RNS Number:4754O
Sutton & East Surrey Water PLC
21 December 2006

                        


                        Sutton and East Surrey Water plc
                                        
                          Interim Results Announcement

The Company today announces its Interim Results for the six months to 30 
September 2006.


Chairman's Statement

This last half year has been a challenging period for the Company. We have
encountered a severe drought and a very hot summer, yet have still managed to
supply high quality water to our customers for all essential purposes. The
period covered by these accounts includes the aftermath of a second dry winter,
with resources at their lowest recorded levels, resulting in the necessity of
obtaining a Drought Order in May. Through the combined efforts of our customers
and our staff, demand and resources were managed in such a manner that we were
able to meet all reasonable requirements. However, we inevitably incurred costs
that were materially greater than normal, and these have adversely affected the
operating profitability of the Company.

Water resources and leakage

As we emphasised in our last report, our ability to meet customers' demands
depends upon the level of rainfall, particularly in the winter months, which
replenishes the aquifers and reservoirs for use in the summer. The recent winter
rainfall pattern has been the worst since the 1930's, significantly below the
long-term average, and, as a result, we have experienced one of the severest
droughts in the Company's history. Our resources will generally be able to cope
when one winter's rainfall is below average, but when two successive winters are
dry they become very stressed. All of South-East England has been affected in
this way, and as a consequence our boreholes, which supply 85% of our water,
fell to record low levels.

Faced with this unprecedented situation we took appropriate action to reduce
demand. In April 2005 we instituted a ban on using garden sprinklers, then a
full hosepipe ban in March 2006. We also applied to the Secretary of State for a
Drought Order to allow us to restrict water used for "non-essential" purposes,
and this was granted in mid-May. We implemented it in stages, so that the
Company benefited from the maximum reduction in demand while causing the minimum
disturbance to customers. These measures proved effective, reducing average
demand by 11% and peak demand by 21% relative to the previous year. Compared to
the previous very hot summer of 2003, average demand was reduced by 23% and peak
demand by 41%. These remarkable reductions were mainly due to the efforts of our
customers in using water very wisely during this summer, and consequently we
were able to supply all their essential demands.

The current position is that, after the very hot and dry months of June and
July, we have had above average rainfall between August and October. Despite
this welcome respite our boreholes are still at levels well below average, and
would be vulnerable to a third dry winter. Bough Beech, our surface reservoir,
is currently filling well, due to prudent management by the Company and an
extended river extraction period allowed by the Environment Agency. Despite
lingering concerns as to the potential impact of a third dry winter when
resources are already at a low level, we decided to lift the Drought Order
restrictions on November 15 and not to seek to extend them, following
discussions with the Environment Agency and DEFRA. These took into account the
success that we had achieved in protecting water resources this year by means of
the restrictions imposed by the Drought Order, and the cooperative assistance
which the Company continues to receive from its customers. We will continue to
monitor the resource and demand situation very carefully, and to maintain our
publicity campaigns.

Our environmental track record remains strong - indeed, we continue to be one of
the most successful companies in minimising water loss from the network. We have
made additional efforts, at significant cost, to minimise leakage during this
period. As a result it has fallen to 23.9Mld from 24.3Mld, but this is
insignificant when compared to the effect of the reduction in demand by our
customers.

Customer service

We have held our position among the best performing companies in the water
industry, leading the way in distributing high quality water - we achieved
99.98% compliance with mandatory standards - and backing this up with very high
levels of service. Our latest improvement, allowing payments over the telephone
network 24 hours a day, 7 days a week, has been so successful it has won one
national and two international awards.

Capital expenditure

During the period the company has spent #9.2m on new plant and infrastructure, a
significant increase on last year's expenditure of #5.0m.

Work is progressing on the second stage of refurbishing our Cheam works and
developing new resources at Warwick Wold, Dorking and Oaks Park to enhance
supplies. We have invested #3.5m in improving our mains network, and a further
#1.1m installing customer meters.

We fully expect to achieve our spending targets, as set by Ofwat, within this
quinquennium.

Financial results

The results for the period have been adversely affected by the drought, which
has reduced revenue and increased costs.

Turnover was #22.9m (#22.6m) for the period, benefiting from the 4.3% increase
in prices allowed by Ofwat in respect of inflation and the "K" factor, but
negatively affected by a reduction in demand from our measured customers which
resulted in income from this source falling #0.6m below our expectations for a
typical year. Operating costs have risen owing to the need to purchase
additional water (#0.4m), additional leakage control costs (#0.2m) and the
expenses incurred in applying for the Drought Order (#0.2m). Additionally, we
have experienced increased power and chemical costs reflecting recent movements
in these markets. Pension costs, calculated in accordance with FRS17, increased
by #0.3m at the operating level.

Operating profits fell to #4.7m (2005 #6.6m), while interest charges fell by
#0.4m to #2.4m (#2.8m), as a result of lower indexation charges on our Bond.
Other finance income, arising from the good performance of our pension fund
investments, increased to #0.7m from the #0.4m achieved last year. These factors
together led to the profit before tax reducing by #1.1m to #3.0m for the period.

Our final salary pension scheme continues to remain in surplus, on an FRS17
basis. Our contributions of 30% of salary and the investment performance
mentioned above have contributed to that position, and demonstrate our effective
management of the scheme.

A special dividend of #12.0m, comprising surplus cash in the business, was paid
during the period.

Finally I would like to thank all our staff for the special effort that they
have made on the Company's and customer's behalf during this very difficult time.

