RNS No 8117v
BRISTOL WATER PLC
26 May 1999
The company is a subsidiary of Bristol Water Holdings plc
which is also reporting its results today
CONTINUED IMPROVEMENTS
Year ended 31 March 1999 1998 % change
#000 #000
Turnover 66,793 63,955 4 %
Operating profit 19,300 17,572 10 %
Pre-tax profit 14,785 13,845 7 %
Net profit 13,572 11,860 14 %
Earnings per
ordinary share 205.3p 173.0p 19 %
Dividend per
ordinary share 64.8p 60.0p 8 %
Interest cover 4.15 4.66
Gearing ratio 95% 74%
" Favourable weather helped operating profit increase by 10%
" Pre-tax profit up by 7% with interest cost increasing
" Total dividend cost up by 1%
" Increased retained profit at #8.4 million
" Capital expenditure over #30 million
" Water quality compliance over 99.93%
" Customer service recognised as being high by OFWAT
For further information -
John Browning Lulu Bridges
Alan Parsons Tavistock Communications Limited
Bristol Water plc Tel: 0171 600 2288
Tel: 0117 953 6400
Or contact:Bristol Water Corporate Affairs on 0117 953 6470 during office
hours or 0831 453924
or 0831 518964 at any time.
CHAIRMAN'S STATEMENT
I am pleased to report another year of success and achievement. Pre-tax
profit increased by 7%. Customers benefited from a major investment programme
of over #30 million and further improvements to our standards of service. We
are now entering the final year of the current period of price limits. Much of
the last year was devoted to preparing the submissions to support the price
limits beyond 2000.
Weather conditions again helped operations throughout the year with above
average rainfall and a mild winter. Overall demand was 2% below the
previous year that itself had seen the lowest requirement for several
years. We believe the trend reflects an increasing environmental awareness by
customers that has more than compensated for the new property development in
our area that added about 1% to our customer base. Our reservoirs are
currently close to being full and as such we do not predict any supply
problems this year.
Financial Overview
The accounts this year adopt new accounting standards with consequential
restatement of prior year figures although there has been little effect on
"highlight" figures. Changes include a revised method of infrastructure
accounting, and a revised method of computing earnings per share.
Revenues increased with the combined effect of inflation and a 1% K factor.
However, within the overall growth of 4.4%, regulated measured revenue grew by
11.3% to contribute 29% of total revenue reflecting the addition of new
properties and unmeasured customers switching to a metered charging basis.
Unmeasured revenue increased by 2.6% while other income fell by 6%.
The weather conditions and low demand helped contain power costs in
particular. This is reflected in "cash" costs increasing by only 1.3% over
1998, a real reduction approaching 2%. Depreciation charges (including for
infrastructure) increased by 5.5% as a result of the scale of the continuing
capital programme.
Operating profit increased by 9.8% to #19.3 million. However an increase in
interest cost associated with the larger capital programme and the redemption
of preference shares restricted pre-tax profit growth to 6.8%. The tax charge
was lower than normal due to Advance Corporation tax no longer being payable,
leading to an improved profit after tax of #13.6 million, #1.7 million or
14.4% higher than in 1998.
Investment continued at high levels with programmes delivered effectively.
This led to a cash outflow before financing for the year of #11.1 million. In
addition the preference shares issued in 1998 were redeemed at par during the
year. The funding requirements to meet these outflows was met by additional
term bank loans. Retained earnings of #8.4 million have held the increase in
the gearing ratio to 95%. Interest remained more than four times covered by
operating profit reflecting our endeavours to strengthen key financial ratios
by 2000.
Dividends
The Board is recommending a final dividend of 45.38 pence on each share. This
is 8% higher than the previous year and is consistent with the level of the
increase for the interim dividend. Assuming approval of this proposal, the
full dividend for the year will be 64.8 pence compared with 60.0 pence in
1998. It is covered three times but this level of cover may fall in the
longer term. The final dividend will be paid on 27 July 1999.
Investment
Total investment increased to #31.6 million before contributions, up from
#29.2 million the previous year. This figure includes #10.8 million of
infrastructure renewals expenditure that under the new accounting standard is
required to be shown as fixed asset additions. The largest project continues
to be the replacement of water mains to ensure maintenance of water quality in
the distribution system. However work continues on a wide variety of other
projects including asset replacement, leakage reduction, computer system
enhancement and providing mains and services for new customers.
