Group Chief Executive's review
Trading
AWG produced a mixed set of results for the year. Anglian Water performed well.
The operating performance of the Infrastructure Management Business (IMB) was
disappointing, although this was partly offset by one-off contributions to
operating profit.
Anglian Water's good performance was enhanced by additional revenues from
metered customers during the exceptionally hot, dry summer. Anglian Water
contributed £318.9 million operating profit in the year (2003: £287.4 million
before exceptional items of £18.0 million).
Operationally, Anglian Water continued to perform well across a range of service
and quality measures. Drinking water quality has been improved, and the company
has met the leakage targets set by Ofwat. Service delivery performance has also
improved, with fewer households experiencing low water pressure or interruptions
to supply.
Anglian Water submitted its final regulatory business plan to Ofwat in April. In
preparing this plan the company confronted the hard choices that needed to be
made between investment, service and quality improvements and the impact upon
customers' bills. Reducing the level of capital expenditure has enabled Anglian
Water to propose the lowest increases in customers' bills of any UK water and
wastewater company.
The IMB contributed an operating profit before exceptional items and goodwill
amortisation of £15.9 million (2003: £20.8 million). In a challenging
marketplace, Utility Services delivered an acceptable result. Government
Services benefited from a development gain on the Tay wastewater PFI and profits
from other PFI activities, offset by poor underlying performance in Facilities
Services.
Construction Services reported an operating loss before exceptional items and
goodwill amortisation of £7.1 million (2003: profit £0.6 million), reflecting
additional costs to complete a number of large contracts . Exceptional charges
of £2.5 million (2003: £0.9 million) relate to an adverse adjudication on the
Rockingham motor speedway project. After goodwill amortisation of £5.2 million
(2003: £5.2 million), the loss before interest was £14.8 million (2003: £5.5
million).
The harvesting strategy continued in Developments and Commercial Services
(renamed AWG Property post year-end). Operating profit before exceptional items
and goodwill amortisation increased to £4.8 million (2003: £2.1 million)
primarily as a result of the sales of Great Northern Warehouse and the Ocean
Point office development. The loss before interest was £5.2 million (2003: £0.6
million profit). A review of AWG Property is underway.
During the year the group incurred pre-tax exceptional costs of £144.2 million,
of which £118.5 million comprised the disposal, closure and other provisions in
relation to the sale of the international business. The balance included a £10
million exceptional charge relating to the property portfolio.
Business Review
Since I joined AWG in January 2004, we have undertaken a detailed business
review. This underlined the importance of Anglian Water to the group and its key
role in generating consistent returns for its equity investors. We see the water
business at the heart of the group's strategy and we will be continuing to
improve service and efficiency.
The review considered a number of options for the infrastructure business. The
conclusion was to focus on improving current operations. The business will have
specific contribution targets to meet to support AWG's payments to shareholders.
The infrastructure management business is expected to improve margins, generate
cash and build its order book with blue-chip clients, many of whom it already
serves. This approach has more scope to add value for AWG than the other options
considered.
As part of the business review we have considered management structures and
succession. We have appointed a new director of regulation in Anglian Water, who
will lead the team in the final stages of the regulatory review process and
manage the ongoing relationship with Ofwat. The Chief Executive of the IMB has
been replaced with a newly appointed Chief Operating Officer and a new
divisional finance director. Elliott Mannis, Group Finance Director, will be
leaving AWG at the end of June 2004.
For people in AWG this has been a demanding year of change and everybody has
responded well to the challenges presented.
Outlook
The principal focus for the current year is the regulatory review, which will be
completed in December 2004. The group's immediate objective is to continue to
seek a satisfactory determination and prepare the group to meet the challenge.
We will continue to strengthen the management team and improve the operating
performance in the IMB business.
Notes:
Interviews with Jonson Cox, Group Chief Executive in video/audio and text will
be available from 07:00 on 2 June 2004 on:
and on
.
Preliminary results announcement and analyst presentation will be available at
from 07:30 on 2 June 2004.
Group financial results - summary
Turnover, including the group's share of joint venture turnover, improved in the
second half and ended slightly ahead of the previous year. Reduced turnover
arose from the harvesting strategy within AWG Property together with
International disposals part way through the year and was offset by increases in
Anglian Water and the IMB.
Total operating profit before exceptional items and goodwill amortisation was
£341.6 million (2003: £325.9 million). Total exceptional charges before tax for
the group were £144.2 million. This comprises £88.3 million in respect of the
losses on disposal of businesses in Chile, the Czech Republic and Sweden, £33.2
million on other disposals and business closures, a £10.0 million charge against
the property portfolio and other items of £12.7 million.
Goodwill amortisation in the year was £13.5 million (2003: £13.8 million).
Total operating profit, including the group's share of operating profits in
joint ventures, after exceptional items and goodwill amortisation was £305.4
million (2003: £248.7 million). Net interest payable was £263.7 million (2003:
£289.9 million which included £70.0 million of exceptional interest charges in
relation to the refinancing of Anglian Water). Profit before tax, exceptional
items and goodwill amortisation was £77.9 million (2003: £106.0 million). After
exceptional items and goodwill amortisation, the loss before tax was £79.8
million (2003: £42.4 million).
The tax credit before exceptional items was £4.3 million (2003: £37.5 million
charge). There was a tax credit on exceptional items of £4.2 million (2003:
£27.8 million), resulting in an overall tax credit of £8.5 million (2003: £9.7
million charge). This includes a credit of £10.1 million (2003: £20.0 million
charge) for deferred tax, which principally results from changes in discount
rates.
Earnings per share, before exceptional items and goodwill amortisation, were
50.6 pence (2003: 25.0 pence). The improvement reflects the tax credit and the
reduced number of ordinary shares in issue following the share consolidation on
13 June 2003. After exceptional items and goodwill amortisation, the loss per
share was 52.0 pence (2003: 26.4 pence).
Shareholder return
The board proposes a final payment to shareholders of 33.2 pence per share,
which equates to £47.4 million (2003: £57.5 million). Together with the interim
payment of 14.0 pence per share, this makes a full year payment of 47.2 pence
per share (2003: 46.0 pence), up 2.6 per cent on the previous year.
