RNS Number:3195Y
Welsh Water Utilities Finance PLC
14 June 2007
Glas Cymru Cyfyngedig Preliminary Financial Results 2006-7
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF Glas Cymru Cyfyngedig
We have audited the Group and parent company financial statements (the
''financial statements'') of Glas Cymru Cyfyngedig for the year ended 31 March
2007 which comprise the Consolidated Income Statement, the Statement of Changes
in Reserves, the Consolidated and Parent Company Balance Sheets, the
Consolidated Cash Flow Statement and the related notes. These financial
statements have been prepared under the accounting policies set out therein. We
have also audited, at the request of the directors, the information in the
Directors' Remuneration Report that is described as having been audited.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report and the
financial statements in accordance with applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union are set
out in the Statement of Directors' Responsibilities. The directors are also
responsible for preparing the Directors' Remuneration Report (because the
Company applies the requirements of Schedule 7A to the Companies Act 1985 as if
it were a listed company).
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland). We also, at the request of the directors, audit the
part of the Directors' Remuneration Report to be audited (because the Company
applies the requirements of Schedule 7A to the Companies Act 1985 as if it were
a listed company). This report, including the opinion, has been prepared for and
only for the company's members as a body in accordance with Section 235 of the
Companies Act 1985 and for no other purpose. We do not, in giving this opinion,
accept or assume responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
We report to you our opinion as to whether the financial statements give a true
and fair view and whether the financial statements and the part of the
Directors' Remuneration Report to be audited have been properly prepared in
accordance with the Companies Act 1985. We report to you whether in our opinion
the information given in the Directors' Report is consistent with the financial
statements. The information given in the Directors' Report includes that
specific information presented in the Operating and Financial Review that is
cross referred from the Business Review section of the Directors' Report. We
also report to you if, in our opinion, the company has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law regarding
directors' remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report and consider whether it
is consistent with the audited financial statements. The other information
comprises only the Directors' Report, the unaudited part of the Directors'
Remuneration Report, the Chairman's Statement, the Operating and Financial
Review and the Corporate Governance Statement. We consider the implications for
our report if we become aware of any apparent misstatements or material
inconsistencies with the financial statements. Our responsibilities do not
extend to any other information.
We also, at the request of the directors (because the company applies the
Financial Services Authority listing rules as if it were a listed company),
review whether the corporate governance statement reflects the company's
compliance with the nine provisions of the 2003 FRC Combined Code specified for
our review by the Listing Rules of the Financial Services Authority, and we
report if it does not. We are not required to consider whether the board's
statements on internal control cover all risks and controls, or form an opinion
on the effectiveness of the company's corporate governance procedures or its
risk and control procedures.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements and the part of the Directors'
Remuneration Report to be audited. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Group's and company's circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
and the part of the Directors' Remuneration Report to be audited are free from
material misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the financial statements and the part of the
Directors' Remuneration Report to be audited.
Opinion
In our opinion:
* the Group financial statements give a true and fair view, in accordance
with IFRSs as adopted by the European Union, of the state of the Group's
affairs as at 31 March 2007 and of its profit and cash flows for the year
then ended;
* the parent company financial statements give a true and fair view, in
accordance with IFRSs as adopted by the European Union as applied in
accordance with the provisions of the Companies Act 1985, of the state of
the parent company's affairs as at 31 March 2007;
* the financial statements and the part of the Directors' Remuneration
Report to be audited have been properly prepared in accordance with the
Companies Act 1985; and
* the information given in the Directors' Report is consistent with the
financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Cardiff
13 June 2007
Consolidated income statement for the year ended 31 March 2007
2007 2006
Note #m #m
Revenue 578.0 553.5
Operating costs
- Operational expenditure 4 (228.6) (213.2)
- Infrastructure renewals expenditure 4 (84.1) (48.8)
- Depreciation and amortisation 4 (111.8) (97.5)
- Profit on disposal of fixed assets 4 - 0.8
------- -------
Operating profit 153.5 194.8
Financing costs
- Interest payable and similar charges 3a (159.1) (156.9)
- Interest receivable 3a 7.4 6.7
- Fair value gains/(losses) on financial
instruments 3b 45.7 (33.3)
----- ------
(106.0) (183.5)
------- -------
Profit before taxation 4 47.5 11.3
Taxation (charge)/credit 5 (14.2) 4.8
------- -------
Profit for the year 33.3 16.1
======= =======
Statement of changes in reserves for the year ended 31 March 2007
2007 2006
#m #m
Reserves at 1 April (79.2) (95.3)
Profit for the year 33.3 16.1
------- -------
Reserves at 31 March (45.9) (79.2)
======= =======
The Group has no other recognised gains or losses in the year (2006: nil) and
accordingly a statement of recognised income and expense has not been presented.
There are no changes in reserves of the parent company during the year.
Consolidated balance sheet as at 31 March 2007
2007 2006
Note #m #m
Assets
Non-current assets
Intangible assets 6 7.0 4.4
Property, plant & equipment 7 2,846.9 2,795.6
Investments 8a - -
Financial assets:
- derivative financial instruments 14 14.7 6.3
------- -------
2,868.6 2,806.3
------- -------
Current assets
Trade and other receivables 9 90.4 86.7
Financial assets:
- held to maturity investments 10 - 0.3
- derivative financial instruments 14 4.2 4.2
Cash and cash equivalents 11 158.0 14.0
------- -------
252.6 105.2
------- -------
Liabilities
Current liabilities
Financial liabilities:
- borrowings 13 (65.8) (124.6)
- derivative financial instruments 14 (38.8) (6.2)
Trade and other payables 12 (101.5) (118.5)
------- -------
(206.1) (249.3)
------- -------
Net current assets/(liabilities) 46.5 (144.1)
Non-current liabilities
Financial liabilities:
- borrowings 13 (2,520.0) (2,244.9)
- derivative financial instruments 14 (36.0) (105.9)
Trade and other payables 12 (2.5) -
Retirement benefit obligations 21 (5.5) (6.6)
Provisions 16 (8.6) (9.8)
------- -------
(2,572.6) (2,367.2)
------- -------
Net assets before deferred tax 342.5 295.0
------- -------
Deferred tax 17 (388.4) (374.2)
------- -------
Net liabilities (45.9) (79.2)
======= =======
Reserves
Retained earnings (45.9) (79.2)
------- -------
Total reserves (45.9) (79.2)
======= =======
The financial statements on pages 13 to 37 of this document were approved by the
Board of directors on 8 June 2007 and were signed on its behalf by:
N C Annett
Managing Director
C A Jones
Finance Director
Parent company balance sheet as at 31 March 2007
2007 2006
Note #m #m
Assets
Non-current assets
Investment in subsidiaries 8b - -
------- -------
- -
------- -------
Current assets
Trade and other receivables 9b 3.4 3.4
Cash and cash equivalents 11 0.1 0.1
------- -------
3.5 3.5
------- -------
Liabilities
Current liabilities
Trade and other payables 12 (3.5) (3.5)
------- -------
Net assets - -
======= =======
Reserves
Retained earnings - -
------- -------
Total reserves - -
======= =======
The financial statements on pages 13 to 37 of this document were approved by the
Board of directors on 8 June 2007 and were signed on its behalf by:
N C Annett
Managing Director
C A Jones
Finance Director
Consolidated cashflow statement for the year ended 31 March 2007
2007 2006
Note #m #m
Cash generated from operations 18 245.6 259.3
Interest received 7.1 7.2
Interest paid (73.7) (139.8)
Tax paid - (1.1)
------- -------
Net cash inflow from operating activities 179.0 125.6
------- -------
Cash flows from investing activities
Purchase of property, plant and equipment (188.7) (182.5)
Grants and contributions received 22.5 16.8
Proceeds from sale of property, plant and equipment - 0.8
------- -------
Net cash used in investing activities (166.2) (164.9)
------- -------
Net cash inflow/(outflow) before financing
activities 12.8 (39.3)
Cash flows from financing activities
Long term loans and finance leases received 32.2 113.8
Revolving credit facility (repayments)/drawdowns (45.3) 145.3
Purchase of own bonds - (3.3)
Bond redemption - (465.5)
Bonds issued 150.0 -
Capital element of finance lease payments (5.5) (5.2)
Reduction in financial assets 0.3 33.6
Other loan repayments (0.5) (0.4)
------- -------
Net cash used in financing activities 131.2 (181.7)
------- -------
Increase/(decrease) in net cash 19 144.0 (221.0)
Net cash at 1 April 14.0 235.0
------- -------
Net cash at 31 March 11 158.0 14.0
------- -------
The parent company had no cashflows during the year.
