Final Results
Northumbrian Water Group PLC
06 June 2007
6 June 2007
NORTHUMBRIAN WATER GROUP PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2007
Northumbrian Water Group plc (NWG or the Group) is pleased to announce its
preliminary results for the year ended 31 March 2007.
HIGHLIGHTS 2007
Year to Year to
31.3.2007 31.3.2006 Change Change
£m £m £m %
Continuing operations
Revenue 633.5 591.5 42.0 7.1
Profit on ordinary activities before interest 258.2 236.2 22.0 9.3
Profit before tax 147.8 130.3 17.5 13.4
Profit before tax and FV debt amortisation(1) 140.1 117.3 22.8 19.4
Profit after tax 111.2 91.0 20.2 22.2
Net debt 2,079.6 2,010.4 69.2 3.4
RCV 2,817 2,624 193 7.4
Continuing operations
Basic EPS 21.42p 17.48p 3.94p 22.5%
Adjusted EPS(1,2) 24.95p 19.52p 5.43p 27.8%
Ordinary dividends paid and proposed(3) 11.27p 10.56p 0.71p 6.7%
Notes:
(1) Excludes fair value debt amortisation £7.7 million (2006: £13.0 million)
(2) Excludes deferred tax £28.0 million (2006: £23.6 million), IAS 39 credit
£2.0 million (2006: nil)
(3) Ordinary interim dividends paid 3.75p (2006: 3.52p), final proposed 7.52p
(2006: 7.04p)
• Total regulated capital investment for the year of £225 million;
cumulative investment of £436.9 million over last 2 years, on track to invest £1
billion by 2010
• Customers to benefit from price changes from April 2007 to March 2010:
decision taken by NWL not to increase prices by the full amount allowed by Ofwat
at the last price review
• Continuing high levels of customer service and satisfaction
• Financial position strengthened by the issue of two £100 million index
linked Eurobonds to finance capital investment through to 2010
• Proposed final dividend of 7.52 pence per share to be paid on 14
September 2007, giving a full year ordinary dividend of 11.27 pence per share,
an increase of 6.7%
• Delivering regulatory outputs for drinking water quality and
environmental improvement
• Water supplies maintained without restriction; resource management
initiatives implemented, including plans for a projected 60% increase in
capacity at Abberton
• Leakage targets achieved for 8th consecutive year
• Best ever bathing water quality results
Managing Director John Cuthbert said, "The Group has delivered a strong set of
operational and financial results and these provide the foundation for continued
good performance through the remainder of the current regulatory period. We have
put in place the funding needed for the investment programme to 2010 and that
programme will deliver the regulatory outputs and also the priorities identified
by our customers, the Consumer Council for Water and our other stakeholders.
With a strong performance, delivering value to both customers and investors, the
NWL board has decided not to apply the price increases above RPI allowed in the
last two years of the current regulatory period. Alongside high standards of
service, customers will now benefit from bills that will be lower than they
would have otherwise been."
For further information contact:
Northumbrian Water 0191 301 6419
John Cuthbert, Managing Director
Chris Green, Finance Director
Alistair Baker, Communications & PR Manager
Pelham PR 020 7743 6679
James Henderson
Chelsea Hayes
Archie Berens
MANAGING DIRECTOR'S STATEMENT
NWG's financial performance
Revenue was £633.5 million for the year to 31 March 2007 and represents a 7.1%
increase on the year to 31 March 2006. This increase is mainly due to the uplift
in water and sewerage charges to support continuing high capital investment as
part of the regulatory price review in 2004.
Profit on ordinary activities before interest for the year was £258.2 million
(2006: £236.2 million). Operating costs increased by £20.0 million (5.6%) to
£375.3 million with upward pressure on costs, particularly energy, partially
mitigated by ongoing efficiencies.
The net interest charge was £111.2 million (2006: £106.0 million). This charge
includes a credit of £7.7 million (2006: £13.0 million) in respect of the
amortisation of the debt fair value and a gain of £2.9 million (2006: nil) in
respect of the cancellation of a financial instrument.
Profit on ordinary activities before tax for the year was £147.8 million, 13.4%
higher than the previous year (2006: £130.3 million). The tax charge of £36.6
million (2006: £39.3 million) reflects increased profitability, adjustments in
respect of prior periods arising from changes in claims for capital allowances,
a revision to retirement benefits and a reduction in the amortisation of
financing items. The effective tax rate for the year to 31 March 2007 was 25%
(2006: 30%).
The Group's gearing has decreased from 77% to 74% of Northumbrian Water
Limited's (NWL) regulatory capital value (RCV), with net debt increasing by
£69.2 million to £2,079.6 million over the year. The decrease in the Group's
gearing is principally due to the growth in RCV over the year from £2,624
million to £2,817 million at 31 March 2007. For the regulated business within
NWL, gearing decreased from 58% to 57%.
