Final Results
Northumbrian Water Group PLC
07 June 2006
7 June 2006
NORTHUMBRIAN WATER GROUP PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2006
Northumbrian Water Group plc (NWG or the Group) is pleased to announce its
preliminary results for the year ended 31 March 2006.
HIGHLIGHTS 2006
Financial highlights Year to Year to Change Change
31.3.2006 31.3.2005 £m %
£m £m
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Continuing operations
Revenue 591.5 541.6 49.9 9.2
Profit on ordinary activities
before interest 236.2 196.1 40.1 20.4
Profit before tax 130.3 96.3 34.0 35.3
Profit before tax and FV debt
amortisation 1 117.3 82.2 35.1 42.7
Profit after tax 91.0 76.2 14.8 19.4
Net debt 2,010.4 1,881.0 129.4 6.9
--------------------------------------------------------------------------------
Continuing operations
Basic EPS 17.57p 14.71p 2.86p 19.4%
Adjusted EPS 1,2 19.62p 16.44p 3.18p 19.3%
Ordinary dividends paid and proposed 3 10.56p 10.00p 0.56p 5.6%
--------------------------------------------------------------------------------
Notes:
1 Excludes fair value debt amortisation £13.0 million (2005: £14.1 million)
2 Excludes deferred tax £23.6 million (2005: £21.0 million)
3 Ordinary interim dividends paid 3.52p (2005: 2.87p), final proposed 7.04p(2005: 7.13p)
• Strong financial and operating performance - a good start to the five year period
• Revenue increase mainly due to the price increase on water and sewerage
charges to support the continuing high capital investment programme
• Capital expenditure of £211.9 million in Northumbrian Water Limited(NWL) - on track
to deliver the investment programme of nearly £1 billion to 2010
• Leakage targets and environmental standards either met or exceeded
• Disposal of three non-regulated businesses during the year reinforces
the focus on the core water and waste water business
• Financial position further strengthened - funding secured for investment
programme to 2010
• Proposed final dividend of 7.04 pence per share, giving a full year
ordinary dividend of 10.56 pence per share (2005: 10.00 pence per share)
Managing Director John Cuthbert said, "We are pleased to be reporting a strong
set of results and a good start to this regulatory period. Disposals during the
course of the year, and reorganisation at board level, have reinforced our focus
on the core water business. We have maintained a high level of operational
performance, meeting our regulatory targets and delivering high levels of water
quality, customer service and environmental standards."
For further information contact:
Northumbrian Water 0191 301 6419
John Cuthbert, Managing Director
Chris Green, Finance Director
Alistair Baker, Communications & PR Manager
Finsbury 020 7251 3801
Rollo Head
Andrew Mitchell
Sally Hogan
MANAGING DIRECTOR'S STATEMENT
This year has seen further development of NWG and highlights include:
• a good start with the delivery of the investment programme of nearly £1 billion over five years to 2010;
• increased focus on the core water and waste water business with the sale of three subsidiaries; and
• continuing high levels of water quality, customer service and environmental standards.
Sir Fred Holliday will retire as Chairman at the AGM on 27 July. Sir Fred has
guided the Group wisely since he became Chairman in 1993.
We welcome Sir Derek Wanless, who joined the board in December 2003, as incoming
Chairman.
NWG's financial performance
Revenue from continuing operations was £591.5 million for the year to 31 March
2006 (2005: £541.6 million). This increase is mainly due to the price increase
on water and sewerage charges to support the continuing high capital investment
programme.
Profit on ordinary activities before interest from continuing operations for the
year was £236.2 million (2005: £196.1 million). Operating costs increased by
£9.8 million (3%) to £355.3 million with upward pressure on costs mitigated by
ongoing efficiencies.
The net interest charge from continuing operations was £106.0 million (2005:
£99.9 million) and includes a credit of £13.0 million (2004: £14.1 million) in
respect of the amortisation of the debt fair value.
Profit on ordinary activities before tax for the year was £130.3 million (2005:
£96.3 million). The tax charge of £39.3 million (2005: £20.1 million) reflects
increased profitability and changes in tax rules on capitalised maintenance
expenditure. The effective tax rate for the year to 31 March 2006 is 30% (2005:21%).
