REG - NorthumbrianWaterGrp - Final Results - Part 1
Released: 02/06/2010
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Northumbrian Water Group PLC
02 June 2010
2 June 2010
NORTHUMBRIAN WATER GROUP PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2010
Northumbrian Water Group plc (NWG or the Group) presents its preliminary results for the year ended 31 March 2010.
HIGHLIGHTS 2010
Financial highlights
# Year to Year to
# 31.3.2010 31.3.2009 Change Change
# �m �m �m %
Continuing operations
Revenue 704.7 694.1 10.6 1.5%
Profit on ordinary activities before interest (excluding restructuring costs) 281.5 273.6 7.9 2.9%
Profit on ordinary activities before interest 275.8 273.6 2.2 0.8%
Profit before tax 170.2 152.7 17.5 11.5%
Profit/(loss) for the period 1# 122.9 (11.9) 134.8 n/a
Net debt 2,262.4 2,229.7 32.7 1.5%
Pro forma RCV 2# 3,420.5 3,324.4 96.1 2.9%
Continuing operations
Basic earnings/(loss) per ordinary share 1# 23.67p (2.45p) 26.12p n/a
Adjusted EPS 3# 25.51p 22.05p 3.46p 15.7%
Ordinary dividends 4# 13.24p 12.79p 0.45p 3.5%
Notes:
1 Includes deferred tax charge �9.5 million (2009: �132.5 million largely reflecting the abolition of Industrial Buildings
Allowances)
2 Pro forma RCV comprises Northumbrian Water Limited's (NWL) Regulatory Capital Value (RCV) plus the net debt in respect of
the PFI
contracts and the Kielder securitisation
3 Excludes deferred tax charge �9.5 million (2009: �132.5 million)
4 Ordinary dividends: interim paid 4.39p (2009: 4.29p); final proposed 8.85p (2009: 8.50p)
� Revenue increase mainly reflects the uplift in tariffs to support ongoing high capital investment
� Continued high levels of customer satisfaction
� Decreased interest charges reflecting lower RPI on index linked bonds (�29.0 million), offset by increased pension
financing costs (�10.3 million) and higher net interest payable (�3.1 million)
� Entire electricity requirement procured through to March 2015
� Funds in place to meet all the requirements of the business to the end of 2011 (Cash and short term deposits at 31
March 2010 �189.1 million)
� Capital investment in the period of �207.6 million (2009: �228.9 million) on regulatory outputs, including an extended
sewer flooding programme
� Started work to increase capacity at Abberton reservoir in Essex
� Proposed final dividend of 8.85 pence (2009: 8.50 pence) per share to be paid on 10 September 2010, giving a full year
ordinary dividend of 13.24 pence (2009: 12.79 pence) per share, an increase of 3.5%
� The conclusion and acceptance of the price review to March 2015; current progressive dividend policy with annual real
growth of 3% continues over next regulatory period
Chief Executive Officer Heidi Mottram said "The Group continues to produce good financial and operational results. Income
increased slightly despite the impact of the economic downturn; business closures amongst our customers appear to have
stabilised.
The Group has financing in place to cover all its requirements through to the end of 2011. We have accepted the outcome of
the price review for the period to March 2015 and have begun the programme of delivering the agreed outputs and increasing
our already high standards of customer service. There is a sound base from which to create more efficient operations."
For further information contact:
Northumbrian WaterHeidi Mottram, Chief Executive OfficerChris Green, Finance Director Alistair Baker, Communications & PR Manager 0191 301 6419
Pelham Bell PottingerArchie BerensZoe Sanders 020 7861 3112020 7861 3887
BUSINESS REVIEW
NWG's financial performance
Revenue for the year to 31 March 2010 was �704.7 million (2009: �694.1 million). Water and sewerage charges at the Group's
principal subsidiary, Northumbrian Water Limited (NWL), were increased by 3% (in line with the November 2008 Retail Price
Index) but that increase was partially offset by reductions in non-household revenue as a consequence of the current
economic downturn.
Profit on ordinary activities before interest for the year was �275.8 million (2009: �273.6 million). Operating costs
increased by �8.4 million (2%) to �428.9 million, principally reflecting the impact of increases in salaries, abstraction
and rates plus one-off charges for bad debt relating to the closure of a major customer (�1.7 million) and a provision for
early retirement and severance costs (�5.7 million). These increases have been partially offset by efficiencies, including
the benefit of reduced power prices and the commissioning of the advanced anaerobic digestion plant at Bran Sands on
Teesside during the year.
