as follows
2006 2005
£m £m
amounts charged to operating costs
current service cost 389 413
past service cost 08 –
settlements – 40
397 453
amounts charged to net ﬁnance costs
interest cost 754 710
expected return on scheme assets 792 698
38 12
total amount charged to the income statement 359 465
actuarial gains and losses have been reported in the statement of recognised income and expense the amount included in the balance sheet arising from the group’s obligations under deﬁned beneﬁt schemes is as follows
2006 2005
£m £m
present value of deﬁned beneﬁt obligations – funded schemes 16133 13849
total fair value of assets 14029 10769
2104 3080
present value of deﬁned beneﬁt obligations – unfunded schemes 115 95
liability recognised in the balance sheet 2219 3175
movements in the present value of the deﬁned beneﬁt obligation were as follows
2006 2005
£m £m
at 1 april 13944 13109
service cost 397 413
loss on settlements and curtailments – 40
interest cost 754 710
contributions from scheme members 106 115
actuarial gains and losses recognised in the statement of recognised income and expense 1528 57
beneﬁts paid 481 386
at 31 march 16248 13944 
movements in the fair value of the scheme assets were as follows
2006 2005
£m £m
at 1 april 10769 9344
expected return on scheme assets 792 698
contributions from the sponsoring companies 1052 623
contributions from scheme members 106 115
actuarial gains and losses recognised in the statement of recognised income and expense 1791 375
beneﬁts paid 481 386
at 31 march 14029 10769
the analysis of the assets in the schemes and the expected rates of return were
2006 2005
expected fair value expected fair value 
return of assets return of assets
£m £m
equities 800 9075 825 7423
gilts 417 2617 460 1859
corporate bonds 440 635 550 550
property 620 814 646 631
cash 370 888 375 306
total fair value of assets 14029 10769
the expected rate of return on scheme assets is based on market expectations at the beginning of the period for returns over the life of 
the beneﬁt obligation for gilts and corporate bonds the expected rates of return are based on market yields at the balance sheet date 
for equities an equity risk premium has been added to the gilt rate
the actual return on scheme assets was £2583 million 2005 £1073 million
the estimated amount of contributions expected to be paid to the schemes in the normal course during the year ending 31 march 2007 is
£650 million
the history of actual and expected performance of pension scheme assets and liabilities is
2006 2005
£m £m
difference between actual and expected return on scheme assets 1791 375
experience adjustments on scheme liabilities 1528 57
total fair value of assets 263 432
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
86 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  87
deﬁned contribution schemes
the group also operates deﬁned contribution arrangements for certain of its uk and overseas employees in september 2001 the severn
trent group pension scheme an occupational deﬁned contribution scheme was established to ensure compliance with stakeholder
legislation and to provide the group with an alternative pension arrangement this was closed to new entrants on 1 april 2005 and
replaced by the severn trent stakeholder pension scheme
the total cost charged to operating costs of £40 million 2005 £26 million represents contributions payable to these schemes by the
group at rates speciﬁed in the rules of the schemes as at 31 march 2006 no contributions 2005 £nil due in respect of the current
reporting period had not been paid over to the schemes
28 provisions
environmental and onerous 
landﬁll restoration restructuring insurance contracts other total
£m £m £m £m £m £m
at 1 april 2004 771 21 223 68 08 1091
charged to income statement 95 138 125 04 04 366
utilisation of provision 96 24 86 34 05 245
unwinding of discount 23 – – – – 23
reclassiﬁcation 27 – 13 – – 14
prior year fair value adjustment 05 – – 01 – 04
exchange differences 03 – – – – 03
at 1 april 2005 774 135 275 37 07 1228
charged to income statement 98 40 105 – 55 298
utilisation of provision 122 99 93 15 17 346
unwinding of discount 23 – – – – 23
reclassiﬁcation 08 – – – 04 04
amounts classiﬁed as held for sale 100 – – – – 100
exchange differences 03 – – – – 03
at 31 march 2006 668 76 287 22 49 1102
2006 2005
£m £m
included in
current liabilities 301 322
noncurrent liabilities 801 906
1102 1228
as more fully explained in note 2m environmental and landﬁll restoration provisions reﬂect costs to be incurred over the operational life of
individual landﬁll sites and in the case of aftercare costs for up to 30 years thereafter discounting is applied
the restructuring provision reﬂects costs to be incurred in respect of committed programmes all of the associated outﬂows are estimated
to occur within one year of the balance sheet date
derwent insurance limited a captive insurance company is a wholly owned subsidiary of the group provisions for claims are made
as set out in note 2m the associated outﬂows are estimated to arise over a period of up to ﬁve years from the balance sheet date
the onerous or loss making contract provision relates to speciﬁc contractual liabilities either assumed with businesses acquired or arising
in existing group businesses where estimated future costs are not expected to be recovered in revenues the associated outﬂows are
estimated 29 share capital
2006 2005
£m £m
total authorised share capital
520175751 ordinary shares of 65
5
⁄ 19p 3395 3395
total issued and fully paid share capital
348093283 2005 346002393 ordinary shares of 65
5
⁄ 19p 2272 2258
1652278 ordinary shares of 65
5
⁄ 19p were issued at 473p 536p 548p 568p 592p 759p 799p or 831p under the group’s 
employee sharesave scheme and 438612 ordinary shares of 65
5
⁄ 19p were issued at 6805p 688p 720p 738p 934p or 
1005p under the group’s share option scheme formerly executive share option scheme the aggregate consideration in 
respect of these allotments was £116 million
changes in share capital were as follows
at 1 april 2258 2252
employee share option schemes 14 06
at 31 march 2272 2258
30 share premium
2006 2005
£m £m
at 1 april 384 335
employee share option scheme 102 49
at 31 march 486 384
31 other reserves
capital translation total
redemptioninfrastructure exchange hedging other 
reserve reserves reserve reserves reserves  
£m £m £m £m £m
at 1 april 2004 1561 3142 – – 4703 
exchange adjustments net of tax – – 38 08 30
at 31 march 2005 1561 3142 38 08 4673 
ias 39 transition 790 790
deferred tax on ias 39 adjustments 212 212 
change of accounting policy on adoption of ias 32 and ias 39 578 578
at 1 april 2005 1561 3142 38 570 4095 
exchange adjustments net of tax – – 216 35 181 
cash ﬂow hedges
– fair value gains in the period – – – 03 03 
– transfers to net proﬁt – – – 45 45 
at 31 march 2006 1561 3142 178 557 4324 
the translation reserve arises from exchange differences on translation of the results and ﬁnancial position of foreign subsidiaries as well as
foreign exchange differences arising from hedges of net investment
the hedging reserve arises from gains or losses on hedging instruments taken directly to equity under the hedge accounting provisions of
ias 39 and the transition rules of ifrs 1
the capital redemption reserve arose on the redemption of b shares it is not distributable
the infrastructure reserve arose on restating infrastructure assets to fair value as deemed cost on transition to ifrs and is not distributable
the translation reserve arises from exchange differences on translation of the results and ﬁnancial position of foreign subsidiaries as well as
foreign exchange differences arising from hedges of net investment
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
88 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  89
32 movement in shareholders’ equity
equity 
attributable
to the 
equity holders 
share share other retained of severn minority 
capital premium reserves earnings trent plc interests total
£m £m £m £m £m £m £m
at 1 april 2004 2252 335 4703 10926 18216 24 18240
exchange adjustments net of tax – – 30 – 30 – 30
purchase of shares for esop trust – – – 41 41 – 41
share options and ltips
– proceeds from shares issued 06 49 – – 55 – 55 
– value of employees’ services – – – 41 41 – 41 
net proﬁt for the year – – – 1574 1574 07 1581 
dividends – – – 1637 1637 12 1649
actuarial gain on pension schemes – – – 432 432 – 432 
deferred tax on items posted directly to equity – – – 134 134 – 134
at 31 march 2005 2258 384 4673 11161 18476 19 18495 
ias 39 transition – – 790 – 790 – 790
deferred tax on ias 39 adjustments – – 212 – 212 – 212
change of accounting policy on adoption 
of ias 32 and ias 39 – – 578 – 578 – 578 
at 1 april 2005 2258 384 4095 11161 17898 19 17917 
exchange adjustments net of tax – – 181 – 181 – 181 
cash ﬂow hedges
– fair value gains in the period – – 03 – 03 – 03 
– transfers to net proﬁt – – 45 – 45 – 45 
share options and ltips
– proceeds from shares issued 14 102 – – 116 – 116 
– value of employees’ services – – – 41 41 – 41 
net proﬁt for the year – – – 2216 2216 14 2230 
dividends – – – 1713 1713 07 1720 
actuarial gain on pension schemes – – – 263 263 – 263
deferred tax on items posted directly to equity – – – 86 86 – 86 
at 31 march 2006 2272 486 4324 11882 18964 26 18990 
purchase of own shares represents ordinary shares of 65
5
⁄ 19p each purchased by the severn trent employee share ownership trust for
certain senior employees under the long term incentive plans ltips the main features of the ltips are set out in the directors’
remuneration report on pages 43 and 44 at 31 march 2006 the trust held 914894 shares 2005 1369984 shares
the market value of these shares at 31 march 2006 was £102 million 2005 £125 million 33 share based payment
the group operates a number of share based remuneration schemes for employees and details of the share awards outstanding during the
year are as follows
employee approved share unapproved share 
sharesave scheme option scheme option scheme
weighted weighted weighted
number average number average number average
of share exercise of share exercise of share exercise 
options price options price options price
outstanding at 1 april 2004 6493057 558p 549633 763p 1300403 732p
granted during the year 1199884 759p – – – –
forfeited during the year 131074 533p 31024 816p 37239 790p
cancelled during the year 256946 663p – – – –
exercised during the year 593696 607p 94027 730p 198844 724p
expired during the year 32952 561p – – – –
outstanding at 1 april 2005 6678273 579p 424582 766p 1064320 731p
granted during the year 1017512 823p – – – –
forfeited during the year 169511 534p 15528 892p 23450 784p
cancelled during the year 142669 587p – – – –
exercised during the year 1652278 490p 155617 755p 295786 744p
expired during the year 16252 623p – – – –
outstanding at 1 april 2006 5715075 641p 253437 768p 745084 724p
the weighted average share price during the period was £1029 2005 £869
share option schemes
the options outstanding at the end of the period are exercisable as shown below
i employee sharesave scheme
under the terms of the sharesave scheme the board may grant those employees who have entered into an inland revenue approved
save as you earn contract for a period of three ﬁve or seven years the right to purchase ordinary shares in the company options
outstanding at 31 march 2006 were as follows
normal date 
number of shares
date of grant of exercise option price 2006 2005
january 1998 2005 799p – 43755
january 1999 2004 or 2006 831p 28683 29169
january 2000 2003 2005 or 2007 473p 301455 1428973
january 2001 2004 2006 or 2008 568p 448188 481508
january 2002 2005 2007 or 2009 548p 500388 926533
january 2003 2006 2008 or 2010 536p 1277674 1402330
january 2004 2007 2009 or 2011 592p 1061142 1174622
january 2005 2008 2010 or 2012 759p 1086938 1191383
january 2006 2009 2011 or 2013 823p 1010607 –
ii approved share option scheme
under the terms of the share option scheme formerly executive share option scheme the board has granted directors and other
executives options to purchase ordinary shares in the company options outstanding under this scheme at 31 march 2006 were as
follows
normal date 
number of shares
date of grant of exercise option price 2006 2005
june 1998 20012008 1005p 34459 49052
june 1999 20022009 934p 35005 53720
june 2000 20032010 688p 54335 58725
july 2001 20042011 738p 12770 27555
june 2002 20052012 720p 22916 119431
july 2003 20062013 6805p 93952 116099
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
90 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  91
iii unapproved share option scheme
the board has granted executives options to purchase ordinary shares in the company under an unapproved share option scheme
options outstanding under this scheme at 31 march 2006 were as follows
normal date 
number of shares
date of grant of exercise option price 2006 2005
june 1998 20012008 1005p 21271 34655
june 1999 20022009 934p 50989 76255
june 2000 20032010 688p 181249 200125
july 2001 20042011 738p 107665 158077
june 2002 20052012 720p 127459 313803
july 2003 20062013 6805p 256451 281405
iv fair values of awards
2006 2005
number fair value number fair value
£m £m
ltip awards 704790 56 980591 47
sharesave options 1017512 18 1199884 28
share incentive plan sip 131475 13 163680 13
the fair value of the ltip awards was calculated using the monte carlo method the principal assumptions were as follows
ltip award year 200506 200405 200304
share price at grant date 1017p 903p 661p
number of shares awarded 704790 980591 932481
number of employees 190 231 153
vesting period years 333
expected volatility 17 20 25
expected life years 333
expected dividend yield na 65 70
proportion of employees expected to cease employment before vesting 0 0 0
expectation of meeting economic proﬁt performance criteria 100 100 100
fair value per share ep schemetsr scheme 1017p468p 484p 365p
details of the basis of the ltip schemes are set out in the remuneration report on pages 43 to 44
the fair value of the sharesave options was calculated using the black scholes model the principal assumptions were as follows
scheme year 200506 200405 200304
scheme type 3 year 5 year 7 year 3 year 5 year 7 year 3 year 5 year 7 year
share price at grant date 1069p 1069p 1069p 979p 979p 979p 736p 736p 736p
number of options granted 605633 346668 65211 619784 461680 118420 749803 395829 121681 
number of employees 1775 676 111 1826 756 175 1824 689 169 
vesting period years 3 5 7 3 5 7 3 5 7
expected volatility 17 17 17 30 30 30 25 25 25
option life years 35 55 75 35 55 75 35 55 75 
expected life years 325 525 725 325 525 725 325 525 725 
risk free rate 431 428 424 452 454 456 460 476 482
expected dividend yield 65 65 65 65 65 65 70 70 70
proportion of employees expected to 
cease employment before vesting 150 170 130 150 170 130 150 130 170
fair value per share – sharesave 189p 168p 149p 232p 227p 216p 140p 135p 127p
the sip shares are purchased on the open market and vest with the employees immediately and hence the value of the shares purchased
is charged straight to the income statement
during the period the group recognised total expenses of £41 million 2005 £41 million related to equity settled sharebased payment
transactions
volatility is based on historical observations as adjusted for unusual market ﬂuctuations 34 disposal of subsidiaries
on 31 january 2006 the group sold its interests in worksuite limited and worksuite llc and sold certain assets and liabilities of severn
trent systems limited to logicacmg plc
the net assets at the date of sale were
31 january 
2006
£m
property plant and equipment 03
intangible assets 09 
trade and other receivables 25 
trade and other payables 34
03 
foreign exchange movements recycled from reserves 17 
loss on disposal 04
total consideration 16 
satisﬁed by
cash 16 
deferred consideration –  
16 
net cash inﬂow arising on disposal
cash consideration 16 
cash and cash equivalents disposed of –  
16 
this loss on disposal is included in the exceptional costs analysed in note 7
35 cash ﬂow statement
2006 2005
£m £m
a reconciliation of operating proﬁt to operating cash ﬂows
operating proﬁt from continuing operations 4725 3965
operating proﬁt from discontinued operations 41 33
4684 3998
depreciation of property plant and equipment 2679 2603
amortisation of intangible assets 293 223
proﬁt on sale of property plant and equipment 43 75
proﬁt on sale of investments – 43
deferred income movement 35 14
provisions for liabilities and charges 298 366
utilisation of provisions for liabilities and charges 346 245
decrease in stocks 134 140
increase in debtors 108 364
increasedecrease in creditors 33 356
cash generated from operations 7589 6233
interest paid 1394 1363
interest element of ﬁnance lease rental payments 451 168
tax paid 683 365
net cash inﬂow from operating activities 5061 4337
b analysis of net cash and cash equivalents
2006 2005
£m £m
cash and cash equivalents 1426 908
bank overdrafts 322 264
1104 644
c noncash transactions
additions to property plant and equipment during the year amounting to £03 million were ﬁnanced by new ﬁnance leases
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
92 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  93
36 contingent liabilities
a bonds and guarantees
group undertakings have entered into bonds in the normal course of business no liability is expected to arise in respect of either bonds
or guarantees
b regulatory matters
in may 2004 an employee of severn trent water raised a number of allegations relating in particular to alleged accounting inaccuracies
and regulatory returns 
on 31 october 2005 as a result of a referral by ofwat the serious fraud ofﬁce sfo informed the company that it was undertaking a
criminal investigation into alleged reporting irregularities made to ofwat by severn trent water limited between 2000 and 2003 ofwat
had been conducting its own investigation following the allegations made by the employee of severn trent water ofwat began its
investigation into the allegations in january 2005 the matter reported to the sfo concerned data on leakage
on 7 march 2006 ofwat published its interim report concerning the allegations of false reporting made against severn trent water 
in 2004 
the company’s internal investigation and ofwat’s investigation were thorough and lengthy requiring complex judgements severn
trent’s judgements have not been identical to ofwat’s in every aspect but in the interests of making amends as soon as possible 
the board believed it was sensible to proceed by agreement
having considered ofwat’s ﬁndings the board of severn trent plc agreed that customer accounts should be credited as soon as
possible in 200607 on average this credit will be around £4 per customer in addition to the £2 to £3 already rebated in the following
three years the rebate will be £2 to £3 per customer a provision of £106 million has been included in these ﬁnancial statements in
respect of amounts relating to 200506 and prior
the company also acknowledged that ofwat may expect further amends to be made to customers ofwat has stated that this penalty
will be discussed with severn trent water on completion of the sfo investigation into leakage
on 7 april 2006 the company announced that as a result of an ongoing comprehensive review of severn trent water by its managing
director tony wray and his new management team the board believed there was prima facia evidence of customer relations data being
misstated by severn trent water in submissions to ofwat the data concerned the handling of customer billing queries and telephone
contacts over several years 
ofwat is carrying out an independent veriﬁcation of the internal severn trent investigation and report relating to customer relations data
submitted to it using forensic accountants who will report to both severn trent water and ofwat on their conclusions
no reliable estimate can currently be made of the amounts that might become payable as a result of the sfo enquiry ofwat’s ﬁnal
conclusion in respect of the allegations of false reporting or its review of customer relations data consequently except as noted above
no provision has been included in these ﬁnancial statements in respect of these matters 
c belgian environmental tax
in june 2005 the flemish waste agency “ovam” instigated an investigation by the antwerp examining magistrate into biffa belgium’s
waste recycling operations in connection with the payment of environmental taxes a provision of £40 million the amount currently
assessed by ovam has been made in these ﬁnancial statements for potential additional environmental taxes related penalties and
interest for prior periods
no provision has been made for any criminal penalties that might result from this investigation since no reliable estimate can be made
of the amount that might become payable
d disposal of subsidiaries
the group has entered into agreements to dispose of its interests in worksuite llc the assets and certain liabilities of its cis business
and biffa belgium the group has given certain guarantees and indemnities to the purchasers of these businesses the group is not
aware of any liability that is likely to result from these guarantees and indemnities that has not been provided for in these ﬁnancial
statements 37 financial and other commitments
2006 2005
£m £m
investment expenditure commitments
contracted for but not provided in the ﬁnancial statements 1485 1742
in addition to these contractual commitments severn trent water limited has longer term expenditure plans which include investments to
achieve improvements in performance mandated by the director general of water services and to provide for growth in demand for water
and sewerage services
at the balance sheet date the group had outstanding commitments for future minimum operating lease payments under noncancellable
operating leases which fall due as follows
2006 2005
£m £m
within one year 193 175
in the second to ﬁfth years inclusive 336 325
after more than ﬁve years 540 544
1069 1044
operating lease payments represent rentals payable by the group for certain of its ofﬁce properties plant and equipment
38 post balance sheet events
following the yearend the board of directors has proposed a ﬁnal dividend of 3197 pence per share further details of this are shown 
in note 12
on 4 april 2006 the board of severn trent plc announced that it intends to demerge its uk integrated waste management business biffa
the board believes that the creation of two separately listed companies severn trent plc and biffa plc each with dedicated boards and
experienced management teams focused on continued strategic and operational development with access to their own capital will deliver
greater beneﬁts to shareholders customers and employees
following the demerger severn trent is expected to remain the uk’s second largest listed water company and a constituent of the ftse 100
continuing to focus on delivering investment programmes improving efﬁciencies and customer service levels
biffa is one of the uk’s leading integrated waste management companies it was acquired by severn trent in 1991 and since then it has
grown both organically and through the acquisitions of uk waste and hales following the demerger it is expected to be a constituent of the
ftse 250
the decision to demerge biffa remains subject to shareholder and other approvals and to further detailed due diligence the board expects
the demerger to be completed by the end of october 2006
on 12 may 2006 the group agreed to sell biffa belgium to veolia for €45 million it is expected that this transaction will be completed before
the end of june 2006 the transaction is conditional upon the clearance form the belgian competition authorities
on 2 june 2006 the group signed heads of terms to sell its interest in aquaﬁn nv to the flemish government for approximately £30 million
the sale is expected to complete in july 2006
the ﬁnancial effect of these cannot currently be determined
notes to the group ﬁnancial statements
continued
group ﬁnancial statements
94 severn trent plc annual report and accounts 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  95
39 related party transactions
transactions between the company and its subsidiaries which are related parties have been eliminated on consolidation and are not
included in this note transactions between the group and its associates and joint ventures are disclosed below
trading transactions
amounts due amounts due 
sale of goods purchase of goods from related parties to related parties
2006 2005 2006 2005 2006 2005 2006 2005
£m £m £m £m £m £m £m £m
cognice – – 01 01 01 01 – –
detroit water 02 02 – – 01 02 – –
sii 91 62 – – 117 58 – –
severn trent de nora – – 02 01 02 02 – –
93 64 03 02 121 63 – –
the related parties are associated and joint ventures in which the group has a participating interest
remuneration of key management personnel
key management personnel comprise the executive directors and senior management of severn trent plc severn trent water biffa and
severn trent services
the remuneration of the directors is included within the amounts disclosed below further information about the remuneration of individual
directors is provided in the audited part of the directors’ remuneration report on pages 48 to 51
2006 2005
£m £m
short term employee beneﬁts 87 80
post employment beneﬁts 16 22
termination beneﬁts 03 –
share based payments 11 14
117 116 notes to the group ﬁnancial statements
continued
group ﬁnancial statements
96 severn trent plc annual report and accounts 2006
40 principal subsidiary undertakings 
and their directors
details of the principal operating subsidiaries
are given below a complete list of subsidiary
undertakings is available on request to the
company and will be ﬁled with the next
annual return
water and sewerage
severn trent water limited
2297 coventry road birmingham b26 3pu
telephone 0121 722 4000
directors
c s matthews m w keogh
r s s martin g c messham
s h reilly p f stephenson
s stubbs a p wray
waste management
biffa plc
2297 coventry road birmingham b26 3pu
telephone 0121 722 4000
holding company
directors
c s matthews
m j bettington
r h davies
w r a de jonghe
d r knott
t w j lowth
r b tate
biffa waste services limited
coronation road cressex
high wycombe hp12 3tz
telephone 01494 521221
directors
m j bettington r chivers
b j grifﬁths p t jones
d r knott t w j lowth
m d prosser m l saville
d savory r b tate
biffa treatment nv
robert schumanplein 6 bus 5
1040 brussels belgium
telephone 0032 2 257 92 00
incorporated and operational in belgium
directors
m j bettington p canivet
t w j lowth w tytgat
n v retema 
represented by w r a de jonghe
laboratories
severn trent laboratories limited
stl business centre torrington avenue
coventry cv4 9gu
telephone 024 764 21213
