Bristol Wtr.8t% Regulatory News (BWRA)

BRISTOL WATER plc

Announcement of interim results for the six months ended 30 September 2014

Bristol Water plc is ultimately owned by Capstone Infrastructure Corporation (50%), Sociedad General de Aguas de Barcelona S.A. (Agbar) (30%), and Itochu Corporation of Japan (20%).

Bristol Water plc supplies water to over 1.2 million people and businesses in an area of almost 2,400 square kilometres centred on Bristol.

FINANCIAL HIGHLIGHTS - REPORTED UNDER UK GAAP

Summary

· Continued stable underlying financial and operational performance

· High customer satisfaction levels - Based on the latest published SIM scores in July 2014, Bristol Water ("the Company") was 5th in the industry

· Significant level of capital investment continued with a £32.4m investment during the period

· Increase in EBITDA mainly driven by revenue increase due to RPI and K factor as required to support the significant capital investment

· Decrease in debt indexation charge due to lower RPI

· Increase in depreciation following recent capital investment

· Last year's results included a credit of £5m due to a one-off reduction in deferred tax liability resulting from reduction in corporation tax rate

CHAIRMAN'S STATEMENT

Introduction

The Company has continued to perform well operationally and financially over the last six months having firmly focussed on meeting our regulatory requirements and the expectations of customers and other stakeholders by delivering excellent customer service and water quality.

We have dealt with a couple of major bursts and flooding incidents during this period but with the commitment of our staff and contracting partners, managed to minimise the impact of any disruption sustained by our customers during these emergencies.

The summer months of 2014 have been drier than in previous years, with approximately half of the long-term average rainfall expected for the period. Our resource position has been managed well and no supply issues have been encountered.

The results for the six months ended 30 September 2014 reflect our stable financial performance. EBITDA increased by £2.8m compared to the same period last year, which supports the significant ongoing capital investment programme. Our capital programme led to higher depreciation, and interest on our index-linked debt was lower due to favourable RPI movements. Profit before tax increased by £2.9m to £11.2m as a result of the above factors. Profit after tax declined by £3.3m to £7.9m predominantly due to the exceptional deferred tax credit recognised in the same period last year in relation to the reduction in future corporation taxation rates.

Earlier in the year we submitted our Business Plan proposals for the next regulatory period following extensive consultation with both household and non-household customers which was overseen by an independent customer representative panel. Further information has been submitted to Ofwat as part of the price review process and we now await their Final Determination.

Capital investment

Our extensive capital investment programme has progressed well. During the period we invested £32.4m on our mains rehabilitation schemes and major upgrades to two key pumping stations. The mains rehabilitation work will improve both the security of water supply for the future, and water quality in respect of discoloured water and iron compliance. The work on pumping stations will increase operational efficiency and improve resilience of our key pumping stations.

We have adopted a collaborative approach with the highway authorities and implemented stakeholder engagement campaigns with local residents and businesses to ensure they are kept fully informed on the status of our works. Engagement with customers and commuters has been paramount to the successful delivery of the key projects across this Asset Management Plan ("AMP") period and we have used both traditional communication methods as well as using our mobile exhibition unit which allows people to speak to us face-to-face.

The planning application for a second reservoir at Cheddar was submitted in 2013 and has been successful. The need to build the £100m-plus reservoir is driven by future demands for water across the supply area and will also provide long-term recreational and conservation benefits. We have obtained planning permission from Sedgemoor District Council, however securing funding through the price review process will be required before the work can start on the new reservoir.

The majority of AMP5 projects have now been completed and we are confident that we will achieve substantially all the remaining outputs by the end of the regulatory period 2010-15.

Price review process

Following the June submission of our Business Plan proposals for the period 2015-20 we were advised by Ofwat in early August that it had concerns about the wholesale costs in our plan, as there was a significant difference between our assessment of these costs based on independent reviews and Ofwat's own assessment based upon its cost model. This was confirmed in their Draft Determination on 29 August.

After consulting with external, independent experts and carefully carrying out our own internal reviews of the Draft Determination, a response was filed to Ofwat in early October. In our response we proposed a £21m reduction over the AMP6 period in our total wholesale costs from £562m to £541m in real terms. Our revised proposals will, however, still deliver the levels of service and service improvements contained in our original plans which were endorsed by 92% of household customers and 97% of business customers surveyed during the consultation process.

We have had further engagement with Ofwat since our October response, aimed at resolving the points of difference on total wholesale costs. Ofwat will publish its Final Determination on 12 December.

Customer service

Our customer service remained high throughout 2013/14 with our performance against Ofwat's service measure, published in July 2014, placing us 5th in the industry. On the basis of Ofwat's three year average of SIM scores, the Company was ranked 4th in the industry. The customer service measure captures the customer experience, their interaction with the Company and the reasons that prompted them to contact us. We believe having local knowledgeable customer-focussed staff who deliver quick response times and who keep customers informed of what we are doing at all times has helped keep customer satisfaction high. We will continue to introduce new customer feedback mechanisms in order that we can improve on our service delivery.

As part of our affordability strategy we are working very closely with partners in the debt advice sector, including Citizens Advice Bureaux to promote the various schemes which allow customers genuinely unable to afford their bill to pay a fair contribution towards the costs. Customers also receive independent debt advice together with water efficiency advice.