Cash interest cover for the Group has improved from 2.7x to 2.9x in the year
reflecting the positive cash effects of the index linked bond issuance since
September 2005.
Earnings per share and dividends
Basic and diluted earnings per share were 21.42 pence (2006: 20.45 pence) and
21.38 pence (2006: 20.42 pence) respectively. Earnings per share from continuing
operations, adjusted for IAS 39, deferred tax and the amortisation of debt fair
value, were 24.95 pence (2006: 19.52 pence).
A final dividend of 7.52 pence per share for the year ended 31 March 2007 will
be recommended by the Board to shareholders at the AGM on 2 August 2007 and, if
approved, will be paid on 14 September 2007 to shareholders on the register at
the close of business on 17 August 2007. Together with the ordinary interim
dividend of 3.75 pence per share, the ordinary dividends paid and proposed for
the year will be 11.27 pence per share (2006: 10.56 pence per share). This
represents an increase of 6.7% on the ordinary dividend for the previous year
and is consistent with the Board's decision to maintain a progressive dividend
policy with real increases of around 3% p.a. The board of our main subsidiary,
NWL, has proposed a dividend policy consistent with the underlying assumptions
adopted by Ofwat at its price review in 2004.
The dividend cover for the year is 1.9x, and 2.3x (2006: 1.5x and 1.7x,
including the special dividend) excluding deferred tax and the amortisation of
debt fair value.
Future price changes
Customers are to benefit from price changes in the period from April 2007 to
March 2010 following confirmation from NWL that it will not increase prices by
the amount allowed by Ofwat at the last price review. The cumulative benefit to
customers from 2007 to 2010 will be around £22 million.
Market conditions have been favourable over the last eighteen months and NWL has
taken advantage of this and secured funding on attractive terms for the capital
programme through to 2010. The benefit of this, together with the strong
performance to date, informed the decision of the NWL Board to limit increases
in bills in 2008/09 and 2009/10 to RPI.
The K allowance for 2007/08 of 3.2% has already been limited to 2.8% and this is
reflected in current bills. The K allowances for 2008/09 and 2009/10, of 1% and
0.6% respectively, include financeability adjustments introduced to ensure
companies could finance their functions with adequate financial ratios
throughout the 2005 to 2010 period. These adjustments were to assist financing
and were not available for distribution.
This has no impact on dividend policy and shareholders will continue to benefit
from any outperformance.
Capital structure
In June 2006, Northumbrian Water Finance plc (NWF), the finance subsidiary of
NWL, issued two further £100 million index linked Eurobonds with real coupons of
1.7118% and 1.7484% and with maturities of 2049 and 2053, respectively. Index
linked debt now comprises 18% of the gross debt portfolio, whilst fixed rate
debt amounts to 65%.
On 28 June 2006, the Group redeemed the remaining £172 million 8.625% Eurobonds.
The redemption was financed by the drawdown of £125 million of five year
committed bank facilities with the balance coming from cash resources. The loans
were taken on a variable basis with interest rates linked to LIBOR.
In March 2007, the latest £100 million EIB facility was drawn by NWL. The loan
was advanced on a variable interest rate basis, with a fifteen year maturity and
an amortising principal repayment profile.
Pensions
The Group operates a defined benefit pension scheme providing benefits based on
pensionable remuneration. As at 31 March 2007, there were 2,310 (2006: 2,351)
active members. The surplus under IAS 19, at 31 March 2007, was £42.7 million
(2006: deficit £3.7 million).
The Group is currently reviewing pension provision with the aim of introducing
revised arrangements from 1 January 2008. Members as at 30 November 2007 would
be eligible to participate in a revised defined benefit section and entrants
would be eligible for a new occupational trust-based defined contribution
scheme, with a choice of contribution rates.
The most recent triennial actuarial valuation, as at 31 December 2004, reported
that the scheme was 97.6% funded and new employer contributions were recommended
by the scheme actuary. The Group agreed an alternative proposal to make advanced
payments of £36.1 million by April 2006 and £23.3 million by April 2007,
covering both employee and employer contributions to 31 December 2010. In
addition. the Group launched a salary sacrifice arrangement, on 1 April 2006,
under which savings in employer national insurance contributions are also paid
into the scheme.
The Group also operates an existing defined contribution scheme and, as at 31
March 2007, there were 248 (2006: 258) contributing members.
NORTHUMBRIAN WATER LIMITED
Revenue was £586.5 million for the year to 31 March 2007 (2006: £555.5 million).
The revenue increase is mainly due to the uplift in prices for water and
sewerage services to support the continuing high capital investment programme
agreed as part of the 2004 regulatory price review.
