RNS Number:5513M
Bristol Water Group PLC
20 May 2005


20 May 2005

Not for release, publication or distribution in or into the United States,
Canada, Australia or Japan.


                            Bristol Water Group plc
       Recommended proposals for a return of 148 pence per Ordinary Share
                          and 10 for 13 Consolidation

Highlights

*    Return of approximately #30 million to shareholders (equivalent to 148
     pence per Ordinary Share) expected to be paid by 15 July 2005
*    Financed from existing cash balances and the raising of additional
     borrowings within the regulated water business, increasing net indebtedness to
     regulatory capital value, on a pro forma basis, to approximately 75 per cent. of
     the 1 April 2005 value
*    Achieved through the issue of B Shares to maintain distributable reserves
     as far as possible
*    Subject to approval of shareholders and the Court and the availability of
     finance
     *    Shareholders representing 32.58% of the issued share capital have
          irrevocably undertaken or given letters of intent to vote in favour of the
          proposals at the EGM
*    10 for 13 Consolidation to seek to ensure comparability of share price
*    Dividends
     *    Total anticipated dividend for year ended 31 March 2005 of approximately
          #5.3 million
     *    Board anticipates recommending dividends for the year ending 31 March 2006
          of approximately #5.8 million representing a further significant increase in the
          level of underlying dividends.
     *    Board's intention to pursue a dividend policy that maintains this level in
          real terms for the period to March 2010

Commenting on the proposals, Moger Woolley, Chairman of Bristol Water Group plc,
said:

"Having completed Ofwat's Periodic Review process and increased the focus on the
regulated water business, we concluded that shareholders interests were best
served by increasing the capital efficiency of the Group."

Introduction

The Board of Bristol Water Group plc ("Bristol Water Group" or the "Company") is
pleased to announce proposals to effect a return to its shareholders of 148
pence per Ordinary Share, being approximately #30 million. This follows a review
by the Board of the capital requirements of the Group having accepted Ofwat's
price limits for the period 1 April 2005 - 31 March 2010 for its regulated water
business and actions taken by the Board to focus on its regulated water
business.

This will be achieved through the issue of B Shares paid up from the Company's
merger reserve, and then a cancellation and repayment of the B Shares. In order
to make the future share price more comparable with the historic share price and
to try to maintain the value of options over Ordinary Shares, the Company is
also proposing a consolidation of its Ordinary Shares to become effective
immediately following the issue of the New B Shares. For every 13 Ordinary
Shares held at the Consolidation Record Time, Shareholders will receive 10
Consolidated Ordinary Shares.

The Proposals are subject to the approval of Shareholders and the Court and the
availability of additional finance. A circular setting out the details of the
Proposals, together with the notice of an Extraordinary General Meeting at which
Shareholder approval will be sought, is expected to be sent to Shareholders
later today.

The proceeds are expected to be posted to shareholders by 15 July 2005
following, inter alia, obtaining Shareholder approval at the EGM expected to be
held at 11.00 a.m. on 16 June 2005 and Court approval at a hearing expected to
be held on 6 July 2005.

The Board considers the Proposals to be in the best interests of Shareholders as
a whole and unanimously recommends that Shareholders vote in favour of the
special resolution to be proposed at the EGM.

Background to and reasons for the Return

In February 2004, the Group returned approximately #51 million of capital to
Shareholders by increasing the level of indebtedness in the Group's regulated
water business to increase the capital efficiency of the Group. This followed
the Board's earlier decision to focus on its regulated water business and reduce
the risk profile and capital requirements of the Group.

Ofwat has completed its determination of price limits for the five year period 1
April 2005 to 31 March 2010 for the Group's regulated water business as part of
the industry wide review. In December 2004, Ofwat set out its Final
Determination which after careful consideration the board of Bristol Water plc,
the Group's regulated water business, accepted.

In February 2005, in line with the Board's strategy of concentrating on its
regulated water business, it announced the sale of Lawrence, the Group's
contracting business. The Group will receive additional consideration should
Lawrence win specific additional contracts that it was negotiating at the time
of sale. Certain liabilities have been retained by the Group.

The Group has also agreed with its partners to end its involvement in Watergrid
Limited (a joint venture with British Waterways Board, AWG and Partnerships UK)
which was created to utilise the canal network for water and waste water
services. Accordingly, the Group's potential capital commitments to Watergrid
Limited will be terminated. The Group has also disposed of its overseas leakage
reduction business which comprised the majority of the activities of Bristol
Water Services Limited and its subsidiaries. Accordingly, the Group will in the
foreseeable future undertake no material activities apart from its regulated
water business.

