RNS Number:3411E
Bristol Water PLC
30 May 2001
BRISTOL WATER plc
The company is a subsidiary of Bristol Water Holdings plc
which is also reporting its results today
30 May 2001
STRONG PERFORMANCE FOLLOWING PERIODIC REVIEW
Year ended 31 March 2001 2000 % change
#m #m
Turnover 64.8 69.4 -7%
Operating profit 17.6 18.7 -6%
Pre-tax profit 13.3 14.0 -5%
Net profit 10.5 11.2 -6%
Earnings per ordinary share 157.6p 169.2p -7%
Dividend per ordinary share 83.5p 72.6p 15%
+ Despite 10% Po impact net profit only reduced by 6%
+ Initial restructuring programme successfully implemented
+ Joint Billing agreement with Wessex Water announced
+ Net capital expenditure #18 million
+ Overall water quality compliance greater than 99.9%
+ Customer service continues at high levels
+ Well positioned to meet Final Determination targets
For further information:
Alan Parsons Lulu Bridges
Andy Nield Tavistock Communications Limited
Bristol Water plc Tel: 020 7600 2288
Tel: 0117 953 6407
Or contact:
Bristol Water Corporate Affairs on 0117 953 6470 during office hours or 07831
453924 or 07831 518964 at any time.
CHAIRMAN'S STATEMENT
At the start of the year the company faced the major challenge of the impact
of the new price limits set by OFWAT for the five years 2000-05.
The new price limits mean that we need to deliver substantial efficiency
gains. At the end of 1999/00, we launched a major restructuring programme.
This has now been successfully implemented whilst maintaining our high
standards of service to customers and even improving them in some areas. The
restructuring involved a reduction in the regulated business workforce of
approximately 100 people and enabled us to reduce the comparable cost base for
the business by around 10% in real terms.
We announced in April 2001 that following an extensive procurement process by
the company, the Bristol Water group has agreed to form a joint venture with
Wessex Water to provide a combined billing and customer contact service for
the customers of the two regulated businesses. The joint venture will be owned
on a 50/50 basis with Wessex Water. The existing billing and customer contact
staff of both companies will transfer to the new company. The new arrangement
will benefit customers by providing improved convenience and will deliver
significant efficiency gains after the initial transition period.
The UK water industry is continuing to go through a period of change, with
competition becoming increasingly significant. At the same time, new financing
and operational structures are being introduced. We are monitoring these
developments.
Profit before tax for the year was #13.3m, compared to #14.0m in 2000. Given
the impact of the 10% real reduction in the regulated business's charges to
customers, which had an approximate effect on revenues of #6.6m, this
represents a very strong underlying performance.
We have declared an 11.9% increase in the final ordinary dividend, bringing
the total ordinary dividend for the year to 83.5p, a 15% increase from 1999/
00.
The business has done extremely well in mitigating the effects of the
mandatory price cut. I would like to give full credit to everyone in the
company who has contributed so much to these achievements.
Alan Parsons
Chairman
30th May 2001
BUSINESS REVIEW
Like all water utilities, we have a large element of fixed costs. This means
that the scope to cut costs is traditionally considered limited. At the start
of the year, though, we were faced with price reductions of 10% in real terms.
Without speedy, effective action, this would have reduced attributable profits
by a half.
We are pleased to report that everyone in the company has risen to this
challenge and before additional maintenance costs of #1.4m for the Gloucester
to Sharpness Canal, operating costs were some #3.5m lower in real terms than
in 2000. We said at the outset we would not compromise standards of service to
customers. Despite significant reductions in staff numbers, we are delighted
to say our service standards have improved even further over previous levels.
Those levels were already at the leading edge of industry performance.
To achieve these cost reductions, costs and processes have been continually
challenged, both by incremental improvements and by more fundamental process
re-design. Meanwhile, a company-wide bonus scheme incorporating financial and
service performance targets has promoted an atmosphere that delivers value for
money. Most importantly, we have also invested in understanding the
inter-relationship between costs and risks. This ensures we get real, lasting
value from risk prevention measures so necessary when handling the
responsibility of supplying drinking water to over one million people.
We were extremely disappointed to find Ofwat assessed our comparative
operating efficiency for 1999/2000, using econometric models, as below
average. We have disputed this and brought to their attention a number of
diverse factors that adversely affect our rankings on their models. Our cost
reduction programme will also help to improve our comparative efficiency.
Our capital programme for the five years to 2005 as set out in the Final
Determination (May 1999 prices) amounts to #125m. A major element relates to a
#20m provision for the replacement of lead pipes. Although we planned to
spread this cost evenly throughout the period, the Drinking Water Inspectorate
wishes to see the optimisation of the recent chemical dosing programmes before
supporting pipe replacement activity. Accordingly, to the extent ultimately
necessary, this work will have to be carried out in the balance of the period
to 2005.
The capital programme for the year included two major projects. One, the
installation of cryptosporidium barriers at minor works, has been delayed in
part by difficulties in gaining planning consents. The costs of this project
will be higher than provided for in the price settlement due to late changes
in the approved design of filtering equipment. The second significant project
is ongoing mains rehabilitation. Progress to date has led to completion of the
planned 88 km of relined or replaced mains at below budgeted cost.
