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Name | Symbol | Market | Type |
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Sutton E.s.bds | LSE:BM50 | London | Bond |
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RNS Number:1064F Sutton & East Surrey Water PLC 26 June 2006 Sutton & East Surrey Water plc The Company announces today its preliminary results for the year ended 31 March 2006. Chairman's Statement The Company has seen many changes during the past few months. In October it was purchased by Kellen Acquisitions Ltd as part of its acquisition of East Surrey Holdings plc. At the end of January 2006 the Company was sold again, this time to Deutsche Bank AG as part of its acquisition of East Surrey Holdings. Throughout this process Deutsche Bank has been keen to retain the existing management of the Company. It has, therefore, retained the Non-executive directors, myself and John Newton, and all the executive directors. We are delighted to have been joined by two directors appointed by Deutsche Bank, Paul Malan and Daniel Agostino. We continue to be among the best performing companies in the water industry, leading the way in distributing high quality water to our customers supported by high levels of service. Our environmental track record is also strong - indeed, we remain one of the most successful companies in minimising water loss from the network. The most difficult problem that we have had to face during the year was the persistent drought, although we continued to meet all our customers' demands during the period. Our ability to achieve this depends on the level of rainfall, particularly in the winter months. The recent rainfall pattern has been the worst since the 1930's and we are currently experiencing one of the severest droughts in the Company's history. Rainfall in the winter replenishes the aquifers and reservoirs for use in the summer. Therefore it is important that there is sufficient rainfall in the winter, but for the last two winters rainfall has been significantly below the long-term average. Our resources will generally be able to cope when one winter's rainfall is below average, as we did last year, but when two winters suffer below average rainfall our resources become very stressed. As a result our boreholes, which supply 85% of our water, are at very low levels. We have been granted a Drought Order which will allow us to restrict water used for "non-essential" purposes. Clearly it is also important that our customers use water wisely during this summer so that resources can be managed effectively. As for other operational matters OFWAT has confirmed that we have continued to provide an excellent service to customers, that we have achieved our leakage targets and have met exacting quality standards for our water. That the Company has been able to achieve such good results in a year of uncertainties is entirely due to the commitment of its management and employees at every level and I would like to thank everyone for all their hard work and dedication throughout the past year. Pat Barrett Chairman 15 June 2006 Operating Review Sutton and East Surrey Water is a regulated water supplier. During the year, we delivered water to 643,000 people in 251,000 homes and 19,000 commercial properties. Our licence area extends across the London Boroughs of Croydon, Merton and Sutton, East Surrey and parts of Kent and Sussex. The Company's prime objectives are to provide customers with the highest levels of service and excellent quality water, and to make a reasonable return for shareholders. All these objectives have been achieved this year. We continue to be among the best performing companies in the water industry, leading the way in distributing high quality water to our customers and backing it up with exemplary levels of service. Our environmental track record is also strong - indeed, we remain one of the most successful companies in minimising water loss from the network. Principal risks and uncertainties The principal risks and uncertainties facing the Company are: * large scale water quality failure; * large scale cash fraud or embezzlement; * failure of billing systems; and * large scale resource shortfall (lack of rainfall). The Company views the careful management of risk as a key management activity. This is done using a simple and flexible framework which provides consistent and sustained way of implementing the Company's values. These risks have been understood and given visibility. The Company has developed effective strategies to mitigate these risks but these, no matter how well they are implemented, can never completely eliminate all risks. The Company's performance during the year and its position at the 31 March 2006 is fully explained in this report. The main challenge facing the Company at the moment is the lack of rainfall. This is fully discussed in the "Water Resources and Leakage" section of this report. The other major uncertainty is the large increase in power and associated costs not reflected in the PR04 price determination. Both will be constantly reviewed by management to reduce any impact on the Company to a minimum but, given the nature of these matters, the effect of any action may be limited. Regulation The management of regulation is an ongoing process, which presents constant challenges. In common with other utilities, Sutton and East Surrey Water