6th Jun 2007 07:01
Northumbrian Water Group PLC06 June 2007 6 June 2007 NORTHUMBRIAN WATER GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2007 Northumbrian Water Group plc (NWG or the Group) is pleased to announce itspreliminary results for the year ended 31 March 2007. HIGHLIGHTS 2007 Year to Year to 31.3.2007 31.3.2006 Change Change £m £m £m %Continuing operationsRevenue 633.5 591.5 42.0 7.1Profit on ordinary activities before interest 258.2 236.2 22.0 9.3Profit before tax 147.8 130.3 17.5 13.4Profit before tax and FV debt amortisation(1) 140.1 117.3 22.8 19.4Profit after tax 111.2 91.0 20.2 22.2Net debt 2,079.6 2,010.4 69.2 3.4RCV 2,817 2,624 193 7.4 Continuing operationsBasic EPS 21.42p 17.48p 3.94p 22.5%Adjusted EPS(1,2) 24.95p 19.52p 5.43p 27.8%Ordinary dividends paid and proposed(3) 11.27p 10.56p 0.71p 6.7% Notes: (1) Excludes fair value debt amortisation £7.7 million (2006: £13.0 million) (2) Excludes deferred tax £28.0 million (2006: £23.6 million), IAS 39 credit £2.0 million (2006: nil) (3) Ordinary interim dividends paid 3.75p (2006: 3.52p), final proposed 7.52p (2006: 7.04p) • Total regulated capital investment for the year of £225 million;cumulative investment of £436.9 million over last 2 years, on track to invest £1billion by 2010 • Customers to benefit from price changes from April 2007 to March 2010:decision taken by NWL not to increase prices by the full amount allowed by Ofwatat the last price review • Continuing high levels of customer service and satisfaction • Financial position strengthened by the issue of two £100 million indexlinked Eurobonds to finance capital investment through to 2010 • Proposed final dividend of 7.52 pence per share to be paid on 14September 2007, giving a full year ordinary dividend of 11.27 pence per share,an increase of 6.7% • Delivering regulatory outputs for drinking water quality andenvironmental improvement • Water supplies maintained without restriction; resource managementinitiatives implemented, including plans for a projected 60% increase incapacity at Abberton • Leakage targets achieved for 8th consecutive year • Best ever bathing water quality results Managing Director John Cuthbert said, "The Group has delivered a strong set ofoperational and financial results and these provide the foundation for continuedgood performance through the remainder of the current regulatory period. We haveput in place the funding needed for the investment programme to 2010 and thatprogramme will deliver the regulatory outputs and also the priorities identifiedby our customers, the Consumer Council for Water and our other stakeholders. With a strong performance, delivering value to both customers and investors, theNWL board has decided not to apply the price increases above RPI allowed in thelast two years of the current regulatory period. Alongside high standards ofservice, customers will now benefit from bills that will be lower than theywould have otherwise been." For further information contact: Northumbrian Water 0191 301 6419John Cuthbert, Managing DirectorChris Green, Finance DirectorAlistair Baker, Communications & PR Manager Pelham PR 020 7743 6679James HendersonChelsea HayesArchie Berens MANAGING DIRECTOR'S STATEMENT NWG's financial performance Revenue was £633.5 million for the year to 31 March 2007 and represents a 7.1%increase on the year to 31 March 2006. This increase is mainly due to the upliftin water and sewerage charges to support continuing high capital investment aspart of the regulatory price review in 2004. Profit on ordinary activities before interest for the year was £258.2 million(2006: £236.2 million). Operating costs increased by £20.0 million (5.6%) to£375.3 million with upward pressure on costs, particularly energy, partiallymitigated by ongoing efficiencies. The net interest charge was £111.2 million (2006: £106.0 million). This chargeincludes a credit of £7.7 million (2006: £13.0 million) in respect of theamortisation of the debt fair value and a gain of £2.9 million (2006: nil) inrespect of the cancellation of a financial instrument. Profit on ordinary activities before tax for the year was £147.8 million, 13.4%higher than the previous year (2006: £130.3 million). The tax charge of £36.6million (2006: £39.3 million) reflects increased profitability, adjustments inrespect of prior periods arising from changes in claims for capital allowances,a revision to retirement benefits and a reduction in the amortisation offinancing items. The effective tax rate for the year to 31 March 2007 was 25%(2006: 30%). The Group's gearing has decreased from 77% to 74% of Northumbrian WaterLimited's (NWL) regulatory capital value (RCV), with net debt increasing by£69.2 million to £2,079.6 million over the year. The decrease in the Group'sgearing is principally due to the growth in RCV over the year from £2,624million to £2,817 million at 31 March 2007. For the regulated business withinNWL, gearing decreased from 58% to 57%. Cash interest cover for