Bristol Wtr.8t% Regulatory News (BWRA)

20 May 2005 07:00

Bristol Water PLC20 May 2005 20 May 2005 Not for release, publication or distribution in or into the United States,Canada, Australia or Japan. Bristol Water plc Recommended proposals by Bristol Water Group for a return of 148 pence per Ordinary Share and a 10 for 13 Consolidation of Bristol Water Group plc's Ordinary Shares Bristol Water plc notes the announcement released by Bristol Water Group plcrelating to the proposed return to its shareholders of 148 pence per OrdinaryShare (representing approximately £30 million) (the "Return") and a 10 for 13consolidation of its Ordinary Shares. Highlights • The Return is subject to Bristol Water Group plc shareholder and Court approval and the availability of finance• The Return will be financed, in part, by raising approximately £22 million of additional long term borrowings within Bristol Water plc through the Artesian Programmes. This will be loaned to Bristol Water Group on commercial terms. It is currently anticipated to draw these funds ahead of obtaining shareholder approval• Bristol Water plc will raise an additional £35 million of long term borrowings at the same time to finance the capital expenditure and debt maturity requirements for the current year and part of 2006/07 and to make additional pensions contributions• The new borrowings are expected to be index-linked• The deficit on Bristol Water plc's section of the Water Companies Pension Scheme amounts to approximately £12 million before tax as at 31 March 2005. It is the board's intention (subject to the Return being made) to make an additional one-off contribution of £7 million, and additional payments of £1 million in each of the four years beginning 1 April 2006 and £0.9 million for the year beginning 1 April 2010. The full text of the announcement made by Bristol Water Group plc is set outbelow: Bristol Water Group plc Recommended proposals for a return of 148 pence per Ordinary Share and 10 for 13 Consolidation Highlights • Return of approximately £30 million to shareholders (equivalent to 148 pence per Ordinary Share) expected to be paid by 15 July 2005• Financed from existing cash balances and the raising of additional borrowings within the regulated water business, increasing net indebtedness to regulatory capital value, on a pro forma basis, to approximately 75 per cent. of the 1 April 2005 value• Achieved through the issue of B Shares to maintain distributable reserves as far as possible• Subject to approval of shareholders and the Court and the availability of finance • Shareholders representing 32.58% of the issued share capital have irrevocably undertaken or given letters of intent to vote in favour of the proposals at the EGM• 10 for 13 Consolidation to seek to ensure comparability of share price• Dividends • Total anticipated dividend for year ended 31 March 2005 of approximately £5.3 million • Board anticipates recommending dividends for the year ending 31 March 2006 of approximately £5.8 million representing a further significant increase in the level of underlying dividends. • Board's intention to pursue a dividend policy that maintains this level in real terms for the period to March 2010 Commenting on the proposals, Moger Woolley, Chairman of Bristol Water Group plc,said: "Having completed Ofwat's Periodic Review process and increased the focus on theregulated water business, we concluded that shareholders interests were bestserved by increasing the capital efficiency of the Group." Introduction The Board of Bristol Water Group plc ("Bristol Water Group" or the "Company") ispleased to announce proposals to effect a return to its shareholders of 148pence per Ordinary Share, being approximately £30 million. This follows a reviewby the Board of the capital requirements of the Group having accepted Ofwat'sprice limits for the period 1 April 2005 - 31 March 2010 for its regulated waterbusiness and actions taken by the Board to focus on its regulated waterbusiness. This will be achieved through the issue of B Shares paid up from the Company'smerger reserve, and then a cancellation and repayment of the B Shares. In orderto make the future share price more comparable with the historic share price andto try to maintain the value of options over Ordinary Shares, the Company isalso proposing a consolidation of its Ordinary Shares to become effectiveimmediately following the issue of the New B Shares. For every 13 OrdinaryShares held at the Consolidation Record Time, Shareholders will receive 10Consolidated Ordinary Shares. The Proposals are subject to the approval of Shareholders and the Court and theavailability of additional finance. A circular setting out the details of theProposals, together with the notice of an Extraordinary General Meeting at whichShareholder approval will be sought, is expected to be sent to Shareholderslater today. The proceeds are expected to be posted to shareholders by 15 July 2005following, inter alia, obtaining Shareholder approval at the EGM expected to beheld at 11.00 a.m. on 16 June 2005 and Court approval at a hearing expected tobe held on 6 July 2005. The Board considers the Proposals to be in the best interests of Shareholders asa whole and unanimously recommends that Shareholders vote in favour of thespecial resolution to be proposed