RNS Number:5670W
Bristol Water PLC
29 May 2002
BRISTOL WATER plc
The company is a subsidiary of Bristol Water Holdings plc
which is also reporting its results today.
29 May 2002
STRONG FINANCIAL AND OPERATIONAL PERFORMANCE
Year ended 31 March
2002 2001 % change
Restated
£m £m
Turnover 68.0 64.9 5%
_______________________________________________________________________________________
Operating profit before
exceptional item 17.7 17.0 4%
_______________________________________________________________________________________
Operating profit 17.7 17.6 1%
_______________________________________________________________________________________
Profit before tax 13.9 13.4 4%
_______________________________________________________________________________________
Profit after tax 10.3 10.0 3%
_______________________________________________________________________________________
Earnings per ordinary share 153.2p 147.7p 4%
_______________________________________________________________________________________
Dividend per ordinary share 91.9p 83.5p 10%
_______________________________________________________________________________________
• Profit before tax increased by 4%
• Joint billing arrangement with Wessex Water progressing well.
• High service standards maintained.
• Net capital expenditure £23m.
For further information:
Alan Parsons Lulu Bridges
Andy Nield Tavistock Communications Limited
Bristol Water plc Tel: 0207 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
I am pleased to be able to announce a strong financial performance by the
company.
The price limits set by Ofwat in 1999 meant that we needed to deliver
substantial efficiency gains. At the end of 1999/2000 we launched a major
restructuring programme which was successfully implemented while still
maintaining our high standards of service to customers and even improving them
in some areas. We have continued to seek further efficiency improvements whilst
maintaining our service standards.
In July 2001, following an extensive procurement process by the regulated
business, the Bristol Water group established a joint venture with Wessex Water
to provide a combined billing and customer contact service initially for the
customers of the two regulated businesses. When fully operational this will
eliminate significant duplicated costs and provide a simplified and better
service to customers. Initial feedback from customers has demonstrated their
support for the change and the success of the first phase.
The capital expenditure programme established to deliver the outputs set by
Ofwat for the five years 2000-05 is now well underway. A major element relates
to a £20m programme 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. It is increasingly likely that the actual
spend during the 5 year period will be at a relatively low level.
Profit before tax for the year was £13.9m, compared to £13.4m in 2001.
We have declared a 10% increase in the final dividend, bringing the total
dividend for the year to 91.9p, a 10% increase from 2000/01. The final dividend
will be paid to shareholders on 22 July 2002.
The 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 2002/03 of 1.9%, and Ks of 0% in 2003/04 and -1.9% in
2004/05 will have a significant impact on profits over the next three years.
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 have continued to monitor
these developments.
My thanks go to all our employees who have contributed so successfully to
delivering such a strong performance.
Alan Parsons
Chairman
29 May 2002
BUSINESS REVIEW
During the year we made further operating improvements consolidating the
considerable cost reductions made during the previous year. Our primary focus
during the year has been on two key initiatives that will enable us to make
further efficiency gains in due course.
The first of these initiatives has been a major project to install a new
integrated financial and works management IT system (SAP) to replace a number of
older systems. A key objective for this development was to reduce future
maintenance and development costs of our old suite of systems. This project was
successfully implemented and went live on 1 October 2001.
The second initiative has been the creation of a joint venture with Wessex Water
to enable the two companies to issue combined bills to customers. The joint
venture is owned on a 50/50 basis by Bristol Water Holdings plc and Wessex Water
and during the year the existing billing and customer contact staff of both
companies transferred to the new company. A new billing system was also
successfully implemented during the year and the first joint bills were issued
to unmeasured customers during March 2002. Work is in hand to bring measured
customers on to the same system later this year. The new arrangement will
benefit customers by improving convenience and will deliver significant
efficiency gains from 2003/04.
An important operational issue during the year was the damage caused by a major
water main burst on the A4 Portway in the confines of the Avon Gorge. Working
together with Bristol City Council we were able to get the road quickly back
into service and avoided any significant disruption to water supplies.