directors
r s brydon jannetta r a henton
severn trent laboratories inc
suite 300 580 virginia drive ft washington
pennsylvania 19034 2707 usa
telephone 001 215 646 9201
incorporated and operational in the united
states of america
directors
r s brydon jannetta h collins villemaire
k j kelly k c wheatstone
water puriﬁcation and operating services
severn trent services inc
suite 300 580 virginia drive ft washington
pennsylvania 19034 2707 usa
telephone 001 215 646 9201
incorporated and operational in the united
states of america
directors
c s matthews r s brydon jannetta
d l chester l f graziano
h collins villemaire
severn trent environmental services inc
park 10 16337 park row
houston texas 77084 usa
telephone 001 281 578 4200
incorporated and operational in the united
states of america
directors
d l chester l f graziano
j a graziose jr k j kelly
severn trent services limited
park lane minworth sutton coldﬁeld 
west midlands b76 9bl
telephone 0121 313 2300
directors
r a lloyd r g piper
severn trent water puriﬁcation inc
3000 advance lane colmar
pennsylvania 18915 usa
telephone 001 215 997 4000
incorporated and operational in the united
states of america
directors
d l chester l f graziano
k j kelly
severn trent metering services limited
smeckley wood close
chesterﬁeld trading estate
chesterﬁeld s41 9pz
telephone 01246 456658
directors
a r elder l f graziano
r g piper
severn trent water international limited
2308 coventry road birmingham b26 3jz
telephone 0121 722 6000
directors
l f graziano w f earp
b m horner a norman
w g weatherdon
c2c services limited
80 owned
2308 coventry road birmingham b26 3jz
telephone 0121 722 6000
directors
w f earp a j handford
b m horner r j phillips
w g weatherdon e a wilson
other businesses
severn trent property limited
2308 coventry road birmingham b26 3jz
telephone 0121 722 6000
property development
directors
g p f inge j s r haynes
p a ludlow c s matthews
v j o’connell
derwent insurance limited
6a queensway po box 64 gibraltar
telephone 00 350 47529
insurance company – incorporated and
operational in gibraltar
directors
n feetham f b smith
p k tandon f white
country of incorporation and main operation
is great britain and registration is england
and wales unless otherwise stated
all subsidiary undertakings are wholly owned
unless otherwise indicated all shareholdings
are in ordinary shares
all subsidiary undertakings have been
included in the consolidation
as at 5 june 2006 group ﬁnancial statements
severn trent plc annual report and accounts 2006  97
41 explanation of transition to ifrs
this is the ﬁrst year that the group has presented its ﬁnancial statements under ifrs the last ﬁnancial statements under uk gaap 
were for the year ended 31 march 2005 and the date of transition to ifrs was therefore 1 april 2004
reconciliation of equity at 1 april 2004
effect of 
transition to
uk gaap ifrs ifrs
£m £m £m
noncurrent assets
property plant and equipment 52780 2071 54851
intangible assets
goodwill 4976 – 4976
other intangible assets – 1126 1126
investments in joint ventures 96 – 96
investments in associates 177 – 177
available for sale ﬁnancial assets 10 – 10
noncurrent assets 58039 3197 61236
current assets
inventories 804 – 804
trade and other receivables 4528 78 4450
cash and cash equivalents 1153 – 1153
current assets 6485 78 6407
total assets 64524 3119 67643
current liabilities
trade and other payables 6710 921 5789
borrowings 4869 40 4909
current income tax liabilities 658 – 658
current liabilities 12237 881 11356
noncurrent liabilities
trade and other payables 174 111 63
borrowings 23775 04 23779
deferred tax liabilities 4629 3778 8407
retirement beneﬁt obligations – 3765 3765
provisions 1091 – 1091
deferred income 457 485 942
noncurrent liabilities 30126 7921 38047
total liabilities 42363 7040 49403
net assets 22161 3921 18240
equity
share capital 2587 – 2587
other reserves 1561 3142 4703
retained earnings 17989 7063 10926
22137 3921 18216
minority interests 24 – 24
total equity 22161 3921 18240  notes to the group ﬁnancial statements
continued
group ﬁnancial statements
98 severn trent plc annual report and accounts 2006
41 explanation of transition to ifrs continued
reconciliation of equity at 31 march 2005
effect of
transition to
uk gaap ifrs ifrs
£m £m £m
noncurrent assets
property plant and equipment 54406 1988 56394
intangible assets
goodwill 4695 296 4991
other intangible assets 142 1116 1258
investments in joint ventures 95 – 95
investments in associates 163 – 163
available for sale ﬁnancial assets 07 – 07
noncurrent assets 59508 3400 62908
current assets
inventories 660 – 660
trade and other receivables 4994 69 4925
cash and cash equivalents 908 – 908
current assets 6562 69 6493
total assets 66070 3331 69401
current liabilities
trade and other payables 6694 914 5780
borrowings 4865 – 4865
current income tax liabilities 696 – 696
current liabilities 12255 914 11341
noncurrent liabilities
trade and other payables 179 134 45
borrowings 24943 46 24989
deferred tax liabilities 4998 3883 8881
retirement beneﬁt obligations – 3175 3175
provisions 1244 16 1228
deferred income 451 796 1247
noncurrent liabilities 31815 7750 39565
total liabilities 44070 6836 50906
net assets 22000 3505 18495
equity
share capital 2642 – 2642
other reserves 1561 3142 4703
retained earnings 17778 6647 11131
21981 3505 18476
minority interests 19 – 19
total equity 22000 3505 18495 group ﬁnancial statements
severn trent plc annual report and accounts 2006  99
41 explanation of transition to ifrs continued
reconciliation of proﬁt for the year ended 31 march 2005
effect of
transition to
uk gaap ifrs ifrs
£m £m £m
turnover 20812 01 20811
operating costs 16992 179 16813
operating proﬁt 3820 178 3998
share of operating proﬁt of joint ventures and associates 117 117 –
proﬁt before ﬁnance costs 3937 61 3998
net ﬁnance costs 1764 71 1693
share of proﬁt of associates and joint ventures – 18 18
proﬁt before taxation 2173 150 2323
tax expense 778 36 742
proﬁt for the period 1395 186 1581
summary of signiﬁcant differences between ifrs and uk gaap that affect the group
the signiﬁcant differences between uk gaap and ifrs that affect the group and the impact on the group’s reported results and ﬁnancial
position are shown above
the key areas of difference are
property plant and equipment
under uk gaap the water and wastewater infrastructure assets within severn trent water were accounted for in accordance with the
renewals accounting provisions of financial reporting standard 15 ‘tangible fixed assets’ such provisions are not present within
international accounting standard 16 ‘property plant and equipment’ ias 16 and it is therefore necessary to change the accounting
policies for these assets on transition to ifrs the accounting policies applied under uk gaap in respect of all other ﬁxed assets are
compliant with ifrs and remain appropriate
under renewals accounting the water and wastewater infrastructure networks are assumed to be single assets expenditure on infrastructure
assets relating to increases in capacity or enhancements to the networks and on maintaining the operating capability of the networks in
accordance with deﬁned standards of service are capitalised the depreciation charged is the estimated anticipated level of annual
expenditure required to maintain the operating capability of the networks grants and contributions relating to the maintenance of the
operating capability of the infrastructure network were taken into account in determining this charge
grants and contributions relating to enhancement of the infrastructure network are deducted from the cost of ﬁxed assets
under ias 16 this treatment may not be applied therefore the signiﬁcant parts within the infrastructure networks have been identiﬁed and
useful lives and residual values determined so that each signiﬁcant part may be depreciated individually
as the uk gaap net book value of the infrastructure networks was determined using an accounting policy not compliant with ifrs a
deemed cost has been established for the opening balance sheet carrying value of the infrastructure networks by reference to the fair value
at the date of transition 1 april 2004 as permitted by ifrs 1
the election to record the carrying value of the water and wastewater infrastructure networks at fair value and to use that fair value as the
deemed cost in the opening ifrs balance sheet increases net assets by £2755 million as at 31 march 2005 compared with uk gaap
the segments recognised within the water and wastewater networks have been based upon asset class since no single pipe or section of
sewer is signiﬁcant compared with the total value of the networks this has led to the identiﬁcation of 6 segments impounding reservoirs
raw water aqueducts large water mains other water mains and pipes strategic sewers and other sewers which have been assigned zero
residual values at the end of their useful lives the lives allocated to these segments range from 80 – 250 years the depreciation on these
assets results in an additional charge of £198 million in the 2005 ifrs income statement compared with uk gaap
since the classiﬁcation of expenditure incurred in maintaining the networks between operating expenditure and capital expenditure has not
changed there is no change to the repairs and maintenance expenditure charged to the income statement over the long term however
under uk gaap such expenditure was included in the calculation of the infrastructure renewals charge and was therefore smoothed over an
asset management period “amp” under ias 16 repairs and maintenance expenditure will be charged to the income statement in the
period in which it is incurred this will introduce an element of volatility into the income statement since the level of such expenditure can
ﬂuctuate signiﬁcantly from one reporting period to the next within a single amp
all grants and contributions are credited to deferred income and released to the income statement over the useful economic lives of the
related assets notes to the group ﬁnancial statements
continued
group ﬁnancial statements
100 severn trent plc annual report and accounts 2006
retirement beneﬁts
the group prepared its 2005 uk gaap results in accordance with statement of standard accounting practice 24 ‘accounting for pension
costs’ ssap 24 under ssap 24 any pension scheme surplus or deﬁcit identiﬁed at the most recent actuarial valuation is recognised
through the proﬁt and loss account over the average expected remaining service lives of current employees the net pension cost under
ssap 24 therefore includes both the cost of providing an additional year of pension beneﬁts to employees regular cost and an element of
the surplus or deﬁcit relating to previous years variation the difference between employer’s contributions paid and the ssap 24 net
pension cost is recognised as a prepayment or accrual which does not necessarily reﬂect the actuarial position interest is calculated on
this balance sheet entry and is included in the net pension cost
under international accounting standard 19 ‘employee beneﬁts’ ias 19 deﬁned beneﬁt scheme assets and liabilities have been valued at
each balance sheet date and the resulting asset or liability is immediately recognised on the balance sheet at the start of each year
assumptions are made to enable the current service cost the expected return on assets and the interest cost to be calculated these
amounts are charged to the income statement for the year where actual experience differs from the assumptions made at the start of a
ﬁnancial year actuarial gains and losses are recognised through the statement of recognised income and expense
the expected return on assets and the interest on the liabilities are recognised within ﬁnance costs under ias 19 under ssap 24 all
pension costs are recognised within operating proﬁts
the adoption of international accounting standard 19 ‘employee beneﬁts’ ias19 increases the 2005 proﬁt before tax by £181 million
compared with uk gaap representing increased operating proﬁts of £194 million and increased ﬁnance costs of £13 million actuarial
gains amounting to £432 million have been recognised in reserves
at 31 march 2005 the derecognition of the uk gaap ssap 24 liability increases net assets by £56 million net assets are then reduced by
the recognition of the ias 19 deﬁcit of £3175 million
goodwill
goodwill is not amortised under ifrs but is subject to annual impairment reviews the reviews carried out at the transition date and 
31 march 2005 indicated that no impairment had arisen
since goodwill is no longer being amortised the 2005 amortisation charge of £301 million is eliminated
restructuring costs and termination of operations for 2005 are reduced by £99 million ifrs does not allow the uk gaap requirement to
charge goodwill previously written off directly to reserves as part of the loss on termination
deferred tax
the most signiﬁcant impact of international accounting standard ‘income taxes’ ias 12 for the group is that ias 12 does not permit
deferred tax balances to be discounted whereas financial reporting standard 19 ‘deferred tax’ frs 19 permits but does not require
discounting of deferred tax assets and liabilities
the group’s policy has been to apply discounting to its deferred tax liability this is of particular signiﬁcance to a utility business where any
reversal of timing differences is likely to be deferred long into the future due to the long asset lives of network assets
the impact of eliminating discounting from the accounting for deferred tax is to increase the deferred tax charge in the year ended 
31 march 2005 by £08 million and to increase the deferred tax liability at that date by £3966 million
ias 12 takes a different conceptual approach to deferred tax than that applied by frs 19 under ias 12 deferred tax must be provided for
on all temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base whereas uk gaap
requires deferred tax to be provided for on timing differences between the treatment of items in the tax computation and the income
statement this change in approach results in deferred tax provisions under ifrs for items which under uk gaap would be permanent
differences and hence would not be provided for the impact on the group’s ifrs ﬁnancial statements is to decrease the deferred tax
charge in the year ended 31 march 2005 by £02 million and to increase the deferred tax liability at that date by £204 million
the other ifrs adjustments result in a deferred tax credit of £31 million in the year ended 31 march 2005 and a decrease in the deferred
tax liability at that date of £142 million
dividends payable
under international accounting standard 10 ‘events after the balance sheet date’ dividends payable are not recognised as liabilities until
they have been appropriately authorised and are unconditional obligations of the group historically under uk gaap dividends declared for
a particular period have been recognised in that period’s ﬁnancial statements irrespective of the date that they are declared or approved
by shareholders
in practice this means that interim dividends will now be recognised in the second half of the ﬁnancial year and ﬁnal dividends will be
recognised in the ﬁrst half of the following year
the impact on the group’s ifrs ﬁnancial statements is to reduce the amount of dividends appropriated in the year ended 31 march 2005
by £37 million and to increase net assets at 31 march 2005 by £1046 million group ﬁnancial statements
severn trent plc annual report and accounts 2006  101
other differences
the other main adjustments are
 the impact of fair valuing shares awarded under ltip schemes that had not vested before 1 april 2004 and share options granted
under the group’s saye schemes after 7 november 2002 in accordance with ifrs 2 and
 a change in the classiﬁcation of the buildings element of certain property leases from operating to ﬁnance leases arising from the
requirement in international accounting standard 17 ‘leases’ ias 17 to consider the land and buildings elements of such leases
separately
the impact of these adjustments on proﬁt before tax and net assets both individually and in aggregate is not considered to be material
although the impact of ifrs 2 will increase going forward as more saye options fall within its scope
financial instruments
ifrs 1 permits the group to continue to apply uk gaap in respect of ﬁnancial instruments for the year ended 31 march 2005 and to 
apply ias 32 and 39 with effect from 1 april 2005 the comparative information for 200405 within these ﬁnancial statements therefore
reﬂects ﬁnancial instruments accounted for under the group’s uk gaap accounting policies
the signiﬁcant transition adjustments required to implement ias 32 and 39 on 1 april 2005 are described below the most signiﬁcant
impact of ias 39 is in relation to ﬁnancial instruments principally interest rate swaps and cross currency swaps that are held to hedge the
group’s exposure to changes in interest rates and exchange rates
under uk gaap debt is initially recorded at the net proceeds of issue in subsequent periods this is adjusted for accrued ﬁnance costs and
payments made the fair values of derivatives are not recognised in the balance sheet hence the balance sheet values and charges in the
proﬁt and loss account are relatively stable
under ias 39 the default treatment is for debt to be carried at amortised cost whilst derivatives are recognised separately on the balance
sheet at fair value with movements in those fair values reﬂected through the income statement this has the potential to introduce
considerable volatility both to the income statement and to the balance sheet therefore for fair value hedges ias 39 allows changes in the
recognised value of hedged debt that are attributable to the hedged risk to be adjusted through the income statement in the case of cash
ﬂow hedges movements in the fair value of derivatives are deferred within reserves until they can be recycled through the income
statement to offset the future income statement effect of changes in the hedged risk
however in order to apply this treatment it must be demonstrated that the derivative has been and will continue to be an effective hedge
of the hedged risk in the underlying debt within the strict criteria set out in ias 39 any hedge ineffectiveness provided it is within the
range deemed acceptable by ias 39 is recognised immediately within the income statement at 1 april 2005 the group held interest rate
swaps as hedges against its exposure to interest rate ﬂuctuations for periods up to 2030 the swap portfolio is designed to hedge the debt
portfolio and provide an overall effective economic hedge however these swaps are not individually designated to particular liabilities and
so do not meet the criteria for hedge accounting under ias 39
as a result of applying ias 39 at 1 april 2005 net assets were reduced by £578 million
explanation of material adjustments to the cash ﬂow statement for 2005
cash ﬂows under ifrs include these in respect of cash equivalents an adjustment was therefore made to include cash ﬂows in respect of
cash held on deposit
cash ﬂows arising from taxes on income were reclassiﬁed as cash ﬂows from operating activities as it was not possible to identify elements
associated with ﬁnancing and investment activities
cash ﬂows arising from interest payments were reclassiﬁed as cash ﬂows from operating activities on the basis that they enter into the
determination of proﬁt group ﬁnancial statements
102 severn trent plc annual report and accounts 2006
independent auditors’ report to the members of severn trent plc
we have audited the individual company ﬁnancial statements of severn trent plc for the year ended 31 march 2006 which comprise the
company balance sheet and company statement of total recognised gains and losses and the related notes 1 to 11 these individual company
ﬁnancial statements have been prepared under the accounting policies set out therein
the corporate governance statement and the directors’ remuneration report are included in the group annual report of severn trent plc for the
year ended 31 march 2006 we have reported separately on the group ﬁnancial statements of severn trent plc for the year ended 31 march
2006 and on the information in the directors’ remuneration report that is described as having been audited
this report is made solely to the company’s members as a body in accordance with section 235 of the companies act 1985 our audit work
has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report
and for no other purpose to the fullest extent permitted by law we do not accept or assume responsibility to anyone other than the company
and the company’s members as a body for our audit work for this report or for the opinions we have formed
respective responsibilities of directors and auditors
the directors’ responsibilities for preparing the annual report and the individual company ﬁnancial statements in accordance with applicable
law and united kingdom accounting standards united kingdom generally accepted accounting practice are set out in the directors’
responsibilities statement
our responsibility is to audit the individual company ﬁnancial statements in accordance with relevant united kingdom legal and regulatory
requirements and international standards on auditing uk and ireland 
we report to you our opinion as to whether the individual company ﬁnancial statements give a true and fair view in accordance with the
relevant ﬁnancial reporting framework and whether the individual company ﬁnancial statements have been properly prepared in accordance
with the companies act 1985 we report to you whether in our opinion the information given in the directors’ report is consistent with the
individual company ﬁnancial statements we also report to you if in our opinion the company has not kept proper accounting records if we
have not received all the information and explanations we require for our audit or if information speciﬁed by law regarding directors’
remuneration and other transactions is not disclosed
we read the other information contained in the annual report for the above year as described in the contents section and consider the
implications for our report if we become aware of any apparent misstatements or material inconsistencies with the individual company
ﬁnancial statements 
basis of audit opinion
we conducted our audit in accordance with international standards on auditing uk and ireland issued by the auditing practices board an
audit includes examination on a test basis of evidence relevant to the amounts and disclosures in the individual company ﬁnancial
statements it also includes an assessment of the signiﬁcant estimates and judgements made by the directors in the preparation of the
individual company ﬁnancial statements and of whether the accounting policies are appropriate to the company’s circumstances consistently
applied and adequately disclosed
we planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide
us with sufﬁcient evidence to give reasonable assurance that the individual company ﬁnancial statements are free from material misstatement
whether caused by fraud or other irregularity or error in forming our opinion we also evaluated the overall adequacy of the presentation of
information in the individual company ﬁnancial statements
opinion
in our opinion
 the individual company ﬁnancial statements give a true and fair view in accordance with united kingdom generally accepted accounting
practice of the state of the company’s affairs as at 31 march 2006 
 the individual company ﬁnancial statements have been properly prepared in accordance with the companies act 1985 and
 the information given in the directors’ report is consistent with the ﬁnancial statements
deloitte  touche llp
chartered accountants and registered auditors
london
united kingdom
5 june 2006 company ﬁnancial statements
severn trent plc annual report and accounts 2006  103
company balance sheet
year ended 31 march 2006
2005
2006 restated
notes £m £m
fixed assets
tangible ﬁxed assets 2 58 63
investments in subsidiaries 3 36705 36138
derivative ﬁnancial instruments 07 –
36770 36201
current assets
debtors 4 544 840
derivative ﬁnancial instruments 39 –
short term deposits 400 –
cash at bank and in hand 3302 1723
4285 2563
creditors amounts falling due within one year 5 8735 5561
net current liabilities 4450 2998
total assets less current liabilities 32320 33203
creditors amounts falling due after more than one year 6 2699 3291
net assets 29621 29912
capital and reserves attributable to the company’s equity shareholders
called up share capital 11 2272 2258
share premium account 12 486 384
other reserves 13 1376 1561
retained earnings 14 25487 25709
equity attributable to the company’s equity shareholders 29621 29912
signed on behalf of the board who approved the accounts on 5 june 2006
sir john egan michael mckeon
chairman group finance director
2005
restated
£m
2006
£m notes company statement of total recognised gains and losses
2006 2005
restated
notes £m £m
net income recognised directly in equity – –
transfers
transfers to income on cashﬂow hedges 32 –
deferred tax on transfers to income statement 08 –
proﬁt for the period 1454 1478
total recognised income and expense for the period 1478 1478
prior year adjustment for adoption of frs 20 and frs 21 1040 –
change in accounting policy on adoption of frs 25 and frs 26 13 217 – 
company ﬁnancial statements
104 severn trent plc annual report and accounts 2006 company ﬁnancial statements
severn trent plc annual report and accounts 2006  105
notes to the company ﬁnancial statements
1 accounting policies
a basis of accounting
the ﬁnancial statements have been prepared under the historical cost convention as modiﬁed by the revaluation of ﬁnancial assets 
and liabilities including derivative instruments at fair value through proﬁt and loss and in accordance with applicable united kingdom
accounting standards and comply with the requirements of the united kingdom companies act 1985 ‘the act’ the company has
adopted the following accounting standards during the year
frs 20 – ‘share based payments’
frs 21 – ‘events after the balance sheet date’
frs 23 – ‘the effects of foreign exchange rates’
frs 24 – ‘financial reporting in hyperinﬂationary economies’
frs 25 – ‘financial instruments disclosure and presentation’
frs 26 – ‘financial instruments measurement’
the adoption of frs 20 has decreased current assets by £03 million decreased creditors due within one year by £56 million increased
investments by £15 million and increased retained earnings by £68 million for year ended 31 march 2005
the adoption of frs 21 has decreased creditors due within the year and increased retained earnings by £1046 million for year ended
31 march 2005 due to the deferral of the ﬁnal dividend for 0405 until it is approved at the annual general meeting