Operating costs have increased from £320.9 million to £343.9 million,
principally reflecting a significant increase in energy market prices and the
full year impact of increased pension costs following an actuarial review of the
pension scheme, in addition to the impact of inflation. Operating costs for the
appointed business in 2006/07 are £7.2 million higher than those estimated in
the 2004 final determination for the year due to energy costs.
Profit on ordinary activities before interest for the period was £242.6 million
(2006: £234.6 million).
Capital expenditure for the year was £225.0 million (2006: £211.9 million).
Water
NWL achieved its best ever drinking water quality results in 2006 and the
quality of drinking water supplied in both operating areas remains among the
best in the country. One of the DWI's key measures is Mean Zonal Compliance and
NWL achieved 99.97% in the south and 99.96% in the north. Additionally, their
Operational Performance Index was 99.99% in the south and 99.84% in the north.
During 2006/07, we completed significant improvements to water treatment works
(WTWs) at Whittle Dene and Horsley, on Tyneside, and Chigwell in Essex. These
works now have an additional treatment process to remove pesticides from raw
water. Similar work at Warkworth in Northumberland will be complete in summer
2007. We also completed a major refurbishment of our Ormesby WTW in Suffolk.
One of NWL's key priorities is to reduce the amount of water lost from the
networks. We agreed leakage targets with Ofwat of 156 Ml/d in the northern
operating area and 68.3 Ml/d in the south, and both have been met. This means
that leakage targets have been met consistently since 1998/99. The leakage in
our southern operating area has been among the lowest in the country for many
years. NWL aims to set best practice standards to reduce leakage and is playing
a leading role in a review of leakage methodologies with the EA and Ofwat.
Comprehensive repairs to the two water mains supplying Hexham in Northumberland,
which had been washed away during the severe weather in 2005, are now complete.
The solution involved building a tunnel several metres below the riverbed.
In Essex, we laid 10.5km of pipeline to triplicate the strategic mains taking
water from our Layer-de-la-Haye WTW and to improve the overall infrastructure.
In addition, 477km of mains was renewed or relined. The current rehabilitation
programme in the south is now complete and the work in the north is due to be
finished in 2008. This work will help reduce incidents of discoloured water and
also help further reduce leakage.
Over the years, NWL has carefully designed its systems to secure water supplies
for its customers. This is particularly challenging in Essex, where there is
limited water in the summer months. The Langford Recycling Scheme has improved
the security of supply and can provide up to 30Ml/d of water during the summer
months.
In the medium term, we plan to further improve the security of supply and
augment resources in the Essex area by increasing the capacity of the Abberton
reservoir. During 2007, we will be applying for planning permission for a
project that will increase the capacity of the reservoir by 60%.
Water resources
Following a wet winter, our reservoirs are in a strong position at the time of
writing this report. NWL has sufficient water reserves in its northern area,
largely due to Kielder Water and the ability it provides to augment the major
rivers in the area during periods of drought. Its southern area is in one of the
driest parts of the UK and rainfall, until recently, has been low since November
2004.
In Essex, NWL did not need to introduce a hosepipe ban during the drought which
affected supplies across much of south east England during 2006. Our investment
to reduce leakage, our ability to pump water from Norfolk via the Ely Ouse to
Essex Transfer Scheme and the water available from the innovative Langford
Recycling Scheme, helped maintain our reservoir levels. The Langford Recycling
Scheme provided 12% extra water in Hanningfield reservoir last summer.
Our ongoing and long running water efficiency promotions and good relationship
with our customers produced a positive response to our requests for additional
efforts on water saving and a consequent significant reduction in demand.
Metering has an important role to play in managing demand. In addition to our
optional metering scheme, we have introduced a successful scheme to install
water meters when properties are sold in the Essex area and we now have about
40% of domestic customers in Essex on a metered supply.
Alongside these important measures to manage demand, we believe that we need to
augment water resources in the south to secure water supplies for customers in
what is one of Britain's driest regions.
Environment
All 33 bathing waters passed the EU Mandatory Standard and, of these, 29 (88%)
passed the more demanding Guideline Standard. Those passing the Guideline
Standard are predicted to achieve good or excellent ratings under the new
Bathing Water Directive which takes effect on 31 December 2014. To maintain this
high performance we are working with the EA to identify the impact of other
stakeholders including local authorities, highway authorities, farmers and land
holders on the quality of bathing waters.
The performance of the 425 sewage treatment works (STWs) operated by NWL
continued to be high with 99.8% of the population being served by works which
met their consent standards.
We had one category 1 pollution incident in 2006 and the EA has commended NWL
for achieving above average compliance with standards. The number of minor
incidents, such as blockages, continued to fall significantly (by nearly 30%)
compared to last year as a result of more proactive maintenance and our
investment in remote monitors. We currently have around 450 monitors installed
to warn of high or unusual flows, so that we can take action to prevent
spillages and flooding.