The company will shortly complete the remainder of the appropriate mains
rehabilitation work provided within current price limits and accordingly we
project investment expenditure to be substantially lower in the current year.
Services for customers
We remain well provided with water resources and expect to retain appropriate
"headroom" above normal demand in the future to meet seasonal peaks. The
conjunctive uses of our river, reservoir and borehole waters, and an
integrated distribution system, provide excellent operating flexibility.
We remain active in promoting water efficiency and have sponsored a
competition for our business customers to demonstrate the best water
efficiency ideas. These initiatives combine well with our own internal
standards of rapid repair to burst mains and providing free repair services to
domestic customers for external leaks to minimise wastage.
Compliance with water quality standards again improved to 99.93%. We remain
committed to delivering water of the highest possible quality.
OFWAT has acknowledged our services to customers are of a high standard.
Their comment, that ranked us second best in the industry, was based on 1998
results. I am pleased to report that on many measures, we have improved even
further in 1999 to a level that based on extensive research satisfies
customers.
Community Relations and Recreations
We have reinforced our extensive community relations programme. One aspect of
this year's activities included 19 open days at a variety of company sites,
attracting large attendances. Our fisheries had an excellent year with record
catches. It is a tribute to the quality of our fishing venues that our lakes
have been chosen to host the World Fly-Fishing Championships next year.
Regulatory developments
In our submission to OFWAT for their review of price limits for the five years
to March 2005, we have continued to seek a proper balance between keeping
prices as low as possible commensurate with maintaining services to customers
at their current high standards and providing fair returns to shareholders.
Our final submission calls for real price increases (K factors) approaching
10% over this five year period. Our proposals are significantly more modest
than those of many other water companies. We are aware that any increase in
prices is contrary to the previously expressed expectations of Government and
the Director General of Water Services. However, major new obligations have
since been imposed on water companies.
Our obligations to meet new European Union drinking water quality standards
will require investment of #60 million in the five years to 2005. Nearly half
of this relates to the replacement of company owned lead supply pipes. This
extensive work will only be really effective if the customers' own pipes are
replaced at the same time. An added difficulty is that the water sampling
protocol to test compliance has not yet been finalised by the European
Commission.
Over 20% of our customers are solely dependent on water abstracted from the
Gloucester and Sharpness Canal. It transfers River Severn water to two of our
northern treatment works. It is vital to ongoing operations providing on
average 40% of our total raw water requirements and at peak times more than
60%. We are firmly of the opinion that this canal, which is owned and operated
by British Waterways Board, needs an increased programme of maintenance and
emergency backup that can only be delivered at additional cost. British
Waterways Board, its operator, has recently outlined terms for providing a new
agreed level of service compatible with the security needs of a water company.
We are in discussion with them over terms and with OFWAT over the inclusion of
the additional costs in future price limits. We are resolved to gain for
customers the more appropriate levels of security of supply essential for a
water company's customers.
We believe debt collection costs and bad debts will increase significantly
following the proposed ban on domestic disconnections for non-payment.
Although this measure is rarely used, and even then only as a last resort, it
provided an important safeguard. Similarly, substantial additional costs will
arise from the Government's intention to allow all domestic customers the
right to have a water meter installed without charge. We anticipate this will
lead to a significant number of optants and consequently material effects on
the bills of other customers.
In most cases we have no choice over these new costs as they are legal
obligations, although we have arranged to discuss alternative proposals on
quality issues with the Drinking Water Inspectorate. We plan to meet part of
the additional cost through efficiency gains (past and future) by continuing
to set ourselves challenging targets. We have also endeavoured to defer
as much capital expenditure as possible beyond the next five years to
reduce the strain on cashflow. We have identified for deferral over #30
million of justifiable expenditure. The investment programme will however
remain high beyond 2000, in the range #25 to #30 million per annum. We also
expect much of the investment to be funded by higher levels of debt.
However despite our best efforts, we believe customers will need to
contribute to these improvements through modestly higher prices.
Accordingly we are now seeking permission to have new K factors of 2.2% in
2000/01 followed by 1.7% in each of the four subsequent years.