In light of the finalisation of the price limits and related output assumptions
for the regulated water business for the period 1 April 2005 to 31 March 2010
and the disposal of Lawrence and the other non-regulated businesses, the Board
carried out a review of the Group's capital requirements. The review concluded
that Shareholders' interests are best served by increasing the level of gearing
in its regulated water business, increasing its inter-company loan to Bristol
Water Group and reducing the level of cash held elsewhere in the Group. This
will increase the capital efficiency of the Group and allow a further return to
Shareholders.

Financing and financial effects of the Return

It is the Board's intention to finance the Return by raising approximately #22
million of additional borrowings within the regulated water business through the
Artesian Programmes and from existing cash balances within the non-regulated
entities of the Group of approximately #8 million. Approximately #35 million of
additional borrowings will be raised through the Artesian Programmes at the same
time to finance the capital expenditure and debt maturity requirements of the
Group's regulated water business for the current year and part of 2006/07 and to
make a #7 million contribution to reduce the deficit in Bristol Water plc's
final salary pension scheme. Whilst the capital expenditure for at least the
next 12 months could be financed from existing facilities, the Board is taking
the opportunity to obtain longer term borrowing. The Artesian Programmes were
used to help finance the return of capital in 2004. It is the Board's current
intention that the additional borrowings will be index-linked.

The Board has held detailed discussions with the Royal Bank of Scotland, the
arranger of the Group's participation in the Artesian Programmes, and the key
documentation has been discussed and agreed. The Board has yet to sign final
documentation and draw the finance, hence the Return remains subject to the
approximately #57 million of additional finance being available prior to the
cancellation of the New B Shares. The Board currently intends to draw the funds
ahead of obtaining approval of the Shareholders.

Should approval for the Return not be obtained, the surplus funds will be used
to finance the regulated water business's longer term capital expenditure, debt
maturity and working capital requirements.

On a pro forma basis including the contribution to its final salary pension
scheme, the Return will increase the net indebtedness in Bristol Water plc from
approximately #140 million at 1 April 2005 to approximately #169 million,
representing approximately 62 per cent. and 75 per cent. respectively of Bristol
Water plc's Regulatory Capital Value (''RCV'') at 1 April 2005, and will also
reduce the pro forma level of cash balances held elsewhere in the Group by
approximately #9 million to approximately #5 million.

Pension arrangements for the majority of the Group's employees are provided
through the Group's membership of the Water Companies Pension Scheme (''WCPS'')
which provides defined benefits based on final pensionable pay. The Group has
separate sections within WCPS for Bristol Water plc and for the retained
liabilities related to its previous non-regulated activities. As at 31 March
2005, the deficits in the two sections in WCPS were approximately #11.9 million
and #0.9 million respectively calculated on an FRS 17 basis.

In considering the Return, the Directors have taken into account the Group's
obligations in respect of both its sections of WCPS.

Accordingly, Bristol Water plc intends to make a one-off contribution to WCPS of
#7.0 million. It also intends to make additional contributions of #1.0 million
in each of the four years beginning 1 April 2006 and #0.9 million for the year
beginning 1 April 2010. Bristol Water Group has also agreed to make a one-off
contribution of #0.3 million to the non-regulated section in addition to its
existing commitment for annual contributions of #0.2 million. These amounts are
in addition to the normal pension contributions required by WCPS's trustee to
the two sections. These respective additional annual contributions will not need
to be made once the scheme actuary has advised that the deficit has been
eliminated for the relevant section.

The additional contributions to the Bristol Water plc section and the #0.3
million contribution to the non-regulated section are conditional on the Return
being made.

Whilst Bristol Water plc will need to raise additional debt over the current
regulatory period to fund its capital expenditure obligations, debt maturity and
working capital requirements, the board of Bristol Water plc believes that it
will be able to maintain a debt to RCV ratio in the range 75 to 80 per cent.
over the current regulatory period. The cash balances retained by the Group will
assist the Group in managing its working capital requirements and any
outstanding obligations from its previous non-regulated activities.


