Preliminary Results

RNS Number : 2494T

Northumbrian Water Group PLC

03 June 2009

 



3 June 2009

NORTHUMBRIAN WATER GROUP PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2009

Northumbrian Water Group plc (NWG or the Group) presents its preliminary results for the year ended 31 March 2009.

HIGHLIGHTS 2009

Financial highlights		Year to 31.3.2009 £m	Year to 31.3.2008 £m	Change £m	Change %
Continuing operations
Revenue		694.1	670.4	23.7	3.5
Profit on ordinary activities before interest		273.6	277.8	(4.2)	(1.5)
Profit before tax		152.7	170.3	(17.6)	(10.3)
(Loss)/profit for the period1		(11.9)	158.3	(170.2)	(107.5)
Net debt		2,229.7	2,150.4	79.3	3.7
Pro forma RCV3		3,324.4	3,300.6	23.8	0.7
Continuing operations
Basic (loss)/earnings per ordinary share1		(2.45p)	30.52p	(32.97p)	(108.0%)
Adjusted EPS2		22.05p	26.72p	(4.67p)	(17.5%)
Ordinary dividend proposed4		12.79p	12.07p	0.72p	6.0%

Notes:

1 Includes deferred tax charge £132.5 million largely reflecting the abolition of IBAs (2008: credit, £13.6 million)

2 Excludes deferred tax charge £132.5 million (2008: credit, £13.6 million) and amortisation of debt fair value

  £5.6 million (2008: £6.1 million)

3 Pro forma RCV comprises Northumbrian Water Limited's (NWL) Regulatory Capital Value (RCV) plus the net debt in respect of the PFI

   contracts and the Kielder securitisation

4 Ordinary dividends: interim paid 4.29p (2008: 4.00p); final proposed 8.50p (2008: 8.07p)

• Revenue increase mainly reflects the uplift in tariffs to support continuing high capital investment

• Energy costs are over 50% higher than last year, well above the level assumed at the last price review

• Increased interest charges reflecting higher RPI on index linked bonds (£6.2 million) and increased pension financing costs (£7.4 million)

• Deferred tax includes a one-off charge of £117.2 million following the withdrawal of industrial buildings allowances in the Finance Act 2008

• Current funding is sufficient to meet all of the Group's requirements through to 2011

• Regulated capital investment in the period of £228.9 million (2008: £232.6 million) is delivering regulatory outputs, an extended sewer flooding programme and the advanced digestion plant at Bran Sands

• Planning permission for the expansion of Abberton reservoir granted 

• Continued high levels of customer satisfaction

• Proposed final dividend of 8.50 pence (2008: 8.07 pence) per share to be paid on 11 September 2009, giving a full year ordinary dividend of 12.79 pence (2008: 12.07 pence) per share, an increase of 6%

• External recognition of performance through awards, most notably 'The Queen's Award for Enterprise: Sustainable Development' and 'Utility Company of the Year'

Managing Director John Cuthbert said, "The Group has produced good financial and operating results against a difficult economic background. Overall, demand for water and sewerage services is down by 1%. Energy prices continue to be volatile and, despite managed reductions in demand, have increased operating costs in the year.

The Group continues to benefit from low cost debt secured to finance all of its requirements through to 2011.

Northumbrian Water Limited submitted its Final Business Plan in April and awaits the Draft Determination from Ofwat in July."

For further information contact:

Northumbrian Water John Cuthbert, Managing Director Chris Green, Finance Director  Alistair Baker, Communications & PR Manager	0191 301 6419
Pelham PR Chelsea Hayes Archie Berens	020 7337 1509

BUSINESS REVIEW

NWG's financial performance

Revenue for the year to 31 March 2009 was £694.1 million (2008: £670.4 million). This 3.5% increase is mainly due to the application of RPI to water and sewerage charges at Northumbrian Water Limited (NWL), the Group's principal subsidiary.

Profit on ordinary activities before interest for the year was £273.6 million (2008: £277.8 million). Operating costs increased by £27.9 million (7.1%) to £420.5 million.

Interest charges increased by £13.7 million within which, cash interest charges decreased by £0.6 million. The non-cash elements of the increase reflect inflation on the index linked bonds (£6.2 million), a reduction in the expected return on pension assets (£4.1 million), an increase in the interest cost of pension plan obligations (£3.3 million) and an increase in other non-cash movements of £0.7 million.

