RNS Number:4211O
South East Water Limited
5 July 2005
SOUTH EAST WATER LIMITED
Preliminary Consolidated Results
for the year ended 31 March 2005
Contents
Page
2 Chairman's statement
5 Managing Director's report
12 Consolidated profit and loss account
13 Consolidated balance sheet
14 Consolidated cash flow statement
15 Notes to the preliminary results
Chairman's statement
South East Water Limited has once again achieved a strong all-round performance
in an exceptionally busy year for the company.
The strong financial performance of the business is matched by an equally strong
operational performance. This was recognised by Ofwat in the price review with
an additional 0.2% over all performance assessment included within the first
year price limit.
Results
I am pleased to announce the financial results for the 12 month period ended 31
March 2005 showing an operating profit of #26.4 million (15 months ended 31
March 2004: #40.7 million) on turnover of #95.6 million (15 months ended 31
March 2004: #115.6 million).
During the year South East Water continued to drive out inefficient processes
and deliver a value for money service to all customers.
For South East Water, 2004/05 was dominated by two significant issues: the
completion of the Price Review and a major financial restructuring.
Price Review
In August 2004 Ofwat announced Draft Determinations, followed in December 2004
with the Final Determinations. The company engaged with Ofwat in a number of
discussions between the Draft and Final Determinations and the changes made to
the Final Determination reflected the outcome of those discussions. Whilst the
outcome is challenging, particularly in the area of capital and operating
efficiency, the Board did decide that on balance the Determination would enable
the company to finance its functions and therefore would not be referred to the
Competition Commission. The Board will work closely with the company to deliver
the challenges of PR04.
For South East Water customers, the average increase over the five-year period
is 3.7% above inflation, with an annual profile of:
2005/06 2006/07 2007/08 2008/09 2009/10
15.8% 2.3% 2.2% 0.5% 1.6%
Whilst this level of increase is necessary to ensure that the company can
finance its functions and maintain its service levels to customers, the company
is conscious that any price increase is not welcomed by customers.
The company is working closely with WaterVoice and a number of stakeholder
groups in providing explanations to South East Water customers.
A detailed explanation was also included in the company customer magazine, "The
Big Blue", which has been sent out to every customer with their bill for 2005/
06.
Financial restructuring
During the year the company carried out a major financial restructuring which
includes the financial ring fencing of South East Water. In July 2004, South
East Water raised #366m of long-term funds, the proceeds of which were used to
refinance the acquisition debt and fund the ongoing capital programme.
The new financing structure provides the company with considerable flexibility
and a much improved debt maturity profile that is consistent with the long-term
nature of the asset base. The financial restructuring has increased the level of
debt to the Regulatory Capital Value ratio to 79.3%.
The Board considers this level of gearing as appropriate given the future
investment requirements and the risk profile of South East Water.
Chairman's statement (continued)
As part of the refinancing, the company has agreed with Ofwat some changes to
the Licence. These modifications principally concern the ring fencing of the
regulated business and the management and conduct of the business and the role
of Macquarie European Infrastructure Fund Luxembourg Holdings SA ("MEIF LHSA"),
the ultimate controlling company at that point. MEIF LHSA is itself a wholly
owned subsidiary of Macquarie European Infrastructure Fund LP, which is
considered to be the ultimate controlling party.
These modifications are broadly similar to those agreed by other water companies
who have significantly increased their gearing levels through financial
restructuring. They came into force on 12 July 2004.
Customer Service
The company's record on customer service has improved year on year and the
company is currently ranked third out of twenty two in the Ofwat Overall
Performance Assessment (OPA) table.
To continue building on these successes, the company appointed a Director of
Customer Services in May 2004. This appointment recognises the importance of
improving our relationship with customers and provides a focus on our task of
driving down customer debt.
Corporate Social Responsibility
South East Water continues to punch above its weight in the arena of corporate
social responsibility. It was particularly pleasing that the company's
contribution to the Environment and the Sustainable Development Agenda was
recognised with the prestigious Sir Peter Parker Award for Business Commitment
to the Environment.
Of particular interest to the judging panel of this national award was the
company staff volunteer days to work on conservation projects across the company
region. Our target is at least 10% of staff will participate in these projects.
This is complemented by community activities where over 12,000 staff hours have
been dedicated to a wide range of community activities from school presentations
to local fetes, and support of the Young Enterprise initiative.
The Health & Safety campaign, headed by the company Health & Safety mascot, SAM
(Safety Always Matters) continues to pay dividends with the company receiving
the ROSPA Gold Award for the second year running.
Outlook
As the pages close on PR04, we must now look to delivering the challenges from
the review whilst maintaining our levels of service to our customers.
The water market will be further opened to competition with the new licensing
regime for new entrants.
The company will work with the regulators to ensure that the benefits of
competition are maximised and the level of risk minimised.
As we look out to 2005/06, the regulatory landscape is changing with the
creation of the new Consumer Council for Water and the replacement of the
Director General of Ofwat with a regulatory board, Water Services Regulation
Authority.
The company will work with the various regulators and organisations to assist
with a smooth transition from the old to the new.
As a company working within a regulatory environment, we welcome the Hampton
Review on the Future of Regulation and will watch with interest as the
recommendations are implemented.
We will continue to work at both a local and national level to promote the
issues affecting the water industry and I am pleased that our Managing Director
has taken on the role of Chairman of Water UK from 1 April 2005. The Board fully
supports this appointment regarding it as a reflection of the reputation of
South East Water in the industry.
