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Mid Kent Wtr4% | LSE:48HO | London | Debenture |
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RNS Number:6530L Mid Kent Holdings PLC 5 June 2000 MID KENT HOLDINGS PLC 2000 PRELIMINARY RESULTS For the year to 31 March 2000 Record Pre-tax profits up 7% to #19.6m; Final Dividend of 21.78p Strong performance from non-regulated activities Mid Kent Holdings plc ("Mid Kent"), parent of utility Mid Kent Water and with growing related scientific services and consultancy businesses, announces record Preliminary Results for the year ended 31 March 2000. Highlights * Turnover of #56.3m (1999: #46.7m) +20.8% - Water supply and related activities: #43.1m +5.2% - Eclipse Scientific: #6.8 m +6.5% - Inenco (consultancy): #6.5m n/a * Operating profits of #20.0m (1999: #18.6m) +7.7% - Water Supply and related activities: #18.1m (1999: #17.3m) - Eclipse Scientific: #0.9m (1999: #1m) - Inenco (5 months): #0.9m (1999: n/a) before goodwill write- off of 0.2m * Profit on disposal of properties of #0.8m (1999: #0.4m) * Pre-tax profits of #19.6m (1999: #18.3m) +7.1% * Underlying earnings per share of 80.0p (1999: 76.2p) +5.0% * Recommended final dividend of 21.78p (1999: same) but with 25% - reduction expected in current year due to Water Price Determination * Result of Appeal to Competition Commission against Regulator's price determination expected in August * Net capital expenditure #18.6m (1999: #16.7m) * Year-end debt at #21.6m (gearing 23%) Mr. Robert Leigh, Mid Kent Chairman, said in his statement to shareholders: "It is pleasing to note that our policy of diversification into areas which have a logical fit with our core business, or which can be linked to and develop our core skills, is starting to bring its rewards. Next year I expect our operating profit from non-regulated activities to increase..thus reducing the Group's exposure to regulation and widening the scope for future profit and dividend growth." He added: "Your Company has a strong balance sheet which positions us well to manage the significant further investment required in the Water Company's infrastructure and operating plant.. We will persist in our efforts to explore all possible avenues for maximising shareholder value." Enquiries: Geoff Baldwin, Chief Executive, Mid Kent Holdings plc Bob Atwood, Group Finance Director, Mid Kent Holdings plc Tel: 020 7786 9600 today only, thereafter 01634 873 000 Paul Vann, Binns & Co PR Ltd 020 7786 9600 Chairman's Statement Results It is pleasing to report another record year with profits before tax up by 7.1% to #19.6m. Group turnover increased by more than 20% to #56.3m, revenues from existing operations increasing by 6.8%, and #6.5m sales included from Inenco, the utility consultancy which we acquired at the beginning of November last year. Out of total operating profits of #20.0m (1999 : #18.6m), #1.9m (1999 : #1.3m) derives from activities outside those related to water supply. This proportion will increase again next year as water revenues decrease following the price determination, and a full year's trading is included for Inenco. Earnings per share have reduced from 91.2p to 84.0p, mainly as a result of the increased tax burden foreseen last year. Underlying earnings, when adjusted for Competition Commission costs, asset sale profits and last year's exceptional tax credit, have increased by 5.0% from 76.2p to 80.0p per share. Dividend As I indicated at the half year review, your Board will propose at the Annual General Meeting, a final dividend of 21.78p, which together with the interim dividend of 14.52p makes a total of 36.3p for the year. This retains the total at the same level as the previous year except for the 0.25p added last year as compensation for the delayed interim payment. Water supply and related activities Income in this area increased by 5.2% to #43.1m. Water prices increased by their permitted maximum of just over 4%, with additional revenue being generated from growth and from related activities. Operating profits increased by 4.6% to #18.1m, after absorbing extra costs in respect of the supply incident at Kemsing, and our appeal to the Competition Commission in respect of the Regulator's determination concerning prices. The