 |
|
 |
 |
 |
Preliminary Announcement of audited results for the year ended 31 March 2001
07/06/2001
HIGHLIGHTS
- Profit before tax, as expected, down 30% to £156.4 million due to OFWAT price determination.
- Strategic focus on water and waste delivering well.
- Disposal programme largely completed with £120 million realised to date.
- Efficiency improvements in Yorkshire Water.
- Savings in overheads.
- Continued improvement in customer service standards
- Aquarion performance in line with expectations. Good prospects of early completion of land sale agreement in the State of Connecticut.
- Balance sheet gearing reduced to 44%
- Full year dividend up 0.65p to 24.8p - maintained in real terms.
- Continuing dialogue with government and regulator on industry future.
| KEY FIGURES |
2001 |
2000 |
Increase/(Decrease) |
 |
| FRS3 Profit before tax |
£156.4m |
£222.1m |
29.6% |
| Earnings per share |
£34.8p |
£54.4p |
(36.0)% |
| Adjusted earnings per share |
34.7p |
58.0p |
(40.2)% |
| Dividend for the year |
24.80p |
24.15p |
2.7% |
| Group net debt |
£1,395m |
£1,413m |
|
| Gearing (debt: debt plus equity ratio) |
44% |
45% |
|
| Interest cover |
2.4 |
4.4 |
|
|
CHAIRMAN'S STATEMENT
The last twelve months have been a year of important progress for your company despite the impact of the Ofwat price determination on profits. This follows a strategic review which sought to improve the efficiency of the company in terms of service for our customers and deliver improved value for shareholders.
Progress has included:
- The continuing focus of Kelda on its water, waste water and waste management operations and service delivery to customers.
- Success in disposing of our non core operations: Alcontrol, White Rose Environmental and our joint venture property holdings.
- Continued improvements in costs, efficiency and service levels from Yorkshire Water.
- Reductions in central overheads and the successful relocation of the Kelda corporate office to Bradford.
- The negotiation of a provisional agreement to sell the majority of our land interests in Connecticut.
- Improvements in the value of our investment in waste management with the acquisition by Waste Recycling Group (WRG) of the Hanson Waste Management interests.
- The further strengthening of your Board, with the appointment of additional executive and non executive directors.
Industry strategy
The debate continues with the government and the regulator concerning the appropriate structure for the water industry to enable it to fulfil more effectively its responsibilities to customers and shareholders. This debate has helped the increased general recognition of the contribution water companies make to the economy and communities they serve, and improved investor perception of the water sector.
During this debate the government has reaffirmed its preference for an equity based model for water companies. There has been an increased understanding that for this model to work effectively, a more dynamic element is necessary, which will allow successful companies to grow, and make the sector more attractive to private capital markets and equity investors. The absence of these features has prompted restructuring proposals and significant shifts in ownership with some 41% of the UK industry now owned by overseas companies.
The Board continues to keep under review all proposals which will assist the growth and development of services to customers whilst improving the attractiveness of the water sector to capital and equity markets generally. It intends to maintain the dialogue with government and regulator about achieving an improved balance between capital providers, capital users and customers.
Financial results
The financial results for the year reflect the full year effect of the price determination which reduced prices by an average 14.5% and profits in the main operating subsidiary Yorkshire Water by more than 30% despite significant improvements in productivity and efficiency. Overall, group profit before tax at £156.4m was, as indicated in the interim report, some 30% down on the last year because of the impact of the Ofwat price review. It includes £15.9m profit on the disposal of non core activities, and an £11.8m impairment charge in respect of the group's renewable energy interests which are being sold this year.
The increase in interest costs reflects the full year effect of the purchase of Aquarion and the increase in regulatory driven capital expenditure in Yorkshire Water. The balance sheet of the company remains carefully managed and has been strengthened with the proceeds of disposals. The financing requirements for the capital investment in water services were met by a bond issue which was successfully achieved in April of last year. The company is therefore recommending a final dividend of 17.30p per share which is a full year dividend of 24.80p per share compared to 24.15p last year.
Operating performance
The performance of Yorkshire Water, the main operating subsidiary, improved on many important quality and service, as well as cost and efficiency parameters. We seek to be "best in class" in the UK and have gained greater external recognition by winning the contract with the North of Scotland Water Authority to provide waste water treatment facilities.
The US strategy continues to develop with Aquarion making some small acquisitions and a positive impact on returns. There was success in resolving concerns about land use and other environmental matters with a provisional agreement with the governor of Connecticut to acquire surplus land for a consideration of £60m over five years. This agreement will require the ratification of the Connecticut legislature. Prospects in the US remain encouraging.
There was an improved result from WRG, our waste management associate. WRG continues to grow with the acquisition of Hanson Waste Management. The performance of First Renewables was below expectations principally due to delays in commissioning associated with start-up activities in Eggborough and technical problems in Thetford. Our customer services activity Loop has been successful in winning external third party business. KeyLand had a successful year with a number of profitable sales concluded and new developments started.
Progress on strategy
It has been an active year in reprofiling Kelda. Excellent progress was made on disposals with the sale of Alcontrol, White Rose Environmental and our interests in the White Rose Centre at satisfactory prices. The proceeds of these sales was £119.9m with interest cost savings forecast to exceed profit foregone. The disposal process should be completed in the year with the sale of our First Renewables operations. Savings in overheads and management costs have also been achieved.
The strategic focus on water and waste operations has led to increased management emphasis on efficiency and service issues and also allowed a greater regional focus on the environment. The objective of the company is to increase environmental emphasis and deliver benefits to our customers on a regional basis.
The Board has been strengthened and now has four executives and four non executive directors. An executive committee of the Board has also been established.
The water industry has undergone significant change in a comparatively short time and has delivered on a number of key service and price improvements. We look forward to a greater recognition of these achievements as a background to our efforts to achieve a more equitable regulatory approach. It is important that a preference to retain a viable long term UK owned industry, which has essential links to the communities it serves, is given a higher priority by government and regulator.
The objective has to be to ensure sustainable service improvement and increased long term investment in both infrastructure growth, essential cost maintenance and the environment. Any equity model should encourage private finance and allow shareholders as well as customers to share in the success of the industry in which they invest, particularly as all future benefits for customers and the environment depend on continuing to raise significant capital sums for investment.
Finally, I would like to pay tribute to all employees and staff who have responded enthusiastically and positively to this year of change and who are delivering significant service improvements. I am particularly grateful to those staff who responded to a number of local emergencies particularly associated with the flood situation and for the support and contribution of my fellow directors.
John Napier
Executive Chairman
View the full document in PDF format (76 KB).
In order to read this format you will need the Acrobat Reader.
|
| |
|
|
|