During the year we decided to upgrade the company's major business systems, by
implementing SAP, an integrated management information system. This represents
a major project, with implementation planned for Autumn 2001.
Overall our capital expenditure was #18m after contributions from developers,
compared to total depreciation charges of #13m.
Looking forward, the coming years will continue to see new costs having to be
accommodated, for example the Climate Levy. New capital schemes will add to
operating costs, depreciation and to the interest burden. Profit improvement
targets will require continued focus on costs but it is unrealistic to expect
this year's scale of cost reduction to be repeated.
OPERATING AND FINANCIAL REVIEW
FINANCIAL HIGHLIGHTS
2001 2000
#m #m
Turnover 64.8 69.4
Operating profit 17.6 18.7
Profit before tax 13.3 14.0
Profit after tax 10.5 11.2
Earnings per share 157.6p 169.2p
Ordinary dividend per share 83.5p 72.6p
The results reflect a strong underlying performance with profit after tax only
reduced by #0.7m to #10.5m, despite a 10% real reduction in charges to
customers.
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 average charges each year. For 2000/01, the K
factor was minus 10%, which meant a real reduction in turnover of some #6.6m
in the current year. Overall turnover, after taking into account inflation,
reduced by some #4.6m.
Operating costs before depreciation and exceptional items reduced by #1.2m.
This reflects the major cost reduction programme initiated in 2000 but
realised during 2001, partly offset by additional charges of #1.4m from
British Waterways Board for the Sharpness Canal supply. An exceptional gain of
#0.6m was made, this relates to the termination of the customer compensation
policy previously insured with Brunel Insurance.
The net effect of the reductions in turnover and operating costs, together
with a reduction in interest costs of #0.4m reflecting positive cash flows in
the year, was to reduce profit before tax by #0.7m.
Net capital investment in the year was #18.2m. This was lower than originally
anticipated, reflecting the start up of the new investment programme for the
period 2000-05 together with the effect of some delays in obtaining planning
permission for key sites. The level of investment is expected to increase in
2002.
The Board proposes a total ordinary dividend for the year of 83.5p, a 15%
increase from 2000. As a result, a final ordinary dividend of 59.5p is being
recommended.
Treasury
Net borrowings reduced from #67.5m to #63.0m during the year. The positive
cash flow is due to the good operating result together with relatively low
levels of capital investment.
During the year a #10m 5-year term loan was arranged, of which #5m was drawn
down at the year end. During May 2001 a leasing agreement for #9m was
finalised.
At the year end, net gearing (net debt/shareholders' funds) was 77% compared
to 88% in 2000. Net debt and gearing levels are expected to increase during
2001/2 as the level of capital investment increases.
The company uses interest rate derivatives to manage exposures to fluctuations
in interest rates. Positions on hedges are deferred and matched to the
underlying transaction.
Net interest charges in the year totalled #4.5m and were covered 3.9 times.
PROFIT AND LOSS ACCOUNT
for the year ended 31 March 2001
2001 2000
#000 #000
Note
Turnover 64,841 69,453
Operating costs 2 (47,858) (49,119)
Exceptional operating items 3 600 (1,591)
____________ ____________
Operating profit 17,583 18,743
Profit on disposal of tangible fixed assets 268 207
Net interest payable and similar charges (4,543) (4,970)
____________ ____________
Profit on ordinary activities before taxation 13,308 13,980
Taxation on profit on ordinary activities 4 (2,764) (2,736)
___________ ___________
Profit on ordinary activities after taxation 10,544 11,244
Dividends - 5
On irredeemable preference shares (1,094) (1,094)
On ordinary shares (5,008) (4,355)
__________ __________
Total dividends (6,102) (5,449)
__________ __________
Profit retained for the financial year 4,442 5,795
__________ __________
Earnings per share 6 157.6p 169.2p
__________ __________
BALANCE SHEET
at 31 March 2001
Note 2001 2000
#000 #000
Tangible fixed assets 7 170,029 165,309
________ ________
Current assets
Stocks 543 811
Debtors 8,490 8,857
Cash at bank and on deposit 8 9,469 1,552
________ _______
18,502 11,220
________ _______
Creditors: Amounts falling due within one year
Short term borrowings 8 1,399 1,419
Other creditors 25,783 21,088
________ _______
27,182 22,507
________ _______
Net current liabilities (8,680) (11,287)
________ _______
Total assets less current liabilities 161,349 154,022
Creditors: Amounts falling due after more than one 8 (71,096) (67,619)
year
Deferred income (8,467) (8,463)
Provisions for liabilities and charges (313) (909)
_______ _______
81,473 77,031
_______ _______
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 52,790 48,348