at the EGM. Background to and reasons for the Return In February 2004, the Group returned approximately £51 million of capital toShareholders by increasing the level of indebtedness in the Group's regulatedwater business to increase the capital efficiency of the Group. This followedthe Board's earlier decision to focus on its regulated water business and reducethe risk profile and capital requirements of the Group. Ofwat has completed its determination of price limits for the five year period 1April 2005 to 31 March 2010 for the Group's regulated water business as part ofthe industry wide review. In December 2004, Ofwat set out its FinalDetermination which after careful consideration the board of Bristol Water plc,the Group's regulated water business, accepted. In February 2005, in line with the Board's strategy of concentrating on itsregulated water business, it announced the sale of Lawrence, the Group'scontracting business. The Group will receive additional consideration shouldLawrence win specific additional contracts that it was negotiating at the timeof sale. Certain liabilities have been retained by the Group. The Group has also agreed with its partners to end its involvement in WatergridLimited (a joint venture with British Waterways Board, AWG and Partnerships UK)which was created to utilise the canal network for water and waste waterservices. Accordingly, the Group's potential capital commitments to WatergridLimited will be terminated. The Group has also disposed of its overseas leakagereduction business which comprised the majority of the activities of BristolWater Services Limited and its subsidiaries. Accordingly, the Group will in theforeseeable future undertake no material activities apart from its regulatedwater business. In light of the finalisation of the price limits and related output assumptionsfor the regulated water business for the period 1 April 2005 to 31 March 2010and the disposal of Lawrence and the other non-regulated businesses, the Boardcarried out a review of the Group's capital requirements. The review concludedthat Shareholders' interests are best served by increasing the level of gearingin its regulated water business, increasing its inter-company loan to BristolWater Group and reducing the level of cash held elsewhere in the Group. Thiswill increase the capital efficiency of the Group and allow a further return toShareholders. Financing and financial effects of the Return It is the Board's intention to finance the Return by raising approximately £22million of additional borrowings within the regulated water business through theArtesian Programmes and from existing cash balances within the non-regulatedentities of the Group of approximately £8 million. Approximately £35 million ofadditional borrowings will be raised through the Artesian Programmes at the sametime to finance the capital expenditure and debt maturity requirements of theGroup's regulated water business for the current year and part of 2006/07 and tomake a £7 million contribution to reduce the deficit in Bristol Water plc'sfinal salary pension scheme. Whilst the capital expenditure for at least thenext 12 months could be financed from existing facilities, the Board is takingthe opportunity to obtain longer term borrowing. The Artesian Programmes wereused to help finance the return of capital in 2004. It is the Board's currentintention that the additional borrowings will be index-linked. The Board has held detailed discussions with the Royal Bank of Scotland, thearranger of the Group's participation in the Artesian Programmes, and the keydocumentation has been discussed and agreed. The Board has yet to sign finaldocumentation and draw the finance, hence the Return remains subject to theapproximately £57 million of additional finance being available prior to thecancellation of the New B Shares. The Board currently intends to draw the fundsahead of obtaining approval of the Shareholders. Should approval for the Return not be obtained, the surplus funds will be usedto finance the regulated water business's longer term capital expenditure, debtmaturity and working capital requirements. On a pro forma basis including the contribution to its final salary pensionscheme, the Return will increase the net indebtedness in Bristol Water plc fromapproximately £140 million at 1 April 2005 to approximately £169 million,representing approximately 62 per cent. and 75 per cent. respectively of BristolWater plc's Regulatory Capital Value (''RCV'') at 1 April 2005, and will alsoreduce the pro forma level of cash balances held elsewhere in the Group byapproximately £9 million to approximately £5 million. Pension arrangements for the majority of the Group's employees are providedthrough the Group's membership of the Water Companies Pension Scheme (''WCPS'')which provides defined benefits based on final pensionable pay. The Group hasseparate sections within WCPS for Bristol Water plc and for the retainedliabilities related to its previous non-regulated activities. As at 31 March2005, the deficits in the two sections in WCPS were approximately £11.9 millionand £0.9 million respectively calculated on an FRS 17 basis. In considering the Return, the Directors have taken into account the Group'sobligations in respect of both its sections of WCPS. Accordingly, Bristol Water