At 31 March 2008, the Group's debt structure included £440 million of index linked bonds which increase in line with the July Retail Price Index (RPI). The RPI adjustment for July 2008 was 5.05% and, therefore, the principal accretion and interest charge for the year ended 31 March 2009 increased by £22 million. Current forecasts for the July 2009 RPI indicate a negative adjustment, in which case the interest charge for 2009/10 would be reduced significantly.

Profit on ordinary activities before tax for the year was £152.7 million, 10.3% lower than the previous year (2008: £170.3 million). The current tax charge of £32.1 million (2008: £25.6 million) has increased, despite a reduction in profitability, mainly due to changes in the tax rules on capitalised maintenance expenditure, the phased abolition of industrial buildings allowances and the timing of relief for prepaid pension contributions, offset by a 2% reduction in the corporation tax rate.

The deferred tax charge of £132.5 million (2008: credit, £13.6 million) includes a one-off charge of £117.2 million following the withdrawal of industrial buildings allowances in the Finance Act 2008.  NWL included the impact of reduced allowances in its Final Business Plan submission to The Water Services Regulation Authority (Ofwat) for the period 2010-2015. The deferred tax credit in 2008 reflected the change in the tax rate from 30% to 28% and resulted in a credit of £35.4 million.

Excluding the one-off charge of £117.2 million attributable to the Finance Act 2008, the effective tax rate for the period was 31% (2008: 28% excluding the credit of £35.4 million).

Capital structure

On 19 September 2008, a further European Investment Bank (EIB) facility of £120 million was drawn by NWL on a fixed rate basis with a 17 year maturity and an amortising principal repayment profile.

On 29 September 2008, a £50 million lease facility was fully drawn by way of a further tranche of £20.8 million. The lease was for renewed infrastructure assets and is at a variable rate linked to RPI with a final maturity in March 2043.

In October 2008, a variable rate EIB loan of £100 million maturing in March 2022 was swapped to a fixed rate of 4.98%.

In January 2009, £125 million variable rate debt at Northumbrian Services Limited was fixed at a rate of 2.8% to its maturity in May 2011.

As a consequence of the current economic climate, there has been an increased focus on gearing across many sectors. The Group's gearing has previously been expressed as a percentage of NWL's RCV. However, this overstates gearing as it ignores any value attributable to the Kielder securitisation and the two PFI contracts.  The level of associated debt included in the Group's net debt relating to those assets amounts to £215.6 million (2008: £214.9 million) and £110.8 million (2008: £109.7 million) for the Kielder securitisation and PFI contracts respectively. Adding these amounts to NWL's RCV of £2,998.0 million (2008: £2,976.0 million), results in a pro forma Group RCV of £3,324.4 million (2008: £3,300.6 million).

The Group's gearing on this pro forma basis has increased from 65% to 67%, with net debt increasing by £79.3 million to £2,229.7 million over the year. The increase in the Group's gearing is principally due the impact on the RCV of negative inflation of 0.4% at 31 March 2009.

At NWL, gearing has also been reviewed and net debt restated to include £159.0 million (2008: £159.0 million) in respect of an intra-group loan, repayable on demand, as the Company believes this is a better reflection of NWL's net debt.

NWL's gearing has increased from 59% to 61%. For the regulated business within NWL, gearing increased by 2% to 60%.

Cash interest cover has remained stable for the year as have the credit ratings for NWL of Baa1 stable (Moody's) and BBB+ stable (Fitch and S&P).

As stated, the Group has converted £225 million of variable rate borrowing to fixed rate. As a consequence, the Group's and NWL's regulated business debt structure has changed to 75% (NWL: 71%) fixed at an average rate of 5.80% (NWL: 5.99%), 19% (NWL: 22%) index linked at an average real rate of 1.85% (all NWL) and 6% (NWL: 7%) on a variable rate basis.

Total cash and short term cash deposits available to meet the requirements of the business through to 2011 amounted to £252.9 million at 31 March 2009.

Northumbrian Water Limited

Revenue was £647.0 million for the year to 31 March 2009 (2008: £628.0 million). The 3.0% increase is mainly due to the application of RPI (4.28%) to water and sewerage charges, partially offset by a small overall reduction in demand for both water and sewerage services and a reduction in other services related to the housing market.  The difficult economic climate continues to have an impact on industrial and commercial customers where volumes are down by c.4% compared to the prior year.

