Preliminary Results
Northumbrian Water Group PLC
09 June 2004
9 June 2004
PRELIMINARY RESULTS FOR THE PERIOD ENDED 31 MARCH 2004
FIRST ANNUAL RESULTS FOR NORTHUMBRIAN WATER GROUP PLC
Northumbrian Water Group plc is pleased to announce its preliminary results for
the period ended 31 March 2004.
HIGHLIGHTS
• Turnover of £442.1 million for the ten months trading ended 31 March 2004
(2002/03: £429.0 million); pro forma turnover of £520.8 million for the 12
month period to 31 March 2004.
• Profit before tax and exceptionals of £56.5 million (2002/03: £80.6 million)
principally reflecting the increased interest charges arising from the
acquisition; pro forma profit before tax and exceptionals of £65.0 million
for the 12 month period to 31 March 2004.
• Proposed final dividend of 4.63 pence per share, giving a total dividend
of 6.95 pence per share for the 10 months trading period.
• Levels of customer service, drinking water quality and environmental
protection continue to be amongst the highest in the industry.
• Ofwat interim determination of price limits of 10.0% plus inflation
applied in 2004/05.
• Post balance sheet: £212.1 million raised from a 30 year AAA rated bond,
in securitisation of Kielder Water operating contract to refinance short
term debt and European Investment Bank (EIB) confirmed its intention to
remain a lender to the core business.
John Cuthbert, Managing Director, said today:
"I am pleased to report a strong operating performance in what was a year of
considerable change. The Group's financial position has been significantly
strengthened ahead of the next regulatory period by the interim price increase,
the successful securitisation of the Kielder Water contract and the EIB decision
to maintain its funding.
"We have prepared a well-balanced business plan for the next regulatory period
which would allow us to deliver both quality improvements and maintain the high
standards of service our customers expect."
For further information contact:
Northumbrian Water 0191 301 6419
John Cuthbert, Managing Director
Chris Green, Finance Director
Andrew Panting, Communications Manager
Finsbury 020 7251 3801
Rollo Head
Mark Harris
Anthony Silverman
Notes to Editors
Northumbrian Water Group plc (the Company or NWG) was admitted to the Official
List of the London Stock Exchange on 23 September 2003, following 4 months on
AIM. The Company listed on AIM on 23 May 2003, the day that it purchased
Atlantic Water Limited (AWL) for a consideration of £1,010 million (excluding
acquisition costs).
AWL includes Northumbrian Services Limited (NSL), formerly Ondeo Services UK
plc, and its subsidiary companies. The acquisition was financed by cash of £880
million, comprising £344 million (net of expenses) raised from institutional
investors and a short term loan of £536 million from Deutsche Bank. The balance
of the consideration was satisfied by the issue of shares to Suez, the previous
ultimate parent company of AWL, valued at £130 million.
NSL comprises a number of companies of which the largest are Northumbrian Water
Limited (NWL), Entec UK Limited, Analytical & Environmental Services Limited and
Fastflow Pipeline Services Limited. A division of NSL, Northumbrian Water
International, manages waste water treatment plants in Scotland and Ireland, and
water operations in Gibraltar.
NWL is a regulated water and sewerage company operating in the north east and
south east of England (trading as Northumbrian Water and Essex & Suffolk Water
respectively) and is committed to maintaining its leading position in the UK
water industry for customer service and environmental protection. NWL currently
provides water and sewerage services to 2.6 million people in the north east of
England and water services to 1.7 million people in the south east of England.
REPORTING PERIOD
These preliminary results for Northumbrian Water Group plc (the Company or NWG)
and its subsidiaries (together the Group) cover the period from incorporation of
NWG (12 May 2003) to 31 March 2004. NWG did not trade in the period from 12 May
2003 to 23 May 2003. To provide comparative figures, the results of Northumbrian
Services Limited (NSL) for the 10 month period from 23 May 2002 to 31 March 2003
are included. Also provided are pro forma figures for the 12 months ended 31
March 2004, which include the 12 months trading results of NSL to 31 March 2004,
with the addition of the NWG acquisition accounting from 23 May 2003. The pro
forma figures include 8 weeks of pre-acquisition profits.