the Group has improved from 2.7x to 2.9x in the yearreflecting the positive cash effects of the index linked bond issuance sinceSeptember 2005. Earnings per share and dividends Basic and diluted earnings per share were 21.42 pence (2006: 20.45 pence) and21.38 pence (2006: 20.42 pence) respectively. Earnings per share from continuingoperations, adjusted for IAS 39, deferred tax and the amortisation of debt fairvalue, were 24.95 pence (2006: 19.52 pence). A final dividend of 7.52 pence per share for the year ended 31 March 2007 willbe recommended by the Board to shareholders at the AGM on 2 August 2007 and, ifapproved, will be paid on 14 September 2007 to shareholders on the register atthe close of business on 17 August 2007. Together with the ordinary interimdividend of 3.75 pence per share, the ordinary dividends paid and proposed forthe year will be 11.27 pence per share (2006: 10.56 pence per share). Thisrepresents an increase of 6.7% on the ordinary dividend for the previous yearand is consistent with the Board's decision to maintain a progressive dividendpolicy with real increases of around 3% p.a. The board of our main subsidiary,NWL, has proposed a dividend policy consistent with the underlying assumptionsadopted by Ofwat at its price review in 2004. The dividend cover for the year is 1.9x, and 2.3x (2006: 1.5x and 1.7x,including the special dividend) excluding deferred tax and the amortisation ofdebt fair value. Future price changes Customers are to benefit from price changes in the period from April 2007 toMarch 2010 following confirmation from NWL that it will not increase prices bythe amount allowed by Ofwat at the last price review. The cumulative benefit tocustomers from 2007 to 2010 will be around £22 million. Market conditions have been favourable over the last eighteen months and NWL hastaken advantage of this and secured funding on attractive terms for the capitalprogramme through to 2010. The benefit of this, together with the strongperformance to date, informed the decision of the NWL Board to limit increasesin bills in 2008/09 and 2009/10 to RPI. The K allowance for 2007/08 of 3.2% has already been limited to 2.8% and this isreflected in current bills. The K allowances for 2008/09 and 2009/10, of 1% and0.6% respectively, include financeability adjustments introduced to ensurecompanies could finance their functions with adequate financial ratiosthroughout the 2005 to 2010 period. These adjustments were to assist financingand were not available for distribution. This has no impact on dividend policy and shareholders will continue to benefitfrom any outperformance. Capital structure In June 2006, Northumbrian Water Finance plc (NWF), the finance subsidiary ofNWL, issued two further £100 million index linked Eurobonds with real coupons of1.7118% and 1.7484% and with maturities of 2049 and 2053, respectively. Indexlinked debt now comprises 18% of the gross debt portfolio, whilst fixed ratedebt amounts to 65%. On 28 June 2006, the Group redeemed the remaining £172 million 8.625% Eurobonds.The redemption was financed by the drawdown of £125 million of five yearcommitted bank facilities with the balance coming from cash resources. The loanswere taken on a variable basis with interest rates linked to LIBOR. In March 2007, the latest £100 million EIB facility was drawn by NWL. The loanwas advanced on a variable interest rate basis, with a fifteen year maturity andan amortising principal repayment profile. Pensions The Group operates a defined benefit pension scheme providing benefits based onpensionable remuneration. As at 31 March 2007, there were 2,310 (2006: 2,351)active members. The surplus under IAS 19, at 31 March 2007, was £42.7 million(2006: deficit £3.7 million). The Group is currently reviewing pension provision with the aim of introducingrevised arrangements from 1 January 2008. Members as at 30 November 2007 wouldbe eligible to participate in a revised defined benefit section and entrantswould be eligible for a new occupational trust-based defined contributionscheme, with a choice of contribution rates. The most recent triennial actuarial valuation, as at 31 December 2004, reportedthat the scheme was 97.6% funded and new employer contributions were recommendedby the scheme actuary. The Group agreed an alternative proposal to make advancedpayments of £36.1 million by April 2006 and £23.3 million by April 2007,covering both employee and employer contributions to 31 December 2010. Inaddition. the Group launched a salary sacrifice arrangement, on 1 April 2006,under which savings in employer national insurance contributions are also paidinto the scheme. The Group also operates an existing defined contribution scheme and, as at 31March 2007, there were 248 (2006: 258) contributing members. NORTHUMBRIAN WATER LIMITED Revenue was £586.5 million for the year to 31 March 2007 (2006: £555.5 million).The revenue increase is mainly due to the uplift in prices for water andsewerage services to support