Interim Results
Northumbrian Water Group PLC
06 December 2006
6 December 2006
NORTHUMBRIAN WATER GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006
Northumbrian Water Group plc (NWG or the Group) announces its interim results
for the six months ended 30 September 2006.
HIGHLIGHTS 2006
Financial highlights Six months to Six months to
30.9.2006 30.9.2005 Change Change
£m £m £m %
Continuing operations
Revenue 315.9 295.3 20.6 7.0
Profit on ordinary activities before interest 129.5 116.8 12.7 10.9
Profit before tax 75.5 64.3 11.2 17.4
Profit before tax and FV debt amortisation(1) 71.1 58.3 12.8 22.0
Profit after tax 56.8 47.2 9.6 20.3
Net debt 2,053.4 1,869.3 184.1 9.8
Continuing operations
Basic EPS 10.97p 9.11p 1.86p 20.4%
Adjusted EPS(1,2) 11.34p 9.30p 2.04p 21.9%
Ordinary dividend proposed 3.75p 3.52p 0.23p 6.5%
Notes:
(1) Excludes fair value debt amortisation £4.4 million (2005: £6.0 million)
(2) Excludes deferred tax £8.3 million (2005: £7.0 million), IAS 39 credit £2.0
million (2005: nil)
• Revenue increase mainly due to the uplift in water and sewerage charges
to support continuing high capital investment
• Capital programme on track to deliver regulatory outputs for drinking
water quality and environmental improvements
• Financial position strengthened by the issue of two £100 million index
linked Eurobonds to finance capital investment through to 2010
• Levels of customer service and satisfaction remain high
• Water supplies maintained without restrictions
• Leakage targets outperformed
• Excellent bathing water quality results
• Ordinary interim dividend of 3.75 pence per share to be paid on 2 February
2007
Managing Director John Cuthbert said, "The Group has delivered a good
operational and financial performance in the first six months. Looking forward,
we have successfully secured funding for the high levels of investment planned
to 2010. This investment programme will meet not only the UK and EU legislation
requirements, but also the priorities identified by our customers, the Consumer
Council for Water and our stakeholders.
The relationship with our stakeholders is important to us; we have built a
reputation for providing value for money and our customer research shows high
levels of satisfaction with our services. As a result, customers have responded
positively to our appeals to use water carefully, particularly in areas
experiencing low levels of rainfall. We do not take this co-operation for
granted and we are committed to delivering levels of service our customers can
continue to value".
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 6670
James Henderson
Chelsea Hayes
Polly Fergusson
MANAGING DIRECTOR'S STATEMENT
NWG's financial performance
Revenue for the six months to 30 September 2006 was £315.9 million (2005: £295.3
million). This 7% increase is mainly due to the uplift in water and sewerage
charges at Northumbrian Water Limited (NWL), the Group's principal subsidiary.
Profit on ordinary activities before interest for the six months was £129.5
million (2005: £116.8 million). Operating costs increased by £7.9 million (4%)
to £186.4 million with upward pressure on costs partially mitigated by ongoing
efficiencies.
The net interest charge was £54.2 million (2005: £52.4 million) which includes a
credit of £4.4 million (2005: £6.0 million) in respect of the amortisation of
the debt fair value and a gain of £2.9 million (2005: nil) in respect of the
cancellation of a financial instrument.
Profit on ordinary activities before tax for the six months was £75.5 million
(2005: £64.3 million). The tax charge of £18.7 million (2005: £17.1 million)
reflects increased profitability and changes in tax rules on capitalised
maintenance expenditure offset by tax relief for the prepayment of pension
contributions to 2010. The effective tax rate for the six months to 30 September
2006 is 25% (2005: 27%).
The Group's gearing remains stable with net debt increasing by £43.0 million,
since 31 March 2006, to £2,053.4 million. Cash interest cover for the Group
improved from 2.7x, at 31 March 2006, to 3.1x.
Capital structure
In June 2006, NWL's finance subsidiary took advantage of low market rates to
issue two £100 million index linked Eurobonds bearing, respectively, a real
coupon of 1.7118% due 2049 and 1.7484% due 2053. This will fund NWL's capital
investment programme for the current regulatory period.
On 28 June 2006, the Group redeemed the remaining £172 million 8.625% Eurobonds
using five year committed bank facilities of £125 million and cash resources.