Interest charges decreased by �15.2 million within which net cash interest charges increased by �3.1 million. The non-cash
elements of the decrease reflect deflation of the principal on the index linked bonds (�29.0 million), a reduction in the
expected return on pension assets (�12.7 million), a decrease in the interest cost of pension plan obligations (�2.4
million) and an increase in other non-cash movements of �0.4 million.
Profit on ordinary activities before tax for the year was �170.2 million, 11% higher than the previous year (2009: �152.7
million). The current tax charge of �37.8 million (2009: �32.1 million) reflects increased profitability and the timing of
relief for prepaid pension contributions.
The deferred tax charge of �9.5 million (2009: �132.5 million) is significantly lower due to the one-off charge of �117.2m
in 2009, following the withdrawal of industrial buildings allowances in the Finance Act 2008.
The effective tax rate for the period was 28% (2009: 31% - excluding the one-off deferred tax charge of �117.2 million).
Capital structure and liquidity
The current pressures within financial markets have been well documented and the credit crunch has resulted in reduced
availability of certain types of finance. It is highly unlikely there will be a return to the exceptionally low cost of
debt experienced from late 2005 to early 2007. Although market conditions have improved in recent months, some uncertainty
remains. With the financing we have already put in place, we are sheltered from this uncertainty in the short term as we
will not need to raise any new debt before the end of 2011.
The Group has not entered into any new debt facilities during the period and its capital structure and gearing ratios
remain largely unchanged.
The pro forma Group RCV includes �218.8 million (2009: �215.6 million) and �106.7 million (2009: �110.8 million) for the
Kielder securitisation and PFI contracts, respectively. Adding these to NWL's RCV of �3,095.0 million (2009: �2,998.0
million), results in a pro forma Group RCV of �3,420.5 million (2009: �3,324.4 million).
The Group's gearing on this pro forma basis has decreased from 67% to 66%, with net debt increasing by �32.7 million to
�2,262.4 million over the year.
Gearing at NWL, and for the regulated business, is also stable at 61% and 60%, respectively. NWL net debt increased over
the period by �52.5 million to �1,896.8 million.
The Group and NWL's regulated business debt structure also remain largely unchanged with 75% (NWL: 71%) fixed at an average
rate of 5.80% (NWL: 5.96%), 19% (NWL: 22%) index linked at an average real rate of 1.85% (all NWL) and 6% (NWL: 7%) on a
variable rate basis. The blended average rate for the Group and NWL's regulated business for the year ended 31 March 2010
was 4.62% and 4.45% (2009: 5.91%, 6.05%), respectively.
Cash interest cover has remained stable for the year as have the credit ratings for NWL at BBB+ stable (Fitch and S&P) and
Baa1 stable (Moody's).
Total cash and short term cash deposits available to meet the requirements of the business through to the end of 2011
amounted to �189.1 million at 31 March 2010.
Northumbrian Water Limited
Revenue was �657.8 million for the year to 31 March 2010 (2009: �647.0 million). The 1.6% increase is mainly due to a 3.0%
inflationary increase in water and sewerage charges partially offset by reductions in demand for both services. In
particular, non-household revenue has been affected by the economic downturn including closures by a number of major
customers on Teesside.
Operating costs increased by �8.8 million (2.3%) to �388.9 million. This increase principally reflects the impact of
increases in salaries, abstraction and rates plus one-off charges for bad debt relating to the closure of a major customer
(�1.7 million) and a provision for early retirement and severance costs (�5.4 million). These increases have been
partially offset by efficiencies, including the benefit of reduced power prices and the commissioning of the advanced
anaerobic digestion plant at Bran Sands on Teesside during the year.
Energy costs at NWL for the year to 31 March 2010 were �36.4 million (2009: �38.8 million) and are expected to reduce by
around �4 million for the following year. This reflects the full year impact of the Bran Sands advanced digestion plant
and lower commodity prices. These savings will be sustained as NWL has now procured its entire electricity requirement
through to March 2015 at prices below the level funded in the final determination.
Profit on ordinary activities before interest for the year was �268.9 million (2009: �266.9 million).
Capital investment in the regulated business for the period was �207.6 million (2009: �228.9 million). Investment for the
five year AMP4 period has exceeded the funding allowed in the 2004 final determination by �92 million, as outperformance on
the quality programme has been more than offset by increased investment on capital maintenance. This includes �64 million
investment in our new sludge strategy, including the Bran Sands advanced digestion plant, and additional investment in
response to extensive sewer flooding in recent years.
Regulatory update
Ofwat published a final determination of price limits for the period 2010-15 on 26 November 2009. The NWL board confirmed,
on 15 December 2009, that it would not ask Ofwat to refer its decision to the Competition Commission.
The final determination established a tough settlement for the period 2010-15. However, we are well placed to deliver the
required objectives and to meet our commitments to providing safe and secure water supplies and protecting the environment.
