Annual Report 2015 | Page 32

Annual Report 2015 capital investment and that collection of trade debtors remains challenging. The Group remains deeply committed to its focus on cash generation and to keeping working capital at efficient levels. The Group’s net cash interest payments of £6.0m reduced from the previous year by £1.9m again largely reflecting, as with the profit and loss charge, the full year effect of lower interest payments being made in the year due to lower rates achieved on bank debt that was refinanced in quarter 4 of 2013/14. Group capital investment (net of disposals and capital contributions) was £34.1m compared to £35.6m in 2013/14. In total, South Staffs Water invested £32.0m (2014: £32.5m) in capital assets, (net of contributions), resulting in the overall 5-year cumulative AMP 5 expenditure (for the two regions of South Staffs and Cambridge) of £168.1m being in line with Ofwat’s Final Determination. Overall, due to higher operating cash flows, lower interest payments and the planned reduction in capital expenditure in the year, free cash flow increased by £10.3m to £39.3m. 30 Dividends Total dividends paid and proposed in the year to 31 March 2015 were £27.1m. This includes final dividends of £12.9m paid in the year but being in respect of the 2013/14 year and £14.2m interim dividends in respect of 2014/15. Net Debt and Liquidity The book value of Group net debt at 31 March 2015 amounted to £349.7m, largely the same as that at 31 March 2014 (£349.8m).This book value differs from the value used for borrowing covenant reporting purposes of £335.5m (2014: £337.7m) which excludes unamortised premium and issue costs and uses actual inflation at the relevant dates as opposed to the long-term inflation assumption used in the book value of index-linked debt. The reduction in the covenant value of net debt from March 2014 of £2.2m largely reflects overall cash generation of £5.6m, after acquisition payments and payment of dividends, partly offset by the impact of higher values for index-linked debt of £4.1m, representing indexation of these borrowings during the year. In South Staffs Water, net debt for covenant reporting purposes was £217.0m (2014: £220.6m) being 63.3% (2014: 64.4%) of its Regulated Asset Value (RAV) of £342.8m (2014: £342.5) representing the PR09 Final Determination RAV uplifted for inflation. This ratio reflects the net impact of better than expected free cash generation in the year and inflation (RPI) at March 2015 of 0.9% (March 2014: 2.5%), which is used to inflate RAV, whereas the majority of index-linked debt was inflated using RPI at July 2014 which was higher at 2.5% (July 2013: 3.1%). While the dividend policy for South Staffs Water allows dividends to be paid up to 77% of net debt/RAV, the expectation for this ratio is in the region of 66%. The Group and South Staffs Water have maintained, and continue to forecast to maintain, significant headroom in respect of all borrowing covenants. Standard and Poor’s continues to rate South Staffs Water as BBB+ and South Staffordshire Plc continues to be investment grade rated. At 31 March 2015, the Group had available £42.7m of undrawn bank borrowing facilities (2014: £37.4m) and surplus cash of £4.7m (2014: £8.1m), providing significant liquidity headroom.