Chairman's statement (continued)
Board
During the year Angela Knight, independent Non Executive Director, retired from
the Board. Keith Henry has replaced Angela, thus maintaining full compliance
with our Licence obligations.
I would like to thank Angela Knight for her contribution to South East Water
during a very busy period and formally welcome Keith Henry to the Board.
In addition Andrew Hunter resigned from the Board in the year and Martin Stanley
is due to resign with effect from 1 July 2005. I would also like to thank them
for their contribution.
Management and Staff
This was without doubt a busy year for South East Water. It is a testament to
the professionalism and expertise of the staff that this challenging agenda was
delivered without any detriment to the service delivered to customers,
demonstrating the company's vision of "Success as a Service Business through
Innovation & Growth" in action.
J Craig
Chairman
Date: 30 June 2005
Managing Director's report
All industries have their particular milestones. For the water industry, the
completion of the price review is undoubtedly one of our important milestones.
This, coupled with a financial restructuring, made 2004/5 a busy and challenging
year for South East Water's management and staff. It is a reflection of the
professionalism of our team that these challenges were met whilst continuing to
improve the service delivery to all our customers across the spectrum of
activities, from water supply to response to customer complaints. I would like
to highlight some of the significant business issues which have been dealt with
successfully, to ensure that we continue to provide our customers with a safe
and reliable supply of drinking water 24 hours a day, 365 days a year.
Operating costs
Having, five years ago, been amongst the lowest-performing water companies in
the Ofwat table for operating efficiency, rated as band E, the company has
improved its rating to band B. This reflects our commitment to delivering value
to our customers and our shareholders.
The Chairman has referred to our increase in prices for the next five years. The
major part of our increase is applicable in 2005/6 reflecting the fact that,
despite significant reductions in our operating cost base, the costs driving
prices impact upon us immediately. This has been partly driven by investment
costs; in addition, such extra costs as insurance, rising fuel prices, changes
in taxation affecting water companies and increased pension contributions, have
all been recognised by the regulator in his determination as positive cost
drivers. Rising pension costs have been a concern, despite the pension scheme
closing to new entrants and employee contributions increasing from 6% to 7%.
Company pension costs have risen from 13.8% of pensionable payroll to 30.0% in
January 2005. These will need to rise further in the future as mortality rates
improve and investment returns remain below their previous levels. South East
Water has made a significant contribution to keeping the customer price increase
to a level averaging no more than 3.7% over the five year term from 2005 to 2010
by past efficiencies reflected in our band B rating. The outcome of the price
review has set the company extremely challenging operating and capital cost
efficiency targets. The company will strive to meet these whilst maintaining
service to our customers.
Investing in the future
A part of our increase in prices next year is needed to fund the major capital
investment which the company will be making over the next five years - #174
million net of developer receipts. Capital investment in 2004/5 was #44.8
million, the tenth consecutive year that investment will have been greater than
pre-tax profits and this position will continue for the next five years. This
level of investment demonstrates our commitment in particular, to renewing
existing infrastructure and developing new water resources in our licensed area
of the south east of England, which is recognised by all our stakeholders as
being water resource deficient.
A quarter of the total investment programme was spent on projects to improve the
quality of the water supplied to our customers. Our major programme of cleaning
and relining our water mains continued with some 150km of main being refurbished
at a cost of nearly #7.9 million. A further #2.7 million was invested in
micro-filtration plants at various locations to further reduce the already low
risks of microbial contamination.
Some #9.4 million was invested in new water resources and on new mains to cope
with the growth in demand. Half of this total was spent on a single scheme, the
Bewl-Darwell transfer project. This regional scheme, which involves one other
local water company, allows the transfer of surplus water from Bewl Reservoir to
Darwell Reservoir. South East Water has constructed a new intake and pumping
station at Darwell Reservoir, and a new 14 km long trunk main to carry up to
eight million litres of water per day to our water treatment works at Hazards
Green. This vital new resource will help safeguard supplies in our Bexhill and
Eastbourne area. A pilot desalination plant, the first of its kind in this part
of the country, has been under assessment at Newhaven . If successful, this
technology will help meet peak demand in dry periods increasingly experienced in
the south east of England.
Some #20.6 million of our total investment programme was used to replace
deteriorating assets. Major refurbishment schemes were carried out at our
treatment works at Aldershot, Itchel and Barcombe. Our treated water reservoir
at Swaineshill was reconstructed, and a significant programme of work was
completed to improve security on our sites. In addition to this a large number
of relatively low value essential replacement projects, e.g. pumps, electrical
switch gear, control systems, was also completed in the year.
Managing Director's report (continued)
The impact of the investment programme can be seen in a number of ways. We are
pleased to say that our level of compliance with drinking water quality
standards has risen yet again this year to 99.84%, while leakage levels of 69.3
megalitres per day from our distribution system, have been reduced to the
overall economic level. Meanwhile, the number of properties affected by
unplanned interruptions (DG3 0.05%), and those experiencing low pressure (DG2
0.01%), have remained at very low levels, gaining us the Ofwat top assessment
rating for these measures.
In the current climate of increased terrorist threat, security is high on our
agenda. In addition to investing in improved security facilities at our water
treatment and treated water storage sites, we continue to test our response to
simulated emergencies. Three such exercises were carried out during the year,
one of them being in collaboration with the Drinking Water Inspectorate, while
another was a joint exercise with local councils in our area. While these
exercises were successful, there is always something to be learned from them, so
we continue to refine and improve our plans in the light of these experiences.