The debt portfolio now comprises 67% with an average fixed rate of 6.2%, 19% of
index linked funding at an average real rate of 1.851% and 14% on a variable
rate basis.
Northumbrian Water Limited
Revenue was £293.6 million for the six months to 30 September 2006 (2005: £277.2
million). The 5.9% increase is mainly due to the uplift in water and sewerage
charges to support the continuing high capital investment programme agreed as
part of the regulatory price review.
Operating costs increased from £161.7 million to £169.4 million, principally
reflecting increased power prices and additional pension costs. The impact of
inflation has been partially offset by efficiency savings.
Profit on ordinary activities before interest for the period was £124.2 million
(2005: £115.5 million).
Capital investment for the period was £100.5 million (2005: £96.6 million). NWL
continues to perform well and is on target to achieve its regulatory outputs.
Customers will benefit from investment in technology as part of a new work
management system. This three year investment programme to cut costs, improve
customer service and communication, will be used extensively across the
business.
Water quality remains high. NWL improved its already high standards of
performance against the Drinking Water Inspectorate (DWI) indices and the
quality of drinking water in both the northern and southern areas remains among
the best in the country. NWL is continuing to develop a risk based approach to
secure water supplies as efficiently and effectively as possible.
Improvements to Whittle Dene water treatment works in Northumberland were
completed at the end of September, meeting the commitment given to the DWI.
These improvements included an additional process to remove trace herbicides and
pesticides from raw water. The upgrading of Horsley water treatment works, also
in Northumberland, is due to be completed by the end of December. Both
treatment works are important to the supply network for the Newcastle
conurbation.
Good progress has been made on the programme of work to reline or renew water
mains and to flush the network to reduce discoloured water. Planning for a major
project to refurbish 180km of large diameter trunk mains supplying Newcastle is
well advanced.
The southern operating areas are in the driest part of the country. There has
been a continuous period of around 20 months of below average rainfall in this
area, resulting in drought conditions throughout much of the south east. Despite
this, average water resource levels were maintained in the Essex supply area and
no restrictions on use were necessary. The availability of water from Norfolk
via the Ely Ouse to Essex Transfer Scheme and water from the innovative Langford
Recycling Scheme helped maintain reservoir levels. Demand management has also
played its part in maintaining water resource levels. Leakage levels are among
the lowest in the country and the benefits of promoting water efficiency to
customers over the last 10 years led to a positive response from them during the
summer with a 15% reduction in demand.
NWL continues to meter new houses and promotes the option to have a meter
installed free of charge to all customers. In the southern operating area,
meters are now installed on change of occupier. Current household metering
levels are 15.7% and 39% in the northern and southern operating areas
respectively.
Planning proposals to enlarge Abberton Reservoir in Essex are due to be
submitted in spring 2007. With an anticipated completion date of 2014, the
project will enlarge the capacity of the reservoir by around 60%.
Research continues to confirm that levels of customer satisfaction and value for
money remain high, at around 90%. NWL continues to score well on Ofwat's
measures of customer service and achieved five stars out of seven in its 2005/06
Levels of Service Report. It did not receive the two stars relating to sewer
flooding. Its ranking in the Overall Performance Assessment score was affected
by one failure at a large sewage treatment works. Investment to remedy this is
largely complete. Sewer flooding as a consequence of severe storms in the summer
of 2005 also affected the score.
Good progress has also been made on the major programme to reduce the impact of
intermittent discharges and pollution incidents. Compliance with discharge
consent standards at sewage treatment works continues to be good and significant
investment to meet tighter standards and all major projects have been delivered
on time. Where problems were the result of illegal discharges, NWL has initiated
a number of successful prosecutions.
Investment in new instrument technology is underway, installing continuous level
monitoring across the sewer network. Data from these monitors improves proactive
management of the network, providing early warning of flooding, reducing
discharges and informing investment decisions. Last year NWL had no category 1
pollution incidents (the most environmentally damaging) and significantly
reduced the number of category 2 and 3 incidents. The Environment Agency has
commended NWL for achieving above average compliance with its standards.
Bathing water quality results in the north east were the best ever in 2006. All
the bathing waters achieved the mandatory compliance standard and nearly 90% met
the higher guideline standards.