Major components underlying the submission are -
- new EU quality obligations requiring replacement of 68,000 lead supply
pipes mostly by 2003 at an estimated cost of #26 million
- replacement of more than 250 km of mains that will otherwise lead to
quality problems in the future
- modernisation of Barrow Treatment Works, our second largest, again to meet
new standards
- work on several borehole sources to minimise the risk of cryptosporidium
breakthrough
- #12 million on schemes to reduce nitrate levels that for a few days in a
year can exceed permitted standards
- installing an estimated 65,000 water meters for existing customers at no
charge to them
- additional operating costs arising from the ban on disconnection for non-
payment, enhanced water quality testing requirements and the effect of
the proposed climate change levy on energy costs
- a new agreement for improved maintenance and emergency procedures by
British Waterways Board for the Gloucester and Sharpness Canal.
We have included a summary of our proposals on our corporate website. It is
also available from our Corporate Affairs department. The Director General
will announce draft price limits at the end of July and will finalise them in
November this year. Until such time predicting both the outcome of the review
and the effect on future profitability and cashflows is not possible.
Conclusion
This period suffered the sadness of losing two colleagues, Sir John Wills so
shortly after his retirement as chairman of the holding company, and Stan
Bessey, our Water Services Director. Our continued sympathies remain with
their families as does our appreciation for their valued contribution.
We have achieved much during the last year. This is due, in no small part, to
the effort and commitment of all our staff. I would like to express to them
the thanks of the Board and, I am sure, of the shareholders. Together, we are
ready to meet the challenges of the future.
The outcome of the review of prices for the regulated business is of course
vitally important to the future of Bristol Water. In the short term we expect
another year of progress for the regulated business. It has been a busy and
fruitful year with good foundations established for the future.
J R Browning, Executive Chairman
PROFIT AND LOSS ACCOUNT
for the year ended 31 March 1999
1999 1998
#000 #000
Turnover 66,793 63,955
Operating costs 47,493 46,383
_______ _______
Operating profit 19,300 17,572
Profit on disposal of tangible fixed assets (135) (46)
Net interest payable and similar charges 4,650 3,773
_______ _______
Profit on ordinary activities
before taxation 14,785 13,845
Taxation on profit on ordinary activities 1,213 1,985
_______ ______
Profit on ordinary activities after taxation 13,572 11,860
Dividends -
On irredeemable preference shares 1,094 1,094
On redeemable preference shares 162 389
On ordinary shares 3,888 3,600
______ _______
Total dividends 5,144 5,083
______ _______
Profit retained for the year 8,428 6,777
______ _______
Earnings per share 205.3p 173.0p
______ _______
All of the turnover and operating costs above relate to continuing operations.
BALANCE SHEET
at 31 March 1999
1999 1998
#000 #000
(Restated)
Tangible fixed assets 160,765 145,197
________ _______
Current assets
Stocks 1,128 1,409
Debtors 8,563 7,212
Cash at bank and on deposit 2,450 5,208
________ _______
12,141 13,829
________ _______
Creditors: amounts falling due within one year
Short term borrowings 1,523 1,385
Other creditors 23,072 26,292
________ _______
24,595 27,677
________ _______
Net current liabilities (12,454) (13,848)
________ _______
Total assets less current liabilities 148,311 131,349
Creditors: amounts falling due
after one year 68,821 54,876
Deferred income 8,254 7,895
________ _______
71,236 68,578
________ _______
Capital and reserves
Called up share capital 18,498 24,268
Share premium account 4,415 4,415
Other non-distributable reserves 5,770 -
Profit and loss account 42,553 39,895
________ _______
Total shareholders' funds 71,236 68,578
________ _______
CASHFLOW STATEMENT
for the year ended 31 March 1999
1999 1998
#000 #000
(Restated)
Net cash inflow from operating activities 30,355 30,129
________ ________
Returns on investments and servicing of finance
Interest received 378 878
Interest paid (3,590) (3,744)
Interest paid on finance leases (1,676) (1,536)
Dividends paid on non-equity shares (1,256) (1,483)
_________ ________
(6,144) (5,885)
_________ ________
Taxation
Corporation tax paid (611) (1,084)
Advance corporation tax paid on dividends (993) (1,223)
_________ ________
(1,604) (2,307)
_________ ________
Capital expenditure
Purchase of tangible fixed assets (34,065) (28,167)
less contributions received 3,860 3,421
Proceeds on disposal of
tangible fixed assets 213 121
_________ _________
(29,992) (24,625)
_________ _________
Dividends paid on equity shares (3,686) (3,410)
_________ _________
Cash outflow before management
of liquid resources and financing (11,071) (6,098)
Management of liquid resources
being decrease in short term deposits - 11,250
Financing
Capital element of new finance leases 586 1,808
New bank loans 15,000 -
Capital element of lease repayments (1,503) (1,853)
Redemption of preference shares (5,770) -
_________ ________
8,313 (45)
_________ ________
Increase (decrease) in cash (2,758) 5,107
Cash, beginning of year 5,208 101
_________ ________
Cash, end of year 2,450 5,208
_________ ________
NOTES
1. BASIS OF PREPARATION AND CIRCULATION
These preliminary statements do not constitute the statutory accounts for
the year ended 31 March 1999. 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 1998 have been
extracted from the accounts of Bristol Water plc for the year ended 31
March 1998, upon which the auditors' report was unqualified and which have
been delivered to the Registrar of Companies. The comparative figures have
been restated to reflect the change in accounting policy and presentation
required by the adoption of revised methods of accounting for the
maintenance of infrastructure assets following adoption of FRS 12 and 15.
