RNS Number:6134L
Bristol Water PLC
29 May 2003
BRISTOL WATER plc
PRELIMINARY RESULTS FOR YEAR ENDING 31 MARCH 2003
Bristol Water plc is a subsidiary of Bristol Water Holdings plc which is also
reporting its results today
(To print you may have to set your printer to landscape)
STRONG FINANCIAL AND OPERATIONAL PERFORMANCE
Year ended 31 March 2003 2002 % change
#m #m
Turnover 70.0 68.0 3
Operating profit 19.4 17.7 9
Profit before tax 14.6 13.9 5
Profit after tax 8.5 10.3 (18)
Earnings per ordinary share 123.0p 153.2p (20)
Dividend per ordinary share 263.2p 91.9p 186
* Profit before tax increased by 5% to #14.6m
* EPS down by 20% reflecting high deferred tax charge
* Refinancing completed in May 2003 providing future flexibility
* Joint billing arrangement with Wessex Water progressing well
* Excellent service standards maintained
* Net capital expenditure #20m
Alan Parsons Lulu Bridges
Andy Nield Tavistock Communications Limited
Bristol Water plc Tel: 0171 600 2288
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
The company has delivered another strong performance and has achieved excellent
financial results.
In last year's Annual Report we signalled that the progressive build up of the
regulated business's capital programme, with its consequent additional
financing, depreciation and operating costs, together with the relatively low
level of increase in charges under the RPI+K price limits of 1.9%, would have a
significant impact on profits. Given this background, the result achieved of a
profit before tax of #14.6m compared to #13.9m in the previous year represents
an excellent outcome. This is due to a combination of factors including a real
terms reduction in operating costs and the effects of a lower than expected
level of capital expenditure.
During the year, we commenced a #12m project for a major upgrade of Barrow, our
second largest water treatment plant, with completion planned for Spring 2004.
We continued to deliver high levels of service to customers. This is reflected
by our position in the latest Ofwat report on service levels for 2001/02, which
ranked us third of all water companies in England and Wales.
We have developed a new financing package for the business. This was completed
shortly after the year end. Prior to completion, the company had a relatively
short debt maturity profile. The new structure will provide a better mix of
financing and a considerably longer maturity profile, more appropriate to the
long-term nature of its asset base. The new facilities offer flexibility for
the future including the ability to substantially increase the financial gearing
of the company. However, it is not the Board's current intention to do so.
The key issue for the water sector is the Periodic Review process through which
Ofwat will set price limits for the 5 years 2005-10. It is much too early to
forecast the outcome, but we are encouraged that the approach that Ofwat are
taking in the early stages of the process is intended to lead to an appropriate
balance between the interests of customers and shareholders.
Dividends
Two interim ordinary dividends were declared for the year totalling 194.44p per
share. We have now proposed a 5.0% increase in the final ordinary dividend.
This brings the total ordinary dividend for the year to 263.21p, a 186% increase
from 2002. The interim dividend includes a special dividend of #10m and
reflects the Board's view that a modest increase in gearing levels was
appropriate.
Corporate changes
We are proposing to make some changes to the share capital structure of the
company and adopt modernised Articles of Association.
We currently have a small number of non-voting ordinary shares. We propose to
convert these to voting shares, thus removing an historical anomaly.
The company currently has 5,770,250 authorised but unissued 6.75% Cumulative
Convertible Redeemable Preference shares. The Board proposes to cancel these.
Full details of the proposed changes, which require approval at an extraordinary
class meeting of the non-voting shareholders, in respect of the proposed
conversion to voting status and as special business at the Annual General
Meeting of the company will be set out in the formal notices for those meetings.
Outlook and summary
The continued progressive build up of the capital programme, with its consequent
additional financing, depreciation and operating cost implications, together
with the relatively low level of increase in charges under the RPI+K price
limits to customers for 2003/04 of 2.7%, including a K factor of 0%, and a
negative K factor of 1.9% in 2004/05, will constrain profits over the next two
years.
The company has continued to deliver high quality services to customers while
making further operational efficiency gains and putting in place key initiatives
that will form the basis of future success. The refinancing of the business
creates a firm and flexible financing structure for the future.
My thanks go to all our employees who have contributed to the success of the
company.
Alan Parsons
Chairman
29 May 2003
BUSINESS REVIEW
During the year, we have continued to consolidate the considerable operating
cost reductions made in recent years.
A major focus has been the continued development of the joint venture with
Wessex Water to enable the two companies to issue combined bills to customers.