Operating costs increased by £24.1 million (6.8%) to £380.1 million. This increase principally reflects the impact of inflation and increases in energy costs and bad debt charges. These increases have been partially offset by efficiencies including lower manpower costs following the changes made to our defined benefit pension scheme where, from 1 January 2008, the scheme was closed to new entrants, the benefit structure amended and employee contribution rates were increased.
  Energy costs at NWL for 2008/09 (£38.8 million) are over 50% higher than both last year and the level assumed by the regulator at the last price review. Although energy prices have softened recently, we expect them to remain volatile for the future. NWL has procured all its requirements for 2009/10, at prices c.5% lower than 2008/09, and procured 44% for the following year. This has been purchased in small tranches, in accordance with its risk management policy, to mitigate energy price movements.

Profit on ordinary activities before interest for the year was £266.9 million (2008: £272.0 million).

Capital investment in the regulated business for the period was £228.9 million (2008: £232.6 million).  Efficiencies generated within the programme are more than offset by increased investment on non-infrastructure for waste water, the most significant of which is the advanced anaerobic digestion plant at Bran Sands on Teesside.  The capital programme has also been extended in response to extensive sewer flooding in recent years.

Water

The quality of the drinking water supplied by NWL remained excellent in 2008/09.  During the year, projects to improve water treatment processes were completed at a number of sites. At Lartington, in County Durham, a new sludge treatment process was installed. Sludge from this facility is now recycled, increasing the recycled volumes of sludge from water treatment works to above 50%. Work to increase the output from Layer water treatment works in Essex, by 20%, was completed successfully, improving the resilience of supplies throughout the region.

One of NWL's key priorities is to continue to reduce the amount of water lost from its networks and the leakage targets agreed with Ofwat have been met despite increases arising from the colder than average winter. The leakage in our southern operating area remains amongst the lowest in the country as it has been for many years. NWL aims to set best practice standards to manage leakage and is playing a leading role in a review of leakage methodologies with the Environment Agency (EA) and Ofwat. 

A large diameter mains cleaning programme, which began in February 2007 and will be complete by 2011, will improve tap water quality to 500,000 customers in south east Northumberland, north Tyneside and the north of Newcastle. This work is progressing well and will make a significant contribution to the planned reduction in customer complaints.

Water resources

Our plan to increase the capacity of the Abberton reservoir near Colchester by around 60% reached a key milestone, in April 2009, with the granting of planning permission for the reservoir raising, pipelines and pumping stations. This successful conclusion was the culmination of years of extensive work with environmental scientists, lawyers and planners to produce the environmental statement and supporting documentation submitted to the planning authorities. The EA is continuing to prepare the application to vary its licences at Denver and Blackdyke, in Norfolk, which, together with the enhanced transfer facilities and the enlarged reservoir, will secure water supplies for customers in one of the driest areas in the UK.

Our long running water efficiency promotions and good relationship with our customers continue to produce a positive response. This will become even more important in future following the introduction by Ofwat of water efficiency targets for companies. 

  Metering also has an important role to play in managing the demand for water. For several years we have been installing water meters on change of occupier in properties in the Essex area. This is in addition to the optional metering scheme available to all customers. Around 43% of domestic households in Essex, 56% in Suffolk and over 20% of Northumbrian are now metered.

Although supplies are plentiful in the north east, we believe it is still important to manage the demand for water so that it does not exceed levels that can be supplied in a sustainable way.

Environment

All 33 bathing waters in NWL's area passed the EU Mandatory Standard and 20 of these also met the more demanding Guideline Standard, despite poor weather in the summer of 2008. We are working with the EA to identify the impact of other stakeholders, including local authorities, highway authorities, farmers and land holders, on the quality of bathing waters.

All 158 (2008: 157) consented sewage treatment works met their required standards during the year. Improved operating practices based upon timely interventions from our enhanced performance monitoring system, together with focussed capital maintenance investment, contributed to this performance. Significant investment was made at strategic works in Darlington, Sunderland and Browney (County Durham).

NWL continues to benefit from its ongoing investment in real time monitoring devices in the sewer network which provide information on flow levels. Further improvements linking this data with rainfall information allow operational teams to focus on significant overflows from the network which can cause pollution. The downward trend of pollution incidents over the last five years has been maintained. Last year, there were 94 incidents attributed to our assets, mainly from foul sewers and combined storm overflows (25 less than the previous year). 

Intense rainfall during localised summer storms caused extensive flooding during the year with 829 properties flooded internally, well above the long term average and second only to 2005/06 with 1,160 properties. Investment to reduce the risk of sewer flooding has been increased. During the year, 20 schemes were completed to alleviate flooding risk for 114 properties and we improved 102 combined sewer overflows. This will further improve rivers and water courses, enhance their visual appearance and reduce pollution incidents.