Permanent repairs are currently in progress, but the complex nature of the site
means that it will take some months to complete.
Water resources were a concern during the year, with the increasingly variable
weather patterns that we are experiencing making forecasting extremely
difficult. During November and December, normally a key time for the refilling
of reservoirs, there was a prolonged dry spell with minimal recorded rainfall
which raised concerns about the supply position for 2002. This was then
followed by a sustained period of rain during February and March and reservoirs
are now back to normal levels. The situation will continue to be monitored
closely.
The Ofwat report on service levels by water companies in 2000/01 confirms that
we have maintained or improved on our already high levels of service to
customers.
We were pleased to see that our ranking in Ofwat's relative operating efficiency
report for 2000/01, using econometric models, showed a significant improvement.
This was due to a combination of our continuing cost reduction programme and
recognition by Ofwat that their models did not fully reflect our true
performance. We are continuing to discuss with Ofwat a number of diverse
factors that still adversely affect our rankings in their models.
Our capital programme for the five years to 2005, as set out in the Final
Determination (May 1999 prices), amounts to £125m. As explained in the
Chairman's Statement, this includes £20m for the replacement of lead
communication pipes, of which we have only spent a small amount to date.
The capital programme for the year included four major projects. One,
completion of the installation of cryptosporidium barriers at seven smaller
treatment works, has progressed well and all sites are now operational with this
added protection in place. The second significant project is ongoing mains
renovation. During the year we completed 105 km of relined or replaced mains,
adding to the previous year's 88 km, at below budgeted cost. The remaining two
projects were the SAP IT development and the new joint billing system.
Overall our net capital expenditure was £23.5m after contributions from
developers compared to £18.2m in the previous year.
As highlighted in the Chairman's statement, profits for the next three years
will be influenced by a range of additional costs, in particular the financing,
depreciation and operating cost implications of the continuing capital
programme. We will continue to seek further operational efficiency gains to
offset these additional costs, whilst ensuring that we do not compromise our
high standards of service.
OPERATING AND FINANCIAL REVIEW
FINANCIAL HIGHLIGHTS
2002 2001
Restated
£m £m
Turnover 68.0 64.9
Operating profit before exceptional items 17.7 17.0
Operating profit 17.7 17.6
Profit before tax 13.9 13.4
Profit after tax 10.3 10.0
Earnings per share 153.2p 147.7p
Ordinary dividend per share 91.9p 83.5p
Overall turnover, after allowing for the effect of an accounting policy change,
increased by some £3.1m, mainly due to the RPI+K increase.
Profit after tax was £10.3m, an increase of £0.3m from 2001, leading to an
increase in earnings per share of 3.7%.
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 2001/02 the K
factor was 1%, which together with an RPI movement of 3.2% meant an average
increase in charges to customers of some 4.2%.
Operating costs before depreciation increased by £2.3m. This principally
reflects the impact of inflation, the new climate levy charge of £0.4m pa and
the non-recurrence of an exceptional insurance premium rebate of £0.6m in the
previous year.
We have also increased the bad debt charge, reflecting a deteriorating
collection experience following a government decision to prohibit domestic
disconnections. The charge for the year was £1.6m compared to £0.8m in the
previous year.
Depreciation increased by £0.7m reflecting the commissioning of new assets and
the decision to accelerate the depreciation charge for other assets.
The net effect of the increases in turnover, operating costs and depreciation
together with an increase in the net proceeds from property disposals of £0.5m
was to increase profit before tax to £13.9m from £13.4m.
Capital investment, net of grants and contributions in the year was £23.5m, a
significant increase on 2000/01 (£18.2m) reflecting the progressive build up of
the capital programme for the five years 2000-05.
The results include for the first time the impact of FRS19, the new accounting
standard on deferred tax, using a discounting methodology. At 31 March 2002 the
discounted balance sheet provision amounts to £15.2m. The net profit and loss
account effect of FRS19 is to increase the deferred tax charge for the year by
£1.3m and the current tax charge by £1.0m relating to ACT. The profit and loss
charge is net of a £1.4m discounting gain. The effective total tax rate for the
year is 26%, without the discounting gain it would be 36%. The results for 2001
have been restated accordingly.