frs 25 and frs 26 were adopted from 1 april 2005  there is no restatement of the prior year ﬁgures  further details of the changes in
accounting policies are given below details of the impact of this are given in note 14
further details as to the adjustments on adoption are given in note 14
the remaining standards have no material effects on the ﬁnancial statements
b tangible ﬁxed assets and depreciation
tangible ﬁxed assets are included at cost less accumulated depreciation freehold land is not depreciated other assets are depreciated
on a straight line basis over their estimated economic lives which are principally as follows
years
buildings 3060
vehicles computers and software 215
c leased assets
where assets are ﬁnanced by leasing arrangements which transfer substantially all the risks and rewards of ownership of an asset to the
lessee ﬁnance leases the assets are accounted for as if they had been purchased and the fair values of minimum lease payments are
shown as an obligation to the lessor lease payments are treated as consisting of a capital element and a ﬁnance charge the capital
element reducing the obligation to the lessor and the ﬁnance charge being written off to the proﬁt and loss account over the period of
the lease in proportion to the capital amount outstanding depreciation is charged over the shorter of the estimated useful life and the
lease period all other leases are accounted for as operating leases rental costs arising under operating leases are charged to the proﬁt
and loss account on a straight line basis over the life of the lease
d impairment of ﬁxed assets and investments
impairments of ﬁxed assets and investments are calculated as the difference between the carrying value of net assets of income
generating units including where appropriate investments and goodwill and their recoverable amounts recoverable amount is deﬁned
as the higher of net realisable value or estimated value in use at the date the impairment review is undertaken net realisable value
represents the net amount that can be generated through sale of assets value in use represents the present value of expected future
cash ﬂows discounted on a pretax basis using the estimated cost of capital of the income generating unit impairment reviews are
carried out if there is some indication that an impairment may have occurred or where otherwise required to ensure that goodwill and
ﬁxed assets are not carried above their estimated recoverable amounts impairments are recognised in the proﬁt and loss account and
where material are disclosed as exceptional
e financial instruments
the group has adopted frs 25 and frs 26 during the year
the accounting policy after 1 april 2005 is as follows
debt instruments
all loans and borrowings are initially recognised at cost being the net fair value of the consideration received after initial recognition
interestbearing loans and borrowings are subsequently measured at amortised cost using the effective interest method where a loan or
borrowing is in a fair value hedging relationship it is remeasured for changes in fair value of the hedged risk at the balance sheet date
with gains or losses being recognised in the income statement see below
gains and losses are recognised in the proﬁt and loss account when the liabilities are derecognised or impaired as well as through the
amortisation process notes to the company ﬁnancial statements
continued
company ﬁnancial statements
derivative ﬁnancial instruments and hedging activities
the group uses derivative ﬁnancial instruments such as cross currency swaps forward currency contracts and interest rate swaps to
hedge its risks associated with foreign currency and interest rate ﬂuctuations such derivative instruments are initially recorded at cost
and subsequently remeasured at fair value for the reported balance sheet the fair value of cross currency swaps interest rate swaps
and forward currency contracts is calculated by reference to market exchange rates and interest rates at the period end
in relation to fair value hedges which meet the conditions for hedge accounting the gain or loss on the hedging instrument is taken to
the proﬁt and loss account where the effective portion of the hedge will offset the gain or loss on the hedged item see above
in relation to cash ﬂow hedges which meet the conditions for hedge accounting the portion of the gain or loss on the hedging
instrument that is determined to be an effective hedge is recognised directly in reserves and the ineffective portion in the proﬁt and
loss account the gains or losses deferred in reserves in this way are recycled through the proﬁt and loss account in the same period in
which the hedged underlying transaction or ﬁrm commitment is recognised in the proﬁt and loss account
for derivatives that do not qualify for hedge accounting gains or losses are taken directly to the proﬁt and loss account in the period
hedge accounting is discontinued when the hedging instrument expires is sold terminated or exercised or no longer qualiﬁes for hedge
accounting at that date any cumulative gain or loss on the hedging instrument recognised in reserves is kept in reserves until the
forecast transaction occurs or transferred to the proﬁt and loss account if the forecast transaction is no longer expected to occur
derivatives embedded in other ﬁnancial instruments or other host contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of the host contract or the host contract is not carried at fair value with gains and losses
reported in the proﬁt and loss account
the accounting policy prior to 1 april 2005 is as follows
debt instruments
the ﬁnancial costs of debt instruments are charged to the proﬁt and loss account over the term of the debt at a constant rate on the
carrying amount such costs include the cost of issue and any discount to face value arising on issue or any premium arising on
maturity
differences arising from the movement in exchange rates during the year on translation into sterling of the foreign currency borrowings
and similar instruments used to ﬁnance longterm equity investments are taken directly to reserves and reported in the statement of
total recognised gains and losses
derivative ﬁnancial instruments
financial instruments in particular interest rate swaps and to a lesser extent currency swaps are used to manage the ﬁnancial risks
arising from the business activities of the company and the ﬁnancing of those activities there is no trading activity in ﬁnancial
instruments a review of how the ﬁnancial risks are managed is included in note 19 of the group ﬁnancial statements financial
instruments are accounted for as follows
 interest rate swaps are used to hedge the company’s exposure to movements in interest rates the interest payable or receivable on
such swaps is accrued in the same way as interest arising on deposits or borrowings interest rate swaps are not revalued to fair
value prior to maturity
 currency swaps are used to hedge foreign currency borrowings the future currency exchange within such contracts is revalued to
the rate of exchange at the balance sheet date the interest coupon on such swaps is accrued in the same way as that on
borrowings and deposits
f investments 
after initial recognition at cost being the fair value of the consideration paid investments which are classiﬁed as held for trading or
available for sale are measured at fair value with gains or losses recognised in income or equity respectively when an available for sale
investment is disposed of or impaired the gain or loss previously recognised in reserves is taken to the proﬁt and loss account
other investments are classiﬁed as held to maturity when the group has the positive intention and ability to hold to maturity
investments held for an undeﬁned period are excluded from this classiﬁcation such investments and those held to maturity are
subsequently measured at amortised cost using the effective interest method with any gains or losses being recognised in the proﬁt
and loss account
prior to 1 april 2005 the company held investments at historical cost less any provision for impairment
106 severn trent plc annual report and accounts 2006 company ﬁnancial statements
severn trent plc annual report and accounts 2006  107
g sharebased payments
the company operates a number of equity settled sharebased compensation plans for employees the fair value of the employee
services received in exchange for the grant is recognised as an expense over the vesting period of the grant
the fair value of employee services is determined by reference to the fair value of the awards granted calculated using a pricing model
excluding the impact of any nonmarket conditions the number of awards expected to vest takes into account nonmarket vesting
conditions including where appropriate continuing employment by the group the charge is adjusted to reﬂect shares that do not vest
as a result of failing to meet a nonmarket based condition
h cash ﬂow statement
the company has taken advantage of the exemption under financial reporting statement 1 ‘cash ﬂow statements’ and not produced a
cash ﬂow statement
i deferred taxation
deferred taxation is fully provided for in respect of timing differences between the treatment of certain items for taxation and accounting
purposes only to the extent that the group has an obligation to pay more tax in the future or a right to pay less tax in the future
deferred tax assets are only recognised to the extent that taxable proﬁts are expected to arise in the future material deferred taxation
balances arising are discounted by applying an appropriate risk free discount rate
2 tangible ﬁxed assets
land and plant and
buildings equipment total
£m £m £m
cost
at 1 april 2005 and 31 march 2006 67 62 129
depreciation
at 1 april 2005 21 45 66
charge for year – 05 05
at 31 march 2006 21 50 71
net book value
at 31 march 2006 46 12 58
at 31 march 2005 46 17 63
3 investments
subsidiary undertakings
shares loans total
restated restated restated
£m £m £m
at 1 april 2005 10211 25927 36138
additionsloans advanced 29 24651 24680
loans repaid – 24222 24222
shares exchanged for loans 2675 2675 –
foreign exchange movement – 109 109
at 31 march 2006 12915 23790 36705
investments are held at historic cost as it is not possible to reliably estimate their fair value
details of the principal subsidiaries of the company are given in note 40 of the group ﬁnancial statements
4 debtors
2006 2005
restated
£m £m
trade debtors – –
amounts owed by group undertakings 142 775
corporation tax receivable 142 –
deferred tax 174 22
other debtors 08 35
prepayments and accrued income 78 08
total debtors 544 840 5 creditors amounts falling due within one year
2005
2006 restated
£m £m
bank overdrafts 259 260
other loans 6718 3409
borrowings 6977 3669
derivative ﬁnancial instruments 403 –
trade creditors – 06
amounts due to group undertakings 1084 661
other creditors 77 78
taxation and social security 08 05
corporation tax payable – 416
dividends payable – 630
accrued expenses 186 96
8735 5561
6 creditors amounts falling due after more than one year
2006 2005
£m £m
other loans 2445 3169
borrowings 2445 3169
derivative ﬁnancial instruments 117 –
other creditors 137 122
2699 3291
7 employee costs
2006 2005
wages and salaries 108 85
social security costs 10 17
pension costs 42 54
total employee costs 160 156
for details of directors’ remuneration see pages 48 to 51
auditors fees in respect of the company were £135000 2005 £105000 for full details of the fees paid to the auditors by the group 
see note 6 of the group ﬁnancial statements
8 employee numbers
average number of employees of the company including executive directors during the year full time equivalent was 88 2005 81
all were based in the united kingdom
notes to the company ﬁnancial statements
continued
company ﬁnancial statements
108 severn trent plc annual report and accounts 2006 company ﬁnancial statements
severn trent plc annual report and accounts 2006  109
9 financial instruments
a borrowings analysed by currency and interest rate after taking account of various currency and interest rate swaps entered 
into by the group
at 31 march 2006
fixed borrowings
weighted
average
weighted period for
floating fixed average which
2006 interest interest interest interest
total rate rate rate is ﬁxed
currency £m £m £m  years
sterling 9163 6163 3000 64 82
euro 259 259
total borrowings at 31 march 2006 9422 6422 3000
at 31 march 2005
fixed borrowings
weighted
average
weighted period for
floating fixed average which
2005 interest interest interest interest
total rate rate rate is ﬁxed
currency £m £m £m  years
sterling 6022 3022 3000 64 92
euro 260 260 –
us dollar 556 556 –
total borrowings at 31 march 2006 6838 3838 3000
sterling ﬂoating rate borrowings bear interest based on libor whilst euro denominated borrowings bear interest based on euribor
and dollar borrowings bear interest based on us dollar libor
b investments in interest earning assets analysed by currency after taking account of various currency swaps entered into by the group
2006 2005
currency £m £m
sterling deposits 400 –
cash at bank 3302 1723
3702 1723
investments in interest earning assets comprise shortterm deposits placed on money markets and certiﬁcates of deposit with a
maturity date not exceeding one year
financial assets comprise £3302 million of cash and £400 million of cash held on short term deposit sterling assets receive interest
based on libid c monetary assets and liabilities by currency excluding the functional currency
at 31 march 2006
net foreign currency monetary assets
us dollar total
£m £m
functional currency of operation
sterling 19 19
at 31 march 2005
net foreign currency monetary assets
us dollar total
£m £m
functional currency of operation
sterling 12 12
net currency gainslosses arising from monetary assetsliabilities not in sterling are recognised in the proﬁt and loss account
d borrowings analysed by maturity date
loans
repayable by
instalments
any of which
are payable other
after ﬁve repayment 2006 2005
overdrafts years terms total total
£m £m £m £m £m
borrowings due within one year 259 – 6718 6977 3669
borrowings due after one year
between one and two years – – 174 174 696
between two and ﬁve years – – 1920 1920 2006
after more than ﬁve years – – 351 351 467
total borrowings due after one year – – 2445 2445 3169
259 – 9163 9422 6838
loans repayable partly or wholly after ﬁve years comprise
2006 2005
£m £m
euro medium term notes 351 467
351 467
loans payable partly or wholly after ﬁve years are all at ﬂoating rates
e borrowing facilities
the company has the following undrawn committed borrowing facilities available at 31 march 2006
2006 2005
£m £m
expiring within one year – –
expiring in more than one but not more than two years – 2000
expiring in more than two but not more than ﬁve years 5000 5000
5000 7000
in addition the company also has overdraft facilities of £800 million 2005 £870 million of which nil 2005 £568 million remains
undrawn at the year end
notes to the company ﬁnancial statements
continued
company ﬁnancial statements
110 severn trent plc annual report and accounts 2006 company ﬁnancial statements
severn trent plc annual report and accounts 2006  111
f fair values of ﬁnancial instruments
financial instruments by category
assetliability
2006 2005
book value fair value book value fair value
£m £m £m £m
primary ﬁnancial instruments held or issued to ﬁnance the company’s operations
shortterm deposits 400 400 ––
cash at bank and in hand 3302 3302 1723 1723
borrowings falling due within one year 6977 6825 2996 3599
borrowings falling due after more than one year 2445 2628 3608 3121
derivative ﬁnancial instruments held to manage the currency and interest rate proﬁle
interest rate swaps and similar instruments 159 159 – 297
currency instrument – cross currency swaps 315 315 234 261
total net ﬁnancial liabilities 6194 6225 5115 5555
where available market rates have been used to determine fair values when market prices are not available fair values have been
calculated by discounting cash ﬂows at prevailing interest rates
details of the company’s ﬁnancial risk policies are given in note 19i of the group ﬁnancial statements
10 borrowings
2006 2005
£m £m
bank overdrafts 259 260
other loans 9163 6578
borrowings 9422 6838
2006 2005
£m £m
the borrowings are repayable as follows
on demand or within one year included in creditors due in under one year 6977 3669
in the second year 174 696
in the third to ﬁfth years inclusive 1920 2006
after ﬁve years 351 467
included in creditors due after more than one year 2445 3169
9422 6838
the company’s borrowings are denominated in the following currencies after taking account of cross currency swaps the company has 
entered into
2006 2005
£m £m
sterling 9163 6022
us dollar – 556
euro 259 260
9422 6838
the fair values of the company’s borrowings were
2006 2005
£m £m
bank overdrafts 259 260
other loans 9194 6460
9453 6720
fair values are based on expected future cash ﬂows discounted using libor forward interest rates related to the expected timing of payments
after taking into account interest and cross currency swaps 32 of the company’s borrowings are at ﬁxed interest rates 2005 44 
the remainder of the company’s debt is held at ﬂoating rate sterling debt bears interest at libor us dollar debt bears interest at 
us dollar libor whilst euro debt bears interest at euribor
fixed rate debt has a weighted average interest rate of 64 2005 64 for a weighted average period of 82 years 2005 92 years 11 share capital
2006 2005
£m £m
total authorised share capital
520175751 ordinary shares of 65 
5
⁄ 19p 3395 3395
totally issued and fully paid share capital
348093283 2005 346002393 ordinary shares of 65 
5
⁄ 19p 2272 2258
at 1 april 2258 2252
employee share option schemes 14 06
at 31 march 2272 2258
12 share premium
2006 2005
£m £m
at 1 april 384 335
employee share option schemes 102 49
at 31 march 486 384
employee share schemes
for details of employee share schemes and options granted over the shares of the company see note 33 of the consolidated ﬁnancial
statements
during the period the following ltip awards sip awards and share options have been granted to company employees
2006 2005
fair value fair value 
number £m number £m
ltip awards 203450 15 281745 14
sharesave options 17041 01 17851 01
share incentive plan sip 1900 – 2356 –
details of the calculation of the fair value of share awards is given in note 33 of the group ﬁnancial statements
the company has charged £11 million 2005 £10 million to the proﬁt and loss account in respect of share based payments
13 other reserves
capital total 
redemption hedging other
reserve reserves reserves
£m £m £m
at 1 april 2004 1561 – 1561
at 31 march 2005 1561 – 1561
frs 26 transition – 310 310
deferred tax on frs 26 adjustments – 93 93
change of accounting policy on adoption of frs 26 – 217 217
at april 2005 1561 217 1344
cash ﬂow hedges
– transfer to net proﬁt – 32 32
at 31 march 2006 1561 185 1376
notes to the company ﬁnancial statements
continued
company ﬁnancial statements
112 severn trent plc annual report and accounts 2006 company ﬁnancial statements
severn trent plc annual report and accounts 2006  113
14 reconciliation of shareholders’ equity
equity
attributable
to the equity 
holders
share share other retained of severn 
capital premium reserves earnings trent plc 
£m £m £m £m £m
at 1 april 2004 as previously stated 2252 335 1561 24810 28958
prior year adjustment for adoption of frs 20 and frs 21 – – – 1040 1040
at 1 april 2004 as restated for change in accounting policy 2252 335 1561 25850 29998
purchase of shares for esop trust – – – 41 41
share options and ltips
– proceeds from shares issued 06 49 – – 55
– value of employees’ services – – – 49 49
net proﬁt for the year – – – 1478 1478
dividends – – – 1637 1637
deferred tax on share based payments – – – 10 10
at 31 march 2005 2258 384 1561 25709 29912
frs 26 transition – – 310 – 310
deferred tax on frs 26 adjustments – – 93 – 93
change of accounting policy on adoption of frs 26 – – 217 – 217
at april 2005 2258 384 1344 25709 29695
cash ﬂow hedges
– transfers to net proﬁt – – 32 – 32
share options and ltips
– proceeds from shares issued 14 102 – – 116
– value of employees’ services – – – 41 41
net proﬁt for the year – – – 1454 1454
dividends – – – 1713 1713
deferred tax on items posted directly to equity – – – 04 04
at 31 march 2006 2272 486 1376 25487 29621
the capital redemption reserve arose on the repurchase of b shares this is not distributable
in previous years £12212 million of the company’s retained proﬁt arose as a result of group restructuring exercises and is not considered
likely to be distributable as permitted by section 230 of the companies act 1985 no proﬁt or loss account is presented for the company
the company operates an employee share ownership trust the trust the details of the operation of the trust are given in note 32 of the
group ﬁnancial statements 15 pensions
the company operates a number of deﬁned beneﬁt schemes being the severn trent pension scheme the severn trent water mirror image
pension scheme and the severn trent senior staff pension scheme in addition the group operates an unfunded arrangement for certain
employees whose earnings are above the pension cap
further details regarding the operation of these schemes is given in note 28 of the group ﬁnancial statements
the company is currently unable to identify its share of the underlying assets and liabilities from the group’s deﬁned beneﬁt schemes 
and hence it continues to account for the cost of contributions as if the scheme was a deﬁned contribution scheme
the pension charge for the year was £42 million 2005 £54 million
16 related party transactions
the company has taken advantage of the exemption under frs 8 and not disclosed details of transactions with other undertakings within
severn trent group of companies
17 contingent liabilities
a bonds and guarantees
the company has entered into bonds and guarantees in the normal course of business no liabilities are expected to arise in respect of
either the bonds or guarantees
b bank offset arrangements
the banking arrangements of the company operate on a pooled basis with certain of its subsidiaries undertakings under 
these arrangements participating companies guarantee each others’ overdrawn balances to the extent of their credit balances 
which can be offset against balances of participating companies
18 post balance sheet events
on 5 june 2006 the board of directors proposed a ﬁnal dividend of 3197 pence per share
19 dividends
for details of the dividends paid and proposed in 200506 and 200405 see note 12 in the group ﬁnancial statements
notes to the company ﬁnancial statements
continued
company ﬁnancial statements
114 severn trent plc annual report and accounts 2006 five year summary of group ﬁnancial information
other information
severn trent plc annual report and accounts 2006  115
ifrs ifrs ukgaap ukgaap ukgaap
2006 2005 2004 2003 2002
restated
£m £m £m £m £m
turnover 22950 20144 20151 18520 17943
proﬁt before interest goodwill amortisation and exceptional items 4882 3988 4406 4098 4188
goodwill amortisation – – 298 252 265
proﬁt before interest and exceptional items 4882 3988 4108 3846 3923
net exceptional items 157 23 116 408 170
net interest payable before fair value movements on treasury instruments 1679 1695 1680 1594 1590
fair value movements on treasury instruments 367 ––––
results of associates and joint ventures 21 18 – – –
proﬁt on ordinary activities before taxation 2700 2288 2544 1844 2163
current taxation on proﬁt on ordinary activities 487 379 333 248 161
deferred taxation 60 336 363 595 423
proﬁt on ordinary activities after taxation 2273 1573 1848 1001 1579
net assets employed
fixed assets 63916 62908 58039 54806 53957
other net liabilities excluding net debt retirement beneﬁt 
obligation and provisions 2122 2183 2667 2321 2082
financial instruments 1300 ––––
retirement beneﬁt obligation 2219 3175 – – –
provisions for liabilities and charges and deferred tax 9804 10109 5720 5231 4804
net assets held for sale 130 ––––
48601 47441 49652 47254 47071
financed by
called up share capital 2272 2258 2252 2244 2240
reserves 16692 16218 19885 19932 20700
total shareholders’ funds 18964 18476 22137 22176 22940
minority shareholders’ interests 26 19 24 22 14
net debt 29611 28946 27491 25056 24117
48601 47441 49652 47254 47071
statistics
earnings per share continuing 652p 454p 535p 289p 459p
adjusted earnings per share see note 13 772p 533p 614p 581p 632p
dividends per share 5113 4851p 4704p 459p 459p
dividend cover before exceptional items and before deferred tax 15 12 13 13 14
gearing 609 610 554 530 513
ordinary share price at 31 march 1117p 915p 761p 716p 738p
average number of employees – water and sewerage 5188 5106 4998 4780 4662
– other 11124 11268 10795 9867 9710
following the implementation of uitf 38 – ‘accounting for esop trusts’ the 2004 balance sheet was restated to reﬂect shares held by the
severn trent employee share ownership trust which have not vested unconditionally at the balance sheet date other prior year comparatives
have not been restated in the above table
gearing has been calculated as net debt divided by the sum of net equity and net debt information for shareholders
cautionary statement
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 identiﬁed
by their use of a date in the future or such words as ‘anticipates’
‘aims’ ‘due’ ‘could’ ‘may’ ‘should’ ‘expects’ ‘believes’ ‘intends’
‘plans’ ‘targets’ ‘goal’ or ‘estimates’ by their very nature forward
looking statements are inherently unpredictable speculative and
involve risk and uncertainty because they relate to events and
depend on circumstances that will occur in the future
there are a number of factors that could cause actual results and
developments to differ materially from those expressed or implied
by these forwardlooking statements these factors include but are
not limited to changes in the economies and markets in which the
group operates changes in the regulatory and competition
other information
116 severn trent plc annual report and accounts 2006
analysis of shareholdings at 31 march 2006
number
number of  of of shares  
category shareholders shareholders millions of shares
individual and joint accounts 81631 9284 4237 1217
other 6292 716 30572 8783
total 87923 10000 34809 10000
number 
number of  of of shares 
size of holding shareholders shareholders millions of shares
1499 52844 6010 1032 297
500999 20194 2297 1379 396
10004999 13498 1535 2115 608
50009999 475 054 311 089
1000049999 432 049 984 282
5000099999 140 016 985 283
over 100000 340 039 28003 8045
total 87923 10000 34809 10000
includes insurance companies nominee companies banks pension funds other corporate bodies limited and public limited
