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RNS Number : 8479Y
South East Water Limited
11 July 2008
South East Water Limited
Preliminary results
for the year to 31 March 2008
Chairman's Statement
I am pleased to present my report for the year which saw the merging of the South East Water (SEW) and Mid Kent Water (MKW) businesses.
I reported last year on the process the Company had embarked upon to achieve the merger including the Competition Commission referral and
the application to Ofwat to extend South East Water's licence to incorporate the area of operation served by Mid Kent Water. I am pleased to
report that the merger of the Companies was concluded via a statutory transfer scheme on 14 December 2007. This was a significant
achievement for all concerned and was delivered whilst service levels to customers were maintained, and in several cases, improved.
In the main body of my report I comment on some of the key activities during the year:
Merger of SEW and MKW
Whilst the legal, corporate and financing merger was achieved in December, work continued in all areas of the Company to plan for and
effect the merger of all operational, customer service and support functions. Key elements of our plan include the merging and
rationalisation of all support functions, the centralisation of the laboratory function at the Company's Frimley site and the integration
and rationalisation of the Company's IT systems.
My Board also took the significant decision to insource our Customer Service function which in the former SEW had largely been
outsourced. Significant refurbishment was undertaken at the Company's Snodland head office so that a new state of the art customer contact
centre could be built and a major recruitment and training programme was set in train. We also took the decision to complete the outsourcing
of our streetworks direct labour in the former Mid Kent Water area, in line with the working methods already used in the former SEW. A
contract was already in place between Mid Kent Water and Clancy Docrwa Ltd. and this contract was used, at the end of March 2008, as a
vehicle to transfer all relevant work and to TUPE (Transfer of Undertakings Protection of Employment) transfer the staff associated with
it.
The changes as a result of the merger have had a major impact on staff and the Company necessarily engaged in an extensive consultation
process with all our employees, Staff Councils and Trade Unions to ensure that staff were informed and could influence plans. Although we
are recruiting 80 new employees to work in Customer Services we expect that the merger and resultant changes will lead to around 100
redundancies. I would like to take this opportunity to thank all staff for the great professionalism they have shown through this period of
uncertainty and know that with such commitment and talent the Company is well placed to become the leading water company in the South East
of England.
Results
For the 12 month period ended 31 March 2008 the Group delivered an operating profit of £74.9 million (2007: £59.4 million ) on turnover
of £169.5 million (2007: £133.0 million as restated). It should be noted that due to the impact of merger accounting the 2008 results
incorporate a full year of trading of the combined business whereas the 2007 comparative includes a full year of the former South East Water
but only 6 months of the former Mid Kent Water.
Following the cessation of water restrictions in February 2007 water revenues did not show the anticipated return to previous normal
levels as the wet summer kept volumes subdued. We once again saw high levels of customers switching to metered supplies and the Company now
has a metering penetration of some 37% in its domestic customer base. We remain committed to encouraging water efficiency measures amongst
our customers and to the extension of metered supplies throughout our region
Strong cost controls remained in place but exceptional costs amounting to £3.5m were incurred as a result of the changes I have outlined
above. Whilst energy costs have largely stablilised for the current period as a result of a forward contract put in place in 2006 they are
still significantly higher than those reflected in prices and remain a concern for the future.
Capital Investment
Capital investment during the year was £86 million reflecting our strong commitment to the long-term sustainability of our business. We
are committed to improving Security of Supply for our customers and a significant portion of our programme was devoted to new resources and
improving the water transfer links across our area. We also continue to invest in the maintenance of our above and below ground assets and
to achieve our leakage targets. All of this investment allows us to maintain the high level of service we provide to our customers.
During the remaining two years of the current five year Asset Management Plan, the Group will continue with our £384 million (2008/9
prices) programme of capital investment to improve water resources, renew ageing infrastructure and deliver excellent water quality.
