RNS Number:0347Z
South Staffordshire Plc
25 May 2004
South Staffordshire Plc
Preliminary Results Announcement
For the Year Ended 31 March 2004
Highlights
Turnover #72.8 m
Operating profit #20.9 m
Profit before tax #14.5 m
Earnings per share 83.1p
Dividend per share 46.0p
Net debt #94.1 m
*Listing of South Staffordshire Plc on 6 April 2004 following demerger
from Homeserve
*5% increase in regulated water supply operating profits which represent
80% of the Group
*Levels of service and efficiency amongst the highest in the water
industry
*Final Business Plan submitted to OFWAT for 2005 to 2010 price review.
Final determination in December 2004 will provide five years of certainty
*Expanded customer base in the Echo customer management business
David Sankey, Executive Chairman, commented:
"The past year has been a very successful one for the Group. The regulated
water business continues to provide amongst the highest levels of efficiency and
service in the industry coupled with low charges. Our results for the year
ended 31 March 2004 are ahead of expectations and provide a sound base for the
future."
25 May 2004
Enquiries:
South Staffordshire Plc
David Sankey, Executive Chairman Tel: 0207 457 2020 (today)
Adrian Page, Group Finance Director Tel: 01922 618001 (thereafter)
College Hill
James Henderson Tel: 020 7457 2020
Executive Chairman's Statement
This is the first results announcement of the newly listed South Staffordshire
Plc following its demerger from Homeserve plc (formerly South Staffordshire
Group Plc) on 6 April 2004.
The Group comprises South Staffordshire Water, a regulated water supply business
which has been supplying water to the Midlands for 150 years, together with the
complementary non-regulated activities of Echo, Rapid, Underground Pipeline
Services and Aqua Direct. The demerger from Homeserve has created a distinct
business profile and identity for South Staffordshire and provides greater focus
for the business and management. It allows the Group to maintain its own
appropriate capital structure and dividend policy, thus providing a distinct
investment case for investors seeking a stable income stream with some growth
opportunities.
The past year has been a successful one for the newly listed Group with the
regulated water business continuing to provide amongst the highest levels of
service and efficiency in the industry as measured by OFWAT, coupled with low
charges. The Echo customer management business continues to expand its customer
base outside its core utility business.
Group Results
Our results for the year ended 31 March 2004 are ahead of expectations and
provide a sound base for the future. In the year ended 31 March 2004 turnover
(including share of joint ventures) reduced by 1% to #72.8m (2003: #73.3m).
Profit before tax of #14.5m (2003: #16.8m) was, as expected, 14% lower.
Regulated water supply performed well increasing operating profits by 5% to
#16.8m (2003: #16.0m). However, as explained in the Listing Particulars sent to
shareholders in relation to the demerger, operating profits in our non-regulated
businesses reduced to #4.1m (2003: #5.4m). This was a combination of no major
licence sale of our Rapid software (which in 2003 amounted to #1.2m) and
Underground Pipeline Services being affected by the planned lower levels of
activity for South Staffordshire Water, its main customer. This has been partly
offset by growth in Echo. As expected the interest charge increased to #6.3m
(2003: #4.6m) to reflect the full year impact of the #85m index-linked bond
issued in August and September 2002.
Earnings per share for the year amounted to 83.1p. The Board is proposing a
final dividend per share of 34.4p, which combined with the interim dividend of
11.6p paid on an inter-group basis to Homeserve plc (when it was South
Staffordshire Group Plc), makes a total dividend for the year of 46.0p. This
total dividend of #5.9m is covered 1.8 times by earnings of #10.5m. The final
dividend will be paid on 1 July 2004 to shareholders on the register at the
close of business on 4 June 2004.
Net debt at 31 March 2004 of #94.1m (2003: #93.2m) comprises debt in the
regulated business of #105.7m, being 66% of its regulated asset value of #161m,
and cash in the non-regulated businesses of #11.6m.