NWG NSL NSL
12.5.2003 to 23.5.2002 to 1.4.2003 to
31.3.2004 31.3.2003 31.3.2004
Pro forma
Before before
exceptionals exceptionals
£m £m £m
Group turnover 442.1 429.0 520.8
Operating costs (296.3) (285.0) (354.3)
Operating profit 145.8 144.0 166.5
Investment income,
associates and joint
ventures 3.5 1.9 3.8
Net interest payable and
similar charges (92.8) (65.3) (105.3)
Profit on ordinary
activities before
taxation 56.5 80.6 65.0
Tax on profit on
ordinary activities 11.0 (1.4) 10.5
Profit on ordinary
activities after
taxation 67.5 79.2 75.5
Minority interest (0.1) (0.2) (0.6)
Profit for the financial
period 67.4 79.0 74.9
Dividends paid and
proposed (36.0) (62.3) (36.0)
Retained profit for the
financial period 31.4 16.7 38.9
GROUP FINANCIAL PERFORMANCE
The Group's turnover was £442.1 million for the trading period from 23 May 2003
to 31 March 2004 (2002/03: £429.0 million). The higher turnover in the current
period reflects a £13.3 million increase in income at Northumbrian Water Limited
(NWL), mainly due to the application of RPI to prices in April 2003. It also
reflects £3.5 million of additional income from the first full period of
operations at Caledonian Environmental Services (CES), NSL's project company at
Levenmouth, following plant commissioning in late 2002, offset by a reduction of
£3.2 million following the sale of Imass Limited (Imass) in December 2002. The
pro forma turnover for the 12 month period to 31 March 2004 was £520.8 million.
Operating profit before exceptionals was £145.8 million for the trading period
from 23 May 2003 to 31 March 2004 (2002/03: £144.0 million), reflecting an
increase in operating costs of £11.3 million. Operating costs have increased by
£10.8 million at NWL and these are explained in further detail below in the
section on water. With a full period of operations, costs at CES have increased
by £2.5 million. These increases have been offset by a £3.4 million reduction in
costs following the sale of Imass. In addition, exceptional operating costs of
£2.2 million relate to severance costs and the costs associated with the move to
the Official List. The pro forma operating profit before exceptionals for the 12
month period to 31 March 2004 was £166.5 million.
Net interest payable before exceptionals was £92.8 million for the trading
period from 23 May 2003 to 31 March 2004 (2002/03: £65.3 million). This £27.5
million increase reflects: increased debt to finance the acquisition (£21.9
million) and NWL's investment programme (£3.6 million); interest on long term
funds raised by NWL in late 2002 (£3.3 million); the cost of committed
facilities at NWL to back up EIB loans and short term working capital (£1.5
million) and NWG's equity share of the interest paid by the Ayrshire project
company (£1.5 million). These increases were partially offset by the
amortisation of the fair value adjustment made to the Group's net debt (credit
of £5.3 million). A further £8.8 million exceptional charge arose on the
acquisition debt. Net interest payable (excluding exceptional items) was covered
2.4 times by operating profit after adding back depreciation.
The tax credit of £11.0 million relates to both corporation tax (£6.8 million)
and deferred tax (£4.2 million). The corporation tax credit is principally due
to adjustments in respect of prior periods of the NSL group, partially offset by
tax on profits at 30%. The deferred tax credit is mainly due to a significant
increase in discount, reflecting movements in yields since 23 May 2003,
partially offset by the reversal of timing differences.
Profit on ordinary activities after tax but before exceptionals, for the trading
period from 23 May 2003 to 31 March 2004, was £67.5 million (2002/03: £79.2
million). The pro forma profit after tax but before exceptionals for the 12
month period to 31 March 2004 was £75.5 million.
Operating activities generated a net cash inflow of £218.5 million. The main
cash outflows from normal operations were net investment in fixed assets (£148.4
million), net interest payments (£101.0 million) and equity dividends paid
(£12.0 million). The most significant cash outflow was £788.9 million to
purchase Atlantic Water Limited (AWL). These outflows were mainly financed by
the issue of new shares (£368.5 million) and an increase in the Group's net debt
(£464.9 million).
