TIDM53HO
RNS Number : 4252K
South East Water Limited
14 December 2018
South East Water Limited
Condensed group financial statements
for the six months ended 30 September 2018
Registered number 02679874
Contents
O Chairman's introduction
O Statement of directors' responsibilities
O Condensed group income statement
O Condensed group statement of comprehensive income
O Condensed group statement of financial position
O Condensed group statement of changes in equity
O Condensed group statement of cash flows
O Notes to the condensed group financial statements
Chairman's introduction
I am pleased to present our interim report for the six months
ended 30 September 2018.
Our vision is to be the water company people want to be supplied
by and want to work for. This has been a period of intense activity
for the company and its employees as we continue to strive to
realise our vision and deliver on the commitments within our 2015
to 2020 business plan, deal with particular operational challenges
from this summer's drought, and at the same time look to the future
with the preparation of our draft Water Resources Management Plan
(WRMP) and our ambitious business plan for the 2019 Price Review
(PR19), which will take us through to 2025 and beyond.
Our 2015 to 2020 business plan puts customer satisfaction at the
heart of everything we do. Our future plans build on this and on
our commitments to both the environment and the communities in
which we work, as we aim to take the lead on responsible business
practice and to make a positive contribution to wider society.
Customer satisfaction, responsibly delivered
Our business plan for the 2020 to 2025 period was submitted to
Ofwat in early September and simultaneously published on our
website. This plan has been shaped with strong involvement of
customers and community groups throughout the areas we serve and
will see the company invest a further GBP472.0 million to improve
the local water infrastructure over the five year period.
We have carried out a very extensive programme of research,
discussions and consultations with some 13,000 customers,
stakeholders, retailers, businesses, employees and an independent
Customer Challenge Group chaired by Zoe McLeod. We would like to
thank everyone who played a part in helping to shape our plans.
Our plan incorporates a comprehensive suite of ambitious
commitments to improve performance in areas such as leakage and
interruptions, water quality, greenhouse gas emissions,
environmental impact, support for vulnerable customers and, of
course, customer satisfaction. These commitments are backed by
performance penalties if targets are missed, and rewards for
out-performance. As an illustration of the level of ambition
implicit in the plan, if we were unable to improve on our current
performance levels we would incur a penalty of GBP35.0 million.
While delivering all these improved outcomes, the proposed
average annual household bill is maintained at GBP204 before
inflation for the next five years.
We now await Ofwat's assessment of our plan through a process
which will run to the end of 2019.
Keeping water flowing whatever the weather
By the early summer we were starting to experience above average
demand for water leading to the stepping up of our water efficiency
messaging and a campaign encouraging customers to use water wisely
during the heatwave, a recurring theme for the entirety of the
summer in which the whole country experienced hotter than normal
conditions for a number of weeks.
During this time our production teams geared up to produce an
extra one hundred million litres of drinking water per day at the
peak with employees working around the clock to produce the extra
water needed.
Although the amount of untreated, raw water, available in
reservoirs and aquifers was good for the time of year, and remained
so throughout the hot weather, we asked customers to save water in
order to help us meet demand for extra supplies of processed
drinking quality water at peak times of the day.
We also joined forces with other water companies in the south
east of the country to run a water-saving campaign in local media
and radio, focussed on water-saving measures and the need for
prudence when contemplating the use of such things as paddling
pools and garden sprinklers. While demand was higher than normal
throughout the summer, we believe the combined effects of our
metering programme and customer communications helped keep the
demands at manageable levels and we thank everyone who did their
bit to save water.
Many of the activities we undertook during the summer,
particularly in customer communications, benefited from lessons
learned from the extreme freeze/thaw event we experienced at the
end of 2017/18. Ofwat completed its own review into the impact of
the freeze/thaw event across the whole country and the lessons to
be learned. They set out where our plans worked well and where
improvements could be made. We published our action plan in
response to this on 28 September 2018 which included 61 actions we
have agreed to. We will work closely with the industry to ensure
best practice approaches are built into our emergency plans for any
such future events.
Pure know h(2) ow in action
In May we started construction of the company's largest ever
single investment at the Keleher Water Treatment Works at Bray in
Berkshire. This GBP21 million project will increase the capacity of
the Keleher plant, which treats water extracted from the River
Thames to drinking water standards from the current 45 million
litres per day to 68 million litres per day.
The work got underway with a site clearance programme involving
the removal of approximately 25,000 cubic metres of earthworks.
Thanks to the dry summer weather this was completed ahead of
schedule.
Within our water quality projects, we are seeing some really
encouraging results in reducing what is known as the discolouration
contact rate. This is a measure of the number of contacts we get
from customers raising concerns over the appearance of their water.