The sale of subsidiaries contributed £14.6 million to the results for the year
and this is included in the profit from discontinued operations of £15.4 million
(see note 4 for further analysis).
The Group's gearing has remained stable with net debt increasing by £129.4
million to £2,010.4 million over the year. Cash interest cover for the Group at
2.7x is unchanged from last year.
Sale of subsidiaries
In line with the strategy to focus on the core water and waste water business,
and following the receipt of several expressions of interest, 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.
FPS, which provides infrastructure replacement and rehabilitation services, was
sold to a management buy-in for a cash consideration of £0.8 million.
The total consideration for the sale of Entec to its management was £30.0
million, satisfied by £29.0 million in cash and £1.0 million of loan notes.
Entec provides environmental and engineering consultancy services.
ULG provides overseas aid funded project work through a number of funding
agencies and was sold, to PMTC International Limited, for a consideration equal
to its net assets of £26,642.
In the results for the year to 31 March 2006, the Group profit on the disposal
of Entec and FPS was £14.0 million and £0.6 million respectively. No tax arises
on either disposal due to the availability of the substantial shareholdings
exemption. A payment of £11.0 million was made into the defined benefit scheme
to meet the Section 75 liabilities of both FPS and Entec.
There was no profit or loss on the sale of ULG and no defined benefit scheme
liability.
Capital structure
In September 2005, Northumbrian Water Finance plc (NWF), the finance subsidiary
of NWL, issued £150 million index linked 2.033% Eurobonds due in 2036. The
proceeds were used to repay short term loans and fund the continuing capital
programme. This was the Group's first index linked debt issue and NWL will
benefit from the cash flow advantage from this type of debt.
In November 2005, the EIB entered into a new £100 million facility with NWL.
This offers NWL attractive funding and will be drawn on an index linked basis
mid 2006, with a 10 year maturity.
On 20 April 2005, NWL effectively completed the early redemption of six
debenture stocks amounting to £3.7 million. On 6 September 2005, NWL gave formal
notice of redemption to the holders of the 11.2% redeemable debenture stock
(£3.5 million) and the 12% redeemable debenture stock (£2.0 million) and both
were redeemed at par on 31 December 2005.
On 31 January 2006, NWF issued a further £60 million index linked 1.6274%
Eurobonds due in 2041.
On 31 March 2006, the bondholders of the £350 million 6.875% Eurobonds due in
2023 agreed to the substitution of NWF as issuer, in place of Northumbrian
Services Limited, with the retention of the guarantee from NWL.
On 28 June 2006, the Group will redeem the remaining £172 million 8.625%
Eurobonds utilising five year committed bank facilities of £125 million, with
the balance to be paid from existing cash resources.
NWL has agreed the terms of two issues of index linked Eurobonds amounting to
£200 million with a real coupon of c.1.75% and an average maturity of 45 years.
Subject to the finalisation and terms of customary documentation, these index
linked bonds are expected to be issued in mid June 2006. This will take
advantage of the current low cost of funds and secure sufficient resources to
meet the needs of the capital investment programme until 2010. When issued, the
Group's debt portfolio will comprise c.75% on a fixed interest rate basis and
average maturity will extend to about 20 years.
Pensions
The Group operates a defined benefit pension scheme providing benefits based on
pensionable remuneration. The scheme remains open to existing members and to new
employees of NWL.
The most recent 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 capital
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. The Group
also launched a salary sacrifice arrangement, on 1 April 2006, under which
savings in employer national insurance contributions are also paid into the
scheme.
The deficit under IAS 19 at 31 March 2006, was £3.7 million (2005: £76.4 million).
NORTHUMBRIAN WATER LIMITED
Revenue was £555.5 million for the year to 31 March 2006 (2005: £508.2 million).
The revenue increase is mainly due to the price increase on water and sewerage
charges to support the continuing high capital investment programme agreed as
part of the recent regulatory price review.
Operating costs have increased from £310.5 million to £320.9 million,
principally reflecting additional depreciation charges from the commissioning of
new assets, the impact of inflation plus increases in market prices for power.
These increases have been partially offset by efficiency savings. Operating
costs for the appointed business in 2005/06 are in line with those estimated in
the 2004 final determination.