The further payment will be made in the form of redeemable shares. The record
date for the final ordinary payment will be close of business on 18 June 2004
and the shares will be redeemed in September 2004.
Cash
The cash flow from operating activities increased by £50.2 million to £515.3
million (2003: £465.1 million). This was largely attributable to the improved
operating profit in Anglian Water and the contribution from the on-going
disposal of the property portfolio.
Net debt fell by £30.5 million to £3,190.6 million (2003: £3,221.1 million),
which reflects the proceeds from business disposals, net of capital expenditure,
payments to shareholders, and the year-end emphasis on cash.
Group operational results
Anglian Water
Anglian Water's turnover increased 5.5 per cent in the period to £766.6 million
(2003: £726.8 million), while operating profit after exceptional items was up
18.4 per cent to £318.9 million (2003: £269.4 million).
The additional revenue arose principally from the regulatory pricing formula of
RPI + K, together with £8 million extra turnover generated in the first half as
a result of additional demand from metered customers during the dry summer.
Despite the extreme conditions and the region's low rainfall, Anglian Water's
resources remained satisfactory throughout the period and have recharged to
normal levels during the wet winter months.
The summer demonstrated the benefit of a customer base where more than half the
domestic customers are metered. At a local level, however, it also highlighted
'hot spot' growth areas where further investment is required in the supply
network over the next five years. These issues are being addressed with Ofwat as
part of the price review process.
Operating expenditure (excluding depreciation) for the full year was £291.7
million (2003: £282.5 million before exceptional charges of £18.6 million),
£10.0 million above the regulatory determination, reflecting £4.6 million of
redundancy costs and additional costs on sludge. Capital expenditure for the
full year continued to show outperformance against the determination at £276.9
million (2003: £263.3 million).
Service quality
Anglian Water continued to perform well against service and water quality
standards. Drinking water quality remained high, with 99.7 per cent of all water
quality tests performed in 2003 complying with the regulatory standards (2002:
99.6 per cent). Overall microbiological compliance for the period is at its
highest-ever level.
In addition to delivering a quality product, Anglian Water has further improved
the quality of its service delivery. The number of properties experiencing low
water pressure has been reduced, as have interruptions to supply. Anglian Water
has also reduced the proportion of customers experiencing sewage flooding.
Serious pollution incidents have been reduced and sewage treatment compliance
improved.
All 46 designated bathing waters in Anglian Water's region passed the mandatory
coliform standards of the Bathing Water Directive. This is the fifth time in the
last seven years that 100 per cent compliance has been achieved. In addition, 35
of the region's bathing waters (76 per cent) also passed the guideline standard
of the Directive. River water quality in the region remains the best it has been
since records began.
Ofwat's report shows that Anglian Water has the lowest water leakage rate in the
country. Its leakage of five cubic metres per kilometre of water pipe per day is
less than half the industry average of 11. Combined with the proportion of our
customers on metered supplies at 54 per cent, the low leakage rate was a
significant factor in preserving water resources while a very high level of
demand was experienced in the hot summer. Anglian Water expects to meet Ofwat's
leakage target for 2003/04.
Regulation
As part of the regulatory review process, Anglian Water submitted its final
regulatory business plan to Ofwat in April 2004. The final business plan's
capital investment programme was significantly reduced from the draft submission
in August 2003.
In preparing the plan, the company confronted the hard choices that needed to be
made between investment, service and quality improvements and the impact that
these have on prices.
The plan proposes a capital investment programme of £1.8 billion over the
five-year period, which would result in lower bill increases for Anglian Water
customers than for any other water and sewerage company in the UK.
If accepted, this plan would see the average customer bill rise by £47 over the
five years (at 2002/03 prices), or an average of 3.3 per cent each year. The
average K factor over the period would be 4.6 per cent. Recognising the concerns
of customers, Anglian Water has smoothed the 'K' profile to help customers in
the first year of the new asset management period.
Ofwat plans to publish its draft determination in August 2004. This will be
followed by a further period of consultation before a final determination in
December.
Infrastructure Management Business (IMB)
The IMB's results in the former divisional structure, ie Utility Services,
Government Services (incorporating PFI) and Construction Services are reported
below.
AWG Property (formerly Developments and Commercial Services), the group's
property division, has been separated from the IMB in order to improve the
financial transparency of the IMB's core operating divisions and is reported
separately.
The IMB now comprises Support Services (Utility Services and Government
Services), Construction Services and Project Investments.
IMB performance was as follows:
2004
Utility Government Construction Total
Services Services Services IMB
£m £m £m £m
Turnover 280.1 219.8 385.8 885.7
Operating profit/(loss) (pre bid costs)* 9.6 17.8 (0.9) 26.5
Less bid costs (1.4) (3.0) (6.2) (10.6)
Total operating profit/(loss)* 8.2 14.8 (7.1) 15.9
Exceptional items - (0.9) (2.5) (3.4)
Goodwill amortisation (2.5) (4.5) (5.2) (12.2)
Profit/(loss) before interest 5.7 9.4 (14.8) 0.3
2003
£m £m £m £m
Turnover 278.6 119.9 391.8 790.3
Operating profit (pre bid costs)* 11.5 13.1 5.1 29.7
Less bid costs (1.3) (3.1) (4.5) (8.9)
Total operating profit* 10.2 10.0 0.6 20.8
Exceptional items (0.9) (5.5) (0.9) (7.3)
Goodwill amortisation (2.5) (3.0) (5.2) (10.7)
Profit/(loss) before interest 6.8 1.5 (5.5) 2.8
* Before exceptional items and goodwill amortisation
Turnover for the IMB was £885.7 million (2003: £790.3 million), an increase of
£95.4 million. The primary reason for this was the £99.9 million increase in
Government Services to £219.8 million (2003: £119.9 million), principally due to
the acquisition of facilities services contracts in Birmingham and London.
Operating profit for the IMB as a whole, excluding bid costs, exceptional items
and goodwill amortisation, reduced to £26.5 million (2003: £29.7 million). The
profit before interest was £0.3 million (2003: £2.8 million).