The Board proposes a total dividend for the year of 91.9p, a 10% increase from
2001. As a result, a final dividend of 65.5p is being recommended.
In the full statutory accounts the appropriate disclosures required under
FRS17, the new accounting standard on pensions, are made. These show that on an
FRS17 basis the Bristol Water plc sub fund of the Water Companies' Pension
Scheme would be represented on the balance sheet as an asset net of tax of
£10.0m (£14.4m before deferred tax).
An actuarial review of the sub fund as at 31 March 2002 is currently in
progress. The sub fund is currently invested primarily in equities. When the
results of the actuarial review are available, subject to the agreement of the
trustees, we will examine carefully a reduction in the proportion of equities
with a corresponding increase in investments in bonds and other fixed income
securities.
Treasury
Net borrowings increased from £63.0m to £71.5m during the year.
During the year the second £5m tranche of a £10m five year term loan was drawn
down. During May 2001 two leasing agreements for a total of £9m were completed.
At the year end, net gearing (net debt/equity) was 97% compared to 90% in 2001.
Net debt and gearing levels are expected to increase during 2002 as the level of
capital investment in the regulated business increases. Before the adoption of
FRS19, the new standard on deferred tax, net gearing was 80% (2001 - 75%).
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 £4.6m and were covered 3.9 times.
PROFIT AND LOSS ACCOUNT
for the year ended 31 March 2002
2002 2001
Restated
Note £000 £000
Turnover 68,013 64,887
Operating costs 2 (50,272) (47,858)
Exceptional operating item 2 600
__________ ___________
Total operating costs (50,272) (47,258)
___________ ___________
Operating profit 17,741 17,629
Profit on disposal of tangible fixed assets 760 268
Net interest payable and similar charges (4,598) (4,543)
___________ ___________
Profit on ordinary activities before taxation 13,903 13,354
Taxation on profit on ordinary activities 3 (3,622) (3,399)
___________ ___________
Profit on ordinary activities after taxation 10,281 9,955
Dividends - 4
On irredeemable preference shares (1,094) (1,094)
On ordinary shares (5,512) (5,008)
___________ ___________
Total dividends (6,606) (6,102)
___________ ___________
Profit retained for the financial year 3,675 3,853
___________ ___________
Earnings per share 153.2p 147.7p
___________ ___________
BALANCE SHEET
at 31 March 2002
Note 2002 2001
Restated
£000 £000
Tangible fixed assets 6 179,426 170,029
____________ ____________
Current assets
Stocks 437 543
Debtors 12,311 10,456
Cash at bank and on deposit 7 14,676 9,469
____________ _____________
27,424 20,468
_____________ _____________
Creditors: Amounts falling due within one year
Short term borrowings 7 3,355 1,399
Other creditors 23,092 25,981
_____________ _____________
26,447 27,380
_____________ _____________
Net current assets/(liabilities) 977 (6,912)
_____________ _____________
Total assets less current liabilities 180,403 163,117
Creditors: Amounts falling due after more than one year 7 (82,825) (71,096)
Deferred income (8,396) (8,467)
Provisions for liabilities and charges 8 (15,236) (13,283)
_____________ _____________
Net assets 73,946 70,271
_____________ _____________
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 45,263 41,588
_____________ _____________
Total shareholders' funds 9 73,946 70,271
Analysed as:
Equity shareholders' funds 61,446 57,771
Non-equity shareholders' funds 12,500 12,500
_____________ _____________
CASH FLOW STATEMENT
for the year ended 31 March 2002
Note 2002 2001
£000 £000
Net cash inflow from operating activities 10 28,869 32,304
________ ____________
Returns on investments and servicing of finance
Interest received 815 398
Interest paid (4,150) (3,243)
Interest paid on finance leases (1,280) (1,382)
Dividends paid on non-equity shares (1,094) (1,094)