Profit on ordinary activities before interest for the period was £234.6 million
(2005: £197.7 million).
Domestic customers
We are committed to providing a good service to all our customers. Once again,
drinking water and environmental standards have been met or exceeded. The
quality of drinking water supplied in both our regions is very high and remains
among the best in the country. Our own independently commissioned research
records that the number of domestic customers believing we provide value for
money was the highest for six years and overall levels of customer satisfaction
remain high. The results from our surveys of commercial and institutional
customers were equally positive. However, we are not complacent and continue to
work hard to improve the quality of the service we offer to all our customers.
Ofwat has set tough and challenging efficiency targets for the next five years
and NWL is working hard to meet these. NWL has established new consultant and
contractor frameworks to improve the delivery of the capital investment
programme and has extended the use of the Six Sigma approach across the
business. This statistically-based business management tool was piloted at the
regional sludge treatment centre at Bran Sands, where it produced excellent
results, and it is anticipated that it will prove equally valuable throughout
the business.
The number of properties suffering unplanned interruptions to water supplies
returned to normal low levels in 2005/06 after the major interruption caused by
unprecedented storms at Hexham in January 2005. The major scheme to replace the
two pipes crossing the River Tyne that were washed away is progressing well. The
pipe network in Hexham has also been strengthened to improve the security of
supplies in the area.
Managing the amount of water lost from our networks is a key priority for NWL.
The leakage targets agreed with Ofwat for 2005/06 were 157.5 megalitres per day
(ml/d) in the north and 69.0 ml/d in the south, and both of these targets have
been met. In the south, where resources are scarce, this is, by most comparative
measures, amongst the lowest leakage levels in the country. NWL has committed to
make further reductions in both the north and the south. This will be achieved
by further increasing the coverage and intensity of district metering, further
optimisation of pressure management, improved methods for leak detection and
better use of new technology, together with our ongoing programme of renewal of
old pipes.
NWL has performed very well on Ofwat's new method of measuring customer
telephone service which takes into account a combination of all lines busy,
calls abandoned and customer satisfaction. The underlying reason for this good
performance is that the company has always aimed to answer customer calls in
person rather than use automated telephone answering systems.
The number of properties flooded from sewers increased significantly in 2005/06.
This was a consequence of an increased number of intense, local storms that
affected some of our most densely populated urban areas. For example, a storm on
19 June 2005 was measured as a once in 500 year event.
NWL is very aware of the impact flooding has on customers and is working with
other stakeholders in the region to attempt to reduce the incidence of flooding
and improve the way flooding is dealt with in the immediate and longer term.
Regular formal liaison meetings with external bodies, such as local authorities,
(most notably Newcastle City, South Tyneside and North Tyneside whose areas were
worst affected) the EA and local residents groups, have proven invaluable in
ensuring the most up to date information is fed back to the wider community.
Commercial customers
NWL has continued to develop its commercial business with major companies and,
in particular, has successfully negotiated three major water and waste water
services contracts, with John Baarda Limited, Biofuels Corporation plc and Corus
UK Limited.
Water resources
NWL has sufficient water reserves in its northern area, largely due to Kielder
Water and the ability to top up its major rivers during periods of drought. Its
southern area is in one of the driest parts of the UK and rainfall has been low
since November 2004. In Suffolk, both groundwater and river levels are at about
average for the time of year. The situation in Essex is currently less
challenging than that facing water companies further south and NWL continues to
ensure there is enough water available for customers' needs.
Over the years, NWL has carefully designed its systems in Essex to take account
of the limited availability of water in summer. Consequently, our reservoirs are
full at the time of preparing this report. The Langford Recycling Scheme was
commissioned some two years ago to improve the security of water supply. This
scheme is designed to treat up to 40 ml/d of water during the summer months. The
resource position is further enhanced by our industry-leading work to manage
demand and control leakage. Customer responses to our long standing programmes
to encourage the wise use of water have also helped to reduce demand.