operates in an exacting and rigorous regulatory environment, which involves compliance with strict pricing, quality and environmental controls. Within this framework, a key task is to manage our regulatory affairs in a way that ensures that we can balance the investment needed to provide consistently high levels of customer service with reasonable returns to our shareholders. Operating Efficiency Ofwat has set challenging operating cost savings of 1.8% per annum for the period to 2010, particularly so since a large proportion of our operating costs are not controllable by management. However, we have made a good start to the quinquenium, keeping operating costs to #22.5 million compared to the Ofwat forecast of #23.0 million. The Company's Key Performance Indicator (KPI) for operating costs (as defined by Ofwat) was #22.8m. This result was achieved despite significant increases in power and pension costs. Services to Customers The Company continues to provide excellent service to customers. Ofwat reported during the year that we had remained at the highest levels of objectively measured service to customers and we achieved 95% in the Overall Performance Assessment. The Company's KPI for objectively measured service to customers was at the highest level for each service category. During the year we have improved service to customers by introducing a facility to accept payments over the telephone network that is available 24 hours a day, 7 days a week. This service is considered so innovative that it has won an international award for systems integration. We are currently extending the system so that it will take customer meter readings and requests for meter fitting. Water Quality The Company has well tested systems that extract, treat and deliver wholesome water to its customers. The quality of water is now subject to even more rigorous testing and review due to the Water Supply (Water Quality) Regulations 2000, which came into effect last year. We have been testing our water against these standards for the past five years. Results to the end of December indicate that our water achieved 99.97% compliance with mandatory quality standards. A commitment to ongoing investment in leading edge technology at our treatment works ensures that the quality of our water will remain among the best in the country. Water Resources and Leakage We take very seriously our guardianship of the water environment. Where we need to develop new resources, we do so with real care to protect rivers and the wider environment. In addition, we strive to minimize losses from our system through leakage and, for the last few years have led the industry in leak reduction. Ofwat has commended us for our work in this important area of conservation and we continue to meet tough annual leakage targets set by the Regulator. The Company's KPI in this area was to achieve Ofwat's target of 24.5Mld and we actually achieved 24.3 Mld. Nevertheless, our ability to meet all our customers' demands depends on the level of rainfall, particularly in the winter months. The recent rainfall pattern has been the worst since the 1930's and we are currently experiencing one of the severest droughts in the Company's history. Rainfall in the winter replenishes the aquifers and reservoirs for use in the summer. Therefore, it is important that there is sufficient rainfall in the winter, but for the last two winters rainfall has been significantly below long-term average. Our resources will generally be able to cope when one winter's rainfall is below average but when two winters give below average rainfall our resources become very stressed. This lack of rainfall has affected all of South-East England. The consequence of this is that our boreholes, which supply 85% of our water are at very low levels. Our reservoir, Bough Beech, is currently reasonably full due to prudent management by the Company and an extended river extraction period allowed by the Environment Agency. This position is unprecedented and we are taking action to reduce demand. In April 2005 we instituted a ban on using garden sprinklers. This resulted in a reduction in customer demand and we were able to maintain supplies through the summer of 2005. Abnormally low rainfall again occurred during the winter of 2005 /06 and we introduced a full hosepipe ban in March 2006. We also applied to the Secretary of State for a Drought Order which will allow us to restrict water used for "non-essential" purposes. A Public Hearing was held in March to discuss the application and it was granted by the Secretary of State in mid-May. We are now implementing this in stages, so that the Company receives the maximum reduction in demand while causing the minimum disturbance to our customers. We have not taken these steps lightly and believe that these restrictions on water use are essential in order to keep water demand under control and to preserve resources for essential domestic use. Clearly it is important that our customers use water wisely during this summer so that resources can be managed effectively. Capital Investment During the year the Company has invested #11.5 million in new plant and infrastructure. Of this amount we invested #5.8 million was spent on renewing our below ground infrastructure as part of our maintenance programme, to replace mains suffering from structural deterioration and high levels of bursts. The