Regulated Water Supply
South Staffordshire Water, our regulated water supply business, represents
approximately 80% of the Group's turnover and operating profits. It supplies
clean water, but not sewerage services, in the Midlands to a population of 1.2
million and to 38,000 commercial customers. Of the 22 water companies in
England and Wales, South Staffordshire Water had the second lowest average
annual household bill at #89 for 2003/4, 20% below the national average. The
Company was assessed by OFWAT as second in the industry for levels of services
in 2002/3. Provisional results submitted to OFWAT show a higher score for
2003/4, whilst water quality is expected to remain at 99.9% compliance.
The past year has seen continued efficiency savings, despite increased pumping
and repair costs caused by the dry summer, and the operating cost base has been
reduced by 17% in real terms since 1998. The Company is ranked second in the
industry by OFWAT for operating efficiency.
The Final Business Plan in respect of the Periodic Review of prices by OFWAT for
the five years from 2005 to 2010 was submitted to OFWAT on 7 April 2004. This
proposes a 40% uplift in mains renewal activity at an additional cost of #2m per
annum, capital expenditure of #104m for the five year period (net of capital
contributions), broadly in line with the past five years, and an increase in
water charges of 19.4% in real terms over the five year period. This is one of
the lowest proposed increases in the industry on what is already one of the
lowest charges.
Non-Regulated Activities
The Group's non-regulated businesses comprise Echo, Rapid, Underground Pipeline
Services and Aqua Direct. Echo provides outsourced customer contact management
and billing activities for water utility and non-water industry customers.
Rapid provides development and implementation of customer contact and billing
software for the UK water industry. Underground Pipeline Services repairs and
replaces water mains, principally for South Staffordshire Water. Aqua Direct is
a spring and mineral water business. These businesses represent approximately
20% of Group turnover and operating profits, generally operate on long term
contracts and are closely related to the water business in expertise and
technical skills.
Echo has maintained high levels of performance in its customer service, billing
and debt recovery activities for its water industry clients - South
Staffordshire Water, Severn Trent Water and South West Water. In addition, it
has continued to expand its customer base by providing specialist call centre
services to other clients outside the water sector such as OneBill Telecom and
JD Williams, part of the N. Brown Group. Rapid continues to generate recurring
revenues from maintenance and ongoing system enhancements for its existing
clients.
In May 2004 Aqua Direct completed construction of a bottling plant to supply
mineral water bottled at source to retailers. This complements the existing
tankering operation which supplies soft drinks bottlers. Underground Pipeline
Services has recently won a four year contract with South Staffordshire Water in
competitive tender for mains renewal, although activity will remain low until
the start of the next five year review period in 2005.
Employees
I would like to thank all managers and staff for their hard work in achieving
this successful year and for their support during the demerger process.
On a very sad note, David Penna, the Managing Director of South Staffordshire
Water, died on 17 December 2003. David was just 54 and had made a significant
contribution to the business in his seven years as Managing Director. He will
be greatly missed by everyone in the Group and throughout the water industry.
It is a testimony to the strong team which David built that the business has
continued to achieve such a good performance.
Dividend Policy
The proposed dividend for the year ended 31 March 2004 has been based on a
dividend cover of 1.8 times, in line with historic dividends paid on an
inter-group basis. It is the Directors' intention to grow future dividends
broadly in line with earnings.
Prospects
The Directors will continue to work with OFWAT to ensure that a satisfactory
outcome to the Periodic Review of prices for the period to 2010 is achieved
during the coming year.
The Group's strategy is to continue to operate the regulated water business as
efficiently as possible and to achieve stable profit growth whilst maintaining
its high service standards and low charges. In addition, the Group intends to
grow its profitable and cash generative non-regulated businesses in a low risk
manner in order to create additional value for shareholders. Overall the Group
should benefit from the stable and predictable returns from the regulated water
supply business being supplemented by growth in the non-regulated activities.
D B Sankey
EXECUTIVE CHAIRMAN
25 May 2004
Operational Review
Regulated Water Supply
South Staffordshire Water continues to perform exceptionally well in the UK
Water Industry delivering a combination of value for money, excellent quality
and high levels of service and efficiency.