1. Accounting policies, financing risk management and accounting estimates
Basis of preparation
The financial statements are prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union and those parts of
the Companies Act 1985 applicable to reporting under IFRS. The financial
statements have been prepared under the historical cost convention as modified
by the revaluation of certain financial instruments to fair value in accordance
with IFRS and as permitted by the Fair Value Directive as implemented in the
amended Companies Act 1985.
At the date of approval of these financial statements, the following Standards
and Interpretations which have not been applied in these financial statements
were in issue but not yet effective:
IFRS 7 Financial Instruments: Disclosures; and the related amendment to IAS 1
on capital disclosures
IFRS 8 Operating Segments
IFRIC 8 Scope of IFRS 2 - Share Based Payment
IFRIC 9 Reassessment of Embedded Derivatives
IFRIC 10 Interim Financial Reporting and Impairment
IFRIC 11 Group and Treasury Share Transactions
IFRIC 12 Service Concession Arrangements
The directors anticipate that the adoption of these Standards and
Interpretations in future periods will have no material impact on the financial
statements of the Group except for additional disclosures that may be required
on financial instruments when the relevant standards come into effect for
periods commencing on or after 1 January 2007.
Basis of consolidation
The consolidated financial statements include the financial statements of the
company and all of its subsidiaries. The results of companies and businesses
acquired during the year are dealt with in the consolidated financial statements
from the date of acquisition. Intra-group transactions and profits are
eliminated on consolidation.
Accounting policies for the year ended 31 March 2007
The principal accounting policies adopted in the preparation of these financial
statements are set out below. These policies have been consistently applied to
all the years presented.
Revenue recognition
Revenue represents the income receivable in the ordinary course of business for
services provided, excluding value added tax. Where services have been provided,
but for which no invoice has been raised at the year-end, an estimate of the
amounts are included in revenue. See further details in the critical accounting
estimates section.
Revenue recognised reflects the actual charges levied on customers in the year.
The difference between the actual revenue and the level of revenue that could
have resulted had the full Ofwat allowed level of charges been levied is
referred to as a 'customer dividend'.
Property, plant & equipment
Property, plant and equipment are included at cost less accumulated
depreciation. Cost reflects purchase price together with any expenditure
directly attributable to bringing the asset into use, including directly
attributable internal costs but excluding interest.
Property, plant and equipment comprise:
(i) infrastructure assets (being mains and sewers, impounding and pumped raw
water storage reservoirs, dams, sludge pipelines and sea outfalls); and
(ii) other assets (including properties, overground operational structures
and equipment, and fixtures and fittings).
The carrying value of assets is reviewed for impairment if circumstances dictate
that the carrying value may not be recoverable. Asset lives and residual values
are reviewed annually, which has this year resulted in a change to the useful
economic life of water distribution network assets.
Infrastructure assets
Infrastructure assets, which comprise principally of impounding reservoirs and a
network of underground water and wastewater systems, are stated at fair value on
the date of transition to IFRS as a deemed cost under the exemption available
under IFRS1. For accounting purposes, the water system is segmented into
components representing categories of asset classes with similar characteristics
and asset lives. The wastewater system is segmented into components representing
geographical operating areas reflecting the way the Group operates its
wastewater activities.
Expenditure on infrastructure assets relating to increases in capacity,
enhancements or material replacements of network components, is treated as
additions, which are included at cost. Expenditure incurred in repairing and
maintaining the operating capability of individual infrastructure components,
"infrastructure renewals expenditure", is expensed in the year in which the
expenditure is incurred.
The depreciation charge for infrastructure assets is determined for each
component of the network and is based on each component's cost, estimated
residual value and the expected remaining average useful life. The useful
average economic lives of the infrastructure components range from 80 to 150
years (2006: 60 to 150 years).
Other assets
Other assets are depreciated on a straight line basis over their estimated
useful economic lives, which are as follows:
Freehold buildings 60 years
Leasehold properties over the lease period
Operational structures 40 - 80 years
Fixed plant 8-40 years
Vehicles, mobile plant, equipment and
computer hardware & software 3-16 years
Assets in the course of construction are not depreciated until commissioned.
Intangible assets
Intangible assets, which comprise principally computer software and system
developments, are included at cost less accumulated depreciation. Cost reflects
purchase price together with any expenditure directly attributable to bringing
the asset into use, including directly attributable internal costs but excluding
interest.
The carrying values of intangible assets are reviewed for impairment if
circumstances dictate the carrying value may not be recovered.
Intangible assets are depreciated on a straight line basis over their estimated
useful economic lives, which range between 3 and 15 years. These asset lives are
reviewed annually.
Leased assets
Where assets are financed by leasing arrangements, which transfer substantially
all the risks and rewards of ownership of an asset to the lessee (finance
leases), the assets are capitalised and included in "property, plant &
equipment" with the corresponding liability to the lessor included within
"finance liabilities - borrowings". Leasing payments are treated as consisting
of a capital element and a finance charge, the capital element reducing the
obligation to the lessor with the finance charge being recognised over the
period of the lease based on its implicit rate so as to give a constant rate of
interest on the remaining balance of the liability.
All other leases are regarded as operating leases. Rental costs arising under
operating leases are charged to the income statement on a straight-line basis
over the period of the lease.
Asset revaluations
The economic value of the Group's water and sewerage business is derived from
the regulatory capital value (RCV) set by Ofwat during its five yearly price
reviews. Accordingly, the carrying values of the regulatory assets will be
periodically revalued to their economic values at five-yearly intervals,
starting on 31 March 2010. The previous revaluation of regulatory assets was
undertaken at 31 March 2004, as part of the transition to IFRS.
Grants and customer contributions
Grants and customer contributions in respect of expenditure on property, plant
and equipment have been offset against fixed assets.
Grants in respect of revenue expenditure are credited to the Income Statement
over the same period as the related expenditure is incurred.