The Annual Report and Accounts will be posted to shareholders on or before
25 June 1999. 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, 26 July 1999 at 9:30am.
2. OPERATING COSTS
1999 1998
#000 #000
(Restated)
Net payroll cost 9,224 9,228
Other operating expenses 25,817 25,349
Depreciation, net 12,452 11,806
________ _________
Total operating costs 47,493 46,383
________ _________
3. TAXATION ON PROFIT ON ORDINARY ACTIVITIES
1999 1998
#000 #000
Mainstream corporation tax payable 1,036 714
Advance corporation tax 177 1,271
________ _________
Charge for the year 1,213 1,985
________ _________
4. DIVIDENDS
1999 1998
#000 #000
On non-equity shares -
Irredeemable 8.75% preference shares -
Paid 547 547
Payable 1 April 547 547
________ _________
1,094 1,094
Paid on convertible redeemable 6.75%
preference shares 1998 162 389
________ _________
1,256 1,483
________ _________
On ordinary shares (equity shares) -
Paid 1,166 1,080
Proposed 2,722 2,520
________ _________
3,888 3,600
________ _________
Total dividends paid and proposed 5,144 5,083
________ _________
5. EARNINGS PER SHARE
The calculation of basic earnings per ordinary share is based on profit
attributable to holders of ordinary shares of #12,316,000 (1998:
#10,377,000) and the weighted average number of ordinary shares in issue
during the year of 5,998,000 (1998: 5,998,000).
As the company has no obligations to issue further shares, disclosure of
earnings per share on a fully diluted basis is not required.
Adoption of FRS 14 has not required the restatement of comparative data.
6. TANGIBLE FIXED ASSETS
1999 1998
#000 #000
(Restated)
Net book value, beginning of year 145,197 131,018
Additions 31,599 29,237
Disposals (78) (75)
Contributions ( 3,244) (2,935)
Depreciation (12,709) (12,048)
_________ _________
Net book value, end of period 160,765 145,197
_________ _________
7. NET BORROWINGS
1999 1998
#000 #000
Cash 2,450 5,208
Debt due within one year (1,523) (1,385)
Debt due after one year (68,821) (54,876)
_________ ________
Net borrowings (67,894) (51,053)
_________ ________
8. MOVEMENT IN SHAREHOLDERS' FUNDS
1999 1998
#000 #000
Beginning of year 68,578 61,801
Profit for the year 13,572 11,860
Dividends (5,144) (5,083)
Redemption of preference shares (5,770) -
_________ ________
End of year 71,236 68,578
_________ ________
9. ADDITIONAL CASHFLOW INFORMATION
a) Reconciliation of operating profit to net cash inflow from operating
activities -
1999 1998
#000 #000
(Restated)
Operating profit 19,300 17,572
Depreciation, net 12,452 11,806
_______ __________
Cashflow from operations 31,752 29,378
Working capital movements -
Stocks 281 (590)
Debtors (1,351) (103)
Creditors (327) 1,444
________ _________
Net cash inflow from
operating activities 30,355 30,129
________ _________
b)Reconciliation of net cashflow to
movement in net borrowings -
1999 1998
#000 #000
Increase (decrease) in net
cash in year (2,758) 5,107
Cash used to repay borrowings 1,503 1,853
Cash from new borrowings (15,586) (1,808)
Cash from reducing liquid resources - (11,250)
________ _________
Increase in net borrowings (16,841) (6,098)
Net borrowings at beginning of year (51,053) (44,955)
________ _________
Net borrowings at end of year (67,894) (51,053)
________ _________
END
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