Customers

Understanding and meeting the needs of customers is at the heart of our strategy and NWL is committed to providing a high standard of customer service that meets those needs and those of regulators. The introduction of our 'right first time every time' philosophy during 2008/09 was part of the re-launch of our customer care charter and a campaign to reinforce a strong customer service ethos across the business.  

During the year, the Consumer Council for Water (CCWater) introduced a new quality assessment process for complaint handling. We work very closely with CCWater and welcome feedback on our performance which helps identify areas for further improvement to our high standards.

In a further reflection of our focus on customer service excellence, one of a number of awards for NWL this year was the North East Contact Centre of the Year 2008.

Ensuring we receive payment for the services we provide remains a priority and our ongoing focus on debt recovery inevitably generates contact from customers in arrears. In the current economic climate we expect the level of our debt recovery activity to increase.

The economic situation has had a significant impact on some business sectors which are important in our operating regions and NWL has been working closely with major customers in those sectors to mitigate the impact where possible. It has also taken the opportunity to work with potential new businesses in its regions and with the regional economic agencies to both secure existing and encourage new business.

Climate change 

The water industry is one of the largest users of energy in the UK and we aim to play a full part in support of government's plans to reduce emissions. We have been working over recent years to reduce our carbon footprint while preparing ourselves for the future challenges of a change in climate and the weather events we may face as a consequence.  We will shortly commence commissioning of an advanced anaerobic digestion plant at Bran Sands which, when operational, will provide 50% (c.4.5 MW) of the energy requirements of the site. A similar investment for our site at Howdon, on Teesside, has been included in our Final Business Plan submission.

Employees

NWG's key asset is its employees and one of the strengths of NWL is employee loyalty; employee turnover is relatively low at 6.4%, well below the UK water industry average of 10.4%. NWG ensures its terms and conditions both attract and retain the best employees in the areas it serves.

NWG places great emphasis on health and safety and employees are actively encouraged to be involved in identifying and eliminating hazards in the workplace. This has resulted in a significant reduction in accidents over recent years.

Corporate responsibility

NWL supports the communities we serve in a number of different ways. As well as providing financial support and facilities, we encourage employees to volunteer their time, skills and expertise. These activities generally support projects that make the areas we serve better places in which to live, work or invest. The programme focuses on key themes throughout these communities but, increasingly, we are developing initiatives designed to tackle lasting and sustainable change in specific areas.  

In April 2009, NWL received the Queen's Award for Enterprise in the category of Sustainable Development.  This builds on our other achievements throughout the year, most notably when NWL was named 'Utility Company of the Year' at the Utility Week Awards and also ranked by Business in the Community as one of the top 100 'Companies for corporate responsibility' and as a Platinum ranked company.

Water and waste water contracts

Revenue for the Group's water and waste water contracts was £39.8 million for the year to 31 March 2009 (2008: £35.5 million) and profit on ordinary activities before interest was £9.1 million (2008: £8.4 million). The increase is principally due to a credit in respect of gas indexation (£2.4 million) on tariffs at Caledonian Environmental Services offset slightly by increased power and sludge disposal costs. All contracts are performing well, in line with expectations.

The Group is a member of two consortiums delivering long term private finance initiative contracts with Scottish Water for waste water treatment. At Levenmouth, the Group has a 75% shareholding in both project and operating companies and the benefit of a 40 year contract. Funding was provided through a 37 year fixed interest rate corporate bond with the principal amortising from 2008.

In Ayrshire, the Group has a 75% shareholding in the project company and a 100% shareholding in the company that operates the three effluent treatment plants that make up this 30 year contract. Finance was provided through a 27 year loan on a fixed interest basis with the principal amortising from 2003.

In Ireland, the Group is part of a contractual consortium that designed and built a waste water treatment plant for Cork City Council. Under the consortium agreement, the Group has responsibility for a 20 year contract for the operation and maintenance of the plant.

AquaGib Limited, two thirds owned by the Group in a joint venture with the Government of Gibraltar, operates Gibraltar's dual drinking water and sea water distribution systems under its 30 year contract with the Government of Gibraltar. The project to install two new reverse osmosis plants to replace ageing and relatively inefficient distillation plants, a £3.4 million investment, has been completed. 

Financial calendar
2009
30 July	AGM
30 July	Interim Management Statement
12 August	Ex-dividend date
14 August	Record date
11 September	Final dividend payment
23 November	Half-yearly announcement
16 December	Ex-dividend date
18 December	Record date
2010
29 January	Interim dividend payment

Principal risks and uncertainties

The key risk for the business is the outcome of the PR09 (periodic review of prices), the process by which Ofwat sets limits on the prices which NWL can charge customers for the five years from 1 April 2010. Ofwat will publish its Draft Determination in July 2009 and will consider representations before issuing its Final Determination in November 2009.