NWL is a major user of energy for its water and waste water processes and is
accredited under the Carbon Trust's Energy Efficiency Accreditation Scheme. The
substantial rise in energy costs over the last two years has increased further
the importance of reducing overall energy use. NWL monitors power consumption
closely and has implemented several initiatives including extensive audits of
energy use and pump efficiency. These help to identify improved plant operating
procedures and efficiency improvements to reduce consumption.
Ultra violet (UV) disinfection, as a third level of treatment, is utilised at
the larger coastal waste water plants throughout the year. This process uses a
large amount of energy, contributing to significant CO2 emissions. After
detailed consultation with the Environment Agency, NWL commissioned independent
research to examine the environmental impact of not using UV disinfection
outside the bathing season of 1 May to 30 September. The research concluded that
this would reduce the carbon footprint of the coastal works without any adverse
impact on the marine environment or compliance with bathing water standards. NWL
has, therefore, proposed to the Environment Agency that UV disinfection be
applied at the six major coastal works only in the bathing season. This would
reduce energy costs and carbon emissions as part of the carbon reduction
programme.
There is a need to reduce the use of energy generated from fossil fuel sources.
Currently, energy needs are met from a mix of renewable sources at water and
waste water facilities and from external supplies generated from green and high
efficiency sources such as hydro, wind and high quality combined heat and power.
Last year a flexible electricity purchasing programme was introduced. NWL has
bought 100% of power requirements for 2006/07 and 35.0% for 2007/08. Energy
costs for 2006/07 are likely to be around £10 million higher than in the
previous year. However, prevailing rates for 2007/08 are lower than these very
high levels.
Water and waste water contracts
Revenue for the Group's water and waste water contracts was £17.9 million for
the six months to 30 September 2006 (2005: £13.0 million) and profit on ordinary
activities before interest was £4.5 million (2005: £1.0 million). All contracts
continue to perform satisfactorily. As a consequence of increasing the
shareholdings in Ayrshire (see below), turnover and profit before interest
contributed a further £3.6 million and £2.1 million, respectively, during this
six months.
The Group is a 75% shareholder in two project companies delivering private
finance initiative contracts with Scottish Water for waste water treatment at
Levenmouth and Ayrshire. At Ayrshire, the Group acquired an additional 25%
interest in the project and operating companies on 23 December 2005, taking the
Group's interest to 75% in the project company and 100% in the operating
company. Following this acquisition, the project company is fully consolidated
into the Group's results.
In Ireland, the Group is part of a contractual consortium that designed and
built a €70 million waste water treatment plant for Cork City Council. Under the
consortium agreement, the Group has full responsibility for the operation and
maintenance of the plant.
AquaGib Limited, in which the Group owns two thirds of the equity with the
balance owned by the Government of Gibraltar, operates Gibraltar's dual drinking
water and sea water supply systems.
Related services
The Group's non-water companies' revenue was £12.7 million (2005: £39.3 million
of which £26.3 million was in respect of discontinued operations). Profit on
ordinary activities before interest was £0.2 million (2005: £1.7 million of
which £1.4 million was in respect of discontinued operations).
Pensions
The Group operates both a final salary defined benefit and a defined
contribution pension scheme. In common with many other final salary schemes,
pressure on the funding of the scheme has grown over recent years. Improved life
expectancy and volatile investment returns have increased the cost of providing
a final salary pension. The scheme is currently well funded but the risks
associated with funding such a scheme are well documented. An internal working
group has been formed to review sustainable pension options for the future and
the Board will consider these early in 2007.
At 30 September 2006, the Group's defined benefit scheme had a surplus of £17.0
million (31 March 2006: deficit of £3.7 million). This reflects the advance
employer and employee contributions of £10 million and £26.1 million paid in
March and April 2006, respectively. The Group will make a further payment of
£23.3 million by April 2007, being the final instalment of employer and employee
contributions to 31 December 2010.
Dividend
The Board has declared an interim dividend for the period of 3.75 pence per
share (2005: 3.52 pence). This dividend will be paid on 2 February 2007 to
shareholders on the register at the close of business on 22 December 2006. The
dividend cover for the period is 2.9x, and 3.1x excluding deferred tax and the
amortisation of debt fair value.
The dividend is consistent with the policy announced by the Board in June 2005
to maintain a progressive dividend policy with real increases of around 3% p.a.
during the current regulatory period.