The Group will publish its first financial statements under International
Financial Reporting Standards (IFRS) for the year ending 31 March 2006. The
Group has not yet determined the full effect of adopting IFRS. The
implementation plan will depend upon the completion of the standard setting
process by the International Accounting Standards Board and the endorsement of
standards by the European Union (EU). Based on information currently available,
the major differences in accounting policies expected to have an impact on the
Group are deferred tax, employee benefits, fixed asset accounting, business
combinations, intangible assets and share-based payments. We will provide more
information on this at the time of our interim results in December.
CAPITAL STRUCTURE
On 10 September 2003, NWL applied to the Office of Water Services (Ofwat) for an
interim determination of price limits. On 5 November 2003, the Director General
for Water Services announced his draft interim determination of 9.6% and this
was followed on 11 December 2003 by his final determination. This allowed NWL to
raise its tariffs by 10.0% in real terms in 2004/05. The application was made
because NWL faced unanticipated additional costs caused by increased customer
bad debt, water quality monitoring, new obligations requiring capital
expenditure and lower than forecast demand for water.
NWL was pleased to receive its first Moody's credit rating of Baa1 on 8 April
2004, followed by an improvement of Standard & Poor's (S&P's) rating outlook
from BBB stable to BBB positive on 16 April 2004. On 11 December 2003, Fitch
assigned a credit rating of BBB+ for NWL.
On 12 May 2004, the Group announced the securitisation of NWL's contract with
the Environment Agency to operate the Kielder Water transfer scheme. The
proceeds arising from a 30 year bond have been used to repay short term debt of
£205.0 million provided to part-finance the acquisition of the Company's
business in May 2003. This bond has been rated AAA by Moody's, Fitch and S&P's.
This transaction significantly strengthens the Group's financial position ahead
of the next regulatory period.
The European Investment Bank confirmed, on 12 May 2004, its intention to remain
as a lender to NWL following the change of ownership.
The Group's net debt (prior to adjusting for fair value of £101.1 million)
increased to £1,768.4 million at 31 March 2004. This reflects the purchase of
AWL and NWL's ongoing investment programme. The Group's gearing, based on net
debt (before fair value) divided by a Regulatory Asset Value of £2,318 million
at 31 March 2004, is 76%.
UK WATER
Turnover was £386.2 million for the trading period from 23 May 2003 to 31 March
2004 (2002/03: £372.9 million). The increased turnover in the current period is
mainly due to the tariff increase in April 2003 after applying RPI, and
increased income from commercial contracts. The pro forma turnover for the 12
month period to 31 March 2004 was £454.6 million.
Operating profit was £133.4 million for the trading period from 23 May 2003 to
31 March 2004 (2002/03: £130.9 million). The pro forma operating profit for the
12 month period to 31 March 2004 was £159.6 million.
An increase in operating costs of £10.8 million, mainly reflects the following
factors: increases in abstraction charges and rates (£3.4 million); increased
manpower costs (£2.8 million); leakage costs charged to profit rather than
capital following the achievement of the economic level of leakage in 2002/03
(£2.1 million); higher sludge treatment costs (£1.9 million) and bad debt costs
(£0.8 million). Capital maintenance costs decreased by £1.0 million, reflecting
the impact of commissioning new assets (£3.3 million), which was more than
offset by a reduction in depreciation charges, following a comprehensive review
of operating asset lives. This review was undertaken to support the depreciation
charges included in the final business plan submitted to Ofwat in April 2004.
During the period, NWL invested £156.7 million (2002/03: £181.5 million), of
which 40% related to major capital projects providing new facilities to improve
the quality of drinking water and sewage treatment. A further 35% was invested
in maintaining its existing assets.
NWL's gearing, based on its net debt divided by a Regulatory Asset Value of
£2,318 million at 31 March 2004, was 62%. On the same basis, the gearing of
NWL's regulated business was 58%.
Major capital projects completed during 2003/04 included an innovative new water
recycling plant at Langford in Essex, a major extension to the water treatment
works at Broken Scar, Darlington, a new Wear Valley water treatment works in
Wearhead, County Durham, and a new sewage treatment works at Skinningrove on the
Cleveland coast.
NWL improved on its excellent customer service record against all bar one of the
seven Ofwat customer service measures in 2003/04; the exception related to sewer
flooding. The regulator has not yet published comparative results, but NWL
anticipates that it will improve on the performance it achieved in 2002/03. In
the previous three years NWL had achieved seven out of a possible seven Ofwat
customer service 'stars' (it is still the only water and sewerage company to
have ever achieved this). During 2002/03, severe storms meant NWL lost the two
stars that relate to sewer flooding.