The last few years have seen significant change in the business and 2003/4
continued this trend. As a result of cost saving and efficiency initiatives,
the Company has improved its operating cost efficiency from seventeenth in the
industry in 1999/00 to second in 2002/3 as ranked by OFWAT. This has been
achieved through a combination of consolidating four area offices into our head
office, outsourcing customer service and laboratory analysis, reductions in
staffing and management of over 30% and increased use of automation and
technology. We are very proud of this achievement which is a reflection of the
hard work put in by managers, staff and all of our suppliers and contractors
with whom we work so closely. Cost savings last year amounted to a further 0.7%
in real terms, including outsourcing of microbiological analysis, together with
continued progress on the implementation of the operational job management
system. Further savings are planned, but these will be at a significantly lower
level than achieved historically and will be hard to achieve without affecting
future levels of service.
Levels of service to our customers remain excellent, with the Company placed in
second position across the Industry in 2002/3 using OFWAT's overall performance
assessment (which measured overall performance on levels of service, leakage,
water quality and supply resilience). We have now been in the top three for
each of the last four years. The provisional results submitted to OFWAT show
that performance has improved further during the year ended 31 March 2004.
Our domestic customers continued to pay the second lowest charge in England and
Wales with an annual household bill of #89 (20% below the national average)
which, when combined with Severn Trent's sewerage charge, which we collect on
their behalf through our contract with Echo, means that our domestic customers
benefit from the lowest overall charge in England and Wales. In addition, our
large industrial clients enjoy the lowest volumetric rates in the country.
The year saw another excellent result for water quality with compliance again
being over 99.9%. Our demanding targets for leakage have continued to be
achieved.
Capital investment in the year amounted to #26m (net of contributions). This
was primarily on major mainlaying schemes associated with the increased capacity
of our second largest treatment works at Seedy Mill, which was upgraded last
year, and with enhancements to supply security. This level of expenditure will
reduce significantly in 2004/5, the final year of the current five year review
period, before increasing to historic levels in 2005/6.
The weather and water resources saw an unusual year. Last October the country
had seen several months of lower than average rainfall and had only moderate
reservoir stocks, however by February 2004 a period of extensive rainfall had
returned these stocks to normal. The Company has a wide variety of water
resources available and for the time of year the resource position is currently
very healthy.
2003 was the 150th anniversary of the Company which was originally incorporated
on 4 August 1853. To celebrate this event, the Company was delighted to host a
luncheon at Blithfield Hall attended by HRH the Earl of Wessex. The day was a
fitting reflection of 150 years of water supply and business growth.
Periodic Review of Prices
The past year has seen considerable activity in relation to the Periodic Review
of charges for the five year period from 2005 to 2010. The Company's Draft
Business Plan was submitted to OFWAT in August 2003 and the Final Business Plan
on 7 April 2004.
The Plan confirms South Staffordshire Water's intention to deliver best value
for money to its customers. The strategic objectives are to maintain existing
high levels of customer service and satisfaction, supply security and water
quality, whilst increasing asset renewal activity particularly of our
underground mains and continuing to offer one of the lowest bills in the
industry.
The Plan includes a price increase on South Staffordshire Water's current low
charges of 19.4% in real terms over the five-year period, including 9.7% in the
first year. This compares to the proposed industry average increase of
approximately 30% over the five years.
As part of the Plan, South Staffordshire Water proposes to increase the rate of
water mains renewal by 40% compared to the current five year period (an
additional capital expenditure of #2 million per annum) as part of a long term
policy to replace underground assets and in response to the increasing level of
burst mains experienced in recent years. Additional maintenance expenditure is
also needed for above ground assets with an 8% uplift compared to the average
for the last 10 years. However, following the successful completion of the
large programme of works for water quality and resources in the current
five-year review period to 2005, the Company will be able to reduce investment
in these areas. The Plan therefore contains a capital expenditure programme for
the five years of #120 million (#104 million net of capital contributions
receivable of #16 million), compared with #116 million for the current five-year
period.