Our capital expenditure, #44.8 million, was amongst the highest in our history.
We are rated as band A by Ofwat for effectiveness in managing our capital
expenditure which demonstrates that we are amongst the most efficient in the
industry in delivering outputs for each capital # spent. We will continue to
seek ways of delivering future efficiencies in our capital programme. This is a
long term industry and we do have to plan decades ahead, working closely with
our regulatory stakeholders; Ofwat, who will be replaced in April 2006 by a
regulatory board, the Water Services Regulatory Authority; Water Voice, which
will be replaced by a new Consumer Council for Water; the Environment Agency;
the Drinking Water Inspectorate; and English Nature to secure a common view of
our needs for the future.
We are, for the future, and like the rest of the water industry, concerned at
the potential implications for capital spend from legislation such as the Water
Framework Directive, to be implemented progressively by 2015.
Water Supply and Distribution
The quality of the water we supply still remains among the best in the world
with 99.84% of our 100,613 tests complying with both European Union and UK
mandatory standards.
In addition to these tests required by the regulations, we also carried out a
further 108,000 tests to ensure that our assets were performing in such a way as
to deliver excellent quality water to our customers.
In 2004 considerable investment was made, not only in maintaining water quality
but also in ensuring that we comply with the latest stringent water quality
standards regarding the parasite Cryptosporidium.
In addition to this we also completed installation of orthophosphate dosing at
23 of our water treatment sites. This will reduce the amount of lead leaching
into the water supply from lead pipes, where these remain in the system, mainly
on customer premises. It also has the added benefit to our customers of reducing
scale build up in domestic appliances.
Rehabilitating our ageing mains infrastructure formed a major part of our
capital investment programme. During 2004, some 160km of mains were
rehabilitated either by direct replacement or via scraping and relining. This
work represents the final stage of our rehabilitation programme, which involves
the rehabilitation of just under 1,100km of mains. The programme is due to be
completed in June 2006 and will maintain water quality and pressure for our
customers. We thank our customers in Farnham, Frensham, Crowthorne, Wokingham
and Sevenoaks for their patience during the last year while we carried out this
essential work in their areas.
Water Resources
After a dry winter in 2003/4, water supply was sufficient to meet demand in
2004. However, six consecutive months of below average rainfall from November
2004 to April 2005 have been cause for some concern about our ability to meet
demand in 2005, unless rainfall improves back to Long Term Averages. We continue
to work closely with the Environment Agency in applying the twin track approach
of demand management and resource development. Our 25 year Water Resources Plan
includes researching the feasibility of building a raw water storage reservoir
at Clay Hill, working with all stakeholders at each stage of this project to
ensure that the final outcome is sustainable for all stakeholders. In the
meantime, we have continued to publicise water efficiency measures to customers,
including this year a joint promotion with neighbouring water companies using TV
gardener and personality Charlie Dimmock at B&Q stores in our supply area. We
have actively pursued demand management initiatives including extending our
metering programme throughout the year.
Managing Director's report (continued)
A number of resource improvements over the year have helped to mitigate our
resource deficit including the re-negotiation of the Ouse abstraction licence
with the Environment Agency and the construction of the Bewl-Darwell link. The
two schemes will provide an additional 13.8 million litres of water per day to
customers across Sussex. We reduced our leakage to 69.3 megalitres a day,
achieving our economic leakage level. This is also a considerable improvement
over the past five years from a leakage level of 97 megalitres a day, the
highest percentage improvement in the industry over that period.
Metering
We maintain our view that metering can be an effective demand management tool,
and we continue to promote this through mailings and our website. However, our
opinion is that compulsory metering is the only really effective and sustainable
option, both economically and as a demand reduction method, and we will continue
to lobby Government for a change in its policy on metering.
Our customers
Customers remain at the very heart of our business. The appointment of a
Director of Customer Services acknowledges the importance of all our 1.5 million
customers to the business and will ensure that we continually strive to deliver
an excellent level of service.
We have seen levels of customer contact decrease over the year and the level of
written complaints reduce by 34% as a result of improved processes in the
business, giving first time resolution to all our customers.
We have also seen 50% reduction in the number of customers who have written to
WaterVoice.
Customer Feedback
We value feedback from our customers and have continued to use Customer Contact
Surveys as a means of identifying areas that need to be improved. We have
carried out three such surveys this year, undertaken by an independent Customer
Research Company. These surveys, and the work we carried out in 2003, show a
continuing improvement across all areas of customer contact, be it politeness
and courtesy of staff at our contact centre, our Distribution Inspectors who
visit our customers on a daily basis, and the efficiency of our administration
teams - often our unsung heroes.
Innovation and New technology
We continue to seek new and innovative ways of interacting with our customers to
optimise the experience they have. We have recently introduced a fully automated
payment line at our contact centre, based on speech recognition software. This
has proven hugely popular with our customers, with a 50% increase in the number
of 'contacts' over the same period last year. Now that we have proved the
concept of this type of technology, we are seeking actively further developments
of this service to offer additional self service functions to our customers,
such as payment by Direct Debit, or self meter reads.
We reported last year on the integration and testing of a completely new
customer management system.
Due to technical difficulties and delays taken in implementation, the Board
reluctantly decided to terminate this project. The matter is, in line with the
contract provisions, subject to arbitration procedure to resolve the dispute.