Summary of the Proposals

The Return

Bristol Water Group intends to return 148 pence per Ordinary Share
(approximately #30 million in aggregate) to Shareholders through the issue and
subsequent cancellation and repayment of New B Shares. Subject to Shareholder
approval and the additional financing being in place, the New B Shares will be
issued on the basis of one New B Share for each Ordinary Share held at the New B
Share Issue Record Time, which is expected to be 5.00 p.m. on 5 July 2005. The
New B Shares, which will be paid up out of the Company's merger reserve, will be
issued in certificated form only. Subject to the approval of Shareholders and
the Court, and to the additional financing being in place, the New B Shares will
be cancelled in return for a cash payment by 15 July 2005 of 148 pence per New B
Share. Further details of the additional financing are set out above.

The creation, issue and cancellation of the New B Shares require the passing of
a special resolution, which will also make appropriate changes to the Bristol
Water Group Articles.

The Consolidation

Under the Consolidation, Shareholders will be entitled to 10 Consolidated
Ordinary Shares for every 13 Ordinary Shares held at the Consolidation Record
Time, which is expected to be 6.00 p.m. on 5 July 2005. Dealings in Consolidated
Ordinary Shares are expected to commence at 8.00 a.m. on 6 July 2005.

The Consolidation ratio has been determined by reference to a price of 657.5
pence per Ordinary Share, being the closing mid-market price on 18 May 2005 (the
last practicable date prior to this announcement). Upon implementation of the
Consolidation the nominal value of each Consolidated Ordinary Share will be 6.5
pence.

The effect of the Consolidation will be to reduce the number of Ordinary Shares
in issue by approximately 23 per cent. to reflect the fact that this proportion
of the Company's market capitalisation is being returned to Shareholders. The
Consolidated Ordinary Shares will have the same rights attaching to them as the
Ordinary Shares in all material respects.

Holders of Ordinary Shares whose holdings are registered in CREST will
automatically have their new Consolidated Ordinary Shares credited to their
CREST account.

It is expected that definitive share certificates in respect of the Consolidated
Ordinary Shares will be despatched by first class post by 15 July 2005 to
Shareholders who hold their Ordinary Shares in certificated form. Following the
Consolidation, certificates in respect of the Ordinary Shares will no longer be
of value and such certificates should be destroyed on receipt of certificates
for Consolidated Ordinary Shares.

Taxation

A guide to the general tax position of Shareholders who are resident or, if
individuals, ordinarily resident in the UK is set out in the Shareholder
circular.

Shareholders' attention is drawn in particular to the fact that, in general
terms and subject as mentioned in the Shareholder circular, the amount paid by
Bristol Water Group on the Return comprises for tax purposes both a capital
element (which is expected to be treated as the proceeds of a disposal for the
purposes of UK taxation of chargeable gains) and an income element (which is
expected to be treated in the same way as a dividend for UK tax purposes). The
capital element will amount to 119 pence per New B Share and the income element
to 29 pence per New B Share.

Shareholders will be notified of the total amount of the Capital Element and the
Income Element attributable to their New B Shares in the documentation they
receive accompanying the cheque to be despatched to them in respect of the
Return.

Bristol Water Savings Related Share Option Schemes

As a result of the Consolidation, the value of options over Ordinary Shares in
the Bristol Water Savings Related Share Option Schemes should remain
approximately unchanged. Optionholders will retain the same number of options as
they currently hold following the Consolidation. However, the proportion of the
Company's issued share capital under option will be increased through the
Consolidation.

Current trading and prospects

The Board of Bristol Water plc has instigated a restructuring programme to
improve its operating efficiency and anticipates making a charge of
approximately #2 million in respect of the costs of the restructuring programme
within its accounts for the year ended 31 March 2005.

The Group will be reporting its results for the year ended 31 March 2005 on 26
May 2005 and anticipates reporting consolidated net debt of approximately #126
million.

Following the disposal of all material non-regulated businesses and the focus on
the regulated water business, the Group's future performance will be closely
linked to that of its regulated water business.

Ofwat's Final Determination has now set price limits and related service output
assumptions for the regulated water business for the five years to 31 March
2010. The K factors, approximately equivalent to average annual real price
increases or decreases, set for Bristol Water plc for the five years are +13.8
per cent., +2.8 per cent., +1.5 per cent., +0.7 per cent. and -2.3 per cent.
Although Ofwat set challenging efficiency targets, the board of Bristol Water
plc believes that it will be able to deliver the relevant service outputs within
the targets set. As a result, the Board is confident in the prospects for the
Group.