The first joint bills for unmeasured customers were issued at the beginning of
the year with the first metered bills being issued in November. With the
billing system now fully operational, this will allow us to progressively
realise the planned efficiency gains from the new arrangement together with the
provision of a simplified and improved service to customers. High levels of
service to customers have been maintained throughout this complex process.
During the year, we achieved certification to the new ISO 9001:2000 quality
standard, upgrading from our previous ISO 9001-1994 assessment. The scope of
our quality management system covers all aspects of the production and
distribution of water, technical design and the procurement of related products
and services.
We have initiated a major review of the processes and cost structure in the
business. Our objective is to identify the potential scope for further
efficiency gains. The exercise will take a further few months to complete.
Throughout the process we are evaluating carefully the trade-offs between cost
reductions and the associated risks.
We were pleased by our ranking in the latest Ofwat report on service levels by
water companies in 2001/02. We were ranked third of all water companies in
England and Wales and have been the most consistently highly rated company over
the past few years. This recognises our commitment to the delivery of high
levels of service to customers.
Our capital programme for the five years to 2005, as set out in the Final
Determination amounts to #125m at May 1999 prices. In accordance with the
Drinking Water Inspectorate's protocol we have not yet commenced the lead pipe
replacement programme that was incorporated in Ofwat's price determination,
pending the results of orthophosphate dosing trials currently in progress.
These are currently demonstrating substantial compliance with the lead standard
that comes into force in 2013 and it is increasingly likely that the actual
spend on lead pipe replacements during the five year period will be at a
relatively low level.
Capital investment, including infrastructure renewals, net of grants and
contributions, for the year totalled #20.0m. Key projects included the
completion of our 30 month #12m mains renovation programme, which has involved
the renovation of some 250km of mains throughout our area. We also completed
the installation of a barrier to remove cryptosporidium oocysts at the Chelvey
water treatment works, bringing the total of treatment works with such barriers
to eight.
We have recently commenced a #12m project for a major upgrade of our Barrow
treatment plant, with completion planned for spring 2004. Expenditure on the
project at some #1.7m during the year was lower than originally expected
reflecting a revised project plan and delays in obtaining relevant planning
approvals. This is a complex project and is progressing well.
Ofwat has set out details of the planned Periodic Review process that will set
price limits for the 5 years from 2005 to 2010. Ofwat's process will take
almost two years to complete and the outcome will be extremely important to the
business. The first major milestone is the submission of our draft business
plan to Ofwat during August 2003.
The refinancing arrangements explained in the Chairman's statement effectively
apply a financial ringfencing to the regulated water business and provide
flexibility to increase its debt levels significantly in the future. We have no
current plans to substantially increase gearing levels, but believe that in
arranging long term financing it was appropriate to create this type of
flexibility.
As noted in the Chairman's statement, profits for the next two years will be
influenced by a range of additional costs, in particular the financing,
depreciation and operating cost implications of the continuing capital
programme. As outlined above, we will continue to seek further operational
efficiency gains whilst ensuring that we do not compromise our high standards of
service.
OPERATING AND FINANCIAL REVIEW
FINANCIAL HIGHLIGHTS
2003 2002
#m #m
Turnover 70.0 68.0
Profit before tax 14.6 13.9
Taxation
Current tax (2.3) (2.3)
Deferred tax (3.8) (1.3)
Total (6.1) (3.6)
Profit after tax 8.5 10.3
Results Overview
In November 1999, Ofwat issued the Periodic Review Final Determination. This
set maximum price limits for charges to customers for the five years 2000-05.
The limits, known as K factors, plus movements in the RPI index, determine the
allowed increase or decrease in overall charges each year. For 2002/03, the K
factor was 1%, which together with an RPI movement of 0.9% meant an average
increase in charges to customers of some 1.9%.
Overall turnover increased by some #2.0m, mainly due to the RPI+K increase.
Operating costs before depreciation were #36.6m, slightly above #36.5m recorded
in 2002 and represent, after taking the effect of inflation into account, a
reduction in real terms.
Net depreciation increased slightly by #0.3m to #14.0m reflecting the
commissioning of new assets offset by the non-recurrence of an accelerated
depreciation charge of #0.4m for other assets in the previous year.
Overall profit before tax of #14.6m represents a #0.7m improvement from 2002.
The results include a total tax charge of some 42% (2002 - 26%). This includes
a deferred tax charge of #3.8m (2002 - #1.3m) in addition to the underlying
current tax charge of #2.3m. The deferred tax element is unusually high because
of a reduction in the discount rates used to calculate our overall deferred tax
liability. As required by FRS19, the discount rates applied are based on
government gilts for relevant periods. The change in rates essentially reverses
a corresponding gain made in the second half of 2001/02 when discount rates
increased.