At this level of expenditure and with the level of price increases included in
the Plan, South Staffordshire Water would expect to be broadly cash neutral over
the five year period after taking into account dividends paid at a cover of 1.8
times earnings. The Plan includes a cost of capital assumption of 5.9%,
including a small company premium of 0.7%, based on the actual debt costs of the
Company for its index-linked bond and its assumed level of gearing over the
review period.
South Staffordshire Water is one of the most efficient businesses in the
industry and will continue to seek efficiency improvements over the next five
year review period. Savings of 0.7% per annum have been included in the Plan
and are assumed to be shared equally between the Company and its customers.
Certain operating cost increases outside the direct control of the Company, such
as pension contributions and power costs, are also included in the Plan.
The draft determination of prices for 2005 to 2010 is expected to be received
from OFWAT on 5 August 2004. The final determination will be made on 2 December
2004, for implementation in April 2005, and will provide certainty for the five
years to 2010.
Aqua Direct
Based near Lichfield, Aqua Direct provides tankered spring water from its
Elmhurst Spring and Maple Spring sources to UK soft drinks manufacturers. 2003/
4 has seen the customer base expand and develop with many household name branded
drinks using our spring water. We have also provided tankered spring water to
music festivals and concerts.
The dry summer of 2003 left a number of water companies stocks at low levels.
With reliable and ample water resources, Aqua Direct was able in a number of
instances to tanker relief supplies direct to their consumers.
Towards the end of 2003 Aqua Direct started the construction of a fully
automated still and carbonated mineral water bottling plant. This plant was
commissioned in May 2004 and will supply bottled water to UK supermarkets sold
under their brands. In addition, it will provide emergency bottled supplies to
South Staffordshire Water and other water utilities. A smaller plant will also
be commissioned this year to supply the growing office water cooler market.
Whilst still at an early stage of development, Aqua Direct represents a good
opportunity for the future.
Underground Pipeline Services
Underground Pipeline Services repairs, maintains and replaces water mains and
undertakes small diameter main laying, principally through the use of
sub-contractors. Approximately 90% of the business is for South Staffordshire
Water through long term contracts won in competitive tender.
The business has successfully tendered for water mains rehabilitation services
for South Staffordshire Water for the period 2004 to 2008, extendable to 2010.
This work has an estimated value of around #14m for the six year period to 2010,
although increased activity is not expected until the start of the five year
period. When combined with the ongoing maintenance and repair contract with
South Staffordshire Water this forms a solid base from which to grow.
The business also has contracts with a number of local authorities within the
Midlands area for carrying out reactive repairs to underground leaks. This is
being slowly expanded to broaden the range of services offered and its customer
base.
Additionally, it provides pipe condition assessment services to other water
companies using various techniques including non destructive testing.
Opportunities exist to develop this service as water companies seek to learn
more about the condition of their underground assets.
Echo
Echo provides outsourced customer contact management, billing and debt recovery
activities for the regulated business of South Staffordshire Water and for
Severn Trent within South Staffordshire Water's licensed area of supply. Echo
also has a 50/50 joint venture with South West Water Ltd (Echo South West) for
the provision of similar customer contact, billing and debt recovery services to
the regulated water and waste water business of South West Water Ltd. The joint
venture continues to provide efficiencies and improved levels of customer
service to South West Water and should begin to contribute to profits over the
next 18 months. These three utility customers represent 90% of Echo's turnover
and provide a base upon which the business can be grown.
Echo also offers customer management services for mid-size and large
organisations, allowing them to acquire, retain and grow new customers. The
main products and services include:
* Inbound contact management handling all types of inbound customer contact
including telephone, e-mail, and post.
* Outbound telebusiness management of targeted telebusiness campaigns to an
existing customer base, providing additional contact channels within direct
marketing campaigns.
* Debt collection utilising the latest technology and significant experience
(gained from managing debt recovery services in the water industry) to provide
bespoke solutions.
