KELDA GROUP PLC
Preliminary Announcement of audited results
for the year ended 31 March 2003
HIGHLIGHTS
* Group turnover up 4.8% to �690.5m
* Group profit before taxation and exceptional items up 7.7% to �175.2m
* Adjusted earnings per share (excluding deferred tax) increased 8.4% to 42.4p
* Strong performance from UK water business increases prospective financial
out-performance in the current price determination period
* Ofwat assessment confirms Yorkshire Water's sector leading operational and
environmental performance
* Growth from earnings enhancing acquisitions in Aquarion US water business
* Full year dividend increased 2.2% to 26.05p per share; final dividend 18.19p
per share
KEY FIGURES
Increase
2003 2002 %
Group turnover �690.5m �658.8m 4.8
Group operating profit �265.3m �245.0m 8.3
Profit before taxation and exceptional �175.2m �162.7m 7.7
items
Adjusted earnings per share (excluding 42.4p 39.1p 8.4
deferred tax)
Dividend for the year 26.05p 25.50p 2.2
Group net debt �1,720m �1,437m
Following the announcement of Kelda group's results for the year ended 31 March
2003, the Chairman, John Napier said:
"Strong operational and financial performance in the Yorkshire Water business
and the successful acquisitions in the US by Aquarion contributed to growth in
profit before tax and exceptional items of 7.7%"
For further information contact
June 5 Martin Towers, Kelda Group 0207 568 5900
Andrew Grant/David Trenchard, Tulchan 0207 353 4200
Communications
After June 5 Kelda Group Press Office 01274 692954
A copy of this preliminary results announcement will be available on the Kelda
Group website from 8am this morning at www.keldagroup.com
CHAIRMAN'S STATEMENT
The final year results maintained and improved the good start made in the first
half. In total profit before tax and exceptional items of �175.2m was up 7.7%
on prior year. The underlying adjusted earnings per share excluding deferred
tax were 42.4p per share a 8.4% increase on prior year. The main source of the
improved result was an excellent 2nd half performance from Yorkshire Water with
further cost and capital efficiencies which at the same time delivered best
ever drinking water compliance, environmental and customer service outputs.
The Kelda balance sheet remains strong with gearing of 50%. An opportunity was
taken in the year to increase long term debt with a successful offering of �
300m bonds which completed in February. The Board recommend a final dividend of
18.19p per share which makes a full year dividend of 26.05p, an increase of
2.2% compared to prior year.
In the interim results the Board announced important senior management changes
with the appointment of Kevin Whiteman, Managing Director of Yorkshire Water as
Chief Executive, Martin Towers joined us as Group Finance Director and Rich
Schmidt, President of Aquarion was appointed as an executive director of Kelda
Group plc. These appointments have further strengthened Kelda management, and
are part of a continuing review of management standards at all levels in the
company.
One of the continuing features of last year was the delivery of the benefits
arising from our focus on water and waste water. In the US the acquisition of
the New England operations of American Water Works was completed and integrated
into existing operations. The US management responded well to an integration
challenge which coincided with a period of increased operating complexity
caused by water restrictions due to the low snowfall of the prior year.
Aquarion was successful in winning a major $110m waste water contract in
Bridgeport, Connecticut, and made further investment in the organic growth of
contract operations expertise.
In the UK Yorkshire Water had an excellent year. It delivered beyond
expectations on cost and capital dimensions whilst achieving best ever
standards of performance in crucial compliance and customer service dimensions.
It was also successful in winning the Midlands, Wales and South West region in
the national Ministry of Defence contract, one of the largest contracts of its
type ever put to tender. Yorkshire Water was also granted an interim price
adjustment from Ofwat for the period up to April 2005 which covers the needs of
increased investment, increased costs in sewer flooding and higher construction
costs. It also enables us to meet the challenge of increased Drinking Water
Inspectorate compliance and environmental standards. Yorkshire Water had a year
of continuing progress in all aspect of its services and operations.
There was good progress in the results of the supporting operations of KeyLand
(property) and Loop (customer services). An announcement was made earlier this
year regarding our 45.5% holding in WRG. WRG is currently in discussions which
may or may not lead to an offer for WRG from the private equity firm Terra
Firma.
The continuous delivery of Kelda's water and waste water services has a
significant environmental dimension. We deal with environmental issues as
diverse as management and access of water catchment areas, sustainable water
management, river water and bathing water standards. Our performance affects
all our customers and everyone who lives in the region we serve. Kelda attempts
at all times to be environmentally focused. We have also developed a broad
section of community programmes involving partnerships within local communities
and organisations to help support and deliver community involvement by
programmes of education, amenities, protection and sustainability on a wide
range of environmental matters.
Our staff and management are also involved in a large number of voluntary
programmes supporting broader community initiatives such as improved reading
standards in schools, improved health and nutrition for children. We also
sponsor and support community initiative programmes. We have actively supported
government schemes to improve countryside access and amenity by working closely
with the competing interests and increased public access to our important
moorland catchment and nature conservation areas. All these activities
constitute part of what is now termed corporate social responsibility. Such
activities have and continue to form an essential part of our day to day
actions and responsibilities and are reported in more detail in our Annual
Report.
The Board was pleased to see the shareholder support that has led to Kelda
entering the FTSE 100. Kelda believes it has played a part in helping to get
greater financial market recognition of the underlying value of the water
sector. Our strategy of focusing on water and waste water and on service and
efficiency, has resulted in Kelda progressing to become one of the most
efficient companies in the sector. Our objective is to maintain our focus and
emphasis on performance which we believe to be in the best interests of our
shareholders and customers.