plc intends to make a one-off contribution to WCPS of£7.0 million. It also intends to make additional contributions of £1.0 millionin each of the four years beginning 1 April 2006 and £0.9 million for the yearbeginning 1 April 2010. Bristol Water Group has also agreed to make a one-offcontribution of £0.3 million to the non-regulated section in addition to itsexisting commitment for annual contributions of £0.2 million. These amounts arein addition to the normal pension contributions required by WCPS's trustee tothe two sections. These respective additional annual contributions will not needto be made once the scheme actuary has advised that the deficit has beeneliminated for the relevant section. The additional contributions to the Bristol Water plc section and the £0.3million contribution to the non-regulated section are conditional on the Returnbeing made. Whilst Bristol Water plc will need to raise additional debt over the currentregulatory period to fund its capital expenditure obligations, debt maturity andworking capital requirements, the board of Bristol Water plc believes that itwill be able to maintain a debt to RCV ratio in the range 75 to 80 per cent.over the current regulatory period. The cash balances retained by the Group willassist the Group in managing its working capital requirements and anyoutstanding obligations from its previous non-regulated activities. Summary of the Proposals The ReturnBristol Water Group intends to return 148 pence per Ordinary Share (approximately£30 million in aggregate) to Shareholders through the issue and subsequentcancellation and repayment of New B Shares. Subject to Shareholder approvaland the additional financing being in place, the New B Shares will beissued on the basis of one New B Share for each Ordinary Share held at the New BShare Issue Record Time, which is expected to be 5.00 p.m. on 5 July 2005. TheNew B Shares, which will be paid up out of the Company's merger reserve, will beissued in certificated form only. Subject to the approval of Shareholders andthe Court, and to the additional financing being in place, the New B Shares willbe cancelled in return for a cash payment by 15 July 2005 of 148 pence per New BShare. Further details of the additional financing are set out above. The creation, issue and cancellation of the New B Shares require the passing ofa special resolution, which will also make appropriate changes to the BristolWater Group Articles. The ConsolidationUnder the Consolidation, Shareholders will be entitled to 10 ConsolidatedOrdinary Shares for every 13 Ordinary Shares held at the Consolidation RecordTime, which is expected to be 6.00 p.m. on 5 July 2005. Dealings in ConsolidatedOrdinary Shares are expected to commence at 8.00 a.m. on 6 July 2005. The Consolidation ratio has been determined by reference to a price of 657.5pence per Ordinary Share, being the closing mid-market price on 18 May 2005 (thelast practicable date prior to this announcement). Upon implementation of theConsolidation the nominal value of each Consolidated Ordinary Share will be 6.5pence. The effect of the Consolidation will be to reduce the number of Ordinary Sharesin issue by approximately 23 per cent. to reflect the fact that this proportionof the Company's market capitalisation is being returned to Shareholders. TheConsolidated Ordinary Shares will have the same rights attaching to them as theOrdinary Shares in all material respects. Holders of Ordinary Shares whose holdings are registered in CREST willautomatically have their new Consolidated Ordinary Shares credited to theirCREST account. It is expected that definitive share certificates in respect of the ConsolidatedOrdinary Shares will be despatched by first class post by 15 July 2005 toShareholders who hold their Ordinary Shares in certificated form. Following theConsolidation, certificates in respect of the Ordinary Shares will no longer beof value and such certificates should be destroyed on receipt of certificatesfor Consolidated Ordinary Shares. TaxationA guide to the general tax position of Shareholders who are resident or, ifindividuals, ordinarily resident in the UK is set out in the Shareholdercircular. Shareholders' attention is drawn in particular to the fact that, in generalterms and subject as mentioned in the Shareholder circular, the amount paid byBristol Water Group on the Return comprises for tax purposes both a capitalelement (which is expected to be treated as the proceeds of a disposal for thepurposes of UK taxation of chargeable gains) and an income element (which isexpected to be treated in the same way as a dividend for UK tax purposes). Thecapital element will amount to 119 pence per New B Share and the income elementto 29 pence per New B Share. Shareholders will be notified of the total amount of the Capital Element and theIncome Element attributable to their New B Shares in the documentation theyreceive accompanying the cheque to be despatched to them in respect of theReturn. Bristol Water Savings Related Share Option Schemes As a result of the Consolidation, the value of options over Ordinary Shares inthe Bristol Water Savings Related Share Option Schemes should remainapproximately unchanged. Optionholders will retain the same number of options asthey currently hold following the Consolidation. However, the