The current economic climate is having an impact on revenues, particularly those from industrial and commercial customers and those associated with the housing market.  We continue to monitor the uncertain situation very carefully.

Our treasury policies limit the amount of cash we deposit with particular banks and financial institutions. The minimum investment criteria cover credit rating and asset size, including sovereign and political risk. Current market conditions have resulted in closer monitoring of counterparties.

There are further risks and uncertainties which may affect the Group from time to time and these were disclosed in the March 2008 annual report and financial statements. However, their impact is not considered to be significant to the business.

  Pensions

The Group operates both a defined benefit pension scheme, which closed to new entrants on 31 December 2007, and an occupational defined contribution arrangement which began on 1 January 2008.

The surplus (under IAS19) of the defined benefit scheme of £90.5 million, at 31 March 2008, has moved to a deficit of £119.4 million at 31 March 2009. This is mainly due to the fall in the market value of the scheme's assets since March 2008 and a reduction in the discount rate assumption to 6.1% (March 2008: 6.8%) to better match the average duration of the schemes liabilities.

The triennial actuarial valuation of the final salary scheme as at 31 December 2007 is complete and the formal report and certificates were signed in November 2008. The valuation resulted in a surplus of £42 million (6%) on an 'ongoing' basis, which takes into account the prepaid contributions (in 2006 and 2007) for the period up to 31 December 2010. While the actuarial valuation incorporates longer term forecasts and assumptions than the IAS19 valuation, the prevailing market conditions are difficult and we will continue to monitor carefully.  The Final Business Plan submission to Ofwat included a proposal for deficit recovery contributions.

Earnings per share and dividend cover

Basic and diluted loss per share for the year was 2.45 pence. In 2008, basic and diluted earnings per share were 30.52 pence and 30.48 pence respectively. Earnings per share from continuing operations, adjusted for deferred tax and the amortisation of debt fair value, were 22.05 pence (2008: 26.72 pence).

A final dividend of 8.50 pence per share for the year ended 31 March 2009 will be recommended by the Board to shareholders at the AGM on 30 July 2009 and, if approved, will be paid on 11 September 2009 to shareholders on the Company's Register of Members at the close of business on 14 August 2009. Together with the ordinary interim dividend of 4.29 pence per share, the ordinary dividends paid and proposed for the year will be 12.79 pence per share (2008: 12.07 pence per share). This represents an increase of 6%, based on average inflation over the year of 3%, on the ordinary dividend for the previous year and is consistent with the Board's decision to maintain a progressive dividend policy with real increases of around 3% per annum. The board of our main subsidiary, NWL, has proposed a dividend policy consistent with the underlying assumptions adopted by Ofwat at its price review in 2004.

The dividend cover for the year, excluding deferred tax and the amortisation of debt fair value, was 1.8x (2008: 2.3x).  The cover level has reduced principally as a consequence of the application of higher RPI to the index linked bonds and a significant increase in energy costs.

Outlook

The Group is in a strong position to withstand the current economic recession having secured the resources necessary to fund both our operations and significant capital programme through to 2011.

Our Final Business Plan for the period 2010-2015, which was submitted to Ofwat in April, sought to sustain a balance between maintaining and improving services for customers and affordable prices. We await Ofwat's Draft Determination in July and, in the interim, will maintain our focus on the efficient delivery of high operational and service standards.

        Consolidated income statement

         For the year ended 31 March 2009

			Notes	Year to 31.3.2009 £m	Year to 31.3.2008 £m
Continuing operations
Revenue			2	694.1	670.4
Operating costs				(420.5)	(392.6)
Profit on ordinary activities before interest			2	273.6	277.8
Finance costs payable			3	(183.5)	(173.5)
Finance income receivable			3	61.8	65.5
Share of profit after tax of associates and jointly controlled entities				0.8	0.5
Profit on ordinary activities before taxation			2	152.7	170.3
- current taxation			4	(32.1)	(25.6)
- deferred taxation			4	(132.5)	13.6
(Loss)/profit for the year				(11.9)	158.3
Attributable to:
Equity shareholders of the parent Company				(12.7)	158.1
Minority interests				0.8	0.2
				(11.9)	158.3
Basic (loss)/earnings per share attributable to ordinary equity holders of the parent Company			5	(2.45p)	30.52p
Diluted (loss)/earnings per share attributable to ordinary equity holders of the parent Company			5	(2.45p)	30.48p
Adjusted earnings per share for profit from continuing operations attributable to ordinary equity holders of the parent Company (excluding deferred tax and amortisation of debt fair value)			5	22.05p	26.72p
Ordinary final dividend proposed per share			6	8.50p	8.07p
Dividend paid per share			6	12.36p	11.52p