* Attraction/Recruitment and Retention solutions in today's competitive market
for the recruitment and retention of the highest quality team members, Echo
offer a number of solutions, including initial attraction campaigns, call
screening, on-line competency based interviews, assessment centres and interview
booking.
* Customer satisfaction surveys the design, delivery and analysis of telephone
or e-commerce based customer satisfaction programmes.
In addition to Green Flag, Spring Recruitment and East Devon and District
council, new clients secured within the year include JD Williams, part of the N.
Brown Group (the UK's leading direct marketing company) and OneBill Telecom, in
addition to a number of other shorter term contracts.
Echo will continue to focus on the delivery of high levels of service, billing
and debt recovery for its clients within the water industry. In addition it
will continue to expand its customer base by offering specialist services to
other clients, with a number of clients already secured for the new financial
year.
Rapid
Rapid developed the customer contact management software for South Staffordshire
Water and sold licences to a number of other UK water companies. In 2003 it was
operationally merged with Echo to maximise and capitalise upon the strengths of
both businesses.
For the past year, Rapid has continued to support the billing of 2.4 million UK
customers through its client base of South Staffordshire Water, South West
Water, Hartlepool Water and Bristol and Wessex Billing Services (a joint venture
billing operation between Bristol Water and Wessex Water).
Throughout next year, Rapid will continue to support and develop the software to
meet the needs of our existing clients. The sales and implementation cycle for
the Rapid billing software is typically spread over a 12 month period and
although we do not expect any significant licence fee revenue for the year to
March 2005, we will continue to benefit from the existing revenue streams of
maintenance and bespoke development.
Financial Review
Group Results
Group turnover (including share of joint venture) for the year was #72.8m (2003:
#73.3m). Turnover increased in the regulated water supply business by #1.6m
(2.7%) to #60.4m. This reflects the increase in RPI of 2.65% used to increase
charges for the year and the Company's k factor of -1%, coupled with marginally
higher demand from measured customers.
Non-regulated external turnover was #12.4m (2003: #14.5m). This reduction in
turnover is principally due to the expected absence of a major new license sale
of Rapid software (2003: #1.2m) and a #1m reduction in the turnover of
Underground Pipeline Services arising from the planned lower levels of mains
renewals activity for South Staffordshire Water and the impact of a one off
large external contract in 2003. This has been partly offset by 6% growth in
Echo's turnover to #11.6m from increased sales to its non-utility customers.
Operating profit of #20.9m (2003: #21.4m) is at a margin of 29% and was, as
expected, 2.5% lower. Operating profit from regulated water supply increased by
#0.7m (4.7%) to #16.8m. This reflects the continued focus on improvements in
operating efficiency and an increase in profit on disposal of fixed assets of
#0.4m to #0.5m in the regulated business, partly offset by an increase in the
depreciation charge of #0.6m.
Operating profits from non-regulated activities were #4.1m (2003: #5.4m) and
reflect the reduced turnover from the lack of a major new licence sale for Rapid
and lower activity for Underground Pipeline Services, partly offset by growth in
Echo.
Group profit before tax was #14.5m (2003: #16.8m). This includes the full year
impact of the #85m index-linked bond (issued in August and September 2002) on
the Group's interest charge, which totalled #6.3m, compared to #4.6m in 2003.
The results presented are based on merger accounting principles which reflect
the results of the Group as if it had been in its current structure throughout
the two years ended 31 March 2004.
Demerger
The professional fees and other costs relating to the demerger have been borne
in full by Homeserve plc. The directors do not expect any significant increase
in costs as a result of being a stand alone quoted group.
Taxation
The total tax charge for the year was #4.0m, compared to #4.4m in 2003,
including current tax of #2.7m and a discounted deferred tax charge of #1.3m,
which, as expected, was at an effective tax rate of 27.4%. This effective rate
is expected to be broadly maintained in the coming year.