There is a change in emphasis in the quinquennial �1.2 billion investment programme, from achieving new quality standards
to maintaining the high standards already achieved. We will also be working to tackle the challenges posed by climate
change, reducing our operational carbon emissions and improving the resilience of our assets.
We welcome the passing of the Flood and Water Management Act 2010 which clarifies responsibilities in relation to flooding
and sustainable drainage as well as tidying up and updating other water related legislation. The introduction of a duty on
landlords to provide water companies with relevant details so that accurate bills can be issued to tenants is particularly
welcome and should assist in collecting income from the private rented sector where bad debts have been relatively high.
The full implementation of Operator Self Monitoring was completed in January 2010. This involves NWL taking on
responsibility for sampling and analysing the final effluent at sewage treatment works for compliance purposes. This task
was previously undertaken by the Environment Agency (EA) and the transfer is consistent with the Better Regulation
principles.
We are pleased that the final 'River Basin Management Plans' published by the EA for the rivers in our regions proposed an
appropriate balance between challenging environmental targets and a clear evidence base for action. We support the emphasis
on tackling diffuse pollution at source rather than end of pipe solutions.
NWL intends to increase the emphasis given to catchment management across its operating areas and will increase the number
of staff dedicated to promoting catchment management solutions. This work is progressing well and will help tackle emerging
challenges from water soluble pesticides and also bring a range of other benefits in terms of habitat protection,
biodiversity and carbon management.
Water
The quality of water is critical to our customers and samples are taken on a daily basis for analysis under regulations
monitored by the Drinking Water Inspectorate. The quality in all areas served remained high and incidents fell during the
year.
A long running formal programme, which began just after privatisation, to rehabilitate older parts of the water
distribution network has come to an end, contributing to improved water quality results over recent years. Work using new
cleaning techniques to refurbish more than 150 kilometres of the large diameter pipe network is well advanced. The network
supplies drinking water to over half a million customers in south east Northumberland and parts of Tyneside. More than
half of the programme has been completed successfully and work will be completed in 2011, significantly reducing customer
complaints of discoloured water.
Water resources
Work started in January 2010 on increasing the capacity of Abberton Reservoir near Colchester by 58%. The one remaining
part of the overall Abberton Scheme that requires permissions is the variation of abstraction licences at Denver and
Blackdyke in Norfolk. We are working closely with the EA on progressing this. Once this Scheme is operating in 2014, we do
not expect to have to develop further major resources in Essex for the next 25 years.
We believe it is important to manage the demand for water so that it does not exceed levels that can be supplied in a
sustainable way. Metering has an important role to play in this regard. For several years we have been installing water
meters upon change of occupier in properties in the Essex area. This is in addition to the optional metering scheme
available to all customers. Around 45% of domestic households in Essex and 58% in Suffolk are now metered. In the north
east, where supplies are more plentiful, 22% of households are metered.
In addition, Essex & Suffolk Water have run an award winning water efficiency campaign which, together with the good
response from customers, has helped control demand for water. New water efficiency targets have been introduced in 2010/11
to reduce per capita consumption across the company and a number of initiatives have been piloted during the year. A new
campaign will also be launched across the company to promote water efficiency ranging from water saving kits to activity in
schools and development of our website.
Our assets proved very resilient during the harshest winter for 30 years and we were able to maintain supplies to customers
during the period, thanks to the efforts of our employees. The severe freeze, followed by the thaw, did result in a
significant increase in burst pipes and leakage which meant we, along with other companies, did not meet our annual targets
this year although our three year rolling targets have been met.
Environment
NWL's exceptional performance for sewage treatment works continued with all consented works remaining compliant over the
year. Two major schemes, to further improve performance at Sunderland and Darlington sewage treatment works, were
completed.
The advanced anaerobic digestion plant at Bran Sands is now fully operational and generating the expected volumes of biogas
and electricity. The re-organisation, to operate the plant at much lower manning levels than previously, has been
successfully implemented. Plans to provide a similar plant on Tyneside to process the remainder of the company's sludge,
and also replace older technology, are progressing well.
All 34 bathing waters in the north east again passed the required Mandatory Standard and 30 of these met the more demanding
Guideline Standard.
Intense summer storms again caused extensive property flooding. Incidents of internal property flooding were the highest
ever reported, many due to a single storm over two days in July which affected the whole north east region. Capital
schemes to remove 277 properties from flooding registers were successfully completed. Planning to identify schemes for
coming years forms a key part of our investment programme and is well advanced, with a further 250 properties to be
addressed in 2010/11. The five year programme to improve the visual appearance of discharges from nearly 500 combined
sewer overflows was successfully completed, with engineering works taking place at 106 locations in the year.