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, a specialist pension
administration business 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 Executive Director of LEAD
International, an international non-profit training organisation whose mission
is to inspire leadership for sustainable 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). OTPP
holds 25% of the issued share capital of NWG and Claude is, therefore, not
regarded as an independent director.
Ron Lepin resigned as a non-executive director of NWG and NWL with effect from 1
December 2006.
Outlook
The Group intends to maintain the focus on its core business of water and waste
water operations. The Board believes this strategy will continue to deliver
value and this view seems to be held increasingly by others in the sector. The
Group has a secure financial structure able to support the high levels of
investment required not only to meet its regulatory and contractual obligations
but also to sustain strong operational performance.
Key financial ratios will remain stable over the current regulatory period.
Energy cost management continues to be an important focus in both the short and
medium term even though current 2007/08 prices are lower than those in 2006/07.
The Group will continue to drive for efficiency in all operations.
John Cuthbert
Managing Director
5 December 2006
Consolidated income statement
Six months ended 30 September 2006
Six months to Six months Year to
30.9.2006 to 30.9.2005 31.3.2006
Notes £m £m £m
Continuing operations
Revenue 2 315.9 295.3 591.5
Operating costs (186.4) (178.5) (355.3)
Profit on ordinary activities before interest 2 129.5 116.8 236.2
Finance costs payable (60.0) (54.3) (112.7)
Finance income receivable 5.8 1.9 6.7
Share of profit after tax of associates and jointly controlled 0.2 (0.1) 0.1
entities
Profit on ordinary activities before taxation 2 75.5 64.3 130.3
- current taxation 3 (10.4) (10.1) (15.6)
- deferred taxation 3 (8.3) (7.0) (23.6)
- overseas tax 3 - - (0.1)
Profit for the period from continuing operations 56.8 47.2 91.0
Discontinued operations
Profit for the period from discontinued operations 4 - 15.5 15.4
Profit for the period 56.8 62.7 106.4
Attributable to:
Equity shareholders of the company 56.7 62.9 105.9
Minority interests 0.1 (0.2) 0.5
56.8 62.7 106.4
Basic earnings per share for profit attributable to ordinary
equity holders of the parent 6 10.97p 12.11p 20.55p
Diluted earnings per share for profit attributable to ordinary
equity holders of the parent 6 10.95p 12.11p 20.52p
Basic earnings per share for profit from continuing operations
attributable to ordinary equity holders of the parent 6 10.97p 9.11p 17.57p
Diluted earnings per share for profit from continuing operations
attributable to ordinary equity holders of the parent 6 10.95p 9.11p 17.55p
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) 6 11.34p 9.30p 19.62p
Ordinary final dividend proposed per share 5 3.75p 3.52p 7.04p
Special dividend paid per share 5 - - 2.82p
Dividend paid per share 5 7.04p 7.13p 10.65p
Consolidated statement of recognised income and expense
Six months ended 30 September 2006
Six months to Six months Year to
30.9.2006 to 30.9.2005 31.3.2006
£m £m £m
Actuarial (losses)/gains (2.4) (4.3) 52.7
Cash flow hedges (1.0) (3.8) (2.8)
Tax on items charged or credited to equity 0.7 1.3 (15.6)
Profit for the period 56.8 62.7 106.4
Total recognised income and expense 54.1 55.9 140.7
Consolidated balance sheet
As at 30 September 2006
30.9.2006 30.9.2005 31.3.2006
Note £m £m £m
Non-current assets
Goodwill 3.7 0.1 3.7
Other intangible assets 64.2 64.2 64.2
Property, plant and equipment 3,041.0 2,850.0 2,985.6
Investments in jointly controlled entities 3.2 3.7 3.6
Investments in associates - 0.8 -
Pension asset 17.0 - -
Financial assets 21.2 22.2 22.2
Other investments 0.3 0.4 0.3
3,150.6 2,941.4 3,079.6
Current assets
Inventories 3.6 4.0 3.3
Trade and other receivables 113.3 107.0 109.5
Cash and cash equivalents 247.4 194.2 176.6
364.3 305.2 289.4
TOTAL ASSETS 3,514.9 3,246.6 3,369.0
Non-current liabilities