The associated assets have been written off within the financial statements. A
new billing and customer information management system will be implemented in
November 2005.
Our Largest Commercial Customers
A dedicated team of staff deal with our large user / high consumption users, who
use more than 9,000 cubic metres of water per annum, to reflect the different
needs of these customers. This helps ensure that we remain efficient and focused
in our response to the needs of our high consuming water users. As competition
for large users of water opens up, we will be judged very much on our
responsiveness and innovative approach to helping these customers.
While excellent levels of service are very important to our large user / high
consumption users, we also need to remain competitive. We have a number of large
user tariffs available to this group of customers, rewarding consumption
patterns that result in a lower cost of supply. A full large user tariff review
will be carried out in 2005 to develop more innovative tariffs, reflecting
seasonal demands.
Managing Director's report (continued)
A number of value added services are available to large commercial customers.
The core offering is the Demand Management Services Suite, comprising four
distinct but interlinked services aimed at reducing wastage and thereby cost to
the customer. The services available are Water Audits, Leakage Detection,
External Pipe Repair and E-metering.
Dealing with Debt
The whole industry has suffered from increasing levels of customer debt,
reflected generally in society by high personal borrowings and credit card debt.
South East Water reviewed its internal organisation and procedures to ensure
debt was reduced and our income maximised as well as improving our response to
customer contacts. The company contributed to the EOS Trust which assists
customers with genuine payment difficulties to re-schedule and pay off their
debt. We are also able to help customers on benefits apply for Water Direct
Payments from the Department of Work and Pensions, where they are eligible for
such payments.
A rising debt trend was reversed in 2003/4 to end that year with 17.6% of annual
turnover as debt; in the past year we have further reduced that to 15.2% of
turnover. This remains far too high and we will continue next year to pursue
debt vigorously in the interests of fairness to all our customers.
WaterVoice carried out an audit on our debt recovery practices during the year.
WaterVoice gave us the highest rating possible in the audit, reflecting our firm
but fair approach.
Our environment
South East Water is committed to protecting and improving the environment in
everything that we do, and so we were pleased in 2004 to launch our first
sustainable development policy and sustainable development report. The purpose
of this work was to outline and demonstrate our approach to ensure the long-term
sustainability of our business.
As a water supply business, our company is more intrinsically linked to the
environment than many other businesses. We abstract water from rivers and
aquifers and are a significant land-owner. We recognise that the way we operate
can impact on the environment and we aim to adopt an environmentally responsible
approach to all aspects of our work.
This responsible approach has been demonstrated particularly well during this
reported period. For example, during this financial year, we began to survey
company Sites of Special Scientific Interest (SSSI). During this year 25% of
these sites were surveyed, and key management principles established together
with a five-year management and monitoring protocol. Such work is part of a
long-term company vision to ensure that 95% of our SSSI landholdings are in
favourable condition by 2010.
Our environmental work has not been restricted just to land management. All
major engineering projects were assessed for their environmental impact during
2004/05 to ensure that environmental issues were identified and mitigated before
construction work commenced. This proactive work ensured that engineering
solutions were developed optimising environmental protection.
Once again this year, our environmental management systems were awarded ISO
14001 certification at our Barcombe treatment works.
Other highlights for 2004/05 have been:
* Winner of the Peter Parker Award at the prestigious Business Commitment to
the Environment Award in April 2004;
* Erection of dormice nesting boxes as part of the Bewl-Darwell water
resource scheme;
* Extensive great crested newt mitigation and survey work on numerous
engineering schemes;
* Over 10% of company staff engaged in our conservation volunteer scheme;
* Over 250 members of the public engaged in our community conservation
volunteer scheme;
* 30% reduction in office waste at two of our water treatment sites.
Managing Director's report (continued)
Our Communities
As a local water company, we have a strong commitment to the communities we
serve and have an active programme of engagement with the people and
institutions who make up the communities.
Our first responsibility is to supply clean safe drinking water and in 2004/05
our water quality once again exceeded the exacting standards of the Drinking
Water Inspectorate. We were active in promoting the 'Drink More Water' campaign,
particularly in primary schools, extolling the health benefits of drinking water
with posters, postcards and water bottles which children could use to bring
clean tap water to school with their lunch boxes. Primary schools were a
principal focus of another important programme in which we sought to engage with
our public - water efficiency. In our 'Use Water Wisely' campaign our staff gave
talks at primary schools throughout our supply area to help children at an
impressionable age understand that water is a precious resource. We also
distributed Hippo bags, water saving devices which reduce the volume of water
used in every toilet flush. We co-operated with a number of public libraries in
our area to supply posters and promotional materials on the subject. Once again
this year, the company promoted water efficiency and conservation at
participating B&Q stores in our supply area. Our staff are proud of the service
we provide and were happy to show numerous adult groups, ranging from
representatives of Uckfield Town Council to the Wokingham Rotarians, around
water treatment works at Bray, Hazards Green and Barcombe.
Public access to conservation sites and reservoirs is an important facility
which South East Water provides to our communities. Walking, birdwatching,
sailing, fishing and horse-riding are amongst the recreational pursuits enjoyed
on our open-access land. South East Water employ a small dedicated group of
fisheries and conservation staff whose role is to keep our public facilities in
an attractive and safe condition for members of the public to enjoy the
recreational opportunities our sites provide. Over 10% of our staff gave up
their time to help in scrub clearance and restoration of our green sites.