Climate change
The water industry is one of the largest users of energy in the UK and we aim to play a full part in support of
Government's plans to reduce emissions. We have been working hard over recent years to reduce our carbon footprint while
preparing ourselves for the future challenges of a change in climate and the weather events we may face as a consequence.
We agreed, last year, a plan to reduce our emissions by 35% by 2020, when compared with a 2008 baseline. If the emissions
associated with electricity production also fall, in line with Government predictions, this should mean that our emissions
will be halved by the 2020 milestone date.
Customers
Our relationship with customers is core to the success of our business and it is essential that they trust our service.
Customer service is at the heart of the company and all employees have a clear focus on getting things 'right first time
every time'. Although we are required to meet regulated standards for customer service, the quality of our service goes
beyond that.
For the third year, we only increased our prices by the rate of inflation and did not use the real increase allowed by
Ofwat. This decision benefited customers directly.
We measure the views of our customers with quarterly tracking research alongside qualitative work in focus groups. This
helps us to understand their views on service, value for money and other issues as well as their general perception of the
company. In addition, the survey carried out by CCWater for the fourth consecutive year, shows high levels of satisfaction,
and concluded, once again, that our customers are the most satisfied in the country in terms of water and sewerage services
and also fairness of charges.
NWG is actively involved in the business community in both of its operating areas through direct membership and involvement
in the councils/boards of the CBI, Chambers of Commerce and other similar organisations.
NWL has longstanding relationships with its key industrial and commercial customers in the areas it serves. The north
east, in particular, has a significant industrial base and existing customers and potential investors in the region value
the availability of not only high quality potable and raw water but also access to reliable effluent treatment services.
Domestic customers
For 2010/11, Ofwat has introduced the Service Incentive Mechanism (SIM) and, amongst other things, this will monitor the
quality of our service rather than the quantitative results.
This year, improvements to customer service include a reduction in written complaint numbers by 22%, from 13,050 to 10,185.
Our complaint handling and billing query service has been subject to audit by CCWater and they have commented favourably
on how we performed; 96% of the 50 cases reviewed in both areas being classed as 'good'.
Debt recovery remains an important area, especially in the current economic climate, where, despite having some of the
lowest charges in England and Wales, affordability is becoming an increasing concern for some customers. We continue to be
mindful of their circumstances ensuring our recovery techniques are appropriate and effective. Customers who deliberately
avoid paying charges are actively pursued and we continue to work with Ofwat and Defra to seek changes to legislation to
assist the industry to impose and collect charges.
Business customers
The economic situation has had a significant impact on some business sectors which are important in our operating regions
and NWL has been working closely with major customers in those sectors to mitigate the impact where possible. The closures
at Corus and Artenius in the Tees Valley have been well publicised. Details of a contract with the new owner of the
Artenius site and of a contract extension by one Corus business are given below. Furthermore, working with the regional
economic agencies, NWL has secured existing and encouraged new business.
Employees
The active involvement and engagement of everyone across the business is an important part of delivering performance and
NWL continues to formally seek the views of employees through an annual employee engagement survey. This year's survey had
the largest response rate ever at 71% and the feedback covered working life, training, communications, managers and the
company. All employees were invited to workshops to consider the results and identify areas for improvement in their
working practices and environment; the outputs contributed to the development of departmental action plans. Overall,
employee satisfaction levels remain very high with the company achieving its Engagement & Satisfaction Index targets this
year. In addition, 80% of respondents told us they are proud to work for the company, 82% would recommend working for the
company and 77% believe that NWL is a great organisation to work for.
Corporate responsibility
NWL supports the communities we serve in a number of different ways. As well as providing financial support and
facilities, we encourage employees to volunteer their time, skills and expertise through our 'Just an hour' scheme. These
activities generally support projects that make the areas we serve better places in which to live, work or invest. The
programme focuses on key themes throughout these communities but, increasingly, we are developing initiatives designed to
tackle lasting and sustainable change in specific areas.
Water and waste water contracts
Revenue for the Group's water and waste water contracts was �38.3 million for the year to 31 March 2010 (2009: �39.8
million) and profit on ordinary activities before interest was �10.2 million (2009: �9.1 million). The increase is
principally due to decreased power costs and the settlement of outstanding claims offset slightly by a reduction in respect
of gas indexation on revenue tariffs at Caledonian Environmental Services. All contracts are performing well and are in
line with expectations.
The Group is a member of two consortiums delivering long term private finance initiative contracts with Scottish Water for
waste water treatment. At Levenmouth, the Group has a 75% shareholding in both project and operating companies and the
benefit of a 40 year contract. Funding was provided through a 37 year fixed interest rate corporate bond with the principal
amortising from 2008.