Interest bearing loans and borrowings 2,295.1 1,858.1 1,972.9
Provisions 3.0 3.6 3.1
Deferred income tax liabilities 503.3 456.7 495.6
Pension liability - 81.6 3.7
Other payables 10.2 15.7 10.6
Grants 186.3 171.2 179.3
2,997.9 2,586.9 2,665.2
Current liabilities
Interest bearing loans and borrowings 22.9 232.9 236.7
Provisions 0.3 - 0.3
Trade and other payables 158.7 166.3 156.3
Income tax payable 16.4 11.0 9.7
198.3 410.2 403.0
TOTAL LIABILITIES 3,196.2 2,997.1 3,068.2
NET ASSETS 318.7 249.5 300.8
Capital and reserves
Issued capital 51.9 51.9 51.9
Share premium reserve 446.5 446.5 446.5
Cash flow hedge reserve 0.5 0.5 1.5
Treasury shares (1.7) (0.9) (1.7)
Retained earnings (180.1) (249.3) (198.9)
Equity shareholders' funds 317.1 248.7 299.3
Minority interest 1.6 0.8 1.5
TOTAL CAPITAL AND RESERVES 7 318.7 249.5 300.8
Consolidated cash flow statement
Six months ended 30 September 2006
Six months to Six months Year to
30.9.2006 to 30.9.2005 31.3.2006
£m £m £m
Operating activities
Reconciliation of profit before interest to net cash flows from
operating activities
Profit on ordinary activities before interest 129.5 116.8 236.2
Profit before interest on discontinued operations - 1.4 1.2
Depreciation and other similar non-cash charges 43.1 40.6 83.6
Net charge for provisions, less payments (0.1) (0.3) (0.5)
Movements in working capital (6.9) 4.7 (5.5)
Cash generated from operations 165.6 163.2 315.0
Special contributions paid in respect of retirement benefits (26.1) - (22.8)
Net interest paid (54.9) (55.6) (119.7)
Income taxes paid (4.4) (0.1) (6.5)
Net cash flows from operating activities 80.2 107.5 166.0
Investing activities
Interest received 2.5 1.7 4.1
Capital grants received 9.5 11.0 21.4
Purchase of subsidiary undertaking (net of cash acquired) - - 2.4
Proceeds on disposal of subsidiary undertakings - 18.7 18.6
Proceeds on disposal of property, plant and equipment 0.8 1.0 2.0
Dividends received from jointly controlled entities 0.6 0.4 0.8
Purchase of property, plant and equipment (99.3) (93.0) (206.7)
Other cash items - 0.2 0.2
Net cash flows from investing activities (85.9) (60.0) (157.2)
Financing activities
New borrowings 325.1 150.0 210.2
New loans issued - - (2.1)
Maturity of investments 1.0 0.8 2.0
Settled hedge instruments 2.9 (3.7) (3.7)
Issue costs of new borrowings (0.4) (1.1) (1.4)
Own shares purchased - - (0.8)
Dividends paid to minority interests - - (0.3)
Dividends paid to equity shareholders (36.4) (36.8) (69.7)
Repayment of borrowings (193.7) (22.1) (46.6)
Payment of principal under hire purchase contracts and finance leases (3.5) (3.1) (4.7)
Net cash flows from financing activities 95.0 84.0 82.9
Increase in cash and cash equivalents 89.3 131.5 91.7
Cash and cash equivalents at start of period 153.9 62.2 62.2
Cash and cash equivalents at end of period 243.2 193.7 153.9
Net cash flow in respect of discontinued operations
Cash consideration - 29.8 29.8
Cash and cash equivalents disposed - (11.0) (11.1)
Expenses paid in connection with disposals - (0.1) (0.1)
- 18.7 18.6
Notes to the financial statements
1. Basis of preparation
The results for the six months to 30 September 2006 have been prepared using the
accounting policies expected to be applied in the annual report and financial
statements for 31 March 2007 and are consistent with the accounting policies
applied in the annual report and financial statements for the year ended 31
March 2006.
The results for the year ended 31 March 2006 have been extracted from the
financial statements, which have been delivered to the Registrar of Companies.
The independent auditors' report on those financial statements was unqualified
and did not contain a statement under section 237 (2) or (3) of the Companies
Act 1985. The financial information contained in the interim financial
statements does not constitute statutory accounts as defined in Section 240 of
the Companies Act 1985.
The figures for the above periods are unaudited and do not constitute statutory
accounts. However, the auditors have carried out a review of the figures to 30
September 2006 and their report is set out in the independent review report.