the continuing high capital investment programmeagreed as part of the 2004 regulatory price review. Operating costs have increased from £320.9 million to £343.9 million,principally reflecting a significant increase in energy market prices and thefull year impact of increased pension costs following an actuarial review of thepension scheme, in addition to the impact of inflation. Operating costs for theappointed business in 2006/07 are £7.2 million higher than those estimated inthe 2004 final determination for the year due to energy costs. Profit on ordinary activities before interest for the period was £242.6 million(2006: £234.6 million). Capital expenditure for the year was £225.0 million (2006: £211.9 million). Water NWL achieved its best ever drinking water quality results in 2006 and thequality of drinking water supplied in both operating areas remains among thebest in the country. One of the DWI's key measures is Mean Zonal Compliance andNWL achieved 99.97% in the south and 99.96% in the north. Additionally, theirOperational Performance Index was 99.99% in the south and 99.84% in the north. During 2006/07, we completed significant improvements to water treatment works(WTWs) at Whittle Dene and Horsley, on Tyneside, and Chigwell in Essex. Theseworks now have an additional treatment process to remove pesticides from rawwater. Similar work at Warkworth in Northumberland will be complete in summer2007. We also completed a major refurbishment of our Ormesby WTW in Suffolk. One of NWL's key priorities is to reduce the amount of water lost from thenetworks. We agreed leakage targets with Ofwat of 156 Ml/d in the northernoperating area and 68.3 Ml/d in the south, and both have been met. This meansthat leakage targets have been met consistently since 1998/99. The leakage inour southern operating area has been among the lowest in the country for manyyears. NWL aims to set best practice standards to reduce leakage and is playinga leading role in a review of leakage methodologies with the EA and Ofwat. Comprehensive repairs to the two water mains supplying Hexham in Northumberland,which had been washed away during the severe weather in 2005, are now complete.The solution involved building a tunnel several metres below the riverbed. In Essex, we laid 10.5km of pipeline to triplicate the strategic mains takingwater from our Layer-de-la-Haye WTW and to improve the overall infrastructure.In addition, 477km of mains was renewed or relined. The current rehabilitationprogramme in the south is now complete and the work in the north is due to befinished in 2008. This work will help reduce incidents of discoloured water andalso help further reduce leakage. Over the years, NWL has carefully designed its systems to secure water suppliesfor its customers. This is particularly challenging in Essex, where there islimited water in the summer months. The Langford Recycling Scheme has improvedthe security of supply and can provide up to 30Ml/d of water during the summermonths. In the medium term, we plan to further improve the security of supply andaugment resources in the Essex area by increasing the capacity of the Abbertonreservoir. During 2007, we will be applying for planning permission for aproject that will increase the capacity of the reservoir by 60%. Water resources Following a wet winter, our reservoirs are in a strong position at the time ofwriting this report. NWL has sufficient water reserves in its northern area,largely due to Kielder Water and the ability it provides to augment the majorrivers in the area during periods of drought. Its southern area is in one of thedriest parts of the UK and rainfall, until recently, has been low since November2004. In Essex, NWL did not need to introduce a hosepipe ban during the drought whichaffected supplies across much of south east England during 2006. Our investmentto reduce leakage, our ability to pump water from Norfolk via the Ely Ouse toEssex Transfer Scheme and the water available from the innovative LangfordRecycling Scheme, helped maintain our reservoir levels. The Langford RecyclingScheme provided 12% extra water in Hanningfield reservoir last summer. Our ongoing and long running water efficiency promotions and good relationshipwith our customers produced a positive response to our requests for additionalefforts on water saving and a consequent significant reduction in demand. Metering has an important role to play in managing demand. In addition to ouroptional metering scheme, we have introduced a successful scheme to installwater meters when properties are sold in the Essex area and we now have about40% of domestic customers in Essex on a metered supply. Alongside these important measures to manage demand, we believe that we need toaugment water resources in the south to secure water supplies for customers inwhat is one of Britain's driest regions. Environment All 33 bathing waters passed the EU Mandatory Standard and, of these, 29 (88%)passed the more demanding