NWL is working with other stakeholders in the region to reduce flooding and
improve the way flooding incidents are managed. Regular meetings with local
authorities, local residents groups and the Consumer Council for Water
(CCWater), the independent body which represents customer interests, have helped
to improve communication with affected communities.
In 2006/07, the number of properties flooded from sewers was 314, about the long
term average. As a result of investment in improving the sewerage system, 129
properties were removed from the register of properties at risk of flooding
during 2006/07. This takes the total to 228 properties, effectively delivering
three years' outputs in two years.
During the year, 98 sewerage overflows have been improved. This will improve
local water courses, enhance their visual appearance and reduce pollution
incidents.
Domestic customers
NWL is committed to providing a high standard of customer service that meets the
expectations of both customers and regulators.
Based on information provided to Ofwat for 2006/07, NWL should remain in the top
category for each Ofwat level of service indicator, with the exception of DG3,
which covers unplanned interruptions to supply. Performance here was affected
by two major bursts, one in Middlesbrough on Teesside and one in Bedlington in
Northumberland.
Although there has been a rise in written and telephone contacts, partly due to
these bursts, the Customer Centre still responded to 99.9% of written complaints
within ten working days. During 2006/07, the total number of written complaints
received was 11,496. The increase, when compared to 2005/06, can be attributed
to heightened national media interest in water shortages and leakage levels
along with the large operational incidents in our northern operating area.
Greater levels of debt recovery activity have also generated more responses from
our customers regarding billing arrears.
CCWater formally reviews the quality of complaints handling. During this process
they audit procedures, track samples of complaints' correspondence through our
systems and assess the quality of our responses. In 2006/07, 100% of all
northern complaints and 80% of all southern complaints were rated as 'good'.
Despite regional socio-economic characteristics, and increases in levels of
water and sewerage charges during the year, NWL has maintained its collection
rates, supported by its successful initiative to encourage as many customers as
possible to use direct debit. This still proves to be the most efficient way to
collect payment for bills.
Business customers
NWL has continued to develop its commercial business with major companies in the
region. Solvent Resource Management Ltd at its site in Sunderland, is recovering
and recycling used solvents. Effluent from this process is now being delivered
for treatment at Hendon STW.
Biofuels Corporation, the developer of Europe's largest biodiesel plant at Seal
Sands on Teesside, is now transferring effluent to Bran Sands effluent treatment
works. Biofuels Corporation produces 250,000 tonnes of biodiesel a year at Seal
Sands from renewable vegetable crops. NWL also supplies the company with water
services.
Corus has benefited from these effluent treatment services since 1998. NWL has
successfully completed modifications to Bran Sands so that it can undertake
additional effluent treatment for Corus. This has extended the long term
relationship between the two companies.
Regulation
We are working with the EA to consider the drivers for investment beyond 2010,
including the Water Framework Directive (WFD). The quality of rivers and bathing
waters in the north east is among the best in the country and our initial view
is that the investment required to comply with the WFD will be less than in many
other regions. Nutrient removal, particularly phosphates, is likely to be an
important factor, with ammonia also requiring attention in some cases. In order
to achieve a cost effective programme and meet the "polluter pays" principle,
other sources of these pollutants must also be addressed. Removing the source of
the problem, for example, by changing farming or land management practice, may
be cheaper but could take longer to deliver. We need to ensure that 'end of
pipe' solutions are not viewed as an easy option. CCWater is also fully engaged
in work with the EA and other stakeholders to achieve a sustainable, coordinated
approach to achieving environmental objectives.
It will be increasingly important to ensure an appropriate balance between
marginal improvements in river quality and the energy, concrete and chemicals
required to achieve this. In some cases the increased carbon footprint may
outweigh the environmental benefit.
We are participating in the Northumbria River Basin Liaison Panel which is
developing the plan to meet the WFD in the north east. This panel is currently
considering the Significant Water Management Issues (SWMIs) for the region.
Action plans to address the SWMIs will be a key element of the programme of
measures to be agreed by 2008.
We have applied to the EA to have the consents for six coastal STWs amended.
These works discharge highly treated effluent through long sea outfalls. The
final stage of treatment, ultraviolet (UV) disinfection, is energy intensive,
contributing to significant CO2 emissions. Our modelling concludes that bathing
waters in the vicinity would meet not only EU Mandatory but also the stricter
Guideline Standard, without UV treatment. We have applied to restrict UV
application to summer months. This application raises important issues about
achieving the right environmental balance and we await a decision.