proportion of theCompany's issued share capital under option will be increased through theConsolidation. Current trading and prospects The Board of Bristol Water plc has instigated a restructuring programme toimprove its operating efficiency and anticipates making a charge ofapproximately £2 million in respect of the costs of the restructuring programmewithin its accounts for the year ended 31 March 2005. The Group will be reporting its results for the year ended 31 March 2005 on 26May 2005 and anticipates reporting consolidated net debt of approximately £126million. Following the disposal of all material non-regulated businesses and the focus onthe regulated water business, the Group's future performance will be closelylinked to that of its regulated water business. Ofwat's Final Determination has now set price limits and related service outputassumptions for the regulated water business for the five years to 31 March2010. The K factors, approximately equivalent to average annual real priceincreases or decreases, set for Bristol Water plc for the five years are +13.8per cent., +2.8 per cent., +1.5 per cent., +0.7 per cent. and -2.3 per cent.Although Ofwat set challenging efficiency targets, the board of Bristol Waterplc believes that it will be able to deliver the relevant service outputs withinthe targets set. As a result, the Board is confident in the prospects for theGroup. Dividend policy As previously announced, for the financial year ended 31 March 2005, the Boardcurrently anticipates proposing, as with the interim dividend already paid, afinal dividend equivalent to that for the preceding year. This will result inthe total for the interim and final ordinary share dividends for each of the twofinancial years being approximately £5.3 million. Given the return of valuecompleted in February 2004, this represents a significant increase in the levelof underlying dividends. Assuming the Proposals are approved by Shareholders,the final dividend will be proposed and paid on a per Consolidated OrdinaryShare basis. Accordingly, the final dividend is expected to be 24.43 pence perConsolidated Ordinary Share, equivalent to 18.79 pence per existing OrdinaryShare. The following table summarises actual and proposed dividends per share and theirequivalents in relation to the February 2004 consolidation and the proposed Consolidation: Relating to ordinary shares held Prior to the 2004 After the 2004 After the proposedFinancial year 53 for 100 53 for 100 10 for 13ended consolidation consolidation consolidation 31 March 2004 Interim dividend paid 4.16p ---------- Equivalent per share after the February 2004 consolidation to 7.85p Final dividend proposed and paid 18.79p --------- Total 26.64p ========= 31 March 2005 Interim dividend paid 7.85p Equivalent per share after the proposed Consolidation to 10.20p Final dividend per Consolidated Ordinary Share expected to be proposed at the 2005 Annual General Meeting 24.43p Equivalent per Ordinary Share prior to the proposed Consolidation to 18.79p --------- -------- Total 26.64p 34.63p ========= ======== The Board anticipates recommending dividends for the year ended 31 March 2006 ofapproximately £5.8 million. Whilst actual dividends declared or recommended willdepend, inter alia, on the trading performance of the Group, pension charges,the cost of debt and the effect of the implementation of International FinancialReporting Standards, it remains the Board's intention to pursue a dividendpolicy that maintains such value in real terms for the period to March 2010.This represents a significant underlying increase in the dividend per sharegiven the reduction in the equity base of the Company when the Proposals areimplemented. Board changes Following the decision to focus on its regulated water business, the Board isseeking ways to simplify the membership of the boards within the Group and hasagreed with Ofwat a method of doing so while satisfying Ofwat's existingrequirement for independent non-executive directors on the Bristol Water plcboard. Ofwat has agreed that any independent non-executive director of BristolWater Group may, if appointed to the board of Bristol Water plc, be regarded asindependent for Ofwat's purposes. In planning for the expected retirement of Roger Wyatt in March 2006, reflectingthe focused nature of the Group going forward, the Board currently expects hisduties to be shared between the other executive directors rather than seeking areplacement. Moger Woolley has been asked by his fellow directors to seek re-election at theforthcoming annual general meeting of the Company and continue as Chairman for afurther year, which he has agreed to do. Sir Richard Gaskell has decided toretire and not seek re-election having served as a non-executive for 15 years.Subject to his re-election at at the forthcoming Annual General Meeting TrevorSmallwood will become Deputy Chairman and Senior Independent Director. Shareholders' undertakings and statements of intention Ecofin Water & Power Opportunities plc has given a written undertaking to voteor to procure a vote in favour of the special resolution to be proposed at theEGM in respect of 4,575,332 Ordinary Shares representing 22.90 per cent. of thetotal issued share capital of Bristol Water Group." Enquiries Bristol Water plc Tel: 0117 953 6407Alan Parsons, ChairmanAndy