Half Year Interim Results - Turnover Up 4%
Thames Water PLC
2 November 1999
INTERIM RESULTS FOR THE HALF YEAR ENDED 30 SEPTEMBER 1999
The Board of Thames Water Plc today announced unaudited results
for the half year ended 30 September 1999.
* Group turnover up 4% to £680m
* Operating profit up 8% to £273m
* Non-regulated profit up 22% to £29m
* Interim dividend per share up 9% to 15.3p
* Profit before tax and exceptional items down 2% to £204m,
reflecting balance sheet restructuring.
* Further improvements in quality and service standards
* £3.8bn invested since privatisation in 1989
* Good progress on leakage reduction
* Lowest average bill for combined water and wastewater
services in England and Wales maintained
* International portfolio growing successfully
Roger Carr, Chairman, said:
'Thames Water has continued to make good progress during the
first half of the year. All parts of our businesses are
performing well. In the six months ended 30 September 1999
operating profit increased to £273m.
'Our Utility business has continued to outperform the
regulatory targets and improve efficiency. Our investment
programme, amounting to more than £3.8bn since privatisation,
has led to the highest ever quality and service standards for
our customers who continue to enjoy the lowest average combined
bill in England and Wales.
'On 27 July 1999, Ofwat issued its draft determination for
prices in the next five years. We have responded to the
proposals and continue to press for an appropriate balance
between levels of service, investment and pricing. Ofwat's
final determination is due on 25 November 1999.
'Our portfolio of non-regulated businesses has continued its
strong performance, with profits of £29m ahead of last year by
22%. Of this, the contribution from international projects
increased from £6m to £11m. We have also invested £4m during
this period in developing new non-regulated opportunities'.
GROUP OVERVIEW
Group turnover of £680m was 4% higher than last year and
operating profit increased by 8% from £252m to £273m. There was
a small reduction in profit before tax to £204m (£207m) because
of higher interest charges of £69m (£45m), largely reflecting
last year's balance sheet restructuring and the payment of the
final windfall tax instalment.
The tax rate for 1999/2000 is currently estimated to be 21%
(8%). The tax charge for the half year at 21% was £42m (£17m)
with a consequential fall in earnings per share to 46.2p (51.1p
pre-exceptional). The 1999/2000 tax charge reflects the Group's
decision to defer last year's interim dividend payment to 6
April 1999, because of changes to the advance corporation tax
regime.
DIVIDENDS
The Group has delivered another strong operating and financial
performance, particularly in the non-regulated businesses, and
has a sound overall financial position. Accordingly the Board
has decided to increase the interim dividend per share by 9%.
This is consistent with the Board's policy for the five year
period to 2000 to increase dividends materially in real terms
whilst allowing dividend cover to move towards two times by
March 2000. An interim dividend of 15.3p (14.0p) will be paid on
3 February 2000 to those ordinary shareholders on the register
on 17 December 1999.
UTILITY OPERATIONS
The Utility increased turnover by 5% to £556m. Profit before
tax declined from £201m to £178m, because of the higher
interest cost from the reorganisation of the Utility's capital
structure.
The Utility's capital structure was changed in August 1998 to
bring it closer to the optimum level being assumed by Ofwat as
part of the price review. The change was effected by a special
dividend payment of £750m in 1998/99 to Thames Water Plc. A
normal interim dividend for 1999/2000 of £39m (£49m) to Thames
Water Plc has been provided.
Running costs showed an increase of only 2% which has been
achieved while absorbing the costs incurred in operating new
facilities. These additional costs were covered by continuing
efficiency improvements.
Good progress is being made on leakage reduction and, provided
we have normal winter weather conditions, the company is on
track to meet Ofwat's 1999/2000 target of 665 million litres
per day. We continue to find and fix leaks at a current rate of
2000 every week.
Our readiness to maintain water supplies and wastewater
services over the millennium period has been externally
validated.
