Bristol Wtr.8t% Regulatory News (BWRA)

26 May 2005 07:00

Bristol Water PLC26 May 2005 BRISTOL WATER plc Bristol Water plc is a subsidiary of Bristol Water Group plc which is alsoreporting its results today 26 May 2005 Year ended 31 March 2005 2004 % £m £m change Turnover 70.6 70.6 - Operating profit - normal activities 18.7 19.7 -6% - exceptional restructuring costs (2.0) - na -------- -------- -------- 16.7 19.7 -15% -------- -------- -------- Profit before tax 10.1 13.5 -25% Profit after tax 8.8 11.1 -21% Earnings per ordinary share 128.1p 166.0p -23% • High service standards maintained • Operating profit before exceptional restructuring costs of £2.0m reduced by 6% - reflecting price increase of just 0.6% and lower measured consumption • Net capital investment in year £16.6m • Ofwat Final Determination of price limits 2005-10 accepted • Additional debt of £57m to be raised in June 2005 • Anticipated net debt: Regulatory Capital Value of 75% to 80% over next five years • Additional contribution of £7m to reduce pension deficit Alan Parsons Oliver WintersAndy Nield City ProfileBristol Water plc Tel: 0207 448 3244Tel 0117 953 6407 Or contact: Bristol Water Corporate Affairs on 0117 953 6470 during office hours or 07831 453924 at any time. CHAIRMAN'S STATEMENT Introduction The last year has seen further major changes and developments for the company. New Financing In May 2005 the company announced that it planned to raise £57m of additionalborrowings through the Artesian programmes. Approximately £35m of theseborrowings will be utilised to finance the capital expenditure and debt maturityrequirements for the current year and part of 2006/07 of the regulated waterbusiness and a contribution of £7m to reduce the deficit in the final salarypension scheme. Approximately £22m of the additional borrowings will be used toprovide a loan from the company to the ultimate parent company. The parentcompany intends to use this loan to partially finance a £30m return to itsshareholders. Should approval for the return not be obtained, the surplus fundswill be used to finance this company's longer term capital expenditure, debtmaturity and working capital requirements. On a pro forma basis the return of capital will increase the net indebtedness inthe company from £140m at 1 April 2005 to approximately £169m, representingapproximately 62 per cent and 75 per cent respectively of the company'sRegulatory Capital Value (RCV) at 1 April 2005. Whilst the company will need to raise additional debt over the currentregulatory period to fund its capital expenditure obligations, the Boardbelieves that it will be able to maintain a debt to RCV ratio in the range 75 to80 per cent over the current regulatory period. Trading Performance The results for the year are affected by a £2.0m charge in respect of the costsof a restructuring programme instigated by the Board to improve future operatingefficiency. The results are considered in detail in the Operating and FinancialReview. Operational Performance The company continued to deliver high quality services to customers and at theend of March had substantially delivered the key required outputs for the fiveyear period 2000-05 as agreed with Ofwat in the 1999 Final Determination ofprice limits. Rainfall during the winter period was much lower than normal, but impoundingreservoirs have now recovered to approximately 84% full against a normalguideline target of 93%. The difference does not represent a significantoperational risk but does mean that full use of abstraction available from theSharpness Canal will be made during the next few months to manage the rate ofreservoir draw down. Ofwat's PR04 Final Determination Ofwat completed its determination of price limits for the five year period 1April 2005 to 31 March 2010 for the company as part of the industry wide review.In December 2004, Ofwat set out its Final Determination which, after carefulconsideration, the Board accepted. The new price limits are expressed as K factors, which are the overalladjustments to tariffs before inflationary effects are taken into account. Thelimits are: 2005/06 13.8% 2006/07 2.8% 2007/08 1.5% 2008/09 