companies
financial calendar and results announcements
annual general meeting
25 july 2006 at 1100am
at the international convention centre 
broad street birmingham b1 2ea
dividend payments in respect of the year ended 
31 march 2006
interim dividend – paid 25 january 2006
proposed ﬁnal dividend – payable 2 august 2006
the results of the group will normally be
published at the following times
interim results for the six months 
to 30 september december
preliminary results for the year 
to 31 march june
report and accounts for the year 
to 31 march june
shareholder enquiries
if you have a question about your shareholding in
the company you should contact our registrars
lloyds tsb registrars who are responsible for
making dividend payments and updating the
register of shareholders including details of
changes to addresses and names you should also
contact the registrars if you would like to have your
dividends paid directly into your bank or building
society account
the registrar’s contact details are
telephone helpline 0870 600 3967
email severntrentlloydstsbregistrarscouk
lloyds tsb registrars the causeway worthing
west sussex bn99 6da
online communication
shareview is operated by lloyds tsb registrars
and gives you access to services over the internet
that enable you to check details of your
shareholding at any time 
you can also elect to receive communications 
from the company electronically you will receive 
an email notiﬁcation when the annual report and
notice of annual general meeting become available
on our website 
you can register for both of these services at
wwwshareviewcouk
company information
the company’s website at wwwseverntrentcom
provides news and details of the company’s
activities latest results information on the share
price and links to our businesses’ websites
frameworks in which the group operates the impact of legal or 
other proceedings against or which affect the group and changes 
in interest and exchange rates
all written or verbal forward looking statements made in this
document or made subsequently which are attributable to severn
trent or any other member of the group or persons acting on their
behalf are expressly qualiﬁed in their entirety by the factors referred
to above severn trent does not intend to update these forward
looking statements
this document is not an offer to sell exchange or transfer any
securities of severn trent plc or any of its subsidiaries and is not
soliciting an offer to purchase exchange or transfer such securities
in any jurisdiction securities may not be offered sold or transferred
in the united states absent registration or an applicable exemption
from the registration requirements of the us securities act of 1933
as amended contents
governance
30 board of directors
biographical details of the directors
32 directors’ report
35 corporate governance report
role of the board board committees
internal control and risk management
40 directors’ remuneration report
directors’ emoluments pensions and 
service agreements
group ﬁnancial statements
52 independent auditors’ report 
53 consolidated income statement
54 consolidated balance sheet
55 consolidated cash ﬂow statement
56 consolidated statement of recognised
income and expense
57 notes to the group ﬁnancial statements
company ﬁnancial statements
102 independent auditors’ report
103 company balance sheet
104 company statement of total recognised
gains and losses
105 notes to the company ﬁnancial statements
other information
115 five year summary
comparisons on proﬁt and loss 
net assets dividends and share price
116 information for shareholders
financial calendar shareholder analysis 
and company information
quick read
1 financial highlights
group ﬁnancial highlights for 200506
2 at a glance
overview and facts about our businesses
direction
4 chairman’s statement
sir john egan comments on severn trent’s
results performance and outlook and
corporate responsibility
6 group chief executive’s review
strategic overview biffa demerger and
operational performance
8 business focuses
focus highlights and outlook for each of
severn trent’s main businesses
performance review
16 water and sewerage
performance information for severn trent
water in 200506 and progress on its ofwat
targets for 200510
18 waste management
performance information for biffa a review
of its market position and a summary of 
its collection landﬁll special waste and
power generation activities
20 laboratories
performance information for stl in the us
and uk and overviews of market conditions
outlook and the businesses’ market strategies
21 water puriﬁcation and operating services
performance information for water
puriﬁcation and operating services
and an overview of its increasing 
presence in growth markets
22 other businesses
performance information for severn trent’s
systems and property businesses
23 corporate responsibility
overview of our corporate responsibility
programme business ethics environmental
impacts and health and safety
26 financial review
overview of severn trent’s results 
ﬁnancial position and cash ﬂows
2 severn trent plc annual report and accounts 2006
this document is printed by ctd sage print on mohawk options 100 pc the paper is manufactured 
in accordance with fsc standards from 100 postconsumer recycled waste and is 100 process
chlorine free only wind energy is used during the papermaking both the paper mill and printing 
involved in this production are environmentally accredited with iso 14001
designed and produced by tayburn annual report and accounts 2006
annual report and accounts 2006 severn trent plc
severn trent plc
registered ofﬁce
2297 coventry road
birmingham b26 3pu
telephone 44 0121 722 4000
wwwseverntrentcom
registered number 2366619 severn trent plc
registered ofﬁce
2297 coventry road
birmingham b26 3pu
telephone 44 0121 722 4000
wwwseverntrentcom
registered number 2366619 contents
d severn trent plc annual review 2006
governance
30 board of directors
32 summary directors’ report
33 summary directors’ remuneration report
summary ﬁnancial statement
37 independent auditors’ report 
38 summary consolidated income statement
39 summary group balance sheet
39 summary group cash ﬂow statement
other information
40 information for shareholders
financial calendar shareholder analysis 
and company information
quick read
1 financial highlights
group ﬁnancial highlights for 200506
2 at a glance
overview and facts about our businesses
direction
4 chairman’s statement
sir john egan comments on severn trent’s
results performance and outlook and
corporate responsibility
6 group chief executive’s review
strategic overview biffa demerger and
operational performance
8 business focuses
focus highlights and outlook for each of
severn trent’s main businesses
performance review
16 water and sewerage
performance information for severn trent
water in 200506 and progress on its ofwat
targets for 200510
18 waste management
performance information for biffa a review
of its market position and a summary of 
its collection landﬁll special waste and
power generation activities
20 laboratories
performance information for stl in the us
and uk and overviews of market conditions
outlook and the businesses’ market strategies
21 water puriﬁcation and operating services
performance information for water
puriﬁcation and operating services 
and an overview of its increasing presence 
in growth markets
22 other businesses
performance information for severn trent’s
systems and property businesses
23 corporate responsibility
overview of our corporate responsibility
programme business ethics environmental
impacts and health and safety
26 financial review
overview of severn trent’s results 
ﬁnancial position and cash ﬂows financial highlights
quick read
severn trent plc annual review 2006  1
group turnover
up 139 to
£22950m
2005 £20144m
group proﬁt before tax
up 180 to
£2700m
2005 £2288m
group proﬁt
up 395 to
£3224m
2005 £2311m
 encouraging group
results
 new strategy
 dividend raised
 intention to return capital
earnings per share
up 376 to
772p
2005 561p
final dividend
3197p
total for the year 5113p
total shareholder return
220
200
180
160
140
120
100
80
60
40
20
0
310301 310302 310303 310304 310305 310306
severn trent plc
value £
ftse 100 index
this graph shows the value at 31 march 2006 of £100 invested in severn trent
on 31 march 2001 compared with the value of £100 invested in the ftse 100
index the other points plotted are the values at intervening ﬁnancial year ends
 before tax exceptional items and ias 39 fair value 
adjustments see income statement
 from continuing operations before exceptional items 
ias 39 fair value adjustments and deferred tax see note 13 at a glance
severn trent is a leading 
ftse 100 water group with
revenues of £23 billion
we intend to create value 
through a strategy that will 
focus on water we intend to
demerge biffa by the end of
october increase gearing and
return capital to shareholders 
by concentrating our efforts 
on raising standards customers
will receive the beneﬁts of
reliable high quality and 
cost effective services for 
clean water and sewerage
you can ﬁnd out more about
severn trent plc and the
businesses within our group 
at wwwseverntrentcom
group
turnover
£22950m
16312 employees
quick read
2 severn trent plc annual review 2006 water and sewerage
turnover
£11509m
488
of group turnover
5188 employees
waste management
turnover
£7123m
302
of group turnover
5552 employees
laboratories
turnover
£1670m
71
of group turnover
2797 employees
water puriﬁcation and
operating services
turnover
£2678m
114
of group turnover
2425 employees
severn trent water provides
water and sewerage services to
around 37 million household
and business properties in
england and wales
biffa is one of the largest
integrated waste management
companies in the uk it provides
collection recycling landﬁll and
hazardous waste services to
commercial industrial and 
local authority customers
severn trent laboratories
provides environmental testing
services in the uk and the us
from service centres and
laboratories across the us and
uk it serves a client portfolio of
bluechip companies
water puriﬁcation and operating
services is one of the world’s
largest water and wastewater
treatment companies its
operational efﬁciency and
investment in technology and
product development have
delivered an excellent track
record of organic growth
key strengths
 strong and sustained track
record in ofwat efﬁciency and
performance assessments
 drinking and wastewater
quality consistently above
average
 leadership role in its sector
and region on climate change
adaptation
 excellent record in
biodiversity community
investment and education
key strengths
 competitive advantage 
in commercial and 
industrial collections
 modern specialist ﬂeet 
with high levels of fuel 
and operational efﬁciency
 35 landﬁll sites throughout
the uk all with iso14001
certiﬁcation
 excellent special waste
capabilities covering
hazardous and 
nonhazardous waste
key strengths
 market leaders in the us 
and uk with strong brand
recognition
 reputation for technical
excellence and responsive
customer service
 record of innovation and
being at the forefront of 
new markets such as 
vapour intrusion 
 good progress on major it
projects which will further
improve customer service 
and help us exploit scale
key strengths
 strong market position and
brand recognition
 strategy of focusing on high
margin business opportunities
 continually expanding
product and technology base
 emphasis on cost control and
operational efﬁciency
 strong product and
technology base in growing
markets such as arsenic
removal and global metering
products
for further information please visit
wwwstwatercouk
for further information please visit
wwwbiffacouk
for further information please visit
wwwstlinccom
wwwstlltdcouk
for further information please visit
wwwseverntrentservicescom
wwwstwaterinternationalcom
 before elimination of intragroup sales
quick read
severn trent plc annual review 2006  3 chairman’s statement
we have unveiled a new comprehensive strategy 
for the severn trent group of companies which 
will have at its heart a focus on water
our uk integrated waste management business
biffa is to be demerged from the severn trent group
of companies subject to shareholder approval
the board of severn trent plc ﬁrmly believes 
that the creation of two separate listed companies
severn trent plc and biffa plc each with dedicated
boards and experienced management teams
focused on continued strategic and operational
development with access to their own capital will
deliver greater beneﬁts to shareholders customers
and employees
following the proposed demerger severn trent plc
is expected to remain the uk’s second largest listed
water company and a constituent of the ftse 100
continuing to focus on delivering investment
programmes improving efﬁciencies and customer
service levels
our strategy also means that severn trent 
laboratories us is no longer considered a 
core activity so we shall look to improve its
business performance while we consider how to
best realise its value for shareholders severn trent
laboratories uk will remain in the group as it plays 
an important role working with severn trent water
our water puriﬁcation and operating services
business while a small proportion of the group 
is proﬁtable and growing and has synergy with our
water business so will be allowed to develop under
close management and tight budgetary control
our new strategy also allows us to become more
ﬁnancially efﬁcient by increasing our debt to
regulated capital value ratio to 60 by 2010 
the start of the next regulatory review period
we also expect to return cash to shareholders 
the amount and timing of which is still to be
determined
our chief executive colin matthews outlines in the
next two pages the reasons behind our new strategy
group results
overall the severn trent group has delivered 
an encouraging performance in 200506 with
group proﬁt from continuing operations before 
tax ias 39 fair value adjustments and exceptional
items at £3224 million an increase of 395 
and group proﬁt from continuing operations 
before tax was £2700 million £2288 million 
an increase of 18
the board is proposing a ﬁnal dividend of 
3197 pence 3030 pence to be paid on 
2 august 2006 this would give a total dividend 
for the year of 5113 pence an increase of 54
corporate responsibility
our ambition is to make severn trent the best
water company in the uk and restore the trust 
of our customers and ofwat we are determined 
that the unacceptable mistakes of 20002004
however caused will not be repeated
we have accepted the conclusions of ofwat’s interim
report concerning allegations of false reporting
made against severn trent water in 2004
ofwat’s interim report found that we had
overcharged our customers during 200405 
and had set prices too high for 200510
our internal investigations and ofwat’s
investigations have been thorough and lengthy
requiring complex judgements our judgements
have not been identical to ofwat’s in every aspect
but in the interests of making amends as soon as
possible we concluded it was sensible to proceed
by agreement and have apologised unreservedly
having considered ofwat’s ﬁndings we agreed 
that customer accounts should be credited as 
soon as possible and bills altered appropriately 
in subsequent years
as the ofwat report acknowledges the board of
severn trent plc and the new senior management
team started in 2004 to make major changes to
organisation structure to people and to processes
and controls the intense drive to improve severn
trent water will continue to be a top priority 
for its new managing director tony wray and 
his management team as well as for myself 
colin matthews and the rest of the severn 
trent plc board
direction
4 severn trent plc annual review 2006
sir john egan
chairman direction
as a result of a referral by ofwat the serious 
fraud ofﬁce is undertaking a criminal investigation
into alleged reporting irregularities made to ofwat
by severn trent water between 2000 and 2003
concerning leakage severn trent is supporting
ofwat in its review of these allegations and will 
cooperate fully with the serious fraud ofﬁce
we acknowledge that ofwat may expect further
amends to be made to customers ofwat has stated
that this penalty will be discussed with severn
trent water on completion of the serious fraud
ofﬁce investigation into leakage
the board has also provided ofwat with an interim
report into the misreporting of customer relations
data over several years
we will cooperate fully with ofwat to restore
conﬁdence in severn trent water going forward
we have taken and will continue to take all actions
we think appropriate to ensure the maintenance of
both high ethical and professional standards and
resilient and effective controls throughout all group
companies
board management and staff
john mcadam a nonexecutive director stepped
down from the board in september 2005 after ﬁve
years of valued service for which i thank him
derek osborn a nonexecutive director retired 
from the board in march 2006 after seven years 
of valuable contributions particularly concerning
environmental issues and i wish him well
martin flower senior independent nonexecutive
director and deputy chairman stood down from
the board in june after ten years’ service i am
extremely grateful for his support particularly in
ensuring continuity on the board and support for
our new management team
mark wilson group finance director stood 
down from the board in december 2005 after 
ten years at the heart of three regulatory reviews 
i am grateful to mark for his contribution to the
group’s success
mark’s successor as group finance director 
mike mckeon joined us in december 2005
formerly group finance director of novar plc 
the building materials group mike worked with
rolls royce plc and has had extensive international
business experience for carnaudmetalbox 
elf atochem and price waterhouse
we also welcomed two new nonexecutive 
directors richard davey and bernard bulkin 
from january 2006
richard a former head of investment banking for
nm rothschild  sons is a nonexecutive director
of yorkshire building society and amlin plc he 
was appointed senior independent nonexecutive
director and chairman of the remuneration
committee with effect from 11 june 2006
bernard is chairman of aea technology plc 
and is a commissioner on the uk sustainable
development commission he retired from 
bp plc as chief scientist in 2003
fiona smith joined as general counsel and
company secretary in february 2006 having been
general counsel for transport for london and
previously the national grid group she replaced
peter davies who retired with our best wishes
we again carried out rigorous board effectiveness
reviews with the help of independent consultants
which have generated a number of actions to
secure improvements to board performance
i would also thank our dedicated and hard working
staff whose commitment during a particularly
intense year has ensured we continue to achieve
our business objectives
outlook
our objective over the next four years is to ensure
customers in our water businesses get the beneﬁts
of high quality and cost effective services while
ensuring investors receive an appropriate return
we believe that the newly focused water group 
will be able to pay a progressive dividend as a
consequence
our dividend policy will therefore be to increase
dividends by 3 above rpi inﬂation until 2010
severn trent plc annual review 2006  5 group chief executive’s review
strategic overview
when i took over as group chief executive in
february 2005 i said i would concentrate on
operational improvements for all our businesses
but particularly severn trent water and biffa as
they account for some 96 of group proﬁt
since then my new team and i have undertaken
the most detailed examination of all aspects of 
our activities to understand the business drivers 
so we can be certain of the foundations of our
future direction
focus on water
severn trent water is one of the country’s largest
water and sewerage companies the company 
has great experience and strengths along with
important plans for improvement by concentrating
our efforts on raising standards across the entire
business customers will receive the beneﬁts of
reliable high quality and cost effective services 
for clean water and sewerage 
in addition these strategic changes particularly 
the demerger of biffa will support a more efﬁcient
balance sheet allowing a return of capital to
shareholders we intend to increase group debt 
to 60 of regulated capital value as soon as
practicable after the demerger the amount
mechanism and timing of any returns will be
communicated in due course and will depend on
future decisions around the debt structure of the
demerged biffa pension fund contributions and
ﬁnal costs of the demerger 
moreover these improvements should lead to strong
ﬁnancial returns we believe the group will be able
to deliver enhanced growth in dividends and our
new policy will therefore be to increase dividends
by 3 above rpi inﬂation through the remainder
of the current amp4 period that is until 2010
biffa
the most signiﬁcant transaction required to achieve
this group transformation is the demerger of biffa
which was separately announced on 4 april 2006
biffa is itself a leading business in an attractive
market and we believe that greater shareholder
value will be realised by the creation of a separately
listed company focusing all its attention on
developing the waste management business 
in 200506 organic growth within biffa has been
reignited and we believe the prospects for the
business are strong we have recently announced
bob davies as the new chairman for biffa and we
expect the demerger to be completed by the end of
october 2006 we will provide further details in
due course 
other businesses
us laboratories is no longer regarded as being 
a core business for the future us laboratories 
is a strong market leading company engaged in
environmental testing the long term prospects for
market growth are good although the last 2 years
have been challenging we are conﬁdent that the
ﬁrm actions already in hand will lead to a recovery
in margins and as we see these results being
achieved we will consider the appropriate actions
to realise shareholder value
the group announced on 12 may that biffa belgium
has been sold to veolia for €45 million completion
of this sale is expected by the end of june and is
subject to belgian competition clearance
certain other smaller activities have either 
already been closed to new business haswell 
sold aseriti or are being prepared for sale 
severn trent property
being closely associated with water uk laboratories
and water puriﬁcation and operating services will
remain part of the group together these business
account for some 3 of group proﬁt
severn trent post demerger
after the demerger severn trent will be a focused
water group generating more than 95 of group
proﬁts compared with less than 80 today
it will be the second largest listed uk player in the
water industry whose investment proﬁle will generate
expectations of growth and attractive returns
severn trent management will be able to focus on
the regulated water and sewerage business
there will still be other businesses in the group which
do have synergies with our core water operations
we shall keep severn trent laboratories uk there
are few competitors capable of supplying severn
trent water with the necessary high quality testing
service so it is felt appropriate to retain the business
our water puriﬁcation and operating services
business which includes a uk contract for managing
ministry of defence sites is proﬁtable growing and
improving and has signiﬁcant synergy with the
water business and as it is relatively small it will
not distract management from a focus on water
the creation of a new strategy will allow us to
increase our gearing to a more ﬁnancially efﬁcient
level while still remaining prudent with an eye on
regulatory developments into the next amp period
in 2010 and beyond
direction
6 severn trent plc annual review 2006
colin matthews
group chief executive direction
health and safety
i deeply regret to report two fatalities a biffa
contractor was hit by a biffa vehicle and a biffa
employee was struck by a car biffa management
has implemented the most rigorous investigation
across all its operations as a result with an
independent audit and has made signiﬁcant
changes to reduce the possibility of such 
incidents happening again
overall the severn trent group reported a 275
reduction in the riddor reportable incident rate
per 1000 employees
not only is safety important in its own right but it
is also important as a broad indication of quality
across the group we will continue to concentrate
heavily on improving our safety performance
water and sewerage
in 200506 severn trent water began the ﬁrst 
year of the amp4 contract which covers the period
200510 ofwat has set us exacting efﬁciency
targets for this period and during the year we
began to implement the organisational changes
necessary to achieve them
progress was good we reduced employee numbers
removed management layers in order to improve
information ﬂow reviewed and consolidated ofﬁce
accommodation in order to control overheads and
began a programme to streamline our procurement
process 
we aimed to meet the ofwat determination overall
getting our costs down to the ofwat proﬁle in two
years excluding energy costs we have done rather
better than that however the current outlook for
energy has more than offset that advantage we will
be striving to get back in line with the ofwat proﬁle
capital expenditure is more positive capex and
infrastructure renewals amounted to £434 million
adjusting for changes agreed with ofwat and
timing differences we have generated
approximately 6 efﬁciency over and above the
determination we plan to maintain similar out
performance over the rest of amp4
waste management
biffa worked in 200506 on a major review of how
the uk waste market is developing and biffa’s
position within it as part of the demerger preparation
we have a competitive advantage in the industrial
and commercial collection market a good position
in landﬁll and excellent special waste capabilities
through our treatment centres biffa has the
potential to develop recycling revenues signiﬁcantly
biffa enjoys a leading position in a dynamic market
place i suggested a target of 8 for renewed
organic growth six months ago i am pleased 
that the result 11 comfortably beats that
biffa has a sustainable strong position within the
waste industry we shall use our scale in collection
to deliver improving service and efﬁciencies we
can develop recycling opportunities as the market