In summary, this has been a year of continued progress on all fronts. Given the
performance of the company, the Board would wish to thank the management team
and equally importantly to thank all employees for their positive contribution
to improved results. The world and the water sector remains a challenging
environment. There is no place for complacency if we are to continually meet
the demands of increasing efficiency, simultaneous improvement of standards of
quality and environmental compliance. Our goals must be to improve performance
further, expand outsourced and contract operations, and be responsive to
opportunities for further profitable growth in our core activities, whilst
maintaining a positive dialogue with government and regulators.
Since the half year we have had the confirmation of the 25 year Aquatrine
contract and the interim price determination which takes us to year March 2005.
These are both positive outcomes since we published our half year results. We
said then and repeat now, that with regard to the possible 2005 price
determination we continue to be encouraged by the dialogue between regulator,
government and industry. There is an increased consensus on the significant
achievements of the industry and on the priorities that need to be addressed if
we are to encourage equity and capital markets to provide the industry's long
term investment funding, on which all future quality improvements increasingly
depend. In our view the long term industry outlook remains positive as long as
this dialogue is maintained.
CHIEF EXECUTIVE'S REVIEW
A year of continuing achievement
The past year has been one of continuing achievement for Kelda Group plc. Our
strategy to put our primary focus on what we do best, providing high quality
water services, has helped us to deliver what we believe is sector leading
performance. Our focus will continue.
Our main UK subsidiary, Yorkshire Water, made significant improvements in its
financial, operational and environmental performance and continued to
outperform all of the regulatory targets set at the last price review.
Aquarion, our US operation, successfully integrated the four New England water
companies acquired from American Water Works in April 2002.
Other businesses have performed in line with expectations. We were particularly
pleased that we made the successful bid for Package A of the Ministry of
Defence's Private Finance Initiative services, in conjunction with Earth Tech
Engineering Ltd and Halliburton KBR.
The group's activities are documented in more detail later in this report. The
following summary highlights the key achievements of 2002/03.
* Yorkshire Water is now ranked second in Ofwat's Overall Performance Assessment
which compares the levels of service provided by the UK's ten major water and
sewerage companies.
* Yorkshire Water's water supply service was ranked as the most efficient in
Ofwat's relative efficiency report.
* Reported water quality in the Yorkshire region was the best it had ever been,
with 99.91% of all samples complying with relevant regulations, according to
the Drinking Water Inspectorate's (DWI) annual report on drinking water quality
in England and Wales for 2001.
* Our US operations continue to grow and develop with the acquisition of four New
England water companies from American Water Works which have now been
integrated into existing operations, and further investment in contract
operations.
* Yorkshire Water is a key partner in Brey Utilities - a consortium comprising
Yorkshire Water, Earth Tech Engineering Ltd and Halliburton KBR - which has won
a 25 year �1bn contract to provide water and waste water services to more than
1,000 Ministry of Defence sites in the Midlands, Wales and South West England.
* In December 2002, Yorkshire Water was awarded an interim price determination
facilitating additional investment in the services we provide.
* Kelda was confirmed as the water industry's leading performer based on an
external assessment carried out by the Business in The Environment Index of
Corporate Environmental Engagement.
* Yorkshire's rivers and bathing waters are the cleanest since records began as a
direct result of Yorkshire Water's ongoing investment and reduction of
pollution incidents.
* Loop - Kelda's customer relationship management business - continued to win new
business and was featured in both the Financial Times' Top 50 Best Workplaces
in the UK survey and the Sunday Times' 100 Best Companies to Work For awards.
* Aquarion secured a ten year contract to operate waste water treatment services
in Bridgeport Connecticut, home of the company's headquarters.
Periodic Review
We believe that the progress that Yorkshire Water has made since the last price
determination in 2000, in service, operational and financial performance,
places the company in a good position for the forthcoming price review. Our
objective is to protect the long term financial and operational sustainability
of the business, which involves balancing the financeability of agreed
investment needs with acceptable prices to customers. This demands a joined up
process from government, the regulator, environmental and compliance agencies
and finance providers.
Investing in our people
Additional to our focus strategy a key part of the group's continuing success
is due to the talent, hard work and enthusiasm of employees across the
business. In the last 12 months we have successfully introduced new information
technology systems and more flexible working patterns and practices, to better
match our services to customers' needs. The introduction of these changes has
required a significant investment in our people to provide them with the
necessary training and skills to implement the changes and deliver the
benefits. It has also involved extensive consultation with employees and the
various trade unions that represent them, whose support and goodwill has been
important in helping deliver change which is already bringing important
benefits to our customers.
I would like to express my sincere thanks to everyone who has played their part
in delivering improved services, a key feature of the group's success over the
past 12 months.
Kevin Whiteman
Chief Executive
FINANCIAL REVIEW
Group operating profit
Group turnover increased by 4.8% to �690.5m (2002: �658.8m) for the full year,
after the 5.2% increase reported in the interim results. �29.5m of the increase
in turnover was a result of acquisitions by Aquarion in the US. Group turnover
(including share of associates and joint ventures) was �838.1m (2002: �799.8m).
Group operating profit increased to �265.3m (2002: �245.0m), including �10.5m
from the US acquisitions. Operating profit from continuing activities increased
1.9% to �256.6m (2002: �251.9m), of which 48% (2002: 47%) accrued in the second
half year. The group's operating results reflect the strong financial
performance of the Yorkshire Water UK regulated business whose operating profit
increased 3.6% to �233.7m (2002: �225.5m). The combined US operations, which
were adversely affected by the weaker dollar and a number of cost pressures,
now account for 13% (2002: 12%) of group operating profit.
The group's share of associates' and joint ventures' operating profit, before
the exceptional items reported by WRG in their results for the year ended 31
December 2002, was �18.8m (2002: �20.3m). Group operating profit (including
share of associates and joint ventures) was �277.1m (2002: �265.3m).
