Bristol Wtr.8t% Regulatory News (BWRA)

BRISTOL WATER plc

Announcement of interim results for the six months ended 30 September 2012

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

·; Stable financial and operational performance

·; Increase in profits will allow post tax return on capital to come back to a more sustainable level

·; High customer satisfaction levels - The company achieved second place nationally in Ofwat's latest SIM results

·; Significant level of capital investment continued during the period

·; Increase in revenue mainly due to RPI and K factor

·; Decrease in debt indexation charge due to lower RPI

·; Increase in depreciation on infrastructure assets

CHAIRMAN'S STATEMENT

This is my first Chairman's statement since taking over from my predecessor Moger Woolley. I would like to start by paying tribute to the outstanding service Moger gave to the company over the past 14 years. His wise guidance and leadership of a committed and customer-focused company ensures that I start with a strong platform for the future.

I will bring my experience from outside the water industry to bear at a time when there is change ahead. I am looking forward to the future challenges, confident in the knowledge that this company has always delivered an excellent record of high quality service to our customers and that this ethos will continue over the years ahead.

This is the third year of the current 5-year regulatory period to March 2015 and we remain firmly focused on satisfying customer needs and delivering the outputs specified in the last Price Review.

At the start of the financial year the company faced the prospect of drought restrictions. The country had seen two very dry winters and by April a third of the country was under hosepipe bans. We were able to avoid any restrictions through the success of our leakage reduction work and tight management of our water sources. This resulted in the lowest water put into supply since 1976. Further, the unusually high rainfall from April through to September has filled our reservoirs and removed the risk of the need for restrictions later this year.

Capital programme

The company is now halfway through its 2010-15 capital programme for AMP5. Good progress is being made and we are on track to deliver all of the required outputs in the regulatory period.

Last year saw the company deliver the largest annual investment of £60.4m on capital expenditure in its history. The current year is expected to continue this trend and the investment on capital expenditure to the end of September was over £42.0m.

The company has engaged in an extensive customer and stakeholder communications campaign to accompany the wide range of projects currently in progress or planned. The purpose is to help explain the nature of the work, the impact and the benefits, with the intention of keeping customers informed and aiming to answer their questions in advance. A key message to customers is whatever the short-term disruptions might be, the benefits of the essential work will be long-term.

Key projects during the period have been:

·; the £15m 10.5km pipeline being laid through the heart of the city of Bristol. The project, called the Bristol Resilience Scheme, will bring security of supply to over 150,000 consumers who currently rely on a single source for their supply. This challenging project involves construction of a 700mm pipe in a very busy city environment from Lockleaze to Clifton. The project has progressed well and is on schedule to be complete by Spring 2013;

·; the £22m scheme to renovate 58km of the trunk mains network. This network of mains supplies large parts of Bristol and North Somerset and its renovation is expected to continue throughout the current regulatory period;

·; the scheme to replace sections of the distribution mains network that are in poor condition with a target of 65km in the current financial year;

·; new large diameter strategic mains laying scheme to meet increasing demand in North Bristol and Weston-Super-Mare. The work is close to completion; and

·; the programme to enhance the treatment process at five treatment works by installation of ultra-violet disinfection equipment. The work is in progress with one now operational, two under construction and design work well advanced on the other two.

The work has also continued on the major scheme to develop a second raw water reservoir at Cheddar to meet the demand for additional water supplies in the future. This project is currently at the planning stage and the company has continued to consult with all stakeholders as the work progresses.

Business process efficiency initiative

The company-wide business improvement programme under the banner of 'simpler and better working' has progressed to time and budget and is now midway through delivery. This improvement programme has been financed by efficiencies identified within the business. Notable achievements have been the implementation of:

·; best in class procurement strategies;

·; more robust capital expenditure and project management processes; and

·; market-leading new IT systems for Human Resource & Payroll, Document Management, and Vehicle Tracking.

During the next 12 months the programme is expected to complete and the company will recognise further benefits of improved performance management, better customer interaction, more effective works management processes and more robust asset management.

Customer service

Bristol Water's focus on excellent customer service is continuing to deliver outstanding results. The full year results for Ofwat's SIM customer service measure for 2011/12 were published in July. It showed Bristol Water in second place nationally. SIM captures the customer experience, their interaction with the company and the reasons that prompted them to contact us. This new system means staff can impact on the score right across all parts of the company's work. The achieved score demonstrates the efforts by all our staff in providing a high level of customer service. The Consumer Council for Water, the water industry's consumer watchdog, also recently published its annual results for customer complaints showing that our complaints were down by 38%, which places us third in the industry. These results are particularly impressive against the backdrop of our extensive works on our network and the potential inconvenience they can cause which could lead to customer dissatisfaction. We believe these results demonstrate that we are getting it right, but our goal must be to make sure that we do not take this for granted, and we continue to make improvements and strive to stay at the top.