evolves while carefully managing our pricing and
capacity in landﬁll
having spent more time in biffa than when i ﬁrst
reported last year i am convinced that there is a
great opportunity to bring about the same ‘process
improvement’ revolution that worked through
factory environments over recent decades and is
now revolutionising service industries
laboratories
severn trent laboratories provides environmental
testing services in the us and the uk in the us
market conditions were challenging in 200506
federal funding for environmental projects
continued to be impacted by the diversion of funds
to military activities in iraq and to hurricane relief 
in the uk market conditions were more favourable
with legislation like the landﬁll directive creating
new business opportunities
water puriﬁcation and operating services
the business produced good results in 200506
increasing turnover and proﬁts we maintained our
strategy of concentrating on higher margin business
and growth markets
environment
i am pleased that the group’s climate change
programme has continued to develop over the 
last 12 months we have continued to expand
renewable energy generation within both severn
trent water and biffa and in july 2005 working
with the carbon trust we published a carbon
management report which investigated the 
long term challenges and opportunities that 
climate change presents for the uk water 
and waste industries
outlook
performance at severn trent water has been 
good in the ﬁrst year of amp4 with operating 
costs reduced to within £4 million of the ofwat
determination the outlook for the coming year is
for continuing progress in meeting and improving
on the amp4 contract for operating costs across
most areas of performance with an additional 
£5 million to £10 million of savings identiﬁed
however the industry faces a signiﬁcant challenge
with rising energy prices at present the outlook 
for energy prices in 200607 mean that increased
costs in this area are expected to impact severn
trent water by around £25 million in relation to
capital expenditure we aim to maintain around 
6 efﬁciency out performance over the remaining
amp4 period
severn trent plc annual review 2006  7 water and sewerage
severn trent water
direction
8 severn trent plc annual review 2006
focus
200506 was the ﬁrst year of the amp4 contract
we began work to deliver our ﬁve year £26 billion
capital investment programme to maintain and
improve water supply and quality sewage
treatment and to meet our other regulatory
targets for 200510 highlights
 turnover up 134 to £11509 million 
 we implemented organisational changes that
will cut overheads and increase efﬁciency
 we appeared in the top category in the 
dwi’s water quality tables for the eighth
successive year
outlook
after good progress on the ﬁrst year of the 
amp4 programme we are on track to meet 
our regulatory obligations for 200510 
the organisational changes cost controls 
and improved procurement procedures we
introduced during 200506 will help us deliver
those obligations and achieve our targets
laying the groundwork to 
improve efﬁciencies and make
investments necessary to 
achieve ambitious targets
direction
severn trent plc annual review 2006  9 waste management
biffa
direction
10 severn trent plc annual review 2006
focus
biffa undertook a major review of the uk 
market and its market position in 200506 
this conﬁrmed its strengths in commercial
industrial collection landﬁll and special 
waste treatment it also showed good scope 
for developing recycling revenues
strength and scale to 
take advantage of emerging
opportunities in a growing
marketplace direction
severn trent plc annual review 2006  11
highlights
 turnover up 132 to £7123 million
  new national accounts in collection 
with well known brands and chains
  rising unit revenues in landﬁll
  increased renewable energy generation
capacity
outlook
severn trent plc announced its intention to
demerge biffa in 2006 a dedicated board and
access to its own capital will provide biffa with 
a strong platform for maintaining its record of
solid organic growth and serving customers laboratories
stl
direction
12 severn trent plc annual review 2006
focus
severn trent laboratories continued to focus on
service standards cost controls and operating
efﬁciency in 200506 in the us and the uk 
we also continued to seek out and maximise 
new opportunities and markets in 
environmental testing
highlights
 turnover up 77 to £323 million 
in the uk business
 strong activity in air testing in the us 
and contaminated soils testing in the uk
 new laboratory project in ecuador and an
acquisition in new orleans in 200506
developing a competitive 
edge and improving standards 
for a challenging environment  direction
severn trent plc annual review 2006  13
outlook
good market conditions in the uk look likely to
continue and we expect growth in some market
sectors in the us severn trent laboratories’
reputation for service and innovation should 
help it compete strongly in those areas water puriﬁcation and operating services
direction
14 severn trent plc annual review 2006
focus
both divisions of the water puriﬁcation and
operating services business have produced good
results in 200506 strong market position and
brand recognition combined with an emphasis on
cost control and operational efﬁciency puts the
business at the forefront of emerging markets
delivering good results 
with a clear focus on 
higher margin business 
in growth markets direction
severn trent plc annual review 2006  15
highlights
 turnover up 287 to £2678 million
 large contracts in the middle east to supply
domestic water meters
 200506 was the ﬁrst year of the 25 year 
£1 billion pfi contract with the uk’s ministry 
of defence
outlook
there are good growth prospects across the
water puriﬁcation and operating services
business positive market conditions are 
expected to continue and we believe we have 
the reputation expertise and technology base 
to capitalise on those opportunities review of operations
water and sewerage
performance
2006 2005
£m £m 
turnover 11509 10151 134
proﬁt 4004 3075 302
before interest tax and exceptional items see note 4
health and safety
23 improvement in riddor

reportable injuries
200506 36
200405 47
riddor – reporting of injuries diseases and dangerous
occurrences regulations
water quality
overall compliance with
drinking water quality 9996
200405 9994
severn trent water met its ﬁnancial targets for 
the year 200506 turnover increased by 134 
to £11509 million the allowed increase in charges
for 200506 including inﬂation was 152
in reviewing our prices ofwat takes account of
 the need to maintain existing standards 
of our products and services
 our levels of compliance with standards
achieved over the last ﬁve years
 the need to secure our water resources in 
the event of prolonged dry weather conditions
 areas of concern identiﬁed by customers 
as being of highest priority
 all new legislation affecting drinking water 
and environmental improvements
 the need to provide a reasonable return 
for our investors
 the affordability of our proposed plans
proﬁt before interest tax and exceptional items 
was up 302 to £4004 million this was after 
a provision for £106 million the expected cost
relating to 200506 and prior years of the
agreement made with ofwat to credit each
customer account during 200607 following 
the regulator’s interim report of 7 march 2006
improving the efﬁciency of the business
in 200506 severn trent water began the ﬁrst 
year of the amp4 contract which covers the 
period 200510 
ofwat has set us exacting efﬁciency targets for 
this period and during the year we began to
implement the organisational changes necessary 
to achieve them 
progress was good we reduced employee numbers
removed management layers in order to improve
information ﬂow reviewed and consolidated ofﬁce
accommodation in order to control overheads and
began a programme to streamline our procurement
processes the last of those measures involves
establishing long term relationships with a reduced
number of suppliers incentivising them to make
continuous improvements and standardising
designs where possible 
we also carried out two major insourcing projects
at the end of 200405 severn trent plc announced
that the haswell engineering consultancy business
would cease bidding for external work and
engineers working on our amp4 programme would
be absorbed into severn trent water in addition
some 270 staff from aseriti transferred to severn
trent water bringing our it systems activities in
house in both cases the transitions progressed
smoothly and we are seeing beneﬁts from bringing
engineering and it expertise back into the business
working towards amp4 targets
our contract for 200510 includes a capital
investment programme of approximately 
£26 billion this includes
 more than £400 million on maintaining 
water supplies
 £150 million on improving drinking 
water quality
 around £850 million on maintaining and
improving river quality
 more than £350 million improving sewers 
and dealing with sewer ﬂooding
our focus in the ﬁrst year was to implement the
new procurement and supply chain processes that
we will use in the programme and to mobilise the
900 projects that we are due to manage net capital 
expenditure excluding spending on infrastructure
maintenance was £305 million for the year
performance review
16 severn trent plc annual review 2006
tony wray
managing director 
severn trent water performance review
the one area of the amp4 contract where our
200506 results were disappointing was leakage
the dry summer of 2005 contributed to this
performance causing higher than average levels of
burst pipes reported actual leakage has increased
by approximately 17 megalitres per day 3
greater than 200405 we have now increased the
resources dedicated to detection and reduction of
leakage and we believe that by the end of the
amp4 period we can reduce our leakage ﬁgures to
below the target level set by ofwat
we own and operate over 1000 sewage treatment
works treating the wastewater from the equivalent
of over 10 million people the discharges from all
except the very smallest of these works are the
subject of stringent quality testing during 200506
9986 of those works complied with the important
regulatory sanitary standards this is and has
always been at or close to the best level of
compliance in the industry
serving our customers
customers’ views gathered in market research have
been used extensively in the development of our
strategy this research has been in place for over a
decade and includes regular tracking of customers’
attitudes and opinions every six months 
our customers tell us that their top priority is the
safety and reliability of their drinking water in july
2005 the drinking water inspectorate’s dwi
league table on water quality again showed that
severn trent water is achieving a quality level above
the industry average this is the eighth successive
year that we have appeared in the top category
the dwi also praised the accessibility of water
quality information on severn trent water’s website
despite a dry summer we maintained water supply
to our customers across the whole of our region
and did not need to impose hosepipe bans water
levels in our reservoirs were good at the yearend
we continued to promote water efﬁciency among
domestic and business customers since evidence
suggests that dry years are likely to become more
frequent our amp4 programme includes measures
to improve security of water supply and to make
sure that we have sufﬁcient water resources to
meet customers’ future needs 
we also understand that customers feel that
improvements to drainage in order to prevent
ﬂooding of properties by our sewers are important
our commitment for the amp4 period is to achieve
a net reduction of 158 in the number of properties
at risk of ﬂooding from our sewers more than 
once in ten years our programme of works 
to permanently reduce the risk of internal 
and external ﬂooding will beneﬁt an estimated
1300 properties
in 200506 we continued to implement our new
customer service technologies the target billing
system and ice improving customer experience
the rollout of the systems coincided with the price
rises introduced at the start of the amp4 period
and this increased the levels of customer contacts
and complaints we received this proved
challenging at times but we did succeed in
transferring all our customers to the new system
and we are satisﬁed that it is serving them well
in march 2006 the ofwat interim report into
allegations of false reporting found that we had
overcharged our customers during 200405 and
had set prices too high for 200510 immediately
following the report we apologised unreservedly to
all our customers we have agreed with ofwat a
mechanism for rebating them and we had already
voluntarily proposed to raise prices by £7 million
less than allowed under the 200607 price limits
ofwat measures the service that we provide to
customers by a series of indicators known as dg2
to dg9 these cover water supply pressure
interruptions and restrictions sewer ﬂooding
problems speed of response to three types of
contact with customers and the proportion of
metered customers who receive a bill based on an
actual meter reading further details along with the
levels of service for the water industry can be found
in the ofwat annual report on wwwofwatgovuk 
at the end of february 2006 we also began an
investigation into misreporting of customer
relations data to ofwat the data concerns the
handling of customer billing queries and telephone
contacts over several years we have kept ofwat
fully informed on the progress of the investigation
corporate responsibility
there is a strong focus on corporate responsibility
cr in severn trent water and the tangible 
results of this in 200506 included energy
management and generation programmes 
support for community and education projects
progress on our biodiversity action plan and
improvements to our health and safety performance 
more details on severn trent water’s cr programme
can be found in the corporate responsibility section
of this report
outlook
in 200506 severn trent water made a good start
to amp4 although it is too early after just one year
of the ﬁve year period to forecast our eventual
performance on the contract we are conﬁdent
about our ability to control operating costs and
deliver our ﬁve year capital programme we believe
we are on track to deliver the amp programme and
meet our regulatory obligations 
severn trent water
management have
focused on improving
quality of operations
and strengthening and
streamlining internal
controls
severn trent plc annual review 2006  17 review of operations 
waste management
performance
2006 2005
£m £m 
turnover 7123 6295 132
proﬁt 892 789 131
before interest and tax 
power generation
turnover up 322
to £189 million
biffa had another year of good organic growth in
200506 turnover in the uk was £7123 million
up 132 
in the uk proﬁt before interest tax and 
exceptional items was 131 higher than 
200405 at £892 million 
collection
biffa has one of the largest waste collection
networks in the uk with over 65 depots and more
than 1600 vehicles we collect 35 million tonnes 
of waste each year from about 80000 industrial
and commercial customers and from over 1 million
households which include two fully integrated
waste management contracts under the private
finance initiative with isle of wight and leicester
city councils
the industrial and commercial collection business
grew strongly in 200506 and the division secured
a number of new national accounts across various
market sectors including retail leisure and ﬁnance
new accounts included well known highstreet
names such as sainsbury’s dsg international plc
currys pc world the link and dixons and boots
our ability to provide nationwide coverage and
bespoke recycling services was instrumental in
several of these contract wins 
there were new contract wins in the municipal
sector too biffa won a recycling contract 
for 56000 properties in bridgend wales and 
a three year contract with vale of glamorgan
covering the managing and processing of
recyclable materials and servicing ‘bring banks’
biffa’s contract with south staffordshire was
extended for a further six years
biffa worked with its local authority customers to
help them meet their targets on value efﬁciency
and recycling for example in burnley mole valley
south shropshire south staffordshire and woking
this took the form of introducing alternative weekly
and fortnightly collections incorporating green
waste and dry waste collection services
gross turnover in the collection division was
£4290 million up 148 proﬁt before interest 
and tax was £601 million up 165 industrial 
and commercial margins remained ﬁrm and
absorbed cost increases arising from the road
transport directive which came into force in 2005
this restricted the number of hours that drivers
can work and led us to renegotiate pay structures
with our drivers
landﬁll
government targets on diversion from landﬁll are
reducing the amount of waste going to landﬁll 
and landﬁll volumes were down 82 in 200506
however unit revenues from landﬁll rose with the
result that turnover in the landﬁll division was up
143 to £3028 million proﬁt before interest and
tax was up 28 to £408 million
the landﬁll division continued to take advantage of
new market opportunities in 200506 in 200405
biffa formed a strategic alliance with biogenie site
remediation to remove and treat contaminated soil
from brownﬁeld construction sites following that
alliance we opened our ﬁrst soil facility at risley
warrington in november 2005 and we plan to open
two further facilities in the southeast of england
initial tonnages at risley were encouraging 
in addition during 200506 biffa’s composting
sites accepted approximately 47000 tonnes of
green waste 
biffa won its ﬁrst signiﬁcant landﬁll contract 
in northern ireland in early 2006 the new
cottonmount ii landﬁll site will receive over
700000 tonnes of waste over an initial 29 
month period from the arc21 partnership a 
group of 11 northern irish councils we also 
won a four year disposal contract with
warwickshire county council
performance review
18 severn trent plc annual review 2006
martin bettington
managing director biffa performance review
special waste
biffa’s special waste division provides a range of
services and technologies for managing hazardous
waste streams 
one of the biggest changes affecting the special
waste division in 200506 was the entry into force
of the eu hazardous waste regulations in july 2005
as a result of the legislation many companies had
to register as hazardous waste producers for the
ﬁrst time and our special waste division set up a
helpline and registration service to assist them 
turnover in special waste was up 51 in 200506
to £492 million proﬁt before interest and tax was
£19 million up 188
power generation
gross turnover from power generation was up
322 to £189 million and proﬁt before interest
and tax was up 471 to £75 million
the division which uses landﬁll gas to generate
electricity is a signiﬁcant provider of renewable
energy in the uk during 200506 we added new
power generation capacity at a number of sites
bringing total generation capacity up to 108mw
compared with 101mw at march 2005
belgium
on 12 may 2006 the group agreed to sell biffa
belgium to veolia for €45 million the transaction
is conditional upon clearance from the belgian
competition authorities and is expected to
complete before the end of june 2006
biffa belgium has been classiﬁed as a discontinued
operation its turnover in 200506 was £584
million £667 million and its loss before interest
and tax was £41 million proﬁt £33 million
corporate responsibility
i deeply regret to report two fatalities a biffa
contractor was hit by a biffa vehicle and in a
separate incident a biffa employee died after 
being struck by a car we have implemented 
the most rigorous investigations and made
signiﬁcant changes to reduce the possibility 
of such incidents happening again 
an awareness of biffa’s duty towards the
environment our workforce and the communities
around our sites is embedded in our operations
and culture evidence of that awareness in 200506
included renewable energy generation activities an
energy efﬁciency programme in ﬂeet and
community and education activities
as in 200405 we have continued to run a
company wide health and safety culture change
programme involving all employees the
importance of health and safety initiatives was
recognised with the introduction this year of the
biffa health and safety awards scheme which
acknowledged employees’ contributions to making
their working environment a safer place we have
also improved communication of health and safety
issues including the distribution of several new
videos and dvds covering alcohol and drugs misuse
awareness manual handling and employees talking
about the effect an incident has made on their lives 
several biffa employees were also recognised
through the group health and safety champions
awards with a biffa employee winning the overall
champion award his idea for developing a simpler
and safer operating technique has been applied
across the business
more details on biffa’s cr programme can be found
in the corporate responsibility section of this report
outlook
at the end of the 200506 ﬁnancial year the board
of severn trent plc announced its intention to
demerge biffa in the uk by the end of 2006 this
was based on the belief that the creation of a
separately listed company biffa plc would deliver
greater beneﬁts to shareholders customers and
employees 
biffa will continue to guide our customers through
the requirements of new eu and uk legislation 
as one of the uk’s leading waste management
businesses we will also continue to beneﬁt from
scale and development opportunities 
during 200506 the business undertook a major
review of how the uk waste market is developing
and biffa’s position within it the review indicated
that we have a competitive advantage in the
industrial and commercial collection market a
good position in landﬁll and excellent special waste
capabilities through our treatment centres it also
showed that biffa can develop recycling revenues
signiﬁcantly 
our strengths in collection landﬁll and special
waste are a strong basis for delivering our strategy
of organic growth both before and after the
demerger 
biffa is well positioned
in the largest and 
most attractive market
segments
severn trent plc annual review 2006  19 review of operations 
laboratories
performance
2006 2005
£m £m 
turnover 1670 1626 27
proﬁt 111 152 270
before interest and tax 
in 200506 market conditions in the us were 
very difﬁcult for severn trent laboratories stl
federal funding for environmental projects was
impacted by the continued rise in the federal
deﬁcit as well as the diversion of funds to 
military activities outside of the us whilst the 
worst hurricane season on record took stl’s
environmental consulting clients away from their
normal scope of work to engage in hurricane 
relief and repair efforts these factors led to serious
price erosion which impacted proﬁt margins
in the uk market conditions were more favourable
exempliﬁed by the landﬁll directive legislation
which created new business opportunities
around 81 of severn trent laboratories’ turnover
derives from the us so the 200506 results were
affected by the challenging market conditions
described above turnover in the us increased by
16 to £1347 million and proﬁt before interest
and tax was down 433 to £59 million 
market strategy
in the us stl continues to pursue a long term
strategy centred around service excellence coupled
with tight cost controls and continued operating
efﬁciency improvements stl will work to rebuild
the margin shortfall a programme of cost
reductions took place in 200506 and this will
beneﬁt performance in 200607 and beyond
stl continued to implement a new information
management system in the us which will bring 
all locations onto a single it platform this will help
exploit stl’s unmatched scale in the us market
further improve service by reducing project turn
around times and improve the delivery of complex
electronic data the system has been rolled out to
more than half of the us laboratories
in 2005 stl set up a new laboratory for a major
us client in ecuador this facility will enable stl to
address local testing needs and also gives stl the
potential to expand activities in south america if
suitable opportunities are identiﬁed
us markets
whilst the general market picture in the us is
challenging speciﬁc areas remain vibrant there 
is strong activity in the air testing market and
within that there are good opportunities in 
vapour intrusion testing there are also good
growth prospects in sediment testing related 
to harbourport cleanup and transportation
infrastructure in 200506 stl started work on a
large 25 million sediment testing project on the
new orleans harbour and though work on this was
interrupted by hurricane katrina it is expected to
resume in 200607
the new orleans harbour project was not the only
aspect of stl work affected by the severe hurricane
season of 2005 stl has six laboratories within the
hurricane belt of the southern us and all
experienced problems related to hurricane activity
such as disruptions to power supply and reduced
sample collection and delivery activity however
following the experience of the previous year stl
had contingency plans in place and these did help
to address the impact of the hurricanes on stl
business activities
stl also decided to expand its base in new
orleans by acquiring the business of
environmental analytical services inc this facility
will enable stl to better support clients affected by
last year’s hurricanes in the gulf coast region
in the uk market conditions were more favourable
turnover was up by 77 to £323 million and proﬁt
before interest and tax was up 83 to £52 million
the uk business is strongly focused on the testing 
of samples from uk water clients including severn
trent water but stl also saw strong demand for
contaminated soils testing arising from the
provisions of the landﬁll directive stl created a
dedicated waste acceptance criteria laboratory at
its site in the midlands this helps waste producers
comply with the uk’s waste acceptance criteria
which also arise from the landﬁll directive
outlook
we do not expect any major increase in us federal
environmental budgets in 200607 nor do we
expect signiﬁcant growth in sectors that are driven
by regulation however we have positive
expectations about continuing growth in certain
segments of the market including air testing and
vapour intrusion as well as testing for sediments
and endocrine disrupters we also have positive
expectations for continued growth in the sale of