Water Resources
As I reported last year the Company removed hosepipe and sprinkler restrictions in February 2007 and I am pleased to report that there
has been no need to impose such restrictions since. Winter rain has been sufficient to allow average levels of recharge in most of the
Company's aquifers and above ground reservoirs are currently reporting higher than typical levels. Although there remains a small number of
sources that are close to (although above) historic minimum levels the Company is currently well-placed and the imposition of restrictions
is not envisaged.
The Company manages its Water Resources in the context of a twenty-five year planning horizon and our Draft Water Resource Plan is
currently out for consultation. The Plan includes the measures the Company wishes to take in terms of both water supply and managing water
demand which will ensure that the Company will be able to continue to meet the needs of an ever increasing customer base in the years
ahead.
The Board of South East Water
Following the merger of the businesses of South East Water and Mid Kent Water on 14 December 2007 Baroness Julia Cumberlege, Baroness
Detta O'Cathain and Keith Henry resigned from their independent non-executive board roles to be replaced by Damian Green, Charles Harries,
Graham Setterfield and Robert Weeden who had been independent non-executive directors of Mid Kent Water. At the same time Peter Taylor
(Hastings Funds Management) resigned from his non executive board role and was replaced by David Ridley and Valeria Rosati. David Ridley
resigned from the board role on 7 May 2008 to return to Australia and Tom Meinert joined the Board.
In addition the Executive members of the Board were further strengthened by the appointment of Paul Seeley as Asset Director, who had
been performing the duties of Managing Director of Mid Kent Water prior to the merger.
Prospects
I am pleased to be able to confirm that prospects for the new business are excellent. We have significant challenges ahead in the coming
year but I, along with my Board, firmly believe that the initiatives we have in place are set to deliver an efficient business that provides
an excellent level of service to our customers and a stimulating and rewarding environment for our staff.
Gordon Maxwell
Chairman
Date: 11 July 2008
Profit and loss account
For the year ended 31 March 2008
2008 2007
Restated
£000
£000
Revenue 169,460 133,033
Net operating costs - non-exceptional (97,428) (78,833)
Net operating costs - exceptional (3,471) -
Group net operating costs (100,899) (78,833)
Other income 6,290 5,221
Group operating profit 74,851 59,421
Finance costs (52,831) (38,511)
Finance income 17,390 15,278
Profit before taxation 39,410 36,188
Taxation (686) (8,558)
Profit for the year 38,724 27,630
Basic and diluted earnings per share 48.98p 54.27p
Operating profit relates to continuing operations.
The accompanying notes are an integral part of this profit and loss account.
Statement of total recognised gains and losses
For the year ended 31 March 2008
2008 2007
Restate
d
£000 £000
Profit for the year 38,724 27,630
Income and expense recognised directly in equity:
Actuarial gains/(loss) on defined benefit pension plans (12,211) 3,766
Movement on deferred tax on actuarial gains/(loss) on
defined 3,419 (1,130)
benefit pension plans
(8,792) 2,636
Total recognised income and expense for the year 29,932 30,266
Balance sheet
At 31 March 2008
2008 2007
Restated
£000
£000
Non-current assets
Intangible assets 4,431 5,160
Property, plant and equipment 881,986 820,824
Defined benefit pension asset 1,278 3,912
Non-current receivables 190,013 190,013
1,019,909
1,077,708
Current assets
Inventories 643 690
Trade and other receivables 34,668 31,912
Cash and cash equivalents 16,757 30,103
52,068 62,705
Total assets 1,129,776 1,082,614
Current liabilities
Financial liabilities - Loans and borrowings (1,734) (1,584)
Trade and other payables (62,958) (58,996)
Deferred income (2,577) (1,182)
Provisions (1,800) (1,538)
(69,069) (63,300)
Non-current liabilities
Financial liabilities
- Loans and borrowings (648,001) (624,066)
- Derivative financial instruments (46,869) (31,968)
Deferred tax liabilities (122,654) (135,073)
Defined benefit pension liability (33,045) (25,531)
Trade and other payables (1,818) (460)
Deferred income (44,545) (41,730)
Provisions (638) (1,288)
(897,570) (860,116)
Total liabilities (966,639) (923,416)
Net assets 163,137 159,198
Equity
Ordinary shares 10,092 5,092
Capital redemption reserve 4,000 4,000
Merger reserve 9,845 9,845
Retained earnings 139,200 140,261
Total equity 163,137 159,198
The accompanying notes are an integral part of this balance sheet.