0.7% 2009/10 -2.3% Although Ofwat set challenging efficiency targets, the Board believes that itwill be able to deliver the relevant service outputs within the targets set. We remain determined that our consistently high standards of service tocustomers and quality of water supplied will remain key features of thebusiness. The average annual household water bill for our customers in 2004/05 was £108,some 8% lower than the industry average of £117. Under the new price limits by2009/10 the average household water bill for our customers will increase to £122(2004/05 prices) remaining well below the expected industry average of £140. Board changes After 37 years service, Roger Wyatt, managing director of the company, willretire at the end of March 2006. We currently expect his duties to be sharedbetween the other executives rather than seek a replacement. Moger Woolley, chairman of the ultimate parent company, will be proposed as adirector at the Annual General Meeting and subject to election will becomeChairman. This will allow separation of my role as Chief Executive from theChairman's position in line with good Corporate Governance. Prospects The year again saw the delivery of high quality services to our customers. Otherthan this the results for the year are not representative of the future. Theyreflect the final year of the 2000-05 regulatory period and restructuring costspreparing for the next five year period. The new price limits agreed with Ofwat for the five year period 2005-10 willenable us to deliver the obligations set out in the PR04 Final Determination andto improve profitability and at the same time make further improvements toservices to customers. Alan ParsonsChairman26 May 2005 OPERATING AND FINANCIAL REVIEW Results Overview As previously indicated the allowed price increase under the RPI + K formula for2004/05 was just 0.6% (RPI of 2.5% less a real price reduction of 1.9%). This issignificantly lower than inflationary increases on our operating cost base andtherefore operating profits were reduced. Income from our main water supply charges fell by £0.4m to £65.9m, thisrepresents the net effect of price increases of £0.6m and new connections of£0.4m offset by lower consumption levels by metered customers during the poorsummer weather compared to the previous year. Operating costs before depreciation and exceptional restructuring costsincreased by £1.3m to £37.3m. The increase reflects inflation, includingsignificantly higher energy prices, offset by further efficiency gains. Net depreciation reduced by £0.3m to £14.6m reflecting the re-lifing of meters,which reduced the charge by £0.5m offset by depreciation on new assets cominginto service. The exceptional charge of £2.0m represents redundancy costs related to therestructuring programme that the Board instigated to improve the operationalefficiency of the company. Operating profit before the exceptional charge reduced by £1.0m to £18.7m, andafter the exceptional charge reduced by £3.0m to £16.7m. Profit before tax reduced by £3.4m to £10.1m. The tax charge for the year was £1.3m and represented 13% of profit before tax,compared to £2.4m and 18% in the previous year. Net capital investment in the year after grants and contributions fromdevelopers was £16.6m, compared to £24.5m in 2004. Ordinary dividends increased from £6.2m to £8.1m. They comprise a base elementwhich increased from £5.9m to £6.1m together with an amount equivalent to theafter tax cost of interest payable by the ultimate parent company in respect ofthe £47m inter-company loan made in February 2004. The inter-company loanelement increased from £0.3m to £2.0m reflecting the full year effect of theloan interest. Treasury Net cash inflow from operating activities was £34.1m (2004 - £33.4m), net cashoutflows from servicing of finance totalled £7.0m (2004 - £7.8m) and net capitalexpenditure and investment activities amounted to £16.4m (2004 - £71.6m whichincluded the £47m intercompany loan to the ultimate parent company). Total cashinflows before management of liquid resources and financing were £1.5m (2004 -£64.9m outflow). Net borrowings decreased from £140.3m to £140.1m during the year and at 31 March2005 represented approximately 62% of Regulatory Capital Value (RCV) at thatdate. Net interest charges in the year totalled £6.6m (2004 - £6.2m) and were covered2.5 times (2004 - 3.1 times). Capital restructuring and return to shareholders In May 2005 the company announced that it planned to raise further funds underthe Artesian monoline wrapped bond programmes arranged by The Royal Bank ofScotland amounting to £57m of index-linked debt. No provision has been made inthese accounts for the cost of raising the funds, estimated at £0.4m. The company has agreed to advance approximately £22m of the new funds in theform of a long term interest bearing loan to the ultimate parent company.Together with other cash balances the ultimate parent company plans to use thisto finance a £30m return to shareholders. The remaining approximate £35m of new funds will be used by the company tofinance capital expenditure, debt maturities and working capital requirementstogether with a payment of £7m to reduce the deficit in the pension scheme. On a pro forma basis the new arrangements will increase the net indebtedness ofthe company from £140m at 1 April 2005 to approximately £169m, representingapproximately 62% and 75% respectively of RCV at 1 April 2005. Pensions The last triennial actuarial valuation of the company's section within the WaterCompanies' Pension Scheme (WCPS) was as at 1 April 2002 and showed a net surpluson an actuarial basis of £6.3m. An updated interim valuation, for SSAP24 purposes only, was carried out as at 1April 2003 to recognise the significant change in the funding level followingthe downturn in the equity markets since 1 April 2002. The interim valuationshowed a net deficit of £3.0m. Since the actuarial valuation, increases in the level of cash contributions tothe WCPS section effective from 1 April 2003 and 1 April 2004 have been agreedwith the trustee. The estimated normal cash contributions for 2005/06 areapproximately £1.6m (2004/05 - £1.4m). The next triennial actuarial valuation is due as at 1 April 2005. The valuationis currently in progress and results will be available during late summer/earlyautumn 2005. It is anticipated that following the valuation new increased cashcontribution rates will be agreed with the trustee effective from 1 April 2006. The section is currently invested primarily in equities. The investment strategyhas been carefully examined and it has been concluded that the appropriatelong-term strategy is to reduce the proportion of equities with a correspondingincrease in investments in bonds and other fixed income securities. Inaccordance with this strategy £15m of investments were switched from equities tobonds during February 2005. The appropriate transitional disclosures required under FRS17, the accountingstandard on pensions, are made in the annual Report and Accounts of the company.These show that the company's pension position would under FRS17 be representedon the balance sheet as a deficit before tax of approximately £11.9m (2004 -£13.5m). After taking provisions already made within these accounts for pensionliabilities, adoption of FRS17 would reduce net assets by approximately £6.7m. In connection with the proposed new financing and return to shareholders by theultimate parent company, the company intends to make a one-off contribution toWCPS of £7m. It also intends to make additional contributions of £1m in each ofthe four years beginning 1 April 2006 and a further £0.9m in 2010/11. Theamounts are in addition to the normal pension contributions required by the WCPStrustee. The additional contributions are conditional on the proposed £30mreturn to shareholders by the ultimate parent company being made. International Financial Reporting Standards The company stated in its financial statements for the year ended 31 March 2004that it planned to adopt International Financial Reporting Standards (IFRS) forits financial statements for the year ended 31 March 2006. Following further guidance issued by the Department of Trade and Industry (DTI),as the company does not prepare consolidated accounts it will not be mandatoryfor the