PR14 - customer consultation process

For the next Price Review (PR14) Ofwat wishes to increase customer involvement in the formulation of water companies' Business Plans. We have created a Local Engagement Forum involving representatives of key stakeholders including the Consumer Council for Water, Drinking Water Inspectorate, Local Councils, Nature and Environmental Organisations and Customer Representatives.

Following the guidelines from Ofwat, Bristol Water has identified a set of customer supported outcomes through our Strategic Direction Statement customer consultation process which will be tested through the Local Engagement Forum. Extensive customer research is being carried out, the results of which will contribute to the Business Plan to be submitted to Ofwat in March 2014.

Work with the Local Engagement Forum is continuing. The forum has been helping Bristol Water to specify and oversee its customer research for PR14 and in agreeing the outcomes for customers that our Business Plan will need to address. I welcome the contribution and challenge we have received from our stakeholders.

Draft Water Bill

The UK Government published the anticipated Draft Water Bill on 10 July 2012 for scrutiny and wider comment. The Draft Water Bill builds upon the themes in the Water White Paper "Water for Life" published in December 2011, namely addressing water resources and environmental concerns, introducing market reform and competition, and making changes to the current regulatory framework. 

We welcome the high level aims of the Government's reform and look forward to working with DEFRA (Department of Environment, Food and Rural Affairs) and other stakeholders to help implement them in the most appropriate way.

Water licence modification

In October 2012 Ofwat launched a revised consultation on its proposals to modify the licences and requested agreement to a set of licence modifications in relation to price controls. The Board has carefully considered the detail of what was proposed and has decided to decline the new licence wording proposed as not being in the interests of the company or its customers. 

There has been a stable underlying performance. Turnover increased by £3.0m mainly due to the RPI increase and K factor for the current year. Operating profit increased by £1.7m primarily driven by the increase in turnover offset by an increase of £1.0m in the depreciation charge on infrastructure assets.

The profit before and after tax results were also affected by a decrease of £1.4m in the indexation of index-linked debt.

The overall tax charge represents 16% of the profit before taxation and it is the combination of:

·; tax payable based on the current year's computations,

·; the net present value of deferred tax arising during the period and

·; the effect of the reduction in the tax rate on the total deferred tax liability generated in prior periods.

Like all regulated water companies in the UK, Bristol Water owns and finances its capital programme. The significant level of investment delivered for our customers allows the company to defer tax payable to future periods in accordance with standard applicable tax reliefs.

The ratio of net debt to March 2013 expected RCV is 56%, which is lower than previously projected due to lower cumulative capital investment for the current regulatory period. This results from delay in some capital schemes following the referral to the Competition Commission at the beginning of the current regulatory period.

On 17 August, the company arranged two new bank facilities of £50m and £20m each. The loans have not yet been drawn down. The £50m facility will expire in August 2017, and the £20m facility will expire in August 2015. Collectively these facilities complete the external funding requirements of the ongoing 2010-15 capital programme, provide refinancing for a £15m loan repaid earlier in the year, and provide cover for a £30m loan facility due to expire in May 2013.

Dividends

During the period £6.3m of dividends were paid, comprising £4.8m 'final' dividend in respect of the year ended 31 March 2012, and a first interim dividend of £1.5m representing the return of post-tax interest receivable on loans to a UK parent company.

The Board has proposed a second interim dividend of £4.5m in respect of the year ending 31 March 2013.

Prospects

In the Directors' Report within the company's Annual Report and Accounts 2012 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 material effects:

·; an increase in the bad debts charge;

·; an increase in chemical and power costs;

·; impact of RPI movements on our £159.9m indexed-linked debt; and

·; the impact of further substantial capital investment.

Board membership

As mentioned above, Moger Woolley, previously the Chairman of the Board of Directors, retired on 26 July 2012. I have taken over his responsibilities as Chairman and became a director of the company on 26 July 2012. 

Keith Ludeman

Chairman

26 November 2012

PROFIT AND LOSS ACCOUNT

For the six months ended 30 September 2012

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

The accompanying notes to the interim results form an integral part of this statement.

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

For the six months ended 30 September 2012

The accompanying notes to the interim results form an integral part of this statement.

BALANCE SHEET

30 September 2012

The accompanying notes to the interim results form an integral part of this statement.

CASH FLOW STATEMENT

For the six months ended 30 September 2012

The accompanying notes to the interim results form an integral part of this statement.

NOTES TO THE INTERIM RESULTS

For the six months ended 30 September 2012