An important step leading up to the next price review in 2009 is NWL's Strategic
Direction Statement. This is now being prepared and will outline a 25 year
vision for the company, as well as key objectives for the next five years. The
Statement will be published in the autumn and will be used as the basis for a
stakeholder consultation exercise in each of our operating areas, which will in
turn help inform the periodic review of prices in 2009.
Employees
One of the strengths of NWL is employee loyalty, evidenced by the fact that
employee turnover is relatively low at 8.2%, well below the UK water industry
average of 10.3%.
NWL continues to seek the views of employees. This year's survey was completed
by 56%, an increase of 7%, who gave their views on their working life, training,
communications, managers and the company. The results were reported back to all
employees and discussed with representative bodies. Overall, employee
satisfaction levels remain very high with over 72% of respondents stating they
are proud to work for the company.
We continue to develop programmes to promote healthy eating and discourage
smoking in our workforce and offer excellent health screening and medical
insurance schemes. Around 1,700 employees have been through our health screening
and fitness standards programmes, both of which now include lifestyle advice
elements. The success of these programmes has helped reduce NWL's total sickness
absence rate to 3.01%, which is well below the sector norm.
Water and waste water contracts
Revenue for the Group's water and waste water contracts was £37.0 million for
the year to 31 March 2007 (2006: £26.4 million) and profit on ordinary
activities before interest was £11.9 million (2006: £1.8 million). This
performance includes an additional credit of £3 million in respect of gas
indexation on tariffs. This is not expected to be repeated in 2007/08.
The Group is a member of two consortiums delivering private finance initiative
contracts with Scottish Water for waste water treatment. At Levenmouth, where
the Group has a 75% shareholding in both project and operating companies, the
effluent treatment plant is delivering against discharge consent conditions.
Practical completion of the odour treatment and sludge drying facilities has
been achieved and commissioning and performance testing has been completed.
At Ayrshire, the Group has a 75% shareholding in the project company and a 100%
shareholding in the operating company. The three effluent treatment plants that
make up this contract continue to perform satisfactorily.
In Ireland, the Group is part of a contractual consortium that designed and
built a waste water treatment plant for Cork City Council. Under the consortium
agreement, the Group has responsibility for the operation and maintenance of the
plant.
AquaGib Limited, two thirds owned by the Group in joint venture with the
Government of Gibraltar, operates Gibraltar's dual drinking water and sea water
distribution systems under its long term contract with the Government of
Gibraltar.
Related services
The Group's non-water companies' revenue was £10.0 million (2006: £28.8 million)
of which £nil (2006: £19.2 million) was in respect of discontinued operations.
Profit on ordinary activities before interest was £0.3 million (2006: £16.4
million), of which £nil (2006: £15.8 million) was in respect of discontinued
operations. The Group has sustained its focus on core competencies and merged
the business of AES with NWL on 31 March 2007. We have brought together
expertise from the two companies and are building on existing strengths to
deliver an improved service to customers.
Financial calendar
2007
2 August AGM
15 August Ex-dividend date
17 August Record date
14 September Final dividend payment
28 November Interim results announcement
19 December Ex-dividend date
21 December Record date
2008
1 February Interim dividend payment
Board appointments
Sir Derek Wanless succeeded Sir Frederick Holliday as Chairman of both NWG and
NWL on 27 July 2006, following Sir Fred's retirement.
Alex Scott-Barrett, a non-executive director of NWL, was appointed as an
independent non-executive director of NWG on 26 September 2006. Alex is
non-executive Chairman of Suffolk Life Group plc and a non-executive director of
General Capital Group plc.
On 26 September 2006, Dr Simon Lyster was appointed as an independent
non-executive director of NWL. Simon is Chief Executive of LEAD International
(Leadership for Environment and Development).
On 17 November 2006, the Board announced the appointment of Claude Lamoureux as
a non-executive director of NWG and NWL with effect from 1 December 2006. Claude
is President and CEO of the Ontario Teachers' Pension Plan Board (OTPP). Claude
replaces Ron Lepin who resigned from both boards on 1 December 2006 on leaving
OTPP. OTPP holds 25% of the issued share capital of NWG and Claude is,
therefore, not regarded as an independent director.
Outlook
The continuing impact and heightened risk of drought in the south, as a
consequence of climate change, highlight the importance of our emphasis on
leakage management, water efficiency and demand management. We intend to
maintain our leading position in these areas and, alongside these, promote the
scheme to increase the capacity of the Abberton reservoir.
Building on past performance, the Group will continue to focus on its core
business of water and waste water operations to drive further improvement in
customer service and operating efficiency.
