Bristol Wtr.8t% Regulatory News (BWRA)

FINANCIAL HIGHLIGHTS

Year ended 31 March

2010

2009

£m

£m

Turnover

99.7

96.7

Operating profit

27.9

29.1

Profit before tax

23.1

17.4

Profit after tax

18.6

12.1

Regulatory Capital Value (RCV)

271.7

265.4

Net debt (excluding 8.75% irredeemable cumulative preference shares) as percentage of RCV

70%

76%

For further information contact:

Alan Parsons, Managing Director

Miquel Anglada, Finance Director

Bristol Water plc

Tel 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 2010 financial year is going to be remembered as the year in which Bristol Water plc Board of Directors announced that it could not accept the regulator Ofwat's determination of price limits for the regulatory period 2010-2015.

During the long price-setting process, we worked hard and innovatively to find solutions to a range of issues at the least possible cost to customers. In the end the Board, after a careful review, considered that the Final Business Plan, initially submitted to Ofwat in April 2009, was the correct proposition, and we still believe so.

Our customers have benefited for a long period in which we have been able to minimise bills by stretching our assets' working lives. Unfortunately, there are now a number of factors coming together which will not allow us to defer increased levels of investment any further. Additionally there is a need to reflect our current and anticipated cost increases. As a result we must inevitably seek to increase customers' bills. We did not agree with Ofwat on the scope and cost of the necessary work. Therefore it became necessary to refer this matter to the Competition Commission (''CC'') for a re-determination.

The rejection of Ofwat's Final Determination was based on the following principal points:

·; it was not considered to be in the best interests of customers;

·; there was a high risk that the service obligations placed upon us by the Final Determination could not be delivered for the funding allowed; and

·; we did not believe the Final Determination would enable investment grade credit ratings to be maintained.

Bristol Water plc rejected Ofwat's Final Determination in January 2010. As required by the relevant legislation, Ofwat has referred the company's rejection to the CC. The CC's Provisional Findings suggested a rise in Ofwat's Final Determination tariff increase of 1.7% p.a. average to 2.3% p.a. average. The CC is expected to publish its Final Determination by 6 August 2010.

Operational performance

We are now at the end of the current regulatory period 2005-10 and have completed the delivery of the required outputs and efficiency targets assumed by Ofwat in its previous determination. During the year we invested £24.4m in capital projects. The major projects were largely completed earlier in the regulatory period 2005-10. Total capital expenditure over the regulatory period 2005-10 is approximately £180m (in 2009/10 prices before grants and contributions), which is broadly in line with Ofwat's assumptions.

We have also met the leakage target set by Ofwat despite the severe winter, which led to more bursts than in a normal year. The water quality compliance results were the best ever.

Our customer service performance remains at a high level with customer surveys consistently showing high satisfaction. As a result, Bristol Water took first position in the last DG9 annual survey.

Our continued focus on environmental performance has led to the company attaining the Carbon Trust Standard for its work to minimise its carbon footprint. In addition, all the Sites of Special Scientific Interest (SSSI) owned and managed by the company have retained their top rating as assessed by Natural England, giving Bristol Water the best performance assessment in the water industry.

Bristol Water's contribution to innovation in the water industry has been recognised for its development of 'Ice Pigging' technology for cleaning water mains, in conjunction with the University of Bristol.

Financial performance

Turnover increased by £3m to £99.7m, however operating profit decreased by £1.2m to £27.9m during the year. The decrease in operating profit was driven by increases in power (+£1.6m), bad debt costs (+£1.4m) and costs related to the rejection of Ofwat's price determination. These adverse effects have offset the benefits of determined efforts to achieve operating efficiencies.

Net interest charges, excluding those related to retirement benefits and the preference share dividend, decreased by £7.3m to £3.1m. This mainly reflects the decrease in the inflationary element of the charge related to our index-linked debt. The net interest charge related to retirement benefits was £0.8m compared to £0.2m last year.

Profit before tax increased by £5.7m to £23.1m. The tax charge of £4.5m represents an effective tax rate of 19% (2009: 30%).