Such incidents can be the result of a number of factors but are
largely based on the build-up over time of naturally occurring iron
and manganese deposits within the distribution pipework network.
This is being addressed through a pipework flushing programme and
improvements to treatment work performance. In the nine months from
January to September 2018 we received 1,042 discolouration contacts
whereas, in the same period in 2017 we received 1,413 contacts. We
expect further improvement as the programme continues.
Customer engagement and satisfaction
Between February and May 2018 we consulted on our latest draft
Water Resources Management Plan, speaking to hundreds of customers
and stakeholders across our supply area to gather their thoughts
and opinions on our proposal which looks 60 years into the
future.
After reviewing the representations alongside new data which has
been made available to us we made a number of changes to our plan,
including the reduction of leakage by 15 per cent by 2025, halving
the amount of leakage from our current position to 44 million
litres a day by 2050 and adopting a more ambitious target for water
efficiency which, in the long term, could save an extra 150 million
litres a day by 2080.
A national survey by the Institute of Customer Service's UK
Customer Satisfaction Index (UKCSI), that measures customer
satisfaction across the UK, placed us eighth in the utility sector
out of 28 organisations surveyed.
Based on 45,000 survey responses from across the country, the
UKCSI gives a unique insight into the quality of customer service
in the UK, looking at a range of satisfaction measures such as
reliability and helpfulness of staff.
We were clearly very pleased our continued success in improving
our customer experience has been reflected in the UKCSI. Our work
is on-going to make our customer experience a smooth and positive
one, and we have recently carried out a number of initiatives such
as continued improvements to our responsive website services, and
introducing 'One Bill' so we now also bill wastewater charges on
behalf of 460,000 customers of Southern Water. This has been an
important improvement for customers as many have said they wanted
to be able to manage their water and wastewater bill through one
account, just as our customers who have Thames Water as their
wastewater service provider have done for many years.
Making a positive impact for society
The company has committed to continue to build our environment,
social and governance (ESG) framework during the year and we aim to
be a recognised leading responsible business. Within the new
business plan we have developed a responsible business strategy and
10 new responsible business commitments to reflect the actions and
behaviours customers expect a responsible business to display.
Environment
Congratulations are in order for our environmental team for
scooping the Water Industry Awards prize for Water Resilience
Initiative of the Year for our pioneering water and farming
partnership called 'Together we knowh(2) ow'. This project has also
recently been shortlisted for the Utility Week Awards.
Working closely with farmers and landowners the initiatives aim
is to stop soils, fertiliser and pesticides washing from fields
into rivers and groundwater resources. This prevents the expense of
removing these substances at the water treatment works, and means
farmers and landowners benefit by losing less of these substances
to waste.
We are proud of our environmental record and we continue to
celebrate our many successes in conserving, protecting and
developing wildlife habitats at many of our sites.
20 years of careful habitat management at our Deep Dean Water
Treatment Works in East Sussex has paid off for one of Britain's
most endangered insects, as the wart-biter cricket makes a
successful return to the South Downs. Working alongside Natural
England, Buglife, the Zoological Society of London and the South
Downs National Park Authority, we carried out our third release of
the rare species last year. Now, following two recent surveys, 14
new crickets have been found in the area.
The grayling butterfly, Hipparchia Semele, one of the country's
most threatened species has been spotted within the heathland
restoration corridor created by South East Water after a
five-kilometre strategic water main was laid through Swinley Forest
near Bracknell in 2015. As part of the GBP6.5 million project, we
formed the wide wildlife corridor to create heathland that enables
species, such as the grayling butterfly, to thrive.
Social
This year we became the first water company to achieve the BSI
(British Standards Institution) verification certification for BS
18477, demonstrating the organisation provides a comprehensive
service for identifying and responding to vulnerable customers,
something which is a priority for our business. This includes how
our Customer Care Team will provide support if people are in
financial difficulty, or need bottled water deliveries during a
supply interruption.
As a local water supplier we aim to engage with our customers at
every opportunity, a total of 2,400 people interacted with our
staff at a wide range of community events during the first half of
the year. These events included drop-in sessions for engineering
schemes, open days at our reservoirs and water treatment works,
school talks, plus fetes, fairs and attendance at other outside
events with our trailer unit.
In addition we issued 111,000 letters to customers about
forthcoming engineering work's and kept our community leaders
informed with news and updates about construction projects and
incidents in their areas. Our automated emailing system allows us
to track the number of emails opened and see where recipients click
on links in the message for further information from the
company.
We have a staff council which is a partnership between the
company, employee representatives and the trade union, UNISON. This
group has worked successfully for a number of years and is always
well-informed of any changes taking place. We believe firmly
engaged employees go the extra mile to deliver great service.