_______ _______
Total shareholders' funds 9 81,473 77,031
Analysed as:
Equity shareholders' funds 68,973 64,531
Non-equity shareholders' funds 12,500 12,500
_______ _______
CASH FLOW STATEMENT
for the year ended 31 March 2001
Note 2001 2000
#000 #000
Net cash inflow from operating activities
10 32,304 29,624
________ ______
Returns on investments and servicing of finance
Interest received 398 192
Interest paid (3,243) (3,469)
Interest paid on finance leases (1,382) (1,522)
Dividends paid on non-equity shares (1,094) (1,094)
________ _______
(5,321) (5,893)
________ _______
Taxation
Corporation tax paid (2,764) (1,879)
Advance corporation tax paid on dividends - (136)
________ _______
(2,764) (2,015)
________ _______
Capital expenditure
Purchase of tangible fixed assets (17,858) (21,354)
less contributions received 2,373 2,891
Proceeds on disposal of tangible fixed assets 355 1,043
________ _______
(15,130) (17,420)
________ _______
Dividends paid on equity shares (4,629) (3,888)
________ _______
Cash inflow before management of
liquid resources and financing 4,460 408
Management of liquid resources
being increase in short term deposits (8,800) -
Financing
Capital element of new finance leases - 296
New bank loans 5,000 -
Capital element of lease repayments (1,543) (1,602)
________ _______
3,457 (1,306)
________ _______
Decrease in cash (883) (898)
Cash, beginning of year 1,552 2,450
________ _______
Cash, end of year 669 1,552
________ _______
NOTES
1. BASIS OF PREPARATION AND CIRCULATION
These preliminary statements do not constitute the statutory accounts
for the year ended 31 March 2001. 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 2000
have been extracted from the accounts of Bristol Water plc for the year
ended 31 March 2000 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 20 June 2001. 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 23 July 2001 at 9.30 am.
2. OPERATING COSTS BEFORE EXCEPTIONAL ITEMS
2001 2000
#000 #000
Net payroll cost 9,757 10,449
Other operating expenses 25,109 25,633
Depreciation, net 12,992 13,037
______ ______
Total operating costs 47,858 49,119
______ ______
3. EXCEPTIONAL OPERATING ITEMS
2001 2000
#000 #000
Restructuring costs - (1,591)
Insurance rebate 600 -
_______ ______
600 (1,591)
_______ ______
The restructuring costs mainly reflect severance payments to employees. The
insurance rebate occurred following the decision to terminate the customer
compensation policy previously insured with Brunel Insurance Company Limited
(Brunel). Brunel is a joint arrangement between the parent company and Wessex
Water.
4. TAXATION ON PROFIT ON ORDINARY ACTIVITIES
2001 2000
#000 #000
Mainstream corporation tax payable 2,764 2,600
Advance corporation tax - 136
_____ ______
Charge for the year 2,764 2,736
_____ ______
5. DIVIDENDS
2001 2000
#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 24.0p (2000 - 19.44p) 1,440 1,166
Proposed final dividend of 59.5p (2000 - 53.16p) 3,568 3,189
_______ ______
5,008 4,355
_______ ______
Total dividends paid and proposed 6,102 5,449
_______ ______
6. EARNINGS PER SHARE
2001 2000
Earnings per share have been calculated as follows -
On average number of ordinary shares in issue during the year -
Earnings attributable to ordinary shares #9,450 #10,150
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.
7. TANGIBLE FIXED ASSETS
2001 2000
#000 #000
Net book value, beginning of year 165,309 160,765
Additions 20,532 21,099
Disposals (169) (222)
Contributions (2,373) (2,411)
Depreciation (13,270) (13,922)
_______ ______
Net book value, end of period 170,029 165,309
_______ ______
8. NET BORROWINGS
2001 2000
#000 #000
Cash and short term deposits 9,469 1,552
Debt due within one year (1,399) (1,419)
Debt due after one year (71,096) (67,619)
________ ______
Net borrowings (63,026) (67,486)
________ ______
9. MOVEMENT IN SHAREHOLDERS' FUNDS
2001 2000
#000 #000
Beginning of year 77,031 71,236
Profit for the year 10,544 11,244
Dividends (6,102) (5,449)
______ ______
End of year 81,473 77,031
______ ______
10. ADDITIONAL CASHFLOW INFORMATION
a) Reconciliation of operating profit to net cash inflow from 2001 2000
operating activities -
#000 #000
Operating profit after exceptional operating items 17,583 18,743
Depreciation, net 12,992 13,037
_______ ______
Cash flow from operations 30,575 31,780
Working capital movements -
Stocks 268 317
Debtors 715 (294)
Creditors 1,342 (3,088)
Provisions (596) 909
_______ ______
Net cash inflow from operating activities 32,304 29,624
_______ ______
b) Reconciliation of net cash flow to movement in net borrowings 2001 2000
#000 #000
Decrease in net cash in year (883) (898)
Cash used to repay borrowings 1,543 1,602
Cash from new borrowings (5,000) (296)
Cash used to increase liquid resources 8,800 -
_______ ______
Decrease in net borrowings 4,460 408
Net borrowings at beginning of year (67,486)(67,894)
_______ ______
Net borrowings at end of year (63,026)(67,486)
_______ ______
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