________ ____________
(5,709) (5,321)
________ ____________
Taxation
Corporation tax paid (1,995) (2,764)
________ ____________
Capital expenditure
Purchase of tangible fixed assets (26,237) (17,858)
less contributions received 2,588 2,373
Proceeds on disposal of tangible fixed assets 888 355
________ ____________
(22,761) (15,130)
________ ____________
Dividends paid on equity shares (5,151) (4,629)
________ ___________
Cash (outflow)/inflow before management of
liquid resources and financing (6,747) 4,460
Management of liquid resources
being increase in short term deposits (5,200) (8,800)
Financing
Cash inflow from refinancing assets under new finance leases 8,159 -
New bank loans and overdrafts 5,222 5,000
Capital element of lease repayments (1,427) (1,543)
________ ____________
11,954 3,457
________ ____________
Increase/(decrease) in cash 7 (883)
Cash, beginning of year 669 1,552
________ ____________
Cash, end of year 676 669
________ ____________
NOTES
1. BASIS OF PREPARATION AND CIRCULATION
These preliminary statements do not constitute the statutory accounts for the
year ended 31 March 2002. 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 2001 have been extracted from the
accounts of Bristol Water plc for the year ended 31 March 2001 upon which the
auditors' report was unqualified and which have been delivered to the Registrar
of Companies subject to restatement in respect of:
• A change to the basis of recognition of turnover from metered supplies,
following a general review of the appropriateness of accounting policies as
occasioned by Financial Reporting Standard FRS18 'Accounting Policies'. Income
from metered supplies is based upon volumes of water invoiced plus estimated
volumes of uninvoiced water delivered to customers during the year. In previous
years this income was based upon actual volumes of water invoiced to customers
during the year. The accounts for the year ended 31 March 2001 have been
restated on the new basis. The impact of the restatement is to increase
turnover by £98,000 (2001 - £46,000), increase profit after tax by £88,000 (2001
- £41,000), increase accrued income in the balance sheet by £2,063,000 (2001 -
£1,965,000), and to increase net assets after provision for tax in the balance
sheet by £1,856,000 (2001 - £1,768,000).
• The application of FRS19 Accounting for Deferred Tax. Deferred tax has
been recognised as a liability or asset if transactions have occurred at the
balance sheet date that give rise to an obligation to pay more taxation in
future, or a right to pay less taxation in future. An asset is not recognised
to the extent that the transfer of economic benefits in future years is not
probable. Deferred tax assets and liabilities recognised have been discounted
at rates equivalent to the post-tax yields to maturity that could be obtained at
the balance sheet date on government bonds with maturity dates similar to those
of the deferred tax assets and liabilities. The accounts for the year ended 31
March 2001 have been restated on this basis. The impact of FRS19 is to reduce
profits for the year by £2,266,000 (2001 - £630,000) and net assets by
£15,236,000 (2001 - £12,970,000).
The Annual Report and Accounts will be posted to shareholders on or before 20
June 2002. 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 22 July
2002 at 9.00 am.
2. OPERATING COSTS
2002 2001
£000 £000
Net payroll cost 10,078 9,757
Total other operating costs 26,464 25,109
Net depreciation 13,730 12,992
_____ _____
Total operating costs before exceptional 50,272 47,858
item
Exceptional operating item -
Insurance rebate - (600)
_____ _____
Total operating costs 50,272 47,258
_____ _____
The insurance rebate occurred following the decision to terminate the customer
compensation policy previously insured with Brunel Insurance Company Limited
(Brunel). Brunel was a joint arrangement between the parent company and Wessex
Water.