Water Company continued with its heavy investment programme during the year, the gross cash spent by the Group on tangible fixed asset additions increasing from #20.8m to #26.0m, most of which related to the Water Company. Related activities continued to develop well, good progress being made with our plumbing and pipeworks operations. Similarly, activities relating to mains diversions, chiefly resulting from the Channel Tunnel Rail Link, and to new housing developments, have also increased, with our first multi-utility contract already under way. Several months ago, I announced that the Water Company was concerned that the Regulator had given inadequate consideration to the particular demographic and water resource characteristics of its area, implying increased risk to its operations and to its customers in terms of continuity and quality of supply, and had therefore appealed to the Competition Commission against its final price determination. The results of this process are expected in August, and I will ensure that you are kept informed. Further costs in respect of this appeal will be incurred during the current year. Continuing efficiencies within the Water Company have enabled the further release of now redundant operational properties, resulting in disposal profits of #0.8m (1999 : #0.4m) in the year. Scientific Services Our newly formed Eclipse Scientific Group has now completed a full year with all its acquisitions fully incorporated into a single integrated unit, managed centrally from its principal offices in Chatteris near Cambridge. Total sales have increased by 6.5% to #6.8m, which includes the full year effect of the acquisition of Voelcker Science in October 1998. Sales to external customers have increased to 88% (1999 : 82%) of the Scientific Group's activities. Operating profits have declined marginally to #0.9m (1999 : #1.0m) due partly to an increase in competition affecting both prices and margins, and partly to our further investment in sales and marketing skills. While the increase in competition caused a temporary loss of customers, it is pleasing to report that the Scientific Group's policy of putting quality and service first has encouraged a return of a significant number of those customers. Volumes increased markedly towards the end of the year. Consultancies At the beginning of November last year we acquired Inenco, a consultancy specialising in utility tariff and cost control services to industrial and commercial clients. Covering consultancy in electricity, gas, communications and water consumption together with the sale of diesel fuel to fleet operators, it has contributed #6.5m sales and #0.7m operating profit (after goodwill write off of #0.2m) in the five months since acquisition. We are pleased with these results which are in line with our expectations, and additionally we have already developed a number of interesting synergistic opportunities with other parts of the Mid Kent Group. We are continuing to grow our engineering consultancy venture with Halcrow and to increase the proportion of third party work obtained. For the first time this year, and in order to give more visibility to our non-regulated activities, we have shown the results of this enterprise separately as part of our consultancy activities. The venture earned more than #3.0m fees in the year and grew its operating profits by 34.6% to #0.3m. Financing and outlook As I have already announced, the overall level of profit of the Group will be reduced next year following the Regulator's imposed reduction in water prices, against which we have appealed to the Competition Commission. Whatever the outcome of our appeal, the reduced profit in Mid Kent Water will necessitate a reduction in dividend levels in order to maintain appropriate dividend cover. I have already announced an expected reduction of 25% next year to reflect this. However your Company has a strong balance sheet with limited borrowings, which positions us well to manage the significant further investment which we believe will be required in the Water Company's infrastructure and operating plant. For the present we propose to continue to finance our capital expenditure requirements through our existing bank facilities. It is also