Profit after tax was #8.5m, a decrease of #1.8m from 2002.
In the statutory accounts the appropriate transitional disclosures required
under FRS17, the new accounting standard on pensions, are made. Note 11 to this
statement shows that the company's section within the Water Companies' Pension
Scheme would be represented on the balance sheet as a deficit net of tax of
#13.0m, this compares to an asset net of tax of #10.0m in 2002 under FRS17. The
change reflects the negative and increasingly volatile movements of the equity
markets.
An actuarial review of the pension section as at 1 April 2002 has recently been
completed and shows a surplus on an actuarial basis of #6.3m. The section is
currently invested primarily in equities. In consultation with both the
trustees and the actuary we have carefully examined the investment strategy and
concluded that the appropriate long-term strategy is to reduce the proportion of
equities with a corresponding increase in investments in bonds and other fixed
income securities. Given the current equity market position, we have delayed
the implementation of this change until we see some further recovery in equity
market values.
We have agreed a significant increase in cash contributions to the pension funds
effective from 1 April 2003. The total cash contributions will be broadly in
line with the SSAP24 charge of #1.3m reflected in these accounts for 2003.
Net capital investment in the year after grants and contributions from
developers was #20.0m, compared to #23.5m in 2002.
The Board proposes a total ordinary dividend for the year of 263.21p, a 186%
increase from 2002. As a result, a final ordinary dividend of 68.77p is being
recommended.
Treasury
Net cash inflow from operating activities was #29.7m (2002 - #28.9m), net cash
outflows from investments and servicing of finance totalled #6.7m (2002 - #5.7m)
and net capital expenditure amounted to #16.1m (2002 - #22.8m). Total cash
outflows before management of liquid resources and financing were #1.7m (2002 -
#6.7m).
Net borrowings increased from #71.5m to #74.8m during the year, and at 31 March
2003 represented approximately 41% of Regulatory Capital Value.
At the year end, net gearing (net debt/equity) was 114% compared to 97% in 2002.
Net debt and gearing levels are expected to increase during 2003-04 as the
level of capital investment increases.
A major post balance sheet event is the finalisation of a new financing
structure. Prior to the refinancing the company had a relatively short debt
maturity profile and the new structure provides a better mix and considerably
longer maturity profile appropriate to the long term nature of the assets being
financed. The new facilities provide for repayment of #20m of existing bank
debt and to finance the ongoing capital expenditure programme. #15m of
index-linked debt was drawn through the existing Artesian Finance plc monoline
wrapped bond programme arranged by the Royal Bank of Scotland, previously used
by three other water companies. An equivalent #30m financing was also drawn on
a fixed interest basis through a new bond programme issued by Artesian Finance
II plc. The facilities extend to 2032 and 2033 respectively.
The new financing is based on a ringfenced structure and some existing lenders
have entered into an intercreditor arrangement to share the ringfencing security
package. It is expected that all new senior debt will also become part of the
intercreditor arrangement.
The intercreditor structure is governed by two key financial ratio covenants:
debt to regulated asset value and a cash interest cover ratio. The structure
would enable a substantial increase in gearing of the ringfenced business should
it be concluded that this is appropriate, in which case it is expected that
Ofwat would seek changes, in line with those recently adopted by more highly
geared water companies, to the company's licence of appointment as a water
undertaker.
The company uses interest rate derivatives to manage exposures to fluctuations
in interest rates. Positions on hedges are deferred and matched to appropriate
underlying transactions. As part of the refinancing arrangement the company has
redesignated a #20m interest rate swap which swaps variable rate LIBOR to fixed
rate. This was previously matched to the #20m bank loan repaid in May 2003. The
redesignation matches it to a #10m variable rate bank loan and to #10m of
variable rate leases.
Net interest charges in the year totalled #5.2m (2002 - #4.6m) and were covered
3.7 times (2002 - 3.9 times).
The net interest charge is expected to increase during 2003/04. This reflects
the additional net debt resulting from planned capital expenditure together with
an increase in the effective average interest rate following the refinancing.
The average interest rate is expected to increase as the Artesian borrowing is
subject to long term interest rate margins and the investment returns on
temporary cash surpluses will be lower than borrowing costs. We maintain
temporary cash surpluses to provide pre-funding for future capital expenditure
and working capital requirements and to provide financial flexibility.