On 12 April 2010, the Group settled the outstanding claim against Caledonian Environmental Services plc with the Design and
Construction Consortium, with the costs being capitalised in the year. The Group also, on this date, purchased the
remaining 25% minority stake and the outstanding subordinated loan stock in Caledonian Environmental Services for a
consideration of �0.4 million.
In Ayrshire, the Group has a 75% shareholding in the project company and a 100% shareholding in the company that operates
the three effluent treatment plants that comprise this 30 year contract. Finance was provided through a 27 year loan on a
fixed interest basis with the principal amortising from 2003.
In Ireland, the Group is part of a contractual consortium that designed and built a waste water treatment plant for Cork
City Council. Under the consortium agreement, the Group has responsibility for a 20 year contract for the operation and
maintenance of the plant.
AquaGib Limited, two thirds owned by the Group in a joint venture with the Government of Gibraltar, operates Gibraltar's
dual drinking water and sea water distribution systems under its 30 year contract with the Government of Gibraltar.
Principal risks and uncertainties
The current economic climate is having an impact on revenues, particularly those from industrial and commercial customers
and those associated with the housing market. We continue to monitor the uncertain situation very carefully and, in
particular, the recovery of domestic revenue. We welcome the passing of the Flood and Water Management Act 2010, which will
require landlords to disclose details of their tenants which will help improve debt collection.
Overall, industrial revenues are currently expected to be close to those assumed by Ofwat when setting prices for 2010/15.
Our largest single customer, Artenius UK Limited, ceased production in 2009 and Ofwat assumed this plant would remain
closed. However, in February 2010, it was bought by a Korean company, KP Chemicals, whose subsidiary Lotte Chemical UK
Limited brought the plant back into operation in April 2010 (although NWL revenue will be slightly lower than under the
previous Artenius contract). By contrast, a number of plants have closed which Ofwat had assumed would remain open. The
most significant is Corus Cast Products where the blast furnace was mothballed in January 2010, although Corus has also
announced that the South Bank Coke Ovens, which was also under threat of closure, will remain open for at least a further
three years.
The directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain
economic outlook.
The challenging, but acceptable, outcome to PR09 reduces the main source of regulatory risk.
The Flood and Water Management Act 2010 also includes provisions to implement the recommendations of the 'Pitt Review' on
flooding as well as a range of other measures to tidy up aspects of water related legislation. The flooding measures
primarily relate to local authorities and the EA but also have implications for water companies, particularly with regard
to how they interact and co-operate with these bodies.
The General Election has delayed Government measures in response to the 'Cave Review' (on competition) and the 'Walker
Review' (on charges and metering). The results are now known and the new coalition government has made some early
statements about its desire to consider the Cave, Walker and Pitt reviews. We expect this to provide greater clarity to the
future direction of the industry. If and when changes are proposed, NWL will work constructively to ensure that new
legislation takes account of the practical needs of the industry.
Our treasury policies limit the amount of cash we deposit with particular banks and financial institutions. The minimum
investment criteria cover credit rating and asset size, including sovereign and political risk. Current market conditions
have resulted in closer monitoring of counterparties.
There are further risks and uncertainties which may affect the Group from time to time. These were disclosed in the March
2009 annual report and financial statements and continue to be monitored. However, their impact is not considered to be
significant to the business.
Pensions
The Group operates both a defined benefit pension scheme, which closed to new entrants on 31 December 2007, and an
occupational defined contribution arrangement which began on 1 January 2008.
The deficit (under IAS 19) of the defined benefit scheme of �119.4 million, at 31 March 2009, has increased to �133.1
million at 31 March 2010. This is mainly due to a reduction in the discount rate assumption to 5.5% (2009: 6.1%),
partially offset by an increase in the market value of the scheme's assets since March 2009.
The triennial actuarial valuation of the defined benefit scheme as at 31 December 2007 resulted in a surplus of �42 million
(6%) on an 'ongoing' basis, which took into account the prepaid contributions (in 2006 and 2007) for the period up to 31
December 2010. While the actuarial valuation incorporates longer term forecasts and assumptions than the IAS 19 valuation,
the prevailing market conditions are difficult and we will continue to monitor carefully. Furthermore, the final
determination to March 2015 reflected NWL's request to fund �6 million per annum in respect of the defined benefit pension
deficit from 1 January 2012.