Group profit before taxation
A number of exceptional items affect the year on year comparison of the group's
results. The group's share of the exceptional costs reported by WRG, amounting
to �7.0m before taxation, have been adjusted in arriving at the group's
underlying profit before taxation and exceptional items. Non operating
exceptional items comprise a loss of �3.9m on the closure of the Timco timber
business in the US and, in the prior year, an overall profit of �34.4m from the
major land sale in the US and the disposal of the renewable energy business.
The group interest charge increased to �98.1m (2002: �93.3m) reflecting the
continuing regulated capital investment programme in Yorkshire Water. �71.0m
(2002: �64.1m) of the group total relates to the Yorkshire Water UK regulated
business. Low short term interest rates in the US reduced the cost of financing
both the existing operations and the US acquisitions, which were earnings
enhancing in the period. The group's share of associates' and joint ventures'
interest increased to �10.8m (2002: �9.3m).
Interest cover was 2.6 times (2002: 2.6) before exceptional items and 4.2 times
(2002: 4.1) on an earnings before interest, tax, depreciation and amortisation
(EBITDA) basis.
Group profit before taxation and the exceptional items described above
increased 7.7% to �175.2m (2002: �162.7m). Group profit before taxation was �
164.3m (2002: �197.1m).
Taxation
The group's current taxation charge decreased to �7.0m (2002: �7.3m) after the
inclusion of a �11.7m prior year adjustment. The effective tax rate (calculated
as the current tax charge as a percentage of group profit before tax and
exceptional items) was 4.2% (2002: 4.8%). The effective tax rate will remain
sensitive to the value of capital allowances arising from the Yorkshire Water
investment programme.
As reported in the interim results, the deferred tax charge has been affected
by the reduction in gilt rates and, therefore, the discount rate applied to the
deferred tax provision. This has resulted in a significant increase in the
deferred tax charge, which is a non cash item, to �29.0m (2002: �14.8m).
Earnings per share and dividends
Earnings per share, adjusted to exclude exceptional items and deferred tax,
increased 8.4% to 42.4p (2002: 39.1p). Basic earnings per share was 32.7p
(2002: 39.3p).
An interim dividend of 7.86p (2002: 7.70p) was paid to shareholders on 28
February 2003. The board is recommending the payment of a final dividend of
18.19p (2002: 17.80p) per share, to make a total dividend for the year of
26.05p (2002: 25.50p) per share, an increase of 2.2%. Dividend cover was 1.5
(2002: 1.7) times earnings before deferred tax.
Cash Flow
The group's cash flow reflects the characteristics of the Yorkshire Water UK
regulated and US water businesses. Strong operating cash flow of �441.4m (2002:
�387.8m) was offset by high capital investment of �389.6m (2002: �323.6m) and
interest payments of �82.1m (2002: �83.7m). In 2003, acquisitions in the US
cost �78.0m together with debt acquired of �82.0m, whereas in the prior year
proceeds from the major land sale in the US amounted to �57.2m. Dividend
payments to shareholders, which are funded by the Yorkshire Water regulated
business, were �99.0m (2002: �96.3m).
Group net debt at 31 March 2003 increased by �283.9m to �1,720.4m (2002: �
1,436.5m). Balance sheet gearing (expressed as the relationship between net
debt and net debt plus shareholders' funds) increased slightly to 50% (2002:
46%). Group net debt included �1,170.5m (2002: �1,042.0m) in respect of the
Yorkshire Water UK regulated business. The increasingly important ratio of
Yorkshire Water net debt compared to the Regulatory Asset Value of 40% (2002:
39%) is one of the strongest in the sector.
On 21 February 2003 �200m 5.375% fixed rate bonds maturing in 2023 together
with �100m of 30 year index linked bonds, guaranteed by Yorkshire Water, were
issued. This long term funding will meet Yorkshire Water's financing
requirements to the end of the current price determination period in March
2005.
Pensions
The disclosures required in accordance with the phased implementation
requirements of FRS 17 'Retirement Benefits' will be made in the group
accounts. The disclosed deficit in the main UK defined benefit scheme at 31
March 2003 is �111.9m after tax (2002: �17.6m asset). The group's pension
liabilities are funded on a long term basis based on periodic actuarial reviews
and not the FRS 17 figures that can produce volatile results over short time
periods. An interim actuarial review at 31 March 2003 has been commissioned as
a basis for reviewing the long term funding of the scheme.
OPERATING REVIEW: YORKSHIRE WATER
Financial performance
Following an increase in charges in line with inflation of 1.2% on 1 April
2002, regulated turnover increased by 1.3% to �567.0m (2002: �559.8m), just
ahead of the 1.1% increase reported at the interim stage. Revenue growth from
new customers largely offset the effect of domestic metering in the full year.
The continuing emphasis throughout the business on operating efficiency was
demonstrated by the 3.6% increase in operating profit to �233.7m (2002: �
225.5m), of which 49% (2002: 47%) accrued in the second half year. Operating
cost savings are now expected to secure outperformance of �100m in the current
price determination period.
Yorkshire Water was awarded an interim price determination during 2002. As a
consequence customer prices will rise by 3.4% and 3.5% (previously 1.0%) above
inflation in 2003/04 and 2004/05 respectively. The interim determination allows
Yorkshire Water to fund additional investment of around �53m and to recover the
additional cost of bad debts arising as a consequence of the loss of the
ability to disconnect customers. The additional investment will be used
principally to reduce the number of incidences of sewer flooding and upgrade
our sludge incinerators to meet the requirements of the Waste Incineration
Directive.
Operational performance
Yorkshire Water is now ranked second in Ofwat's Overall Performance Assessment
which compares the levels of service provided by the UK's ten major water and
sewerage companies. This is a significant improvement from the company's
ranking of tenth in 1996/97.