A new appraisal system entitled iReview has been introduced,
which is based on self and manager assessments. The percentage of
staff receiving an iReview rating was 87. This is a great start and
we hope to increase engagement further.
Governance
The Board is committed to maintaining the highest standards of
corporate governance and transparency. We fully comply with Ofwat's
defined governance requirements, including maintaining an
independent Chairman and having a larger number of independent
Non-executive directors (iNeds) than either shareholder
representative directors or executive directors.
In July we appointed Célia Pronto as a new iNed, in anticipation
of Emma Gillthorpe's retirement after completing six years of
service in September. Célia brings extensive relevant experience in
customer engagement and digital. I would like to formally welcome
Célia to the Board and thank Emma for her contribution over the
past six years.
In terms of reporting and transparency, we were pleased that our
published Company Monitoring Framework was assessed by Ofwat in
November 2017 as being in the highest "Self-assured" category. Only
two other of the 18 water utilities were in this category and we
are the only one to be assessed at this level for two years
running.
Group structure
In April 2017 Ofwat introduced competition in retail activities
for Non- Household Customers. This required us to separate our
related retail activities into a standalone business which competes
with other retailers in our supply area. On 1 July this year we
completed the sale of the Non-Household business to Castle Water
and hence we no longer provide Non-Household retail services. We
have worked closely with Castle Water to ensure a smooth transition
for customers.
A significant portion of the group's debt facilities mature in
September 2019 and work has now started to put new facilities in
place well ahead of that date. The amount payable on maturity will
be in the region of GBP311 million. As part of this process the
group's gearing ratio will be reduced by the injection of GBP54
million of equity by the group's shareholders. The balance of the
repayment will be raised by new loan funding.
Results and key financial performance indicators
The results published in this statement summarise our
performance for the six month period to 30 September 2018. The
financial statements are prepared under International Financial
Reporting Standards ("IFRS") and incorporate the performance of
South East Water Limited and our subsidiary, South East Water
(Finance) Limited.
Revenue for the period was GBP121.0 million compared with
GBP114.5 million for the same period in the previous year. The
increase of GBP6.5 million is largely due to the change in our
accounting policy for developer contributions and similar receipts
following the adoption of IFRS 15 which has led to GBP3.1 million
of additional revenue being reported in the income statement. An
increase in prices averaging 4.6 per cent for the year amounted to
GBP5.1 million of increased revenue coupled with an increase in
consumption due to the hot summer weather amounted to GBP0.7
million. This is partially offset by the impact of metering which
has reduced revenue by GBP2.0 million and GBP0.5 million less
revenue from non-household customers.
Net operating costs for the period to 30 September 2018 were
GBP84.9 million, which is some GBP5.9 million higher than the
corresponding period last year. This was primarily due to higher
contractor and staff costs due to an increase in reactive
maintenance, including mains bursts on the network, of GBP1.8
million and the impact of IFRS 15 on the treatment of the costs and
associated contributions for properties that are connected to our
water supply of GBP1.0 million.
Additionally, increased depreciation due to the continued high
investment in the company's assets of GBP1.3 million, additional
costs of GBP0.8 million relating to the heatwave during the summer
and GBP1.0 million of other inflationary costs added to the higher
operation costs in the year when compared to the previous year.
Operating profit was GBP42.4 million for the period to 30
September 2018 which compares with GBP39.3 million in the prior
year. Operating profit as a percentage of revenue has increased
from 34.3 per cent in the first half of 2017/18 to 35.1 per cent in
the current year.
Finance costs have decreased by GBP1.2 million from GBP27.0
million to GBP25.8 million. This reflects the lower fair value
charge for our interest rate swap, as it nears maturity, of GBP2.6
million offset by GBP1.4 million of increased indexation on our
other loans and bonds due to higher inflation during the period to
30 September 2018.
Profit before tax was GBP27.7 million compared with GBP14.7
million for the same period last year. This represents 22.9 per
cent of revenue compared with 12.8 per cent for the corresponding
period last year.
The company has incurred a tax charge of GBP2.7 million in the
period compared to GBP1.7 million for the period to 30 September
2017, being GBP0.1 million of current tax on our ordinary
operations and GBP2.6 million of deferred tax.
As a result of the above, profit after tax has increased from
GBP13.0 million to GBP25.0 million for the first six months of the
year.
Our dividend policy allows for dividends to be paid to our
parent company which ensures that intercompany financial
obligations are able to be settled. The increase in dividend this
year of GBP5.0m, compared with the same period last year, relates
to additional financial requirements of our parent and is in line
with our dividend policy. The dividend paid by the Group's ultimate
UK parent company was maintained at the same level as the prior
year.