NWL has now entered the pre-planning submission stage of the major project to
enlarge its Abberton reservoir for water supply in Essex. Ten years have already
been spent carefully preparing this major scheme which involves changes to
existing abstraction licences, providing new pipelines, raising the reservoir's
existing dam by 3.2 metres and constructing four additional small dams. The
planning application is due to be submitted in 2006 and, provided the planning
process proceeds smoothly, construction will begin in 2010. Once filled in 2014,
the capacity of the enlarged reservoir will be increased by some 60% and it will
be an important part of our plans to secure water supplies for our customers in
one of Britain's driest regions.
Investment
NWL made a good start with the new investment programme and expenditure is
broadly in line with the requirements set out in the regulatory settlement.
Capital expenditure for the period was £211.9 million. NWL has established new
consultant and contractor frameworks aimed at improving the delivery of the
capital investment programme.
Within our investment programme we completed major environmental capital
investment projects at Birtley in Tyne and Wear, Hustledown, Sedgefield and
Knitsley in County Durham and Hexham and Cramlington in Northumberland. Each of
these will improve the quality of local watercourses. We have also replaced or
improved 91 unsatisfactory storm water overflows and 591 kilometres of water
mains have been renewed or relined.
NWL has also continued to invest in new and refurbished assets to protect
drinking water supplies. The water treatment works at Horsley in Northumberland
is currently being upgraded to safeguard further the quality of water supplied
to the Tyneside area.
Investment schemes to improve the sewerage system have removed nearly 99
properties from our register for properties at risk of flooding from sewers.
Employees
We have introduced health screening for all employees, whether it is critical
for their job or not, and provide all employees with access to private medical
insurance cover for work related conditions. NWL has continued to reduce the
level of sickness absence which is now down to 3.1%.
Water and waste water contracts
Revenue for the Group's water and waste water contracts was £26.4 million for
the year to 31 March 2006 (2005: £22.4 million) and profit on ordinary
activities before interest was £1.8 million (2005: £2.1 million).
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 meeting discharge consent conditions. Practical
completion of the odour treatment and sludge drying facilities has been achieved
and commissioning and performance testing is underway.
At Ayrshire, the Group acquired Degremont Limited's 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. The three effluent
treatment plants continue to perform satisfactorily.
In Ireland, Northumbrian Water Projects Limited (NWP), is part of a consortium
that designed and built a €70 million waste water treatment plant for Cork City
Council. NWP commenced the 20 year operation and maintenance contract in
September 2004, following commissioning, and the plant was formally opened in
June 2005.
Related services
The Group's non-water companies' revenue was £28.8 million (2005: £48.0 million)
of which £19.2 million (2004: £37.0 million) was in respect of discontinued
operations. Profit on ordinary activities before interest was £16.4 million
(2005: £4.3 million), of which £15.8 million (2005: £1.8 million) was in respect
of discontinued operations (i.e. FPS, Entec and ULG).
Earnings per share and dividends
Basic and diluted earnings per share were 20.55 pence (2005: 14.94 pence) and
20.52 pence (2005: 14.92 pence) respectively. Earnings per share from continuing
operations, adjusted for IAS 39, deferred tax and the amortisation of debt fair
value were 19.62 pence (2005: 16.44 pence).
A final dividend of 7.04 pence per share for the year ended 31 March 2006 will
be recommended by the Board to shareholders at the AGM on 27 July 2006 and, if
approved, will be paid on 15 September 2006 to shareholders on the register at
the close of business on 18 August 2006. Together with the ordinary interim
dividend of 3.52 pence per share, the ordinary dividends paid and proposed for
the year will be 10.56 pence per share (2005: 10 pence per share). This
represents an increase of 5.6% on the 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 in its recent final determination.
A special dividend of 2.82 pence per share was paid in the year, in respect of
the profit on disposal of subsidiaries of £14.6 million.
The dividend cover, including the special dividend, for the year is 1.5x, and
1.7x excluding deferred tax and the amortisation of debt fair value. The
ordinary dividend cover from continuing operations for the year is 1.7x, and
1.9x excluding deferred tax and the amortisation of debt fair value.
Financial calendar
2006
27 July AGM
16 August Ex-dividend date
18 August Record date
15 September Final dividend payment
6 December Interim results announcement
20 December Ex-dividend date
22 December Record date
2007
2 February Interim dividend payment
Board appointments
Ron Lepin was appointed to the NWG Board as a non-executive director on 24
October 2005. He is Vice President of the Infrastructure division of Ontario
Teachers Pension Plan Board which holds 25% of the issued share capital of NWG.