We are particularly indebted to the 258 members of the public who gave their own
time to our conservation volunteer programme helping maintain and improve our
public access facilities. 2004 was the 25th anniversary of Ardingly Reservoir
and a summer programme of events was laid on to celebrate this important
milestone. Our conservation staff held instructional bat-spotting walks around
the reservoir and TV presenter Nick Knowles cut the birthday cake at a tea party
for local children and members of the public. Like many organisations, South
East Water decided not to send out Christmas cards but, instead, we used the
resource to provide a permanent wood sculpture at Ardingly for the enjoyment of
the public. A fallen tree trunk was carved into a giant stag beetle by Richard
Dyer, one of our Conservation Rangers, in his own time, and this now attracts
enormous interest and admiration, particularly from the school children who
visit Ardingly.
We continued our programme of local sponsorships designed to cement a close
relationship with community institutions through assistance with the
organisation or resources of local events. These covered a range of activities
including the Hook Village fete, the Hampshire Museums Trust, The Wivelsfield
Village Fun Run, Farnham Heath Nature Reserve, the Eastbourne Victorian
Festival, and Haywards Heath Football Club.
Numerous charities benefited from a variety of sponsorships and fund-raising
events supported by the company and staff. These included Water Aid, to which
staff and company contribute through payroll deductions, and which aims to bring
to third world countries the clean drinking water and sanitation we take for
granted in this country. This year, South East Water sent one of its managers to
South Africa under the P.A.W.S. project (Partners in Water and Sanitation ) a
government sponsored project in partnership with water companies, to provide
technical assistance to improve water operations in Nkumazi , South Africa. The
dreadful destruction of communities in Asia by the Tsunami of Boxing Day 2004
also drew on the generosity and public spirit of our staff who made a payroll
donation which was matched by the company. The main focus of charitable support,
however, is local and our own staff ran hundreds of miles in sponsored marathons
and spent many hours in fund-raising to support good causes as diverse as the MS
Society , Spinal Research and the Ocklynge Junior School. The charities which we
support from year to year are chosen by our Charities Panel comprising staff who
dedicate personal time to engaging the interest of their colleagues in
organising fund raising events in support of our selected charities. This year,
as our Chairman has mentioned, a total of over 12,000 man hours were variously
dedicated to South East Water's community engagement programmes.
To assist members of the public who are disabled, we amended our website to make
it easier to read for people whose vision is impaired, and easier to navigate
for those with impaired grip. We are always attentive to the needs of the
disabled and, after representations from one disabled visitor to our Arlington
Reservoir, we were able to make structural changes to improve access to the
disabled toilet and ensure viable access to the bird hide for multi-terrain
wheelchairs.
Managing Director's report (continued)
We take our corporate social responsibility seriously, whether it be through
direct community involvement, through responsible environmental guardianship or
high standards of corporate governance.
Our Staff
During the financial year, our average directly-employed headcount grew from 373
to 412 as a result of the absorption into South East Water of Dynamco Limited
staff as our in-house Engineering Department. Simplification of the organisation
structure has brought a number of benefits, not least the community of interest
which has enabled all staff to work in harmony to deliver this year's
challenging corporate targets. We were pleased to add to our complement three
new apprentice posts enabling these young people to gain experience and
qualifications in water production and distribution, helping enhance the skill
base available to the company in the future.
Training and Development remains fundamental to our approach to developing staff
potential and 931 days of training were provided, averaging over 2 days for
every member of staff at every level in the business. Regular induction events
were held for new starters and many of our staff continued their development
through the Career Progression Scheme. Support was provided for the acquisition
of professional accountancy, human resources, information services and
engineering qualifications and one of our staff qualified as an MBA
qualification. A significant amount of health and safety training was carried
out. We provided skills training for our managers and the executive team
embarked on training which will lead, in the future, to qualification as
Chartered Director. The company continued its Learning Support Scheme which
enables staff to pursue interests outside their own job for personal
development.
We regard staff communication as very important and continued to operate monthly
briefings and annual performance appraisals throughout the company. The
executive team briefed staff face to face twice during the year on topics such
as pensions, PRO4, the five year business plan and explaining the planned price
increases to customers. There were four issues of our staff magazine,
Reflections, and our intranet, The Source, was further developed as an effective
communication tool. At year-end, the company set up a Staff Council in order to
broaden staff access to a forum of consultation on matters of concern, beyond
the exclusively union channels previously used within the company.
We were able to enhance our staff benefits package at minimal cost by offering
the opportunity to acquire computers through the Government's Home Computer
Initiative. Bonus schemes operated for all our staff, providing an incentive to
achieve our corporate targets and, fundamental to our reward strategy, a share
in the rewards for a successful year.
As in all areas of our business, we seek to evaluate the effectiveness of our
approach. We were proud to be certified again this year as an Investor in
People. Our absence rate, at below 3.0%, and our labour turnover rate, at below
14.0%, both measures commonly used as Key Performance Indicators, were each
below the national averages.
We managed, with our staff, to maintain a safe work environment with reportable
accidents maintained at the level of two for this report year. We aim to reduce
this further and have implemented a comprehensive safety management system which
has been awarded OHSAS18001 accreditation.