Capital expenditure programme incentive payments
The Group's agreements with its construction partners involved in delivering
capital expenditure programmes incorporate incentive bonuses payable after
completion of the programmes. The cost of fixed asset additions includes an
accrual for incentive bonuses earned to date, relating to projects substantially
completed at the year-end, where the likelihood of making the incentive payment
is considered probable. Amounts recoverable from contract partners, relating to
targets not being achieved are only recognised on completed projects.
Target cost contracts
The Group maintains target cost contracts with its main operating partners. The
Group's policy in respect of pain / gain share payments / receivables arising
from these contracts is to recognise when final agreement with the relevant
service partner has been achieved.
Allowance for doubtful debts
Trade receivables are first assessed individually for impairment, or
collectively where the receivables are not individually significant. Where there
is no objective evidence of impairment for an individual receivable, it is
included in a group of receivables with similar credit risk characteristics and
these are collectively assessed for impairment. Movements in the provision for
doubtful debts are recorded in the income statement.
Cash and cash equivalents
Cash and cash equivalents include highly liquid investments that are readily
convertible into known amounts of cash and which are subject to an insignificant
risk of change in value. Such investments are normally those with less than
three months maturity from the date of acquisition and typically include cash in
hand and deposits with banks or other financial institutions, less any
overdrafts.
Pension costs
The majority of the Group's employees belong to the Group pension scheme, which
is funded by both employers' and employees' contributions and which is of the
defined benefit type. Actuarial valuations of the scheme are carried out at
intervals of not more than three years. Contribution rates are based on the
advice of a professionally qualified actuary.
For the Group's defined benefit scheme, the net asset or liability recognised in
the balance sheet represents the present value of the defined benefit
obligations less the fair value of the plan's assets. In accordance with the
amendment to IAS19, all cumulative actuarial gains and losses have been
recognised in reserves at the date of transition to IFRS.
The full cost of providing pension benefits to employees (including the expected
return on scheme assets and interest on scheme liabilities) is reported in the
income statement within operating costs. All actuarial gains and losses are also
recognised in the year in which they arise in determining the profit or loss for
the year.
Financial liabilities - borrowings
Debt is initially measured at fair value, which is the amount of the net
proceeds after deduction of directly attributable issue costs, with subsequent
measurement at amortised cost. Debt issue costs are recognised in the income
statement over the expected term of such instruments at a constant rate on the
carrying amount.
Foreign currency borrowings are translated into sterling at the rates ruling at
the balance sheet date.
Financial assets
Financial assets represent held to maturity investments that are non-derivative,
with fixed or determinable payments and fixed maturities of over three months at
the date of acquisition, which the Group intends to hold until maturity.
Derivative financial instruments
Derivative instruments utilised by the Group are currency swaps, currency
forward exchange contracts and interest rate swaps. Derivative instruments are
used for hedging purposes to alter the risk profile of existing underlying
exposures within the Group.
Derivatives are recognised initially, and are subsequently remeasured at fair
value.
The movement in the fair value between balance sheet dates is recognised in the
income statement to the extent that such instruments do not qualify for hedge
accounting under IAS 39. At present, no such derivatives qualify for hedge
accounting.
Deferred taxation
Deferred corporation tax is provided, using the liability method, on all
temporary differences at the balance sheet date between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised in respect of all temporary differences.
Deferred tax assets are recognised for all deductible temporary differences,
carry-forward of unused tax assets and tax losses, to the extent that they are
regarded as recoverable. They are regarded as recoverable where, on the basis of
available evidence, there will be suitable taxable profits against which the
future reversal of the underlying temporary differences can be deducted. The
carrying value of the amount of deferred tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all, or part, of the asset
to be utilised.
Deferred corporation tax assets and liabilities are measured at the tax rates
that are expected to apply to the year when the asset is realised or the
liability is settled, based on the tax rates that have been substantially
enacted at the balance sheet date.
Provisions
Provision is made for all known and estimated liabilities of the Group where
there is a present obligation and it is probable that a transfer of economic
benefits will be required to settle the obligation.
In the case of leases, where properties are no longer occupied by the Group,
provision is made for the liabilities that are expected to arise in respect of
rental payments and dilapidations, prior to disposal or termination of the
lease.
Where the Group receives claims that are either not covered by insurance or
where there is an element of the claim for which insurance cover is not
available, a provision is made for the expected future liabilities.
Financing risk management objectives and policies
Treasury activities are managed within a formal set of treasury policies and
objectives, which are reviewed regularly and approved by the Board. The policy
specifically prohibits any transactions of a speculative nature and the use of
complex financial instruments. Certain detailed policies for managing interest
rate, currency and inflation risk and that for managing liquidity risk are
approved by the Board and may only be changed with the consent of Dwr Cymru
Cyfyngedig's security trustee (the "Security Trustee"). The risk is further
mitigated by limiting exposure to any one counterparty. We use financial
instruments, which principally include listed bonds, finance leases, bank loan
facilities and derivatives, to raise finance and manage risk from our
operations.
Credit risk
Surplus cash is invested in short and medium term sterling financial
investments. The Board annually establishes the investment criteria, which is
restricted to banks and other financial institutions meeting required standards
assessed by the major credit rating agencies.
Interest rate / Currency risk
The Group minimises exposure to currency risk in respect of any foreign currency
denominated borrowings by using appropriate derivative instruments to hedge
these liabilities into sterling obligations.
The Group hedges at least 85% of its total outstanding financial liabilities,
including finance leases, into either index-linked or fixed rate obligations.
For this purpose interest rate liabilities on floating rate liabilities are
hedged through a combination of derivative instruments and cash balances. The
regulatory framework, under which revenues and the regulatory asset value are
indexed also expose the Group to inflation risk. Subject to market constraints
and Board approval the Group therefore may seek to raise new debt through
index-linked instruments or to enter into appropriate hedging transactions.
The "hedges" established to manage interest rate risks are economic in nature,
but do not satisfy the specific requirements of IAS 39 in order to be treated as
hedges for accounting purposes.
Liquidity risk
Liquidity risk is managed by maintaining a balance between the continuity of
funding and flexibility through the use of borrowings across a range of
currencies, instruments, type and maturities. Our policy is to ensure that the
maturity profile does not impose an excessive strain on our ability to repay
loans. Under this policy, no more than 20% of the principal of Group borrowings
can fall due in any twenty-four month period.
Banking facilities
We maintain committed banking facilities in order to provide flexibility in the
management of the Group's liquidity.
There is also a special liquidity facility, which we are required to maintain in
order to meet certain interest and other obligations that cannot be funded
through operating cashflow in the event of a standstill being declared by the
Security Trustee, following an event of default under the Group's debt financing
covenants.
Critical accounting estimates
The preparation of financial statements to conform with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Although these estimates are based on management's best knowledge of the
amount, event or actions, actual results ultimately may differ from those
estimates.
Allowance for doubtful debts
Individual impairment losses on customer debts are calculated based on an
individual assessment of the cash flows that are expected. Collective impairment
losses on receivables with similar credit risk are calculated using a
statistical model. The key assumption in the model is the probability of a
failure to recover amounts when they fall into arrears. The probability of
failing to recover is determined by past experience, adjusted for changes in
external factors. The accuracy of the impairment calculation would therefore be
affected by unexpected changes to the economic situation, and to changes in
customer behaviour. To the extent that the failure to recover debts in arrears
alters by +/-5%, the bad debt allowance would increase or decrease by #4.2
million (2006: #3.6 million).