pleasing to note that our policy of diversification into areas which have a logical fit with our core business, or which can be linked to and develop our core skills, is starting to bring in rewards. Next year I expect our operating profit from non-regulated activities to increase both in absolute terms and as a proportion of the total, thus reducing the Group's exposure to regulation, and widening the scope for future profit and dividend growth. Our announcement of 27 April referred to discussions concerning a possible restructuring of the Company, subject to regulatory consent, designed to release capital to shareholders. At the time of writing, these discussions continue, but whether or not they result in a transaction being completed, we will persist in our efforts to explore all possible avenues for maximising shareholder value. R S Leigh Chairman GROUP PROFIT AND LOSS ACCOUNT Year ended 31 March 2000 1999 #000 #000 Turnover Existing operations 49,846 46,665 Acquisitions 6,502 - ---------- ---------- 56,348 46,665 Operating costs 36,331 28,080 ---------- ---------- Operating profit Existing operations 19,292 18,585 Acquisitions 725 - ---------- ---------- 20,017 18,585 Profit on sale of fixed assets 838 387 ---------- ---------- Profit on ordinary activities before interest 20,855 18,972 Interest receivable - 51 Interest payable and similar charges (1,302) (759) ---------- ---------- Profit on ordinary activities before taxation 19,553 18,264 Tax on profit on ordinary activities 4,862 2,499 ---------- ---------- Profit on ordinary activities after taxation 14,691 15,765 Minority interests 161 16 ---------- ---------- Profit for the year 14,530 15,749 Ordinary dividends 6,263 6,332 ---------- ---------- Retained profit for the year 8,267 9,417 ---------- ---------- Earnings per ordinary share Adjusted 80.0p 76.2p ---------- ---------- Basic 84.0p 91.2p ---------- ---------- Diluted based on unadjusted profit for the year 83.5p 89.3p ---------- ---------- Dividends per ordinary share 36.30p 36.55p ---------- ---------- All recognised gains and losses are included in the profit and loss account for the year. GROUP BALANCE SHEET At 31 March 2000 1999 #000 #000 Fixed assets Goodwill 10,886 279 Tangible assets 129,060 114,567 Investments 701 458 ---------- ---------- 140,647 115,304 ---------- ---------- Current assets Stocks 1,962 582 Debtors 11,137 7,757 Investments 3 9 Cash at bank and in hand 2 209 ---------- ---------- 13,104 8,557 Creditors: amounts falling due within one year 53,227 32,116 ---------- ---------- Net current liabilities (40,123) (23,559) ---------- ---------- Total assets less current liabilities 100,524 91,745 Creditors: amounts falling due after more than one year 4,988 4,817 ---------- ---------- Net assets 95,536 86,928 ---------- ---------- Capital and reserves Attributable to equity interests Called up share capital 17,421 17,352 Share premium account 10,332 10,108 Capital redemption reserve 7,000 7,000 Profit and loss account 60,618 52,351 ---------- ---------- Shareholders' funds 95,371 86,811 Minority interests 165 117 ---------- ---------- Capital employed 95,536 86,928 ---------- ---------- GROUP CASH FLOW STATEMENT Year ended 31 March 2000 1999 #000 #000 Net cash inflow from operating activities 28,948 24,851 Returns on investments and servicing of finance (1,059) (698) Taxation (3,965) (3,334) Capital expenditure (17,076) (16,246) Acquisitions and disposals (11,979) (965) Equity dividends paid (8,824) (3,424) ---------- ---------- Cash (outflow)/inflow before use of liquid resources and financing (13,955) 184 Management of liquid resources - 1,000 Financing 12,233 209 ---------- ---------- (Decrease)/increase in cash (1,722) 1,393 ---------- ---------- Liquid resources were term deposits with under one year maturity. NOTES 1. Basis of preparation (i) The financial information included within this statement has been prepared on the basis of accounting policies consistent with those set out in the Report and Accounts for the year ended 31 March 1999, with the exception that, in accordance with FRS15, the Group has adopted a policy of non-capitalisation of interest. Interest capitalised in previous years is not considered to be material. (ii) The information shown