Utility Services' operating profit excluding bid costs, exceptional items and
goodwill was £9.6 million (2003: £11.5 million). Profit before interest was £5.7
million (2003: £6.8 million). The year-on-year reduction was as a result of
margin pressure highlighted in the first half. This pressure was somewhat
alleviated in the second half. Utility Services' excellent client list and
client retention rate give it a good platform from which to improve its
performance in 2005.
Government Services' operating profit excluding bid costs, exceptional items and
goodwill amortisation increased by 35.9 per cent to £17.8 million, due to the
acquisition of facilities services contracts in Birmingham and London, organic
growth and the development gain of £4.3 million from the sale of the Tay
wastewater PFI project. Profit before interest was £9.4 million (2003: £1.5
million).
Construction Services' operating loss excluding bid costs, exceptional items and
goodwill amortisation was £0.9 million (2003: £5.1 million profit). The loss
before interest was £14.8 million (2003: £5.5 million). The year-on-year
reduction was due to an adverse adjudication on the Rockingham speedway contract
highlighted in the first half and the reassessment of costs to complete on a
number of large contracts. Over 80 per cent of Construction Services' work has
been booked for next year.
Bid costs increased in the period to £10.6 million (2003: £8.9 million). The
increase was principally in the Construction Services division and reflected the
bidding activity for utility framework contracts and costs on construction
projects of a scale that are unlikely to be undertaken in the future.
IMB order book
The IMB order book at 31 March 2004 was £1.77 billion. The comparative amount at
31 March 2003 was £1.86 billion (excluding the Tay wastewater PFI of £180
million).
The breakdown was:
£m
Utility Services 337
Government Services (incl. £335 million for PFI) 931
Construction Services 504
1,772
The annual breakdown is as follows:
£m
2004/5 662
2005/6 311
2006/7 143
2007 and beyond 656
The order book is defined as signed orders from customers, less any turnover
taken on those contracts. It also includes an estimate of the fair value of work
due to be completed under framework contracts.
Optional extensions to framework contracts are excluded until the client
confirms them in writing. With regard to PFI concessions, the order book
recorded is the group share of future concession income for the remaining life
of the concession. All intra-group orders are eliminated upon consolidation.
Developments and Commercial Services
Turnover in Developments and Commercial Services fell to £143.9 million (2003:
£181.2 million). Operating profit before exceptional items increased to £4.8
million (2003: £2.1 million) during the year. This was primarily as a result of
the sales of Great Northern Warehouse and Ocean Point office development. The
sales of property in the year contributed £94.5 million to cash. After
exceptional items of £10.0 million, the loss before interest was £5.2 million
(2003: £0.6 million profit).
Net operating assets reduced to £88.8 million from £159.9 million at the
previous year-end, which reflects the harvesting strategy and the write-down of
certain properties to expected net realisable value.
The review of Developments and Commercial Services now underway is expected to
be completed in the first half of this year.
Other
During the year the Powermarque vehicle leasing business was sold, resulting in
a net cash inflow of £13.6 million and the closure of the rail business was
announced. The exceptional loss arising from these two disposals was £9.8
million.
International
During the year the group moved further towards a UK focus, with the sale and
closure of most of its international businesses. The realisation of cash from
the sale of AWG's international interests is now substantially complete. The
process has generated £103.0 million in cash and has incurred exceptional
charges of £118.5 million. Of this amount, £88.3 million relates to the sale of
the businesses in Chile, the Czech Republic and Sweden. Up to the date of the
disposals, the businesses in Chile, the Czech Republic and Sweden contributed
£17.0 million of operating profit.
The transactions in the Czech Republic and Chile all received competition
approval and were completed in the second half. The group has a limited number
of remaining projects or contracts that are expected to complete or close over
the next two years. These include projects in Thailand, New Zealand, Argentina
and three projects in China.
END
Group profit and loss account
for the year ended 31 March
2004 2003
Before Before
exceptional Exceptional exceptional Exceptional
items and items and items and items and
goodwill goodwill goodwill goodwill
amortisation amortisation Total amortisation amortisation Total
Notes £m £m £m £m £m £m
2 Group turnover:
Total continuing group
and share of joint
ventures 1,803.1 - 1,803.1 1,763.2 - 1,763.2
Less: share of turnover
of joint ventures (129.4) - (129.4) (142.8) - (142.8)
Continuing operations 1,673.7 - 1,673.7 1,620.4 - 1,620.4
Discontinued operations 85.9 - 85.9 119.6 - 119.6
1,759.6 - 1,759.6 1,740.0 - 1,740.0
Operating costs before
depreciation and
amortisation of
intangible assets (1,246.9) (22.7) (1,269.6) (1,230.6) (55.4) (1,286.0)
Depreciation net of
amortisation of grants
and contributions (180.5) - (180.5) (190.5) - (190.5)
Amortisation of
intangible assets (0.7) (13.5) (14.2) (0.5) (13.8) (14.3)
Goodwill impairment - - - - (4.4) (4.4)
Group operating costs (1,428.1) (36.2) (1,464.3) (1,421.6) (73.6) (1,495.2)
Continuing operations 313.2 (34.9) 278.3 287.1 (70.5) 216.6
2 Discontinued operations 18.3 (1.3) 17.0 31.3 (3.1) 28.2
Group operating profit 331.5 (36.2) 295.3 318.4 (73.6) 244.8
Share of operating
profit in joint
ventures (all continuing
operations) 10.1 - 10.1 7.5 (3.6) 3.9
Total operating profit:
group and share of joint
ventures 341.6 (36.2) 305.4 325.9 (77.2) 248.7
3 Loss on disposal and
closure of businesses:
Continuing operations - (33.2) (33.2) - (1.2) (1.2)
Discontinued operations - (88.3) (88.3) - - -
- (121.5) (121.5) - (1.2) (1.2)
2 Profit on ordinary
activities before
interest 341.6 (157.7) 183.9 325.9 (78.4) 247.5
4 Interest payable (net) (263.7) - (263.7) (219.9) (70.0) (289.9)
Profit/(loss) on
ordinary activities
before taxation 77.9 (157.7) (79.8) 106.0 (148.4) (42.4)
5 Tax on profit/(loss) on
ordinary activities 4.3 4.2 8.5 (37.5) 27.8 (9.7)
Profit/(loss) on
ordinary activities
after taxation 82.2 (153.5) (71.3) 68.5 (120.6) (52.1)
Equity minority interest (6.2) - (6.2) (9.5) - (9.5)
Profit/(loss) for the
financial year 76.0 (153.5) (77.5) 59.0 (120.6) (61.6)
6 Dividends - non-equity (0.3) - (0.3) (0.3) - (0.3)
Retained profit/(loss) 75.7 (153.5) (77.8) 58.7 (120.6) (61.9)
7 Earnings/(loss) per
share - basic 50.6p (102.6)p (52.0)p 25.0p (51.4)p (26.4)p
7 Earnings/(loss) per
share - diluted - - (52.0)p - - (26.4)p
Exceptional items and goodwill amortisation are analysed in note 3.