John Cuthbert
Managing Director
5 June 2007
Consolidated income statement
For the year ended 31 March 2007
Year to Year to
31.3.2007 31.3.2006
Notes £m £m
Continuing operations
Revenue 2 633.5 591.5
Operating costs (375.3) (355.3)
Profit on ordinary activities before interest 2 258.2 236.2
Finance costs payable (127.0) (112.7)
Finance income receivable 15.8 6.7
Share of profit after tax of associates and jointly controlled entities 0.8 0.1
Profit on ordinary activities before taxation 2 147.8 130.3
- current taxation 3 (8.6) (15.6)
- deferred taxation 3 (28.0) (23.6)
- overseas tax 3 - (0.1)
Profit for the year from continuing operations 111.2 91.0
Discontinued operations
Profit for the year from discontinued operations - 15.4
Profit for the year 111.2 106.4
Attributable to:
Equity shareholders of the company 110.9 105.9
Minority interests 0.3 0.5
111.2 106.4
Basic earnings per share for profit attributable to ordinary equity holders of the 5 21.42p 20.45p
parent
Diluted earnings per share for profit attributable to ordinary equity holders of the 5 21.38p 20.42p
parent
Basic earnings per share for profit from continuing operations attributable to
ordinary equity holders of the parent 5 21.42p 17.48p
Diluted earnings per share for profit from continuing operations attributable to
ordinary equity holders of the parent 5 21.38p 17.45p
Adjusted earnings per share for profit from continuing operations attributable to
ordinary equity holders of the parent (excluding deferred tax, amortisation of debt
fair value and IAS 39 adjustments) 5 24.95p 19.52p
Ordinary final dividend proposed per share 4 7.52p 7.04p
Special dividend paid per share 4 - 2.82p
Dividend paid per share 4 10.79p 10.65p
Consolidated statement of recognised income and expense
For the year ended 31 March 2007
Year to Year to
31.3.2007 31.3.2006
£m £m
Actuarial gains 25.0 52.7
Losses on cash flow hedges - (3.8)
Gains on cash flow hedges 2.4 1.0
Tax on items charged or credited to equity (7.5) (15.6)
Translation differences (0.2) -
Total income and expense recognised in equity 19.7 34.3
Transferred to the income statement on cash flow hedges (2.9) -
Profit for the year 111.2 106.4
Total recognised income and expense 128.0 140.7
Attributable to:
Equity shareholders of the Company 127.7 140.2
Minority interests 0.3 0.5
128.0 140.7
Consolidated balance sheet
As at 31 March 2007
31.3.2007 31.3.2006
Notes £m £m
Non-current assets
Goodwill 3.6 3.7
Other intangible assets 64.2 64.2
Property, plant and equipment 3,119.9 2,985.6
Investments in jointly controlled entities 3.6 3.6
Financial assets 18.0 20.1
Pension asset 42.7 -
Other investments 0.2 0.3
3,252.2 3,077.5
Current assets
Inventories 3.7 3.3
Trade and other receivables 124.5 111.6
Cash and cash equivalents 316.9 176.6
445.1 291.5
Total assets 3,697.3 3,369.0
Non-current liabilities
Interest bearing loans and borrowings 2,382.1 1,972.9
Provisions 2.9 3.1
Deferred income tax liabilities 531.2 495.6
Pension liability - 3.7
Other payables 10.0 10.6
Grants 193.3 179.3
3,119.5 2,665.2
Current liabilities
Interest bearing loans and borrowings 34.5 236.7
Provisions 0.2 0.3
Trade and other payables 165.6 156.3
Income tax payable 4.4 9.7
204.7 403.0
Total liabilities 3,324.2 3,068.2
Net assets 373.1 300.8
Capital and reserves
Issued capital 6 51.9 51.9
Share premium reserve 6 446.5 446.5
Cash flow hedge reserve 6 1.0 1.5
Treasury shares 6 (1.3) (1.7)
Retained earnings 6 (126.7) (198.9)
Equity shareholders' funds 371.4 299.3
Minority interests 6 1.7 1.5
Total capital and reserves 373.1 300.8
Consolidated cash flow statement
For the year ended 31 March 2007
Year to Year to
31.3.2007 31.3.2006
£m £m
Operating activities
Reconciliation of profit before interest to net cash flows from operating
activities
Profit on ordinary activities before interest 258.2 236.2
Profit before interest on discontinued operations - 1.2
Depreciation and other similar non-cash charges 92.9 88.4
Other non-cash charges (6.2) (4.8)
Net charge for provisions, less payments (0.3) (0.5)
Difference between pension contributions paid and amounts recognised in
the income statement 4.4 2.8
Increase in inventories (0.4) (2.6)
(Increase)/decrease in trade and other receivables (13.6) 4.0
Increase/(decrease) in trade and other payables 0.9 (9.7)
Cash generated from operations 335.9 315.0
Advance contributions in respect of retirement benefits (25.8) (22.8)
Net interest paid (124.7) (119.7)