groundwater sampling equipment and remediation
pumps through stl’s us subsidiary qed
environmental systems and expect strong market
conditions in the uk soils testing market to
continue
performance review
20 severn trent plc annual review 2006
signiﬁcant progress on
laboratory it systems
standardisation
rachel brydon jannetta
president and ceo stl len graziano
president and ceo 
water puriﬁcation 
and operating services
the water puriﬁcation
market will continue to
grow both in the us
and uk and in the
developing world
review of operations 
water puriﬁcation and operating services
performance review
performance
2006 2005
£m £m 
turnover 2678 2081 287
proﬁt 120 89 348
before interest tax and exceptional items see note 4
water puriﬁcation and operating services’ divisions
both produced good results in 200506 increasing
turnover and proﬁts both divisions maintained
their strategy of concentrating on higher margin
business and growth markets
turnover in water puriﬁcation and operating
services was up by 287 to £2678 million
around 62 of that arose in the us proﬁt before
interest tax and exceptional items increased to
£120 million a rise of 348 the impact of
exchange rates on the ﬁgures was immaterial
alongside the business concentration on achieving
organic growth in 200506 was an intense focus 
on health and safety performance
water puriﬁcation
the water puriﬁcation division’s turnover rose by
147 in 200506 to £1041 million proﬁt before
interest tax and exceptional items was up 112
these ﬁgures now include turnover and proﬁt from
the metering services business formerly part of 
the operating services division
metering services performed well in 200506 
two trends made a major contribution to this 
in the uk we saw rising demand for domestic
meter installation and in the middle east we 
won large contracts in abu dhabi and qatar to
supply our smartmeter™ domestic meters
performance in the other businesses within the
water puriﬁcation division was slightly down on 
the previous year although they had some success
in particular the ﬁltration and electrochlorination
business arsenic removal is a growing market for
severn trent services and our partnership with
lanxess on sorb 33® arsenic removal technology
and bayoxide® e33 arsenic removal media gives
us a strong market position in 200506 we were
delighted to have reached agreement on the
extension of our partnership with lanxess on
arsenic removal in the industrial and municipal
water sector for another ﬁve years we expect to
see further opportunities in arsenic removal not
just in our existing markets in the us and europe
but in new markets like india
in parts of the us new regulations on ballast water
will come into force in 200607 and there are
good commercial opportunities ahead in january
2006 severn trent de nora’s balpure system was
the ﬁrst commercial product to be selected by the
us coast guard and the us environmental
protection agency for validation at the naval
research laboratory ballast water treatment
testing facilities in florida
operating services
this division comprises our contract operations
business which carries out operating and
maintenance contracts in the us our pipeline
services business and severn trent water
international stwi which provides management
and consultancy services in europe and the
developing world
turnover in this division was up 396 to £1638
million proﬁt before interest tax and exceptional
items was up 672 these ﬁgures include coast 
to coast water c2c the 25year £1 billion pfi
contract with the uk ministry of defence which
commenced on 30 march 2005 
in the contract operations business in the us we
saw some signiﬁcant contract wins and extensions
we also secured a three year contract in jordan 
in the middle east our ﬁrst contract in the region
contract operations continues to beneﬁt from
market conditions in the us where tight ﬁscal
constraints mean that states and municipalities 
are looking to outsourcing and public private
partnership solutions for improving operational
performance
on 2 june 2006 we signed heads of terms 
to sell our interest in aquaﬁn nv to the flemish
government for approximately £30 million the
sale is expected to be completed in july 2006
outlook
there are good growth prospects across all 
of water puriﬁcation and operating services’
businesses the water puriﬁcation market will
continue to grow both in the us and uk and in
the developing world our product technologies 
and strong brand recognition will help us compete
vigorously in that market we also plan to increase
our direct presence in the global marketplace
expanding our sales and distribution channels
in operating services we expect the positive
market conditions to continue we have a strong
position in the operating and maintenance
contracts market and we intend to capitalise 
on that position and grow our business further 
we also expect to see good results coming from 
the coast to coast contract in the uk which will
grow in terms of both importance and size
severn trent plc annual review 2006  21 review of operations 
other businesses
performance review
the group has
continued to rationalise
its other activities 
22 severn trent plc annual review 2006
other businesses’ turnover was down 312 to
£597 million £868 million they incurred a 
loss before interest tax and exceptional items of
£35 million proﬁt of £70 million there were 
no signiﬁcant property transactions contributing to
proﬁt in 200506 after exceptional restructuring
costs of £31 million £38 million other
businesses incurred a loss before interest 
and tax of £66 million proﬁt of £32 million
systems 
the termination of external sales of the uk it
service business which was announced in last
year’s preliminary announcement was completed
and this business is now refocused entirely to
provide solutions to internal group companies 
the group’s remaining systems businesses 
were sold to logica in february 2006
property
during the year severn trent property sold its
interest in the tournament fields ofﬁce scheme at
warwick and the remaining land at the direct 2
oldbury west midlands both realising an
acceptable proﬁt
at daventry international rail freight terminal
where planning permission has been granted 
for a further 2 million sq ft work continues on
infrastructure design and costing marketing of 
the site will begin shortly with the aim of securing
substantial prelettings before construction work
commences
at midpoint park in birmingham a site of 
90 acres owned by severn trent water a resolution
to grant planning permission has been issued by
birmingham city council formal consent should
be issued shortly and initial infrastructure works
will then commence
following a strategic review it has been decided
that severn trent’s property business is a noncore
business and a sale process has recently
commenced
engineering consultancy
the group’s engineering consultancy business has
ceased taking on new external business but will
complete existing contracts its expertise has been
transferred to severn trent water to support that
company’s capital programme
insurance
derwent insurance severn trent’s captive insurer
provides insurance cover to severn trent group
companies severn trent was named
as the utilities sector
leader in the dow jones
sustainability world
index for the ﬁfth
consecutive year
review of operations 
corporate responsibility
performance review
severn trent plc annual review 2006  23
severn trent plc’s corporate responsibility cr
programme focuses on delivering environmental
improvements and making a positive difference to
the social and economic welfare of our communities
the programme is steered by severn trent’s
corporate responsibility committee chaired by the
group chief executive a set of detailed policies
and targets deﬁnes how the group’s cr vision and
values are incorporated into our business activities
the vision values and current targets are set out 
in detail on severn trent’s website
in 2005 severn trent was named as the utilities
sector leader in the dow jones sustainability 
world index for the ﬁfth consecutive year the
ranking acknowledges severn trent’s sustainability
leadership and our determination to deliver 
highquality environmental services in a responsible
manner 
the key performance indicators presented in the
graphs and tables in this cr section have been
independently veriﬁed by acona as part of our 
cr veriﬁcation programme
business ethics
corporate responsibility starts with getting core
business standards right in this regard we faced 
a signiﬁcant challenge in 2005 in the form of our
own and ofwat’s investigations into allegations
made against severn trent water in 2004 of false
reporting of regulated data the investigations
found evidence of a limited number of staff who
became aware of wrong behaviour but did not raise
any concerns and we accept that this was partly
due to weaknesses in severn trent water’s system
of controls culture and business ethics at that time
with the arrival of the new management team at
severn trent water in 2004 and 2005 we have
been strengthening internal processes controls
ethics and culture as a result of a comprehensive
review of all severn trent water’s business activities
we are undertaking a further investigation into 
misreporting of customer relations data to ofwat
the ongoing change programme within severn
trent water includes promoting a culture based 
on openness and evaluation of all aspects of
performance bad as well as good where every
member of staff practises proper business ethics
we have developed a new group policy on ethical
behaviour at work which includes mechanisms 
and safeguards for whistle blowing to support 
the revised code of conduct 
we will continue our efforts to review and improve
severn trent’s culture and ethics in 200607 and
beyond
environment
severn trent’s greatest environmental impacts are
related to climate change and resource
management in 200506 we continued to drive
forward our responsible management of those
impacts targets for each of these areas are
detailed on our website
the waste and water sectors are signiﬁcant
emitters of greenhouse gases the majority of
severn trent’s greenhouse gas emissions
measured as carbon dioxide co
2
 equivalent arise
from methane emissions from landﬁlls indirect
emissions from purchased electricity and emissions
from transport our work to control these includes
improving landﬁll gas capture a comprehensive
review of energy efﬁciency within severn trent
water and the introduction of biodiesel to biffa’s
transport ﬂeet we reduce net emissions by
generating renewable energy and in 200506 we
continued to expand generation capacity at the
end of march 2006 installed generating capacity 
at biffa’s sites was 108mw compared to 101mw 
at march 2005 severn trent water also increased
its energy generation capacity from 27mw at
march 2005 to 28mw a year later 
group renewable energy generation 
increased by 136
200506 691668 mwh
200405 608779 mwh
data is for sites under group control 200405 data is restated
severn trent aims to lead the policy debate on
climate change in the waste and water industries
in 2005 we published the carbon management
report describing the results of the carbon
management study we undertook with the support
of the carbon trust the study developed a set of
projections for our greenhouse gas emissions
through to 2020 with the aim of improving our
understanding of future emissions trends and
priority areas we need to address we face a
challenge to control emissions in the future due 
to the requirements of environmental legislation
such as recycling targets and the water framework
directive the full carbon management report
appears on our website
in 200506 we subsequently worked on two further
studies to improve our control of net emissions
again with the support of the carbon trust the
ﬁrst looked at how severn trent might explore
other renewables technologies in order to reduce
net emissions and this has fed into our business
planning processes  review of operations 
corporate responsibility continued
performance review
24 severn trent plc annual review 2006
key sources of greenhouse gas emissions
co
2
equivalent
the second investigated the potential greenhouse
gas emissions and related energy cost implications
of different technology choices for water and waste
treatment in analysing our long term investment
choices in the context of greenhouse gas emissions
we aim to put climate change at the very heart of
our business
adaptation is the other theme of severn trent’s
climate change programme severn trent water
took a leading role in sustainability west midlands’
climate change partnership helping the west
midlands to understand and adapt to the potential
impacts arising from climate change biffa
completed a series of adaptation workshops in
200506 assessing how climate change could
affect key areas of the business 
our work on resource management focuses on two
principal elements reducing our own consumption
of natural resources and helping our customers
manage resources through activities like recycling
reducing leakage is an important part of both our
own and our customers’ management of resources
in our corporate responsibility report published
later this year and following the june return to
ofwat we will provide a breakdown of demand and
leakage for severn trent water we will also outline
our work with domestic and industrial customers
and our education programme to improve water
conservation 
biffa handled 112 million tonnes of solid waste for
recycling and recovery 122 of the total amount
of solid waste directly disposed of developments in
200506 included extending commercial glass
collections nationwide and increasing composting
activities 
both severn trent water and biffa continued to
expand their biodiversity action plans in 200506 
proportion of waste recycled or recovered 
by biffa was 122 in 200506
workplace
as described earlier we devoted considerable
management time to workplace ethics in 200506
working to entrench a culture of openness and
honesty alongside that we continued a rigorous
programme to improve health and safety
performance across the group tragically the
importance of health and safety was underlined by
two fatalities a biffa contractor was hit by a biffa
vehicle and a biffa employee was struck by a car
biffa management has implemented the most
rigorous investigation and made signiﬁcant
changes to reduce the possibility of such incidents
happening again
among a wide range of measures implemented
during 200506 were restructuring the businesses’
health and safety departments to align them 
more closely with divisional structures introducing
a health and safety multiplier in directors’
performance bonuses and launching groupwide
‘champion of safety’ awards
our strong focus on health and safety in 200405
and 200506 led to a great improvement in our
performance in 200506 the riddor reportable
incident rate for the group as a whole was 
173 per 1000 employees a reduction of 
276 compared to the previous year 
severn trent believes that a diverse workforce is
important to the success of the company we
regularly review our working practices to ensure
equality of opportunity and we promote the
importance of good working relations based on
fairness equality and inclusiveness we are aware
that we must do more to improve our diversity
performance over the coming months our work to
achieve this includes monitoring diversity proﬁles
across the group targeted recruitment initiatives
diversity awareness training for staff and managers
and benchmarking our policies and practices
against best practice organisations
20042005 20052006 20052006 20042005
163
153
037 036
012 013
026
030
offset by 
energy generation
group
waste recycled 
or recovered by biffa
total waste 
landﬁlled at biffa’s sites
113 112
805
877
10
8
6
4
2
0
million tonnes million tonnes co
2 e
20
15
10
05
0
05
methane from
landﬁll biffa
electricity use
severn trent
water
transport
biffa performance review
full details of our 
cr programme can be
found on our website
wwwseverntrentcom
severn trent plc annual review 2006  25
health and safety performance
276 reduction in riddor
reportable incident rate 
per 1000 
employees
200506 173
200405 239
200405 data is restated
most group companies have their own intranets
and magazines which form a major communication
channel with their employees employee opinion
surveys are used to provide feedback on a range 
of issues 
group companies continue to maintain positive
relationships with the recognised trade unions and
with other elected representatives the group’s
meeting of its european consultative council 
is an annual opportunity to promote dialogue 
with employee representatives and enhance 
their understanding of the issues facing our
businesses in europe
training is also essential to the continuing success
of the group we are continually expanding our
staff development programmes and tools which
include learning resource centres elearning
audiovisual materials and programmes with leading
business schools such as warwick and aston
we continued to encourage share ownership 
in 200506 and we offer a number of plans
including a save as you earn scheme and 
a share incentive plan
community
we maintained our commitment to community
investment and community liaison in 200506 
our community investment programme continued
to focus on three main areas environmental
education the built environment and the natural
environment we worked with nine partner
charities wateraid birmingham cares leicester
cares cromford venture centre bridlegate
stonebridge city farm vso crashit and ackers 
biffa’s landﬁll tax credit scheme biffaward
distributed almost £86 million in 200506 to over
200 individual projects they included for example
urban regeneration projects a project to double 
the population of the brown hare and a grant 
for the roald dahl museum and story centre
education remained a priority of severn trent’s
community activities severn trent water continued
the besmart initiative which encourages school
children to learn about water and the important
role it plays in our lives biffa’s interactive
educational cd on waste won two prestigious
communications awards 
marketplace
supply chain assessment has been the object 
of increasing public attention in recent years as
companies seek to understand their responsibilities
and improve performance within their sphere 
of inﬂuence we intensiﬁed our focus on supply
chain assessment after we expressed support 
for the un global compact principles in 2004 
severn trent agreed group supply chain
assessment objectives and targets in may 2005
and these are published on our website later in
the ﬁnancial year we conducted a comprehensive
review of the different businesses’ supply chain
assessment processes the review covered ﬁve
areas of cr concern environment human rights
health and safety bribery and corruption and
working with minority or small and mediumsized
enterprises 
the review was completed in february 2006 and 
in 200607 we will use its ﬁndings to build on
existing good practice within the group and to
identify priority areas for improvement in the
individual businesses
severn trent is sensitive to issues of affordability
and the needs of vulnerable customers especially
given the price increases scheduled for 200510
one of the ways in which we provide for those
customers is a substantial annual grant to the
severn trent trust fund an independent charity
established in 1997 to help customers in genuine
economic difﬁculty
each year around 8000 people in severn trent
water’s region apply for the trust’s help with
paying water and other utility bills and over 70
of those applicants receive ﬁnancial assistance  financial review
group turnover from continuing operations was
£22950 million £20144 million an increase of
139 over last year the growth in turnover was
mainly due to the price increases in severn trent
water strong growth in landﬁll and collection at
biffa and the new ministry of defence contract in
operating services which were partially offset 
by the reduction in activity in the other businesses
group proﬁt from continuing operations before
interest tax and exceptional items was up 224 
to £4882 million £3988 million there was 
a net exceptional charge of £157 million 
£23 million – see below group proﬁt from
continuing operations before interest and tax 
was £4725 million £3965 million
after net interest charges of £1679 million £1695
million and share of results of associates and joint
ventures of £21 million £18 million group proﬁt
from continuing operations before tax exceptional
items and ias 39 fair value adjustments was up
395 to £3224 million £2311 million group
proﬁt from continuing operations before tax was
£2700 million £2288 million
the total tax charge for the year was £427 million
£715 million of which current tax represented
£488 million £338 million and deferred tax was
a credit of £60 million charge of £294 million
proﬁt for the period from continuing operations
was £2273 million £1573 million
basic earnings per share from continuing
operations were 652 pence 454 pence adjusted
basic earnings per share before exceptional items
ias 39 fair value adjustments and deferred tax
were 772 pence 561 pence an increase of 376
biffa belgium the sale of which was announced on
12 may 2006 and was classiﬁed as a discontinued
operation incurred a loss of £43 million proﬁt of
£08 million
exceptional items
there was an exceptional charge in the year of
£157 million which comprised
 a charge of £79 million for restructuring costs
including £48 million in water and sewerage
and £31 million in other businesses and 
demerger and related costs of £78 million 
in corporate
in 200405 there was a net exceptional charge of
£23 million which comprised
 a charge of £104 million relating to
restructuring costs in water and sewerage
 a charge of £38 million resulting from the
closure of systems’ us cis business and the
termination of external sales from systems’ uk
it services business and engineering
consultancy
 a £43 million credit from the disposal of water
puriﬁcation and operating services’ investment
in an associated company in portugal and
 a £76 million credit from the proﬁt on sale of
ﬁxed assets in water and sewerage
performance review
26 severn trent plc annual review 2006
group results 
financial highlights
2006 2005  change
turnover £m 2295 2014 139
proﬁt before interest and exceptionals £m 488 399 224
proﬁt before interest £m 473 397 192
proﬁt before tax exceptionals and ias 39 £m 322 231 395
proﬁt before tax £m 270 229 180
earnings per share before exceptionals ias 39 and deferred tax p 772 561 376
earnings per share p 639 457 398
gearing  609 610
final dividend p 3197 3030 55
interim dividend p 1916 1821 52
total dividend for the year p 5113 4851 54
from continuing operations see notes 4 and 13
michael mckeon
group finance director performance review
taxation
the charge for current tax on continuing operations
was £487 million £379 million the current tax
charge has beneﬁted from a release of £391
million charged in prior years following the
agreement of the corporation tax computations for
years up to and including 200203 200405
release of £115 million the effective rate of
current tax calculated on proﬁt before tax
exceptional items and ias 39 fair value
adjustments was 287 210 tax bulletin 53
which changes the tax treatment of deferred
revenue expenditure in severn trent water
increased the effective rate of tax by approximately
34 and permanent differences increased the
effective rate by a further 64 these impacts
were partially offset by lump sum pension
contributions which reduced the effective rate of
current tax in the year by 45
going forward we would expect the effective rate 
of tax for the current group structure to be in the
range of 30 to 35 the planned demerger of
biffa along with other announced changes will
impact this expectation
cash ﬂow
2006 2005
£m £m
cash generated from 
operations 7589 6233
net capital expenditure 3959 4064
net interest paid 1801 1511
tax paid 683 365
other cash ﬂows 02 25
free cash ﬂow 1144 318
dividends 2343 1620
acquisitions and disposals 13 34
financing 116 14
change in net debt from 
cash ﬂows 1070 1254
cash generated from operations was £7589 
million £6233 million capital expenditure 
net of grants and proceeds of sales of ﬁxed assets 
was £3959 million £4064 million including
capital expenditure in severn trent water of 
£3053 million £3191 million interest paid
increased to £1801 million £1511 million 
due to additional payments of interest on ﬁnance
leases tax payments increased as a result of the
higher underlying effective rate of tax 
the acceleration of dividend payments resulted in
an additional dividend payment of £665 million 
in 200506
net debt at 31 march 2006 was £29611 million
£28946 million year end balance sheet gearing
is 609 610 and the group net debt to rcv 
is 574 577 the group’s net interest charge
excluding ias 39 fair value adjustments was
covered 46 times 40 times by proﬁt before
interest tax depreciation and exceptional items 
and 29 times 24 times by proﬁt before interest
tax and exceptionals
accounting policies
these are the ﬁrst full year results that the 
group has reported under international financial
reporting standards ifrs the impacts of ifrs 
on the group’s results and balance sheet were 
set out in a presentation on 19 september 2005
which is available on the group’s website the
group has taken advantage of the exemption
available in ias 32 and ias 39 not to restate
comparative information for the impact of those
standards the opening reserves at 1 april 2005
have been restated to reﬂect the impact of
adopting ias 32 and ias 39 
severn trent plc annual review 2006  27 financial review continued
earnings per share and dividend
earning per share from continuing operations
adjusted to exclude exceptional items ias 39 fair
value adjustments and deferred tax increased by
376 to 772p 561p basic earnings per share
from continuing operations were 652p 454p
an interim dividend of 1916p 1821p up 52
was paid on 25 january 2006 the board is
recommending the payment of a ﬁnal dividend of
3197p 3030p up 55 to make a total dividend
of 5113p 4851p
treasury management 
the group’s treasury affairs are managed centrally
and in accordance with its treasury procedures
manual and policy statement the treasury
operation’s primary role is to manage liquidity
funding investment and the group’s ﬁnancial risk
including risk from volatility in interest and to a
lesser extent currency rates and counterparty
credit risk its activities are subject to a set of
controls commensurate with the magnitude of the
borrowings and investments under its
management the board determines matters of