Net cash generated from operations was GBP79.4 million for the
period to 30 September 2018 compared to GBP64.5 million in the same
period for the previous year. This reflects a GBP14.9 million
improvement in cash collections across the business, including
GBP2.0 million in respect of income from commercial operations,
when compared to the prior year.
Interest of GBP9.1 million (2017: GBP8.8 million) due on 30
September 2018 has been paid in October in both the current and
previous financial years due to the due date falling at a
weekend.
We continue to comply with the financial covenants set out in
our securitisation structure and continue to hold ratings from
Moody's and Standard & Poor's consistent with the requirements
of both our securitisation and our instrument of appointment.
Principal risks and uncertainties
The principle risks and uncertainties facing the business are
set out in the Strategic Report within the group's Annual Report
for the financial year 2017/18, which can be found on the South
East Water website.
Going concern
The directors are satisfied that the group has sufficient
resources to continue in operation for the foreseeable future; a
period of not less than 12 months from the date of this report.
Looking ahead
For the rest of this year and through 2019 we will continue to
focus on delivering improved customer service and successfully
closing out the current business plan while devoting increasing
attention to developing detailed and innovative proposals for the
execution of the next five year business plan. Innovation is key to
delivering these ambitious targets and we are working with staff,
partners and the supply chain to drive this innovation forward.
On behalf of the Board I would like to thank all the employees
and business partners at South East Water who have worked
tirelessly over the last six months. It has been an exceptional
start to the year and our people have worked with dedication and
passion throughout in order to keep delivering great customer
service in challenging operational conditions, while also planning
ahead for the long-term growth of the south east region and
ensuring we maintain an excellent and resilient water service and a
sustainable future for the local communities we work for.
Nick Salmon
Chairman
14 December 2018
Statement of directors' responsibilities
The directors confirm that to the best of their knowledge:
-- the condensed group financial statements have been prepared
in accordance with IAS 34 Interim Financial Reporting as endorsed
by the European Union; and
-- the condensed group statements herein include a fair review
of the information required by the Disclosure and Transparency
Rules 4.2.7R.
The directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the group and enable them to ensure that the
group financial statements comply with the Companies Act 2006. They
are responsible for safeguarding the assets of the group and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The directors are also responsible for the maintenance and
integrity of the corporate and financial information included on
the company's website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Paul Butler
Managing Director
14 December 2018
Condensed group income statement
for the six months ended 30 September 2018
Six months Six months
ended ended
30 September 30 September
2018 2017
Notes GBP000 GBP000
Revenue 4 120,986 114,450
Group net operating costs 6 (84,900) (79,009)
Other income 4 6,336 3,840
Group operating profit 42,422 39,281
Profit on disposal of non-household
customer base 7 8,165 -
Finance costs 8 (25,765) (26,957)
Finance income 9 2,859 2,349
Profit before taxation 27,681 14,673
Taxation 10 (2,715) (1,662)
-------------- ------------------------
Profit for the period 24,966 13,011
-------------- ------------------------
Earnings per share
Basic and diluted from continuing
operations 50.63p 26.38p
-------------- ------------------------
Condensed group statement of comprehensive income
for the six months ended 30 September 2018
Six months Six months
ended ended
30 September 30 September
2018 2017
GBP000 GBP000
Profit for the period 24,966 13,011
---------------------- -----------------------
Items that will not be reclassified
subsequently to profit or loss:
Re-measurement of defined benefit
liability 1,534 (3,159)
Deferred tax on defined benefit
pension schemes (262) 537
1,272 (2,622)
---------------------- -----------------------
Total comprehensive income for the
period attributable to Owners of
the Company 26,238 10,389
---------------------- -----------------------
Condensed group statement of financial position
as at 30 September 2018
30 September 31 March 30 September
2018 2018 2017
Notes GBP000 GBP000 GBP000
Non-current assets
Intangible assets 12 11,137 10,758 10,830
Property, plant and equipment 13 1,528,087 1,501,707 1,480,018
Amount due from parent undertaking 17 189,918 190,013 190,013
Defined benefit pension surplus 25,086 21,229 8,104
1,754,228 1,723,707 1,688,965
------------------------ --------------------- --------------
Current assets
Inventories 334 236 219
Trade and other receivables 14 77,314 78,255 77,336
Cash and cash equivalents 15 26,082 6,528 27,697
103,730 85,019 105,252
------------------------ --------------------- --------------
Total assets 1,857,958 1,808,726 1,794,217
------------------------ --------------------- --------------
Current liabilities
Loans and borrowings 17/18 (219,782) (20,000) (15,000)
Derivative financial instruments 17 (105,143) - -
Trade and other payables 19 (119,806) (94,379) (110,544)
Deferred income (6,714) (7,593) (7,169)
Provisions (2,495) (2,515) (2,361)
(453,940) (124,487) (135,074)
Non-current liabilities
Loans and borrowings 16/17 (708,324) (900,897) (888,586)
Derivative financial instruments 16/17 - (104,169) (104,501)
Trade and other payables 16 (5,791) (5,979) (5,347)
Net deferred tax liabilities (142,895) (140,085) (133,080)
Defined benefit pension liability - - (1,378)
Deferred income 3 (3,690) (74,471) (72,157)
(860,700) (1,225,601) (1,205,049)
------------------------ --------------------- --------------
Total liabilities (1,314,640) (1,350,088) (1,340,123)
------------------------ --------------------- --------------
Net assets 543,318 458,638 454,094
------------------------ --------------------- --------------
Equity
Ordinary share capital 49,312 49,312 49,312
Revaluation reserve 253,820 256,396 258,965
Retained earnings 240,186 152,930 145,817
------------------------ --------------------- --------------
Total equity 543,318 458,638 454,094
------------------------ --------------------- --------------
The notes below are an integral part of these condensed group
financial statements.