There was no difference between the profit on ordinary activities before taxation and
the loss for the financial year stated above, and their historical cost equivalents.
Statement of group total recognised gains and losses
for the year ended 31 March
2004 2003
Notes £m £m
Loss attributable to group shareholders (77.5) (61.6)
Currency translation differences on foreign
currency net investments (0.2) (4.2)
9 Total recognised gains and losses since the last
annual report and financial statements (77.7) (65.8)
Statement of movement in group shareholders' funds
for the year ended 31 March
2004 2003
Notes £m £m
Total recognised gains and losses for the year (77.7) (65.8)
6 Dividends paid and proposed on non-equity shares (0.3) (0.3)
9 Goodwill previously eliminated against reserves, now
reinstated and written off against profit for the year 15.6 3.5
9 Issue of shares 1.4 2.6
Return of capital - cancellation of 'C' shares - (500.9)
9 Redemption of redeemable shares (248.6) (110.6)
9 Share issue costs (0.4) (0.2)
Decrease in shareholders' funds (310.0) (671.7)
9 Opening shareholders' funds 917.4 1,589.1
Closing shareholders' funds 607.4 917.4
Group balance sheet at 31 March
Group
2004 2003
Notes £m £m
Fixed assets
Intangible assets 206.1 258.7
Tangible assets 3,832.2 4,116.3
Investments
Joint ventures:
- Share of gross assets 316.6 376.0
- Share of gross liabilities (314.9) (366.1)
8 - Amounts included in provisions 13.1 9.4
14.8 19.3
Associates 0.1 0.2
Other investments 3.7 3.7
Total investments 18.6 23.2
4,056.9 4,398.2
Current assets
Stock 136.0 203.3
Debtors 484.2 562.6
Investments - 18.8
Cash at bank and in hand 755.4 395.4
1,375.6 1,180.1
Creditors: amounts falling due within one year
Short-term borrowings (45.9) (60.5)
Other creditors (609.4) (650.0)
(655.3) (710.5)
Net current assets 720.3 469.6
Total assets less current liabilities 4,777.2 4,867.8
Creditors: amounts falling due after
more than one year
Loans and other borrowings (3,900.1) (3,574.8)
Other creditors (93.6) (97.5)
(3,993.7) (3,672.3)
8 Provisions for liabilities and charges (173.9) (165.9)
Net assets 609.6 1,029.6
Capital and reserves
9 Called up share capital 44.6 38.2
9 Share premium account 6.9 6.0
9 Capital redemption reserve 600.9 352.3
9 Profit and loss account (45.0) 520.9
Total shareholders' funds 607.4 917.4
Equity minority interest 2.2 112.2
Capital employed 609.6 1,029.6
Shareholders' funds are analysed as:
Equity 591.3 907.6
Non-equity 16.1 9.8
607.4 917.4
Group cash flow statement for the year ended 31 March
2004 2003
Notes £m £m
a Net cash inflow from operating activities 515.3 465.1
Dividends received from joint ventures 3.4 4.0
Returns on investments and servicing of finance
Interest received 23.0 26.9
Interest paid (223.1) (210.8)
Interest element of finance lease rental payments (9.8) (11.4)
Cash flows treated as finance costs under FRS4 (1.8) (24.0)
Dividends received from trade investments - 0.2
Dividends paid to minority interests (4.1) (4.1)
Non-equity dividends paid (0.3) (0.3)
Net cash outflow for returns on investments
and servicing of finance (216.1) (223.5)
Taxation
Taxation received 1.7 9.2
Capital expenditure and financial investment
Purchase of intangible fixed assets - (14.1)
Purchase of tangible fixed assets (308.4) (314.6)
Grants and contributions received 18.6 16.8
Disposal of tangible fixed assets 16.3 33.1
Net cash outflow for capital expenditure
and financial investment (273.5) (278.8)
Acquisitions and disposals
Payments to acquire trade investments and joint ventures (1.5) (5.6)
b Payments to acquire subsidiary undertakings
(net of cash and overdrafts acquired) - (15.2)
c Receipts from sales of businesses
(net of cash and overdrafts disposed of) 142.3 3.3
Receipts from sales of fixed asset investments 1.3 21.0
Net cash inflow for acquisitions and disposals 142.1 3.5
Net cash inflow/(outflow) before management of liquid
resources and financing 172.9 (20.5)
Management of liquid resources
d Increase in short-term deposits and investments (327.2) (97.6)
Financing
Issue of ordinary share capital 1.4 2.6
Return of capital (169.4) (500.9)
Redemption of redeemable shares (79.2) (110.6)
e Increase in loans 464.1 2,302.2
e Repayments of amounts borrowed (19.3) (1,473.9)
e Capital element of finance lease rental payments (27.5) (34.4)
Net cash inflow from financing 170.1 185.0
d Increase in cash 15.8 66.9
Notes to the group cash flow statement
(a) Reconciliation of operating profit to net cash
inflow from operating activities
2004 2003
£m £m
Operating profit 295.3 244.8
Dividends received from trade investments - (0.2)
Depreciation (net of amortisation of deferred grants
and contributions) 180.5 190.5
Amortisation and impairment of intangible assets 14.2 18.7
Profit on disposal of fixed assets (1.0) (0.5)
Impairment of trade investments - 3.3
Net movements on provisions 4.0 (1.9)
Closure costs charged after operating profit (2.0) -
491.0 454.7
Decrease/(increase) in working capital:
Stock (10.5) (3.0)
Debtors 48.5 24.7
Creditors (13.7) (11.3)
24.3 10.4
Net cash inflow from operating activities 515.3 465.1
The group cash flow statement for the year ended 31 March 2004 includes
net cash outflows of £17.9 million (2003: £75.8 million) in respect of
current year exceptional charges and £8.7 million (2003: £46.0 million)
in respect of the settlement of prior year exceptional charges.