for the years ended 31 March 2000 and 31 March 1999 does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 and has been extracted from the full accounts for the years ended 31 March 2000 and 31 March 1999 respectively. The reports of the auditors on those accounts were unqualified and did not contain a statement under either Section 237(2) or Section 237(3) of the Companies Act 1985. The accounts for the year ended 31 March 1999 have been filed with the Registrar of Companies. The accounts for the year ended 31 March 2000 will be delivered to the Registrar of Companies in due course. (iii) The financial information included in this statement was approved by the Board on 5 June 2000. 2. Segmental analysis by class of business Goodwill amorti- Operating Net Turnover Profit sation profit assets #000 #000 #000 #000 #000 Year ended 31 March 2000 Water supply and related activities 43,146 18,127 (1) 18,126 91,167 ------- ------- ------- ------- ------- Scientific services 6,784 900 (14) 886 2,742 ------- ------- ------- ------- ------- Consultancies - Utilities 6,502 946 (221) 725 1,042 - Engineering 3,031 280 - 280 585 ------- ------- ------- ------- ------- 9,533 1,226 (221) 1,005 1,627 ------- ------- ------- ------- ------- Inter-segment (3,115) - - - - ------- ------- ------- ------- ------- 56,348 20,253 (236) 20,017 95,536 ------- ------- ------- ------- ------- Year ended 31 March 1999 Water supply and related activities 41,029 17,333 - 17,333 83,915 Scientific services 6,369 1,050 (6) 1,044 2,695 Consultancies - Engineering 2,590 208 - 208 318 Inter-segment (3,323) - - - - ------- ------- ------- ------- ------- 46,665 18,591 (6) 18,585 86,928 ------- ------- ------- ------- ------- Sales outside the United Kingdom were not material. The reported segments have been revised in order to show the results of the Group's consultancy businesses as a separate activity. The results of Inenco, which was acquired during the year, have been shown as part of the new Consultancies segment, against the description "Utilities". 3. Corporation tax Year ended 31 March 2000 1999 #000 #000 Corporation tax at 30% (1999: 31%) 4,875 4,803 Advance corporation tax previously written off, recovered - (2,207) Over provision in previous years (13) (97) ---------- ---------- 4,862 2,499 ---------- ---------- The change in the effective tax rate from the prior year is mainly due to the full recovery last year of all remaining advance corporation tax available for offset. 4. Dividends A final dividend of 21.78p per ordinary share is proposed in respect of the year ended 31 March 2000. The dividend will be paid on 3 August 2000 to shareholders on the register on 14 July 2000. The final dividend is in addition to the interim dividend of 14.52p, already paid, making a total of 36.30p for the year. This compares with a final dividend last year of 21.78p and an interim dividend of 14.77p, which included 0.25p enhancement in respect of its delayed payment, making a total of 36.55p for that year. 5. Acquisition On 5 November 1999, the Company acquired the entire share capital of Inenco Limited. The consideration, including fees and amounts contingent upon trading performance during the period from 1 May 1999 to 31 March 2002, was #11,260,000. The directors' provisional assessment of the fair value of the assets acquired was #433,000 (see below). No accounting policy adjustments were made. Book value Fair value Fair adjustment value #000 #000 #000 Tangible fixed assets 2,123 - 2,123 Stocks & Work in progress 881 - 881 Debtors 2,704 (47) 2,657 -------- -------- ------- 5,708 (47) 5,661 Creditors (5,228) - (5,228) -------- ------- ------- Net assets 480 (47) 433 -------- -------- Goodwill arising on acquisition 10,827 ------- 11,260 ------- Discharged by: Cash 9,768 Costs associated with acquisition 230 -------- 9,998 Unsecured loan notes 962 Deferred consideration 300 ------- 11,260 ------- Goodwill arising on the acquisition has been capitalised and will be amortised over its useful economic life, which is considered by the directors to be twenty years. 