company to adopt IFRS. The company has decided at this stage not to adopt IFRS. The company willtherefore continue to prepare its financial statements using UK GAAP accountingstandards for the foreseeable future. The parent company, Bristol Water Group plc, which consolidates these accounts,will however adopt IFRS in its consolidated financial statements for the yearended 31 March 2006. A reconciliation to UK GAAP will be provided in those groupfinancial statements. Monitoring the business A number of systems are used to monitor the financial and operationalperformance of the company including: • Monthly management accounts and budgetary control • Monthly key performance indicators • Ad hoc internal audits of business processes • Detailed Quality Assurance systems. Outlook Ofwat issued their Final Determination of price limits for the five year period2005-10 in December 2004. After careful consideration the Board accepted theDetermination. The price limits are expressed as K factors, which are the overall adjustmentsto tariffs before inflationary effects are taken into account. The limits are: Company business plan Final proposal Determination 2005/06 20% 13.8% 2006/07 6% 2.8% 2007/08 6% 1.5% 2008/09 0% 0.7% 2009/10 0% -2.3% The main reasons for these differences are: • A smaller capital expenditure programme of £117m compared to the £156m we proposed (2002/03 price base). This reflects the deletion of a number of schemes, mainly related to improvements to the security of supply for customers, together with more challenging efficiency assumptions. • An operating cost efficiency target of 2.5% compared to the 0.8% p.a. we proposed. • The Final Determination deals with a number of uncertainties through Ofwat's Notified Item process which could trigger interim price determinations within the period. In our business plan we had built a number of these uncertainties into the proposed K factors. Ofwat have set challenging efficiency targets, however the Board believes thatit will be able to deliver the relevant service outputs within the targets set. Andy NieldFinance Director26 May 2005 PROFIT AND LOSS ACCOUNTfor the year ended 31 March 2005 2005 2004 Note £m £m Turnover 70.6 70.6 Operating costs (51.9) (50.9)Exceptional operating costs (2.0) - ------- ------- Total operating costs 2 (53.9) (50.9) ------- -------Operating profit 16.7 19.7 Net interest payable and similar charges (6.6) (6.2) ------- -------Profit on ordinary activities before taxation 10.1 13.5 Taxation on profit on ordinary activities 3 (1.3) (2.4) ------- -------Profit on ordinary activities after taxation 8.8 11.1 Dividends: 4 On irredeemable preference shares (1.1) (1.1) On ordinary shares (8.1) (6.2) ------- -------Total dividends (9.2) (7.3) ------- -------Retained (loss)/profit for the financial year (0.4) 3.8 ------- -------Earnings per ordinary share 5 128.1p 166.0p ------- ------- All of the turnover and operating costs relate to continuing operations. The company has no recognised gains or losses other than those included in theprofit and loss account above and therefore no separate statement of totalrecognised gains and losses has been presented. There is no difference between the profit on ordinary activities before taxationand the retained (loss)/profit for the financial year stated above and theirhistorical cost equivalents. BALANCE SHEETat 31 March 2005 2005 2004 Note £m £m Fixed assetsTangible fixed assets 6 195.6 193.8 ------- ------- Investment - Loan to ultimate holding company 47.0 47.0 ------- -------Current assetsStocks 0.6 0.7Debtors 18.5 19.6Cash at bank and on deposit 12.0 17.4 ------- ------- 31.1 37.7 ------- ------- Creditors: Amounts falling due within one yearShort term borrowings 7 (3.7) (6.9)Other creditors (24.3) (24.3) ------- ------- (28.0) (31.2) ------- ------- Net current assets 3.1 6.5 ------- ------- Total assets less current liabilities 245.7 247.3 Creditors: Amounts falling due after more than one year 7 (148.4) (150.8) Deferred income (8.6) (8.5) Provisions for liabilities and charges 8 (19.8) (18.7) ------- -------Net assets 68.9 69.3 ------- ------- Capital and reservesCalled up share capital 