(b) Acquisition of subsidiary undertakings 2004 2003
£m £m
Net assets acquired:
Tangible fixed assets - 2.8
Stock and work in progress - 2.9
Debtors - 6.6
Cash at bank and in hand - 0.1
Overdrafts - (3.6)
Other short-term creditors - (8.7)
Loans and other borrowings - (0.1)
Net assets acquired - -
Goodwill arising on acquisition - 15.1
Net consideration - 15.1
Satisfied by:
Cash (including costs) - 11.7
Deferred consideration - 3.4
- 15.1
Net cash outflow in respect of the acquisition of
subsidiary undertakings
Total cash paid - 11.7
- cash at bank and in hand of acquired subsidiary
undertakings - (0.1)
- overdrafts of acquired subsidiary undertakings - 3.6
Net outflow of cash in respect of the acquisition of
subsidiary undertakings - 15.2
(c) Disposal of businesses 2004 2003
£m £m
Net assets disposed of:
Tangible fixed assets 392.9 0.1
Fixed asset investments - 0.1
Stock 77.9 1.3
Debtors 43.6 3.4
Cash at bank and in hand 36.9 1.0
Creditors (49.7) (3.8)
Loans and other borrowings (149.4) -
Intercompany loan (105.9) -
246.3 2.1
Minority interest (113.4) -
Unamortised goodwill 39.0 0.2
Goodwill previously written off, now reinstated 9.5 3.5
Group's share of net assets disposed of 181.4 5.8
Less consideration received on completion (see below) (103.0) (4.6)
Disposal costs (including £4.2 million accrued) 15.5 -
Loss on disposal (£88.3 million discontinued,
£5.6 million continuing) 93.9 1.2
Analysis of the net cash inflow in respect of the
disposal of businesses:
Consideration received upon completion 103.0 4.6
Disposal costs (11.3) -
Accrued consideration, not yet received (0.9) (0.3)
Net consideration received in cash 90.8 4.3
Part repayment of intercompany loan 88.4 -
Cash at bank of disposed businesses (36.9) (1.0)
Net cash inflow in respect of the disposal of
businesses 142.3 3.3
(d) Analysis of net debt
Currency
1 April Cash Non-cash translation 31 March
2003 flows Disposals movements movements 2004
£m £m £m £m £m £m
Cash at bank and
in hand 201.3 14.0 - - - 215.3
Bank overdrafts (3.2) 1.8 - - - (1.4)
198.1 15.8 - - - 213.9
Deposits and
investments 212.9 327.2 - - - 540.1
Debt due within
one year (57.3) 33.3 10.9 (30.8) (0.6) (44.5)
Debt due after
one year (3,574.8) (449.2) 138.5 (5.9) (8.7) (3,900.1)
(3,221.1) (72.9) 149.4 (36.7) (9.3) (3,190.6)
Non-cash movements comprise amortisation of discounts and expenses
relating to debt issues, issues of loan notes as deferred consideration,
new finance leases entered into, indexation of loan stock and transfers
between categories of debt. Management of liquid resources shown in the
cash flow statement is comprised of movements in short-term deposits,
which have maturity dates of up to one year.
Included within cash flow and investments above are £540.1 million (2003:
£194.1 million) of short-term deposits maturing within three months,
which are included in cash in the balance sheet.
At 31 March 2004, £203.5 million (2003: £88.7 million) of the group's
cash at bank and in hand and £269.0 million (2003: £88.2 million) of the
deposits and investments were held in the Anglian Water Services Holdings
Limited group. In order for these amounts to be made available to the
rest of the group, Anglian Water Services Limited must satisfy certain
covenants which were put in place on 30 July 2002, following the group's
financial restructuring, prior to declaring dividends. A further £10.1
million (2003: £10.5 million) of the group's deposits and investments are
held as collateral for outstanding loan notes. In addition, £23.4 million
(2003: £18.6 million) of the group's deposits are held by Rutland
Insurance Limited (the group's insurance captive) in order to maintain
its required solvency ratio.
(e) Movement in group net debt 2004 2003
£m £m
At beginning of year (3,221.1) (2,612.1)
Net increase in cash 15.8 66.9
Increase in short-term bank deposits and investments 327.2 97.6
Increase in loans (464.1) (2,302.2)
Repayment of amounts borrowed 19.3 1,473.9
Capital element of finance lease rental payments 27.5 34.4
Finance costs capitalised under FRS 4 1.4 23.8
Loans disposed with subsidiary 149.4 -
Loans assumed within subsidiary undertakings - (0.1)
Indexation of loan stock (32.2) (21.3)
Loan notes issued (2.2) (2.5)
Amortisation of discount and expenses
relating to debt issues (2.3) (4.4)
New finance leases - (7.5)
Currency translation difference (9.3) 32.4
At end of year (3,190.6) (3,221.1)
Notes to the financial statements
1 Accounting policies
The preliminary announcement of results for the year ended 31 March 2004 has
been prepared on the basis of the same historical cost accounting policies as
set out in the group's financial statements for the year ended 31 March 2003.