Pension benefits
The present value of the pension obligations is dependent on the actuarial
calculation, which includes a number of assumptions. These assumptions include
the discount rate, which is used to calculate the present value of the estimated
future cash outflows that will be required to meet the pension obligations. In
determining the discount rate to use, the Group considers market yields of high
quality corporate bonds, denominated in sterling, that have times to maturity
approximating the terms of the pension liability. Were this discount rate to
reduce or increase by 0.1%, the carrying value of the pension obligations would
increase or reduce by #0.8 million (2006: #0.9 million).
Measured income accrual
Revenue includes an estimation of charges unbilled at the period end. The
accrual is estimated using a defined methodology based upon the weighted average
water consumption by tariff, which is calculated based upon historical billing
information, adjusted for changes in external factors, such as weather. A 5%
change in actual consumption from that estimated would have the effect of
increasing/decreasing the accrual by #2.3 million (2006: #2.2 million).
2. Segmental information
The directors consider that there is only one reporting segment being the
operation of the water and sewerage business in the UK. Therefore the
disclosures for the primary segment have already been given in these financial
statements.
The secondary reporting format is by geographical analysis by origin and
destination. As the Group virtually only has domestic activities there is only
one geographical segment. Therefore the disclosures for the secondary segment
have also already been given in these financial statements.
Parent Company
The parent company's business is solely to act as a holding company and
therefore it operates in a single segment.
3. Financing costs
3a). Net interest before fair value losses on financial
instruments Group
2007 2006
#m #m
Interest payable on bonds (84.5) (91.9)
Indexation on index-linked bonds (23.0) (17.4)
Interest payable on finance leases (33.8) (31.9)
Interest payable on other loans (16.9) (12.8)
Amortisation of bond issue costs (0.9) (2.9)
----- ------
Interest payable (159.1) (156.9)
Interest receivable 7.4 6.7
----- ------
Net interest payable before fair value adjustments (151.7) (150.2)
----- ------
3b). Fair value gains/(losses) on financial instruments
Whilst the Group employs an economically effective policy using interest rate
and currency swaps, this policy does not satisfy the stringent hedge accounting
criteria of IAS39. Consequently, the Group's interest rate and currency swaps
are fair valued at each balance sheet date with the movement (gains or losses)
disclosed in the income statement. Over the life of these swaps, providing that
there is an effective match, these fair value adjustments will reverse and
reduce to zero. (See note 14 for the balance sheet note in respect of derivative
financial instruments).
Group
2007 2006
#m #m
Fair value gains/(losses) on interest rate swaps 34.9 (29.8)
Fair value gains/(losses) on index linked swaps 10.8 (3.5)
Fair value gains/(losses) on foreign exchange:
- Cross-currency swaps - 48.5
- Foreign denominated bonds - (48.5)
----- ------
Fair value gains/(losses) on financial instruments 45.7 (33.3)
----- ------
Tax effect of fair value (gains)/losses on financial
instruments (13.7) 10.0
----- ------
Net of tax impact of fair value gains/(losses) on financial
instruments 32.0 (23.3)
----- ------
4. Profit before taxation
The following items have been included in arriving at profit before taxation
Group
2007 2006
#m #m
Operating charges from outsourced activities:
- Operating services agreements 115.9 107.7
- Customer services agreement 18.6 19.4
- Laboratories and analytical services 7.6 7.3
- Other contracts 14.2 11.7
----- ------
156.3 146.1
Employee costs (note 20)
- Wages and salaries 8.0 7.7
- Social security 0.9 0.7
- Severance programme and other termination costs 0.2 -
- Net actuarial loss/(gain) (note 21) 0.9 (1.5)
- Pension costs (excluding actuarial loss/gain) (note 21) 1.7 2.5
Research and development expenditure 0.4 0.4
Trade receivables impairment 11.0 7.6
Rates 21.0 18.8
Environment agency charges 13.5 13.0
Fees paid to auditors (see below) 0.2 0.2
Own work capitalised (8.5) (7.3)
Net rents payable - 0.5
Other operating charges 23.0 24.5
----- ------
228.6 213.2
Depreciation of property, plant and equipment:
- Owned assets 75.1 60.1
- Under finance leases 35.0 33.6
Amortisation of intangible assets 1.7 3.8
Infrastructure renewals expenditure 84.1 48.8
Profit on disposal of fixed assets - (0.8)
----- ------
424.5 358.7
----- ------
Services provided by the Group's auditor
During the year the Group obtained the following services from the Group's
auditor as detailed below:
Group
2007 2006
#'000 #'000
Audit of parent company and consolidated financial statements 11 13
Other services:
- Subsidiary company audit services 69 86
- Regulatory audit services pursuant to legislation 49 32
- Tax advisory services 1 10
- Interim review 20 25
- Bond issue 24 -
- Grant applications 2 6
- Financial modelling 1 12
- IFRS transition - 48
----- -----
177 232
===== =====
Regulatory audit services includes work on the Regulatory Accounts, June Return
and Principal Statement.
In addition to the above services, PricewaterhouseCoopers LLP acted as auditor
to the Welsh Water Pension Scheme. The appointment of auditors to the pension
scheme and the fees paid in respect of the audit are agreed by the trustees of
the scheme, who act independently from the management of the Group. The fees
paid in respect of audit services to the pension scheme during the year were
#7,000 (2006: #7,000).
The Board has adopted a formal policy with respect to services received from
external auditors. The external auditor will not be used for internal audit
services and all non-audit work above a threshold of #25,000 will be subject to
prior competitive tendering and approval by the Audit Committee.
5. Taxation
Analysis of (charge)/credit in the year Group
2007 2006
#m #m
Current tax
- Adjustment in respect of prior years - (1.4)
Deferred tax
- Current year movements (15.9) 0.9
- Adjustment in respect of prior years 1.7 5.3
----- ------
Taxation (charge)/credit (14.2) 4.8
----- ------
The tax for the year is lower (2006: lower) than the standard rate of
corporation tax in the UK (30%). The differences are explained below:
Group
2007 2006
#m #m
Profit before tax 47.5 11.3
------- -------
Profit before tax multiplied by the corporation tax rate in
the UK of 30% (2006: 30%) 14.3 3.4
Effects of:
Expenses not deductible for tax purposes 0.1 0.2
Adjustments in respect of prior years (1.7) (3.9)
Other permanent differences 1.5 (4.5)
------- -------
Total taxation charge/(credit) 14.2 (4.8)
------- -------
6. Intangible assets
Intangible assets comprise computer software and related system developments.
Group Cost Depreciation Net book value
Current Year #m #m #m
At 1 April 2006 53.4 (49.0) 4.4
Additions 4.3 - 4.3
Charge for the year - (1.7) (1.7)
-------- --------- ---------
At 31 March 2007 57.7 (50.7) 7.0
-------- --------- ---------
Cost Depreciation Net book value
Prior Year #m #m #m
At 1 April 2005 49.6 (45.2) 4.4
Additions 3.8 - 3.8
Charge for the year - (3.8) (3.8)
-------- --------- ---------
At 31 March 2006 53.4 (49.0) 4.4
-------- --------- ---------
The parent company owns no intangible fixed assets.