Earnings per share and dividend cover
Basic and diluted earnings per share (EPS) for the year were 23.67 pence and 23.62 pence respectively. In 2009, the basic
and diluted loss per share was 2.45 pence. EPS from continuing operations, adjusted for deferred tax, were 25.51 pence
(2009: 22.05 pence). From 2009/10, the Group has not adjusted for the credit in respect of the amortisation of debt fair
value as this is no longer considered material and has now reached a stable level. The credit for the year ended 31 March
2010 is �5.3m (2009: �5.6m) and would have an impact on the adjusted EPS of 1.02 pence per share (2009: 1.08 pence per
share).
A final dividend of 8.85 pence per share for the year ended 31 March 2010 will be recommended by the Board to shareholders
at the AGM on 29 July 2010 and, if approved, will be paid on 10 September 2010 to shareholders on the Company's Register of
Members at the close of business on 13 August 2010. Together with the ordinary interim dividend of 4.39 pence per share,
the ordinary dividends paid and proposed for the year will be 13.24 pence per share (2009: 12.79 pence per share). This
represents an increase of 3.5%, based on average inflation over the year of 0.5%, on the ordinary dividend for the previous
year and is consistent with the Board's decision to maintain a progressive dividend policy with real increases of around 3%
per annum. The board of our main subsidiary, NWL, has proposed a dividend policy consistent with the underlying growth
assumptions adopted by Ofwat at its price reviews in 2004 and 2009.
As announced on 15 December 2009, the Group Board confirmed that it expects to be able to maintain its current progressive
dividend policy with annual real growth of 3% (before inflation) over the next regulatory period.
The dividend cover for the year, excluding deferred tax, was 2.0x (2009: 1.8x). The cover level has increased principally
as a consequence of the application of lower RPI to the index linked bonds.
Outlook
Now that the periodic review of prices to March 2015 has been agreed, we are already beginning to deliver the agreed
outputs. The most notable of these is the commencement of works to expand Abberton reservoir, in Essex, by 58%. This will
significantly increase available water resources in one of the driest parts of the country.
Customer satisfaction scores remain high and plans are underway to address the new Ofwat Service Incentive Mechanism. We
also remain focused on the efficient delivery of high operational standards.
The Group is in a good position to continue to maintain sound financial performance, with funding in place to meet our
operational and capital investment requirements through to the end of 2011.
Consolidated income statement
For the year ended 31 March 2010
Year to Year to
31.3.2010 31.3.2009
Notes �m �m
Continuing operations
Revenue 2 704.7 694.1
Operating costs (428.9) (420.5)
Profit on ordinary activities before interest 2 275.8 273.6
Finance costs payable 3 (143.7) (183.5)
Finance income receivable 3 37.2 61.8
Share of profit after tax of jointly controlled entities 0.9 0.8
Profit on ordinary activities before taxation 2 170.2 152.7
- current taxation 4 (37.8) (32.1)
- deferred taxation 4 (9.5) (132.5)
Profit/(loss) for the year 122.9 (11.9)
Attributable to:
Equity shareholders of the parent Company 122.5 (12.7)
Minority interests 0.4 0.8
122.9 (11.9)
Basic earnings/(loss) per share attributable to ordinary equity holders of the parent Company 5 23.67p (2.45p)
Diluted earnings/(loss) per share attributable to ordinary equity holders of the parent Company 5 23.62p (2.45p)
Adjusted earnings per share for profit from continuing operations attributable to ordinary equity holders of the parent Company (excluding deferred tax) 5 25.51p 22.05p
Ordinary final dividend proposed per share 6 8.85p 8.50p
Dividend paid per share 6 12.89p 12.36p
Consolidated statement of comprehensive income
For the year ended 31 March 2010
Year to Year to
31.3.2010 31.3.2009
�m �m
Profit/(loss) for the year 122.9 (11.9)
Other comprehensive income
Actuarial gains/(losses) 1.1 (207.8)
Losses on cash flow hedges taken to equity (0.8) (11.7)
Translation differences (0.3) 0.9
Transferred to the income statement on cash flow hedges - (0.1)
Tax on items charged or credited to equity (0.1) 61.5
Total other comprehensive loss (0.1) (157.2)
Total comprehensive income/(loss) for the year 122.8 (169.1)
Attributable to:
Equity shareholders of the parent Company 122.4 (169.9)
Minority interests 0.4 0.8
122.8 (169.1)
Consolidated statement of changes in equity
For the year ended 31 March 2010
Equity share capital Share premium reserve Cash flow hedge reserve Treasury shares Currency translation Retained earnings Total equity Minority interests Total
�m �m �m �m �m �m �m �m �m
At 1 April 2008 51.9 446.5 1.0 (0.8) 0.1 (8.6) 490.1 1.7 491.8