These storm events also had a dramatic effect on NWL's ranking in Ofwat's
overall performance assessment in 2002/03, accounting for two thirds of the
points lost, losing NWL the 'top of the league' position it occupied in 2000/01
and 2001/02. The results for 2003/04 have not yet been published, but NWL's
performance has improved.
Drinking water quality compliance in NWL's northern and southern areas in 2003
was 99.93%, maintaining the excellent standard achieved the previous year.
According to the Drinking Water Inspectorate's 2002 report, NWL's 99.93%
compliance was the highest achieved by any water company during that year.
The rate of complaints per 10,000 connections recorded by WaterVoice, the
consumer watchdog for the water industry, in its Northumbria region in 2002/03
was the lowest amongst water and sewerage companies for the second year running.
WaterVoice audits of NWL's handling of written complaints resulted in scores of
98.9% in the south and 86.4% in the north (both in Ofwat's 'good' category).
Audits of telephone handling gave scores of 100% in both the north and the
south.
NWL's northern area scored a maximum 100 in the Ofwat security of supply index
in 2003/04, aided by Kielder Water, the largest man-made lake in Northern
Europe. In its southern area, a drier climate and more concentrated population
gave rise to a lower index score of 90 - a significant improvement on the 68
scored in 2002/03. The improvement is the result of water resource planning,
which is essential to balance demand and supply. A number of initiatives are in
place to meet this challenge. These include a proposed £80 million investment
project that would increase the capacity of Abberton reservoir by 60%.
Whilst overall demand from industry for water and waste water services continued
to decline, revenues from the treatment of specialised industrial effluent
increased and contracts with an annual value of almost £1 million were won
during the period. New commercial customers included Huntsman and Vopak. NWL
continues to work closely with the East of England Development Agency and One
NorthEast to encourage industrial expansion and inward investment. NWL also
signed a contract with United Utilities (UU) to provide water from its new Wear
Valley water treatment works to UU's customers in Alston and Garrigill.
At NWL's Bran Sands plant on Teesside, a successful pilot project was carried
out to use sewage sludge pellets produced by the site's sludge treatment centre
as a fuel in the manufacture of cement at Lafarge's works at Cauldon in
Staffordshire. This will guarantee a secure and sustainable outlet for the
sludge, minimising NWL's costs.
Other related activities that utilise NWL's expertise and assets continued to
perform well. A buoyant housing market has contributed to a growth in revenue
from Property Solutions, a division of NWL that provides water, sewerage,
flooding, coal authority and environmental searches to private and commercial
property purchasers, via their solicitors and developers. Its turnover was £2.4
million in 2003 - an increase of almost 50%.
NWL continued to set high environmental standards. All 33 designated bathing
waters along the coast of north east England achieved the EU mandatory
standards, with 70% meeting the much more stringent guideline standard. This
improved bathing water quality reflects the significant investment made at NWL's
major estuarial and coastal sewage works.
NWL began the roll-out of the environmental management system ISO 14001 across
the business during 2003 and is on schedule to gain certification by the end of
2004.
WATER INTERNATIONAL
Northumbrian Water International (NWI) is the trading division of NSL
responsible for managing the Group's interests in contracts in Scotland, Ireland
and Gibraltar. Turnover was £17.6 million for the trading period from 23 May
2003 to 31 March 2004 (2002/03: £15 million). The increase mainly reflects £3.5
million of additional income from the first full period of operations at
Caledonian Environmental Services (CES). The pro forma turnover for the 12 month
period to 31 March 2004 was £20.7 million.
RELATED SERVICES
The Group's non-water companies' turnover was £70.2 million for the trading
period from 23 May 2003 to 31 March 2004 (2002/03: £68.4 million). The pro forma
turnover for the 12 month period to 31 March 2004 was £82.1 million. The sale of
Imass in December 2002 reduced turnover in the trading period to 31 March 2004
by £3.2 million, though this has been more than offset by a net increase in
turnover from the other Group companies.
The Group's environmental and engineering consultancy, Entec UK Limited,
continues to grow its revenue and its client base outside the Group. Its
turnover for the period was £33.8 million, up 17% on the same period last year
(2002/03: £29.0 million) and 74% of revenue is now generated outside the Group.