18.5 18.5Share premium account 4.4 4.4Other reserves 5.8 5.8Profit and loss account 40.2 40.6 ------- ------- Total shareholders' funds 9 68.9 69.3Analysed as:Equity shareholders' funds 56.4 56.8Non-equity shareholders' funds 12.5 12.5 ------- ------- CASH FLOW STATEMENTfor the year ended 31 March 2005 2005 2004 Note £m £m Net cash inflow from operating activities 10(a) 34.1 33.4 ------- ------- Returns on investments and servicing of financeInterest received 3.6 1.1Interest paid on term loans and debentures (7.8) (5.9)Interest paid on finance leases (1.1) (1.2)Dividends paid on non-equity shares 4 (1.7) (1.1)Net costs of issue of new loans - (0.7) ------- ------- (7.0) (7.8) ------- ------- TaxationCorporation tax paid (1.9) (3.0) ------- ------- Capital expenditure and investing activitiesPurchase of tangible fixed assets (20.1) (28.0)Contributions received 3.7 3.4Loan advanced to ultimate holding company - (47.0) ------- ------- (16.4) (71.6) ------- ------- Dividends paid on equity shares (7.3) (15.9) ------- ------- Cash inflow/(outflow) before management of liquid resources and financing 1.5 (64.9) Management of liquid resources being decrease/ (increase) in short term deposits 5.4 (9.4) ------- ------- FinancingNew term loans - 98.5Capital element of lease repayments (1.6) (1.5)Loan repayments (5.3) (24.3) ------- ------- (6.9) 72.7 ------- ------- Increase/(decrease) in cash 10(b) - (1.6) Cash, beginning of year 1.6 3.2 ------- -------Cash, end of year 1.6 1.6 ------- ------- NOTES TO THE ACCOUNTS 1. BASIS OF PREPARATION AND CIRCULATION These preliminary statements do not constitute the statutory accounts for the year ended 31 March 2005. The statutory accounts have been reported on by the auditors without qualification but have not yet been delivered to the Registrar of Companies. The comparative figures for 2004 have been extracted from the accounts of Bristol Water plc for the year ended 31 March 2004 upon which the auditors' report was unqualified and which have been delivered to the Registrar of Companies. The Annual Report and Accounts will be posted to shareholders on or before 24 June 2005. Copies will be available to the public from the registered office at PO Box 218, Bridgwater Road, Bristol BS99 7AU. The Annual General Meeting will be held at the Bristol Water plc Head Office, Bridgwater Road, Bristol, on Monday 18 July 2005 at 9.00 am. 2. OPERATING COSTS The directors believe that the nature of the company's business is such that the analysis of operating costs required by the Companies Act 1985 is not appropriate. As required by the Act the directors have therefore adapted the prescribed format so that disclosure of operating costs is appropriate to the company's principal business. Operating costs comprise - Operating Operating costs before Exceptional costs after exceptional operating exceptional items costs* items 2005 2005 2005 2004 £m £m £m £m Net payroll cost 10.9 1.8 12.7 9.5 Total other operating costs 26.4 0.2 26.6 26.5 Net depreciation 14.6 - 14.6 14.9 ---------- --------- --------- ------- Total operating costs 51.9 2.0 53.9 50.9 ---------- --------- --------- ------- *Exceptional operating cost - Restructuring Before the year end the Board instigated a restructuring programme to improve the operating efficiency of the company. This involves a number of redundancies, pension funding payments, asset write downs and incidental expenses. Accordingly the restructuring costs have been recognised in the profit and loss account for the year ended 31 March 2005. There were no exceptional operating costs in 2004. 