Non-regulated business
On the non-regulated side of our business, budgeted income has once again been
met this year due to the team's concerted efforts. Mast Rental income remains an
important contributor to both revenue and profits. A re-negotiation of the
billing and metering services agreements with neighbouring water and sewage
companies together with the income generated from the acquisition of Dynamco
business during the year, has contributed to the 17.1 % non-regulated income
growth.
Managing Director's report (continued)
The real success story for 2004 was the launch of our land searches product,
utilising GIS maps to locate and identify underground company infrastructure on
land transferring ownership. These searches are scheduled to become part of the
home mover packs, so they are not yet compulsory. Our strategy has been to
target distribution agreements with both of our neighbouring water companies
which have their own formal agreements in place with the Law Society. The final
product is then actively marketed to home and property buyers via the packaged
services of large and medium size firms of conveyance-solicitors. Income from
this sector has grown ten-fold to over #150,000 in 2004.
Within Scientific Services, our commercial Cryptosporidium testing business has
come under significant pressure during 2004 from increasing competitor activity
and reduced compliance site testing by our core customers following their site
risk re-assessments. Budgeted income was maintained through increased testing
activity in our non-crypto sectors and the success of our land searches product.
Non-regulated income from Key Accounts, principally users of 10 megalitres or
more of water per annum, continues to show positive growth, with the team
working closely with their Engineering colleagues to sell engineering based
solutions that meet customer needs. In addition to the legionella risk
assessment services introduced during 2002, the team has enhanced its commercial
services portfolio to encompass demand management, as well as active leak
detection and repair services. This success is all the more pleasing for their
simultaneous work on Key Account debt collection, which continues to improve the
company's cash flow position in that area, month on month, over the period.
The Year in Summary
Within South East Water thanks to the contribution made by all the staff, we
have dealt successfully with a range of issues to meet the expectations of all
our stakeholders. We have a challenging year ahead but are optimistic of our
ability to achieve our vision - "Success as a Service Business through
Innovation and Growth." In securing the continuous improvements we need to make
on behalf of all our stakeholders, we are committed to operating a business
which will remain' Fit for Purpose; Fit for the Future.'
Margaret Devlin
Managing Director
Date: 30 June 2005
Consolidated profit and loss account
for the year ended 31 March 2005
Year ended 31 15 months ended
March 2005 31 March 2004
#000 #000
Note
Turnover 2 95,639 115,614
Operating costs 4 (62,225) (75,125)
Operating costs
- exceptional
fixed asset
write off 4 (10,302) -
Operating costs
- exceptional
unfunded pension
costs 4 - (3,310)
Total operating
costs (72,527) (78,435)
Other operating
income 3 3,254 3,482
Group operating
profit 26,366 40,661
Profit on sale
of subsidiary -
discontinued
operation - 2,100
Interest
receivable and
similar income 5 10,212 -
Interest payable
and similar
charges 6 (20,460) (10,609)
Profit on
ordinary
activities
before taxation 16,118 32,152
Tax on profit on
ordinary
activities 7 (5,396) (1,591)
Profit on
ordinary
activities after
taxation 11 10,722 30,561
Equity dividends 8 (24,443) (16,330)
(Loss) /
retained profit
for the
financial period (13,721) 14,231
Group operating profit relates to continuing operations.
There are no material differences between the profit on ordinary activities
before taxation and the (loss) / retained profit for the financial period stated
above and their historical cost equivalents.
The group has no recognised gains or losses other than the profits shown above
and therefore no separate statement of total recognised gains and losses has
been presented.
The accompanying notes are an integral part of this profit and loss account.
Consolidated balance sheet
as at 31 March 2005
2005 2004
Note #000 #000 #000 #000
Fixed assets
Intangible assets 142 -
Tangible assets 408,617 389,434
408,759 389,434
Current assets
Stocks and work in progress 40 38
Debtors: amounts falling due
after more 9 190,013 -
than one year
Debtors: amounts falling due
within one 9 22,389 22,394
year
Total debtors 212,402 22,394
Restricted cash 6,931 -
Non-restricted cash 25,503 644
Cash at bank and in hand 32,434 644
244,876 23,076
Creditors: amounts falling due
within one (52,698) (59,257)
year
Net current assets / 192,178 (36,181)
(liabilities)
Total assets less current 600,937 353,253
liabilities
Creditors: amounts falling due
after more 10 (391,408) (133,668)
than one year
Provisions for liabilities and (25,422) (24,810)
charges
Deferred income (8,075) (8,822)
Net assets 176,032 185,953
Capital and reserves
Called up share capital 5,092 1,292
Capital redemption reserve 4,000 4,000
Profit and loss account 166,940 180,661
Equity shareholders' funds 11 176,032 185,953
The accompanying notes are an integral part of this balance sheet.