     Consolidated statement of recognised income and expense

        For the year ended 31 March 2009

			Notes	Year to 31.3.2009 £m	Year to 31.3.2008 £m
Actuarial (losses)/gains				(207.8)	27.3
Losses on cash flow hedges taken to equity				(11.7)	-
Translation differences				0.9	0.3
				(218.6)	27.6
Transferred to the income statement on cash flow hedges				(0.1)	-
Tax on items charged or credited to equity				61.5	(7.8)
Total income and expense recognised in equity				(157.2)	19.8
(Loss)/profit for the year				(11.9)	158.3
Total recognised income and expense				(169.1)	178.1
Attributable to:
Equity shareholders of the parent Company			8	(169.9)	177.9
Minority interests			8	0.8	0.2
				(169.1)	178.1

        Consolidated balance sheet

         As at 31 March 2009

			Notes	31.3.2009 £m	31.3.2008 £m
Non-current assets
Goodwill				3.6	3.6
Other intangible assets				64.2	64.2
Property, plant and equipment				3,388.2	3,256.3
Investments in jointly controlled entities				3.8	3.8
Financial assets				14.0	16.4
Pension asset				-	90.5
Amounts receivable relating to consortium relief				1.7	-
				3,475.5	3,434.8
Current assets
Inventories				3.2	3.4
Trade and other receivables				131.7	125.1
Short term cash deposits			7	160.6	-
Cash and cash equivalents			7	108.8	294.2
				404.3	422.7
Total assets				3,879.8	3,857.5
Non-current liabilities
Interest bearing loans and borrowings				2,465.3	2,326.4
Provisions				2.5	2.8
Deferred income tax liabilities				596.5	525.4
Pension liability				119.4	-
Other payables				8.1	9.0
Grants				215.6	209.0
				3,407.4	3,072.6
Current liabilities
Interest bearing loans and borrowings				49.2	136.3
Provisions				0.2	0.2
Trade and other payables				147.8	152.9
Interest rate swaps				11.7	-
Income tax payable				6.1	3.7
				215.0	293.1
Total liabilities				3,622.4	3,365.7
Net assets				257.4	491.8

Capital and reserves
Issued capital			8	51.9	51.9
Share premium reserve			8	446.5	446.5
Cash flow hedge reserve			8	(7.6)	1.0
Treasury shares			8	(2.3)	(0.8)
Currency translation			8	1.0	0.1
Retained earnings			8	(234.5)	(8.6)
Equity shareholders' funds				255.0	490.1
Minority interests			8	2.4	1.7
Total capital and reserves				257.4	491.8

     Consolidated cash flow statement

        For the year ended 31 March 2009

			Note	Year to 31.3.2009 £m	Year to 31.3.2008 £m
Operating activities
Reconciliation of profit before interest to net cash flows from operating activities
Profit on ordinary activities before interest				273.6	277.8
Depreciation				100.7	98.3
Other non-cash charges and credits				(4.3)	(5.0)
Net credit for provisions, less payments				(0.3)	(0.1)
Difference between pension contributions paid and amounts recognised in the income statement				7.9	15.3
Decrease in inventories				0.2	0.3
Increase in trade and other receivables				(8.6)	(1.0)
Decrease in trade and other payables				(0.3)	(3.8)
Cash generated from operations				368.9	381.8
Advanced contributions in respect of retirement benefits				-	(22.6)
Interest paid				(120.6)	(131.3)
Income taxes paid				(29.6)	(26.3)
Net cash flows from operating activities				218.7	201.6
Investing activities
Interest received				12.0	18.2
Capital grants received				11.2	20.5
Proceeds on disposal of property, plant and equipment				1.2	1.8
Dividends received from jointly controlled entities				0.8	0.5
Short term cash deposits				(160.6)	-
Maturity of investments				1.7	1.8
Purchase of property, plant and equipment				(231.8)	(236.8)
Net cash flows from investing activities				(365.5)	(194.0)
Financing activities
New borrowings				141.4	31.4
Purchase of treasury shares				(1.7)	-
Dividends paid to minority interests				(0.1)	(0.2)
Dividends paid to equity shareholders				(64.0)	(59.7)
Repayment of borrowings				(95.9)	(22.1)
Payment of principal under hire purchase contracts and finance leases				(7.0)	(6.4)
Net cash flows from financing activities				(27.3)	(57.0)
Decrease in cash and cash equivalents				(174.1)	(49.4)
Cash and cash equivalents at start of year			7	266.4	315.8
Cash and cash equivalents at end of year			7	92.3	266.4
Cash and cash equivalents at end of year			7	92.3	266.4
Short term cash deposits			7	160.6	-
Total cash and cash equivalents and short term cash deposits				252.9	266.4