Dividends
The Board is proposing a full year dividend of #5.9m which represents a dividend
cover of 1.8 times. The Board believes the dividend provides a healthy
financial return to its shareholders while retaining sufficient reserves for
further investment and growth. The regulated water business has declared a
dividend for the year of #4.2m, which represents 71% of the total Group
dividend.
Cash Flow and Debt
The Group achieved a cash inflow of #0.7m during the year (2003: inflow of
#13.2m). The difference from 2003 was largely due to the net inflow of #18.7m
from the issue of the index-linked bond and the related restructuring dividend
in 2003.
The Group generated an operating cash inflow of #31.4m, an increase of 4.3% on
2003, reflecting significant working capital improvements. The net cash outflow
from interest increased by #1.4m to #3.8m, primarily resulting from the full
year impact of the index-linked bond.
The net cash outflow on capital expenditure (after capital contributions)
totalled #25.5m, exceeding 2003 by #5.2m. This was predominantly within the
regulated water supply business and includes a number of mainlaying projects,
the construction of the new bottling plant and the purchase of the Echo call
centre building.
In March 2004, the Group received a net cash inflow of #8.4m following the issue
of new shares to its then parent Homeserve. After settling certain
inter-company balances this resulted in a net increase in cash of #2.9m.
At 31 March 2004 net debt stood at #94.1m (2003: #93.2m). Net debt within the
regulated business totalled #105.7m representing 66% of Regulated Asset Value of
#161m, with cash in the non-regulated businesses of #11.6m.
The Group now has total bank facilities and bond financing in place of #118.0m.
The majority of this financing is long term reflecting the nature of the assets
acquired in the regulated water supply business. The fixed coupon rate on the
bond reduces the Group's exposure to short term interest rate increases, with
inflation risk on the cost of the bond being effectively hedged against
regulated water supply revenues, which are linked to inflation.
Pensions
The Group continues to account for pension costs for its final salary scheme in
accordance with SSAP 24 and makes the transitional disclosures required by
FRS17. The latest actuarial valuation performed for the purposes of FRS17
showed a deficit, after deferred tax, of #8.7m (2003: #7.8m) in the sub fund of
the Water Companies Pension Scheme for the employees of both South Staffordshire
and Homeserve. This deficit is not considered reflective of the ongoing funding
of the scheme following a recent interim actuarial valuation, however pension
contributions have been increased from 9.6% to 16.3% of remuneration from April
2004.
Following the demerger, a separate independent sub fund has been created for
Homeserve and the employees, assets and liabilities relating to Homeserve are in
the process of being transferred out of the existing sub-fund. An interim
actuarial valuation at 30 November 2003 reported a deficit of #2.9m in the sub
fund on an ongoing actuarial basis. It is anticipated that South Staffordshire
will retain approximately 85% of the deficit calculated on an ongoing basis.
A P Page
GROUP FINANCE DIRECTOR
25 May 2004
Consolidated Profit and Loss Account
For the Year Ended 31 March 2004
2004 2003
Note #'000 #'000
Turnover 2 72,832 73,339
Less share of joint venture's turnover (4,173) (4,026)
Group turnover 68,659 69,313
Operating costs (net) 4 (47,549) (47,755)
Operating profit
Group operating profit 21,110 21,558
Share of joint venture's operating loss (251) (163)
Total operating profit: Group and share of joint venture 3 20,859 21,395
Net interest payable 5 (6,344) (4,613)
Profit on ordinary activities before taxation 14,515 16,782
Taxation on profit on ordinary activities 6 (3,974) (4,423)
Profit on ordinary activities after taxation 10,541 12,359
Dividends paid and proposed 7
Ordinary dividend (5,856) (6,830)
Restructuring dividend - (65,000)
Retained profit/(loss) for the year 4,685 (59,471)
Earnings per share
Basic 8 83.1p 97.5p
Diluted 8 83.1p 97.5p
Ordinary dividend per share 7 46.0p 53.9p
Consolidated Balance Sheet
As at 31 March 2004
2004 2003
Note #'000 #'000
Fixed assets