Building for the future

To strengthen our business for future emerging channels and to build on the continual business improvement processes, we have embarked on a detailed company-wide review of all aspects of the business. This project will identify ways in which we can make the business more resilient and efficient and better prepared for changes in the statutory and regulatory environment in which we operate. We support government plans to increase the level of choice for commercial customers in the sector and believe this could deliver real benefits to customers and we are working towards retail separation which will take place in April 2017.

Community engagement

As part of our community engagement programme we have been 'out and about' in the community delivering talks and workshops and exhibiting at a number of small and major events to promote the good use of water.

Our events team attended a number of large shows - the Festival of Nature, VegFest, Bristol Harbourside Festival and the International Bristol Balloon Fiesta where they were able to answer water related queries, promote the free water saving packs available from Bristol Water as well as handing out hundreds of educational posters displaying the water cycle to children. We have also provided information and leaflets on a wide range of topics, including metering, leakage, tariffs and water wise tips for gardening.

As a responsible corporate citizen we think it is important for us to engage with our customers face-to-face and we estimate that we have engaged with over 14,000 people throughout the summer months at the various events that we have attended.

With all the necessary statutory and regulatory environmental requirements placed on water companies to maintain their environmental assets and land holdings, Bristol Water has just appointed an Environmental Programme Delivery Manager. This person will work collaboratively, drawing on the expertise of farmers, other bodies like the Wildlife Trusts, Farming & Wildlife Advisory Group (FWAG), Natural England and Areas of Outstanding Natural Beauty Partnerships and will work alongside similar initiatives such as the Catchment Sensitive Farming (CSF) Initiative run by Natural England and the Environment Agency.

At the end of September, 20,000 glass eels rescued from West Country estuaries by the Sustainable Eel Group (SEG) earlier this year were released into Chew Lake. Scientists have classified them as 'critically endangered' due to the plummeting numbers arriving in Europe since the 1980s and 90s and we have been working with the SEG and Avon Wildlife Trust to protect this species by helping them move inland and by repopulating rivers and waterways.

Financial performance

There has been a stable underlying performance during the period. Compared to the same period last year, turnover increased by £4.3m to £66m due to RPI and 'K' factor, and profit before tax increased by £2.9m to £8.3m. These results reflect the net impact of:

· the 6.5% increase in prices allowed by Ofwat - required for the on-going capital investment programme, and an increase in demand from metered customers,

· higher operating costs, predominantly driven by inflationary and above inflation market price increases, increase in costs associated with the improvement of customer service, increase in network maintenance costs driven by ageing mains network, and higher provision for uncollected debt from our customers. Increase in operating costs is partially offset by savings from our efficiency programme, Avon+,

· higher depreciation charge driven by large capital investment during the last year, and

· lower interest indexation charge due to lower RPI.

Profit after tax was £3.3m lower compared to the same period last year resulting from £2.9m higher profit before tax and £6.2m higher tax charge. The increase in tax charge was driven by higher taxable profit during the period, movement on discount rates for deferred tax, and the last year's deferred tax including the impact of reduction in corporation tax rate.

Net debt excluding the 8.75% irredeemable cumulative preference shares was £296.5m, representing approximately 71% of March 2015 expected Regulatory Capital Value of £418.5m.

During the six months £11m was drawn down from the loan facilities arranged in 2012. The remaining undrawn facilities of £20m and the cash and bank balances of £8.4m reflect our strong financial position at 30 September 2014. Subsequent to the period end a facility of £20m has been replaced with a new facility of £70m which, along with the cash and bank balances, is expected to be sufficient to meet the funding requirements for the ongoing 2010-15 capital programme.

Dividends

During the period £7.2m dividends were paid. Dividends comprised £3.3m 'final' dividend in respect of the year ended 31 March 2014, a first interim ordinary dividend of £2.3m, and a second interim dividend of £1.6m representing the return of post-tax interest receivable on loans to a UK parent company.

The Board has proposed a third interim dividend of £2.4m in respect of the year ending 31 March 2015.

Risks and uncertainties

In the Strategic Report within the Company's Annual Report 2014 we set out a summary of the key risks and uncertainties facing the Company. The key risks identified are regulatory requirements and developments, and operational conditions outside of company control. The Company is well placed to respond to the near future events, but it is not immune to the continuing financial market uncertainties in the medium term, which have the potential to impact its ability to obtain appropriate financing to deliver future capital programmes.

We anticipate that the results for the second half of the year may include the following:

· the impact of movements in socio economic conditions on the bad debts charge,

· the impact of weather on network maintenance and water treatment costs,

· impact of volatility in chemical prices,

· the impact of RPI movements on our indexed-linked debt, and

· the impact of further substantial capital investment.

Our revenue for the next financial year will be dependent upon Ofwat's Final Determination to be published on 12 December 2014.

Keith Ludeman

Chairman

28 November 2014

Bristol Water plc - Interim Accounts 

PROFIT AND LOSS ACCOUNT

For the six months ended 30 September 2014

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

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

For the six months ended 30 September 2014

BALANCE SHEET

30 September 2014

CASH FLOW STATEMENT

For the six months ended 30 September 2014

NOTES TO THE INTERIM ACCOUNTS

For the six months ended 30 September 2014