Ofwat's report was published in August 2002. The highlights included:
* Further reductions in the number of properties experiencing inadequate water
pressure, which has been reduced to 189. This is ahead of the commitment to
reduce this to 400 properties by 2005.
* Significant reductions in the number of properties affected by unplanned
interruptions to supplies caused by, for example, bursts and leaks. This was as
a result of better incident handling by field teams and contractors.
* Drinking water quality in Yorkshire was the best it had ever been, largely as a
result of an ongoing mains improvement programme.
* Security of water supplies was reported as the best ever, with leakage from the
company's and customers' pipes continuing to fall. The extension of the Grid
Zone into rural North Yorkshire allows more flexibility and increased security
of supply to customers in these areas. The improvements were endorsed by the
Environment Agency in its December 2002 report, the third Annual Review of
Water Company Water Resource Plans.
* The number of properties flooded with sewage also reduced.
The company's water supply service was ranked in first place for operating cost
efficiency in Ofwat's report "Water and Sewerage Service Unit Costs and
Relative Efficiency 2001-02" published in December 2002.
Water quality
The DWI, in its annual report on drinking water quality in England and Wales
for 2001, reported that 99.91% of all samples had complied with the relevant
regulations. The quality of Yorkshire's tap water is the best it has ever been.
At the same time as the DWI's report, Yorkshire Water launched a campaign
designed to encourage customers to bottle their tap water and take it with them
wherever they went. The promotion saw 100,000 water bottles distributed to
customers, contractors, sports clubs, schools and other community
organisations. The DWI's Chief Inspector urged other water companies to adopt
similar techniques to promote their product.
Further improvements in the quality and reliability of customers' supplies are
expected to be delivered as a result of the company's ongoing programme of
mains renewal and replacement. By 2010, a further 4,000km of pipes will be
upgraded, leading to better quality drinking water and a reduction in the
number of bursts and leaks.
Improvements to customer service
Significant progress has been made over the past year to improve not just the
level of service afforded to customers, but also the "feel" of the service.
The new Integrated Customer and Operations Management (ICOM) system which
became fully functional in April 2002 is now firmly embedded in the business
and has delivered improvements in operational performance.
The volume of calls from customers is down by 25%, repeat customer calls are
down by 10% and 98% of appointments offered within a two hour time band have
been met.
An external review recently conducted by Trinity Horne, a firm of management
consultants working within the water industry, concluded that the
implementation of ICOM has delivered "a class leading system which can enable
Yorkshire Water to achieve step change improvements in business performance and
customer experience".
In October 2002 Yorkshire Water extended its "opening hours" to ensure that
water customers can now receive visits until 9pm from Mondays to Fridays and
between 8am and 6pm on Saturdays and Sundays. This new "business as usual"
service is in addition to the traditional "out-of-hours" emergency service
provided by the company.
Quarterly research shows that overall customer satisfaction levels are now
consistently around 90%. Satisfaction among business customers is equally as
high, according to a survey published in September 2002 by the Energy
Information Centre (EIC). The EIC - a business customer trade body that merged
recently with the Utility Buyers Forum - canvassed the views of 150 water and
waste water business customers across the UK, with Yorkshire Water ranked as
the top performer.
Environmental performance
In March 2003, Kelda was confirmed as the water industry's leading performer in
the Business in The Environment (BiTE) Index of Corporate Environmental
Engagement. Yorkshire Water's score of 97% made Kelda eligible for a place in
BiTE's new "Premier League", an accolade shared by only 17 of the UK's largest
250 companies. The survey measured the extent to which companies understood and
managed their impacts on the environment and examined whether environmental
issues were an integral part of their business strategy. Yorkshire Water scored
full marks in almost every category.
The report also pointed to the significant improvements made by the company
over the past few years in all areas of its environmental performance. For
example in the autumn of 2002, the Environment Agency reported that local
bathing waters and rivers were becoming even cleaner and acknowledged the role
played by Yorkshire Water in achieving this success.
As a direct result of the company's recent investment in new sewage treatment
works on Yorkshire's East Coast, last year 14 bathing waters surpassed the EU's
most stringent guideline quality standards. The result is that for the first
time Bridlington can now apply to fly its own Blue Flag alongside those of the
neighbouring tourist resorts of Scarborough and Whitby. By working in
partnership with local authorities, the target for 2003/04 is to see 16 bathing
waters attain guideline standards.
The agency also referred to the continuing revival of the region's inland
waterways and to the contribution to it made by Yorkshire Water's "massive
investment in sewage treatment" and the company's success at tackling pollution
caused by its assets and operations. The Environment Agency confirmed in
September 2002 that the company was one of only four companies in the sector to
reduce incidents of pollution year-on-year.
As a result, for example, the River Don in South Yorkshire has seen substantial
improvements in water quality, and in the River Calder in West Yorkshire, fish
populations are on the increase according to recent studies.
During 2002, the number of Category 1 and 2 pollution incidents involving the
company's assets was reduced by more than a third. The number of Category 3
incidents was also significantly reduced. By the end of 2003/04 we aim to
report an overall reduction of 50% in the number of pollution incidents
reported in 2000.
Capital investment
Regulated capital investment for the year was �319.5m, a slight decrease on the
previous year's figure of �324.7m. It is now expected that capital cost
outperformance in the current price determination period will be around 10%.
A substantial part of the work being undertaken during the current asset
management programme (AMP3) is either to replace or reline old cast iron mains,
which can cause discolouration, or to upgrade sewer overflows deemed
unsatisfactory either because of the frequency at which they discharge or the
impact they have on local watercourses.
For example, by 2005 the company will have invested more than �40m in Bradford.
