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.