remainder was spent on above ground assets, principally #1.2 million on treatment works, #1.2 million on customer metering and #1.0 million on new resources. Expenditure next year is expected to increase to #24.5 million in 2006/7. We are currently starting major projects at our treatment works at Bough Beech and Cheam. We are also accelerating our programme of resource development. Overall, during this quinquenium, we plan to achieve the levels of expenditure consistent with those in the PR04 price determination. All works are undertaken by third party contractors, on either a fixed price or 'open book' contract, and managed by our engineering team. Working in the Community We also take seriously our education programme which provides us with an important opportunity to inform a new generation of water consumers, and last year a total of 16,201 pupils visited one of our treatment works or listened to an educational talk. We continue to support the Kent Wildlife Trust in their work at their educational centre at Bough Beech reservoir. Health and Safety The Company is committed to maintain very high levels of Health and Safety at work for its employees and contractors. During the year there were no reportable incidents where a major injury was sustained and only 6 incidents where more than three days were lost. In all there were 23 accidents in the year, 15 of which did not result in any time off work. In the year there were only 0.22 strikes per team of other underground utility equipment compared to 0.75 strikes per team last year. The Company KPI in this area is 1.00 strike per team per year. We have regular meetings with our employees to discuss Health and Safety matters. Financial Performance Turnover increased by 14.9% to #45.4 million (#39.5 million), essentially as a result of the price increases determined by Ofwat in the 2005 price review. The price determination increased expenditure on the network which has resulted in higher infrastructure costs but overall operating profits increased to #12.2 million (#10.9 million). The KPI for operating profits was #12.5 million. The non-appointed elements of the business increased profits by 14% to #0.7 million which was in line with our KPI. Tight control of the Company's finances have left us with healthy cash balances totalling #30.4 million (#27.8 million). Under the terms of our index-linked bond, #14.9 million of the Bond proceeds must be retained in Sutton and East Surrey Water in order to fund future capital investment. Ofwat has now published the Regulated Asset Values (RAV) for the period 2005-2010. During this period the RAV increases, in real terms, from #130.5 million to #135.2 million (2002/03 prices), which reflects the investment in new assets that forms part of the price determination. Net operating cash flow for the year was #21.1 million (#24.1 million) which has been reduced mainly as a result of reductions in general creditors from the unusually high levels of last year. Interest Rate and Liquidity Risks The most important financial risks faced by the Company are those associated with interest rates and liquidity. The Company regularly assesses these risks and its policies for managing them. The Company has fixed its interest rate risk by issuing an Index Linked Bond in 2001. The interest rate on this Bond is 2.874%. The Company's liquidity is protected by its cash balances available at 31 March 2006 and a #2.0 million overdraft facility that remains undrawn. Net Debt Net debt for the Company at 31 March 2006 was #84.1 million (#70.6 million). Net Debt for this year includes #12.4 million of Irredeemable Preference Shares now classified as debt which were previously treated as equity. Pensions The Company is a member of the Water Companies Pension Scheme (WCPS) details of which are disclosed in these Financial Statements under the requirements of FRS17. The latest FRS17 valuation completed for these purposes shows a pre-tax surplus of #1.4 million (2005: Deficit of #4.2 million). Employees Our employees are fundamental to the success of our business and the progress reported above is a product of their determination and hard work to meet the challenges we have faced. I thank them for their efforts. Phil Holder Managing Director 15 June 2006 Profit and Loss Account for the year ended 31 March 2006 Restated 2006 2005 #000 #000 ------------------------------------------------------------------------------------- Turnover 45,390 39,515 Operating costs (33,227) (28,569) ------------------------------------------------------------------------------------- Operating profit 12,163 10,946 Net interest payable and similar charges (6,448) (6,241) Other finance income 737 608 ------------------------------------------------------------------------------------- Profit on ordinary activities before taxation 6,452 5,313 Taxation on profit on ordinary activities (2,786) 2,493 ------------------------------------------------------------------------------------- Profit on ordinary activities after taxation 3,666 7,806 ------------------------------------------------------------------------------------- Reported profits are equivalent to historic cost profits, and relate to continuing activities. Statement of total recognised gains and losses for the year ended 31 March 2006 Restated 2006 2005 #000 #000 ------------------------------------------------------------------------------------- Profit