The Utility's capital investment programme, £191m for the half
year, continues to meet all regulatory and internal targets,
including discretionary investment for improvements in customer
service. All obligations under the current regulatory five-
year period have or will be met by the end of this financial
year.
NON-REGULATED ACTIVITIES
The International division, with a portfolio of long term
contracts to supply water around the world, continues to
progress. Turnover, including that arising in joint ventures,
increased to £64m from £52m. Profit before tax and development
costs increased to £11m from £6m.
We announced in June 1999 a US$25m five year contract with the
Provincial Water Authority of Thailand to manage water
distribution in the area immediately north of Bangkok. A new
operating contract also commenced in June 1999 providing water
services in the state of Johor (Malaysia).
We have been providing essential support to the local
communities in and around Izmit in Turkey following the
earthquake in August 1999. There has been no material adverse
financial impact to our operations. A disaster relief fund has
been established to support re-housing of local families and
employees.
The Products division produced an increased profit before tax
of £1.8m (£0.4m) on turnover of £44m (£38m). The acquisitions
made in 1998/99 have been fully integrated into the division.
We have also received the first order for our new advanced
sludge pasteurisation process.
The Services division's profit before tax grew to £2.1m
(£0.6m) on turnover of £106m (£92m). We expect the full year
results also to be ahead of last year. Early in October, the
Metronet consortium, in which Thames Water has a 20% share,
prequalified to bid for two London Underground infrastructure
projects.
The Property and Insurance companies have contributed profit
before tax of £8.5m (£9.2m) and £5.4m (£8.1m) respectively.
This year's Insurance contribution is within a more normal
range following the strong investment gains in the first half
of last year.
LOOKING AHEAD
Bill Alexander, Chief Executive, said:
'We will continue to focus on our core strengths in water and
wastewater where we are increasingly recognised as an industry
leader. The Utility remains the cornerstone of the Group,
enhancing service standards whilst maintaining the lowest bills
in England and Wales. We continue to press for a balanced
outcome from the water industry price review.
'The non-regulated businesses have again delivered an excellent
increase in profits and now contribute 15% of our group
results. We are pursuing a number of new opportunities and
expect our non-regulated businesses to make a growing
contribution in the future'.
For further information contact:
Thames Water Plc
David Luffrum
Finance and Planning Director Tel: 0171 636 8686
Jonathan Russell
Director of Corporate Affairs Tel: 0171 636 8686
David Beck
Bell Pottinger Tel: 0171 353 9203
THAMES WATER PLC INTERIM RESULTS
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Notes Half Half Full
Year Year Year
30/09/99 30/09/98 31/03/99
£m £m £m
Turnover
Group and share of joint ventures 723.1 689.0 1,402.8
Share of joint ventures turnover (42.7) (35.4) (77.3)
------- ------- -------
Group 680.4 653.6 1,325.5
Operating costs (426.1) (415.5) (825.6)
Other operating income 2 3.1 13.1 12.7
Utilisation of discontinued
business provision - 0.6 1.4
------- ------- -------
Group operating profit 257.4 251.8 514.0
Share of operating profit in joint
ventures 15.7 0.6 8.1
Share of operating loss in
associates (0.4) - (0.8)
------- ------- -------
Operating profit 272.7 252.4 521.3
Other non-operating exceptional
items
Release of discontinued business
provision - 7.0 7.0
------- ------- -------
Profit on ordinary activities
before interest and taxation 272.7 259.4 528.3
Net interest expense 3 (59.4) (45.2) (106.0)
Share of net interest in joint
ventures and associates (9.7) - (3.7)
------- ------- -------
Profit on ordinary activities
before taxation 203.6 214.2 418.6
Taxation on profit on ordinary
activities 4 (41.9) (17.3) (34.2)
------- ------- -------
Profit for the half year 161.7 196.9 384.4
Non-equity dividend - - (0.9)
Ordinary dividend (53.5) (48.8) (148.8)
------- ------- -------
Retained profit 108.2 148.1 234.7
======= ======= =======
Earnings per ordinary share -
basic 5 46.2p 53.0p 106.3p
Adjusted earnings per ordinary
share 5 46.2p 51.1p 104.4p
Earnings per ordinary share -
diluted 5 45.9p 52.5p 105.5p
Dividend per share 15.3p 14.0p 42.6p
The above results relate to continuing operations.