The interim report was approved by the Board of Directors on 5 December 2006.
2. Segmental analysis of revenue and profit on ordinary
activities before interest
Revenue
Total revenue
Northumbrian Water & from
Water waste water Related Discontinued continuing
Limited contracts services Total operations operations
£m £m £m £m £m £m
Six months ended 30 September 2006
Segment revenue 293.6 17.9 12.7 324.2 - 324.2
Inter segment revenue - (0.4) (7.9) (8.3) - (8.3)
Revenue to external customers 293.6 17.5 4.8 315.9 - 315.9
Six months ended 30 September 2005
Segment revenue 277.2 13.0 39.3 329.5 (26.3) 303.2
Inter segment revenue - (0.6) (16.6) (17.2) 9.3 (7.9)
Revenue to external customers 277.2 12.4 22.7 312.3 (17.0) 295.3
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 revenue
from
Northumbrian Water & continuing
Water waste water Related Discontinued operations
Limited contracts services Total operations
£m £m £m £m £m £m
Six months ended 30 September 2006
Segment profit before interest 124.2 4.5 0.2 128.9 - 128.9
Central unallocated costs and
provisions 0.6
Profit on ordinary activities
before interest 129.5
Net finance costs (54.2)
Share of profit from associates
and jointly controlled entities 0.2
Profit on ordinary activities
before taxation 75.5
Six months ended 30 September 2005
Segment profit before interest 115.5 1.0 1.7 118.2 (1.4) 116.8
Central unallocated costs and
provisions -
Profit on ordinary activities
before interest 116.8
Net finance costs (52.4)
Share of profit from associates
and jointly controlled entities (0.1)
Profit on ordinary activities
before taxation 64.3
The trading profit disclosed as discontinued operations is part of related services. Profit on ordinary
activities before interest for related services, includes the profit on disposal of £14.6 million for 2006.
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
3. Taxation
Six months to Six months Year to
30.9.2006 to 30.9.2005 31.3.2006
£m £m £m
Current tax:
UK corporation tax - continuing operations 10.4 10.1 15.6
- discontinued operations (note 4) - 0.6 0.6
- overseas tax - - 0.1
Total current tax 10.4 10.7 16.3
Deferred tax:
Deferred tax - continuing operations 8.3 7.0 23.6
- discontinued operations (note 4) - 0.1 0.1
Total deferred tax 8.3 7.1 23.7
Tax charge in the income statement 18.7 17.8 40.0
The tax charge in the income statement is disclosed as follows:
Tax expense on continuing operations 18.7 17.1 39.3
Tax expense on discontinued operations (note 4) - 0.7 0.7
18.7 17.8 40.0
4. Discontinued operations
The Group disposed of Fastflow Pipeline Services Limited (FPS) on 8 July 2005,
Entec UK Limited (Entec) on 5 October 2005 and ULG Northumbrian Limited (ULG) on
10 April 2006. The results of the discontinued operations are disclosed within
related services. No tax arises on the disposals due to the availability of the
substantial shareholdings exemption. The results of FPS, Entec and ULG for the
period to their date of disposal are presented below:
Six months to Six months Year
30.9.2006 to 30.9.2005 to 31.3.2006
£m £m £m
Revenue - 26.3 28.5
Inter segment - (9.3) (9.3)
External revenue - 17.0 19.2
Operating costs - (15.6) (18.0)
Profit on ordinary activities before interest - 1.4 1.2
Profit on disposal of discontinued operations - 14.6 14.6
Profit before interest on discontinued operations - 16.0 15.8
Net finance costs - 0.2 0.3
Profit on ordinary activities before taxation - 16.2 16.1
Current tax - (0.6) (0.6)
Deferred tax - (0.1) (0.1)
Profit for the period from discontinued operations - 15.5 15.4
The tax charge is analysed as follows:
On profit on ordinary activities for the period - (0.7) (0.7)
5. Dividends paid and proposed
The Board has declared an ordinary interim dividend for the period of 3.75 pence
per share (2005/06: 3.52 pence). The dividend will be paid on 2 February 2007 to
shareholders on the register at the close of business on 22 December 2006.
