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
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