Fastflow Pipeline Services Limited, the Group's specialist underground asset
management business providing water and gas network renewal and refurbishment
services, saw its turnover reduce by 12% to £13.4 million during the period
(2002/03: £15.2 million). A recent entry into the gas pipeline market should
provide a good opportunity for growth going forward.
Turnover at Analytical & Environmental Services Limited, at £10.9 million, was
stable for the period (2002/03: £10.3 million) and new services for occupational
hygiene, noise and vibration assessment were successfully established.
Turnover from other Group companies was £12.1 million (2002/03: £13.9 million).
EARNINGS PER SHARE AND DIVIDENDS
A final dividend of 4.63 pence per share for the period ended 31 March 2004 will
be recommended by the Board to the Annual General Meeting on 3 August 2004 and,
if approved, will be paid on 13 August 2004 to shareholders on the register at
the close of business on 16 July 2004. Together with the interim dividend of
2.32 pence per share, the dividend for the 10 month trading period is 6.95 pence
per share. Basic and diluted earnings per share were 11.5 pence, whilst adjusted
earnings per share, before exceptional items and deferred tax, was 12.2 pence.
The dividend cover for the period, before exceptionals, is 1.9 times.
BOARD APPOINTMENTS
Derek Wanless was appointed to the Board on 1 December 2003 and Jenny Williams
was appointed to the Board on 27 May 2004. They bring with them a wealth of
financial and policy experience and the Company now complies with the provisions
of the Revised Combined Code regarding independent directors.
OUTLOOK
The financial position of the Group has been significantly improved following
the application of the interim price increase for 2004/05, the repayment of the
short term loan with the proceeds of the Kielder Water securitisation and the
confirmation that the EIB will remain a lender to NWL.
The Group remains focused on its key activities: the delivery of excellent
quality drinking water, the cleaning of domestic and industrial waste water to
the highest standards and the provision of a selected range of related services.
We will continue to invest to ensure we can both meet our regulatory obligations
and improve the efficiency and quality of the infrastructure underpinning our
core business.
We have prepared and submitted to Ofwat a well-balanced business plan, proposing
a 28% increase in prices in real terms over the 2005-2010 review period. This
would give us the capacity to deliver both quality improvements and maintain the
high standards of service our customers expect.
John Cuthbert
Managing Director
NORTHUMBRIAN WATER GROUP plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the period ended 31 March 2004
Before
exceptional Exceptional
items items Total
Notes £m £m £m
Turnover: Group and share of joint
ventures 448.6 - 448.6
Less share of joint ventures'
turnover (6.5) - (6.5)
Group turnover 2 442.1 - 442.1
Operating costs
- operating costs before
exceptional costs (296.3) - (296.3)
- exceptional costs 3 - (2.2) (2.2)
Operating profit 2 145.8 (2.2) 143.6
Share of associated undertakings'
operating profit 2.5 - 2.5
Share of joint ventures' operating
profit 1.0 - 1.0
Total operating profit: Group and
share of joint ventures and associates 149.3 (2.2) 147.1
Interest payable and similar charges
- net interest payable (92.8) - (92.8)
- amortisation of financing costs 3 - (8.8) (8.8)
Profit on ordinary activities
taxation 2 56.5 (11.0) 45.5
Tax on profit on ordinary activities
- current taxation 4 6.8 2.3 9.1
- deferred taxation 4 4.2 0.7 4.9
Profit on ordinary activities after
taxation 67.5 (8.0) 59.5
Minority interest (0.1) - (0.1)
Profit attributable to shareholders 67.4 (8.0) 59.4
Dividends paid and proposed 5 (36.0) - (36.0)
Retained profit for the financial
period 31.4 (8.0) 23.4
Basic earnings per share 6 11.5p
Adjusted earnings per share 6 12.2p
Diluted earnings per share 6 11.5p
Dividend per share 6.95p
All the above results are attributable to acquisitions in the period.
