Bristol Water pre-tax profits plummeted from £23.1m to £7.6m in the year to May 31 following what chairman Moger Woolley described as "one of the most unusual years in the company's long history".
Not only had the company faced one of the severest Decembers and driest years in the company's history but the board's rejection of Ofwat's price limits and related obligations for the five years to March 2015 resulted in considerable effort dealing with the referral to the Competition Commission (CC).
He said Bristol Water's underlying performance, which saw turnover rise £1m to £100.7m, had been stable but the determination by the CC had resulted in a £10m increase in the depreciation charge on infrastructure assets compared to 2010 of which only an element would be reflected in price limits in the current five year regulatory period – and none at all in the 2010/11 year.
For the first time, the company had directly approached the financial markets issuing a £40m index linked, 30-year bond which was rated Baa1 by Moody's. This financing would contribute significantly to the delivery of the agreed capital programme.
Dividends totalling £2.9m were paid representing the return of post-tax interest receivable on loans to the UK ultimate parent company. No 'base' dividend was paid or is proposed to preserve cash within the business. However, from next year, Mr Woolley said the company expects to return to its normal practice of paying shareholders a base level dividend reflecting the cost of capital allowed in the five-year determination of price limits, adjusted to reflect actual gearing levels and where appropriate actual performance relative to regulatory assumptions.
He said the company is well placed to face near future events but it is not immune from medium term financial market uncertainties which have the potential to affect its ability to obtain appropriate financing to deliver the current and future capital programmes.
Meanwhile he expects results for the coming year to result in:
· an approximate 8.6% increase in prices due to RPI and 'K' factor;
· an increase in the proportion of customers who are metered;
· an increase in chemical and power costs;
· the potential for an increase in bad debts; and
· an increase in interest charges and related indexation arising from the £40m index-linked bond issued during the current year.