Condensed group statement of changes in equity
for the six months ended 30 September 2018
Issued Revaluation Retained
share capital reserve earnings Total equity
GBP000 GBP000 GBP000 GBP000
At 31 March 2018 49,312 256,396 152,930 458,638
IFRS 15 adoption (see
note 3) - - 72,442 72,442
--------------- -------------- ------------------ ----------------
At 1 April 2018 49,312 256,396 225,372 531,080
--------------- -------------- ------------------ ----------------
Profit for the period - - 24,966 24,966
Other comprehensive income - - 1,272 1,272
Total comprehensive income - - 26,238 26,238
Dividends (see note 11) - - (14,000) (14,000)
Amortisation of revaluation
reserve - (3,063) 3,063 -
Release revaluation on
disposals - (34) 34 -
Deferred tax on reserve
releases - 521 (521) -
At 30 September 2018 49,312 253,820 240,186 543,318
--------------- -------------- ------------------ ----------------
for the six months ended 30 September 2017
Issued Revaluation Retained
share capital reserve earnings Total equity
GBP000 GBP000 GBP000 GBP000
At 1 April 2017 49,312 261,549 141,844 452,705
--------------- -------------- ---------- -------------
Profit for the period - - 13,011 13,011
Other comprehensive loss - - (2,622) (2,622)
--------------- -------------- ---------- -------------
Total comprehensive income - - 10,389 10,389
Dividends (see note 11) - - (9,000) (9,000)
Amortisation of revaluation
reserve - (3,064) 3,064 -
Release revaluation on
disposals - (43) 43 -
Deferred tax on reserve
releases - 523 (523) -
At 30 September 2017 49,312 258,965 145,817 454,094
--------------- -------------- ---------- -------------
Condensed group statement of cash flows
for the six months ended 30 September 2018
Six months Six months
ended ended
30 September 30 September
2018 2017
Notes GBP000 GBP000
Operating activities
Net cash flow from operating activities 79,424 64,450
Interest received 2,540 2,225
Interest paid (9,120) (6,337)
Group tax relief paid (652) (2,000)
Net cash flow before investing and
financing activities 72,192 58,338
-------------- --------------
Investing activities
Proceeds from sale of property, plant
and equipment 639 103
Purchase of property, plant and equipment (47,224) (47,807)
Purchase of intangible assets (1,927) (1,414)
Sale of non-household customer base 9,665 -
Fixed asset contributions received 388 1,106
Net cash flow used in investing activities (38,459) (48,012)
-------------- --------------
Financing activities
New bank loans received - 15,000
Issue cost of listed debt (179) -
Dividends paid to shareholder 11 (14,000) (9,000)
Net cash flow used in financing activities (14,179) 6,000
-------------- --------------
Increase in cash and cash equivalents 19,554 16,326
Cash and cash equivalents at 1 April 6,528 11,371
-------------- --------------
Cash and cash equivalents at 30 September 15 26,082 27,697
-------------- --------------
Cash flow from operating activities
for the six months ended 30 September 2018
Six months Six months
ended ended
30 September 30 September
2018 2017
GBP000 GBP000
Profit on operating activities 42,422 39,281
Adjustments for:
Depreciation and impairment of property,
plant and equipment 24,184 22,721
Amortisation and impairment of intangibles 1,548 1,642
Profit on disposal of fixed assets in ordinary
course of business (330) (15)
Difference between pension contributions
paid and amounts recognised in the income
statement (2,016) (1,973)
Changes in working capital:
Increase in trade and other receivables (1,049) (5,137)
Increase in inventory (98) (5)
Increase in trade and other payables 14,763 7,936
-------------- --------------
Net cash flow from operating activities 79,424 64,450
-------------- --------------
Notes to the condensed group financial statements
for the six months ended 30 September 2018
1. Basis of preparation
The condensed group financial statements for the six months
ended 30 September 2018 are set out on above, and have been
prepared in accordance with the Disclosure and Transparency Rules
of the Financial Conduct Authority and IAS 34 Interim Financial
Reporting as endorsed by the European Union. The statements should
be read in conjunction with the financial statements for the year
ended 31 March 2018, which have been prepared in accordance with
International Financial Reporting Standards ("IFRS") endorsed by
the European Union.