Net debt, excluding irredeemable preference shares, decreased to £191.5m (31 March 2009: £201.8m) and represents approximately 70% of Regulatory Capital Value at 31 March 2010 (31 March 2009: 76%), in line with our projections.

Prospects

The key risks to the company are regulatory requirements and developments, operational and performance problems, and financial factors which are unpredictable due to the present financial market turmoil. The company is well placed to face the near future events but it is not immune from the severe financial market uncertainties in the medium term, which have the potential to impact its ability to obtain appropriate financing to deliver the future capital programme in the next regulatory period.

Clearly the CC's re-determination in August 2010 of future tariffs and service obligations will play a significant role in the future of the company. In addition to that, we expect that the results for the year ending 31 March 2011 may include the following material effects:

·; an increase in the proportion of customers who are metered and an approximate 0.9% increase in prices due to RPI and 'K' factor;

·; an increase in chemical costs;

·; a further increase in bad debts; and

·; an increase in interest charges related to our index-linked debt with the projected increase in RPI.

Dividends

A final dividend of £3.6m in respect of the 2009 financial year was approved at the Annual General Meeting (AGM) in August 2009 and paid in September 2009.

During the year the following interim dividends have been paid in respect of the 2010 financial year:

·; first interim for the inter-company loan interest element of £1.5m paid in September 2009

·; second interim in respect of the base level dividend of £3.7m paid in November 2009

·; third interim for the inter-company loan interest element of £1.4m paid in March 2010.

The Board has not proposed a final dividend in respect of the year ended 31 March 2010 (31 March 2009: 60.02p per share totalling £3.6m) due to underlying uncertainties arising from the pending price determination by CC.

Dividends payable on the 8.75% irredeemable preference shares are treated as interest under the appropriate accounting rules.

Board membership

In November 2009 Stefano Pellegri left his executive director position in the company and is now a non-executive director.

We welcome Miquel Anglada who was appointed as Finance Director on 1 December 2009.

Thanks

I would also take this opportunity to pass on to all staff the Board's thanks and appreciation of their commitment and effort during a most challenging year. The contribution from all areas of the company has led to an excellent overall performance.

Moger Woolley

Chairman

26 July 2010

2010

2009

Note

£m

£m

Turnover

2

99.7

96.7

Operating costs

3

(71.8)

(67.6)

27.9

29.1

Profit on sale of tangible fixed assets

0.2

-

Other net interest payable and similar charges

4

(3.1)

(10.4)

Dividends on 8.75% irredeemable cumulative

preference shares

4

(1.1)

(1.1)

Interest in respect of retirement benefit scheme

4

(0.8)

(0.2)

Net interest payable and similar charges

(5.0)

(11.7)

Profit on ordinary activities before taxation

23.1

17.4

Taxation on profit on ordinary activities

5

(4.5)

(5.3)

Profit on ordinary activities after taxation

11

18.6

12.1

Earnings per ordinary share

6

310.0p

201.7p

Dividends per ordinary share

12

 - declared or proposed in respect of the period

170.12p

206.80p

 - paid during the period

170.12p

146.78p

All activities above relate to the continuing activities of the company.

There is no difference between the profit on ordinary activities before taxation and the retained profit for the financial year stated above and their historical cost equivalents.

2010

2009

Note

£m

£m

Profit attributable to Bristol Water plc shareholders

18.6

12.1

Actuarial losses recognised in respect of

retirement benefit obligations

(0.4)

(5.8)

9

0.1

1.6

8

0.1

(1.2)

9

-

0.3

18.4

7.0

2010

2009

Note

£m

£m

Fixed assets

7

251.2

251.7

Other investments - Loans to ultimate UK holding

company

68.5

68.5

Current assets

Stocks

1.0

1.1

Debtors

23.1

21.6

Investments

8

25.0

19.4

Cash at bank and in hand

8

1.8

1.2

50.9

43.3

Creditors: amounts falling due within one year

Short term borrowings

8

(2.5)

(2.2)

Other creditors

(28.7)

(25.0)

(31.2)

(27.2)

Net current assets

19.7

16.1

Total assets less current liabilities

339.4

336.3

Creditors: amounts falling due after more than one year

Borrowings and derivatives

8

(215.8)