These preliminary results were approved by the board of directors on 30 June
2005 and were signed on its behalf by:
M P Devlin
Managing Director
Date: 30 June 2005
Consolidated cash flow statement
for the year ended 31 March 2005
15 months
Year ended ended
31 March 31 March
2005 2004
#000 #000
Net cash
inflow from
operating
activities 12 55,346 53,965
Returns on investments and servicing of
finance
Interest paid (14,709) (9,410)
Interest
received 3,578 -
Issue costs of
new listed
debt (5,971) -
Interest
element of
finance lease
payments (1,377) (1,217)
Net cash
outflow from
returns on
investments
and servicing
of finance (18,479) (10,627)
UK corporation
tax paid - (2,223)
Capital expenditure and financial
investment
Purchase of
tangible fixed
assets (41,095) (47,824)
Fixed asset
contributions
received 1,044 945
Net proceeds /
(costs) from
disposal of
tangible
assets 43 (6)
Net cash
outflow from
capital
expenditure
and financial
investment (40,008) (46,885)
Acquisitions and disposals
Acquisition of
fellow
subsidiary
assets and
contracts (250) -
Proceeds from
disposal of
tangible
assets and
investments - 3,110
Net cash
(outflow) /
inflow from
acquisitions
and disposals (250) 3,110
Equity
dividends paid
to
shareholders (13,030) (15,320)
Net cash
outflow before
management of
liquid
resources and
financing (16,421) (17,980)
Management of
liquid
resources:
(Increase) in
money market
deposits (28,613) -
Financing
Capital
element of
finance leases (5,254) (1,770)
Debenture
repayments (3,803) (167)
Settlement of
long term
loans from
group
undertakings 3,635 -
Issue of long
term loans to
group
undertakings (190,013) (381)
Loans repaid
to group
undertakings (126,154) -
Issue of new
listed debt 366,000 26,850
Proceeds from
equity share
issues 3,800 -
Net cash
inflow from
financing 48,211 24,532
Net cash
inflow from
management of
liquid
resources and
financing 19,598 24,532
Increase in
net cash 3,177 6,552
Reconciliation of increase in net cash to
movement in net debt
Net cash at
the start of
the year 644 (5,908)
Increase in
net cash
(above) 3,177 6,552
Money market
deposits 28,613 -
Total cash 32,434 644
Opening
borrowings (163,537) (144,292)
Net increase
in borrowings (224,818) (19,245)
Other non-cash
changes (3,834) -
Net debt at
the end of the
period 13 (359,755) (162,893)
Notes to the preliminary results
for the year ended 31 March 2005
1. Basis of preparation
The financial statements for the year ended 31 March 2005 have been prepared
in accordance with the accounting policies set out in the Annual Report and
Financial Statements for the period ended 31 March 2004 and the accounting
policies outlined below, which are applicable to the Group for the first
time this year.
Goodwill
Purchased goodwill is amortised on a straight line basis over its useful
economic life commencing in the first full year post acquisition. Each case
is considered on an individual basis.
Financial instruments
The group's financial instruments comprise cash at bank, short term
deposits, fixed and variable rate borrowings and loans, interest rate swaps,
fixed and variable rate finance leases and fixed rate debentures.
Interest differentials, under interest rate swap agreements used to vary the
amount and periods for which interest on borrowings are fixed, are
recognised by adjustment of interest payable.
Interest rate swaps on principal repayments of RPI linked loans are
recognised on an accruals basis over the period of the swap with a
corresponding charge included within interest charges.
Debt issue costs
Debt instruments are stated at the amount of net proceeds received. Issue
costs incurred for the purpose of providing future funds are accounted for
as a deduction from the amount of consideration received and amortised over
the period of the loan to which the issue costs relate.
Certain amounts relating to the prior year have been reclassified to conform
to the current year presentation.
2. Turnover
Year ended 15 months ended
31 March 2005 31 March 2004
#000 #000
Metered water
income 37,007 44,849
Unmetered
water income 53,735 65,101
Other sales 4,897 5,664
95,639 115,614
All turnover is to customers within the United Kingdom.
3. Other operating income
Year ended 15 months ended
31 March 2005 31 March 2004
#000 #000
Rental income 542 729
Charges to
group
companies 45 275
Sundry income 2,667 2,478
3,254 3,482
Notes to the preliminary results (continued)
4. Operating costs
Year ended 15 months ended
31 March 2005 31 March 2004
#000 #000
Other
operating
costs charged
to capital
projects (3,198) (3,098)
Staff costs 10,980 15,295
Depreciation
and other
amounts
written off
tangible fixed
assets 24,560 17,112
Other
operating
costs 40,185 49,126
72,527 78,435
Included within depreciation and other amounts written off tangible fixed
assets is an exceptional fixed asset write off of #10.3 million (2004: #
nil) relating to a customer billing system. Staff costs for the 15 months
ended 31 March 2004 include an exceptional unfunded pension cost of #3.3
million.