This fundamental overhaul of the water and waste water infrastructure in
Bradford will involve the cleaning and relining of approximately 125km of trunk
main, improvements to the city's biggest water treatment works and the
upgrading of 65 unsatisfactory sewer overflows.
The company is also undertaking work on behalf of the Passenger Transport
Executive to enable the construction of a new Supertram system in Leeds. In
supporting this project, Yorkshire Water will make more than 500 changes to the
water and sewerage system which are expected to take four years to complete.
Project Aquatrine
In April 2003 Brey Utilities, a consortium in which Yorkshire Water has a 45%
interest and including Earth Tech Engineering Ltd and Halliburton KBR, was
confirmed by the Ministry of Defence (MoD) as the service provider for Project
Aquatrine, Package A.
Project Aquatrine is one of the most significant Public Private Partnership
projects in the MoD, and the largest Private Finance Initiative water project
in the UK. It involves the award of three packages (A, B and C) which will
transfer the responsibility for the operation and maintenance of the MoD's
water and waste water assets and infrastructure in the UK to private sector
providers. This will enable the MoD to focus its resources and expertise on
delivering military capability.
Under the terms of the 25 year contract for Package A, Brey Utilities will
provide water and waste water services to over 1,000 MoD sites in the Midlands,
Wales and South West England. The �1bn contract is expected to go live in
December 2003.
Brey Utilities is the only consortium that has also been short-listed for
Packages B and C covering Scotland and the rest of England.
Customer communications
To reinforce the significant financial, operational and service improvements
made by the company in recent years, in July 2002 Yorkshire Water unveiled a
new corporate logo.
The old Yorkshire Water logo has been replaced with a landscape design which
presents a more modern image of the company and better reflects the
environmental stewardship role at the heart of its activities. Customers and
employees were consulted about the new design.
To coincide with the launch of the new logo, a series of new, customer led
communications campaigns were also unveiled. The success of these campaigns
resulted in the company's External Communications Department being voted the
region's In-House Team of the Year at the Institute of Public Relations' Cream
Awards in November 2002. The team won seven out of the 14 awards presented on
the night.
OPERATING REVIEW: AQUARION
Financial performance
2002/03 was a year of consolidation for Aquarion following the acquisition of
the New England operations of American Water Works at the end of April 2002.
The acquisitions increased the scale of the US operations by around 50%, adding
�29.5m to turnover and �10.5m to operating profit in the eleven month period
after acquisition.
Turnover of the continuing US operations decreased to �64.2m (2002: �70.5m).
Operating profit was reduced to �24.4m (2002: �28.2m) due to a dry summer in
the north east region served by Aquarion, a number of other cost pressures and
pre contract costs in the Aquarion Services contract operations business. �9.8m
(40%) of the full year operating profit accrued in the second half year
reflecting the seasonal influence on water consumption in the US, where
customers are predominantly metered.
The combined US operations had turnover of �93.7m (2002: �70.5m) and operating
profits of �34.9m (2002: �28.2m).
Timco, the small timber business owned by Aquarion, is being closed at an
expected loss of �3.9m and its results are included within discontinued
operations. In 2003, Timco turnover amounted to �9.7m (2002: �11.2m) and the
business incurred an operating loss of �0.4m (2002: �0.1m).
Operating review
Aquarion has continued to grow its operations through acquisition and the
expansion of its contract water and waste water operations. The acquisition of
four water company subsidiaries from American Water Works in New York,
Connecticut, New Hampshire and Massachusetts, was completed in April 2002 for
$120m cash and the assumption of $104m of debt. The efficient integration of
the new utilities has now been achieved. The acquisition increased Aquarion's
water company customer base by 64,000 accounts or approximately 50%. During the
year Aquarion acquired a further small Connecticut water company and the New
England water operations contract business from AquaSource Inc.
The non regulated water sector business also achieved a significant success
with the award of a 10 year, $110m contract to operate the Water Pollution
Control Authority in Aquarion's home city of Bridgeport, Connecticut,
commencing in April 2003. It is one of 11 new water and waste water contracts
that Aquarion has obtained throughout New England and brings the total to more
than 40.
The company continued to make a significant investment in its infrastructure to
improve water service and delivery. The comprehensive capital improvement plan,
which includes supply, treatment, pumping and distribution improvements, mains
replacements and long range water supply planning was �19.9m (2002: �17.2m). In
the new financial year, the capital budget is expected to exceed �30m. The
improvements will be partly financed by proceeds from the company's March 2002
$90m land sale.
The New England region, during most of 2002, experienced dry weather conditions
that affected nearly half of the US. Aquarion managed its systems effectively
throughout New England to conserve water resources and meet customers' water
service demands.
To continue to support the state's goals to preserve Open Space, Aquarion
Company has signed a Memorandum of Understanding (MOU) with the Connecticut
Department of Environmental Protection (DEP) to not sell its water utility
subsidiary's 1,300 acres of land in the newly acquired service areas of
Greenwich and Mystic Connecticut for two years - unless it is preserved as open
space. The MOU, which gives the DEP time to review and consider purchasing the
property for open space preservation, mirrors that of a December 1999 MOU that
resulted in a historic land purchase for open space or passive public
recreation, conservation and preservation for Connecticut's citizens and
visitors.
Customer service
Aquarion opened a new customer call centre in Connecticut to provide service
for existing and new customers throughout the enlarged operation. The company
has maintained high customer satisfaction marks from the Connecticut Department
of Public Utility Control (DPUC). The DPUC's 10th Annual Consumer Service
Complaint Scorecard, which documents unresolved complaints of all Connecticut
service utilities that generally concern such issues as billing disputes,
terminations and overall service quality, in March reported that Aquarion Water
company received its lowest number of unresolved customer complaints since
1994.