for the financial year 3,666 7,806 Actuarial gain/(loss) recognised in the pension scheme 4,679 (113) Deferred tax arising on (gains)/losses in the pension scheme (1,404) 34 ------------------------------------------------------------------------------------- Total recognised gains and losses relating to the financial year 6,941 7,727 ------------------------------------------------------------------------------------- Prior year adjustment (2,958) Effect of adoption of FRS25 (12,384) ------------------------------------------------------------------------------------- Total gains and losses recognised since last annual report (8,401) ------------------------------------------------------------------------------------- Balance Sheet as at 31 March 2006 Restated 2006 2005 #000 #000 ------------------------------------------------------------------------------------- Fixed assets Intangible assets 9,727 10,699 Tangible assets 140,781 141,440 ------------------------------------------------------------------------------------- 150,508 152,139 ------------------------------------------------------------------------------------- Current assets Stocks 818 768 Debtors 8,320 8,591 Cash at bank and in hand 30,370 27,785 ------------------------------------------------------------------------------------- 39,508 37,144 Creditors: amounts falling due within one year (21,558) (24,435) ------------------------------------------------------------------------------------- Net current assets 17,950 12,709 ------------------------------------------------------------------------------------- Total assets less current liabilities 168,458 164,848 ------------------------------------------------------------------------------------- Creditors: amounts falling due after more than one year (114,168) (110,556) Provisions for liabilities and charges (8,860) (10,343) ------------------------------------------------------------------------------------- Net assets 45,430 43,949 ------------------------------------------------------------------------------------- Capital and reserves Called up share capital 3,105 3,105 Profit and loss account 42,325 40,844 ------------------------------------------------------------------------------------- Shareholders' funds - equity 45,430 43,949 ------------------------------------------------------------------------------------- These financial statements were approved by the Board of Directors on 15 June 2006 and signed on its behalf by: P A Barrett N J Fisher Director Director Cash Flow Statement for the year ended 31 March 2006 2006 2005 #000 #000 ------------------------------------------------------------------------------------- Cash flow statement Cash flow from operating activities 21,089 24,075 Return on investment and servicing of finance: Interest received 1,388 1,626 Interest paid (3,255) (3,146) Interest element of finance lease rentals - (40) Preference dividends to shareholders (966) (966) ------------------------------------------------------------------------------------- Net cash outflow from returns on investments and servicing of finance 18,256 21,549 UK corporation tax received 151 884 Capital expenditure and financial investment Purchase of tangible fixed assets (10,508) (22,688) Sale of tangible fixed assets 146 89 Dividends paid on shares classified in shareholders' funds (5,460) (5,300) ------------------------------------------------------------------------------------- Cash inflow/(outflow) before management of liquid resources and financing 2,585 (5,466) Management of liquid resources (774) 3,644 ------------------------------------------------------------------------------------- Increase/(decrease) in cash in the period 1,811 (1,822) ------------------------------------------------------------------------------------- Financing: Capital element of finance lease rental payments - (190) ------------------------------------------------------------------------------------- Increase/(decrease) in cash in year 1,811 (2,012) ------------------------------------------------------------------------------------- Notes to the Accounts General Information The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 March 2006 or 2005. The financial information for the year ended 31 March 2005 is derived from the statutory accounts for that year, which were prepared under UK GAAP, which have been delivered to the Registrar of Companies. The auditors' opinion on those accounts was unqualified and did not contain a statement under s237(2) or (3) Companies Act 1985. The figures for 31 March 2005 have been restated following the Company's adoption of the following new accounting standards: - FRS 21 'Events after the balance start date' - FRS 25 'Financial instruments: presentation and disclosure' - FRS 26 'Financial instruments: 'measurement' and - FRS 28 Corresponding amounts The recognition and measurement requirements of FRS 17 'Retirement benefits' have also been adopted in full, and the figures restated to reflect this, previously only the transitional disclosures of this standard have been followed. The statutory accounts for the year ended 31 March 2006 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies. This information is provided by RNS The company news service from the London Stock Exchange END FR UOOVRNURNUAR
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