7. Property, plant and equipment
Group
Current year Freehold land & Infrastructure Operational Plant Total
buildings assets structures equipment,
computer
hardware
#m #m #m #m #m
Cost
At 1 April 2006 32.7 1,375.2 2,055.0 193.2 3,656.1
Additions net
of grants and
contributions 0.2 37.5 128.0 25.0 190.7
Disposals - - (64.9) - (64.9)
------ -------- ------- ------- -------
At 31 March 2007 32.9 1,412.7 2,118.1 218.2 3,781.9
------ -------- ------- ------- -------
Accumulated depreciation
At 1 April 2006 15.5 39.8 654.6 150.6 860.5
Charge for the year 0.4 31.4 72.1 6.2 110.1
Disposals - - (35.6) - (35.6)
------ -------- ------- ------- -------
At 31 March 2006 15.9 71.2 691.1 156.8 935.0
------ -------- ------- ------- -------
Net book value
------ -------- ------- ------- -------
At 31 March 2007 17.0 1,341.5 1,427.0 61.4 2,846.9
------ -------- ------- ------- -------
Prior year Freehold land & Infrastructure Operational Plant Total
buildings assets structures equipment,
computer
hardware
#m #m #m #m #m
Cost
At 1 April 2005 32.8 1,310.6 1,959.6 184.8 3,487.8
Additions net of grants
and contributions - 64.6 95.4 8.4 168.4
Disposals (0.1) - - - (0.1)
------- -------- ------- ------- -------
At 31 March 2006 32.7 1,375.2 2,055.0 193.2 3,656.1
------- -------- ------- ------- -------
Accumulated depreciation
At 1 April 2005 14.8 18.8 589.1 144.2 766.9
Charge for the year 0.8 21.0 65.5 6.4 93.7
Disposals (0.1) - - - (0.1)
------- -------- ------- ------- -------
At 31 March 2005 15.5 39.8 654.6 150.6 860.5
------- -------- ------- ------- -------
Net book value
------- -------- ------- ------- -------
At 31 March 2006 17.2 1,335.4 1,400.4 42.6 2,795.6
------- -------- ------- ------- -------
Included within fixed assets is an amount #157.6m in respect of assets in the
course of construction (2006: #99.9m).
Assets held under finance leases
Included within the above are assets held under finance leases, analysed as
below:
Group
Infrastructure Operational Total
assets structures
#m #m #m
Cost
At 1 April 2006 526.8 565.9 1,092.7
Additions - 32.2 32.2
----------- ------------ ------
At 31 March 2007 526.8 598.1 1,124.9
----------- ------------ ------
Accumulated depreciation
At 1 April 2006 30.1 126.1 156.2
Charge for the year 6.6 28.4 35.0
----------- ------------ ------
At 31 March 2007 36.7 154.5 191.2
----------- ------------ ------
Net book value
----------- ------------ ------
At 31 March 2007 490.1 443.6 933.7
----------- ------------ ------
Infrastructure Operational Total
assets structures
#m #m #m
Cost
At 1 April 2005 424.7 535.5 960.2
Additions 102.1 30.4 132.5
----------- ------------ ------
At 31 March 2006 526.8 565.9 1,092.7
----------- ------------ ------
Accumulated depreciation
At 1 April 2005 22.5 100.1 122.6
Charge for the year 7.6 26.0 33.6
----------- ------------ ------
At 31 March 2006 30.1 126.1 156.2
----------- ------------ ------
Net book value
----------- ------------ ------
At 31 March 2006 496.7 439.8 936.5
----------- ------------ ------
The parent company owns no property plant or equipment.
8. Fixed asset investments
(a) Group
Cost and net book value 2007 2006
#m #m
At 1 April and 31 March - -
------- -------
Equity of less than 10% is held in the following unlisted company:-
---------- --------- -----------------
Nature of Country of Description
Business Incorporation of Holding
---------- --------- -----------------
Water Research Water Research Great Britain "B" Ordinary
Centre (1989) plc Shares of #1
In addition, the Group holds 5% Convertible Unsecured Loan Stock 2014 at a cost
of #23,326 in Water Research Centre (1989) plc.
(b) Parent Company
The company has a #1 investment in Glas Cymru (Securities) Cyfyngedig and has
indirect investments in the following subsidiary undertakings:-
----------- ------------ --------
Principal Country of Holding
Activity Incorporation
----------- ------------ --------
Dwr Cymru (Holdings) Limited Holding company England and Wales 100%
Dwr Cymru Cyfyngedig Water and sewerage England and Wales 100%
Dwr Cymru (Financing) Limited Raising finance Cayman Islands 100%
Welsh Water Utilities Finance
Plc Raising finance England and Wales 100%
9. Trade and other receivables
Group Company
2007 2006 2007 2006
#m #m #m #m
(a) Amounts falling due within one year:
Trade receivables 84.7 77.0 - -
Less provision for impairment of receivables (53.0) (49.6) - -
------- ------- ------- -------
Trade receivables - net 31.7 27.4 - -
Other receivables 5.2 9.8 - -
Prepayments and accrued income 53.5 49.5 - -
------- ------- ------- -------
90.4 86.7 - -
(b) Amounts falling due after more than one year:
Amounts owed by Group undertakings - - 3.4 3.4
------- ------- ------- -------
90.4 86.7 3.4 3.4
------- ------- ------- -------
10. Held to maturity investments
Group Company
2007 2006 2007 2006
#m #m #m #m
Investments in:
Fixed term deposits - due within one year - 0.3 - -
------- ------- -------- -------
The effective interest rate on held to maturity investments as at 31 March 2006
was 4.7% and these investments had an average maturity of 364 days.
11. Cash and cash equivalents
Group Company
2007 2006 2007 2006
#m #m #m #m
Cash at bank and in hand 3.8 3.8 0.1 0.1
Short-term bank deposits 154.2 10.2 - -
------- ------- ------- -------
158.0 14.0 0.1 0.1
------- ------- ------- -------
The effective interest rate on short-term deposits as at 31 March 2007 was 5.4%
(2006: 4.7%) and these deposits have an average maturity of 30 days (2006: 82
days).
12. Trade and other payables
Group Company
Current 2007 2006 2007 2006
#m #m #m #m
Trade payables 12.3 26.8 - -
Capital payables 41.9 45.3 - -
Deferred income 0.4 - - -
Other taxation and social security 0.3 0.3 - -
Amounts owed by Group undertakings - - 3.5 3.5
Other payables 46.6 46.1 - -
------- ------- ------- -------
101.5 118.5 3.5 3.5
------- ------- ------- -------
Group Company
2007 2006 2007 2006
Non-current #m #m #m #m
Deferred income 2.5 - - -
------- ------- ------- -------
13. Financial liabilities - borrowings
Group Company
Current 2007 2006 2007 2006
#m #m #m #m
------- ------- ------- -------
Revolving credit facilities - 120.3 - -
Local Authority loans 0.3 0.3 - -
European Investment Bank loans 4.4 -
Finance lease obligations 4.7 3.7 - -
Interest accruals 56.4 0.3 - -
------- ------- ------- -------
65.8 124.6 - -
------- ------- ------- -------
Non-current 2007 2006 2007 2006
#m #m #m #m
------- ------- ------- -------
Bonds 1,592.7 1,419.7 - -
Unamortised bond premium 13.4 13.9 - -
Unamortised loan issue costs (6.3) (7.2) - -
Finance lease obligations 762.1 736.4 - -
European Investment Bank loans 130.6 60.0 - -
Local Authority loans 2.9 3.4 - -
Interest accruals 24.6 18.7 - -
------- ------- ------- -------
2,520.0 2,244.9 - -
------- ------- ------- -------
A security package was granted by Dwr Cymru Cyfyngedig (DCC), as part of the
Group's bond programme for the benefit of holders of senior bonds, finance
lessors and other senior financial creditors.