  Notes to the financial statements

The Board approved the preliminary financial statements covering the year ended 31 March 2009 on 2 June 2009. The financial information set out above does not constitute the Group's statutory financial statements for the year ended 31 March 2009, or for the year ended 31 March 2008, 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 2009, upon which the auditors have issued an unqualified audit opinion. 

The financial statements for the year ended 31 March 2008 have been delivered to the Registrar of Companies. The financial statements for the year ended 31 March 2009 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 International Financial Reporting Standards (IFRS) as adopted by the European Union as it applies to the financial statements of the Group for the year ended 31 March 2009 and in accordance with the Companies Act 1985. The consolidated financial statements are also consistent with IFRS as issued by the IASB. 


2.  Segmental analysis of revenue and profit on ordinary activities before interest

Revenue
				Northumbrian Water Limited £m	Water and  waste water contracts £m	Other £m	Total £m
Year ended 31 March 2009
Segment revenue				647.0	39.8	13.0	699.8
Inter-segment revenue				-	-	(5.7)	(5.7)
Revenue to external customers				647.0	39.8	7.3	694.1
Year ended 31 March 2008
Segment revenue				628.0	35.5	12.6	676.1
Inter segment revenue				-	-	(5.7)	(5.7)
Revenue to external customers				628.0	35.5	6.9	670.4

         All revenue represents services provided.

Profit on ordinary activities before interest
			Northumbrian Water Limited £m	Water and waste water contracts £m	Other  £m	Total £m
Year ended 31 March 2009
Segment profit on ordinary activities before interest			266.9	9.1	(2.4)	273.6
Net finance costs						(121.7)
Share of profit from associates and jointly controlled entities						0.8
Profit on ordinary activities before taxation						152.7
Taxation						(164.6)
Loss for the year from continuing operations						(11.9)
Year ended 31 March 2008
Segment profit on ordinary activities before interest			272.0	8.4	(2.6)	277.8
Net finance costs						(108.0)
Share of profit from associates and jointly controlled entities						0.5
Profit on ordinary activities before taxation						170.3
Taxation						(12.0)
Profit for the year from continuing operations						158.3

3.        Finance costs payable/(income receivable)

				Year to 31.3.2009 £m	Year to 31.3.2008 £m
Finance costs payable on debentures, bank and other loans and overdrafts				122.8	125.3
Amortisation of discount, fees, loan issue costs and other financing items				(4.9)	(5.6)
Accretion on index linked bonds				22.4	16.2
Interest cost on pension plan obligations				38.5	35.2
Finance costs payable on hire purchase contracts and finance leases				4.7	2.4
Total finance costs payable				183.5	173.5
Expected return on pension plan assets				(44.3)	(48.4)
Finance income receivable				(17.5)	(17.1)
Net finance costs payable				121.7	108.0

4.      Taxation

				Year to 31.3.2009 £m	Year to 31.3.2008 £m
Current tax:
Current income tax charge at 28% (2008: 30%)				33.0	28.1
Income tax reported in equity on cash flow hedges				0.1	-
Adjustment in respect of prior periods				(1.1)	(2.7)
UK corporation tax				32.0	25.4
Overseas tax				0.1	0.2
Total current tax				32.1	25.6
Deferred tax:
Origination and reversal of temporary differences in the year at 28%				13.8	15.1
Effect of changes in tax rates and laws:
- Impact of Industrial Buildings Allowances abolition				117.2	-
- Impact of opening rate reduction				-	(35.4)
Income tax reported in equity on cash flow hedges				(0.1)	-
Adjustment in respect of prior periods				1.6	6.7
Total deferred tax				132.5	(13.6)
Tax charge in the income statement				164.6	12.0

5.      Earnings per share

Basic earnings per share (EPS) is calculated by dividing the (loss)/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.

	Loss 31.3.2009 £m	Weighted average number of shares 31.3.2009 million	Loss per share 31.3.2009 pence	Earnings 31.3.2008 £m	Weighted average number of shares 31.3.2008 million	Earnings per share 31.3.2008 pence
Basic EPS	(12.7)	518.0	(2.45)	158.1	518.0	30.52

The weighted average number of shares for diluted EPS is calculated by including the treasury shares held.