Guideline Standard. Those passing the GuidelineStandard are predicted to achieve good or excellent ratings under the newBathing Water Directive which takes effect on 31 December 2014. To maintain thishigh performance we are working with the EA to identify the impact of otherstakeholders including local authorities, highway authorities, farmers and landholders on the quality of bathing waters. The performance of the 425 sewage treatment works (STWs) operated by NWLcontinued to be high with 99.8% of the population being served by works whichmet their consent standards. We had one category 1 pollution incident in 2006 and the EA has commended NWLfor achieving above average compliance with standards. The number of minorincidents, such as blockages, continued to fall significantly (by nearly 30%)compared to last year as a result of more proactive maintenance and ourinvestment in remote monitors. We currently have around 450 monitors installedto warn of high or unusual flows, so that we can take action to preventspillages and flooding. NWL is working with other stakeholders in the region to reduce flooding andimprove the way flooding incidents are managed. Regular meetings with localauthorities, local residents groups and the Consumer Council for Water(CCWater), the independent body which represents customer interests, have helpedto improve communication with affected communities. In 2006/07, the number of properties flooded from sewers was 314, about the longterm average. As a result of investment in improving the sewerage system, 129properties were removed from the register of properties at risk of floodingduring 2006/07. This takes the total to 228 properties, effectively deliveringthree years' outputs in two years. During the year, 98 sewerage overflows have been improved. This will improvelocal water courses, enhance their visual appearance and reduce pollutionincidents. Domestic customers NWL is committed to providing a high standard of customer service that meets theexpectations of both customers and regulators. Based on information provided to Ofwat for 2006/07, NWL should remain in the topcategory for each Ofwat level of service indicator, with the exception of DG3,which covers unplanned interruptions to supply. Performance here was affectedby two major bursts, one in Middlesbrough on Teesside and one in Bedlington inNorthumberland. Although there has been a rise in written and telephone contacts, partly due tothese bursts, the Customer Centre still responded to 99.9% of written complaintswithin ten working days. During 2006/07, the total number of written complaintsreceived was 11,496. The increase, when compared to 2005/06, can be attributedto heightened national media interest in water shortages and leakage levelsalong with the large operational incidents in our northern operating area.Greater levels of debt recovery activity have also generated more responses fromour customers regarding billing arrears. CCWater formally reviews the quality of complaints handling. During this processthey audit procedures, track samples of complaints' correspondence through oursystems and assess the quality of our responses. In 2006/07, 100% of allnorthern complaints and 80% of all southern complaints were rated as 'good'. Despite regional socio-economic characteristics, and increases in levels ofwater and sewerage charges during the year, NWL has maintained its collectionrates, supported by its successful initiative to encourage as many customers aspossible to use direct debit. This still proves to be the most efficient way tocollect payment for bills. Business customers NWL has continued to develop its commercial business with major companies in theregion. Solvent Resource Management Ltd at its site in Sunderland, is recoveringand recycling used solvents. Effluent from this process is now being deliveredfor treatment at Hendon STW. Biofuels Corporation, the developer of Europe's largest biodiesel plant at SealSands on Teesside, is now transferring effluent to Bran Sands effluent treatmentworks. Biofuels Corporation produces 250,000 tonnes of biodiesel a year at SealSands from renewable vegetable crops. NWL also supplies the company with waterservices. Corus has benefited from these effluent treatment services since 1998. NWL hassuccessfully completed modifications to Bran Sands so that it can undertakeadditional effluent treatment for Corus. This has extended the long termrelationship between the two companies. Regulation We are working with the EA to consider the drivers for investment beyond 2010,including the Water Framework Directive (WFD). The quality of rivers and bathingwaters in the north east is among the best in the country and our initial viewis that the investment required to comply with the WFD will be less than in manyother regions. Nutrient removal, particularly phosphates, is likely to be animportant factor, with ammonia also requiring attention in some cases. In orderto achieve a cost effective