Final Business Plan

RNS Number:4284Y
South Staffordshire Plc
07 May 2004


                             Final Business Plan


South Staffordshire Water, the principal subsidiary of South Staffordshire Plc,
has submitted its Final Business Plan ("Plan") to OFWAT in respect of the
periodic review of water charges for the five-year period from 2005 to 2010.

The Plan confirms South Staffordshire Water's intention to deliver best value
for money services combining high levels of service with low water bills.  The
strategic objectives remain unchanged and are to maintain existing high levels
of customer service and satisfaction, supply security and water quality, whilst
increasing asset renewal activity and continuing to offer one of the lowest
bills in the industry.

The Plan includes a price increase on South Staffordshire Water's current low
charges of 19.4% in real terms over the five-year period, including 9.7% in the
first year.  As part of the Plan, South Staffordshire Water proposes to increase
the rate of water mains renewal by 40% compared to the current five year period
(an additional capital expenditure of #2 million per annum) as part of a long
term policy to replace underground assets and in response to the increasing
level of burst mains experienced in recent years.  Additional maintenance
expenditure is also needed for over ground assets with an 8% uplift compared to
the average for the last 10 years.  However, following the successful completion
of the large programme of works for water quality and resources in the current
five-year review period to 2005, the Company will be able to reduce investment
in these areas.  The Plan therefore contains a capital expenditure programme for
the five years of #120 million (#104 million net of capital contributions
receivable of #16 million), compared with #116 million for the current five-year
period.  At this level of expenditure and the level of price increases included
in the Plan, South Staffordshire Water would expect to be broadly cash neutral
over the five year period after taking into account dividends paid at a cover of
1.8 times earnings.  The Plan includes a cost of capital of 5.9%, including a
small company premium of 0.7%, based on the actual debt costs of the company for
its index linked bond and is based on projected gearing over the review period
of 63% of Regulated Asset Value.

South Staffordshire Water is one of the most efficient businesses in the
industry and will continue to seek efficiency improvements over the next
five-year review period.  However, having successfully achieved a 17% reduction
in operating costs in real terms in the previous five years, significant further
savings will be difficult to achieve without affecting overall levels of
service.  In addition, certain operating cost increases outside of the direct
control of the company, such as pension contributions and power costs, have been
included in the Plan.

The draft determination of prices for 2005 - 2010 is expected to be received
from OFWAT on 2 August 2004, with the final determination on 2 December 2004 for
implementation in April 2005.

Commenting of the Plan, Adrian Page, Group Finance Director said;-

"Currently our customers benefit from an average water bill of #92, 21% below
the national average, which is coupled with very high levels of service and
water quality.  The price rise of #18 over the period to 2010 that we have
proposed is expected to be amongst the lowest increase in the industry and
compares to an average increase of about 30%".


Enquiries:

Adrian Page, Group Finance Director (01922 - 618001)


Notes to editors
     
1.   South Staffordshire Plc was demerged from Homeserve Plc (formerly South 
     Staffordshire Group Plc) on 6 April 2004.
     
2.   South Staffordshire Water supplies clean drinking water but not sewerage 
     services (which are separately provided to its customers by Severn
     Trent Water Ltd).  South Staffordshire Water supplies water to a population 
     of 1.2million and to commercial customers in the Midlands.  Of the 22 water
     companies in England and Wales, South Staffordshire Water has the third 
     lowest average annual household bill (21% below the industry average), the 
     second highest levels of service for the year to 31 March 2003, as measured 
     by OFWAT in its overall performance assessment, and its operating cost base 
     is one of the most efficient ranked second in the industry by OFWAT.
     
3.   Further details of the Plan can be found on the South Staffordshire website 
     (www.south-staffordshire.com)



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