treasury policy and its approval is required for
certain treasury transactions
it is the group’s strategy to access a broad range 
of sources of ﬁnance to obtain both the quantum
required and the lowest cost compatible with the
need for continued availability
the group uses ﬁnancial derivatives solely for the
purposes of managing risk associated with
ﬁnancing its normal business activities the group
does not hold or issue derivative ﬁnancial
instruments for ﬁnancial trading purposes the
group uses a limited number of currency swaps
and interest rate swaps to redenominate external
borrowings into the currencies and interest rate
coupon required for group purposes
the group’s policy for the management of interest
rate risk requires that no less than 50 of the
group’s borrowings should be at ﬁxed interest
rates or hedged through the use of interest rate
swaps or forward rate agreements at 31 march
2006 interest rates for some 72 of the group’s
net debt of £2961 million were so ﬁxed at a
weighted average interest rate of 57 for a
weighted average period of 146 years this policy
has been implemented by entering into a portfolio
of long dated interest rate swaps that hedge the
group’s economic exposure to changes in interest
rates however these swaps are not designated to
particular liabilities and hence do not meet the
criteria for hedge accounting under ias 39 
performance review
28 severn trent plc annual review 2006
pensions
the group has four deﬁned beneﬁt pension
schemes of which the severn trent pension
scheme stps is by far the largest formal
actuarial valuations were undertaken for the stps
and another scheme the severn trent senior staff
pension scheme as at 31 march 2004
on an ias 19 basis the estimated net position
before deferred tax of all of the group’s deﬁned
beneﬁt pension schemes and the group’s unfunded
pension liabilities for senior staff was a deﬁcit of
£2219 million as at 31 march 2006 this compares
with a deﬁcit of £3175 million as at 31 march
2005 the reduction in the deﬁcit arose because
the increase in assets from higher than expected
investment returns and increased contributions
exceeded the increase in liabilities from a reduction
in the discount rate total cash contributions to the
schemes in the year was £1052 million £623
million this included a payment of £444 million
relating to the year 200607
the key actuarial assumptions were
2006 2005
discount rate 49 55
inﬂation 27 275
expected return on equities 80 825
life expectancy at age 65 years
men 189 189
women 218 218
for future pensioners
net of deferred tax the estimated net deﬁcit on an
ias 19 basis as at 31 march 2006 was approximately
£155 million on an ias 19 basis the funding level
has improved from around 77 at 31 march 2005
to around 86 at 31 march 2006
as at 31 march 2006 the group’s deﬁned beneﬁt
pension schemes had total assets of approximately
£1403 million of which around 65 was invested
in equities
further details of the group’s pension position are
contained in note 27 to the accounts performance review
consequently the swaps are revalued at each
balance sheet date and the change in fair value is
taken to the income statement as a ﬁnance cost 
in the year ended 31 march 2006 £367 million
was charged to ﬁnance costs in respect of such 
fair value movements
the group’s business does not involve signiﬁcant
exposure to foreign exchange transactions cross
currency swaps are employed to exchange foreign
currency borrowings for sterling the group also
has investments in various assets denominated in
foreign currencies principally the us dollar and the
euro the group’s current policy is to hedge an
element of the currency translation risk associated
with certain foreign currency denominated assets
the long term credit ratings of severn trent plc
and severn trent water limited are
long term credit ratings
severn trent severn trent
water limited plc 
moody’s a2a3 
standard  poor’s a a– 
further details of the group’s borrowings
investments and ﬁnancial instruments are
contained in note 19 to the accounts
exchange rates
approximately 2 of the group’s proﬁt before
interest tax and exceptional items and 4 of 
its net operating assets are denominated in 
us dollars and approximately 05 of its proﬁt
before interest tax and exceptional items and 
1 of its net operating assets are denominated in
euros the trading results of overseas subsidiaries
are translated to sterling at the average rate of
exchange ruling during the year and their net
assets are translated at the closing rate on the
balance sheet date 
supplementary information 
for supplementary information including the
group’s preliminary results presentation see the
severn trent website wwwseverntrentcom
michael mckeon 
group finance director 
severn trent plc annual review 2006  29 board of directors
sir john egan kbe msc beng 66
sir john joined the board in october 2004 and became
chairman on 1 january 2005 he is a director of warwick
castle park trust ltd and was until recently chairman of
inchcape plc and harrison lovegrove  co ltd sir john
worked in the motor industry until 1990 at general
motors massey ferguson and british leyland rising to
become chairman and chief executive of jaguar plc he
was chief executive of baa plc from 1990 to 1999 and
chairman of mepc from 1998 to 2000 he was also
president of the confederation of british industry from
2002 to 2004 sir john was knighted in the queen’s
birthday honours list in 1986 and is a deputy lieutenant
of the county of warwickshire
colin matthews ma ceng mba 50
colin joined the board in october 2003 becoming group
chief executive on 1 february 2005 he is a chartered
engineer and worked for the american general electric
company and then for british airways ﬁrst as director 
of engineering then as director of technical operations
responsible for all aircraft maintenance it and procurement
colin was group managing director of transco from 2001
to 2002 and ceo of hays plc from 2002 to 2004
michael mckeon ma ca 49
michael joined the board on 13 december 2005 as group
finance director prior to that he was group finance
director of the buildings materials group novar plc he
worked for rolls royce plc from 1997 to 2000 in various
senior roles including finance director of the aerospace
group michael has extensive international business
experience having worked overseas for carnaudmetalbox
elf atochem and price waterhouse he is a member of the
institute of chartered accountants of scotland
tony wray bsc hons 44
tony joined the board in march 2005 he is managing
director of severn trent water ltd prior to that he was
director of networks at eircom the republic of ireland’s
telephone operator he joined british gas in 1983 and held
various managerial positions before becoming head of
asset management in 2000 tony moved to transco ﬁrst
as director of asset management then as national
operations director before being appointed to implement
the merger integration of lattice transco and national
grid group into national grid transco
martin bettington bsc mecheng mba 53 
martin joined the board in november 1994 he is the
managing director of biffa plc severn trent’s waste
management business martin was previously employed by
bet plc biffa’s former holding company he holds an mba
from manchester business school
rachel brydon jannetta fcca 46
rachel joined the board in september 2004 she is
president and ceo of severn trent’s us and uk
laboratories businesses a fellow of the chartered
association of certiﬁed accountants rachel qualiﬁed as an
accountant in 1984 with gerber landa and gee an
accounting ﬁrm based in glasgow she then spent eight
years in retail management latterly with an asda plc group
company before joining severn trent in 1993 as managing
director of its uk laboratories operation she is also a
director of wateraid america the us arm of the wateraid
charity
martin flower ba 59 
martin joined the board in june 1996 and was appointed
deputy chairman in july 2004 he is the senior
independent nonexecutive director he is also chairman 
of croda international plc and has been a director of 
the morgan crucible company plc since december 2004
martin retired as chairman of coats ltd in may 2004
where he had previously been group chief executive
martin retires from the board on 10 june 2006
john smith fcca hon friba 48
john joined the board in november 2003 he is chief
operating ofﬁcer of the bbc and chief executive of its
trading arm bbc worldwide he is also vice president of
the royal television society john has held a nonexecutive
directorship with vickers plc was a member of the
advisory board of zurich financial services uk and 
served for three years on the accounting standards 
board until november 2004 
marisa cassoni bsc aca 54
marisa joined the board in september 2001 until recently
she was group finance director of royal mail group plc
and on 26 june 2006 will be appointed finance director
of the john lewis partnership she is a nonexecutive
director of gfi group inc a company listed on the
nasdaq and wsp group plc marisa is also a member of
the cbi economic affairs committee and a member of the
financial reporting council’s accounting standards board
she qualiﬁed as an accountant with deloitte haskins 
sells rising to corporate finance manager she moved to
the prudential corporation and later became group
finance director at britannic assurance plc 
martin houston bsc msc dic 48
martin joined the board in september 2003 he is
executive vice president and managing director of bg
group’s north american caribbean and global liqueﬁed
natural gas business and a member of the group
executive committee he joined bg group in 1983 and
has held a number of technical and commercial roles with
a predominantly international focus he is a fellow of the
geological society of london
richard davey 57
richard joined the board on 1 january 2006 and becomes
senior independent nonexecutive director on 11 june
2006 he is a nonexecutive director of yorkshire building
society and amlin plc he also served as a nonexecutive
director of freeserve plc from 1999 to 2001 and of
scottish widows fund and life assurance society from
1996 to 2000 the majority of richard’s executive career
was spent in investment banking at n m rothschild 
sons where he served in various roles including head of
investment banking prior to that he worked at various
organisations including merrill lynch international limited
and exco international plc
bernard bulkin bs phd frsc frsa fie 64
bernard joined the board on 1 january 2006 he is
chairman of aea technology plc and a nonexecutive
director of accelergy corporation in california he is 
also a venture partner at vantage point an international
venture capital ﬁrm bernard is a commissioner on the 
uk sustainable development commission and a board
member of the uk centre for economic and environmental
development he is also a member of the dti sustainable
energy policy advisory board in 2003 he retired as chief
scientist at bp plc where he had worked for eighteen years 
nonexecutive director
membership of board and operating
committees is as detailed below
board committees
audit committee
j b smith chairman
b bulkin
m l cassoni
r h davey
f b smith secretary
remuneration committee
m c flower 
chairman until 10 june 2006
r h davey 
chairman from 11 june 2006
m l cassoni
m j houston
f b smith secretary
nominations committee
sir john egan chairman 
b bulkin c
m l cassoni
r h davey
m c flower c
m j houston
c s matthews
j b smith c
f b smith secretary
c  core members
corporate responsibility committee
c s matthews chairman
m j bettington
r s brydon jannetta
b bulkin
sir john egan
p j gavan
l f graziano
a p smith
a p wray
f b smith secretary
operating committee
executive committee
c s matthews chairman 
m j bettington
r s brydon jannetta
p j gavan
l f graziano
m j e mckeon
a p smith
f b smith and secretary
p k tandon
j van den arend schmidt
a p wray
senior independent nonexecutive
director
m c flower until 10 june 2006
r h davey from 11 june 2006
group general counsel and 
company secretary
f b smith
governance
30 severn trent plc annual review 2006 governance
severn trent plc annual review 2006  31
left to right
sir john egan 
colin matthews 
michael mckeon
tony wray 
martin bettington
rachel brydon jannetta
martin flower
john smith
marisa cassoni
martin houston
richard davey
bernard bulkin
nonexecutive director summary directors’ report
governance
principal activities and business review
the principal activities of the group are the 
supply of water and sewerage services waste
management and the provision of environmental
services a review of the results for the year ended
31 march 2006 and information relating to the
group its strategy and the operation of its
businesses appear on pages 4 to 29
dividends
an interim dividend of 1916 pence per ordinary
share was paid on 25 january 2006 the directors
recommend a ﬁnal dividend of 3197 pence per
ordinary share to be paid on 2 august 2006 to
shareholders on the register on 30 june 2006 
this would bring the total dividend for 200506 
to 5113 pence per ordinary share 2005 4851p
the payment of the ﬁnal dividend is subject to
shareholder approval at the annual general meeting
directors
details of the directors currently serving on 
the board are set out on page 30 michael 
mckeon was appointed as an executive director 
on 13 december 2005 bernard bulkin and
richard davey joined as nonexecutive directors 
on 1 january 2006 as the appointments have
been made since the last annual general meeting
each director will retire in accordance with the
company’s articles of association and resolutions
for their reappointment will be proposed at this
year’s annual general meeting the directors
retiring by rotation at this year’s annual general
meeting are martin houston colin matthews and
john smith and each being eligible offer
themselves for reappointment
john mcadam mark wilson and derek osborn
retired from the board on 1 september 2005 
13 december 2005 and 31 march 2006
respectively martin flower will retire from 
the board on 10 june 2006 
corporate governance
the company attaches great signiﬁcance to the
maintenance of good corporate procedures and
adherence to best practice recognising that they
play their part in creating a framework which 
can provide increased beneﬁts for shareholders 
for the year ended 31 march 2006 and the period
up to the date of approving the accounts the board
considers that the company has complied with 
the provisions set out in the combined code 
a statement of how the company has applied 
the main and supporting principles of the
combined code is set out in the annual 
report and accounts 2006
post balance sheet events
on 4 april 2006 the company announced its
intention to demerge biffa its uk integrated 
waste management business
on 7 april 2006 the company announced it was
giving ofwat an interim report into misreporting 
of customer relations data by severn trent water
on 12 may 2006 the company announced it had
agreed to sell biffa belgium to veolia for €45m
on 2 june 2006 the group signed heads of terms
to sell its interest in aquaﬁn nv to the flemish
government for approximately £30 million
substantial shareholdings
as at 2 june 2006 the company had been notiﬁed
of the following substantial shareholdings 
number of ordinary 
shares of 65
5
⁄ 19p each 
legal  general 11259833 326
investment management 
limited 
barclays plc 10762602 310
annual general meeting
the annual general meeting of the company 
will be held at the international convention centre
broad street birmingham b1 2ea at 1100am 
on tuesday 25 july 2006 the notice convening 
the meeting together with details of the business
to be considered and explanatory notes for each
resolution is distributed separately to shareholders
it is also available on the company’s website
wwwseverntrentcom
by order of the board 
fiona smith
group general counsel and company secretary
5 june 2006
32 severn trent plc annual review 2006 group chief 
executive
finance 
director
md  
st water
md 
biffa
president  
st laboratories
0 20 40 60 80 100
governance
severn trent plc annual review 2006  33
summary directors’ remuneration report
remuneration committee
the remuneration committee determines 
on behalf of the board the company’s policy on
the remuneration of executive directors and the
chairman of the board the committee is also
consulted on the remuneration policy for the 
next band of seven senior executives 
the committee is comprised exclusively of
independent nonexecutive directors of the
company the members of the committee during
the year were
 martin flower chairman
 marisa cassoni
 richard davey from 030306
 martin houston from 010905
 john mcadam until 010905
richard davey will become chairman of the
committee when martin flower retires from the
board on 10 june 2006
the committee members have no personal
ﬁnancial interest other than as shareholders in the
matters to be decided the constitution and operation
of the committee comply with the combined code
in setting performance related remuneration the
committee has regard to the provisions set out in
schedule a to the combined code 
advisers
to ensure that the company’s remuneration
practices are market competitive the committee has
access to detailed external research on market data
and trends from experienced specialist consultants 
the chairman of the board sir john egan the
group chief executive colin matthews the group
human resources director andy smith and the
group director of internal audit pramod tandon
also attended some meetings to provide advice and
respond to speciﬁc questions such attendances
speciﬁcally exclude any matter concerning their
own remuneration the company secretary acts 
as secretary to the committee 
remuneration policy
the company’s continuing remuneration policy for
executive directors is to provide remuneration in a
form and amount which will attract retain motivate
and reward high calibre individuals the
remuneration package is based on the following
principles
 incentives are aligned with the interests of
shareholders and seek to reward the creation of
longterm value
 reward elements are designed to reinforce the
link between performance and reward
performance related elements should form a
signiﬁcant proportion of the total remuneration
package and typically comprise at least 50 of
total remuneration if paid at the maximum
 the total remuneration package for on target
performance should be fully competitive 
but not excessive in the relevant market
 packages are structured ﬂexibly to meet critical
resource needs and retain key executives
total remuneration package
the chart below shows the expected values of
salary bonus and longterm incentives for target
performance for the executive directors 
the committee considers the mix between ﬁxed
and performance pay to be appropriate 
personal shareholdings
the company operates shareholding guidelines
under which executive directors are expected to
build and maintain a minimum holding of shares 
in the company the group chief executive is
expected to build and maintain a holding of shares
to the value of 15 x base salary and other executive
directors 1 x base salary 
through a variety of share schemes all employees
are encouraged to hold shares in the company 
external directorships
executive directors are encouraged to take on
external nonexecutive directorships though
normally only one other ftse 100 appointment 
in order to avoid any conﬂicts of interest all such
appointments are subject to the approval of the
nominations committee executive directors are
normally only permitted to retain the fees arising
from one such appointment 
chairman and other nonexecutive directors
the remuneration policy for nonexecutive
directors other than the chairman is determined
by the board within the limits set out in the
articles of association
nonexecutive directors are not eligible to participate
in incentive plans nor is any pension provision made
save for john smith whose total fees are paid
directly to his employer nonexecutive directors
receive payment of part of their fees in the form 
of shares in the company which are expected to 
be retained for the duration of their appointment 
the nonexecutive directors do not have service
contracts or consultancy agreements with any group
company but they do have letters of appointment
salary target bonus expected value of longterm incentives remuneration arrangements for executive
directors
the remuneration arrangements for executive
directors comprise the following elements
 base salary and beneﬁts
 annual bonus plan
 long term incentive plans
 post retirement beneﬁts
details of each of the above elements are as follows
base salaries and beneﬁts
base salaries are a ﬁxed cash sum payable monthly
the company’s policy is to set the salary for each
executive director having regard to the market median
for similar roles in publicly quoted companies of a
comparable size and so far as practical undertaking
similar activities salaries for individual directors
are reviewed annually by the committee and
generally take effect on 1 april salaries are set 
with reference to individual performance experience
and contribution together with developments in the
relevant employment market and internal relativities
the nonsalary beneﬁts for executive directors
comprise the use of company car or allowance
fuel private medical insurance life assurance and
an incapacity beneﬁts scheme 
annual bonus plan
executive directors are eligible for annual bonuses
to encourage improved performance measured 
by reference to both ﬁnancial and nonﬁnancial
factors performance targets are established by 
the committee to align executive directors’ interests
with shareholders and comprise proﬁtability plus
return on capital employed for martin bettington
the achievement of personal objectives and speciﬁc
targets relating to health and safety performance
annual bonus payments are not taken into account in
calculating executive directors’ pension entitlements 
long term incentives
at the 2005 annual general meeting shareholders
approved the introduction of the long term
incentive plan 2005 ltip 2005 which replaced
the 1997 long term incentive plan under the ltip
2005 annual conditional awards of performance
shares may be made to executive directors and
senior staff up to an annual maximum limit of
shares worth 125 of base salary in 2005 the
group chief executive received an award over
shares worth 100 of salary with other executive
directors and senior staff receiving lower awards
the number of shares subject to an award will
increase to reﬂect dividends paid through the
performance period on the basis of such notional
dividends being reinvested at the then prevailing
share price awards will normally vest as soon 
as the committee determines that the performance
conditions have been met provided that the
participant remains in employment at the 
end of the performance period 
2005 ltip awards
in respect of awards made to executive directors 
in 2005 the vesting of 50 is dependent on
performance against group economic proﬁt ep
targets and the remaining 50 is dependent on 
a total shareholder return tsr target both over
a ﬁxed three year period beginning on the ﬁrst day
of the ﬁnancial year in which the award was made 
the 2003 and 2004 ltip awards will be triggered 
if the company’s tsr performance is at the median 
or above and the ep meets the scaled targets set
ep is calculated by reference to a post tax rate of 
return of 75
the constituents of the tsr comparator group for
the 2005 award are
awg pennon group
boc group rentokil initial
bt group scottish  newcastle
diageo scot  southern energy
kelda group scottish power
national grid shanks group
northumbrian water unilever
pearson united utilities
for the 2003 award the comparator group 
consists of awg plc kelda plc pennon group plc
shanks plc united utilities plc northumbrian
water plc and waste recycling group plc the
same comparator group minus waste recycling
group plc was used for the 2004 award
2006 ltip awards
the committee considers that given the outcome
of the strategic review of the group’s operations 
tsr will more clearly represent an alignment of
executives’ interests with those of shareholders 
the awards to be made in 2006 therefore 
will be based exclusively on tsr
the committee intends to use a similar methodology
for selecting the comparator group as it did for 
the 2005 awards again the committee will again
review the proposed constituents before making
any award to ensure that overall they are
appropriate
calculation of ep performance during transition to
international financial reporting standard ifrs
for unvested awards made prior to 2006 the basis
for measuring the proﬁts that underpin the ep
calculation was set under uk gaap whereas the
end of the performance period will be reported
under ifrs the committee has restated the 
base conditions for the 2005 awards under 
ifrs to ensure that the targets are measured 
on a consistent basis and as originally intended
the 2003 and 2004 awards will continue to be
measured and set on a uk gaap basis given the
difﬁculty in restating the base ﬁgures and the
committee will ensure that the end ﬁgures are
measured consistently
governance
34 severn trent plc annual review 2006
summary directors’ remuneration report 
continued severn trent plc ftse 100 index
governance
severn trent plc annual review 2006  35
total shareholder return
post retirement beneﬁts
of the current executive directors martin bettington
colin matthews and tony wray participate in the
senior staff pension scheme as did mark wilson
prior to his departure the scheme is a funded
inland revenue approved ﬁnal salary occupational
pension scheme which provides
 a normal retirement age of 60 years
 an overall pension at normal retirement age 
of twothirds of ﬁnal pensionable salary which
for executive directors is deﬁned as base salary
only subject to the completion of 20 years’
pensionable service
 life cover of 4 x pensionable earnings
 a pension payable in the event of retirement 
on grounds of ill health
 a dependent’s pension on death of two thirds 
of the member’s pension
the company has a future obligation in respect of
mark wilson who joined the scheme after 1 june
1989 and was therefore subject to the cap to pay
the difference between his pension entitlement
based upon the relevant portion of his salary and
the maximum amount payable had the cap not
been in place the obligation is unfunded 
colin matthews and tony wray participate up to
the level of the inland revenue earnings cap “the
cap” which in 200506 was £105600 in 200607
a scheme speciﬁc cap of £108600 will apply both
are provided with a cash supplement in lieu of an
unfunded arrangement
following a review of the company’s pension policy