THAMES WATER PLC
CONSOLIDATED BALANCE SHEET
Restated Restated
(note 8) (note 8)
As at Notes 30/09/99 30/09/98 31/03/99
£m £m £m
Fixed assets
Goodwill 6 16 10 16
Other intangible assets 7 11 - 11
Tangible fixed assets 8 4,123 3,866 4,023
Fixed asset investments 75 48 55
--------- -------- ---------
4,225 3,924 4,105
Current assets
Stocks and work in progress 31 32 32
Debtors and prepayments 658 579 316
Cash and short-term investments 169 106 181
--------- -------- ---------
858 717 529
Creditors: amounts falling due
within one year (1,276) (1,417) (1,029)
--------- -------- ---------
Net current liabilities (418) (700) (500)
--------- -------- ---------
Total assets less current
liabilities 3,807 3,224 3,605
--------- -------- ---------
Creditors: amounts falling due
after more than one year (1,535) (1,130) (1,449)
Provisions for liabilities and
charges (58) (56) (52)
--------- -------- ---------
Net assets 2,214 2,038 2,104
--------- -------- ---------
Capital and reserves
Share capital 104 115 105
Share premium 57 53 56
Capital redemption reserve 319 308 317
Profit and loss account 1,734 1,562 1,626
--------- -------- ---------
Shareholders' funds 2,214 2,038 2,104
--------- -------- ---------
of which - equity shareholders'
funds 2,191 2,004 2,079
- non - equity
shareholders' funds 23 34 25
--------- -------- ---------
2,214 2,038 2,104
--------- -------- ---------
Net debt 9 (1,704) (1,415) (1,592)
Gearing 77% 69% 76%
THAMES WATER PLC
CONSOLIDATED CASH FLOW STATEMENT
Half Half Full
Year Year Year
30/09/99 30/09/98 31/03/99
£m £m £m
Net cash flow from operating
activities 281 306 602
Servicing of finance less returns
on investment (38) (23) (96)
Taxation (1) (17) (172)
Capital expenditure
- capital investment (218) (240) (488)
- capital contributions and sale
of fixed assets 18 28 52
Acquisitions, disposals and
equity investments (3) (17) (29)
Equity dividends paid (150) (98) (98)
Management of liquid resources 17 1 15
Financing
- repurchase of shares (2) (269) (276)
- issue of shares - 2 7
- share capital related costs - - (7)
- cashflow from increase in debt
& lease financing 101 385 501
-------- -------- --------
Increase in cash during the
period 5 58 11
Change in debt resulting from
cash flows
- management of liquid resources (17) (1) (15)
- cashflow from increase in debt
& lease financing (101) (385) (501)
Other non-cash movements 1 (2) (2)
-------- -------- --------
Increase in net debt (112) (330) (507)
-------- -------- --------
Reconciliation of operating
profit to operating cash flow
Operating profit 273 259 528
Depreciation * 99 87 179
Working capital (56) (18) (64)
Increase/(decrease) in long-term
provisions 2 (2) (7)
Other adjustments * (37) (20) (34)
-------- -------- --------
Net cash flow from operating
activities 281 306 602
======== ======== ========
* Depreciation includes infrastructure renewals charge in
accordance with Financial Reporting Standard 15 (FRS 15). Cash
outflows for infrastructure renewals are included within
Capital Expenditure therefore an adjustment is required in
reconciling operating profits to operating cashflows. Other
adjustments also include balances eliminating the Group's share
of joint ventures/associated undertakings' operating profit as
per FRS 9.