programme and meet the "polluter pays" principle,other sources of these pollutants must also be addressed. Removing the source ofthe problem, for example, by changing farming or land management practice, maybe cheaper but could take longer to deliver. We need to ensure that 'end ofpipe' solutions are not viewed as an easy option. CCWater is also fully engagedin work with the EA and other stakeholders to achieve a sustainable, coordinatedapproach to achieving environmental objectives. It will be increasingly important to ensure an appropriate balance betweenmarginal improvements in river quality and the energy, concrete and chemicalsrequired to achieve this. In some cases the increased carbon footprint mayoutweigh the environmental benefit. We are participating in the Northumbria River Basin Liaison Panel which isdeveloping the plan to meet the WFD in the north east. This panel is currentlyconsidering the Significant Water Management Issues (SWMIs) for the region.Action plans to address the SWMIs will be a key element of the programme ofmeasures to be agreed by 2008. We have applied to the EA to have the consents for six coastal STWs amended.These works discharge highly treated effluent through long sea outfalls. Thefinal stage of treatment, ultraviolet (UV) disinfection, is energy intensive,contributing to significant CO2 emissions. Our modelling concludes that bathingwaters in the vicinity would meet not only EU Mandatory but also the stricterGuideline Standard, without UV treatment. We have applied to restrict UVapplication to summer months. This application raises important issues aboutachieving the right environmental balance and we await a decision. An important step leading up to the next price review in 2009 is NWL's StrategicDirection Statement. This is now being prepared and will outline a 25 yearvision for the company, as well as key objectives for the next five years. TheStatement will be published in the autumn and will be used as the basis for astakeholder consultation exercise in each of our operating areas, which will inturn help inform the periodic review of prices in 2009. Employees One of the strengths of NWL is employee loyalty, evidenced by the fact thatemployee turnover is relatively low at 8.2%, well below the UK water industryaverage of 10.3%. NWL continues to seek the views of employees. This year's survey was completedby 56%, an increase of 7%, who gave their views on their working life, training,communications, managers and the company. The results were reported back to allemployees and discussed with representative bodies. Overall, employeesatisfaction levels remain very high with over 72% of respondents stating theyare proud to work for the company. We continue to develop programmes to promote healthy eating and discouragesmoking in our workforce and offer excellent health screening and medicalinsurance schemes. Around 1,700 employees have been through our health screeningand fitness standards programmes, both of which now include lifestyle adviceelements. The success of these programmes has helped reduce NWL's total sicknessabsence rate to 3.01%, which is well below the sector norm. Water and waste water contracts Revenue for the Group's water and waste water contracts was £37.0 million forthe year to 31 March 2007 (2006: £26.4 million) and profit on ordinaryactivities before interest was £11.9 million (2006: £1.8 million). Thisperformance includes an additional credit of £3 million in respect of gasindexation on tariffs. This is not expected to be repeated in 2007/08. The Group is a member of two consortiums delivering private finance initiativecontracts with Scottish Water for waste water treatment. At Levenmouth, wherethe Group has a 75% shareholding in both project and operating companies, theeffluent treatment plant is delivering against discharge consent conditions.Practical completion of the odour treatment and sludge drying facilities hasbeen achieved and commissioning and performance testing has been completed. At Ayrshire, the Group has a 75% shareholding in the project company and a 100%shareholding in the operating company. The three effluent treatment plants thatmake up this contract continue to perform satisfactorily. In Ireland, the Group is part of a contractual consortium that designed andbuilt a waste water treatment plant for Cork City Council. Under the consortiumagreement, the Group has responsibility for the operation and maintenance of theplant. AquaGib Limited, two thirds owned by the Group in joint venture with theGovernment of Gibraltar, operates Gibraltar's dual drinking water and sea waterdistribution systems under its long term contract with the Government ofGibraltar. Related services The Group's non-water companies' revenue was £10.0 million (2006: £28.8 million)of which £nil (2006: £19.2 million) was in respect of discontinued operations.Profit on ordinary activities before interest was £0.3 million (2006: £16.4million), of which £nil (2006: £15.8 