The company also began to enhance its web site to make www.aquarionwater.com a
more comprehensive and attractive communications vehicle. The site features the
company's new online bill payment service.
In addition, the company also expanded its emergency notification capabilities
in Connecticut, New York, Massachusetts and New Hampshire through a telephone
system that can automatically notify more than 15,000 customers an hour in a
given area of the system in case of an emergency.
OPERATING REVIEW: OTHER OPERATIONS
KeyLand
KeyLand had a strong second half year as anticipated in the interim results
statement. Turnover (including share of associates) was ahead of last year at �
12.8m (2002: �10.1m) with operating profit 19% ahead at �4.3m (2002: �3.6m).
This reflects the continued high demand for prime development land.
The primary source of revenue continues to be through the development of major
brownfield housing development sites. Three significant properties were
successfully brought to the market during the year with numerous smaller, high
margin, properties supplementing the results. KeyLand's office park development
at Mid Point between Leeds and Bradford continues to attract strong interest.
The 2002/03 financial year saw the completion of two office buildings, one
being pre let to Car Care Plan Ltd. The second building, Aquarius House, is now
being let. Prospects overall for 2003/04 remain encouraging.
In addition to its primary activities, KeyLand has participated in selected
joint venture developments. KeyLand will continue to concentrate its resources
primarily upon the development of the surplus property assets of Yorkshire
Water.
Loop
Loop's turnover increased to �17.3m (2002: �16.0m), including �1.8m (2002: �
0.9m) from external contracts, continuing the trend of steady growth to date.
Loop's contribution to group operating profit also increased to �0.4m (2002: �
0.2m).
Loop continued to deliver high standards of service to Yorkshire Water's
customers, including excellent results in the customer response and debt
collection measures monitored by Ofwat.
Service to Loop's expanded client list continued by implementing a contract
with the Merseyside Fire and Civil Defence Authority, helping them with their
initiative to save lives through a programme of fire prevention measures. Loop
also successfully won an inbound scheme for London Borough of Lewisham, taking
calls from customers who are calling in response to the local housing
association's weekly newsletter. The contract with National Blood Service
expanded by handling outbound calls for the North Wales region from Loop's Parc
Menai offices in Bangor.
The company's recent placements in the Sunday Times '100 Best Companies to Work
For 2003' and in the Financial Times '50 Best Workplaces in the UK 2003'
recognises the success of our approach, that excellent standards of customer
service is inextricably linked with retention of experienced and enthusiastic
employees working in a supportive environment.
Waste Recycling Group
2002 was a year of consolidation for Waste Recycling Group plc (WRG) during
which business conditions worsened. WRG reported increased depreciation charges
and exceptional items of �15.4m in its results for the year ended 31 December
2002. The group's share of turnover increased to �138.0m (2002: �129.3m) and
the group's share of operating profit, before exceptional items, was �16.2m
(2002: �18.5m). The group's share of the exceptional items, which amount to �
4.4m after taxation, has been reported separately in the group profit and loss
account and has been excluded from the group's reported adjusted earnings per
share figures.
Kelda announced on 27 March 2003 that it had entered into an exclusivity
agreement, for the period until 5 June 2003, with Terra Firma regarding the
sale of its share at a price not less than 285p.WRG has announced that it is in
talks with the same third party. Discussions are continuing which may or may
not lead to an offer for the company.
Group profit & loss account
Year ended 31 March 2003 Year ended 31 March 2002
Before Before
exceptional exceptional Exceptional
items Exceptional items Total items items Total
Note �m �m �m �m �m �m
Turnover: group
and share of
associates and
joint ventures 2 838.1 - 838.1 799.8 - 799.8
Share of
associates' and
joint ventures'
turnover (147.6) - (147.6) (141.0) - (141.0)
---- ---- ---- ---- ---- ----
Group turnover 690.5 - 690.5 658.8 - 658.8
---- ---- ---- ---- ---- ----
Continuing
operations 651.3 - 651.3 647.0 - 647.0
Acquisitions 29.5 - 29.5 - - -
Discontinued
operations 9.7 - 9.7 11.8 - 11.8
---- ---- ---- ---- ---- ----
Operating costs (425.2) - (425.2) (413.8) - (413.8)
Group operating
profit 265.3 - 265.3 245.0 - 245.0
---- ---- ---- ---- ---- ----
Continuing
operations 256.6 - 256.6 251.9 - 251.9
Acquisitions 10.5 - 10.5 - - -
Discontinued
operations (1.8) - (1.8) (6.9) - (6.9)
---- ---- ---- ---- ---- ----
Share of
associates' and
joint ventures'
operating
profit 2/4 18.8 (7.0) 11.8 20.3 - 20.3
---- ---- ---- ---- ---- ----
Operating
profit: group
and share of
associates and
joint ventures 2 284.1 (7.0) 277.1 265.3 - 265.3
Exceptional
loss on closure
of operations 5 - (3.9) (3.9) - - -
Net exceptional
loss on
disposal of
operations 5 - - - - (25.9) (25.9)
Net exceptional
profit on sale
of land (US) 5 - - - - 60.3 60.3
---- ---- ---- ---- ---- ----
Profit on
ordinary
activities
before interest 284.1 (10.9) 273.2 265.3 34.4 299.7
Net interest
payable
- group (98.1) (98.1) (93.3) - (93.3)
- associates
and joint
ventures (10.8) (10.8) (9.3) - (9.3)