The obligations of DCC are guaranteed by the Company, Glas Cymru (Securities)
Cyfyngedig and Dwr Cymru (Holdings) Limited. The main elements of the security
package are:
i) a first fixed and floating security over all of DCC's assets and undertaking,
to the extent permitted by the Water Industry Act, other applicable law and its
licence and
ii) a fixed and floating security given by the guarantors referred to above
which are accrued on each of these companies' assets including, in the case of
Dwr Cymru (Holdings) Limited, a first fixed charge over its shares in DCC.
14. Derivative financial instruments
Derivative financial instruments are held for economic hedging purposes although
they do not qualify as accounting hedges under IAS 39. As such, movements in
their fair value are taken to the Income Statement (note 3b). Fair values are
obtained by reference to actual market transactions.
Group - 2007 Fair Values
Assets Liabilites
#m #m
------- -------
Current
Interest rate swaps - (34.2)
Index linked swaps 4.2 (4.6)
------- -------
4.2 (38.8)
Non-current
Interest rate swaps - (21.3)
Index linked swaps 14.7 (14.7)
------- -------
14.7 (36.0)
------- -------
Total 18.9 (74.8)
------- -------
The notional value of the interest rate swaps are #625m (2006: #625m) and the
indexed linked swaps #679m (2006: #587m).
Group - 2006 Fair Values
Assets Liabilites
#m #m
------- ------
Current
Interest rate swaps - (6.2)
Index linked swaps 4.2 -
------- ------
4.2 (6.2)
Non-current
Interest rate swaps - (91.9)
Index linked swaps 6.3 (14.0)
------- ------
6.3 (105.9)
------- ------
Total 10.5 (112.1)
------- ------
In accordance with IAS 39, 'Financial instruments: Recognition and measurement',
the Group has reviewed all contracts for embedded derivatives that are required
to be separately accounted if they do not meet certain requirements set out in
the standard. Glas Cymru Cyfyngedig has no embedded derivatives as per IAS 39.
Parent Company
The parent company has no derivative financial instruments or embedded
derivatives.
Interest rate swaps
At 31 March 2007 the interest rate swaps fix the interest rate on the #279
million (2006: #295 million) of floating rate liabilities held by the Group.
The principal terms of the interest rate swaps are as follows:
Notional Amount Swap Maturity Quarterly Interest Rate
#m
478 31 March 2031 5.67%
32 31 March 2021 5.82%
115 31 March 2008 5.95%
625
In April 2007 Dwr Cymru (Financing) Limited took advantage of market conditions
to terminate #433 million of surplus floating to fixed interest swaps at a cost
of #32.5 million. This cost is reflected within the fair value of the derivative
financial instruments at 31 March 2007.
Indexed-linked swaps
Finance lease swaps
The indexed-linked swaps have the effect of index linking the interest rate on
#626 million (2006: #630 million) of finance lease liabilities by reference to
the retail price index ("RPI").
The notional amount of the swaps as at 31 March 2007 is #579 million (2006: #587
million), representing the average balance on the finance leases subject to
floating interest rates for the year to 31 March 2008. The notional amount
amortises over the life of the swaps to match the average floating rate balances
of the leases.
The principal terms are as follows:
Notional Amount: #579 million (amortising)
Average swap maturity: 25 years
Average interest rate: 1.60% (fixed) plus RPI
Bond swap
The index-liked swaps have the effect of index linking the interest rate on #102
million of fixed rate bonds by reference to the retail price index ("RPI").
The principal terms are as follows:
Notional Amount: #100 million
Swap maturity: 50 years
Interest rate: 1.35% (fixed) plus RPI
15. Financial risk management
The Group's policies in respect of financial risk management are included in the
accounting policies note on page 20. The numerical financial instrument
disclosures as required by IAS 32 are set out below
a) Interest rate risk
The effective interest rates at the balance sheet dates were as follows:
2007 2006
------------ ----------
Assets:
Cash and cash equivalents 5.4% 4.7%
Financial assets held to maturity - 4.7%
Liabilities:
Bonds 5.4% 5.7%
Revolving credit facilities - 4.9%
European Investment Bank loans 5.6% 4.7%
Local Authority loans 6.5% 6.2%
Finance lease obligations 4.5% 4.5%
Trade receivables and payables are non-interest bearing.
The effective interest rates ignore the effect of the interest rate and
index-linked swaps as set out above and on page 29.
b) Liquidity risk
------ ------ ------ ------ ------
Group - 2007 Within 1yr 1- 2 years 2-5 > 5 years Total
years
------ ------ ------ ------ ------
Assets:
Cash and cash equivalents 158.0 - - - 158.0
Trade and other
receivables 91.8 - - - 91.8
------ ------ ------ ------ ------
249.8 - - - 249.8
------ ------ ------ ------ ------
Liabilities:
Bonds - - 125.0 1,481.1 1,606.1
European Investment Bank
loan 4.4 4.4 26.8 99.4 135.0
Local Authority loans 0.3 0.4 1.1 1.4 3.2
Finance lease obligations 4.7 5.8 24.9 731.4 766.8
Trade and other payables 101.5 0.4 1.1 1.0 104.0
------ ------ ------ ------ ------
110.9 11.0 178.9 2,314.3 2,615.1
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Group - 2006 Within 1yr 1- 2 years 2-5 > 5 years Total
years
------ ------ ------ ------ ------
Assets:
Cash and cash equivalents 14.0 - - - 14.0
Financial assets held to
maturity 0.3 - - - 0.3
Trade and other
receivables 86.7 - - - 86.7
------ ------ ------ ------ ------
101.0 - - - 101.0
------ ------ ------ ------ ------
Liabilities:
Bonds - - 125.0 1,308.6 1,433.6
Revolving credit
facilities 120.3 - - - 120.3
European Investment Bank
loan - 4.4 15.4 40.2 60.0
Local Authority loans 0.3 0.4 1.1 1.9 3.7
Finance lease obligations 3.7 4.6 21.0 710.8 740.1
Trade and other payables 118.5 - - - 118.5
------ ------ ------ ------ ------
242.8 9.4 162.5 2,061.5 2,476.2
------ ------ ------ ------ ------
As at 31 March 2007 and 31 March 2006, the Bonds maturing between 2-5 years
represent #125 million of sub-ordinated Bonds with an expected maturity date of
31 March 2011. If these Bonds are not redeemed on or before 31 March 2011, the
interest rate will step-up from a fixed rate of 8.174% to a floating 3 -month
LIBOR interest rate plus a margin 5.75%.