Dividend policy

As previously announced, for the financial year ended 31 March 2005, the Board
currently anticipates proposing, as with the interim dividend already paid, a
final dividend equivalent to that for the preceding year. This will result in
the total for the interim and final ordinary share dividends for each of the two
financial years being approximately #5.3 million. Given the return of value
completed in February 2004, this represents a significant increase in the level
of underlying dividends. Assuming the Proposals are approved by Shareholders,
the final dividend will be proposed and paid on a per Consolidated Ordinary
Share basis. Accordingly, the final dividend is expected to be 24.43 pence per
Consolidated Ordinary Share, equivalent to 18.79 pence per existing Ordinary
Share.

The following table summarises actual and proposed dividends per share and their
equivalents in relation to the February 2004 consolidation and the proposed
Consolidation:

                                                   Relating to ordinary shares held
                                       Prior to the 2004      After the 2004    After the proposed
Financial year                                53 for 100          53 for 100             10 for 13
ended                                      consolidation       consolidation         consolidation

31 March 2004  Interim dividend
                paid                               4.16p
                                              ----------
              
               Equivalent per share                                                    
                after the February 2004
                 consolidation to                                      7.85p
                  
               Final dividend proposed                                         
                and paid                                              18.79p          
                                                                      
                                                                   ---------
               Total                                                  26.64p
                                                                   =========

31 March 2005  Interim dividend paid                                   7.85p

               Equivalent per share
                after the proposed          
                 Consolidation to                                                           10.20p

               Final dividend per
                Consolidated Ordinary
                 Share expected to be
                  proposed at the 2005
                   Annual General Meeting                                                   24.43p

               Equivalent per Ordinary
                Share prior to the
                 proposed Consolidation to                            18.79p                                        
                                                                   ---------              --------
                Total                                                 26.64p                34.63p
                                                                   =========              ========


The Board anticipates recommending dividends for the year ended 31 March 2006 of
approximately #5.8 million. Whilst actual dividends declared or recommended will
depend, inter alia, on the trading performance of the Group, pension charges,
the cost of debt and the effect of the implementation of International Financial
Reporting Standards, it remains the Board's intention to pursue a dividend
policy that maintains such value in real terms for the period to March 2010.
This represents a significant underlying increase in the dividend per share
given the reduction in the equity base of the Company when the Proposals are
implemented.

Board changes

Following the decision to focus on its regulated water business, the Board is
seeking ways to simplify the membership of the boards within the Group and has
agreed with Ofwat a method of doing so while satisfying Ofwat's existing
requirement for independent non-executive directors on the Bristol Water plc
board. Ofwat has agreed that any independent non-executive director of Bristol
Water Group may, if appointed to the board of Bristol Water plc, be regarded as
independent for Ofwat's purposes.

In planning for the expected retirement of Roger Wyatt in March 2006, reflecting
the focused nature of the Group going forward, the Board currently expects his
duties to be shared between the other executive directors rather than seeking a
replacement.

Moger Woolley has been asked by his fellow directors to seek re-election at the
forthcoming annual general meeting of the Company and continue as Chairman for a
further year, which he has agreed to do. Sir Richard Gaskell has decided to
retire and not seek re-election having served as a non-executive for 15 years.
Subject to his re-election at at the forthcoming Annual General Meeting Trevor
Smallwood will become Deputy Chairman and Senior Independent Director.

Shareholders' undertakings and statements of intention

Ecofin Water & Power Opportunities plc has given a written undertaking to vote
or to procure a vote in favour of the special resolution to be proposed at the
EGM in respect of 4,575,332 Ordinary Shares representing 22.90 per cent. of the
total issued share capital of Bristol Water Group.

Enquiries


Bristol Water Group plc                     Tel: 0117 953 6407
Alan Parsons, Chief Executive
Andy Nield, Group Finance Director

Dresdner Kleinwort Wasserstein              Tel: 020 7623 8000
Christian Littlewood, Director

cityProfile                                 Tel: 020 7448 3244
Oliver Winters

Dresdner Kleinwort Wasserstein Limited, which is authorised and regulated by the
Financial Services Authority, is acting for Bristol Water Group plc and no one
else in connection with the Proposals and is not acting for any person other
than Bristol Water Group plc and will not be responsible to any person other
than Bristol Water Group plc for providing the protections afforded to its
customers or for providing advice in connection with the Proposals and the other
matters described herein.

Definitions

The following definitions shall apply to words and phrases used in this
announcement except where the context requires otherwise.