Pat Barrett
21 December 2006













Sutton and East Surrey Water plc


Profit and Loss Account
for the six months ended 30 September
                                                      6 months          6 month       Year to   
                                                  30 September     30 September      31 March
                                                          2006    Restated 2005          2006
                                                    (unaudited)      (unaudited)
                                                         #'000            #'000         #'000

Turnover                                                22,920           22,561        45,390
Operating costs                                        (18,183)         (15,990)      (33,227)
                                                 -------------     ------------   -----------
Operating profit                                         4,737            6,571        12,163   
Net interest payable and similar charges                (2,452)          (2,840)       (6,448)   
Other finance income                                       676              368           737
                                                 -------------     ------------   -----------       
Profit on ordinary activities before taxation            2,961            4,099         6,452      
Taxation on profit on ordinary activities                 (393)          (1,676)       (2,786)      
                                                 -------------     ------------   -----------
Profit on ordinary activities after taxation             2,568            2,423         3,666
                                                 =============     ============   ===========
                                       
                                                 

Sutton and East Surrey Water plc
Statement of total Recognised Gains and Losses
 for the six months ended 30 September
                                                      6 months          6 month       Year to      
                                                  30 September     30 September      31 March
                                                          2006    Restated 2005          2006
                                                    (unaudited)      (unaudited)
                                                         #'000            #'000         #'000

Profit for the period                                    2,568            2,423         3,666               
Actuarial gain recognised in the                           921            2,340         4,679              
 pension scheme                                     
Deferred tax arising on (gains) in                        (568)            (702)       (1,404)                      
 the pension scheme                              -------------     ------------   -----------
Total recognised gains and losses
 relating to the period                                  2,921            4,061         6,941
                                                 -------------     ------------   -----------
Prior year adjustment following full
 adoption of FRS 17                                                      (2,958)       (2,958)
Effect of adoption of FRS 25                                            (12,384)      (12,384)
                                                 -------------     ------------   -----------
Total gains and losses recognised 
 since last annual report                                2,921          (11,281)       (8,401)
                                                 -------------     ------------   -----------







Sutton and East Surrey Water plc
Balance Sheet
 as at 30 September
                                                      6 months          6 month       Year to     
                                                  30 September     30 September      31 March
                                                          2006    Restated 2005          2006
                                                    (unaudited)      (unaudited)
                                                         #'000            #'000         #'000
Fixed assets
Intangible assets                                        9,241           10,213         9,727
Tangible assets                                        144,199          140,814       140,781
                                                 -------------     ------------   -----------
                                                       153,440          151,027       150,508
                                                 -------------     ------------   -----------
Current assets
Stocks                                                     894              828           818
Debtors                                                  9,776            8,269         8,320
Cash at bank and in hand                                19,642           32,587        30,370
                                                 -------------     ------------   -----------
                                                        30,312           41,684        39,508
Creditors: amounts falling due
 within one year                                       (24,220)         (23,622)      (21,558)
                                                 -------------     ------------   -----------
Net current assets                                       6,092           18,062        17,950
                                                 -------------     ------------   -----------
Total assets less current liabilities
 and charges                                           159,532          169,089       168,458
                                                 -------------     ------------   -----------
Creditors: amounts falling due
 after more than one year                             (115,090)        (113,001)     (114,168)
Provisions for liabilities and charges                  (8,831)          (8,077)       (8,860)
                                                 -------------     ------------   -----------
Net assets                                              35,611           48,011        45,430
                                                 -------------     ------------   -----------

Capital and reserves
Called up share capital                                  3,105            3,105         3,105
Profit and loss account                                 32,506           44,906        42,325
                                                 -------------     ------------   -----------
Shareholders' funds - equity                            35,611           48,011        45,430
                                                 -------------     ------------   -----------





Sutton and East Surrey Water plc
Cash Flow Statement
 for the six months ended 30 September
                                                      6 months          6 month       Year to   
                                                  30 September     30 September      31 March
                                                          2006    Restated 2005          2006
                                                    (unaudited)      (unaudited)
                                                         #'000            #'000         #'000

Cash flow from operating activities                     12,334           10,978        21,089
Return on investment and servicing of finance: 
Interest received                                          534              658         1,388
Interest paid                                           (1,691)          (1,584)       (3,255)
Interest element of finance lease rentals                  (21)               0             0
Preference dividends to shareholders                      (483)            (483)         (966)
                                                 -------------     ------------   -----------
Net cash outflow from returns on
 investemnts and servicing of finance                   (1,661)          (1,409)       (2,833)

UK corporation tax received                                 36              151           151

Capital expenditure and financial investment
Purchase of tangible fixed assets                       (9,247)          (4,963)      (10,508)
Sale of tangible fixed assets                               21               45           146

Dividends paid on shares classified in
 shareholders' funds                                   (12,000)               0        (5,460)
                                                 -------------     ------------   -----------
Cash outflow/(inflow) before management of
 liquid resources and financing                        (10,517)           4,802         2,585
Management of liquid resources                          10,182           (1,481)         (774)
                                                 -------------     ------------   -----------
Decrease/(increase) in cash in the period                 (335)           3,321         1,811
                                                 -------------     ------------   -----------
Financing: Capital element of finance lease
 rental payments                                          (210)               0             0
                                                 -------------     ------------   -----------
Decrease/(increase) in cash in the period                 (545)           3,321         1,811
                                                 -------------     ------------   -----------











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