The minimum lease payments under finance leases fall due as follows:
2007 2006
#m #m
---------- ---------
Not later than one year 39.4 31.1
Later than one year but not more than five 180.2 147.0
More than five years 1,336.1 1,289.4
---------- ---------
1,555.7 1,467.5
Future finance charges on finance leases (763.5) (708.4)
---------- ---------
Present value of finance lease liabilities (including
accrued interest) 792.2 759.1
---------- ---------
c) Fair values
The fair values of the Group's derivative financial instruments are set out on
page X. The following table summarises the fair value and book value of the
Group's bonds.
2007 2006
Book value Fair Value Book Value Fair Value
#m #m #m #m
------- ------- ------- -------
Bonds (note 13) 1,606.1 1,875.1 1,433.6 1,777.2
------- ------- ------- -------
The fair value of all other financial instruments are equal to the book values.
d) Borrowing facilities
The Group has the following undrawn committed borrowing facilities available at
31 March in respect of which all conditions precedent had been met at that date:
----------- ---------
2007 2006
#m #m
----------- ---------
Expiring in more than 1 year:
Revolving credit facilities 345.0 259.8
European Investment Bank - 75.0
----------- ---------
345.0 334.8
----------- ---------
Dwr Cymru (Financing) Limited also has a special liquidity facility of #150
million, which it is required to maintain in order to meet certain Group
interest and other obligations that cannot be funded through operating cashflow
of the Group, in the event of a standstill being declared by the Security
Trustee. A standstill would arise in the event that Dwr Cymru Cyfyngedig
defaults on its debt financing covenants. Dwr Cymru Cyfyngedig also has a #20
million overdraft facility. Both of these facilities are renewable on an annual
basis.
During the year, the Company reduced its revolving credit facility with the
Fortis Bank from #75 million to #40 million.
All the above facilities, including the liquidity facility, are at floating
rates of interest.
16. Provisions
Group Restructuring Uninsured loss Total
provision provision
#m #m #m
----------- --------- ---------
At 1 April 2006 5.3 4.5 9.8
(Released)/charged to Income
Statement (3.9) 4.3 0.4
Utilised in year (0.3) (1.3) (1.6)
----------- --------- ---------
At 31 March 2007 1.1 7.5 8.6
----------- --------- ---------
The parent company has no provisions at 31 March 2007 (2006: nil).
Restructuring provision
This provision is in respect of payments to be made relating to estimated
dilapidation costs at leased properties, which will be utilised over the next
three years.
Provision for uninsured losses
This provision is in respect of uninsured losses and where insurance cover does
not cover a deductible amount. The utilisation period of these liabilities is
uncertain due to the nature of the claims but is estimated to be five years.
17. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability
method using a tax rate of 30% (2006: 30%)
The movement in the deferred tax provision is as shown below
Group Company
2007 2006 2007 2006
#m #m #m #m
------- -------- --------- ---------
At 1 April 374.2 380.4 - -
Charged/(credited) to Income Statement 14.2 (6.2) - -
------- -------- --------- ---------
At 31 March 388.4 374.2 - -
------- -------- --------- ---------
Deferred tax assets have been recognised in respect of all tax losses and other
temporary differences giving rise to deferred tax assets because it is probable
that these assets will be recovered.
Group Company
2007 2006 2007 2006
#m #m #m #m
------- --------- --------- --------
Effect of tax allowances over depreciation 429.4 394.6 - -
Other tax differences (41.0) (20.4) - -
------- --------- --------- --------
Provision for deferred tax 388.4 374.2 - -
------- --------- --------- --------
18. Cash generated from operations
Reconciliation of operating profit to cash generated from operations:
Group
2007 2006
#m #m
------ ------
Operating profit 153.5 194.8
Adjustments for:
Depreciation and amortisation 111.8 97.5
Profit on disposal of fixed assets - (0.8)
Changes in working capital:
Increase in trade and other receivables (3.4) (17.9)
Decrease in trade and other payables (14.0) (13.2)
Decrease in retirement benefit obligation (1.1) (1.2)
(Decrease)/increase in provisions (1.2) 0.1
------ ------
Cash generated from operations 245.6 259.3
------ ------
19. Analysis and reconciliation of net debt
Group Company
------ ------ ------ ------
a) Net debt at the balance sheet date may 2007 2006 2007 2006
be analysed as: #m #m #m #m
------ ------ ------ ------
Cash and cash equivalents 158.0 14.0 0.1 0.1
Financial assets - held to maturity - 0.3 - -
------ ------ ------ ------
158.0 14.3 0.1 0.1
------ ------ ------ ------
Debt due after one year (1,739.6) (1,497.0) - -
Debt due within one year (4.7) (120.6) - -
Finance leases (766.8) (740.1) - -
Accrued interest (81.0) (19.0) - -
Unamortised bond issue costs 6.3 7.2 - -
------ ------ ------ ------
(2,585.8) (2,369.5) - -
------ ------ ------ ------
Net debt (2,427.8) (2,355.2) 0.1 0.1
------ ------ ------ ------
--------------------------------------------------------------------------------
Group Company
b) The movement in net debt during the
period may be summarised as: 2007 2006 2007 2006
#m #m #m #m
------ ------ ------ ------
Net debt at of start period (2,355.2) (2,246.3) 0.1 0.1
Increase/(decrease) in net cash 144.0 (221.0) - -
Decrease in financial assets (0.3) (33.6) - -
(Increase)/decrease in debt (130.9) 215.3 - -
------ ------ ------ ------
Decrease/(increase) in net debt arising
from cashflows 12.8 (39.3) - -
Movement in accrued interest (62.0) (1.3) - -
Amortisation of debt issue costs (0.9) (2.7) - -
Amortisation of bond issue premium 0.5 0.3 - -
Foreign currency movement on dollar bond - (48.5) - -
Indexation of index-linked debt (23.0) (17.4) - -
------ ------ ------ ------
Movement in net debt during the period (72.6) (108.9) - -
------ ------ ------ ------
------ ------ ------ ------
Net debt at end of period (2,427.8) (2,355.2) 0.1 0.1
------ ------ ------ ------
20. Employees and directors
a) Staff costs for the Group during the year 2007 2006
#m #m
------- -------
Wages and salaries 8.0 7.7
Severance and termination costs 0.2 -
Social security costs 0.9 0.7
Other pension costs 2.6 1.0
------- -------
11.7 9.4
------- -------
Of the above, #4.7 million (2006: #3.7 million) has been charged to capital.
Other pension costs include #nil (2006: #0.4 million) in respect of the
severance programme and termination costs. Other pension costs also include
#0.4m (2006: #0.5m) in respect of the directors' unfunded pension liabilities.
Average monthly number of people (including 2007 2006
executive directors) employed by the Group Number Number
---------- -----------
Regulated water and sewerage activities 159 136
---------- -----------
b) Parent Company
The parent company had no employees (2006: nil) in the year.
21. Pension commitments
Following the acquisition of Dwr Cymru Cyfyngedig by Glas Cymru Cyfyngedig, a
new funded defined benefit pension scheme for current employees (based on final
pensionable salary and pensionable service) was introduced on 1 December 2001,
the DCWW Pension Scheme. The assets of the scheme are held in a separate trustee
administered fund.