(220.2)

Other creditors

-

(0.2)

(215.8)

(220.4)

8.75% irredeemable cumulative preference shares

8

(12.5)

(12.5)

Deferred income

(10.3)

(10.2)

Provisions for liabilities

9

(22.2)

(22.8)

Retirement benefit surplus

10

6.3

6.3

Net assets

84.9

76.7

Capital and reserves

Called-up share capital

6.0

6.0

Share premium account

4.4

4.4

Other reserves

5.0

4.9

Profit and loss account

69.5

61.4

11

84.9

76.7

2010

2009

Note

£m

£m

Net cash inflow from operating activities

13(a)

48.0

47.5

Returns on investments and servicing of finance

Interest received

4.2

5.1

Interest paid on term loans and debentures

(8.3)

(9.7)

Interest paid on finance leases

(0.9)

(0.9)

Dividends paid on 8.75% irredeemable cumulative

preference shares

(1.1)

(1.1)

(6.1)

(6.6)

Taxation

Corporation tax paid

(2.8)

(2.1)

Capital expenditure and investing activities

Purchase of tangible fixed assets

(24.6)

(32.6)

Contributions received

3.9

3.6

Proceeds from disposal of tangible fixed assets

0.2

-

(20.5)

(29.0)

Equity dividends paid

12

(10.2)

(8.8)

Cash inflow/(outflow) before management of liquid

resources and financing

8.4

1.0

Management of liquid resources

being (increase)/decrease in short-term deposits

(5.6)

1.9

Financing

New term loans

-

15.0

Capital element of lease repayments

(2.2)

(1.9)

Loan repayments

-

(15.0)

(2.2)

(1.9)

Increase in cash in the year

13(b)

0.6

1.0

Cash, beginning of year

1.2

0.2

Cash, end of year

1.8

1.2

1.

ACCOUNTING POLICIES

The significant accounting policies adopted in the preparation of the accounts, which have been applied consistently, are set out below.

(a)

Accounting convention

The accounts of the company are prepared under the historical cost convention and in accordance with applicable accounting standards in the United Kingdom (UK GAAP) and with the provisions of the Companies Act 2006, except for the treatment of certain capital contributions as explained in sub-note (e) below.

The company has not adopted IFRS for its financial statements for the year ended 31 March 2010, and has no current plans to do so until UK GAAP and IFRS are fully harmonised.

(b)

Going concern

In November 2009 Ofwat set final determinations of price limits and regulatory output requirements for the five years ended March 2015 for all water companies in England and Wales. Bristol Water plc rejected Ofwat's Final Determination, primarily on the grounds that price limits were too low for the outputs required. As required by the relevant legislation, Ofwat has referred the company's rejection to the Competition Commission ("CC").

On 18 June the CC issued its Provisional Findings broadly suggesting an increase in maintenance expenditure, capital expenditure, operating expenditure and taxation compared to Ofwat's Final Determination. However the CC has suggested a reduction in the cost of capital relative to Ofwat's Final Determination. The net effect of the Provisional Findings suggests an increase in charges to customers of approximately 2.3% p.a average. The CC is expected to publish its Final Determination by 6 August 2010.

The issue of financeability of the company's operations for the regulatory period 2010-15, as further discussed in note 16, cannot be fully resolved until the CC provides its Final Determination in August 2010; however, the directors consider that the provisional increases in expenditure mentioned above are significant improvements relative to Ofwat's Final Determination. The directors are in the process of providing a response to the CC's Provisional Findings, and, noting the legal obligations placed on the CC to ensure that regulatory settlements can be funded appropriately, they expect further improvements in the CC's Final Determination relative to its Provisional Findings.

In considering the going concern basis, the directors have considered a range of possible scenarios, both favourable and unfavourable, which may arise after the CC's Final Determination. If the outcome of the CC's price determination is less favourable to the company relative to the company's final 'Statement of Case', the directors will implement measures to reduce capital and operating expenditure with a view to minimising expenditure in the short-term, and with a view to achieving stability in the long term. 