million) was in respect of discontinuedoperations. The Group has sustained its focus on core competencies and mergedthe business of AES with NWL on 31 March 2007. We have brought togetherexpertise from the two companies and are building on existing strengths todeliver an improved service to customers. Financial calendar 20072 August AGM15 August Ex-dividend date17 August Record date14 September Final dividend payment28 November Interim results announcement19 December Ex-dividend date21 December Record date 20081 February Interim dividend payment Board appointments Sir Derek Wanless succeeded Sir Frederick Holliday as Chairman of both NWG andNWL on 27 July 2006, following Sir Fred's retirement. Alex Scott-Barrett, a non-executive director of NWL, was appointed as anindependent non-executive director of NWG on 26 September 2006. Alex isnon-executive Chairman of Suffolk Life Group plc and a non-executive director ofGeneral Capital Group plc. On 26 September 2006, Dr Simon Lyster was appointed as an independentnon-executive director of NWL. Simon is Chief Executive of LEAD International(Leadership for Environment and Development). On 17 November 2006, the Board announced the appointment of Claude Lamoureux asa non-executive director of NWG and NWL with effect from 1 December 2006. Claudeis President and CEO of the Ontario Teachers' Pension Plan Board (OTPP). Claudereplaces Ron Lepin who resigned from both boards on 1 December 2006 on leavingOTPP. OTPP holds 25% of the issued share capital of NWG and Claude is,therefore, not regarded as an independent director. Outlook The continuing impact and heightened risk of drought in the south, as aconsequence of climate change, highlight the importance of our emphasis onleakage management, water efficiency and demand management. We intend tomaintain our leading position in these areas and, alongside these, promote thescheme to increase the capacity of the Abberton reservoir. Building on past performance, the Group will continue to focus on its corebusiness of water and waste water operations to drive further improvement incustomer service and operating efficiency. John CuthbertManaging Director5 June 2007 Consolidated income statementFor the year ended 31 March 2007 Year to Year to 31.3.2007 31.3.2006 Notes £m £mContinuing operations Revenue 2 633.5 591.5 Operating costs (375.3) (355.3)Profit on ordinary activities before interest 2 258.2 236.2 Finance costs payable (127.0) (112.7)Finance income receivable 15.8 6.7Share of profit after tax of associates and jointly controlled entities 0.8 0.1Profit on ordinary activities before taxation 2 147.8 130.3- current taxation 3 (8.6) (15.6)- deferred taxation 3 (28.0) (23.6)- overseas tax 3 - (0.1)Profit for the year from continuing operations 111.2 91.0 Discontinued operations Profit for the year from discontinued operations - 15.4Profit for the year 111.2 106.4 Attributable to:Equity shareholders of the company 110.9 105.9Minority interests 0.3 0.5 111.2 106.4 Basic earnings per share for profit attributable to ordinary equity holders of the 5 21.42p 20.45pparentDiluted earnings per share for profit attributable to ordinary equity holders of the 5 21.38p 20.42pparentBasic earnings per share for profit from continuing operations attributable toordinary equity holders of the parent 5 21.42p 17.48pDiluted earnings per share for profit from continuing operations attributable toordinary equity holders of the parent 5 21.38p 17.45pAdjusted earnings per share for profit from continuing operations attributable toordinary equity holders of the parent (excluding deferred tax, amortisation of debtfair value and IAS 39 adjustments) 5 24.95p 19.52pOrdinary final dividend proposed per share 4 7.52p 7.04pSpecial dividend paid per share 4 - 2.82pDividend paid per share 4 10.79p 10.65p Consolidated statement of recognised income and expenseFor the year ended 31 March 2007 Year to Year to 31.3.2007 31.3.2006 £m £mActuarial gains 25.0 52.7Losses on cash flow hedges - (3.8)Gains on cash flow hedges 2.4 1.0Tax on items charged or credited to equity (7.5) (15.6)Translation differences (0.2) -Total income and expense recognised in equity 19.7 34.3Transferred to the income statement on cash flow hedges (2.9) -Profit for the year 111.2 106.4Total recognised income and expense 128.0 140.7 Attributable to:Equity shareholders of the Company 127.7 140.2Minority interests 0.3 0.5 128.0 140.7 Consolidated balance sheetAs at 31 March 2007 31.3.2007 31.3.2006 Notes £m £mNon-current assetsGoodwill 3.6 3.7Other intangible assets 64.2 64.2Property, plant and equipment 3,119.9 2,985.6Investments in jointly controlled entities 3.6 3.6Financial assets 18.0 20.1Pension asset 42.7 -Other investments 0.2 0.3 3,252.2 3,077.5Current assetsInventories 3.7 3.3Trade and other receivables 124.5 111.6Cash and cash equivalents 316.9 176.6 445.1 291.5Total assets 3,697.3 3,369.0Non-current liabilities Interest bearing loans and borrowings 2,382.1 1,972.9Provisions 2.9 