3. TAXATION ON PROFIT ON ORDINARY ACTIVITIES 2005 2004 £m £m Analysis of charge for the year, all arising in the United Kingdom: Current tax Corporation tax at 30% (2004 - 30%) 1.0 3.0 Advance Corporation Tax written back (1.5) (0.7) Adjustment to prior periods 1.7 1.1 Receipts in respect of group relief 1.0 (0.4) ------- ------- 2.2 3.0 ------- ------- Deferred tax Current year movement 1.2 1.0 Adjustment to prior periods (1.8) (1.0) Effect of discounting (0.3) (0.6) ------- ------- (0.9) (0.6) ------- ------- ------- ------- Tax on profit on ordinary activities 1.3 2.4 ------- ------- The adjustment to prior periods primarily relates to the effect of the company reducing its capital allowance claim for the year ended 31 March 2003. This amendment enabled the company to write back Advance Corporation Tax (ACT) to be utilised against the resulting increased taxable profits. The ACT written back was not recognised as a deferred tax asset in the previous year. 4. DIVIDENDS 2005 2004 £m £m On non-equity shares - Irredeemable 8.75% preference shares - First half year dividend 0.5 0.5 Second half year dividend * 0.6 0.6 ------- ------- 1.1 1.1 ------- ------- On ordinary shares (equity shares) - Interim dividend paid of 47.15p (2004 - 29.10p) 2.8 1.7 Proposed final dividend of 88.0p (2004 - 74.27p) 5.3 4.5 ------- ------- 8.1 6.2 ------- ------- ------- ------- Total dividends paid and proposed 9.2 7.3 ------- ------- *Following a change in the working practices by the company's Registrars, the second half year preference dividend for 2004/05 was paid immediately prior to the year end instead of immediately after the year end. Consequently the cash flow statement includes the payment of three semi annual preference dividends this year. 5. EARNINGS PER ORDINARY SHARE 2005 2004 m m Earnings per ordinary share have been calculated as follows - On average number of ordinary shares in issue during the year - Earnings attributable to ordinary shares £7.7 £10.0 Weighted average number of ordinary shares 6.0 6.0 ------- ------- As the company has no obligation to issue further shares, disclosure of earnings per share on a fully diluted basis is not required. 6. TANGIBLE FIXED ASSETS 2005 2004 £m £m Net book value, beginning of year 193.8 184.7 Additions 20.3 28.0 Disposals 0.1 (0.3) Grants and contributions (3.7) (3.4) Depreciation (14.9) (15.2) ------- ------- Net book value, end of year 195.6 193.8 ------- -------7. NET BORROWINGS 2005 2004 £m £m Cash and short term deposits 12.0 17.4 Debt due within one year (3.7) (6.9) Debt due after one year (148.4) (150.8) ------- ------- Net borrowings (140.1) (140.3) ------- ------- 8. PROVISIONS FOR LIABILITIES AND CHARGES 2005 2004 £m £m Restructuring costs (see note 2) 2.0 - Deferred tax 17.8 18.7 ------- ------ 19.8 18.7 ------- ------ Provision for deferred tax comprises - 2005 2004 £m £m Accelerated capital allowances and capital element of finance leases 35.3 35.4 Deferred income (2.6) (2.5) Short term timing differences (1.0) (0.6) ------- ------- 31.7 32.3 Effect of discounting (13.9) (13.6) ------- ------- Net provision 17.8 18.7 ------- ------- 9. MOVEMENT IN SHAREHOLDERS' FUNDS 2005 2004 £m £m Beginning of year 69.3 65.5 Profit for year 8.8 11.1 Dividends (9.2) (7.3) ------- ------- End of year 68.9 69.3 ------- ------- 10. ADDITIONAL CASH FLOW INFORMATION (a) Reconciliation of operating profit to net cash inflow from operating activities - 2005 2004 £m £m Operating profit 16.7 19.7 Depreciation, net 14.6 14.9 ------ ------ Cash flow from operations 31.3 34.6 Working capital movements - Stocks 0.1 - Debtors 1.2 (2.4) Creditors 1.5 1.2 ------ ------ Net cash inflow from operating activities 34.1 33.4 ------ ------ (b) Reconciliation of net cash flow to movement in net borrowings - 2005 2004 £m £m Increase/(decrease) in net cash in year - (1.6) Cash used to repay borrowings 6.9 25.8 Cash from new borrowings - (98.5) Net costs of issue of loans - 0.7 Cash from (decrease)/increase in short term deposits (5.4) 9.4 ------- ------- Decrease/(increase) in net borrowings 1.5 (64.2) New debt not affecting cash flow (1.3) (1.3) Net borrowings at beginning of year (140.3) (74.8) ------- ------- Net borrowings at end of year (140.1) (140.3) ------- -------- 11. PENSIONS These accounts are prepared on a SSAP24 basis. An analysis of the company's pension assets and liabilities under FRS17 is set out below: 2005 2004 £m £m Market value of assets 98.2 89.9 Present value of liabilities (110.1) (103.4) ------- ------- Deficit (11.9) (13.5) Deferred taxation 3.6 4.1 ------- ------- Net pension liability under FRS17 (8.3) (9.4) ------- ------- This information is provided by RNS The company news service from the London Stock Exchange