Tangible assets 153,360 138,417
Current assets
Stocks 1,047 1,259
Debtors 8,820 10,015
Cash at bank and in hand 1,022 871
10,889 12,145
Creditors - amounts falling due within one year
Borrowings 9 (3,264) (3,836)
Other creditors (27,606) (29,857)
(30,870) (33,693)
Net current liabilities (19,981) (21,548)
Total assets less current liabilities 133,379 116,869
Creditors - amounts falling due after more than one year
Borrowings 9 (91,816) (90,190)
Provisions for liabilities and charges (8,654) (7,021)
Accruals and deferred income (4,554) (4,352)
Net assets 28,355 15,306
Capital and reserves
Share capital 5,412 5,384
Share premium 10,269 1,933
Merger reserve (253) (253)
Profit and loss account 12,927 8,242
Equity shareholders' funds 11 28,355 15,306
Consolidated Cash Flow Statement
For the Year Ended 31 March 2004
2004 2003
#'000 #'000 #'000 #'000
Net cash inflow from operating activities 31,389 30,094
Returns on investments and servicing of finance:
Interest paid (3,490) (1,990)
Interest element of finance lease and hire-purchase
rental payments (318) (394)
Net cash outflow from returns on investments
and servicing of finance (3,808) (2,384)
Taxation:
Corporation tax paid (2,548) (4,736)
Capital expenditure and financial investment:
Purchase of tangible fixed assets (31,161) (25,353)
Investment in joint ventures - (100)
Sale of tangible fixed assets 859 365
Capital contributions received 4,782 4,795
Net cash outflow from capital expenditure
and financial investment (25,520) (20,293)
Equity dividends paid (6,256) (72,274)
Financing:
Issue of ordinary share capital 8,364 -
Proceeds from bond issue - 83,712
Capital element of finance lease and hire-purchase
rental payments (971) (909)
Net cash inflow from financing 7,393 82,803
Increase in cash 650 13,210
Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities
2004 2003
#'000 #'000
Total operating profit: Group and share of joint venture 20,859 21,395
Depreciation, net of amortisation of capital contributions 11,470 10,799
Profit on disposal of tangible fixed assets (691) (312)
Share of operating loss in joint venture 251 163
Increase in working capital (500) (1,951)
Net cash inflow from operating activities 31,389 30,094
1. Financial Reporting
The Group's principal accounting policies have been consistently applied
throughout the year and the previous year.
The results presented are based on the merger accounting principles, which
reflect the results of the Group as if it had been in its current structure
throughout the two years ended 31 March 2004.
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 March 2004 or 2003. Consolidated
statutory accounts for 2003 have not been delivered to the Registrar of
Companies as the Company was a wholly owned subsidiary of Homeserve plc and as
such was exempt from the requirement to prepare consolidated accounts. The
consolidated statutory accounts for 2004 will be delivered following the
Company's Annual General Meeting. The auditors have reported on those accounts;
their reports were unqualified and did not contain statements under s237 (2) or
(3) Companies Act 1985.
2. Turnover
2004 2003
#'000 #'000
Regulated water supply 60,427 58,836
Non-regulated activities 24,691 26,590
Inter-divisional (12,286) (12,087)
External non-regulated activities 12,405 14,503
72,832 73,339
Inter-divisional turnover relates to non-regulated activities charged to the
regulated water supply business.
3. Operating Profit
2004 2003
#'000 #'000
Regulated water supply 16,774 16,028
Non-regulated activities 4,085 5,367
20,859 21,395
4. Operating Costs (Net)
2004 2003
#'000 #'000
Other operating income (1,127) (817)
Raw materials and consumables 3,717 3,576
Staff costs 14,928 15,744
Depreciation (infrastructure assets) 5,485 5,016
Depreciation (non-infrastructure assets) 6,244 5,991
Other operating costs 18,302 18,245
47,549 47,755
5. Net Interest Payable
2004 2003
#'000 #'000
Interest payable and similar charges
Index-linked bond 5,843 3,614
Bank overdraft and other interest 116 551
Finance charges in respect of finance leases
and hire-purchase contracts 318 394
Irredeemable debenture stock 67 67
6,344 4,626
Share of joint venture's interest receivable - (13)
6,344 4,613
Net interest payable includes #6,523,000 in the regulated water supply business
(2003: #4,728,000).