Ron is, therefore, not regarded as an independent director.
The Chairman, Sir Frederick Holliday, will retire from the Board at the AGM on
27 July 2006. Sir Derek Wanless will succeed Sir Fred as Chairman of NWG and
also of NWL.
Following the retirement of Richard Allan in July 2005, Alex Scott-Barrett was
appointed an independent non-executive director to the board of NWL on 1
November 2005.
The NWL board agreed to appoint the non-executive directors of NWG, Sir Patrick
Brown, Ron Lepin, Martin Negre, Sir Derek Wanless and Jenny Williams, to the
board of NWL on 1 January 2006.
Outlook
NWG will maintain its focus on delivering a solid performance in this regulatory
period. We will continue to deliver efficiencies against a backdrop of upward
cost pressure from energy prices, abstraction licences and other costs.
In Essex, where water resources are most constrained, we are in a relatively
strong position and do not anticipate the need for restrictions. However, we are
not complacent and continue to monitor the situation. In the medium term, we
will implement our programme to increase security of supply through the Abberton
reservoir scheme.
Delivery of our capital investment programme will reinforce our strong
operational performance and high level of customer service and water quality.
John Cuthbert
Managing Director
6 June 2006
Consolidated income statement
For the year ended 31 March 2006
Year to Year to
31.3.2006 31.3.2005
Notes £m £m
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Continuing operations
Revenue 2 591.5 541.6
Operating costs (355.3) (345.5)
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Profit on ordinary activities before interest 2 236.2 196.1
Finance costs payable (112.7) (107.7)
Finance income receivable 6.7 7.8
Share of profit after tax of associates and
jointly controlled entities 0.1 0.1
--------------------------------------------------------------------------------
Profit on ordinary activities before taxation 2 130.3 96.3
- current taxation 3 (15.6) 1.0
- deferred taxation 3 (23.6) (21.0)
- overseas tax 3 (0.1) (0.1)
--------------------------------------------------------------------------------
Profit for the year from continuing operations 91.0 76.2
Discontinued operations
Profit for the year from discontinued
operations 4 15.4 1.2
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Profit for the year 106.4 77.4
--------------------------------------------------------------------------------
Attributable to:
Equity shareholders of the company 105.9 77.9
Minority interests 0.5 (0.5)
--------------------------------------------------------------------------------
106.4 77.4
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Basic earnings per share for profit
attributable to ordinary equity holders of
the parent 5 20.55p 14.94p
Diluted earnings per share for profit
attributable to ordinary equity holders
of the parent 5 20.52p 14.92p
Basic earnings per share for profit from
continuing operations attributable to
ordinary equity holders of the parent 5 17.57p 14.71p
Diluted earnings per share for profit from
continuing operations attributable to ordinary
equity holders of the parent 5 17.55p 14.69p
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 19.62p 16.44p
Ordinary final dividend proposed per share 5 7.04p 7.13p
Special dividend paid per share 5 2.82p -
Dividend paid per share 5 10.65p 7.50p
--------------------------------------------------------------------------------
Consolidated statement of recognised income and expense
For the year ended 31 March 2006
Year to Year to
31.3.2006 31.3.2005
£m £m
--------------------------------------------------------------------------------
Actuarial gains 52.7 21.2
Cash flow hedges (2.8) 7.2
Tax on items charged or credited to equity (15.6) (7.3)
Translation differences - 0.4
Profit for the year 106.4 77.4
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Total recognised income and expense 140.7 98.9
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Consolidated balance sheet
As at 31 March 2006
Notes 31.3.2006 31.3.2005
£m £m
--------------------------------------------------------------------------------
Non-current assets
Goodwill 3.7 0.1
Other intangible assets 64.2 64.2
Property, plant and equipment 2,985.6 2,800.3
Investments in jointly controlled entities 3.6 3.6
Investments in associates - 1.4
Financial assets 22.2 27.6
Other investments 0.3 0.4
--------------------------------------------------------------------------------
3,079.6 2,897.6
--------------------------------------------------------------------------------
Current assets
Inventories 3.3 4.5
Trade and other receivables 109.5 117.3