NORTHUMBRIAN WATER GROUP plc
CONSOLIDATED BALANCE SHEET
As at 31 March 2004
Group
31.3.2004
£m
Fixed assets
Intangible assets 64.4
Tangible assets 2,692.8
Investments in joint ventures: share of gross assets 12.5
share of gross liabilities (9.1)
3.4
Investments in associates 1.8
Other investments 0.4
2,762.8
Current assets
Stocks 4.8
Debtors: receivable within one year 118.1
Debtors: receivable after more than one year 14.3
Cash at bank and short term deposits 44.8
182.0
Creditors: amounts falling due within one year (247.5)
Net current liabilities (65.5)
Total assets less current liabilities 2,697.3
Creditors: amounts falling due after more than one year (1,866.4)
Provisions for liabilities and charges (165.1)
Accruals and deferred income (142.8)
(2,174.3)
Net assets 523.0
Capital and reserves
Called up share capital 51.9
Share premium account 446.3
Other reserve (0.5)
Profit and loss account 23.4
Equity shareholders' funds 521.1
Minority equity interest 1.9
Total capital and reserves 523.0
NORTHUMBRIAN WATER GROUP plc
CONSOLIDATED CASH FLOW STATEMENT
For the period ended 31 March 2004
Total
Notes £m
Net cash inflow from operating activities 218.5
Returns on investments and servicing of finance
Interest received 7.1
Interest paid (107.5)
Interest paid on hire purchase contracts and finance leases (0.6)
Dividends paid to minority interests (0.9)
Net cash outflow from returns on investments and servicing of
finance (101.9)
Capital expenditure and financial investments
Purchase of tangible fixed assets (163.5)
Proceeds on disposal of tangible fixed assets 0.6
Capital grants received 14.5
Net cash outflow from capital expenditure and financial
investments (148.4)
Acquisitions and disposals
Acquisition of subsidiaries 7 (893.0)
Net cash acquired with subsidiaries 7 104.1
Acquisition of division (0.3)
Net cash outflow from acquisitions and disposals (789.2)
Equity dividends paid (12.0)
Cash outflow before management of liquid resources (833.0)
Management of liquid resources
Purchase of short term deposits (1,554.8)
Disposal of short term deposits 1,848.4
Net cash inflow from management of liquid resources 293.6
Financing
Issue of new shares 368.5
Purchase of own shares (0.5)
Loans received 536.0
Loans repaid (348.9)
Payment of principal under hire purchase contracts and
finance leases (2.4)
Net cash inflow from financing 552.7
Increase in cash in the period 13.3
Reconciliation of net debt
Increase in cash in the period 13.3
Cash inflow from increase in net debt and lease financing (184.7)
Cash inflow from management of liquid resources (293.6)
Increase in net debt resulting from cash flows (465.0)
Amortisation of fair value adjustment 5.3
Inception of new finance lease contracts (5.2)
Increase in net debt in the period (464.9)
Loans and finance leases acquired with subsidiaries net of
short term deposits (1,404.6)
Net debt at end of the period (1,869.5)
Net debt at the end of the period (including fair value
adjustment) (1,869.5)
Fair value adjustment less amortisation 101.1
Net debt at the end of the period (excluding fair value
adjustment) (1,768.4)
NORTHUMBRIAN WATER GROUP plc
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
For the period ended 31 March 2004
Net cash inflow from operating activities
Total
£m
Operating profit 143.6
Depreciation of tangible fixed assets 72.9
Profit on disposal of tangible fixed assets (0.5)
Amortisation of capital grants (3.2)
Movement in reorganisation and restructuring provisions (1.5)
Decrease in stocks 1.2
Decrease in debtors 15.5
Decrease in creditors (9.5)
Net cash inflow from operating activities 218.5
NOTES TO THE FINANCIAL STATEMENTS
1 Basis of preparation
The results for NWG and its subsidiaries (together the Group) covers the period
from incorporation of NWG (12 May 2003) to 31 March 2004. NWG did not trade in
the period from 12 May 2003 to 23 May 2003. To provide comparative figures, the
results of NSL for the 10 month period from 23 May to 31 March 2003 are included
(see note 9). Also provided are pro forma figures for the 12 months ended 31
March 2004, which include the 10 months trading results of NSL to 31 March 2004,
with the addition of the NWG acquisition accounting from 23 May 2003. The pro
forma figures include 8 weeks of pre-acquisition profits.
The results for the period ended 31 March 2004 have been prepared on the basis
of accounting policies consistent with those set out in the financial statements
of the Group. The Group has adopted the accounting policies set out in the 2002
statutory accounts of NSL, with the exception of the accounting for court costs
and solicitors' fees which are written off.