	Loss 31.3.2009 £m	Weighted average number of shares 31.3.2009 million	Loss per share 31.3.2009 pence	Earnings 31.3.2008 £m	Weighted average number of shares 31.3.2008 million	Earnings per share 31.3.2008 pence
Diluted EPS	(12.7)	518.6	(2.45)	158.1	518.6	30.48

Adjusted EPS is considered by the directors to give a better indication of the Group's underlying performance and is calculated as follows:

	(Loss)/ earnings 31.3.2009 £m	Weighted average number of shares 31.3.2009 million	(Loss)/ earnings per share 31.3.2009 pence	Earnings 31.3.2008 £m	Weighted average number of shares 31.3.2008 million	Earnings per share 31.3.2008 pence
Basic EPS	(12.7)	518.0	(2.45)	158.1	518.0	30.52
Deferred tax	132.5		25.58	(13.6)		(2.62)
Amortisation of debt fair value	(5.6)		(1.08)	(6.1)		(1.18)
Adjusted EPS	114.2	518.0	22.05	138.4	518.0	26.72

6.      Dividends paid and proposed

A final ordinary dividend payment of 8.50 pence per ordinary share will be recommended by the Board to shareholders at the AGM scheduled for 30 July 2009. If approved, the final dividend will be paid on 11 September 2009 to shareholders whose names appear on the Company's Register of Members at the close of business on 14 August 2009. Together with the ordinary interim dividend of 4.29 pence per ordinary share, the total ordinary dividend for the year will be 12.79 pence per ordinary share.

				Year to 31.3.2009 £m	Year to 31.3.2008 £m
Declared and paid during the year:
Equity dividends on ordinary shares:
Final dividend for 2007/08: 8.07p (2006/07: 7.52p)				41.8	39.0
Interim dividend for 2008/09: 4.29p (2007/08: 4.00p)				22.2	20.7
Dividends paid				64.0	59.7
Proposed for approval by shareholders at the AGM:
Final dividend for 2008/09: 8.50p (2007/08: 8.07p)				44.0	41.8

7.      Cash and cash equivalents and short term deposits

For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise the following at 31 March:

				31.3.2009 £m	31.3.2008 £m
Cash at bank and in hand				40.0	92.3
Short term deposits				68.8	201.9
				108.8	294.2
Bank overdrafts				(16.5)	(27.8)
Cash and cash equivalents				92.3	266.4

Amounts disclosed as short term deposits comprise:

				31.3.2009 £m	31.3.2008 £m
Short term cash deposits > 3 months				120.8	-
Short term cash deposits < 3 months				39.8	-
Short term cash deposits				160.6	-

Short term cash deposits of £39.8 million, with a maturity of less than three months, represent amounts on deposit at fixed rates with the Northumbrian Water Pension Scheme.

8.      Reconciliation of movements in equity

	Equity share capital £m	Share premium reserve £m	Cash flow hedge reserve £m	Treasury shares £m	Currency translation £m	Retained earnings £m	Total equity £m	Minority interests £m	Total £m
At 1 April 2007	51.9	446.5	1.0	(1.3)	(0.2)	(126.5)	371.4	1.7	373.1
Total recognised income and expense for the year	-	-	-	-	0.3	177.6	177.9	0.2	178.1
Share-based payment	-	-	-	-	-	0.5	0.5	-	0.5
Exercise of LTIP awards	-	-	-	0.5	-	(0.5)	-	-	-
Equity dividends paid	-	-	-	-	-	(59.7)	(59.7)	(0.2)	(59.9)
At 1 April 2008	51.9	446.5	1.0	(0.8)	0.1	(8.6)	490.1	1.7	491.8
Shares purchased	-	-	-	(1.7)	-	-	(1.7)	-	(1.7)
Total recognised income and expense for the year	-	-	(8.6)	-	0.9	(162.2)	(169.9)	0.8	(169.1)
Share-based payment	-	-	-	-	-	0.5	0.5	-	0.5
Exercise of LTIP awards	-	-	-	0.2	-	(0.2)	-	-	-
Equity dividends paid	-	-	-	-	-	(64.0)	(64.0)	(0.1)	(64.1)
At 31 March 2009	51.9	446.5	(7.6)	(2.3)	1.0	(234.5)	255.0	2.4	257.4

 

END

 

 

FR EANKAEEANEFE