Nield, Finance Director Dresdner Kleinwort Wasserstein Tel: 020 7623 8000Christian Littlewood, Director cityProfile Tel: 020 7448 3244Oliver Winters Dresdner Kleinwort Wasserstein Limited, which is authorised and regulated by theFinancial Services Authority, is acting for Bristol Water Group plc and no oneelse in connection with the Proposals and is not acting for any person otherthan Bristol Water Group plc and will not be responsible to any person otherthan Bristol Water Group plc for providing the protections afforded to itscustomers or for providing advice in connection with the Proposals and the othermatters described herein. Definitions The following definitions shall apply to words and phrases used in thisannouncement except where the context requires otherwise. ''Artesian Programmes'' the Artesian Finance plc monoline wrapped index-linked bond programme and/or the Artesian Finance II plc monoline wrapped fixed-rate bond programme;''Board'' or ''Directors'' the directors of Bristol Water Group, whose names are set out on page 4 of this document;''Bristol Water plc'' Bristol Water plc, incorporated and registered in England and Wales under the Companies Act with registered number 2662226;''Bristol Water Group'' or the ''Company'' Bristol Water Group plc, incorporated and registered in England and Wales under the Companies Act with registered number 4789566;''Bristol Water Group Articles'' the current articles of association of Bristol Water Group;''Bristol Water Holdings'' Bristol Water Holdings plc, incorporated and registered in England and Wales under the Companies Act with registered number 2630760;'Bristol Water Savings Related Share Option Schemes'' the Bristol Water Group 2003 Savings Related Share Option Scheme and the BristolWater Holdings 2001 Savings Related Share Option Scheme;''Companies Act'' the Companies Act 1985, as amended;''Consolidated Ordinary Share(') the ordinary share(s) of 6.5 pence each in the capital of Bristol Water Group, arising as a result of the Consolidation, and following the Return to be referred to as ordinary shares;''Consolidation'' the proposed sub-division and consolidation of share capital, as more fully described in Part 2 of this document;''Consolidation Record Time'' expected to be 6.00 p.m. on 5 July 2005, being the day immediately preceding the day on which it is expected that the Court will hear the petition to confirm the Return (or such later date as the Directors may determine);''Court'' the High Court of Justice in England and Wales;''Court Hearing'' the hearing of the petition to sanction the Return expected to be on 6 July 2005;''CREST'' the system for the paperless settlement of trades in securities and the holding of uncertificated securities operated by CRESTCo Limited in accordance with the Uncertificated Securities Regulations 2001;''Dresdner Kleinwort Wasserstein'' Dresdner Kleinwort Wasserstein Limited;''EGM'' the extraordinary general meeting of Bristol Water Group, notice of which is set out in Part 6 of this document, and any adjournment of that meeting;''Final Determination'' Bristol Water plc's price limits for the period 1 April 2005 to 31 March 2010 set by Ofwat in December 2004;''Group'' Bristol Water Group and its subsidiary undertakings;''Lawrence'' Walter Lawrence (Civil & Mechanical) Limited;''New B Share Issue'' the proposed issue of New B Shares to Shareholders on the register of members at the New B Share Issue Record Time, as more fully described in this document;''New B Share Issue Record Time'' expected to be 5.00 p.m. on 5 July 2005, the day immediately preceding the day on which it is expected that the Court will hear the petition to confirm the Return (or such other time and date as the Directors may determine);''New B Shares'' the B Shares of nominal value of 119 pence each in the capital of Bristol Water Group carrying the rights and restrictions set out in Part 6 of this document including the right to 148 pence each on cancellation;''Ofwat'' the Office of Water Services, a department of the UK Government headed by the Director General of Water Services whose functions include, inter alia, the making of the Final Determination and whose office is to be replaced under the Water Act 2003 by the Water Services Regulation Authority;''Ordinary Share(s)'' the ordinary share(s) of 5 pence each in the capital of Bristol Water Group;''Proposals'' the New B Share Issue, the Return and the Consolidation;''RCV'' Bristol Water plc's Regulatory Capital Value as published by Ofwat adjusted as appropriate for inflation effects;''Return'' the proposed repayment of share capital by the cancellation and repayment of New B Shares as more fully described in this document;''Shareholder(s)'' holder(s) of Ordinary Shares and, where the context so requires, holder(s) of New B Shares;''UK'' or ''United Kingdom'' the United Kingdom of Great Britain and Northern Ireland;''uncertificated'' or ''in uncertificated form'' when used in relation to shares, recorded on the relevant register ''in uncertificated form'' as being held in uncertificated form in CREST and title to which, by virtue of the Uncertificated Securities Regulations 2001, may be transferred by means of CREST; and''WCPS'' the Water Companies Pension Scheme. 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