6. Earnings per ordinary share Earnings per ordinary share are calculated as follows: Year ended 31 March 2000 1999 #000 #000 Profit for the year 14,530 15,749 Competition Commission referral costs 205 - Related tax effect (62) - Profit on the sale of fixed assets (838) (387) Effect of non-recurring advance corporation tax write back - (2,207) ---------- ---------- Adjusted earnings 13,835 13,155 ---------- ---------- Number Number 000 000 Weighted average number of ordinary shares in issue 17,300 17,265 Dilutive effect of options and warrants 98 368 ---------- ---------- Average number of potential shares outstanding 17,398 17,633 ---------- ---------- Adjusted 80.0p 76.2p Basic 84.0p 91.2p Diluted based on unadjusted profit for the year 83.5p 89.3p ---------- ---------- An adjusted earnings per share is presented to provide a consistent view of underlying earnings trends. 7. Reconciliation of operating profit to operating cashflow Year ended 31 March 2000 1999 #000 #000 Operating profit 20,017 18,585 Depreciation charge 7,056 6,250 Amortisation of goodwill 236 6 Increase in stocks (500) (59) Increase in debtors (1,051) (1,434) Increase in creditors 3,190 1,503 ---------- ---------- 28,948 24,851 ---------- ---------- 8. Analysis of cash flows for headings netted in cash flow statement Year ended 31 March 2000 1999 #000 #000 Returns on investments and servicing of finance Interest received - 51 Interest paid (1,036) (724) Interest element of finance lease rental payments (21) (24) Dividends paid to minority interests (2) (1) ---------- ---------- (1,059) (698) ---------- ---------- Capital expenditure Purchase of tangible fixed assets (26,010) (20,832) Contributions to infrastructure assets 7,409 4,159 Sale of tangible fixed assets 1,525 427 ---------- ---------- (17,076) (16,246) ---------- ---------- Acquisitions and disposals Purchase of subsidiary undertakings (9,998) (588) Overdraft acquired with subsidiary undertaking (1,950) - Cash acquired with subsidiary undertaking - 3 Purchase of shares from minority interest (31) (3) Closure of business - (377) ---------- ---------- (11,979) (965) ---------- ---------- Financing Issue of ordinary share capital 293 262 Capital element of finance lease rental payments (60) (53) Increase in unsecured loans 12,000 - ---------- ---------- 12,233 209 ---------- ---------- Inenco utilised #119,000 of the Group's net operating cash flows, paid #63,000 in respect of net returns on investment and servicing of finance, paid #477,000 in respect of taxation and utilised #31,000 for capital expenditure in the year. 9. Analysis of net debt At Other At 1 April non-cash 31 March 1999 Acquisition transactions Cashflow 2000 #000 #000 #000 #000 #000 Cash in hand and at bank 209 - - (207) 2 Overdrafts (2,305) - - (1,515) (3,820) ------- ------- ------- ------- ------- (2,096) - - (1,722) (3,818) Unsecured loans - - - (12,000) (12,000) Finance leases (238) (182) - 60 (360) Unsecured loan notes - - (962) - (962) Debenture stock (4,461) - - - (4,461) ------- ------- ------- ------- ------- (6,795) (182) (962) (13,662) (21,601) ------- ------- -------- ------- ------- 10. Reconciliation of net cash flow to movement in net debt Year ended 31 March 2000 1999 #000 #000 (Decrease)/increase in cash in the year (1,722) 1,393 Cash inflow from change in liquid resources - (1,000) ---------- ---------- (1,722) 393 Cash inflow from unsecured loans (12,000) - Cash outflow from lease repayments 60 53 ---------- ---------- Change in net debt resulting from cash flows (13,662) 446 Finance leases acquired with subsidiary (182) (14) Unsecured loan notes issued (962) - ---------- ---------- Movement in net debt in the year (14,806) 432 Net debt at 1 April 1999 (6,795) (7,227) ---------- ---------- Net debt at 31 March 2000 (21,601) (6,795) ---------- ---------- Part of the consideration for the acquisition of Inenco Limited comprised unsecured loan notes. Further details are given in note 5. 11. Annual General Meeting The Annual General Meeting of the Company will be held at 11.30 am on Wednesday 26 July 2000 at the Hop Farm Country Park, Paddock Wood, Kent. Copies of the Annual Report and Accounts of the Company for the year ended 31 March 2000 will be posted to shareholders on 26 June 2000. Further copies will be available from the Company's registered office at Snodland, Kent, ME6 5AH. END FR FTMMTMMJMTBM
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