Dee Valley : Interim Management Statement - 27 Nov 2015

2739275b-ff97-4310-8841-d81df538c0b3.pdf DEE VALLEY GROUP PLC INTERIM MANAGEMENT REPORT - 30 SEPTEMBER 2015 KEY FINANCIAL AND OPERATIONAL HIGHLIGHTS

• Satisfactory profit performance despite a challenging Final Determination outcome:

  • Revenue of £11.5m for the six month period to 30 September 2015 is £0.9m lower than the equivalent prior year period as a result of a 4.5% fall in average water charges and a year-on-year reduction in consumption amongst certain non-household customers;

  • Other operating expenses are down by £0.2m year-on-year despite investment in key areas such as the Customer Services function;

  • Finance expenses have fallen by £0.7m as a result of a decrease in the non- cash loan indexation charge, linked to RPI;

  • Profit after tax of £1.9m is £0.1m above the prior year (£1.8m);

  • Capital expenditure of £2.1m in the period (six months ended 30 September 2014: £3.3m) as many of the significant AMP6 projects are currently in the planning phase;

  • New five-year revolving credit facility of £30.0m entered into during May 2015, providing committed funding on more favourable terms than the previous facility;

  • Interim dividend consistent with the prior year at 20.5p per share, in line with the dividend policy.

• Organisational and operational developments to ensure that the Company is well placed to meet the challenges of AMP6:

  • Organisational changes implemented in order to improve the efficiency of our operational and managerial processes;

  • A more innovative and cost effective solution to the replacement of the Legacy Water treatment works, our largest individual capital project in AMP6, has been initiated;

  • Investment in customer service technology, including the development of an improved online offering and website, to enhance our customer service provision and communications.

• Operational performance remains strong and improvements in SIM and discolouration contacts have been delivered:

  • Improvement in our qualitative SIM score to 3rd in the sector (31 March 2015: 8th);

  • 290km (one-seventh) of our network cleaned since 1 April 2015;

  • 38% year-on-year reduction in discolouration contacts;

  • Mean Zonal Compliance 99.95% (31 December 2014: 99.88%);

  • Industry leading Developer Services function.

    SUMMARY INCOME STATEMENT

    
    

    6 months ended 30 September 2015 £'000	6 months ended 30 September 2014 £000
    Revenue	11,520	12,434
    Profit from operations	5,485	6,288
    Profit before tax	2,345	2,426
    Profit after tax	1,860	1,798
    Basic and diluted earnings per ordinary share	40.2p	38.8p
    Total dividend per ordinary share	20.5p	20.5p

    
    

    ENQUIRIES

    Dee Valley Group plc

    Ian Plenderleith (Chief Executive) Andrew Bickerton (Finance Director) Tel. 01978 846946

    
    

    Investec Bank plc Jeremy Ellis

    Josh Levy

    Tel. 020 7597 4000

    
    

    Cautionary statement

    
    

    This Interim Management Report (IMR) has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The IMR should not be relied on by any other party or for any other purpose.

    
    

    The IMR contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

    INTRODUCTION

    
    

    The six month period ended 30 September 2015 is the first reporting date in Asset Management Plan 6 ('AMP6'), the five year period ending March 2020 which is underpinned by Ofwat's Final Determination on price limits.

    
    

    The Final Determination outcome for Dee Valley Water plc ('the Company'), the trading subsidiary of Dee Valley Group plc ('the Group'), presents a significant challenge, with a reduction in average bills for both household and non-household customers against the backdrop of the largest ever capital programme in the Company's history.

    
    

    In comparison to the previous financial year, average bills for household and non-household customers combined have fallen by 4.5% (including inflation), resulting in a corresponding year-on-year revenue reduction. However, cost management initiatives as detailed below have resulted in a satisfactory profit performance during the period.

    
    

    Our capital programme is forecast to deliver Regulated Capital Value ('RCV') growth of 31.6% in real terms over the AMP, which represents the highest growth across the sector (sector average: 8.6%).

    
    

    The Final Determination also includes thirteen challenging but achievable Performance Commitments which underpin our promise to our customers to provide high quality drinking water and first class customer service.

    
    

    In order to meet these commitments the Company has laid the foundations to allow improvements in operational performance, including making the necessary investment and business change. This investment and business change has resulted in the following developments during the reporting period:

    
    

• There have been significant changes in key management personnel and organisational arrangements. These organisational changes have created opportunities to improve the efficiency and effectiveness of our operational and managerial processes, including information reporting and cost control;

• A detailed review of our AMP6 investment plans has been conducted following the Final Determination to re-evaluate customer and stakeholder benefits and to identify opportunities to outperform our allowances. Specifically, we have initiated a more innovative and cost effective solution to the replacement of the Legacy Water Treatment Works which is our largest individual capital project in AMP6;

• A Head of Customer Service has been recruited to initiate a change programme to improve the overall customer experience. Investment in customer service technology has also been made to allow better analysis of, and response to, customer contacts;

• Our online interface with customers and other stakeholders has been reviewed and the Company is developing a vastly improved online offering and website to enhance our customer service provision and communications;

• Project Connect was launched during the period to deliver standardised back office business processes, supported by a new Finance, Human Resources and Procurement system to better analyse performance and provide more robust, automated management information. The new system will be live in 2016;

• A clear Vision and Values charter has been established for the organisation; and

• A formal Internal Audit and Assurance department has been established along with the development of a robust data governance and reporting process which is being rolled out across the business.

Our investment underpins the strategic plans and commitments of the Company for the AMP6 period.

OPERATIONAL PERFORMANCE & KEY PERFORMANCE INDICATORS

The Company has delivered strong operational performance during the first six months of the year and is ahead of expectations regarding the key performance indicators agreed with Ofwat.

CUSTOMER SERVICE

At 30 September 2015 our qualitative Service Incentive Mechanism ('SIM') score had improved and the Company is therefore now upper quartile, ranked 3rd in the sector (31 March 2015: 8th). This significant improvement is aligned to the investment which has been made in our customer offering and we remain committed to continually improving our customers' experience when engaging with the Company.

On 1 September 2015 the Company successfully launched a new customer satisfaction feedback tool, 'Rant and Rave', to provide a better and more timely understanding of our customers' experience when contacting the Company. Following the launch, 80% of customers scored the Company 5 out of 5 for customer satisfaction with a running average of

Furthermore, we are currently consulting on the launch of a new Social Tariff. If accepted, this tariff will be launched from 1 April 2016. Research has been undertaken with around 400 customers during the period to ensure that the new tariff will meet our customers' needs.