''Artesian Programmes''                     the Artesian Finance plc monoline wrapped index-linked
                                            bond programme and/or the Artesian Finance II plc monoline
                                            wrapped fixed-rate bond programme;
''Board'' or ''Directors''                  the directors of Bristol Water Group, whose names are
                                            set out on page 4 of this document;
''Bristol Water plc''                       Bristol Water plc, incorporated and registered in England
                                            and Wales under the Companies Act with registered
                                            number 2662226;
''Bristol Water Group'' or the ''Company''  Bristol Water Group plc, incorporated and registered
                                            in England and Wales under the Companies Act with registered
                                            number 4789566;
''Bristol Water Group Articles''            the current articles of association of Bristol Water Group;
''Bristol Water Holdings''                  Bristol Water Holdings plc, incorporated and registered in
                                            England and Wales under the Companies Act with registered number
                                            2630760;
'Bristol Water Savings Related Share Option Schemes''
                                            the Bristol Water Group 2003 Savings Related Share Option Scheme
                                            and the BristolWater Holdings 2001 Savings Related Share Option
                                            Scheme;
''Companies Act''                           the Companies Act 1985, as amended;
''Consolidated Ordinary Share(')            the ordinary share(s) of 6.5 pence each in the capital of Bristol
                                            Water Group, arising as a result of the Consolidation, and
                                            following the Return to be referred to as ordinary shares;
''Consolidation''                           the proposed sub-division and consolidation of share capital,
                                            as more fully described in Part 2 of this document;
''Consolidation Record Time''               expected to be 6.00 p.m. on 5 July 2005, being the day immediately
                                            preceding the day on which it is expected that the Court will
                                            hear the petition to confirm the Return (or such later date as the
                                            Directors may determine);
''Court''                                   the High Court of Justice in England and Wales;
''Court Hearing''                           the hearing of the petition to sanction the Return expected to
                                            be on 6 July 2005;
''CREST''                                   the system for the paperless settlement of trades in securities
                                            and the holding of uncertificated securities operated by CRESTCo
                                            Limited in accordance with the Uncertificated Securities
                                            Regulations 2001;
''Dresdner Kleinwort Wasserstein''          Dresdner Kleinwort Wasserstein Limited;
''EGM''                                     the extraordinary general meeting of Bristol Water Group, notice of
                                            which is set out in Part 6 of this document, and any adjournment of
                                            that meeting;
''Final Determination''                     Bristol Water plc's price limits for the period 1 April 2005 to
                                            31 March 2010 set by Ofwat in December 2004;
''Group''                                   Bristol Water Group and its subsidiary undertakings;
''Lawrence''                                Walter Lawrence (Civil & Mechanical) Limited;
''New B Share Issue''                       the proposed issue of New B Shares to Shareholders on the register
                                            of members at the New B Share Issue Record Time, as more fully
                                            described in this document;
''New B Share Issue Record Time''           expected to be 5.00 p.m. on 5 July 2005, the day immediately
                                            preceding the day on which it is expected that the Court will
                                            hear the petition to confirm the Return (or such other time and
                                            date as the Directors may determine);
''New B Shares''                            the B Shares of nominal value of 119 pence each in the capital
                                            of Bristol Water Group carrying the rights and restrictions set out
                                            in Part 6 of this document including the right to 148 pence each
                                            on cancellation;
''Ofwat''                                   the Office of Water Services, a department of the UK Government headed
                                            by the Director General of Water Services whose functions include,
                                            inter alia, the making of the Final Determination and whose office
                                            is to be replaced under the Water Act 2003 by the Water Services
                                            Regulation Authority;
''Ordinary Share(s)''                       the ordinary share(s) of 5 pence each in the capital of
                                            Bristol Water Group;
''Proposals''                               the New B Share Issue, the Return and the Consolidation;
''RCV''                                     Bristol Water plc's Regulatory Capital Value as published by Ofwat
                                            adjusted as appropriate for inflation effects;
''Return''                                  the proposed repayment of share capital by the cancellation and
                                            repayment of New B Shares as more fully described in this document;
''Shareholder(s)''                          holder(s) of Ordinary Shares and, where the context so
                                            requires, holder(s) of New B Shares;
''UK'' or ''United Kingdom''                the United Kingdom of Great Britain and Northern Ireland;
''uncertificated'' or ''in uncertificated form''
                                            when used in relation to shares, recorded on the relevant register
                                            ''in uncertificated form'' as being held in uncertificated form in
                                            CREST and title to which, by virtue of the Uncertificated Securities
                                            Regulations 2001, may be transferred by means of
                                            CREST; and
''WCPS''                                    the Water Companies Pension Scheme.


                      This information is provided by RNS
            The company news service from the London Stock Exchange

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