2 Segmental analysis
Segmental analysis by class of business 2004
Total
operating
profit/(loss)
before
exceptional Profit/ Net
items and (loss) operating
goodwill Exceptional Goodwill before assets/
Turnover amortisation items (a) amortisation interest (liabilities)(b)
£m £m £m £m £m £m
UK water and wastewater 766.6 318.9 - - 318.9 3,610.5
Utility Services 280.1 8.2 - (2.5) 5.7 91.1
Government Services 219.8 14.8 (0.9) (4.5) 9.4 75.5
Construction Services 385.8 (7.1) (2.5) (5.2) (14.8) 53.1
Total Infrastructure
Management 885.7 15.9 (3.4) (12.2) 0.3 219.7
Developments and
Commercial Services 143.9 4.8 (10.0) - (5.2) 88.8
International Services 117.9 14.0 (118.5) (1.3) (105.8) 8.3
Other (c) 33.3 (11.3) (12.3) - (23.6) (40.4)
Less: intersegmental
trading (d) (58.4) (0.7) - - (0.7) -
1,889.0 341.6 (144.2) (13.5) 183.9 3,886.9
Total
- Group 1,759.6 331.5 (143.2) (13.5) 174.8
- Joint ventures (e) 129.4 10.1 (1.0) - 9.1
Segmental analysis by class of business 2003
Total
operating
profit/(loss)
before
exceptional Profit/ Net
items and (loss) operating
goodwill Exceptional Goodwill before assets/
Turnover amortisation items (a) amortisation interest (liabilities)(b)
£m £m £m £m £m £m
UK water and wastewater 726.8 287.4 (18.0) - 269.4 3,524.7
Utility Services 278.6 10.2 (0.9) (2.5) 6.8 101.7
Government Services 119.9 10.0 (5.5) (3.0) 1.5 83.4
Construction Services 391.8 0.6 (0.9) (5.2) (5.5) 63.8
Total Infrastructure
Management 790.3 20.8 (7.3) (10.7) 2.8 248.9
Developments and
Commercial Services 181.2 2.1 (1.5) - 0.6 159.9
International Services 209.5 26.2 (8.5) (3.1) 14.6 393.5
Other (c) 46.1 (9.0) (29.3) - (38.3) 22.5
Less: intersegmental
trading (d) (71.1) (1.6) - - (1.6) -
1,882.8 325.9 (64.6) (13.8) 247.5 4,349.5
Total
- Group 1,740.0 318.4 (61.0) (13.8) 243.6
- Joint ventures (e) 142.8 7.5 (3.6) - 3.9
2 Segmental analysis by geographical origin
Net operating assets/
Turnover Profit/(loss) before interest (liabilities)(b)
2004 2003 2004 2003 2004 2003
£m £m £m £m £m £m
United Kingdom 1,756.4 1,707.9 246.6 224.5 3,882.0 3,956.4
Europe 82.5 96.3 (24.8) 4.5 9.7 108.7
Rest of world 50.1 78.6 (37.9) 18.5 (4.8) 284.4
1,889.0 1,882.8 183.9 247.5 3,886.9 4,349.5
Segmental analysis by geographical destination
Turnover
2004 2003
£m £m
United Kingdom 1,756.3 1,708.3
Europe 78.2 89.4
Rest of world 54.5 85.1
1,889.0 1,882.8
(a) An analysis of exceptional items is shown in note 3.
(b) Net operating assets are shown before the deduction of net debt, dividends
payable, corporation tax and deferred tax of £3,277.3 million (2003:
£3,319.9 million).
(c) The other segment comprises Powermarque up to date of disposal, AWG Rail
and head office costs.
(d) All intersegmental trading originates from the United Kingdom.
(e) The joint venture results are within the Developments and Commercial
Services, Government Services and International Services segments and are
stated after exceptional items of £1.0 million (2003: £3.6 million). The
group share of joint venture net assets at 31 March 2004 was £1.7 million
(2003: £9.9 million).
2 Discontinued operations
The group has changed its geographical nature and focus and has sold both the
major water and waste water operations in Chile and the Czech Republic and
also its process engineering business in Sweden. It is selling or closing
most of the remaining International businesses such that it is now an almost
wholly UK based group. Although decisions, including detailed plans, were
made to sell or close almost all the remaining international businesses
during the year, these actions are still in progress and accordingly, the
results of operations not yet sold are included in continuing operations.
The analyses presented above include the following amounts in respect of
operations discontinued during the year:
Total
operating
profit/(loss)
before
exceptional
items and Profit/(loss)
2004 Sales to third goodwill Exceptional Goodwill before
parties(f) amortisation items amortisation interest
£m £m £m £m £m
International segment:
Chile businesses
(Rest of world) 26.3 10.1 (46.8) (1.3) (38.0)
Czech businesses (Europe) 50.0 8.7 (27.2) - (18.5)
Purac AB (Europe) 9.6 (0.5) (14.3) - (14.8)
Total Europe 59.6 8.2 (41.5) - (33.3)
Total discontinued
operations 85.9 18.3 (88.3) (1.3) (71.3)
2003
International segment:
Chile businesses
(Rest of world) 46.8 20.6 - (3.1) 17.5
Czech businesses (Europe) 59.0 13.0 - - 13.0
Purac AB (Europe) 13.8 (2.3) - - (2.3)
Total Europe 72.8 10.7 - - 10.7
Total discontinued
operations 119.6 31.3 - (3.1) 28.2
(f) Sales to third parties by geographical destination and geographical origin
are entirely within the area of operation of the individual business as
shown above.
3 Exceptional items and goodwill amortisation 2004 2003
£m £m
Restructuring and other costs 2.5 22.6
Asset impairments 17.7 11.1
Contract rectification costs 2.5 -
Refinancing project costs - 26.1
Goodwill amortisation 13.5 13.8
Charged against group operating profit 36.2 73.6
Joint venture impairments - 3.6
Loss on disposal and closure of businesses:
- Continuing 33.2 1.2
- Discontinued 88.3 -
121.5 1.2
Charged against profit before interest 157.7 78.4
Interest and finance charges - 38.0
Coupon enhancement - 32.0
Exceptional interest charge - 70.0
Total exceptional items and goodwill
amortisation before tax 157.7 148.4
Tax credit thereon (4.2) (27.8)
Total exceptional items and goodwill amortisation 153.5 120.6
The exceptional items and goodwill amortisation are analysed below:
Total exceptional items before tax 144.2 134.6
Tax credit thereon (4.2) (27.8)
Total exceptional items 140.0 106.8
Goodwill amortisation 13.5 13.8
Total exceptional items and goodwill amortisation 153.5 120.6
Restructuring and other costs of £2.5 million relate to expenditure on bid
defence and Morrison litigation. Restructuring and other costs of £22.6
million in 2003 were principally redundancy and restructuring costs, and
also included bid defence and Morrison litigation costs.
