Annual Report 2016 - Page 38

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