Strategy/Objectives
The company's strategy is set out in its vision statement whereby Bristol Water
seeks to be "a water company, balancing all stakeholders' interests, delivering
world class performance at best value, both now and in the future."
Monitoring the business
A number of systems are used to monitor the financial and operational
performance of the business including
* Monthly management accounts and budgetary control
* Monthly key performance indicators
* Ad hoc internal audits of business processes
* A detailed Quality Assurance system
Outlook
The continued progressive build up of the capital programme, with its consequent
additional financing, depreciation and operating cost implications, together
with the relatively low level of increase in charges under the RPI+K price
limits to customers for 2003/04 of 2.7%, including a K factor of 0%, and a
negative K factor of 1.9% in 2004/05, will constrain profits over the next two
years.
PROFIT AND LOSS ACCOUNT
for the year ended 31 March 2003
2003 2002
Note #000 #000
Turnover 69,974 68,013
Operating costs 2 (50,613) (50,272)
Operating profit 19,361 17,741
Profit on disposal of tangible fixed assets 386 760
Net interest payable and similar charges (5,184) (4,598)
Profit on ordinary activities before taxation 14,563 13,903
Taxation on profit on ordinary activities 3 (6,093) (3,622)
Profit on ordinary activities after taxation 8,470 10,281
Dividends - 4
On irredeemable preference shares (1,094) (1,094)
On ordinary shares (15,788) (5,512)
Total dividends (16,882) (6,606)
(Loss)/profit retained for the financial year (8,412) 3,675
Earnings per share 5 123.0p 153.2p
All of the turnover and operating costs relate to continuing operations.
BALANCE SHEET
at 31 March 2003
2003 2002
Note #000 #000
Tangible fixed assets 6 184,685 179,426
Current assets
Stocks 634 437
Debtors 16,765 12,311
Cash at bank and on deposit 9,661 14,676
27,060 27,424
Creditors: Amounts falling due within one year
Short term borrowings 7 6,760 3,355
Other creditors 34,056 23,092
40,816 26,447
Net current (liabilities)/assets (13,756) 977
Total assets less current liabilities 170,929 180,403
Creditors: Amounts falling due after more than one year 7 (77,724) (82,825)
Deferred income (8,429) (8,396)
Provisions for liabilities and charges 8 (19,242) (15,236)
Net assets 65,534 73,946
Capital and reserves
Called up share capital 18,498 18,498
Share premium account 4,415 4,415
Other reserves 5,770 5,770
Profit and loss account 36,851 45,263
Total shareholders' funds 9 65,534 73,946
Analysed as:
Equity shareholders' funds 53,034 61,446
Non-equity shareholders' funds 12,500 12,500
CASH FLOW STATEMENT
for the year ended 31 March 2003
2003 2002
Note #000 #000
Net cash inflow from operating activities 10(a) 29,743 28,869
Returns on investments and servicing of finance
Interest received 517 815
Interest paid (4,761) (4,150)
Interest paid on finance leases (1,354) (1,280)
Dividends paid on non-equity shares (1,094) (1,094)
(6,692) (5,709)
Taxation
Corporation tax paid (3,010) (1,995)
Capital expenditure
Purchase of tangible fixed assets (20,395) (26,237)
less contributions received 3,409 2,588
Proceeds on disposal of tangible fixed assets 887 888
(16,099) (22,761)
Dividends paid on equity shares (5,592) (5,151)
Cash outflow before management of
liquid resources and financing (1,650) (6,747)
Management of liquid resources
being decrease/(increase) in short term deposits 7,500 (5,200)
Financing
Cash inflow from refinancing assets under new finance leases - 8,159
New bank loans and overdrafts - 5,222
Capital element of lease repayments (1,580) (1,427)
Loan and bank overdraft repayments (1,785) -
(3,365) 11,954
Increase in cash 10(b) 2,485 7
Cash, beginning of year 676 669
Cash, end of year 3,161 676
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 2003. 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 2002 have been extracted from the accounts of Bristol
Water plc for the year ended 31 March 2002 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 19 June 2003. 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 registered office at Bridgwater Road, Bristol, on Monday 21 July 2003 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 business.