The asset impairment provision of £17.7 million comprises £10.0 million in
respect of development properties held in current assets and £7.7 million
for current assets in the International business relating to the continuing
businesses in Thailand, South Africa and Russia which have been written down
to expected net realisable value. The impairment of £11.1 million in 2003
included £3.3 million for impairment of fixed asset investments, £4.4
million impairment of goodwill and £3.4 million of other asset impairment.
Contract rectification costs of £2.5 million are in respect of adjudication
of a claim in relation to Rockingham Motor Speedway.
The refinancing project costs of £26.1 million in 2003 related to the
ring-fencing and refinancing of the regulated water business.
The loss on disposal and closure of continuing businesses of £33.2 million
comprises the loss on disposal of Powermarque of £5.6 million, provision for
loss on closure of International businesses of £22.5 million (including
goodwill previously eliminated against reserves of £6.1 million, disposal
costs of £5.2 million and joint venture impairments of £1.0 million), and
other closure costs of £5.1 million (including closure costs of AWG Rail of
£4.2 million). The loss on disposal and closure of £1.2 million in 2003
relates to the sale of three small businesses in that year.
The loss on disposal of discontinued businesses of £88.3 million relates to
the International segment and is stated after deducting unamortised goodwill
of £39.0 million, goodwill previously eliminated against reserves of £9.5
million and disposal costs of £10.6 million.
The exceptional interest charge in 2003 of £70.0 million related to the
ring-fencing and refinancing of the regulated water business.
4 Interest payable (net) 2004 2003
£m £m
Bank loans and overdrafts 0.3 6.6
Other loans including financing expenses and
indexation of loan stock 264.7 219.3
Finance leases 10.3 10.4
Unwinding of discount on coupon enhancement provision
(note 8) 0.4 0.7
Unwinding of discount on unfunded pension obligations
(note 8) 2.4 2.4
Debt transfer and termination costs - 38.0
Creation of coupon enhancement provision - 32.0
278.1 309.4
Interest receivable (24.9) (27.6)
Group interest payable (net) 253.2 281.8
Share of joint venture interest payable (net) 10.5 8.1
Total interest payable (net) 263.7 289.9
5 Taxation 2004 2003
£m £m
The tax (credit)/charge for the year comprised:
UK tax - current year (credit)/charge (6.4) 15.7
UK tax - adjustments in respect of prior years (2.1) (13.5)
Overseas tax - 7.5
Tax on loss on ordinary activities (8.5) 9.7
Analysed as:
- before exceptional items (4.3) 37.5
- exceptional items (4.2) (27.8)
Tax (credit)/charge on loss on ordinary activities (8.5) 9.7
Tax (credit)/charge on loss on ordinary activities
comprises:
UK Corporation tax at 30 per cent (2003: 30 per cent) - 0.9
Adjustments in respect of prior years (2.1) (18.2)
Overseas taxation 2.0 5.5
Total current tax (0.1) (11.8)
Deferred tax
Charge for timing differences arising in year 16.7 7.9
Impact of discounting on deferred tax liability (23.3) (8.3)
Impacts of (increase)/decrease in discount rates (3.5) 15.7
Adjustments in respect of prior years - 4.7
Total deferred tax (10.1) 20.0
Total group taxation (10.2) 8.2
Share of joint ventures taxation 1.7 1.5
Tax on loss on ordinary activities (8.5) 9.7
Based on capital investment plans for Anglian Water Services Limited for
the current regulatory period, the group expects to continue to be able to
claim tax relief on capital expenditure in excess of depreciation for the
remainder of the regulatory period.
The post tax yield to maturity on UK government bonds is used to discount
the gross deferred tax liability of the group. Movements in the discount
rates gave rise to a credit of £3.5 million (2003: charge of £15.7
million) in the year. If all UK gilt rates moved by 0.25 per cent, the tax
charge would move by between £10.0 million and £15.0 million.
Adjustments in respect of prior years arise from the agreement of open tax
computations.
Factors affecting tax (credit)/charge for the year (including exceptional
items)
The tax assessed for the year is lower than the standard rate of
corporation tax in the UK (30 per cent).
The differences are explained below:
2004 2003
£m £m
Loss on ordinary activities before taxation (79.8) (42.4)
Tax on loss on ordinary activities at the standard UK
rate of tax (30 per cent) (23.9) (12.7)
Adjusted for effects of:
Items not deductible for tax purposes 44.7 23.0
Accounting for depreciation not eligible for tax
purposes 0.4 0.2
Capital allowances for the year in excess of
depreciation (18.7) (4.4)
Short-term timing differences 0.7 (1.4)
Adjustments to tax charge in respect of previous
periods (2.1) (18.2)
Losses which cannot be relieved in the year 1.8 3.5
Lower tax rates on overseas earnings (1.3) (0.3)
Share of joint ventures taxation (1.7) (1.5)
Current tax credit for the year (0.1) (11.8)
6 Dividends and other payments to shareholders
No cash dividends were paid on ordinary shares during the year.
AWG Plc made the following issues of 0.1 pence redeemable shares during
the year:
(a) 177,451 million redeemable shares were issued on 16 June 2003 at
the rate of 1,000 redeemable shares per ordinary share held, equivalent
to £1.00 per share. The value of shares issued was £177.4 million.
Shareholders are given the opportunity to redeem at par the redeemable
shares twice per annum. During the period 169,388 million shares were
redeemed resulting in a return of £169.4 million of cash to shareholders.
(b) 57,494 million (23 September 2002: 88,291 million) redeemable
shares were issued on 4 August 2003 at the rate of 324 (23 September
2002: 312) redeemable shares per ordinary share held, equivalent to 32.4
pence (23 September 2002: 31.2 pence) per ordinary share, with a total
value of £57.5 million (23 September 2002: £88.3 million).