The condensed group financial statements are presented in
sterling.
These interim financial results are neither audited nor reviewed
by our auditor. The information for the year ended 31 March 2018
does not comprise statutory accounts within the meaning of section
434 of the Companies Act 2006. Statutory accounts for the year
ended 31 March 2018 were approved by the Board of Directors on 13
July 2018 and delivered to the Registrar of Companies. The report
of the auditors on those accounts was not qualified, did not
include any reference to any matters to which the auditors drew
attention by way of emphasis without qualifying the report and did
not contain any statement under section 498(2) or (3) of the
Companies Act 2006.
2. Accounting policies
Changes in accounting policies
The accounting policies adopted are consistent with those of the
financial statements for the year ended 31 March 2018 as described
in those financial statements except for the changes brought about
by adoption of IFRS 9 Financial Instruments ("IFRS 9") and IFRS 15
Revenue from Contracts with Customers ("IFRS 15") on 1 April
2018.
Revenue
When recognising revenue, the group applies the five criteria
introduced by IFRS 15. Revenue is recognised to the extent that it
is probable that the economic benefits will flow to the group, the
performance obligations in the contracts with "named" customers
have been met and the revenue can be reliably measured. All revenue
arises within the United Kingdom and is recorded net of VAT. The
company only recognises revenue in respect of "named"
customers.
Infrastructure charges
Infrastructure charges represent the fees charged to property
developers and others for connecting new properties and water
outlets to the group's network. These fees are recognised in the
income statement upon completion of the project to which they
relate.
Grants and contributions
Grants and contributions are received in respect of both
infrastructure and non-infrastructure assets. The receipts are
recognised as deferred income on the balance sheet until completion
of the work to which they relate, at which time they are released
to the income statement.
Financial instruments
The group's financial instruments comprise fixed and variable
rate borrowings, index linked loans, fixed rate debentures, an
interest rate swap, finance leases, a loan to its parent
undertaking, cash, short-term and medium-term bank deposits, trade
receivables and trade and other payables.
Recognition
Financial instruments are recognised on the statement of
financial position when the group becomes party to the contractual
provisions of the instrument. The group determines the
classification of its financial liabilities at initial
recognition.
A provision for twelve month expected credit loss is recognised
in the income statement to establish a loss allowance on initial
recognition.
Impairment of financial assets
At each reporting date an assessment is carried out to determine
whether there is any indication that the credit risk on financial
assets has increased significantly. If this is considered to be the
case, full life-time expected credit loss is recognised in the
income statement. Where there is objective evidence that an
impairment loss has arisen, the loss is recognised in the income
statement in the year in which the respective assessment takes
place. Impaired debts are derecognised when they are assessed as
irrecoverable.
Short term trade and other receivables
Short term trade receivables are recognised and carried at
original invoice amount less an allowance for any doubtful debts.
An estimate for the provision for doubtful debts is calculated by
the group's management based on applying expected recovery rates to
an aged debt profile and an assessment of the current and future
economic conditions.
3. Transition disclosures
The group has adopted IFRS 9 and IFRS 15 in the period. Details
of the impact of the adoption of these standards are provided
below.
IFRS 9 Financial Instruments
IFRS 9 specifies how the group should classify and measure
financial assets and liabilities. In adopting the Standard, the
group has assessed the classification of its financial instruments
and reclassified assets and liabilities as appropriate (see note
17). The group has also recognised an allowance for credit loss in
its income statement on its relevant financial assets. A provision
for this allowance has been created and offset against the carrying
value of the relevant asset in the group statement of financial
position.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes the principles the group applies when
reporting information about revenue and the cash flows arising from
contracts with customers. In adopting the standard the group has
applied the steps for recognising revenue from customers. IFRS 15
has been adopted using the modified retrospective method which has
led to the accumulated historic adjustments being made to the
opening balances at 1 April 2018.