Cash and cash equivalents 176.6 95.0
--------------------------------------------------------------------------------
289.4 216.8
--------------------------------------------------------------------------------
TOTAL ASSETS 3,369.0 3,114.4
--------------------------------------------------------------------------------
Non-current liabilities
Interest bearing loans and borrowings 1,972.9 1,929.7
Provisions 3.1 2.7
Deferred income tax liabilities 495.6 450.4
Pension liability 3.7 76.4
Other payables 10.6 16.6
Grants 179.3 161.3
--------------------------------------------------------------------------------
2,665.2 2,637.1
--------------------------------------------------------------------------------
Current liabilities
Interest bearing loans and borrowings 236.7 73.9
Provisions 0.3 2.5
Trade and other payables 156.3 169.4
Income tax payable 9.7 1.2
--------------------------------------------------------------------------------
403.0 247.0
--------------------------------------------------------------------------------
TOTAL LIABILITIES 3,068.2 2,884.1
--------------------------------------------------------------------------------
NET ASSETS 300.8 230.3
--------------------------------------------------------------------------------
Capital and reserves
Issued capital 7 51.9 51.9
Share premium reserve 7 446.5 446.3
Cash flow hedge reserve 7 1.5 4.3
Treasury shares 7 (1.7) (0.9)
Retained earnings 7 (198.9) (272.4)
--------------------------------------------------------------------------------
Equity shareholders'funds 299.3 229.2
Minority interest 7 1.5 1.1
--------------------------------------------------------------------------------
TOTAL CAPITAL AND RESERVES 300.8 230.3
--------------------------------------------------------------------------------
Consolidated cash flow statement
For the year ended 31 March 2006
Year to Year to
31.3.2006 31.3.2005
£m £m
--------------------------------------------------------------------------------
Operating activities
Reconciliation of profit before interest to net cash
flows from operating activities
Profit on ordinary activities before interest 236.2 196.1
Profit before interest on discontinued operations 1.2 1.8
Depreciation and other similar non-cash charges 83.6 78.9
Net charge for provisions, less payments (0.5) (1.1)
Movements in working capital (5.5) (7.7)
--------------------------------------------------------------------------------
Cash generated from operations 315.0 268.0
Special contributions paid in respect of retirement
benefits (22.8) -
Net interest paid (119.7) (113.6)
Income taxes (paid)/received (6.5) 6.7
--------------------------------------------------------------------------------
Net cash flows from operating activities 166.0 161.1
--------------------------------------------------------------------------------
Investing activities
Interest received 4.1 10.1
Capital grants received 21.4 21.3
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 2.0 2.7
Dividends received from jointly controlled entities 0.8 0.3
Purchase of property, plant and equipment (206.7) (181.7)
Other cash items 0.2 -
--------------------------------------------------------------------------------
Net cash flows from investing activities (157.2) (147.3)
--------------------------------------------------------------------------------
Financing activities
New borrowings 210.2 348.2
New loans issued (2.1) -
Maturity of/(deposits into) investments 2.0 (23.0)
Settled hedge instruments (3.7) 4.3
Issue costs of new borrowings (1.4) (11.7)
Own shares purchased (0.8) (0.4)
Dividends paid to minority interests (0.3) (0.1)
Dividends paid to equity shareholders (69.7) (38.9)
Repayment of borrowings (46.6) (253.7)
Payment of principal under hire purchase contracts and
finance leases (4.7) (4.0)
--------------------------------------------------------------------------------
Net cash flows from financing activities 82.9 20.7
--------------------------------------------------------------------------------
Increase in cash and cash equivalents 91.7 34.5
Cash and cash equivalents at start of year 62.2 27.7
--------------------------------------------------------------------------------
Cash and cash equivalents at end of year 153.9 62.2
--------------------------------------------------------------------------------
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
2006 on 6 June 2006. The financial information set out above does not constitute
the Group's statutory financial statements for the year ended 31 March 2006 nor
for the year ended 31 March 2005 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 2006, upon which the auditors
have issued an unqualified audit opinion.