After considering these matters, the existing cash resources and an unutilised committed borrowing facility of £30m, the directors of the company continue to adopt the going concern basis for preparing the accounts.

(c)

Turnover

Turnover comprises charges to and accrued income from customers for water and other services, exclusive of VAT. Turnover is recognised upon delivery of water or completion of other services.

Income from metered supplies is based upon actual volumes of water invoiced plus estimated volumes of uninvoiced water delivered to customers during the year.

(d)

Tangible fixed assets and depreciation

Tangible fixed assets comprise infrastructure assets and other assets:

Infrastructure assets

Infrastructure assets comprise the integrated network of impounding and pumped raw water storage reservoirs and water mains and associated underground pipework. Expenditure on such assets relating to increases in capacity, enhancements or planned maintenance of the network is treated as an addition to fixed assets and is included at cost. The cost of infrastructure assets is their purchase cost together with incidental expenses of acquisition and directly attributable labour costs which are incremental to the company.

Other assets

Other assets include land and buildings, operational structures, fixed and mobile plant, equipment and motor vehicles. All are included at cost. The cost of other assets is their purchase cost together with incidental expenses of acquisition and any directly attributable labour costs which are incremental to the company.

Depreciation

Depreciation is charged, where appropriate, on a straight-line basis on the original cost of assets over their expected economic lives. Freehold land is not depreciated. Depreciation of long-life assets commences when the assets are brought into use.

Depreciation of infrastructure assets under renewals accounting takes account of planned expenditure levels to maintain the operating capability of the company's infrastructure assets in perpetuity.

Other assets including assets under construction are depreciated after commissioning over the following estimated economic lives:

Operational properties and structures

15 to 100 years

Treatment, pumping and general plant

20 to 24 years

Computer hardware, software, communications, meters

and telemetry equipment

3 to 15 years

Vehicles and mobile plant

5 to 7 years

Assets under construction are not depreciated.

Impairment

The values of fixed assets are reviewed regularly to determine whether their carrying amounts exceed their fair values in use. Where such an excess is believed to exist it is treated as an impairment loss and charged to the profit and loss account.

(e)

Grants and contributions

Contributions received in respect of tangible assets, other than those received in respect of infrastructure assets, are treated as deferred income and amortised in the profit and loss account over the expected useful lives of the related assets. Contributions received in respect of enhancing the infrastructure network are not shown as deferred income but are deducted from the cost of the related fixed assets. This treatment is permitted by Statement of Standard Accounting Practice Number 4 but is a departure from the Companies Act 2006 which requires that such contributions be shown as deferred income.

In the directors' opinion, this treatment is necessary to show a true and fair view as the related assets do not have determinable finite lives and therefore no basis exists for the amortisation of the contributions.

Grants and contributions in respect of expenditure charged to the profit and loss account are netted against such expenditure as received.

(f)

Leased assets

Assets financed by leasing agreements that transfer substantially all the risks and rewards of ownership of an asset to the lessee are capitalised and depreciated over the shorter of their estimated useful lives and the lease term. The capital portion of the lease commitment is included in current or non-current creditors as appropriate. The capital element of the lease rental is deducted from the obligation to the lessor as paid. The interest element of lease rentals and the depreciation of the relevant assets are charged to the profit and loss account.

Operating lease rental payments are charged to the profit and loss account as incurred over the term of the lease.

(g)

Pension costs

The company operates both defined benefit and defined contribution pension arrangements. Defined benefit pension arrangements are provided through the company's membership of the Water Companies' Pension Scheme via a separate section.

Defined benefit scheme liabilities are measured 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 company's defined benefit pension scheme 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, is 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 direct to the statement of total recognised gains and losses.

Costs of defined contribution pension schemes are charged to the profit and loss account in the period in which they fall due. Administration costs of defined contribution schemes are borne by the company.

(h)

Research and development

Research and development expenditure is charged to the profit and loss account as incurred.

(i)

Taxation

Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Advance Corporation Tax (ACT) in respect of dividends in previous years is written off to the profit and loss account unless it could be recovered against mainstream corporation tax in the current year or with reasonable assurance in the future. Credit is taken for ACT previously written off when it is recovered against mainstream corporation tax liabilities.