SEGMENTAL ANALYSIS BY CLASS OF BUSINESS
Half Half Full
Year Year Year
30/09/99 30/09/98 31/03/99
£m £m £m
TURNOVER
Utilities 555.7 531.4 1,092.1
International Operations 63.6 52.2 129.4
Products 43.9 37.9 83.1
Services 106.3 91.5 188.7
Property 20.6 30.4 48.6
Insurance 6.5 6.3 13.4
-------- -------- --------
Group & share of joint
ventures 796.6 749.7 1,555.3
Intercompany eliminations (73.5) (60.7) (152.5)
Share of joint ventures (42.7) (35.4) (77.3)
-------- -------- --------
Group 680.4 653.6 1,325.5
======== ======== ========
Half Half Full
Year Year Year
30/09/99 30/09/98 31/03/99
£m £m £m
PROFIT BEFORE INTEREST AND
TAX
Utilities 239.2 234.1 473.7
International Operations 20.5 4.1 17.6
Products 2.1 0.5 4.1
Services 2.6 1.3 6.3
Property 9.5 10.1 18.0
Insurance 5.4 8.1 11.9
Other activities (5.4) (3.1) (7.7)
Intercompany eliminations (1.2) (2.7) (2.6)
-------- -------- --------
272.7 252.4 521.3
Other non-operating
exceptional items:
International operations - 7.0 7.0
-------- -------- --------
272.7 259.4 528.3
======== ======== ========
Half Half Full
Year Year Year
30/09/99 30/09/98 31/03/99
£m £m £m
PROFIT BEFORE TAX
Utilities 178.2 200.6 395.9
International Operations 11.1 5.4 16.1
Products 1.8 0.4 4.3
Services 2.1 0.6 4.7
Property 8.5 9.2 16.2
Insurance 5.4 8.1 11.9
Other activities (2.3) (14.4) (34.9)
Intercompany eliminations (1.2) (2.7) (2.6)
-------- -------- --------
203.6 207.2 411.6
Other non-operating
exceptional items:
International operations - 7.0 7.0
-------- -------- --------
203.6 214.2 418.6
======== ======== ========
NOTES
1 Basis of preparation
The interim profit and loss account and cash flow
statement for the half year ended 30 September 1999 and
the Balance Sheet as at 30 September 1999 have, except as
set out in note 8 below, been prepared on the basis of the
accounting policies adopted by the Company for the year
ended 31 March 1999 as set out in the Thames Water Plc
Annual Report and Accounts. The accounts for the year
ended 31 March 1999 (on which the auditors made an
unqualified report) have been delivered to the Registrar
of Companies.
2 Other income
Half Half Full
Year Year Year
30/09/99 30/09/98 31/03/99
£m £m £m
Gains (losses) on short
term investments (1.7) 3.0 4.1
Insurance investment income 1.7 2.4 4.6
Other financial income 3.1 7.7 4.0
-------- -------- --------
3.1 13.1 12.7
-------- -------- --------
3 Interest
The increase in net interest expense to £59.4m (£45.2) for
the half year ended 30 September 1999 reflects:-
* the half year effect of the second instalment of the
windfall tax which was paid on 1 December 1998;
* the part year effect of the repurchase of 'B' shares
following the reorganisation of the Company's share
capital undertaken in 1998;
* borrowing in the Utility business to finance the on-
going capital investment programme;
4 Taxation
Half Half Full
Year Year Year
30/09/99 30/09/98 31/03/99
£m £m £m
Corporation tax on income at
31% 41.7 42.0 82.8
Overseas taxation 1.8 1.7 3.3
Prior years advance
corporation tax relieved (3.3) (26.6) (53.2)
Share of tax for joint
ventures and associates 1.7 0.2 1.3
------- ------- -------
41.9 17.3 34.2
------- ------- -------
The interim taxation charge of £41.9m reflects the
anticipated effective rate for the year to 31 March 2000,
compared to £17.3m for the same period to 30 September
1998. Changes in advance corporation tax resulted in a
non-recurring reduction in the tax charge for the period
to 30 September 1998.
5 Earnings per share
Earnings per ordinary share have been calculated by
dividing the profit for the half year by the weighted
average ordinary shares in issue during the period.