The financial statements for the year ended 31 March 2005 have been delivered to
the Registrar of Companies. The financial statements for the year ended 31 March
2006 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 for use in the European Union and as applied in accordance with the
provisions of the Companies Act 1985. The accounting policies selected by
management and applied to the results for the year ended 31 March 2006 were
published by the Company on 28 November 2005, and are available on the Company'
website www.nwg.co.uk.
2. Segmental analysis of revenue and profit on ordinary activities before interest
Revenue
Northumbrian Water & Total revenue
Water waste water Related Discontinued from continuing
Limited contracts services Total operations operations
£m £m £m £m £m £m
---------------------------------------------------------------------------------------------------
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
---------------------------------------------------------------------------------------------------
Year ended 31 March
2005
Segment revenue 508.2 23.1 87.7 619.0 (60.5) 558.5
Inter segment
revenue - (0.7) (39.7) (40.4) 23.5 (16.9)
---------------------------------------------------------------------------------------------------
Revenue to
external
customers 508.2 22.4 48.0 578.6 (37.0) 541.6
---------------------------------------------------------------------------------------------------
Profit on ordinary activities before interest
Northumbrian Water & Related Discontinued Total revenue
Water waste water services Total operations from continuing
Limited contracts operations
£m £m £m £m £m £m
-------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------
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 2005
Segment profit
before interest 197.7 2.1 4.3 204.1 (1.8) 202.3
Central
unallocated
costs and
provisions (6.2)
-------------------------------------------------------------------------------------------------
Profit on
ordinary
activities
before
interest 196.1
Net finance
costs (99.9)
Share of
profit from
associates and
jointly
controlled
entities 0.1
-------------------------------------------------------------------------------------------------
Profit on
ordinary
activities
before
taxation 96.3
-------------------------------------------------------------------------------------------------
3. Taxation
Year to Year to
31.3.2006 31.3.2005
£m £m
--------------------------------------------------------------------------------
Current tax:
UK corporation tax - continuing operations 15.6 (1.0)
- discontinued operations (note 4) 0.6 0.9
- overseas tax 0.1 0.1
--------------------------------------------------------------------------------
Total current tax 16.3 -
--------------------------------------------------------------------------------
Deferred tax:
Deferred tax - continuing operations 23.6 21.0
- discontinued operations (note 4) 0.1 -
--------------------------------------------------------------------------------
Total deferred tax 23.7 21.0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Tax charge in the income statement 40.0 21.0
--------------------------------------------------------------------------------
The tax charge in the income statement is disclosed as
follows:
Tax expense on continuing operations 39.3 20.1
Tax expense on discontinued operations (note 4) 0.7 0.9
--------------------------------------------------------------------------------
40.0 21.0
---------------------------------------------------------------------------------
4. Discontinued operations
The Group disposed of FPS on 8 July 2005, Entec on 5 October 2005 and 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:
Year to Year to
31.3.2006 31.3.2005
£m £m
--------------------------------------------------------------------------------
Revenue 28.5 60.5
Inter segment (9.3) (23.5)
--------------------------------------------------------------------------------
External revenue 19.2 37.0
Operating costs (18.0) (35.2)
--------------------------------------------------------------------------------
Profit on ordinary activities before interest 1.2 1.8
Profit on disposal of discontinued operations 14.6 -
--------------------------------------------------------------------------------
Profit before interest on discontinued operations 15.8 1.8
Net finance costs 0.3 0.3
--------------------------------------------------------------------------------
Profit on ordinary activities before taxation 16.1 2.1
Current tax (0.6) (0.9)
Deferred tax (0.1) -
--------------------------------------------------------------------------------
Profit for the year from discontinued operations 15.4 1.2
--------------------------------------------------------------------------------
The tax charge is analysed as follows:
--------------------------------------------------------------------------------
On profit on ordinary activities for the year (0.7) (0.9)
--------------------------------------------------------------------------------
5. Dividends paid and proposed
A final ordinary dividend payment of 7.04 pence per ordinary share will be
recommended by the Board to shareholders at the AGM scheduled for 27 July 2006.