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the company's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements.

Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a discounted basis to reflect the time value of money over the period between the balance sheet date and the dates on which it is estimated that the underlying timing differences will reverse. The discount rates used reflect the post-tax yields to maturity that can be obtained on government bonds with similar maturity dates and currencies to those of the deferred tax assets or liabilities.

(j)

Distributions to shareholders

Dividends and other distributions to shareholders are reflected in financial statements when approved by shareholders in a general meeting, except for interim dividends which are included in financial statements when paid by the company. Accordingly, proposed dividends are not included as a liability in the financial statements.

(k)

Stocks

Stocks are valued at the lower of cost and net realisable value. Following established practice in the water industry no value is included in the accounts in respect of water held in store.

(l)

Financial instruments

The company has entered into an interest rate swap effective from 22 October 2008 which is measured in accordance with FRS26 'Financial instruments: Recognition and Measurement'. The swap is deemed to be an effective cash flow hedge and therefore fair value adjustments are recognised in equity.

The net costs of issue of loans (being expenses incurred less premiums received) where material are amortised over the lives of the respective loans and disclosed within net borrowings. Immaterial amounts are written off as incurred. Index-linked loans are considered to be effective economic hedges and are valued at cost plus accrued indexation.

(m)

Fair value hedge accounting

The company has designated its interest rate swap as a cash flow hedge and at inception the company has documented the relationship between the hedging instrument and the hedged item, along with its risk management objectives and strategy. Furthermore, at the inception and on an ongoing basis, the company documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item.

The effective portion of changes in the fair value of the swap that are designated and qualify as cash flow hedges are deferred through the statement of total recognised gains and losses. Should there be any ineffectiveness, the gain or loss relating to the ineffective portion would be recognised immediately in the profit and loss account and included in other net interest payable and similar charges.

Amounts deferred in the statement of total recognised gains and losses are recycled in the profit and loss account in the periods when the hedged item is recognised in the profit and loss account, in the same line as the recognised hedged item.

Hedge accounting is discontinued when the company revokes the hedging relationship, the hedging instrument expires, is terminated or exercised, or no longer qualifies for hedge accounting.

2.

TURNOVER

Turnover is wholly derived from water supply and related activities in the United Kingdom. The maximum level of prices the company may levy for the majority of water charges is controlled by the Water Services Regulation Authority (Ofwat) through the RPI +/- K price formula.

3.

2010

2009

£m

£m

12.7

13.1

38.1

34.2

21.0

20.3

71.8

67.6

4.

2010

2009

£m

£m

£m

£m

Other net interest payable and similar charges relate to -

Bank borrowings

1.1

2.3

Term loans and debentures

- interest charges

7.3

7.2

- indexation and amortisation of fees and premium on loans

(1.8)

5.0

Finance leases

0.6

0.9

7.2

15.4

Less:

Loan to Agbar UK Ltd (formerly known as Bristol Water Group Ltd) - interest receivable

(4.0)

(4.0)

Other external investments and deposits

(0.1)

(1.0)

(4.1)

(5.0)

Total other net interest payable and similar charges

3.1

10.4

Dividends on 8.75% irredeemable cumulative

preference shares

1.1

1.1

Net Interest charge in respect of retirement benefit

scheme

0.8

0.2

5.0

11.7

Dividends on the 8.75% irredeemable cumulative preference shares are payable at a fixed rate of 4.375% on 1 April and 1 October each year. Payment by the company to the share registrars is made two business days earlier. The payments are classified as interest in accordance with FRS25.

5.

2010

2009

£m

£m

Analysis of charge for the year, all arising in the

United Kingdom:

Corporation tax at 28%

4.9

2.5

Adjustment to prior periods

-

(0.1)

4.9

2.4

Current year movement

1.8

2.7

Adjustment to prior periods

-

0.1

1.8

2.8

Effect of discounting

(2.2)

0.1

(0.4)

2.9

4.5

5.3

The charge for corporation tax includes amounts that may be paid in consideration of group relief surrendered by other group companies.