5. Interest receivable and similar income
Year ended 15 months ended
31 March 2005 31 March 2004
#000 #000
Interest
receivable
from group
companies 8,932 -
On bank
balances and
short term
deposits 1,280 -
10,212 -
6. Interest payable and similar charges
Year ended 15 months ended
31 March 2005 31 March 2004
#000 #000
Bank interest
on overdrafts - 146
Debenture
interest 1,611 2,165
Interest on
listed debt 10,713 -
Interest
payable on
loans from
group
undertakings 2,484 6,886
Indexed
capital
repayment on
interest rate
swap 3,439 -
Interest
payable on
finance leases 1,380 1,352
Amortisation
of issue costs 243 -
Financing
guarantee fees 492 -
Other finance
charges 98 60
20,460 10,609
Notes to the preliminary results (continued)
7. Taxation
Analysis of tax charge for the period
Year ended 15 months ended
31 March 2005 31 March 2004
#000 #000
Current tax
UK Corporation
tax on profits
at 30% 5,193 2,118
(Over) / under
provision in
prior years (50) 174
Total current
tax 5,143 2,292
Deferred tax
Origination
and reversal
of timing
differences 610 4,427
Increase in
discount (357) (5,128)
Total deferred
tax 253 (701)
Tax on profit
on ordinary
activities 5,396 1,591
8. Dividends
12 months ended 15 months ended
31 March 2005 31 March 2004
#000 #000
On ordinary shares:
First interim
dividend paid
#0.786
(2004:
#6.968) per 4,000 9,000
ordinary share
Second interim
dividend paid
#0.746
(2004:
#1.626) per 3,800 2,100
ordinary share
Third interim
dividend
proposed
#3.269
(2004:
#nil) per 16,643 -
ordinary share
Final dividend
proposed
#nil
(2004:
#4.049) per - 5,230
ordinary share
24,443 16,330
Notes to the preliminary results (continued)
9. Debtors
At 31 March 2005 At 31 March 2004
#000 #000
Trade debtors 2,420 5,617
Amounts due from parent and group
undertakings 7,099 7,680
Other debtors 1,361 1,544
Prepayments and accrued income 11,509 7,553
Total due within one year 22,389 22,394
Amounts due from parent and group
undertakings due after more than one
year 190,013 -
212,402 22,394
10. Creditors: amounts falling due after more than one year
At 31 March 2005 At 31 March 2004
#000 #000 #000 #000
Irredeemable debenture stock 603 606
Redeemable debenture stock 11,100 11,100
Obligations under finance 13,275 18,045
leases
Amounts due to group - 101,890
undertakings
Listed debt due after five 366,000 -
years
Less: unamortised issue (5,728) -
costs
360,272 -
Indexed capital repayment on
interest 3,439 -
rate swap
363,711 -
Other term loans and 2,179 2,027
creditors
Financing guarantee fees 540 -
waived
391,408 133,668
On 27 July 2004 the Group carried out a debt refinancing transaction and
entered into a series of transactions impacting the Group's long term
borrowing arrangements. As part of this refinancing the company's subsidiary
South East Water (Finance) Limited, raised #366 million of debt listed on
the London Stock Exchange.
Notes to the preliminary results (continued)
11. Reconciliation of movements in equity shareholders' funds
Year ended 31 15 months ended
March 2005 31 March 2004
#000 #000
Opening
shareholders' funds 185,953 171,722
Profit for the
financial period 10,722 30,561
Dividends (24,443) (16,330)
Share capital
issued during the
year 3,800 -
Net movement on
shareholders' funds (9,921) 14,231
Closing
shareholders' funds 176,032 185,953
12. Reconciliation of group operating profit to net cash inflow from operating
activities
Year ended 15 months ended
31 March 2005 31 March 2004
#000 #000
Operating
profit 26,366 40,661
Depreciation 14,298 17,087
Loss on
disposal or
write off of
fixed assets 10,262 25
Amortisation
of
infrastructure
charges (747) (935)
Increase in
stocks (2) -
Decrease in
other debtors 3,552 2,193
Increase /
(decrease) in
creditors 1,258 (8,634)
Increase in
pension
provision 359 3,568
Net cash
inflow from
operating
activities 55,346 53,965
Notes to the preliminary results (continued)
13. Analysis of movement in group net debt
At 31 March Cash Other non-cash At 31 March
2004 flow changes 2005
#000 #000 #000 #000
Cash 644 3,177 - 3,821
Money market
deposits - 28,613 - 28,613
Total cash at
bank and in
hand 644 31,790 - 32,434
Irredeemable
debenture
stock (606) 3 - (603)
Redeemable
debenture
stock (14,900) 3,800 - (11,100)
Obligations
under finance
leases (19,850) 5,254 - (14,596)
Amounts due
to
group (126,154) 126,154 - -
undertakings
Listed debt
due after
five - (366,000) - (366,000)
years
Less:
unamortised
issue costs - 5,971 (243) 5,728
Indexed
capital
repayment on
long term - - (3,439) (3,439)
loan
Other term
loans (2,027) - (152) (2,179)
Net (163,537) (224,818) (3,834) (392,189)
borrowings
Net debt (162,893) (193,028) (3,834) (359,755)
14. Pensions
The pension costs and liabilities of the group have been accounted, and
provided for, in accordance with SSAP24.
Using assumptions that are consistent with the requirements of FRS17 '
Retirement Benefits', the fair value of the assets in the Group's defined
benefit pension scheme, and the present value of the Group's funded and
unfunded pension liabilities at the balance sheet date, were as follows:
31 March 31 March
2005 2004
#000 #000
Total fair value of 89,900 84,600
assets
Present value of scheme (124,200) (110,600)
liabilities
Deficit in the scheme (34,300) (26,000)
Related deferred tax 10,300 7,800
asset
Net pension liability (24,000) (18,200)
The financial information contained in these preliminary results does not
constitute the Group's statutory financial statements for the year ended 31
March 2005 or the 15 months ended 31 March 2004. The financial information is
derived from the audited statutory consolidated financial statements of the
Group for the year ended 31 March 2005 which were approved by the Board of
Directors on 30 June 2005. The auditors have reported on those financial
statements; their report was unqualified and did not contain a statement under
either section 237(2) or (3) of the Companies Act 1985. The 2005 financial
statements will be delivered to the Registrar of Companies in due course.
For further details please contact:
Margaret Devlin Managing Director 01444 448219
Chris Pleass Director of Finance and Investment 01444 448208
Barrie Watson Director of Corporate Development 01444 448214
This information is provided by RNS
The company news service from the London Stock Exchange
END
This information is provided by RNS
The company news service from the London Stock Exchange
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