6. Taxation
The tax charge for the year comprises:
2004 2003
#'000 #'000
Current tax
Current year 2,534 3,738
Adjustment in respect of prior years 119 (711)
Total current tax charge 2,653 3,027
Deferred tax
Origination and reversal of timing differences 1,745 1,548
Increase in discount (266) (152)
Adjustment in respect of prior years (158) -
Total deferred tax charge 1,321 1,396
Total tax charge 3,974 4,423
The overall rate of tax for the Group, including deferred tax, based on profit
before tax was 27.4% (2003: 26.4%).
7. Dividends Paid and Proposed
2004 2003
#'000 #'000
Equity interests
Ordinary dividends
- Interim dividend paid of 11.6p (2003: 16.2p) per share 1,476 2,050
- Proposed dividend of 34.4p (2003: 37.7p) per share 4,380 4,780
5,856 6,830
Restructuring dividend
- Interim dividend paid of #nil (2003: #5.13) per share - 65,000
5,856 71,830
The 2004 interim dividend of #1,476,000 (11.6p per share) was paid to the then
immediate and ultimate holding company, Homeserve plc. The 2004 final dividend
of #4,380,000 (34.4p per share) will be paid, on 1 July 2004, to the
shareholders of the Company on the register at close of business on 4 June 2004.
8. Earnings per Share
Earnings per share is calculated by dividing the profit for the financial year
by the weighted average number of shares in issue during the year.
2004 2003
#'000 #'000
Profit for the financial year
and profit for earnings per share 10,541 12,359
2004 2003
Number of Number of
Shares Shares
Weighted average number of shares
For basic earnings per share 12,678,267 12,675,200
Exercise of share options - -
For diluted earnings per share 12,678,267 12,675,200
9. Borrowings
2004 2003
#'000 #'000
Amounts falling due within one year
Bank loans and overdraft 2,323 2,822
Obligations under finance leases and
hire purchase contracts 941 1,014
3,264 3,836
Amounts falling due after more than one year
Index-linked bond 87,941 85,417
Irredeemable debenture stock 1,633 1,633
Obligations under finance leases and hire-purchase contracts:
Payable between one and two years 715 924
Payable between two and five years 1,527 2,014
Payable after five years - 202
91,816 90,190
Cash at bank and in hand (1,022) (871)
Net debt 94,058 93,155
The index-linked bond was issued in August and September 2002 with a coupon of
3.75%, is unsecured and is repayable in 2025.
10. Reconciliation of Movement in Net Debt
2004 2003
#'000 #'000
Increase/(decrease) in cash 151 (150)
Decrease in bank loans and overdraft 499 13,360
650 13,210
Debt repayments 971 909
Assets purchased under finance leases - (655)
Index-linked bond
- proceeds from issue - (83,712)
- indexation (2,524) (1,705)
Increase in net debt in year (903) (71,953)
Net debt brought forward (93,155) (21,202)
Net debt carried forward (note 9) (94,058) (93,155)
11. Reconciliation of Movements in Consolidated Shareholders' Funds
2004 2003
#'000 #'000
Profit for the financial year 10,541 12,359
Dividends (5,856) (71,830)
4,685 (59,471)
New share capital subscribed 8,364 -
Net additions/(reduction) to shareholders' funds 13,049 (59,471)
Opening shareholders' funds 15,306 74,777
Closing shareholders' funds 28,355 15,306
12. Other Information
The Annual Report and Accounts for the year ended 31 March 2004 were approved by
the Board on 25 May 2004 and will be posted to Shareholders on 2 June 2004.
Further copies will be available from the Registered Office at Green Lane,
Walsall, WS2 7PD.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EANSLAFNLEFE
Sth. Staff. (LSE:SSW)
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