Discount rates have increased during the current year (2009: decreased during the year). Within the effect of discounting in 2010, an increase in the beneficial effect of discounting of £1.4m (2009: decrease of £1.6m) has been recognised in respect of the restatement of the opening balance at the new rates, decreasing (2009: increasing) the overall deferred tax charge.

ACT is recognised as an asset to the extent that it is foreseen to be recoverable in the next 12 months. There is a further £3.9m (2009: £3.9m) of unrecognised ACT carried forward at 31 March 2010.

6.

2010

2009

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

£18.6

£12.1

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.

7.

TANGIBLE FIXED ASSETS

2010

2009

£m

£m

Net book value, beginning of year

251.7

244.1

Additions

24.4

31.3

Disposals

(2.8)

-

Grants and contributions

(3.3)

(2.9)

Depreciation

(18.8)

(20.8)

Net book value, end of year

251.2

251.7

8.

NET BORROWINGS AND DERIVATIVES

2010

2009

£m

£m

Investments and cash at bank and in hand

26.8

20.6

Debt due within one year

(2.5)

(2.2)

Debt due after one year excluding interest rate swap

(214.7)

(219.0)

Fair value of interest rate swap

(1.1)

(1.2)

Net borrowings and derivatives excluding 8.75%

irredeemable cumulative preference shares

(191.5)

(201.8)

8.75% irredeemable cumulative preference shares

(12.5)

(12.5)

Net borrowings and derivatives including 8.75%

irredeemable cumulative preference shares

(204.0)

(214.3)

9.

2010

2009

£m

£m

Provision for deferred tax comprises -

Accelerated capital allowances and capital element of finance leases

41.1

39.4

Deferred income

(1.6)

(1.6)

Short term timing differences

(0.3)

(0.2)

Retirement benefit obligations

2.5

2.4

Interest rate swap

(0.3)

(0.3)

41.4

39.7

Effect of discounting

(16.7)

(14.5)

Net provision, including deferred tax on retirement benefit

obligations

24.7

25.2

Less, attributable to retirement benefit obligations

(2.5)

(2.4)

Net provision, excluding deferred tax on retirement benefit

obligations

22.2

22.8

Deferred tax movement:

2010

2009

£m

£m

Provision at 1 April

25.2

24.2

(Credit)/charge to Profit and Loss Account (note 5)

(0.4)

2.9

Credit to Statement of Total Recognised Gains and Losses in respect of:

Retirement benefit obligations

(0.1)

(1.6)

Interest rate swap

-

(0.3)

Provision at 31 March

24.7

25.2

10.

The following table sets out the key assumptions used for the valuation of the company's section of WCPS. The table also sets out as at the accounting date the fair value of the assets, a breakdown of the assets into the main asset classes, the present value of the section liabilities, and the resulting surplus. The obligations are accounted for on an FRS17 basis.

Expected long term

Market values of

rate of return

section assets

2010

2009

2008

2010

2009

2008

£m

£m

£m

Equities

8.0%

8.0%

7.7%

34.5

26.9

41.1

Bonds

4.1%

4.1%

4.4%

108.4

96.8

97.2

Cash

2.0%

1.9%

3.9%

0.2

0.1

0.2

Market value of section assets

143.1

123.8

138.5

Present value of liabilities

(134.3)

(106.2)

(121.9)

Surplus on FRS17 basis

8.8

17.6

16.6

Amount not recognised due to

asset recognition limit

-

(8.9)

(2.6)

Surplus in the section

8.8

8.7

14.0

Deferred taxation at 28% (2009:28%)

(2.5)

(2.4)

(3.9)

Net pension asset

6.3

6.3

10.1

11.

MOVEMENT IN SHAREHOLDERS' FUNDS

2010

2009

£m

£m

At beginning of year

76.7

78.5

Profit for year

18.6

12.1

Actuarial gains recognised in respect of retirement

benefit obligations

(0.4)

(5.8)

Attributable deferred taxation

0.1

1.6

Fair value of interest rate swap

0.1

(1.2)

Attributable deferred taxation

-

0.3

Dividends

(10.2)

(8.8)

End of year

84.9

76.7

12.