If approved, the final dividend will be paid on 15 September 2006 to
shareholders whose names appear on the Company's Register of Members at the
close of business on 18 August 2006. Together with the ordinary interim dividend
of 3.52 pence per ordinary share, the total ordinary dividend for the year will
be 10.56 pence per ordinary share.
Year to Year to
31.3.2006 31.3.2005
£m £m
--------------------------------------------------------------------------------
Declared and paid during the year:
Equity dividends on ordinary shares:
Final dividend for 2004/05: 7.13p (2003/04: 4.63p) 36.9 24.0
Interim dividend for 2005/06: 3.52p (2004/05: 2.87p) 18.2 14.9
Special dividend for 2005/06: 2.82p (2004/05: nil) 14.6 -
--------------------------------------------------------------------------------
Dividends paid 69.7 38.9
--------------------------------------------------------------------------------
Proposed for approval by shareholders at the AGM:
Final dividend for 2005/06: 7.04p (2004/05: 7.13p) 36.5 36.9
--------------------------------------------------------------------------------
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 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 number Earnings per average number Earnings per
Earnings of shares share Earnings of shares share
31.3.2006 31.3.2006 31.3.2006 31.3.2005 31.3.2005 31.3.2005
£m million pence £m million pence
------------------------------------------------------------------------------------------------------------------
Net profit
attributable
to equity
holders of the
parent -
continuing
operations 91.0 517.9 17.57 76.2 518.1 14.71
Net profit
attributable
to equity
holders of the
parent -
discontinued
operations 15.4 2.98 1.2 0.23
------------------------------------------------------------------------------------------------------------------
Basic EPS 106.4 517.9 20.55 77.4 518.1 14.94
------------------------------------------------------------------------------------------------------------------
The weighted average number of shares for diluted EPS is calculated by including
the treasury shares held.
Weighted Weighted
average number Earnings per average number Earnings per
Earnings of shares share Earnings of shares share
31.3.2006 31.3.2006 31.3.2006 31.3.2005 31.3.2005 31.3.2005
£m million pence £m million pence
------------------------------------------------------------------------------------------------------------------
Net profit
attributable
to equity
holders of the
parent -
continuing
operations 91.0 518.6 17.55 76.2 518.6 14.69
Net profit
attributable
to equity
holders of the
parent -
discontinued
operations 15.4 2.97 1.2 0.23
-----------------------------------------------------------------------------------------------------------------
Diluted EPS 106.4 518.6 20.52 77.4 518.6 14.92
-----------------------------------------------------------------------------------------------------------------
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 number Earnings per average number Earnings per
Earnings of shares share Earnings of shares share
31.3.2006 31.3.2006 31.3.2006 31.3.2005 31.3.2005 31.3.2005
£m million pence £m million pence
-----------------------------------------------------------------------------------------------------------------
Basic EPS 91.0 517.9 17.57 76.2 518.1 14.71
Deferred tax 23.6 4.55 21.0 4.05
Amortisation
of debt fair
value (13.0) (2.50) (14.1) (2.72)
IAS 39
derivatives - - 2.1 0.40
-----------------------------------------------------------------------------------------------------------------
Adjusted EPS 101.6 517.9 19.62 85.2 518.1 16.44
-----------------------------------------------------------------------------------------------------------------
7. Reconciliation of movements in equity
Equity share Share premium Cash flow hedge Treasury Retained Total Minority
capital reserve reserve shares earnings equity interests Total
Group £m £m £m £m £m £m £m £m
------------------------------------------------------------------------------------------------------------------
At 1 April
2005 51.9 446.3 4.3 (0.9) (272.4) 229.2 1.1 230.3
Shares
purchased - - - (0.8) - (0.8) - (0.8)
Refund of
share issue
costs - 0.2 - - - 0.2 - 0.2
Total
recognised
income and
expense for
the year - - (2.8) - 143.0 140.2 0.5 140.7
Share-based
payment - - - - 0.2 0.2 - 0.2
Equity
dividends paid - - - - (69.7) (69.7) (0.1) (69.8)
-------------------------------------------------------------------------------------------------------------------
At 31 March
2006 51.9 446.5 1.5 (1.7) (198.9) 299.3 1.5 300.8
-------------------------------------------------------------------------------------------------------------------
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