3. TAXATION ON PROFIT ON ORDINARY ACTIVITIES
Analysis of charge for the year all arising in the United Kingdom -
2002 2001
Restated
£000 £000
Current tax -
Corporation tax at 30% (2001 - 30%) 4,202 4,000
Advanced Corporation Tax written back (473) (345)
Adjustment to prior periods (1,389) 44
______ ______
Total current tax 2,340 3,699
______ ______
Deferred tax -
Current year movement (176) (53)
Adjustment to prior periods 2,851 (460)
Effects of discounting (1,393) 213
_______ ______
Total deferred tax 1,282 (300)
_______ ______
Total tax on profit on ordinary activities 3,622 3,399
________ ______
The adjustments to prior periods mainly relate to the effects of an agreement
with the Inland Revenue to accelerate certain capital allowances.
4. DIVIDENDS
2002 2001
£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 26.4p (2001 - 24.0p) 1,583 1,440
Proposed final dividend of 65.5p (2001 - 59.5p) 3,929 3,568
________ ______
5,512 5,008
________ ______
Total dividends paid and proposed 6,606 6,102
________ ______
5. EARNINGS PER SHARE
2002 2001
Restated
Earnings per share have been calculated as follows - 000 000
On average number of ordinary shares in issue during the year -
Earnings attributable to ordinary shares £9,187 £8,861
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
2002 2001
£000 £000
Net book value, beginning of year 170,029 165,309
Additions 26,076 20,532
Disposals (78) (169)
Grants and contributions (2,588) (2,373)
Depreciation (14,013) (13,270)
____________ ___________
Net book value, end of year 179,426 170,029
____________ ___________
7. NET BORROWINGS
2002 2001
£000 £000
Cash and short-term deposits 14,676 9,469
Debt due within one year (3,355) (1,399)
Debt due after one year (82,825) (71,096)
_______ __________
(71,504) (63,026)
___________ __________
8. PROVISIONS FOR LIABILITIES AND CHARGES
2002 2001
Restated
£000 £000
Restructuring Costs - 313
Deferred taxation 15,236 12,970
____________ _______
15,236 13,283
____________ _______
Analysis of deferred taxation liability -
Accelerated capital allowances and capital element of finance
leases 32,840 30,092
Deferred income (2,519) (2,540)
Short term timing differences (698) (604)
Unrelieved Advanced Corporation Tax (184) (1,168)
____________ _______
29,439 25,780
Effect of discounting (14,203) (12,810)
____________ _______
Net provision for Deferred Taxation 15,236 12,970
__________ ______
9. MOVEMENT IN SHAREHOLDERS' FUNDS
2002 2001
Restated
£000 £000
Beginning of year;
Balance per previous financial statements 77,031
Effect of prior year statements net of tax -
Income from metered supplies, net of tax effect 1,727
FRS19 Accounting for Deferred Tax (12,340)
________
Restated balance at the beginning of the year 70,271 66,418
Profit for the year 10,281 9,955
Dividends (6,606) (6,102)
____________ _______
End of year 73,946 70,271
____________ ________
The ordinary share capital of the company at 31 March 2002 comprised 5,998,025
shares.
10. ADDITIONAL INFORMATION TO THE CASH FLOW STATEMENT
a) Reconciliation of operating profit to net cash inflow from operating
activities -
2002 2001
Restated
£000 £000
Operating profit after exceptional operating item 17,741 17,629
Depreciation, net 13,730 12,992
______ ____________
Cash flow from operations 31,471 30,621
Working capital movements -
Stocks 106 268
Debtors (1,667) 669
Creditors (728) 1,342
Provisions (313) (596)
______ ____________
Net cash inflow from operating activities 28,869 32,304
______ ____________
b) Reconciliation of net cash flow to movement in net borrowings -
2002 2001
£000 £000
Increase/(decrease) in net cash in year 7 (883)
Cash used to repay borrowings 1,427 1,543
Cash from new borrowings (13,381) (5,000)
Cash used to increase liquid resources 5,200 8,800
_______ ____________
(Increase)/decrease in net borrowings (6,747) 4,460
New debt not affecting cash flow (1,731) -
Net borrowings at beginning of year (63,026) (67,486)
_______ ____________
Net borrowings at end of year (71,504) (63,026)
_______ ____________
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