---- ---- ---- ---- ---- ----
Profit on
ordinary
activities
before taxation 175.2 (10.9) 164.3 162.7 34.4 197.1
Taxation on
profit on
ordinary
activities
- current
taxation 5/6 (7.0) - (7.0) (7.3) (19.0) (26.3)
- deferred tax 5/7 (29.9) 0.9 (29.0) (14.8) - (14.8)
- share of
associates' and
joint ventures'
tax 4/6 (4.6) 2.6 (2.0) (4.7) - (4.7)
---- ---- ---- ---- ---- ----
Profit on
ordinary
activities
after taxation 133.7 (7.4) 126.3 135.9 15.4 151.3
Minority
interests (0.2) - (0.2) 0.1 - 0.1
---- ---- ---- ---- ---- ----
Profit
attributable to
shareholders 133.5 (7.4) 126.1 136.0 15.4 151.4
Dividends (100.8) - (100.8) (98.3) - (98.3)
---- ---- ---- ---- ---- ----
Retained profit
for the
financial year 32.7 (7.4) 25.3 37.7 15.4 53.1
---- ---- ---- ---- ---- ----
Basic earnings
per share 9 32.7p 39.3p
Adjusted
earnings per
share
(excluding
deferred tax) 9 42.4p 39.1p
Diluted 9
earnings per
share 32.6p 39.2p
---- ---- ---- ---- ---- ----
Dividends per 10 26.05p 25.50p
share
---- ---- ---- --- ---- ----
Group balance sheet
At 31 March At 31 March
2003 2002
Note �m �m
Fixed assets
Intangible assets 243.8 184.9
Tangible assets 3,606.7 3,332.2
Investments in joint ventures 3.1 3.4
---- ----
Share of gross assets 34.9 33.9
Share of gross liabilities (35.1) (33.8)
Loans to joint ventures 3.3 3.3
---- ----
Investments in associated undertakings 115.5 116.2
Other investments 19.5 25.2
---- ----
3,988.6 3,661.9
---- ----
Current assets
Stocks 1.5 3.1
Debtors 198.2 214.8
Cash and short term deposits 328.0 195.5
---- ----
527.7 413.4
Creditors: amounts falling due within one year
Short term borrowings (44.4) (36.9)
Other creditors (325.9) (373.9)
---- ----
Net current assets 157.4 2.6
---- ----
Total assets less current liabilities 4,146.0 3,664.5
Creditors: amounts falling due after more than
one year
Long term borrowings (2,004.0) (1,595.1)
Other creditors (237.3) (225.2)
Provisions for liabilities and charges
- deferred tax 8 (183.1) (149.9)
- other (3.7) (3.8)
---- ----
Net assets 1,717.9 1,690.5
---- ----
Equity shareholders' funds 1,717.3 1,690.5
Non-equity minority interests 0.6 -
---- ----
Capital employed 1,717.9 1,690.5
---- ----
Statement of group total recognised gains and losses
Year ended
31 March 31 March
2003 2002
�m �m
Profit attributable to shareholders 126.1 151.4
Exchange adjustments 1.5 (1.5)
---- ----
Total recognised gains and losses relating to the period 127.6 149.9
Prior year adjustment in respect of the adoption of FRS 19 - (138.1)
---- ----
Total recognised gains and losses since last annual report 127.6 11.8
---- ----
Summarised group cash flow statement
Year ended
31 March 31 March
2003 2002
Note �m �m
Net cash inflow from operating activities 11 441.4 387.8
Dividends received from associated undertakings 2.5 2.7
Returns on investments and servicing of finance (82.1) (83.7)
Taxation (34.4) (15.1)
Capital expenditure and financial investment
- purchase of tangible fixed assets (389.6) (323.6)
- US land sale - 57.2
- other 17.5 30.0
Acquisitions and disposals 12 (76.3) (1.9)
Equity dividends paid (99.0) (96.3)
Management of liquid resources (189.8) 9.0
Financing 347.6 91.9
---- ----
(Decrease) increase in cash in the period (62.2) 58.0
---- ----
Analysis of movement in net debt
Year ended
31 March 31 March
2003 2002
�m �m
(Decrease) increase in cash in the period (62.2) 58.0
Increase in short term debt (2.7) (12.7)
Increase in long term debt (341.0) (78.6)
Increase (decrease) in liquid resources 189.8 (9.0)
Debt acquired with subsidiary undertakings (82.0) -
Other 14.2 0.9
---- ----
Movement in net debt in the period (283.9) (41.4)
Net debt at the beginning of the period (1,436.5) (1,395.1)
---- ----
Net debt at the end of the period (1,720.4) (1,436.5)
---- ----
Notes to the preliminary results
1 Basis of Preparation
The preliminary results have been prepared using the accounting policies
disclosed in the Annual Report and Accounts 2002. In accordance with FRS 18
'Accounting Policies', the directors have reviewed the group's accounting
policies and consider them to be the most appropriate to the group's
operations.
Aquarion prepares accounts in accordance with Generally Accepted Accounting
Principles in the US (US GAAP). Where material, adjustments are made to the
results of the US operations to align US GAAP with the group's accounting
policies.
2 Segmental analysis of turnover and operating profit
The segmental analysis of turnover and operating profit is as follows:
Turnover Operating profit
2003 2002 2003 2002
�m �m �m �m
Water services
- UK regulated 567.0 559.8 233.7 225.5
- US continuing 64.2 70.5 24.4 28.2
operations
- US acquisitions 29.5 - 10.5 -
Waste Recycling Group plc 138.0 129.3 16.2 18.5
(associate)
Other activities - group 20.1 16.7 4.4 3.4
- associates and joint 9.6 1.1 2.6 0.4
ventures
Discontinued operations - 9.7 11.8 (1.8) (6.9)
group
- associates - 10.6 - 1.4
---- ---- ---- ----
838.1 799.8 290.0 270.5
Corporate costs (5.9) (5.2)
---- ---- ---- ----
Total: group and share of 838.1 799.8 284.1 265.3
associates and joint
ventures (before
exceptional items)
Exceptional items
- Waste Recycling Group - - (7.0) -
plc (associate)
---- ---- ---- ----
Total: group and share of 838.1 799.8 277.1 265.3
associates and joint
ventures
---- ---- ---- ----
3 Exchange rates
The results of the group's US operations have been translated using the average
exchange rate during the period of $1.55 to the pound (2002: $1.43). The
exchange rate used to translate the group's US assets and liabilities at the
balance sheet date was $1.58 (2002: $1.42).