The financial information has been extracted from the draft financial statements
of the Group for the period ended 31 March 2004. The financial information set
out in this statement does not constitute the Company's statutory financial
statements within the meaning of Section 240 of the Companies Act 1985. The
audit report is yet to be signed. Statutory accounts for the period ended 31
March 2004 will be filed with the Registrar of Companies following the Company's
Annual General Meeting. This statement was approved by the Board of Directors on
8 June 2004.
2 Segmental analysis of turnover and operating profit
UK Water Related
Water International Services
31.3.2004 31.3.2004 31.3.2004 Total
£m £m £m £m
Turnover:
UK 386.2 10.8 65.4 462.4
Rest of Europe, Middle East and
Far East - 6.8 2.8 9.6
Rest of world - - 2.0 2.0
Total turnover 386.2 17.6 70.2 474.0
Inter segment - (0.5) (31.4) (31.9)
External turnover 386.2 17.1 38.8 442.1
Operating profit:
UK 133.4 1.7 2.7 137.8
Rest of Europe, Middle East and
Far East - 0.4 0.5 0.9
Rest of world - - - -
133.4 2.1 3.2 138.7
Central unallocated costs and
provisions 4.9
Group operating profit 143.6
Share of associates' operating
profit 2.5
Share of joint ventures'
operating profit 1.0
Exceptional amortisation of
financing costs (8.8)
Net Interest payable and similar
charges (92.8)
Profit on ordinary activities
before taxation 45.5
3 Exceptional costs
The exceptional operating costs comprise additional severance costs of £1.1
million and the costs associated with the uplift to the main market of £1.1
million. Financing costs arising on the debt required for the acquisition have
been fully written off. Due to the magnitude of these costs, they have been
disclosed as exceptional.
4 Tax on profit on ordinary activities
Analysis of tax credit for the financial period
Total
£m
Current tax:
UK corporation tax on profits for the period at 30% 1.4
Overseas tax 0.1
Adjustment in respect of prior periods of the NSL group (10.9)
Group current tax credit (9.4)
Share of associates' tax charge 0.2
Share of joint ventures' tax charge 0.1
Total current tax credit (9.1)
UK corporation tax on profits for the period includes a £2.3 million tax credit
in respect of exceptional costs.
Deferred tax:
Origination and reversal of timing differences in the period 17.9
Adjustment in respect of prior periods of the NSL group (1.3)
16.6
Increase in discount (21.5)
Total deferred tax credit (4.9)
Origination and reversal of timing differences in the period includes a £0.7
million tax credit in respect of exceptional costs.
Tax credit on profit on ordinary activities (14.0)
5 Dividends
Total
£m
Interim paid of 2.32 pence per £1 ordinary share 12.0
Final proposed of 4.63 pence per £1 ordinary share 24.0
36.0
6 Earnings per share
Basic and diluted earnings per share (EPS) are calculated by dividing the profit
attributable to shareholders by the weighted average number of ordinary shares
in issue during the period.
Weighted
average
number of Earnings
Earnings shares per share
31.3.2004 31.3.2004 31.3.2004
£m £m pence
Basic and diluted EPS 59.4 518.6 11.5
Adjusted EPS is considered by the directors to give a better indication of the
Group's underlying performance and is calculated as follows:
Basic EPS 59.4 518.6 11.5
Deferred tax (4.9) (1.0)
Exceptional current tax (2.3) (0.4)
Exceptional operating costs 2.2 0.4
Exceptional amortisation of financing costs 8.8 1.7
Adjusted EPS 63.2 518.6 12.2
7 Acquisition of subsidiaries
On 23 May 2003 the Group purchased the whole of the issued share capital of AWL
which at that time held 100% of NSL. The consideration was satisfied by the
payment of £880 million in cash and the allotment of 129,655,961 fully paid
ordinary shares representing 25% of the enlarged share capital of NWG.