The impact of the adoption of IFRS 15 on the Group's financial
statements in the period has been:
Six months Six months
ended Adjustment ended
30 for the adoption 30
September of IFRS 15 September
2018 GBP000 2018
GBP000 GBP000
Revenue
Unmetered water income 13,433 - 13,433
Metered water income 100,754 - 100,754
Other sales 3,666 3,133 6,799
----------- ------------------- -----------
Total revenue 117,853 3,133 120,986
Group net operating costs (83,941) (959) (84,900)
Other income 6,336 - 6,336
Group operating profit 40,248 2,174 42,422
Profit on disposal of non-household
customer base 8,165 - 8,165
Finance costs (25,765) - (25,765)
Finance income 2,859 - 2,859
Profit before taxation 25,507 2,174 27,681
Taxation (2,522) (193) (2,715)
----------- ------------------- -----------
Profit for the period 22,985 1,981 24,966
----------- ------------------- -----------
The adjustments in the current year to the financial statements
as a result of the adoption of IFRS 15 are required because:
-- The adjustment of GBP3.1 million to other sales reflects the
deposits and contributions received from developers for contracts
where the performance objectives have been met in the period. This
has been released from non-current trade and other payables and
deferred income respectively in the group statement of financial
position.
-- The adjustment to group net operating costs reflects the
contributions in the period in excess of the costs taken to fixed
assets on new connections. This was previously offset against
operating costs but is now included in other sales. This revenue
has been taken to deferred income in the group statement of
financial position.
-- The adjustment to taxation reflects the additional tax
charged on the above adjustments. The additional tax has been
relieved against losses in other companies in the HDF (UK) Holdings
Limited group of companies and has been added to intercompany
creditors in the group statement of financial position.
-- The adoption of IFRS 15 has had no impact on the group
statement of changes in equity in the year other than those changes
to retained earnings and total equity noted in the table above and
to adjust the opening balances on retained earnings and total
equity as detailed above.
-- The adoption of IFRS 15 has had no impact on the group statement of cash flows.
The impact of the adoption of IFRS 15 on the Group's opening
statement of financial position has been:
Adjustment
1April for the adoption 1April
2018 of IFRS 15 2018
GBP000 GBP000 GBP000
Non-current assets 1,723,707 - 1,723,707
Current assets 85,019 - 85,019
-------------- ------------------ --------------
Total assets 1,808,726 - 1,808,726
-------------- ------------------ --------------
Current liabilities (124,487) - (124,487)
-------------- ------------------ --------------
Non-current liabilities
Loans and borrowings (900,897) - (900,897)
Derivative financial instruments (104,169) - (104,169)
Trade and other payables (5,979) 544 (5,435)
Net deferred tax liabilities (140,085) - (140,085)
Deferred income (74,471) 71,898 (2,573)
(1,225,601) 72,442 (1,153,159)
-------------- ------------------ --------------
Total liabilities (1,350,088) 72,442 (1,277,646)
-------------- ------------------ --------------
Net assets 458,638 72,442 531,080
-------------- ------------------ --------------
Equity
Ordinary share capital 49,312 - 49,312
Revaluation reserve 256,396 - 256,396
Retained earnings 152,930 72,442 225,372
-------------- ------------------ --------------
Total equity 458,638 72,442 531,080
-------------- ------------------ --------------
The adjustments to non-current trade and other payables and
non-current deferred income reflect the release of deposits and
contributions from developers for contracts that have been
completed in prior years. The revenue from these contracts has
previously been amortised over the lives of the assets to which
they relate.
4. Total income
Six months Six months
ended ended
30 September 30 September
2018 2017
GBP000 GBP000
Revenue
Unmetered water income 13,433 19,083
Metered water income 100,754 92,573
Other sales 6,799 2,794
-------------- --------------
Total revenue 120,986 114,450
-------------- --------------
Other income
Rental income 636 566
Sundry income 5,700 3,274
-------------- --------------
Total other income 6,336 3,840
-------------- --------------
Total income 127,322 118,290
-------------- --------------
All revenue is from customers within the United Kingdom.
5. Segmental analysis
The group's revenue mainly arises from the supply of water and
related activities. The activities of the group, for management
purposes, fall into three operating areas being the supply of
potable water on a wholesale basis, the supply of potable water and
waste water services on a retail basis, both of which are governed
by the Water Act 2014, and related non-regulated activities.
The group analyses results by segment to operating profits only,
therefore no segmental statement of financial position or statement
of cash flows are presented.
