Preliminary announcement of audited results for the year ended 31 March 2000
14/06/2000
HIGHLIGHTS
Group turnover including associates up 13.9% to £782.8m
Profit before tax after £18.2m exceptional restructuring costs £222.1m (1999: £221.0m)
Earnings per share (after restructuring costs) down 1.8%
Adjusted earnings per share up 10.3%
Yorkshire Water operating costs reduced by 5%
Good growth in non regulated operating profits reflects
46% share of Waste Recycling Group results
the acquisition of Aquarion in the US in January 2000
Final dividend increased 8.0% to 16.85p per share
Strategy review announcement
KEY FIGURES
2001
2000
Increase
Group turnover (including share of associates)
£782.8m
£687.1m
13.9%
FRS3 Profit before tax (after restructuring costs)
£222.1m
£221.0m
0.5%
FRS3 Earnings per share (after restructuring costs)
54.4p
55.4p
10.3%
Adjusted earnings per share (before restructuring costs and exceptional items)
58.0p
52.6p
(8.1)%
Dividend for the year
24.15p
22.35p
10.3%
Group net debt
£1,413m
£883m
Gearing (debt:equity ratio)
83%
56%
Interest cover
4.4
5.4
CHAIRMAN’S STATEMENT Results 1999/2000
In my first results announcement as Chairman I am pleased to report that profit before tax and after £18.2m exceptional restructuring costs was £222.1m just ahead of prior year £221.0m. The exceptional restructuring costs have been provided for the redundancies completed in the first quarter of this calendar year which were part of an efficiency and cost reduction drive to offset some of the financial implications of the latest price determination which came into effect on 1 April.
The underlying result, pre-exceptional items, gave an adjusted earnings per share increase of 10.3%, a good performance.
There was an improvement from Yorkshire Water Services, which benefited from allowed price increases and continued efforts to reduce costs and improve efficiency. I am particularly pleased to report that on comparative efficiency and service measures Yorkshire Water Services continues to improve its position in the industry. It is now rated first or second on many of the OFWAT measures.
There was a good profit contribution from the full year effect of integrating our waste operations into the Waste Recycling Group plc and the first contribution in the final quarter from the newly acquired US operation, Aquarion, which performed up to expectations and was earnings enhancing.
The performance of our other non-regulated activities was more variable with unplanned delays and cost increases at our start-up Arbre renewable energy business. Profit was affected by the write-down of asset values in White Rose Environmental and there was a mixed performance from Alcontrol, our environmental and food testing operation. Whilst it continued to grow strongly, mainly via acquisition, it did have a number of integration and management issues, which have now been satisfactorily dealt with.
The overall underlying performance in the year has enabled us to confirm the final dividend increase of 8%, to give a final dividend of 16.85p per share making a total of 24.15p for the full year, an 8.1% increase over the prior year.
There have been a number of changes to the board since last year’s report. Brandon Gough retired from the board at the financial year-end having joined the company in 1996 at a very difficult time in its history. Brandon’s leadership in rebuilding the company’s reputation has been significant. He was supported for some of that period by Kevin Bond whose resignation from the company was announced in April along with the board’s decision to conduct a strategic review of the business. Your board thanks both Brandon and Kevin for their contribution. It is also appreciative of the contribution made by Jonson Cox, who has previously announced he is leaving to join the Railtrack Board. Jonson has been of particular assistance to the strategic review team. We wish Jonson every success in his new role.
Strategic Review Announcement
The major challenge facing the company is how to deal with the long run impact of the price determination which set revenue levels and investment requirements until the year 2005. The effect for financial year beginning 1 April, 2000, is a price reduction of some 14.5%, equivalent to approximately £80m in turnover. As the consequences of the price determination have been well publicised, it has clearly been a major factor in the average reduction in the share price of water companies by over 40% in the last calendar year. A key purpose of the strategic review was to address some of the inherent tensions of a financial market environment where increasing capital expenditures and borrowings coincide with initial reductions in turnover and profits followed by a limitation on long term growth, unless there is further substantial acquisition expenditure. The main recommendations of the review are published today and are dealt with in a separate announcement.
Key points include:
The focus of the Kelda business on water and waste operations with a planned disposal of renewable energy and other environmental related services in the UK and Europe.
Subject to regulatory approval and satisfactory financing agreements with all parties, the separation and sale of Yorkshire Water’s assets into a community owned Registered Community Asset Mutual (RCAM) and the related return of excess capital to shareholders.
The simplification of the business profile, will provide an opportunity to reduce overhead costs, which together with the net effects of disposals should generate a minimum of £10m savings in a full year.
The potential to offer shareholders, customers and employees improved long term benefits.
Management
The review has drawn upon the considerable strength and depth of management within the company. The Board have been very encouraged by the professionalism of the management approach and the enthusiasm with which all levels of employees and management have endorsed the recommendations.
In order to effectively manage this important year of transition, John O’Kane, currently Finance Director of Yorkshire Water Services is appointed Group Finance Director (designate) of Kelda and will support the current Group Finance Director, James Newman, by taking responsibility for the reorganisation of group accounting and the overhead reduction programme. This will enable James to complete the important tasks of establishing the RCAM and Kelda on a satisfactory financial basis and to manage the disposals programme. After completion of this phase, James Newman will continue as an Executive Director of Kelda Group with specific responsibility for corporate development.
As part of the strategic review team I will remain as Executive Chairman until its recommendations are satisfactorily completed.
In order to help establish the proposed RCAM, David Perry has resigned from Kelda Group plc to take up the position of founder Chairman of the new separate RCAM. The board is particularly appreciative of the contribution made by David since joining the group four years ago.
Conclusions
It is the considered view of your directors that the Kelda management and Board has made the most appropriate responses to the price determination. The implementation of the recommendations will require a consultative process, regulatory and other approvals including completion of acceptable refinancing terms. Subject to these matters being satisfactorily
resolved, Kelda will have given itself a new opportunity to significantly grow its core operations of water and waste services. The fully completed plan has the potential to provide substantial benefits to shareholders, customers and employees.