Loss for the year - - - - - (12.7) (12.7) 0.8 (11.9)
Other comprehensive income - - (8.6) - 0.9 (149.5) (157.2) - (157.2)
Total comprehensive income and expense for the year - - (8.6) - 0.9 (162.2) (169.9) 0.8 (169.1)
Shares purchased - - - (1.7) - - (1.7) - (1.7)
Share-based payment - - - - - 0.5 0.5 - 0.5
Exercise of LTIP awards - - - 0.2 - (0.2) - - -
Equity dividends paid - - - - - (64.0) (64.0) (0.1) (64.1)
At 1 April 2009 51.9 446.5 (7.6) (2.3) 1.0 (234.5) 255.0 2.4 257.4
Profit for the year - - - - - 122.5 122.5 0.4 122.9
Other comprehensive income - - (0.6) - (0.3) 0.8 (0.1) - (0.1)
Total comprehensive income and expense for the year - - (0.6) - (0.3) 123.3 122.4 0.4 122.8
Share-based payment - - - - - 0.4 0.4 - 0.4
Exercise of LTIP awards - - - 0.3 - (0.3) - - -
Equity dividends paid - - - - - (66.7) (66.7) - (66.7)
At 31 March 2010 51.9 446.5 (8.2) (2.0) 0.7 (177.8) 311.1 2.8 313.9
Consolidated balance sheet
As at 31 March 2010
Year to Year to
31.3.2010 31.3.2009
Notes �m �m
Non-current assets
Goodwill 3.6 3.6
Other intangible assets 64.2 64.2
Property, plant and equipment 3,504.9 3,388.2
Investments in jointly controlled entities 4.1 3.8
Financial assets 12.9 14.0
Amounts receivable relating to consortium relief 1.7 1.7
3,591.4 3,475.5
Current assets
Inventories 3.3 3.2
Trade and other receivables 136.4 131.7
Short term cash deposits 7 15.8 160.6
Cash and cash equivalents 7 174.8 108.8
330.3 404.3
Total assets 3,921.7 3,879.8
Non-current liabilities
Interest bearing loans and borrowings 2,433.9 2,465.3
Provisions 2.2 2.5
Deferred income tax liabilities 606.1 596.5
Pension liability 133.1 119.4
Other payables 7.8 8.1
Grants and deferred income 219.5 215.6
3,402.6 3,407.4
Current liabilities
Interest bearing loans and borrowings 33.1 49.2
Provisions 0.2 0.2
Trade and other payables 151.2 147.8
Interest rate swaps 12.5 11.7
Income tax payable 8.2 6.1
205.2 215.0
Total liabilities 3,607.8 3,622.4
Net assets 313.9 257.4
Capital and reserves
Issued capital 51.9 51.9
Share premium reserve 446.5 446.5
Cash flow hedge reserve (8.2) (7.6)
Treasury shares (2.0) (2.3)
Currency translation 0.7 1.0
Retained earnings (177.8) (234.5)
Equity shareholders' funds 311.1 255.0
Minority interests 2.8 2.4
Total capital and reserves 313.9 257.4
Approved by the Board on 1 June 2010 and signed on its behalf by:
Sir Derek Wanless
Chairman
Heidi Mottram
Chief Executive Officer
Consolidated cash flow statement
For the year ended 31 March 2010
Year to Year to
31.3.2010 31.3.2009
Notes �m �m
Operating activities
Reconciliation of profit before interest to net cash flows from operating activities
Profit on ordinary activities before interest 275.8 273.6
Depreciation 105.5 100.7
Other non-cash charges and credits (5.7) (4.3)
Net credit for provisions, less payments (0.3) (0.3)
Difference between pension contributions paid and amounts recognised in the income statement 10.3 7.9
(Increase)/decrease in inventories (0.1) 0.2
Increase in trade and other receivables (5.0) (8.6)
Increase/(decrease) in trade and other payables 0.4 (0.3)
Cash generated from operations 380.9 368.9
Interest paid (114.8) (120.6)
Income taxes paid (35.7) (29.6)
Net cash flows from operating activities 230.4 218.7
Investing activities
Interest received 8.8 12.0
Capital grants received 10.1 11.2
Proceeds on disposal of property, plant and equipment 0.3 1.2
Dividends received from jointly controlled entities 0.6 0.8
Short term cash deposits 144.8 (160.6)
Maturity of investments 1.4 1.7
Purchase of property, plant and equipment (220.6) (231.8)
Net cash flows from investing activities (54.6) (365.5)
Financing activities
New borrowings - 141.4
Purchase of treasury shares - (1.7)
Dividends paid to minority interests - (0.1)
Dividends paid to equity shareholders (66.7) (64.0)
Repayment of borrowings (20.9) (95.9)
Payment of principal under hire purchase contracts and finance leases (7.2) (7.0)
Net cash flows from financing activities (94.8) (27.3)
Increase/(decrease) in cash and cash equivalents 81.0 (174.1)
Cash and cash equivalents at start of year 7 92.3 266.4
Cash and cash equivalents at end of year 7 173.3 92.3
Cash and cash equivalents at end of year 7 173.3 92.3
Short term cash deposits 7 15.8 160.6
Total cash and cash equivalents and short term cash deposits 189.1 252.9
Notes to the financial statements
The Board approved the preliminary financial statements covering the year ended 31 March 2010 on 1 June 2010. The financial
information set out above does not constitute the Group's statutory financial statements for the year ended 31 March 2010,
or for the year ended 31 March 2009, within the meaning of Section 435 of the Companies Act 2006. The financial information
is based on the audited statutory financial statements for the year ended 31 March 2010, upon which the auditors have
issued an unqualified audit opinion.