Income taxes paid (14.6) (6.5)
Net cash flows from operating activities 170.8 166.0
Investing activities
Interest received 12.5 4.1
Capital grants received 18.8 21.4
Purchase of subsidiary undertaking (net of cash acquired) - 2.4
Proceeds on disposal of subsidiary undertakings - 18.6
Proceeds on disposal of property, plant and equipment 2.2 2.0
Dividends received from jointly controlled entities 0.9 0.8
Purchase of property, plant and equipment (211.4) (206.7)
Other cash items - 0.2
Net cash flows from investing activities (177.0) (157.2)
Financing activities
New borrowings 425.0 210.2
New loans issued - (2.1)
Maturity of investments 2.1 2.0
Settled hedge instruments 3.4 (3.7)
Issue costs of new borrowings (0.4) (1.4)
Own shares purchased (0.2) (0.8)
Dividends paid to minority interests (0.1) (0.3)
Dividends paid to equity shareholders (55.8) (69.7)
Repayment of borrowings (201.1) (46.6)
Payment of principal under hire purchase contracts and finance leases (4.8) (4.7)
Net cash flows from financing activities 168.1 82.9
Increase in cash and cash equivalents 161.9 91.7
Cash and cash equivalents at start of year 153.9 62.2
Cash and cash equivalents at end of year 315.8 153.9
Net cash flow in respect of discontinued operations
Cash consideration - 29.8
Cash and cash equivalents disposed - (11.1)
Expenses paid in connection with disposals - (0.1)
- 18.6
Notes to the financial statements
The Board approved the preliminary statement covering the year ended 31 March
2007 on 5 June 2007. The financial information set out above does not
constitute the Group's statutory financial statements for the year ended 31
March 2007, or for the year ended 31 March 2006, within the meaning of Section
240 of the Companies Act 1985. The financial information is based on the
audited statutory financial statements for the year ended 31 March 2007, upon
which the auditors have issued an unqualified audit opinion.
The financial statements for the year ended 31 March 2006 have been delivered to
the Registrar of Companies. The financial statements for the year ended 31
March 2007 will be sent to shareholders and delivered to the Registrar of
Companies in due course. They will also be available at the Registered Office
of the company, Northumbrian Water Group plc, Northumbria House, Abbey Road,
Pity Me, Durham, DH1 5FJ.
1. Basis of preparation
The consolidated financial statements have been prepared in accordance with IFRS
as adopted by the European Union as it applies to the financial statements of
the Group for the year ended 31 March 2007 and in accordance with the Companies
Act 1985.
2. Segmental analysis of revenue and profit on ordinary
activities before interest
Revenue
Total
Northumbrian Water & revenue from
Water waste water Related Discontinued continuing
Limited contracts services Total operations operations
£m £m £m £m £m £m
Year ended 31 March 2007
Segment revenue 586.5 37.0 25.3 648.8 - 648.8
Inter segment revenue - - (15.3) (15.3) - (15.3)
Revenue to external customers 586.5 37.0 10.0 633.5 - 633.5
Year ended 31 March 2006
Segment revenue 555.5 28.4 53.3 637.2 (28.5) 608.7
Inter segment revenue - (2.0) (24.5) (26.5) 9.3 (17.2)
Revenue to external customers 555.5 26.4 28.8 610.7 (19.2) 591.5
Profit on ordinary activities before
interest
Total profit
Northumbrian Water and from
Water waste water Related Discontinued continuing
Limited contracts services Total operations operations
£m £m £m £m £m £m
Year ended 31 March 2007
Segment profit before interest 242.6 11.9 0.3 254.8 - 254.8
Central unallocated costs and
provisions 3.4
Profit on ordinary activities
before interest 258.2
Net finance costs (111.2)
Share of profit from associates
and jointly controlled entities 0.8
Profit on ordinary activities
before taxation 147.8
Taxation (36.6)
Profit for the year from
continuing operations 111.2
Year ended 31 March 2006
Segment profit before interest 234.6 1.8 16.4 252.8 (15.8) 237.0
Central unallocated costs and
provisions (0.8)
Profit on ordinary activities
before interest 236.2
Net finance costs (106.0)
Share of profit from associates
and jointly controlled entities 0.1
Profit on ordinary activities
before taxation 130.3
Taxation (39.3)
Profit for the year from
continuing operations 91.0
The profit disclosed in 2006 as discontinued operations is included in the result of related services and
comprises a trading profit £1.2 million and a gain on disposal of £14.6 million.