The financial statements were approved and signed by the Board of directors on 11 July 2008.
Cash flow statement
For the year ended 31 March 2008
2008 2007
Restated
£000
£000
Operating activities
Net cash generated from operations 99,120 75,495
Interest received 13,133 19,613
Interest paid (29,636) (27,717)
Tax paid (6,402) (8,843)
Net cash flow from operating activities 76,215 58,548
Investing activities
Proceeds from sale of property, plant and equipment 620 1,104
Purchase of property, plant and equipment (84,495) (54,737)
Purchase of intangible assets (1,457) (3,035)
Fixed asset contributions received 7,021 2,833
Net cash flow from investing activities (78,311) (53,835)
Financing activities
Transfer in of cash and cash equivalents due to merger (19) -
Finance lease principal payments (1,584) (1,448)
Net proceeds from borrowings 18,000 43,800
Other long term creditors (386) -
Dividends paid to shareholder (32,261) (46,115)
Shares issued 5,000 -
Net cash flow from financing activities (11,250) (3,763)
(Decrease)/Increase in cash and cash equivalents (13,346) 950
Cash and cash equivalents at the beginning of the year 30,103 29,153
Cash and cash equivalents at the year end 16,757 30,103
Notes
* Basis of preparatio
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 2008.
ii. The information shown for the years ended 31 March 2008 and 31 March 2007 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 year ended 31 March 2008. 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 2008 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 11 July 2008.
2 Analysis of turnover
2008 2007
Restate
d
£000 £000
Metered water income 87,220 73,158
Unmetered water income 74,776 55,630
Other sales 7,464 4,245
169,460 133,033
3. Corporation tax
2008 2007
Resta
ted
£000 £000
Group income statement
Current tax:
Current UK tax charge 9,686 5,879
Deferred tax:
Relating to origination and reversal of temporary differences (9,000) 2,679
Tax expense reported in the income statement 686 8,558
Deferred tax charge to equity
Deferred tax charge on actuarial gain (3,419) 1,130
Tax reported in equity (3,419) 1,130
4. Dividends
The directors have approved a first interim dividend of £16.0 million (2007: £16.4 million), a second interim dividend of £nil million
(2007: £16.1 million), a third interim dividend of £5.5 million (2007: £2.5 million) and a final dividend of £10.0 million (2007: £9.7
million), which results in dividends paid during the year of £31.0 million (2007: £44.8 million).
5 Earnings per ordinary share - basic and diluted
Earnings per ordinary share are calculated on the profit for the year of £38,724,000 (2007: £27,630,000) and the weighted average number
of shares in issue of 7,905,756 (2006: 5,091,548).
6. Cash flow from operating activities
2008 2007
£000 £000
Profit for the year 38,724 27,630
Adjustments for:
Income tax expense 686 8,558
Finance income (17,390) (15,278)
Finance costs 52,831 38,511
Depreciation 21,792 15,661
Amortisation of intangibles 1,709 1,289
Impairment, write off and disposal of intangibles &
property plant and equipment 473 -
Loss on disposal of fixed assets 786 531
Release of deferred income (1,410) (1,650)
Difference between pension contributions paid and amounts
recognized in the income statement (1,353) (1,919)
Changes in working capital:
Increase in trade and other receivables (845) (2,608)
Decrease in inventory 47 94
Increase in trade and other payables 3,070 4,676
Net cash generated from operations 99,120 75,495
This information is provided by RNS
The company news service from the London Stock Exchange
END
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