The financial statements for the year ended 31 March 2009 have been delivered to the Registrar of Companies. The financial
statements for the year ended 31 March 2010 will be sent to shareholders and delivered to the Registrar of Companies in due
course. They will also be available at the Registered Office of the Company, Northumbrian Water Group plc, Northumbria
House, Abbey Road, Pity Me, Durham, DH1 5FJ.
1. Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union as it applies to the financial statements of the Group for the year ended 31 March
2010 and in accordance with the Companies Act 2006.
The Group has adopted the following standards and interpretations during the year:
� IAS 1 Presentation of Financial Statements (revised)
� IAS 32 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation
� IAS 23 Borrowing Costs (revised)
� Improvements to IFRS May 2008
� IFRS 2 Share-based Payments - Vesting Conditions and Cancellations
� IFRS 8 Operating Segments
� IFRIC 15 Agreements for the Construction of Real Estate
The adoption of IAS 1 Presentation of Financial Statements (revised) has required the 'Reconciliation of movements in
equity', previously disclosed in note 22 to the annual report and financial statements for the year ended 31 March 2009, to
be presented as a primary statement entitled 'Consolidated statement of changes in equity'. In addition, the 'Consolidated
statement of recognised income and expense' has been replaced with the 'Consolidated statement of comprehensive income'.
In adopting IFRS 8 Operating Segments, the Group concluded that the operating segments and the measures of revenue, segment
profit, segment assets and liabilities were the same as the business segments determined in accordance with IAS 14 Segment
Reporting.
In adopting IAS 23 Borrowing Costs (Revised), the Group has amended its accounting policy and, from 1 April 2009,
capitalises borrowing costs on qualifying assets. The Group has capitalised �1.2 million for the year to 31 March 2010.
IFRIC 18 Transfers of assets from customers has not been applied in the financial statements as it is effective for
accounting periods beginning on or after 31 October 2009. The Group will, therefore, apply IFRIC 18 in preparing the
annual report and financial statements for the year ending 31 March 2011.
The adoption of IAS 32 Presentation of Financial Statements, Improvements to IFRS May 2008, IFRS 2 Share-based Payments and
IFRIC 15 Agreements for the Construction of Real Estate do not have a material impact on the Group.
2. Segmental analysis
For management purposes, the Group is organised into business units according to the nature of the products and services
and has three reportable operating segments. Profit is measured at profit on ordinary activities before interest.
Northumbrian Water Limited
NWL is one of the ten regulated water and sewerage businesses in England and Wales. NWL operates in the north east of
England, where it trades as Northumbrian Water, and in the south east of England, where it trades as Essex & Suffolk Water.
NWL also has non-regulated activities closely related to its principal regulated activity.
Water and waste water contracts
NWG owns a number of special purpose companies for specific water and waste water contracts in Scotland, Ireland and
Gibraltar.
Other
Agrer provides overseas aid funded project work in developing countries through a number of funding agencies. Central
unallocated costs and provisions are also included.
Transfer prices between business segments are set on an arm's length basis in a manner similar to transactions with third
parties. Segment revenue, segment expense and segment result include transfers between business segments. Those transfers
are eliminated on consolidation.
Revenue Northumbrian Water and
Water waste water
Limited contracts Other Total
�m �m �m �m
Year ended 31 March 2010
Segment revenue 657.8 38.3 14.8 710.9
Inter segment revenue - - (6.2) (6.2)
Revenue to external customers 657.8 38.3 8.6 704.7
Year ended 31 March 2009
Segment revenue 647.0 39.8 13.0 699.8
Inter segment revenue - - (5.7) (5.7)
Revenue to external customers 647.0 39.8 7.3 694.1
All revenue above represents services provided.
Profit on ordinary activities before interest Northumbrian Water and
Water waste
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