3. Taxation
Year to Year to
31.3.2007 31.3.2006
£m £m
Current tax:
UK corporation tax - continuing operations 21.0 16.3
- discontinued operations - 0.6
- income tax reported in equity 0.1 -
- adjustment in respect of prior periods (12.5) (0.7)
Overseas tax - 0.1
Total current tax 8.6 16.3
Deferred tax:
Origination and reversal of temporary differences in the year
Deferred tax - continuing operations 21.0 22.5
- discontinued operations - 0.1
- income tax reported in equity (0.1) -
- adjustment in respect of prior periods 7.1 1.1
Total deferred tax 28.0 23.7
Tax charge in the income statement 36.6 40.0
The tax charge in the income statement is disclosed as follows:
Tax expense on continuing operations 36.6 39.3
Tax expense on discontinued operations - 0.7
36.6 40.0
4. Dividends paid and proposed
A final ordinary dividend payment of 7.52 pence per ordinary share will be
recommended by the Board to shareholders at the AGM scheduled for 2 August 2007.
If approved, the final dividend will be paid on 14 September 2007 to
shareholders whose names appear on the Company's Register of Members at the
close of business on 17 August 2007. Together with the ordinary interim dividend
of 3.75 pence per ordinary share, the total ordinary dividend for the year will
be 11.27 pence per ordinary share.
Year to Year to
31.3.2007 31.3.2006
£m £m
Declared and paid during the year:
Equity dividends on ordinary shares:
Final dividend for 2005/06: 7.04p (2004/05: 7.13p) 36.4 36.9
Interim dividend for 2006/07: 3.75p (2005/06: 3.52p) 19.4 18.2
Special dividend for 2006/07: nil (2005/06: 2.82p) - 14.6
Dividends paid 55.8 69.7
Proposed for approval by shareholders at the AGM:
Final dividend for 2006/07: 7.52p (2005/06: 7.04p) 39.0 36.5
5. Earnings per share
Basic earnings per share (EPS) is calculated by dividing the profit attributable
to ordinary equity holders of the parent by the weighted average number of
ordinary shares in issue during the year. Treasury shares held are excluded from
the weighted average number of shares for basic EPS. EPS for continuing
operations is also disclosed.
Weighted Weighted
average average
number of Earnings number of Earnings
Earnings shares per share Earnings shares per share
31.3.2007 31.3.2007 31.3.2007 31.3.2006 31.3.2006 31.3.2006
£m million pence £m million pence
Net profit attributable to equity holders of
the parent - continuing operations 110.9 517.7 21.42 90.5 517.9 17.48
Net profit attributable to equity holders of
the parent - discontinued operations - - 15.4 2.97
Basic EPS 110.9 517.7 21.42 105.9 517.9 20.45
The weighted average number of shares for diluted EPS is calculated by including
the treasury shares held.
Weighted Weighted
average average
number of Earnings number of Earnings
Earnings shares per share Earnings shares per share
31.3.2007 31.3.2007 31.3.2007 31.3.2006 31.3.2006 31.3.2006
£m million pence £m million pence
Net profit attributable to equity holders of
the parent - continuing operations 110.9 518.6 21.38 90.5 518.6 17.45
Net profit attributable to equity holders of
the parent - discontinued operations - - 15.4 2.97
Diluted EPS 110.9 518.6 21.38 105.9 518.6 20.42
Adjusted EPS is considered by the directors to give a better indication of the
Group's underlying performance due to the non-cash nature of the adjusted items
and is calculated as follows:
Weighted Weighted
average average
number of Earnings number of Earnings
Earnings shares per share Earnings shares per share
31.3.2007 31.3.2007 31.3.2007 31.3.2006 31.3.2006 31.3.2006
£m million pence £m million pence
Basic EPS 110.9 517.7 21.42 90.5 517.9 17.48
Deferred tax 28.0 5.41 23.6 4.55
Amortisation of debt fair value (7.7) (1.49) (13.0) (2.51)
IAS 39 derivatives (2.0) (0.39) - -
Adjusted EPS 129.2 517.7 24.95 101.1 517.9 19.52
6. Reconciliation of movements in equity
Equity Share Cash flow
share premium hedge Treasury Currency Retained Total Minority
capital reserve reserve shares translation earnings equity interests Total
£m £m £m £m £m £m £m £m £m
At 1 April 2006 51.9 446.5 1.5 (1.7) - (198.9) 299.3 1.5 300.8
Shares purchased - - - (0.2) - - (0.2) - (0.2)
Total recognised
income and expense
for the year - - (0.5) - (0.2) 128.4 127.7 0.3 128.0
Share-based payment - - - - - 0.4 0.4 - 0.4
Exercise of LTIP
awards - - - 0.6 - (0.6) - - -
Equity dividends paid - - - - - (55.8) (55.8) (0.1) (55.9)
At 31 March 2007 51.9 446.5 1.0 (1.3) (0.2) (126.5) 371.4 1.7 373.1
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