(c) 19,987 million (6 January 2003: 24,054 million) redeemable shares
were issued on 15 December 2003 at the rate of 140 (6 January 2003:
136.0) redeemable shares per ordinary share held, equivalent to 14.0
pence (6 January 2003: 13.6 pence) per ordinary share. The value of
shares issued was £20.0 million (6 January 2003: £24.1 million).
Shareholders are given the option to redeem at par the redeemable shares
so acquired twice per annum. During the year a total of 79,226 million
(2003: 110,586 million) shares were redeemed, leaving 16,092 million
(2003: 9,774 million) redeemable shares in issue at 31 March 2004.
During the year a dividend of £0.3 million was paid on the redeemable
shares (2003: £0.3 million).
It is proposed that a further issue of redeemable shares will be made in
June 2004 at the rate of 332 redeemable shares per ordinary share held,
equivalent to 33.2 pence per ordinary share.
7 Earnings per share 2004 2003
Basic
Loss for the financial year (£77.5m) (£61.6m)
Less: Redeemable share dividends (£0.3m) (£0.3m)
Loss attributable to ordinary shareholders (£77.8m) (£61.9m)
Weighted average number of ordinary shares in issue 149.7m 234.4m
Basic loss per share (52.0p) (26.4p)
Basic (before exceptional items and goodwill
amortisation)
Basic loss per share (52.0p) (26.4p)
Exceptional items (after tax) 93.6p 45.5p
Basic earnings per share (before exceptional items) 41.6p 19.1p
Goodwill amortisation 9.0p 5.9p
Basic earnings per share (before exceptional items and
goodwill amortisation) 50.6p 25.0p
On 13 June 2003 AWG Plc consolidated its share capital by issuing 201
ordinary shares of 19.9 pence each for every 250 existing ordinary shares
of 16 pence each. For the period from 1 April 2003 to 13 June 2003 the
weighted average number of shares in issue was 177.3 million, and for the
period from 13 June 2003 to 31 March 2004 the weighted average number of
shares in issue was 142.8 million. The overall weighted average number of
shares in issue was therefore 149.7 million.
At 31 March 2004 there were 142.9 million ordinary shares in issue (2003:
177.4 million).
In accordance with FRS 14 'Earnings per Share' the diluted earnings per
share is taken as being equal to basic earnings per share as the group
recorded a loss from continuing operations and the effect of including the
options is anti-dilutive.
Basic earnings per share before exceptional items and goodwill
amortisation is disclosed as the directors consider it to be an
appropriate reflection of the group's normalised earnings performance. It
includes the benefit of a £2.1 million (2003: £13.5 million) prior year
tax credit.
8 Provisions for liabilities and charges
Business
Unfunded closures Joint Coupon
Deferred pension Restructuring and Contract venture net enhancement
tax obligations costs disposals and other liabilties provision Total
£m £m £m £m £m £m £m £m
At 1 April 2003 90.2 26.1 2.4 - 8.3 9.4 29.5 165.9
Charge/
(credit)for
the year (10.1) - (0.6) 17.9 7.3 - - 14.5
Transfer from
investments - - - - - 3.7 - 3.7
Unwinding of
discount
(note 4) - 2.4 - - - - 0.4 2.8
Utilised in
the year - (2.0) (1.8) - (4.8) - (4.4) (13.0)
At 31 March 2004 80.1 26.5 - 17.9 10.8 13.1 25.5 173.9
The effect of discounting on deferred tax is shown in note 5.
The provision for pension obligations relates to the cost of unfunded pension enhancements.
These pension payments are expected to be made over several future accounting periods. The
provision is determined using actuarial assumptions based on those used for the valuation of the
group's pension scheme and has been discounted at a rate of 9 per cent.
The restructuring provision related to redundancy and other costs arising from the redundancy
programme announced in the previous year, which has been utilised in the year.
Business closure and disposal provisions relate to cost of closure and disposals which are
expected to crystallise over a period of approximately one year.
The contract and other provisions comprise potential warranty and certification costs of £6.3
million which are expected to crystallise over a period of approximately three years and £4.5
million in respect of insurance claims against the group incurred but not reported.
The provision for joint venture liabilities represents the aggregate amount of net liabilities
at the balance sheet date.
The coupon enhancement provision of £25.5 million relates to coupon enhancement and other
related costs incurred on the transfer of debt for AWG Group Limited to Anglian Water Services
Financing Plc at the end of the refinancing exercise. The provision is expected to be utilised
over the next 25 years and has been discounted at 6.1 per cent which represents the adjusted
credit net of additional coupon payments following the transfer of debt from AWG Group Limited.
9 Movement in share capital, reserves and shareholders' funds
Ordinary Share Capital Profit Total
share Redeemable premium redemption and loss shareholders'
capital shares account reserve account funds
£m £m £m £m £m £m
At 1 April 2003 28.4 9.8 6.0 352.3 520.9 917.4
Issue of shares 0.1 - 1.3 - - 1.4
Goodwill written
back on disposal - - - - 15.6 15.6
Total recognised
gains and losses
relating to the
year - - - - (77.7) (77.7)
Dividends paid and
proposed on
non-equity shares - - - - (0.3) (0.3)
Redeemable shares
issued - 254.9 - - (254.9) -
Redemption of
redeemable shares - (248.6) - 248.6 (248.6) (248.6)
Share issue costs - - (0.4) - - (0.4)
At 31 March 2004 28.5 16.1 6.9 600.9 (45.0) 607.4
The costs of issuing redeemable shares of £0.4 million have been charged to
share premium.
10 The financial information contained in this announcement is extracted from
the audited financial statements approved by the board on 2 June 2004. It
does not constitute the Company's statutory accounts for the years ended 31
March 2004 and 2003. The 2004 statutory accounts will be distributed to
shareholders prior to the Annual General Meeting and filed with the
Registrar of Companies thereafter. Copies will be available from the
Company's registered office at Anglian House, Ambury Road, Huntingdon,
Cambridgeshire, PE29 3NZ.