Half Half Full
Year Year Year
30/09/99 30/09/98 31/03/99
Profit for the half year £161.7m £196.9m £383.5m
-------- -------- --------
Weighted average - ordinary
shares in issue 349.9m 371.5m 360.6m
-------- -------- --------
Earnings per ordinary share
- basic 46.2p 53.0p 106.3p
Adjustments for:
- non-operating
exceptional items - (1.9p) (2.9p)
-------- -------- --------
Adjusted earnings per
ordinary share 46.2p 51.1p 104.4p
======== ======== ========
Weighted average ordinary
shares including effect of
dilutive ordinary shares 352.3m 374.9m 363.5m
-------- -------- --------
Earnings per ordinary share
- diluted 45.9p 52.5p 105.5p
======== ======== ========
6 Acquisitions
The Group acquired Ham Baker, Underpressure Engineering
plc, Memtech (UK) Ltd and the minority interest in it's
subsidiary PT Kekar Thames Arindo during the year ended 31
March 1999. Goodwill arising, being the difference between
the fair value of net assets acquired and the purchase
price, was capitalised as follows:-
Consideration Fair Goodwill
£m Value £m
£m
Ham Baker Limited 6.1 1.8 4.3
Underpressure Engineering 8.4 2.4 6.0
-------------- ----- --------
at 30 September 1998 14.5 4.2 10.3
Memtech (UK) Ltd 4.8 0.1 4.7
PT Kekar Thames Arindo 2.3 0.3 2.0
-------------- ----- --------
at 31 March 1999 21.6 4.6 17.0
-------------- ----- --------
At 30 September 1999, cumulative goodwill of £1.1m (£0.5m)
for the full year to March 1999) has been amortised to the
profit and loss account in respect of the above
acquisitions.
7 Other intangible assets
Other intangible assets relate to initial expenditure on
concession contracts.
Development expenditure for the period to 30 September
1999 has been charged to the profit and loss account.
8 Tangible fixed assets
The Group's accounting policy on infrastructure assets has
been amended following the publication of Financial
Reporting Standard 15 (FRS 15). From 1 April 1999, all
expenditure on infrastructure assets is now capitalised,
whilst the element incurred in maintaining the operating
capability of the infrastructure assets network in
accordance with defined service standards is expensed as
depreciation.
Tangible fixed assets for the half year to 30 September
1998 and the full year to 31 March 1999 have been adjusted
by £4.3m and £9.5m respectively following implementation
of FRS 15, to include expenditure on infrastructure assets
which was previously classified within prepayments.
9 Net debt
Net debt is the aggregation of cash and short term
investments, short term loans and finance leases which are
included in creditors: amounts falling due within one year
and long term loans and finance leases which are included
in creditors: amounts falling due after more than one
year.
Movement of £112m for the period is analysed as the
cashflow statement.
INDEPENDENT REVIEW REPORT TO THAMES WATER PLC
Introduction
We have been instructed by the Company to review the financial
information set out on pages 6 to 12 and we have read the other
information contained in the interim report for any apparent
misstatements or material inconsistencies with the financial
information.
Directors' responsibilities
The interim report, including the financial information
contained herein, is the responsibility of, and has been
approved by the directors. The Listing Rules of the London
Stock Exchange require that the accounting policies and
presentation applied to the interim figures should be
consistent with those applied in preparing the preceding annual
accounts except where any changes, and the reasons for them,
are disclosed.
Review work performed
We conducted our review in accordance with guidance contained
in Bulletin 1999/4 issued by the Auditing Practices Board. A
review consists principally of making enquiries of group
management and applying analytical procedures to the financial
information and underlying financial data, and based thereon,
assessing whether the accounting policies and presentation have
been consistently applied unless otherwise disclosed. A review
excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in
accordance with Auditing Standards and therefore provides a
lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material
modifications that should be made to the financial information
as presented for the six months ended 30 September 1999.
PricewaterhouseCoopers
Chartered Accountants
London
1 November 1999
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