Operating costs comprise -
2003 2002
#000 #000
Net payroll cost 9,029 10,078
Total other operating costs 27,616 26,464
Net depreciation 13,968 13,730
Total operating costs 50,613 50,272
3. TAXATION ON PROFIT ON ORDINARY ACTIVITIES
2003 2002
#000 #000
Analysis of charge for the year all arising in the United Kingdom:
Current tax
Corporation tax at 30% (2002 - 30%) 2,535 4,202
Advance Corporation Tax written off/(back) 1,379 (473)
Adjustment to prior periods (1,643) (1,389)
2,271 2,340
Deferred tax
Current year movement 1,413 (176)
Adjustment to prior periods 1,204 2,851
Effect of discounting 1,205 (1,393)
3,822 1,282
Tax on profit on ordinary activities 6,093 3,622
The adjustment to prior periods mainly relates to the effects of an agreement with the Inland Revenue to
accelerate certain capital allowances. This has reduced the mainstream Corporation Tax charge, but
reduced the recovery of Advance Corporation Tax.
4. DIVIDENDS
2003 2002
#000 #000
On non-equity shares -
Irredeemable 8.75% preference shares -
Paid 547 547
Payable 1 April 547 547
1,094 1,094
On ordinary shares (equity shares) -
Interim dividend paid of 27.72p (2002 - 26.4p) 1,663 1,583
Second interim dividend 166.72p (2002 - Nil) paid post 31 March 2003 10,000 -
Proposed final dividend of 68.77p (2002 - 65.5p) 4,125 3,929
15,788 5,512
Total dividends paid and proposed 16,882 6,606
5. EARNINGS PER SHARE
2003 2002
000 000
Earnings per share have been calculated as follows -
On average number of ordinary shares in issue during the year -
Earnings attributable to ordinary shares #7,376 #9,187
Weighted average number of ordinary shares 5,998 5,998
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
2003 2002
#000 #000
Net book value, beginning of year 179,426 170,029
Additions 23,429 26,076
Disposals (501) (78)
Grants and contributions (3,409) (2,588)
Depreciation (14,260) (14,013)
Net book value, end of year 184,685 179,426
7. NET BORROWINGS
2003 2002
#000 #000
Cash and short term deposits 9,661 14,676
Debt due within one year (6,760) (3,355)
Debt due after one year (77,724) (82,825)
Net borrowings (74,823) (71,504)
PROVISIONS FOR LIABILITIES AND CHARGES
8. The total provisions for liabilities and charges are as follows:
2003 2002
#000 #000
Deferred taxation
Analysis of deferred taxation liability:
Accelerated capital allowances and capital element of finance leases 35,163 32,840
Deferred income (2,529) (2,519)
Short term timing differences (393) (698)
Unrelieved Advance Corporation Tax - (184)
32,241 29,439
Effect of discounting (12,999) (14,203)
Net provision 19,242 15,236
9. MOVEMENT IN SHAREHOLDERS' FUNDS
2003 2002
#000 #000
Beginning of year 73,946 70,271
Profit for year 8,470 10,281
Dividends (16,882) (6,606)
End of year 65,534 73,946
10. ADDITIONAL INFORMATION TO THE CASH FLOW STATEMENT
(a) Reconciliation of operating profit to net cash inflow from operating activities -
2003 2002
#000 #000
Operating profit 19,361 17,741
Depreciation, net 13,968 13,730
Cash flow from operations 33,329 31,471
Working capital movements -
Stocks (197) 106
Debtors (4,051) (1,667)
Creditors 662 (728)
Provisions - (313)
Net cash inflow from operating activities 29,743 28,869
(b) Reconciliation of net cash flow to movement in net borrowings -
2003 2002
#000 #000
Increase in net cash in year 2,485 7
Cash used to repay borrowings 3,365 1,427
Cash from new borrowings - (13,381)
Cash from (decrease)/increase in liquid resources (7,500) 5,200
Increase in net borrowings (1,650) (6,747)
New debt not affecting cash flow* (1,669) (1,731)
Net borrowings at beginning of year (71,504) (63,026)
Net borrowings at end of year (74,823) (71,504)
* Represents deferred payment terms for capital expenditure related to the joint billing arrangements
established with Wessex Water
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:
2003 2002
#000 #000
Market value of assets 73,600 97,232
Present value of liabilities (92,100) (82,882)
(Deficit) / Surplus (18,500) 14,350
Deferred taxation 5,500 (4,305)
Net pension (liability)/asset under FRS17 (13,000) 10,045
12. POST BALANCE SHEET EVENTS
During April 2003, all the ordinary issued shares of the company were transferred to Bristol Water Core Holdings
Limited, a wholly-owned subsidiary of the ultimate parent company, Bristol Water Holdings plc.
During May 2003, the company entered into a new financing structure. Details are set out in the Operating and
Financial Review.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR APMTTMMBTBRJ