3.1Deferred income tax liabilities 531.2 495.6Pension liability - 3.7Other payables 10.0 10.6Grants 193.3 179.3 3,119.5 2,665.2Current liabilitiesInterest bearing loans and borrowings 34.5 236.7Provisions 0.2 0.3Trade and other payables 165.6 156.3Income tax payable 4.4 9.7 204.7 403.0Total liabilities 3,324.2 3,068.2Net assets 373.1 300.8 Capital and reservesIssued capital 6 51.9 51.9Share premium reserve 6 446.5 446.5Cash flow hedge reserve 6 1.0 1.5Treasury shares 6 (1.3) (1.7)Retained earnings 6 (126.7) (198.9)Equity shareholders' funds 371.4 299.3Minority interests 6 1.7 1.5Total capital and reserves 373.1 300.8 Consolidated cash flow statementFor the year ended 31 March 2007 Year to Year to 31.3.2007 31.3.2006 £m £mOperating activitiesReconciliation of profit before interest to net cash flows from operatingactivitiesProfit on ordinary activities before interest 258.2 236.2Profit before interest on discontinued operations - 1.2Depreciation and other similar non-cash charges 92.9 88.4Other non-cash charges (6.2) (4.8)Net charge for provisions, less payments (0.3) (0.5)Difference between pension contributions paid and amounts recognised inthe income statement 4.4 2.8Increase in inventories (0.4) (2.6)(Increase)/decrease in trade and other receivables (13.6) 4.0Increase/(decrease) in trade and other payables 0.9 (9.7)Cash generated from operations 335.9 315.0Advance contributions in respect of retirement benefits (25.8) (22.8)Net interest paid (124.7) (119.7)Income taxes paid (14.6) (6.5)Net cash flows from operating activities 170.8 166.0 Investing activitiesInterest received 12.5 4.1Capital grants received 18.8 21.4Purchase of subsidiary undertaking (net of cash acquired) - 2.4Proceeds on disposal of subsidiary undertakings - 18.6Proceeds on disposal of property, plant and equipment 2.2 2.0Dividends received from jointly controlled entities 0.9 0.8Purchase of property, plant and equipment (211.4) (206.7)Other cash items - 0.2Net cash flows from investing activities (177.0) (157.2) Financing activitiesNew borrowings 425.0 210.2New loans issued - (2.1)Maturity of investments 2.1 2.0Settled hedge instruments 3.4 (3.7)Issue costs of new borrowings (0.4) (1.4)Own shares purchased (0.2) (0.8)Dividends paid to minority interests (0.1) (0.3)Dividends paid to equity shareholders (55.8) (69.7)Repayment of borrowings (201.1) (46.6)Payment of principal under hire purchase contracts and finance leases (4.8) (4.7)Net cash flows from financing activities 168.1 82.9 Increase in cash and cash equivalents 161.9 91.7Cash and cash equivalents at start of year 153.9 62.2 Cash and cash equivalents at end of year 315.8 153.9 Net cash flow in respect of discontinued operationsCash consideration - 29.8Cash 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 March2007 on 5 June 2007. The financial information set out above does notconstitute the Group's statutory financial statements for the year ended 31March 2007, or for the year ended 31 March 2006, within the meaning of Section240 of the Companies Act 1985. The financial information is based on theaudited statutory financial statements for the year ended 31 March 2007, uponwhich the auditors have issued an unqualified audit opinion. The financial statements for the year ended 31 March 2006 have been delivered tothe Registrar of Companies. The financial statements for the year ended 31March 2007 will be sent to shareholders and delivered to the Registrar ofCompanies in due course. They will also be available at the Registered Officeof 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 IFRSas adopted by the European Union as it applies to the financial statements ofthe Group for the year ended 31 March 2007 and in accordance with the CompaniesAct 1985. 2. Segmental analysis of revenue and profit on ordinaryactivities before interest Revenue Total Northumbrian Water & revenue from Water waste water Related Discontinued continuing Limited contracts services Total operations operations £m £m £m £m £m £m Year ended 31 March 2007 Segment revenue 586.5 37.0 25.3 648.8 - 648.8Inter segment revenue - - (15.3) (15.3) - (15.3)Revenue to external customers 586.5 37.0 10.0 633.5 - 633.5 Year ended 31 March 2006 Segment revenue 555.5 28.4 53.3 637.2 (28.5) 608.7Inter segment revenue - (2.0) (24.5) (26.5) 9.3 (17.2)Revenue to external customers 555.5 26.4 28.8 610.7 (19.2) 591.5 Profit on ordinary activities beforeinterest Total profit Northumbrian Water and from Water waste water Related Discontinued continuing Limited contracts services Total operations operations £m £m £m £m £m £m Year ended 31 March 2007 Segment profit before interest 242.6 11.9 0.3 254.8 - 254.8Central unallocated costs andprovisions 3.4 Profit on ordinary activitiesbefore interest 258.2Net finance costs (111.2)Share of profit from associatesand jointly controlled entities 0.8 Profit on ordinary activitiesbefore taxation 147.8Taxation (36.6) Profit for the year fromcontinuing operations 111.2 Year ended 31 March 2006 Segment profit before interest 234.6 1.8 16.4 252.8 (15.8) 237.0Central unallocated costs andprovisions (0.8) Profit on ordinary activitiesbefore interest 236.2Net finance costs (106.0)Share of profit from associatesand jointly controlled entities 0.1 Profit on ordinary activitiesbefore taxation 130.3Taxation (39.3) Profit for the year fromcontinuing operations 91.0 The profit disclosed in 2006 as discontinued operations is included in the result of related services andcomprises a trading profit £1.2 million and a gain on disposal of £14.6 million. 