4 Share of associates' and joint ventures' exceptional items
The exceptional item of �7.0m is Kelda's 45.5% share of WRG's reported
exceptional items for the year ended 31 December 2002.
The group's share of WRG's reported exceptional tax credit is �2.6m.
5 Exceptional items
The exceptional loss on closure of operations of �3.9m relates to the closure
of Timco, the timber company owned by Aquarion in the US.
The net exceptional loss of �25.9m in the year ended 31 March 2002 arose on the
disposal of the group's renewable energy business. The net exceptional profit
of �60.3m on the sale of land (US) in the year ended 31 March 2002, arose on
the completion of a $90m land sale to the state of Connecticut and the
international conservation organisation, The Nature Conservancy.
The exceptional deferred tax asset of �0.9m relates to the loss on the closure
of Timco.
The exceptional tax charge of �19.0m in the year ended 31 March 2002 arose on
the profit on the $90m US land sale.
6 Current taxation
2003 2002
�m �m
UK corporation tax charge 9.7 2.3
Overseas taxation 9.0 7.3
Prior year credit - UK (4.8) (0.1)
Prior year credit - US (6.9) (2.2)
---- ----
7.0 7.3
Exceptional item - tax arising on US land sale - 19.0
---- ----
7.0 26.3
---- ----
7 Deferred tax
2003 2002
�m �m
Full deferred tax charge 38.3 34.7
Discount (1.8) (19.9)
Deferred tax asset (6.6) -
---- ----
29.9 14.8
Exceptional item - deferred tax asset arising on closure of (0.9) -
operations
---- ----
29.0 14.8
---- ----
8 Deferred tax provision
2003 2002
�m �m
At 1 April 149.9 138.1
Deferred tax charge 29.9 14.8
Acquisition of operations 6.2 -
Closure of operations (0.9) -
Exchange rate and other adjustments (2.0) (3.0)
---- ----
Discounted provision for deferred tax 183.1 149.9
---- ----
Undiscounted provision for deferred tax 513.7 478.7
Discount (330.6) (328.8)
---- ----
Discounted provision for deferred tax 183.1 149.9
---- ----
9 Earnings per share
The weighted average number of shares used in the calculation of basic earnings
per share (EPS) is 385.8m (2002: 385.2m) and of diluted EPS is 387.1m (2002:
386.3m).
Adjusted EPS is calculated excluding exceptional items as follows:
2003: Exceptional loss on the closure of Timco �3.9m (�3.0m net of tax) and
Kelda's share of WRG's exceptional items �7.0m (�4.4m net of tax)
2002: Profit on US land sale �60.3m (�41.3m net of tax) and net exceptional
loss on disposal of operations �25.9m (net of tax).
Adjusted EPS is also presented excluding the charge for deferred tax.
Diluted EPS assumes conversion of all dilutive potential ordinary shares under
the group's sharesave schemes.
10 Proposed dividend
The proposed final dividend of 18.19p per share, if approved by shareholders,
will be paid on 1 October 2003 to shareholders on the register on 29 August
2003.
11 Reconciliation of operating profit to net cash inflow from operating activities
2003 2002
�m �m
Group operating profit 265.3 245.0
Depreciation 144.8 142.4
Goodwill amortisation 1.0 1.1
Release of grants and contributions (3.3) (3.4)
Exchange rate and other adjustments 23.7 (2.5)
Decrease in stocks - 0.9
Decrease (increase) in debtors 19.9 (1.2)
(Decrease) increase in creditors (10.0) 5.5
---- ----
Net cash inflow from operating activities 441.4 387.8
---- ----
12 Acquisitions and disposals
2003 2002
�m �m
Payments relating to acquisitions of subsidiary
undertakings (78.0) -
Purchase of intangibles (0.4) -
Net cash acquired with subsidiary undertakings 1.6 -
Purchase of associated undertakings - (1.3)
Proceeds (costs) arising from sales of operations 0.5 (0.6)
---- ----
(76.3) (1.9)
---- ----
13 FRS 17
The full disclosures required in accordance with the phased implementation
requirements of FRS 17 'Retirement Benefits' will be made in the group accounts
for the year ended 31 March 2003. The disclosed deficit in the main UK defined
benefit scheme is �111.9m after tax (2002: �17.6m asset).
14 The financial information set out in this preliminary announcement is an
abridged version of the full accounts and does not constitute statutory
accounts. This information is derived from the statutory accounts for the years
ended 31 March 2002 and 31 March 2003 upon which unqualified audit reports have
been given. No statement has been made by the auditors under Section 237(2) or
(3) of the Companies Act 1985 in respect of either of these sets of accounts.
The accounts for the year ended 31 March 2002 have been filed with the
Registrar of Companies. The full statutory accounts for the year ended 31 March
2003 will be posted to shareholders early July.
15 This announcement was approved by the board of directors on 5 June 2003.
Auditor's report on the preliminary announcement to the directors of Kelda
Group plc.
We have concluded our audit of the statutory accounts of Kelda Group plc for
the year ended 31 March 2003 and signed our auditor's report thereon. We have
also reviewed the attached preliminary announcement in respect of the same
accounting period and report that it is consistent with those statutory
accounts.
Ernst & Young LLP
Leeds, 5 June 2003
ENDS
END