(a) AWL has been accounted for under the acquisition method of accounting. The
assets and liabilities of NSL that were acquired are set out below:
Book value Fair value Accounting Total
adjustments Policy fair value
£m Alignment 23.5.03
£m £m £m
Fixed assets (see
note (i)) 2,612.3 64.2 - 2,676.5
Stocks 6.0 - - 6.0
Cash at bank and in
hand 434.1 - - 434.1
Debtors: receivable
within one year
(see note (ii)) 140.2 (3.2) (6.0) 131.0
Debtors: receivable
after more than one
year (see note (iii)) 17.4 (2.0) - 15.4
Creditors: amounts
falling due within
one year (see note
(iv)) (229.6) (6.3) - (235.9)
Creditors: amounts
falling due after
more than one year
(see note (iv)) (1,602.1) (100.1) - (1,702.2)
Provisions for
liabilities and
charges (see note
(v)) (170.8) (0.7) - (171.5)
Accruals and
deferred income (128.0) - - (128.0)
Less minority
interests (2.7) - - (2.7)
Net assets acquired 1,076.8 (48.1) (6.0) 1,022.7
Satisfied by:
129,655,961 shares 129.7
Cash to ordinary shareholders 880.0
Costs of acquisition 13.0
1,022.7
(b) Net cash outflows in respect of the acquisition comprised:
Total
£m
Cash consideration 880.0
Cash at bank and in hand acquired (126.1)
Bank overdrafts acquired 22.0
Expenses paid in connection with acquisition 13.0
Net cash outflow 788.9
Explanatory notes to the fair value adjustments:
(i) Fixed assets
In accordance with FRS 10, an intangible asset has been recognised that
represents the right to receive income under the operating agreement with the
Environment Agency, in respect of the operation of the Kielder Water transfer
scheme.
(ii) Debtors: receivable within one year
Fair value adjustment to restate balances at their estimated recoverable value
and accounting policy alignment to write off court costs and solicitors' fees.
(iii) Debtors: receivable after more than one year
In accordance with FRS 7, a deficit in the defined benefit pension scheme has
been recognised as a liability.
(iv) Creditors: amounts falling due within one year and Creditors: amounts
falling due after more than one year
The carrying values of fixed rate debt have been adjusted to reflect the market
rate of interest on the date of acquisition.
(v) Provisions for liabilities and charges
Deferred tax has been adjusted to reflect the discount rates effective at date
of acquisition. A further adjustment has been made to reflect the deferred tax
on the fair value adjustments.
8 Post balance sheet event
On 12 May 2004, the Group's financial position was improved by the announcement
of the securitisation of NWL's contract with the Environment Agency for the
operation of the Kielder Water transfer scheme. The proceeds of £212.1 million
were used to repay short term debt, of £205.0 million, arising from the
acquisition of the Group's business.
9 Financial review statement
The Group has disclosed the comparative period for the acquired group, NSL, for
the 10 months ending 31 March 2003 and the pro forma figures for the 12 months
ending 31 March 2004. The latter includes 8 weeks of pre-acquisition trading
results and the accounting effect of the acquisition on 23 May 2003.
NWG NSL NSL
12.5.2003 to 23.5.2002 to 1.4.2003 to
31.3.2004 31.3.2003 31.3.2004
Pro forma
£m £m £m
Turnover: Group and share of joint
ventures 448.6 435.2 528.3
Less share of joint ventures'
turnover (6.5) (6.2) (7.5)
Group turnover 442.1 429.0 520.8
Operating costs
- operating costs before
exceptional costs (296.3) (285.0) (354.3)
- exceptional costs (2.2) - (2.2)
Operating profit 143.6 144.0 164.3
Share of associated undertakings'
operating profit 2.5 0.6 2.5
Share of joint ventures' operating
profit 1.0 1.1 1.3
Total operating profit: Group and
share of joint ventures and
associates 147.1 145.7 168.1
Investment income - 0.2 -
Net interest payable and similar
charges
- net interest payable (92.8) (65.3) (105.3)
- amortisation of financing costs (8.8) - (8.8)
Profit on ordinary activities
before taxation 45.5 80.6 54.0
Tax on profit on ordinary
activities 14.0 (1.4) 13.5
Profit on ordinary activities
after taxation 59.5 79.2 67.5
Minority interest (0.1) (0.2) (0.6)
Profit for the financial period 59.4 79.0 66.9
Dividends paid and proposed (36.0) (62.3) (36.0)
Retained profit for the financial
period 23.4 16.7 30.9
10 Annual General Meeting
The Annual General Meeting will be held at the Ramside Hall Hotel, Durham, on
3 August 2004 at 11.30am.
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