The DCWW Pension Scheme was closed to new members from the 31 December 2005 and
a new defined contribution scheme, the Dwr Cymru Defined Contribution Scheme,
was introduced from the 1 January 2006.
Total pension costs in the year were as follows:
2007 2006
#'000 #'000
Defined contribution scheme 150 24
Defined benefit scheme - excluding acturial gains/ 1,518 2,447
losses ---------- -----------
1,668 2,471
Net actuarial losses/(gains) recognised in year 921 (1,497)
---------- -----------
2,589 974
========== ===========
The total charge of #2.589m (2006: #0.974m) is included within operating costs.
Defined benefit scheme
A full actuarial valuation of the scheme was undertaken as at 31 March 2006 by
Quantum Advisory Limited, an independent and professionally qualified actuary,
using the attained age method. This valuation was updated at 31 March 2007 and
the principal assumptions made by the actuaries were:
2007 2006
------------------------ ---------- -----------
Rate of increase in pensionable salaries 4.00% 3.75%
Rate of increase in pensions in payment 3.00% 2.75%
Discount rate 5.40% 5.10%
Inflation assumption 3.00% 2.75%
Life expectancy assumptions are based on those in published actuarial tables
"PA92", projected to 2020.
The major categories of plan assets, as a percentage of total assets and the
expected rates of return thereon, were as follows:
2007 2006
------------------ -------------------
Expected long Percentage of Expected long Percentage of
term return total assets term return total assets
---------- ---------- ---------- -----------
Equities 7.00% 57% 6.50% 55%
Bonds 5.50% 36% 5.00% 35%
Other 4.50% 7% 4.50% 10%
---------- ---------- ---------- -----------
Pensions and other post-retirement obligations
The amounts recognised in the income statement are as follows:
---------- -----------
2007 2006
#'000 #'000
---------- -----------
Current service cost (excluding members contribution) 1,083 1,271
Interest cost 1,927 1,779
Expected return on plan assets (1,858) (1,502)
Past service cost 366 899
---------- -----------
Total excluding net acturial losses/(gains) 1,518 2,447
Net actuarial losses/(gains) recognised in year 921 (1,497)
---------- -----------
Total included within staff costs 2,439 950
---------- -----------
The amounts recognised in the balance sheet are determined as follows:
---------- -----------
2007 2006
#'000 #'000
---------- -----------
Present value of funded obligations (41,009) (37,197)
Fair value of plan assets 35,520 30,561
---------- -----------
Net liability recognised in the balance sheet (5,489) (6,636)
---------- -----------
Changes in the present value of the defined benefit obligation are as follows:
2007 2006
#'000 #'000
---------- -----------
At 1 April 37,197 32,406
Current service cost (including members contribution) 1,421 1,612
Past service cost 366 899
Interest cost 1,927 1,779
Benefits paid (594) (1,452)
Actuarial losses 692 1,953
---------- -----------
31 March 41,009 37,197
---------- -----------
Changes in the fair value of plan assets are as follows:
2007 2006
#'000 #'000
---------- -----------
At 1 April 30,561 24,637
Expected return on plan assets 1,858 1,502
Contributions (including members contribution) 3,924 2,424
Benefits paid (594) (1,452)
Actuarial (loss)/gain on plan assets (229) 3,450
---------- -----------
31 March 35,520 30,561
---------- -----------
Analysis of the movement in the balance sheet liability:
2007 2006
#'000 #'000
---------- -----------
At 1 April 6,636 7,769
Total expense as above 2,439 950
Contributions paid (excluding members contribution) (3,586) (2,083)
---------- -----------
31 March 5,489 6,636
---------- -----------
2007 2006
#'000 #'000
---------- -----------
Expected return on plan assets 1,858 1,502
Actuarial (loss)/gain on plan assets (229) 3,450
---------- -----------
Actual return on plan assets 1,629 4,952
---------- -----------
2007 2006 2005 2004
--------------------------- ------ ------ ------ ------
Experience adjustments arising on scheme assets:
Amount (#m) (0.2) 3.5 0.9 2.0
Percentage of scheme assets 1% 11% 4% 11%
Experience adjustments arising on scheme
liabilities:
Amount (#m) (2.0) 0.3 (0.3) -
Percentage of the present value of scheme
liabilities 5% 1% (1%) 0%
Present value of scheme liabilities (#m) 41.0 37.2 32.4 26.7
Fair value of scheme assets (#m) 35.5 30.6 24.6 18.9
Deficit (#m) (5.5) (6.6) (7.8) (7.8)
--------------------------- ------ ------ ------ ------
The contributions paid in the year to 31 March 2007 include a special
contribution of #2.0 million. The contribution expected to be paid during the
financial year ended 31 March 2008 amounts to #5.8 million.
22. Operating lease commitments - minimum lease payments
Land and buildings
--------- ---------
Group 2007 2006
#m #m
--------- ---------
At 31 March 2007 there were revenue commitments, in the
ordinary course of business in the next year for the
payment of rentals on non cancellable operating leases
expiring:
after five years - 0.4
--------- ---------
The parent company has no lease commitments (2006: #nil).
23. Capital and other financial commitments
The Group's business plan at 31 March 2007 shows net capital expenditure and
infrastructure renewals expenditure of #293m (2006: #280m) during the next
financial year. While only a portion of this amount has been formally contracted
for, the Group is effectively committed to the total as part of its overall
capital expenditure programme approved by its Regulator.
24. Related party transactions
In accordance with the exemption afforded by IAS 24 there is no disclosure in
the consolidated financial statements of transactions with entities that are
part of the Glas Cymru Cyfyngedig Group.
25. Status of the company
The company is limited by guarantee and does not have any share capital. In the
event of the company being wound up, the liability of the members is limited to
#1 each.
26. Directors' and officers' loans and transactions
No loans or credit transactions with any directors, officers or connected
persons existed during the year or were outstanding at the balance sheet date.
27. Subsequent events
In April 2007 Dwr Cymru (Financing) Limited took advantage of market conditions
to terminate #433 million of surplus floating to fixed interest swaps at a cost
of #32.5 million. This cost is reflected within the fair value of the derivative
financial instruments at 31 March 2007.
HM Government have proposed to amend the rate of corporation tax from 30% to 28%
with effect from 1 April 2008 in the Finance Bill 2007. It has also announced
prospective changes to the capital allowances regime from 1 April 2008, to be
included in next year's Finance Bill. The impact of these changes, and in
particular the effect on the Group's deferred tax liability, will be reflected
in the financial statements when these proposals become law.
28. Elan Valley Trust Fund
In 1984 Welsh Water Authority entered into a conditional sale and purchase
agreement with Severn Trent Water Authority for the sale of the aqueduct and
associated works by which the bulk supply to Severn Trent reservoirs is
conveyed.
The sum of #31.7 million, representing the consideration for the conditional
sale, was invested in a trust fund. The principal function of the fund was to
provide an income to Welsh Water Authority, whilst preserving the capital value
of the fund in real terms. Welsh Water Authority's interest in this fund was
vested in Dwr Cymru Cyfyngedig under the provisions of the Water Act 1989.
The assets of the fund are not included in these financial statements.
Interest receivable includes #2.7 million (2006 #2.1 million) in respect of the
Elan Valley Trust Fund.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FUREAXKDFENXEFE
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