2010

2009

£m

£m

•

Dividend in respect of 2008:

Final dividend of 53.35 pence per share,

approved by the Board on 4 August 2008

-

3.2

•

Dividend in respect of 2009:

First interim dividend of 24.27 pence per share,

approved by the Board on 26 September 2008

-

1.5

Second interim dividend of 45.02 pence per share,

approved by the Board on 24 November 2008

-

2.7

Third interim dividend of 24.14 pence per share,

approved by the Board on 30 March 2009

-

1.4

Final dividend of 60.02 pence per share,

approved by the Board on 3 August 2009

3.6

-

•

Dividend in respect of 2010:

First interim dividend of 24.27 pence per share,

approved by the Board on 6 September 2009

1.5

-

Second interim dividend of 61.69 pence per share,

approved by the Board on 11 November 2009

3.7

-

Third interim dividend of 24.14 pence per share,

approved by the Board on 22 March 2010

1.4

-

10.2

8.8

The Board has not proposed a final dividend in respect of the year ended 31 March 2010 (31 March 2009: 60.02p per share totalling £3.6m).

13.

SUPPLEMENTARY CASH FLOW INFORMATION

(a)

Reconciliation of operating profit to net cash inflow from operating activities -

2010

2009

£m

£m

Operating profit

27.9

29.1

Depreciation, net of amortisation of deferred income

21.0

20.3

Difference between pension charges and normal

contributions

(0.3)

0.2

Cash flow from operations

48.6

49.6

Working capital movements -

Stocks

0.1

(0.2)

Debtors

(1.5)

(0.7)

Creditors and provisions

1.8

(0.2)

Additional contributions to pension scheme

(1.0)

(1.0)

Net cash inflow from operating activities

48.0

47.5

(b)

Reconciliation of net cash flow to movement in net borrowings -

2010

2009

£m

£m

Increase in cash in the year

0.6

1.0

Cash used to repay borrowings

2.2

16.9

Cash from new borrowings

-

(15.0)

Cash from increase/(decrease) in short-term deposits

5.6

(1.9)

8.4

1.0

Indexation of debt and amortisation of fees and premium

not affecting cash flow

1.8

(5.0)

Fair value of interest rate swap not affecting cash flow

0.1

(1.2)

Net borrowings at 1 April including 8.75% irredeemable

cumulative preference shares

(214.3)

 (209.1)

Net borrowings at 31 March including 8.75% irredeemable

cumulative preference shares

(204.0)

(214.3)

14.

CONTINGENT LIABILITY

In preparing the financial statements Directors have considered whether a contingent liability will arise for costs incurred by Ofwat and the CC in relation to the Bristol Water plc's rejection of Ofwat's Final Determination and appeal to the CC for re-determination.

The terms of the referral to the CC are that Bristol Water plc will become liable for the costs incurred by Ofwat and the CC in the event that it is found that it was inappropriate for Bristol Water to have referred the case. Conversely, under the same terms Bristol Water may recover the costs it has incurred in bringing the case through future tariff increases in the event that the CC finds that Bristol Water was justified in making the referral. However current accounting conventions preclude the recognition of any such recovery.

Following the CC's Provisional Findings on 18 June, the directors consider that the CC has clearly recognised a need for certain expenditure not allowed by Ofwat in its Final Determination. Therefore it is considered that the company's rejection of Ofwat's Final Determination and the appeal to the CC for re-determination were appropriate.

Based on this the Directors consider it is unlikely that the company will be required to compensate Ofwat and the CC for their costs, therefore no provision for such costs has been made in the financial statements.

15.

FINANCIAL INFORMATION

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2010 or 2009, but is derived from those accounts. Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) Companies Act 2006 or equivalent preceding legislation.

16.

FUTURE FINANCEABILITY

As mentioned in note 1(b), the issue of financeability of the company's operations for the regulatory period 2010-15 cannot be fully resolved until the CC provides its Final Determination in August 2010, however the directors consider that they have a range of financing options available to them, which includes the possibility of issuing additional share capital or sub-ordinated debt, if necessary, either to its parent group or to third parties in the later part of the regulatory period 2010-15.