Six months to Six months Year to
30.9.2006 to 30.9.2005 31.3.2006
£m £m £m
Declared and approved during the period:
Equity dividends on ordinary shares:
Interim dividend for 2005/06: 3.52p - - 18.2
Final dividend for 2005/06: 7.04p (2004/05: 7.13p) 36.4 36.9 36.9
Special dividend for 2005/06: 2.82p - - 14.6
Dividends paid 36.4 36.9 69.7
Proposed dividend for the period:
Interim dividend for 2006/07: 3.75p (2005/06: 3.52p) 19.4 18.2 18.2
Special dividend for 2006/07: nil (2005/06: 2.82p) - 14.6 14.6
Final dividend for 2005/06: 7.04p - - 36.4
6. 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 period. 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
30.9.2006 30.9.2006 30.9.2006 30.9.2005 30.9.2005 30.9.2005
£m million pence £m million pence
Net profit attributable to equity holders of
the parent - continuing operations 56.8 517.6 10.97 47.2 517.9 9.11
Net profit attributable to equity holders of
the parent - discontinued operations - - 15.5 3.00
Basic EPS 56.8 517.6 10.97 62.7 517.9 12.11
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
30.9.2006 30.9.2006 30.9.2006 30.9.2005 30.9.2005 30.9.2005
£m million pence £m million pence
Net profit attributable to equity holders of
the parent - continuing operations 56.8 518.6 10.95 47.2 518.6 9.11
Net profit attributable to equity holders of
the parent - discontinued operations - - 15.5 3.00
Diluted EPS 56.8 518.6 10.95 62.7 518.6 12.11
Adjusted EPS is considered by the directors to give a better indication of the
Group's underlying performance and is calculated as follows:
Weighted Weighted
average average
number of Earnings number of Earnings
Earnings shares per share Earnings shares per share
30.9.2006 30.9.2006 30.9.2006 30.9.2005 30.9.2005 30.9.2005
£m million pence £m million pence
Basic EPS 56.8 517.6 10.97 47.2 517.9 9.11
Deferred tax 8.3 1.60 7.0 1.35
Amortisation of debt fair value (4.4) (0.84) (6.0) (1.16)
IAS 39 derivatives (net of tax) (2.0) (0.39) - -
Adjusted EPS 58.7 517.6 11.34 48.2 517.9 9.30
Weighted
average
number of Earnings
Earnings shares per share
31.3.2006 31.3.2006 31.3.2006
£m million pence
Net profit attributable to equity holders of
the parent - continuing operations 91.0 517.9 17.57
Net profit attributable to equity holders of
the parent - discontinued operations 15.4 2.98
Basic EPS 106.4 517.9 20.55
Net profit attributable to equity holders of
the parent - continuing operations 91.0 518.6 17.55
Net profit attributable to equity holders of
the parent - discontinued operations 15.4 2.97
Diluted EPS 106.4 518.6 20.52
Basic EPS 91.0 517.9 17.57
Deferred tax 23.6 4.55
Amortisation of debt fair value (13.0) (2.50)
Adjusted EPS 101.6 517.9 19.62
7. Reconciliation of movements in equity
Six months to Six months Year to
30.9.2006 to 30.9.2005 31.3.2006
£m £m £m
At start of period 300.8 230.3 230.3
Actuarial (losses)/gains (2.4) (4.3) 52.7
Cash flow hedges (1.0) (3.8) (2.8)
Tax on items charged or credited to equity 0.7 1.3 (15.6)
Dividends paid (36.4) (37.0) (69.8)
Share-based payment 0.2 0.1 0.2
Refund of share issue costs - 0.2 0.2
Shares purchased - - (0.8)
Profit for the period 56.8 62.7 106.4
Total recognised income and expense 318.7 249.5 300.8
INDEPENDENT REVIEW REPORT TO NORTHUMBRIAN WATER GROUP PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 September 2006 which comprises the Consolidated Income
Statement, Consolidated Statement of Recognised Income and Expense, Consolidated
Balance Sheet, Consolidated Cash Flow Statement and the related notes 1 to 7. We
have read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
This report is made solely to the company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company, for our work,
for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making enquiries
of Group management and applying analytical procedures to the financial
information and underlying financial data and, based thereon, assessing whether
the accounting policies and presentation have been consistently applied, unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with
International Standards on Auditing (UK and Ireland) and therefore provides a
lower level of assurance than an audit. Accordingly we do not express an audit
opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2006.
Ernst & Young LLP
Newcastle upon Tyne
6 December 2006
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