3. Taxation Year to Year to 31.3.2007 31.3.2006 £m £mCurrent tax:UK corporation tax - continuing operations 21.0 16.3 - discontinued operations - 0.6 - income tax reported in equity 0.1 - - adjustment in respect of prior periods (12.5) (0.7)Overseas tax - 0.1Total current tax 8.6 16.3 Deferred tax:Origination and reversal of temporary differences in the yearDeferred tax - continuing operations 21.0 22.5 - discontinued operations - 0.1 - income tax reported in equity (0.1) - - adjustment in respect of prior periods 7.1 1.1Total deferred tax 28.0 23.7 Tax charge in the income statement 36.6 40.0 The tax charge in the income statement is disclosed as follows:Tax expense on continuing operations 36.6 39.3Tax expense on discontinued operations - 0.7 36.6 40.0 4. Dividends paid and proposed A final ordinary dividend payment of 7.52 pence per ordinary share will berecommended by the Board to shareholders at the AGM scheduled for 2 August 2007.If approved, the final dividend will be paid on 14 September 2007 toshareholders whose names appear on the Company's Register of Members at theclose of business on 17 August 2007. Together with the ordinary interim dividendof 3.75 pence per ordinary share, the total ordinary dividend for the year willbe 11.27 pence per ordinary share. Year to Year to 31.3.2007 31.3.2006 £m £mDeclared and paid during the year:Equity dividends on ordinary shares:Final dividend for 2005/06: 7.04p (2004/05: 7.13p) 36.4 36.9Interim dividend for 2006/07: 3.75p (2005/06: 3.52p) 19.4 18.2Special dividend for 2006/07: nil (2005/06: 2.82p) - 14.6Dividends paid 55.8 69.7 Proposed for approval by shareholders at the AGM:Final dividend for 2006/07: 7.52p (2005/06: 7.04p) 39.0 36.5 5. Earnings per share Basic earnings per share (EPS) is calculated by dividing the profit attributableto ordinary equity holders of the parent by the weighted average number ofordinary shares in issue during the year. Treasury shares held are excluded fromthe weighted average number of shares for basic EPS. EPS for continuingoperations is also disclosed. Weighted Weighted average average number of Earnings number of Earnings Earnings shares per share Earnings shares per share 31.3.2007 31.3.2007 31.3.2007 31.3.2006 31.3.2006 31.3.2006 £m million pence £m million pence Net profit attributable to equity holders ofthe parent - continuing operations 110.9 517.7 21.42 90.5 517.9 17.48Net profit attributable to equity holders ofthe parent - discontinued operations - - 15.4 2.97Basic EPS 110.9 517.7 21.42 105.9 517.9 20.45 The weighted average number of shares for diluted EPS is calculated by includingthe treasury shares held. Weighted Weighted average average number of Earnings number of Earnings Earnings shares per share Earnings shares per share 31.3.2007 31.3.2007 31.3.2007 31.3.2006 31.3.2006 31.3.2006 £m million pence £m million pence Net profit attributable to equity holders ofthe parent - continuing operations 110.9 518.6 21.38 90.5 518.6 17.45Net profit attributable to equity holders ofthe parent - discontinued operations - - 15.4 2.97Diluted EPS 110.9 518.6 21.38 105.9 518.6 20.42 Adjusted EPS is considered by the directors to give a better indication of theGroup's underlying performance due to the non-cash nature of the adjusted itemsand is calculated as follows: Weighted Weighted average average number of Earnings number of Earnings Earnings shares per share Earnings shares per share 31.3.2007 31.3.2007 31.3.2007 31.3.2006 31.3.2006 31.3.2006 £m million pence £m million pence Basic EPS 110.9 517.7 21.42 90.5 517.9 17.48 Deferred tax 28.0 5.41 23.6 4.55Amortisation of debt fair value (7.7) (1.49) (13.0) (2.51)IAS 39 derivatives (2.0) (0.39) - -Adjusted EPS 129.2 517.7 24.95 101.1 517.9 19.52 6. Reconciliation of movements in equity Equity Share Cash flow share premium hedge Treasury Currency Retained Total Minority capital reserve reserve shares translation earnings equity interests Total £m £m £m £m £m £m £m £m £m At 1 April 2006 51.9 446.5 1.5 (1.7) - (198.9) 299.3 1.5 300.8Shares purchased - - - (0.2) - - (0.2) - (0.2)Total recognisedincome and expensefor the year - - (0.5) - (0.2) 128.4 127.7 0.3 128.0Share-based payment - - - - - 0.4 0.4 - 0.4Exercise of LTIPawards - - - 0.6 - (0.6) - - -Equity dividends paid - - - - - (55.8) (55.8) (0.1) (55.9)At 31 March 2007 51.9 446.5 1.0 (1.3) (0.2) (126.5) 371.4 1.7 373.1 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Natwest