Annual Report 2016
STRATEGIC REPORT
Free cash
flow of
£30m
“Capital
investment at
South Staffs
Water increased
in the first year of
AMP 6.”
36
Also, during the year South Staffs
Water sold the contractual rights
to future rental income relating to
a number of its sites. This sale has
generated proceeds and a profit
of £4.6m which has also been
disclosed in the profit and loss
account as exceptional due to the
non-recurring nature of the sale and
the significance of the proceeds and
the profit generated. It is considered
that the disposal and the related
profit are not of an operating nature
and as such it has been reported
after operating profit in the profit
and loss account.
Cash flow and dividends
Group cash flows from operating
activities reduced to £66.0m (2015
as restated: £74.1m) including the
budgeted impact of changes in
year-on-year working capital due
in part to the phasing of capital
expenditure over the two-year
period which increased related
supplier payments made in the
year compared to the previous
year. However, cash flow was
well ahead of the budget set at
the start of the year reflecting
the continuing importance the
Group places on cash generation.
Capital expenditure (excluding
infrastructure renewals, net of
contributions and disposals)
increased to £29.3m (2015 as
restated: £25.4m) due mainly to
increased capital investment by
South Staffs Water in the first year of
the new AMP6 investment period.
Overall, free cash flow (cash flow
from operations less net interest, tax
and capital expenditure) of £30.3m
(2015: £39.3m) was well ahead of
our target. Total dividends paid and
proposed in the year were £33.2m
(2015: £27.1m) with the year-onyear increase largely reflecting
the distribution of the exceptional
proceeds on disposal of rental
income rights received during the
year (£4.6m).
Financing, net debt and liquidity
During the year South Staffs Water
successfully refinanced £40m of
maturing bank facilities with a
number of new five-year bank
facilities demonstrating this longterm business’ ability to attract
longer-term bank finance.
The book value of Group net
debt at 31 March 2016 amounted
to £358.3m with the increase
from 31 March 2015 (£349.7m)
mainly reflecting the increase in
the book value of index-linked
debt in South Staffs Water due to
indexation for the year of £6.1m.
This book value differs from the
value used for borrowing covenant
reporting purposes of £339.9m
(2015: £335.5m) which excludes
unamortised premium and issue
costs and uses actual inflation (RPI)
at the relevant dates as opposed to
the long-term inflation assumption
used in the book value of indexlinked debt.
In South Staffs Water, net debt for
covenant reporting purposes was
£213.4m (2015: £217.0m) being
64.3% (2015: 63.3%) of its Regulate