new executives are offered an allowance expressed
as a percentage of base salary to fund their own
pension provision the individual is able to choose
whether the allowance is paid to the companys
registered deﬁned contribution dc scheme taken
as cash or paid to a personal pension arrangement 
forward looking statement
the committee will keep the existing remuneration
arrangements as detailed in this report under
review during the next year to ensure that the
company’s reward programmes remain competitive
and provide appropriate incentives no signiﬁcant
changes to the reward arrangements for executive
directors are anticipated prior to the completion
and implementation of the strategic review and the
committee proposes to review the arrangements
again at that time
however there will be the normal individual reviews
of base salary annual bonus and ltip award levels
the performance targets for incentive arrangements
will continue to be reviewed to ensure alignment 
with group strategy and will maintain a signiﬁcant
emphasis on the achievement of health and safety
performance targets 
directors’ service agreements and letters 
of engagement
a new model service contract was approved by the
committee in 2004 all current executive directors
have signed the model contract and accordingly
service agreements for all executive directors have
notice periods of 12 months they also provide 
for a maximum damages payment in the case 
of redundancy or termination in breach of the
agreement by the company of up to 175 of 
base salary which was calculated as a conservative
preestimate of the value of salary ﬁxed beneﬁts
and on target bonus
the reference to 175 is a cap and any damages
payments will not be made automatically but will 
be subject to both phasing and mitigation unless 
in the circumstances the committee considers 
it appropriate to achieve a clean break through
payment of a lump sum in which case it will
require some discount for early payment contracts
also permit the committee to take into account a
view of the extent of poor performance on the part
of the executive director any payment will not
include amounts in respect of awards which have
been made under the company’s ltip over which
the committee retains absolute discretion there
are no speciﬁc contractual payments or beneﬁts
which would be triggered in the event of a change
in control of the company 
value £
220
200
180
160
140
120
100
80
60
40
20
0
310301 310302 310303 310304 310305 310306 directors’ emoluments
basic salary and fees
1
beneﬁts annual total total 
cash shares total in kind
2
bonus other
3
200506 200405
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
chairman and other 
nonexecutive directors
david arculus ––––––– 1422
chairman – retired 311204
sir john egan 1989 161 2150 26 – – 2176 621
chairman – appointed 011004
4
marisa cassoni 364 19 383 – – 08 391 424
martin flower 950 50 1000 – – 12 1012 902
martin houston 324 16 340––– 340 308
colin matthews
5
––––––– 134
john mcadam retired 010905 151 – 151 – – 06 157 355
derek osborn retired 310306 413 22 435––– 435 528
john smith
6
400 – 400––– 400 438
bernard bulkin appointed 010106 83 – 83––– 83 –
richard davey appointed 010106 83 – 83––– 83 –
executive directors
john banyard retired 301204 ––––––– 2510
martin bettington 3250 – 3250 272 573 02 4097 5196
rachel brydon jannetta 2155 – 2155 90 294 768 3307 1376
brian duckworth retired 310804 ––––––– 1823
colin matthews
5
5200 – 5200 100 2600 1838 9738 5341
alan perelman ––––––– 2486
retired 310804
robert walker retired 020205 ––––––– 7082
mark wilson retired 131205 2063 – 2063 171 1036 3234 6504 2033
tony wray 2500 – 2500 166 875 612 4153 231
michael mckeon 1121 – 1121 07 648 873 2649 –
appointed 131205
total emoluments 21046 268 21314 832 6026 7353 35525 33210
1
included within fees for the nonexecutive directors are amounts to be received by way of shares rather than emoluments 
to encourage participation in line with corporate governance best practice the gross value of shares is recorded in the table
above nonexecutive directors who were either appointed or retired during the year received a time apportioned award 
the number of shares received by each nonexecutive director was 
 sir john egan – 1253 marisa cassoni – 106 martin flower – 290 martin houston – 90 derek osborn – 163
2
beneﬁts in kind for sir john egan comprise the use of a company car beneﬁts in kind for executive directors comprise 
the use of a company car fuel private medical insurance life assurance and an incapacity beneﬁts scheme
3
other emoluments represent expenses chargeable to uk income tax car allowances ﬂexible beneﬁts and amounts in lieu 
of pension contributions or in lieu of entry into the supplementary pension scheme for those earning earning above the 
pension cap limit included in other emoluments are
 rachel brydon jannetta – cash allowance of £76752 in lieu of pension contributions
 colin matthews – cash payment of £165760 in lieu of entry to supplementary pension scheme
 michael mckeon – relocation expenses of £38137 and a cash allowance in lieu of pension allowance of £44594
 mark wilson – £299095 of termination payments and £24327 for holiday not taken 
 tony wray – cash payment of £57760 in lieu of entry to the supplementary pension scheme 
4
sir john egan was appointed chairman from 1 january 2005
5
colin matthews was appointed group chief executive designate on 6 september 2004 and group chief executive on 
1 february 2005
6
john smith’s total fees are paid directly to his employer
signed on behalf of the board who approved the directors’ remuneration report on 5 june 2006
martin flower
chairman of the remuneration committee
summary directors’ remuneration report 
continued
governance
36 severn trent plc annual review 2006 summary ﬁnancial statement
severn trent plc annual review 2006  37
summary ﬁnancial statement
the summary directors’ report on page 32 the
summary directors’ remuneration report on pages
33 to 36 and the summary ﬁnancial statement 
on pages 38 and 39 are a summary of information
in the annual report and accounts 2006
this annual review and summary ﬁnancial
statement does not contain sufﬁcient information
to allow as full an understanding of the results 
and state of affairs of the company or of the group
nor of the policies and arrangements concerning
directors’ remuneration as would be provided by the
annual report and accounts 2006 shareholders
requiring more detailed information have the right
to obtain free of charge a copy of the annual
report and accounts 2006
a copy of the annual report and accounts 2006
may be obtained by writing to the company
secretary severn trent plc 2297 coventry road
birmingham b26 3pu alternatively it can be
accessed on the website at
wwwseverntrentcomreports2006
shareholders can elect to receive the full annual
report and accounts for all future years by
contacting the company’s registrars lloyds tsb
registrars whose details appear on page 40
the financial statements the directors’ report and
the directors’ remuneration report are contained 
in the annual report and accounts 2006 
the auditors’ report on the financial statements
and the auditable part of the directors’
remuneration report which is unqualiﬁed is also
contained within the annual report and accounts
2006 the auditors’ report did not contain a
statement under either section 2372 of the
companies act 1985 inadequate accounting
records or returns or section 2373 failure to
obtain certain necessary information and
explanations
contained in the annual review as described in the
contents section and consider the implications for
our report if we become aware of any apparent
misstatements or material inconsistencies with the
summary ﬁnancial statement
basis of opinion
we conducted our work in accordance with bulletin
19996 the auditors’ statement on the summary
financial statement issued by the auditing
practices board for use in the united kingdom 
we have not considered the effects of any events
between the date on which we signed our report 
on the ﬁnancial statements 5 june 2006 and the
date of this statement
opinion
in our opinion the summary ﬁnancial statement 
is consistent with the full annual accounts the
directors’ report and the directors’ remuneration
report of severn trent plc for the year ended 
31 march 2006 and complies with the applicable
requirements of section 251 of the companies 
act 1985 and the regulations made thereunder
the auditors’ report on the company’s annual
accounts was unqualiﬁed
deloitte  touche llp
chartered accountants and registered auditors
london
united kingdom
9 june 2006
independent auditors’ statement
to the members of severn trent plc
we have examined the summary ﬁnancial
statement which comprises the summary income
statement balance sheet and cash ﬂow statement
together with the summary directors’ report and
summary directors’ remuneration report
this report is made solely to the companys
members as a body in accordance with section
251 of the companies act 1985  our work has
been undertaken so that we might state to the
company’s members those matters we are required
to state to them in an auditors’ report and for no
other purpose to the fullest extent permitted by
law we do not accept or assume responsibility to
anyone other than the company and the
company’s members as a body for our audit work
for this report for our audit report or for the
opinions we have formed
respective responsibilities of directors and
auditors
the directors are responsible for preparing the
annual review in accordance with applicable united
kingdom law our responsibility is to report to you
our opinion on the consistency of the summary
ﬁnancial statement with the full annual accounts
the directors’ report and the directors’
remuneration report and its compliance with the
relevant requirements of section 251 of the
companies act 1985 and the regulations made
thereunder we report whether the auditors’
opinion on the full annual accounts was unqualiﬁed
or qualiﬁed we also read the other information summary consolidated income statement
year ended 31 march 2006
2006 2005
£m £m
turnover 22950 20144 
operating costs before exceptional items 18068 16156 
exceptional restructuring costs and termination of operations 79 142 
exceptional demerger costs 78 – 
exceptional proﬁt on disposal of property and investments – 119 
total operating costs 18225 16179 
proﬁt before interest tax and exceptional items 4882 3988 
exceptional items 157 23 
operating proﬁt 4725 3965 
finance income 79 35 
finance costs 1758 1730 
net ﬁnance costs before fair value movements in treasury instruments 1679 1695 
fair value movements on treasury instruments 367 – 
total net ﬁnance costs 2046 1695 
share of results of associates and joint ventures 21 18 
proﬁt before tax fair value movements on treasury instruments and exceptional items 3224 2311
exceptional items 157 23
fair value movements on treasury instruments 367 –
proﬁt on ordinary activities before taxation 2700 2288 
taxation on proﬁt on ordinary activities – current tax 487 379 
– deferred tax 60 336 
total taxation 427 715 
proﬁt for the period from continuing operations 2273 1573 
discontinued operations
lossproﬁt for the period from discontinued operations 43 08 
proﬁt for the period 2230 1581 
attributable to
equity holders of the company 2216 1574 
equity minority interests 14 07 
2230 1581 
earnings per share pence
from continuing operations
basic 652 454 
diluted 647 451 
from continuing and discontinued operations
basic 639 457 
diluted 635 453 
summary ﬁnancial statement
38 severn trent plc annual review 2006 summary group balance sheet
at 31 march 2006
2006 2005
£m £m
non current assets 63953 62908 
current assets 6893 6493 
assets held for sale 415 –  
total assets 71261 69401 
current liabilities 15706 11663
non current liabilities 36565 39243
total liabilities 52271 50906
net assets 18990 18495 
equity attributable to the companys equity shareholders 18964 18476
minority interest 26 19 
total equity 18990 18495 
signed on behalf of the board who approved the accounts on 5 june 2006
sir john egan michael mckeon
chairman group finance director
summary group cash ﬂow statement
year ended 31 march 2006
2006 2005
£m £m
net cash generated from operating activities 5061 4337 
net cash used in investing activities 3896 3979 
net cash used in ﬁnancing activities 724 551 
increasedecrease in cash and cash equivalents 441 193 
net cash and cash equivalents at beginning of the period 644 832 
effect of foreign exchange rates 19 05 
net cash and cash equivalents at the end of the period 1104 644
summary ﬁnancial statement
severn trent plc annual review 2006  39 information for shareholders
other information
40 severn trent plc annual review 2006
cautionary statement
this document contains certain ‘forwardlooking 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
forwardlooking statements are sometimes but not always identiﬁed
by their use of a date in the future or such words as ‘anticipates’
‘aims’ ‘due’ ‘could’ ‘may’ ‘should’ ‘expects’ ‘believes’ ‘intends’
‘plans’ ‘targets’ ‘goal’ or ‘estimates’ by their very nature forward
looking statements are inherently unpredictable speculative and
involve risk and uncertainty because they relate to events and
depend on circumstances that will occur in the future
there are a number of factors that could cause actual results and
developments to differ materially from those expressed or implied
by these forwardlooking statements these factors include but are
not limited to changes in the economies and markets in which the
group operates changes in the regulatory and competition
analysis of shareholdings at 31 march 2006
number
number of  of of shares  
category shareholders shareholders millions of shares
individual and joint accounts 81631 9284 4237 1217
other 6292 716 30572 8783
total 87923 10000 34809 10000
number 
number of  of of shares 
size of holding shareholders shareholders millions of shares
1499 52844 6010 1032 297
500999 20194 2297 1379 396
10004999 13498 1535 2115 608
50009999 475 054 311 089
1000049999 432 049 984 282
5000099999 140 016 985 283
over 100000 340 039 28003 8045
total 87923 10000 34809 10000
includes insurance companies nominee companies banks pension funds other corporate bodies limited and public limited
companies
financial calendar and results announcements
annual general meeting
25 july 2006 at 1100am
at the international convention centre 
broad street birmingham b1 2ea
dividend payments in respect of the year ended 
31 march 2006
interim dividend – paid 25 january 2006
proposed ﬁnal dividend – payable 2 august 2006
the results of the group will normally be
published at the following times
interim results for the six months 
to 30 september december
preliminary results for the year 
to 31 march june
report and accounts for the year 
to 31 march june
shareholder enquiries
if you have a question about your shareholding in
the company you should contact our registrars
lloyds tsb registrars who are responsible for
making dividend payments and updating the
register of shareholders including details of
changes to addresses and names you should also
contact the registrars if you would like to have your
dividends paid directly into your bank or building
society account
the registrar’s contact details are
telephone helpline 0870 600 3967
email severntrentlloydstsbregistrarscouk
lloyds tsb registrars the causeway worthing
west sussex bn99 6da
online communication
shareview is operated by lloyds tsb registrars
and gives you access to services over the internet
that enable you to check details of your
shareholding at any time 
you can also elect to receive communications 
from the company electronically you will receive 
an email notiﬁcation when the annual report and
notice of annual general meeting become available
on our website 
you can register for both of these services at
wwwshareviewcouk
company information
the company’s website at wwwseverntrentcom
provides news and details of the company’s
activities latest results information on the share
price and links to our businesses’ websites
frameworks in which the group operates the impact of legal or other
proceedings against or which affect the group and changes in
interest and exchange rates
all written or verbal forwardlooking statements made in this
document or made subsequently which are attributable to severn
trent or any other member of the group or persons acting on their
behalf are expressly qualiﬁed in their entirety by the factors referred
to above severn trent does not intend to update these forward
looking statements
this document is not an offer to sell exchange or transfer any
securities of severn trent plc or any of its subsidiaries and is not
soliciting an offer to purchase exchange or transfer such securities
in any jurisdiction securities may not be offered sold or transferred
in the united states absent registration or an applicable exemption
from the registration requirements of the us securities act of 1933
as amended this document is printed by ctd sage print on mohawk options 100 pc the paper is manufactured 
in accordance with fsc standards from 100 postconsumer recycled waste and is 100 process
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designed and produced by tayburn annual review 2006


Summary:
 group chief executive’s review
strategic overview
when i took over as group chief executive in
february 2005 i said i would concentrate on
operational improvements for all our businesses
but particularly severn trent water and biffa as
they account for some 96 of group proﬁt
since then my new team and i have undertaken
the most detailed examination of all aspects of 
our activities to understand the business drivers 
so we can be certain of the foundations of our
future direction
focus on water
severn trent water is one of the country’s largest
water and sewerage companies the company 
has great experience and strengths along with
important plans for improvement by concentrating
our efforts on raising standards across the entire
business customers will receive the beneﬁts of
reliable high quality and cost effective services 
for clean water and sewerage 
in addition these strategic changes particularly 
the demerger of biffa will support a more efﬁcient
balance sheet allowing a return of capital to
shareholders we intend to increase group debt 
to 60 of regulated capital value as soon as
practicable after the demerger the amount
mechanism and timing of any returns will be
communicated in due course and will depend on
future decisions around the debt structure of the
demerged biffa pension fund contributions and
ﬁnal costs of the demerger 
moreover these improvements should lead to strong
ﬁnancial returns we believe the group will be able
to deliver enhanced growth in dividends and our
new policy will therefore be to increase dividends
by 3 above rpi inﬂation through the remainder
of the current amp4 period that is until 2010
biffa
the most signiﬁcant transaction required to achieve
this group transformation is the demerger of biffa
which was separately announced on 4 april 2006
biffa is itself a leading business in an attractive
market and we believe that greater shareholder
value will be realised by the creation of a separately
listed company focusing all its attention on
developing the waste management business 
in 200506 organic growth within biffa has been
reignited and we believe the prospects for the
business are strong we have recently announced
bob davies as the new chairman for biffa and we
expect the demerger to be completed by the end of
october 2006 we will provide further details in
due course 
other businesses
us laboratories is no longer regarded as being 
a core business for the future us laboratories 
is a strong market leading company engaged in
environmental testing the long term prospects for
market growth are good although the last 2 years
have been challenging we are conﬁdent that the
ﬁrm actions already in hand will lead to a recovery
in margins and as we see these results being
achieved we will consider the appropriate actions
to realise shareholder value
the group announced on 12 may that biffa belgium
has been sold to veolia for €45 million completion
of this sale is expected by the end of june and is
subject to belgian competition clearance
certain other smaller activities have either 
already been closed to new business haswell 
sold aseriti or are being prepared for sale 
severn trent property
being closely associated with water uk laboratories
and water puriﬁcation and operating services will
remain part of the group together these business
account for some 3 of group proﬁt
severn trent post demerger
after the demerger severn trent will be a focused
water group generating more than 95 of group
proﬁts compared with less than 80 today
it will be the second largest listed uk player in the
water industry whose investment proﬁle will generate
expectations of growth and attractive returns
severn trent management will be able to focus on
the regulated water and sewerage business
there will still be other businesses in the group which
do have synergies with our core water operations
we shall keep severn trent laboratories uk there
are few competitors capable of supplying severn
trent water with the necessary high quality testing
service so it is felt appropriate to retain the business
our water puriﬁcation and operating services
business which includes a uk contract for managing
ministry of defence sites is proﬁtable growing and
improving and has signiﬁcant synergy with the
water business and as it is relatively small it will
not distract management from a focus on water
the creation of a new strategy will allow us to
increase our gearing to a more ﬁnancially efﬁcient
level while still remaining prudent with an eye on
regulatory developments into the next amp period
in 2010 and beyond
direction
6 severn trent plc annual report and accounts 2006
colin matthews
group chief executive direction
health and safety
i deeply regret to report two fatalities a biffa
contractor was hit by a biffa vehicle and a biffa
employee was struck by a car biffa management
has implemented the most rigorous investigation
across all its operations as a result with an
independent audit and has made signiﬁcant
changes to reduce the possibility of such 
incidents happening again
overall the severn trent group reported a 275
reduction in the riddor reportable incident rate
per 1000 employees
not only is safety important in its own right but it
is also important as a broad indication of quality
across the group we will continue to concentrate
heavily on improving our safety performance
water and sewerage
in 200506 severn trent water began the ﬁrst year
of the amp4 contract which covers the period
200510 ofwat has set us exacting efﬁciency
targets for this period and during the year we
began to implement the organisational changes
necessary to achieve them
progress was good we reduced employee numbers
removed management layers in order to improve
information ﬂow reviewed and consolidated ofﬁce
accommodation in order to control overheads and
began a programme to streamline our procurement
process 
we aimed to meet the ofwat determination overall
getting our costs down to the ofwat proﬁle in two
years excluding energy costs we have done rather
better than that however the current outlook for
energy has more than offset that advantage we will
be striving to get back in line with the ofwat proﬁle
capital expenditure is more positive capex and
infrastructure renewals amounted to £434 million
adjusting for changes agreed with ofwat and
timing differences we have generated
approximately 6 efﬁciency over and above the
determination we plan to maintain similar out
performance over the rest of amp4
waste management
biffa worked in 200506 on a major review of how
the uk waste market is developing and biffa’s
position within it as part of the demerger preparation
we have a competitive advantage in the industrial
and commercial collection market a good position
in landﬁll and excellent special waste capabilities
through our treatment centres biffa has the
potential to develop recycling revenues signiﬁcantly
biffa enjoys a leading position in a dynamic market
place i suggested a target of 8 for renewed
organic growth six months ago i am pleased 
that the result 11 comfortably beats that
biffa has a sustainable strong position within the
waste industry we shall use our scale in collection
to deliver improving service and efﬁciencies we
can develop recycling opportunities as the market
evolves while carefully managing our pricing and
capacity in landﬁll
having spent more time in biffa than when i ﬁrst
reported last year i am convinced that there is a
great opportunity to bring about the same ‘process
improvement’ revolution that worked through
factory environments over recent decades and is
now revolutionising service industries
laboratories
severn trent laboratories provides environmental
testing services in the us and the uk in the us
market conditions were challenging in 200506
federal funding for environmental projects
continued to be impacted by the diversion of funds
to military activities in iraq and to hurricane relief 
in the uk market conditions were more favourable
with legislation like the landﬁll directive creating
new business opportunities
water puriﬁcation and operating services
the business produced good results in 200506
increasing turnover and proﬁts we maintained our
strategy of concentrating on higher margin business
and growth markets
environment
i am pleased that the group’s climate change
programme has continued to develop over the 
last 12 months we have continued to expand
renewable energy generation within both severn
trent water and biffa and in july 2005 working
with the carbon trust we published a carbon
management report which investigated the 
long term challenges and opportunities that 
climate change presents for the uk water 
and waste industries
outlook
performance at severn trent water has been 
good in the ﬁrst year of amp4 with operating 
costs reduced to within £4 million of the ofwat
determination the outlook for the coming year is
for continuing progress in meeting and improving
on the amp4 contract for operating costs across
most areas of performance with an additional 
£5 million to £10 million of savings identiﬁed
however the industry faces a signiﬁcant challenge
with rising energy prices at present the outlook 
for energy prices in 200607 mean that increased
costs in this area are expected to impact severn
trent water by around £25 million in relation to
capital expenditure we aim to maintain around 
6 efﬁciency out performance over the remaining
amp4 period
severn trent plc annual report and accounts 2006  7