Period to 30 September Wholesale Retail Other
2018 activities activities activities Total
GBP000 GBP000 GBP000 GBP000
Total income 109,665 11,099 6,558 127,322
------------ ------------ ------------ ---------
Operating profit 37,899 1,309 3,214 42,422
------------ ------------ ------------
Profit on disposal of
non-household customer
base 8,165
Finance costs (25,765)
Finance income 2,859
---------
Profit before taxation 27,681
Taxation (2,715)
---------
Profit for the period 24,966
---------
Period to 30 September
2017
Total income 101,921 12,329 4,040 118,290
------------ ------------ ------------ ---------
Operating profit 36,019 1,725 1,537 39,281
------------ ------------ ------------
Finance costs (26,957)
Finance income 2,349
---------
Profit before taxation 14,673
Taxation (1,662)
---------
Profit for the period 13,011
---------
6. Net operating costs
Six months Six months
ended ended
30 September 30 September
2018 2017
GBP000 GBP000
Employee benefits expenses 15,455 14,662
Asset expenses 25,402 24,348
Other operating expenses 44,043 39,999
-------------- --------------
84,900 79,009
-------------- --------------
7. Profit on disposal
On 1 May 2018, the group sold its rights to the non-household
customer base to its fellow wholly owned subsidiary, Invicta Water
Limited, for a consideration of GBP10.0 million which has resulted
in a profit on disposal of GBP8.2 million. The rights to the
non-household customer base are an internally generated intangible
asset and, as per IAS 38, these were not recognised on the group's
statement of financial position.
Following the sale of the rights to the non-household customer
base, an additional charge for the doubtful debts of GBP1.5 million
has been provided to reflect the increased risk of non-payment of
the outstanding debt at the date of sale following the transfer of
the customers to another retailer.
Subsequently Invicta Water Limited was sold to Castle Water
Holdings Limited on 1 July 2018.
Six months Six months
ended ended
30 September 30 September
2018 2017
GBP000 GBP000
Proceeds from Sale 10,000 -
Legal Fees (244) -
Bad Debt Provision (1,500)
Consultancy (91) -
8,165 -
-------------- --------------
8. Finance costs
Six months Six months
ended ended
30 September 30 September
2018 2017
GBP000 GBP000
Effective interest on listed debt 11,371 11,129
Fair value movements on interest
rate swap 974 3,585
Indexation on listed debt 2,908 3,143
Interest on index linked loans 6,032 5,810
Indexation on index linked loans 4,208 3,146
Other finance costs 1,315 1,189
26,808 28,002
Less: interest capitalised (1,043) (1,045)
-------------- --------------
25,765 26,957
-------------- --------------
9. Finance income
Six months Six months
ended ended
30 September 30 September
2018 2017
GBP000 GBP000
Interest receivable from group undertakings 2,490 2,210
Pension fund finance credit 314 124
Interest receivable on bank balances and
short term deposits 55 15
2,859 2,349
-------------- --------------
10. Taxation
Six months Six months
ended ended
30 September 30 September
2018 2017
GBP000 GBP000
Current taxation charge 165 940
Deferred taxation charge 2,550 722
2,715 1,662
-------------- -------------------------
The current tax charge is recognised based on management's
estimate of the weighted average annual corporation tax rate
expected for the full financial year.
11. Dividends
Six months Six months
ended ended
30 September 30 September
2018 2017
GBP000 GBP000
Equity dividends paid during the period
of 28.4p per share (2017: 18.3p) 14,000 9,000
-------------- --------------
12. Intangible assets
GBP000
Net book amount
At 1 April 2018 10,758
Additions for the period 1,908
Reclassification of assets in the period 19
Amortisation for the period (1,548)
------------------------
At 30 September 2018 11,137
------------------------
Net book amount
At 1 April 2017 11,058
Additions for the year 3,554
Amortisation for the year (3,399)
Reclassification of assets in the period (448)
Disposals for the year (1)
Impairment for the year (6)
------------------------
At 31 March 2018 10,758
------------------------
Net book amount
At 1 April 2017 11,058
Additions for the period 1,953
Reclassification of assets in the period (539)
Amortisation for the period (1,642)
------------------------
At 30 September 2017 10,830
------------------------
13. Property, plant and equipment
GBP000
Net book amount
At 1 April 2018 1,501,707
Additions for the period 50,752
Reclassification of assets in the period (13)
Disposals for the period (173)
Depreciation for the period (24,186)
--------------------------
At 30 September 2018 1,528,087
--------------------------
Net book amount
At 1 April 2017 1,455,380
Additions for the year 92,410
Disposals for the year (279)
Reclassification of assets in the period 448
Depreciation for the year (46,233)
Impairment for the year (19)
----------------------------
At 31 March 2018 1,501,707
----------------------------
Net book amount
At 1 April 2017 1,455,380
Additions for the period 46,908
Reclassification of assets in the period 539
Disposals for the period (88)
Depreciation for the period (22,721)
Reclassification of assets in the period -
--------------------------
At 30 September 2017 1,480,018
--------------------------
14. Trade and other receivables
30 September 31 March 30 September
2018 2018 2017
GBP000 GBP000 GBP000
Financial asset receivables
Trade receivables 33,630 34,463 33,580
Accrued income 36,035 35,506 36,879
Amounts due from group undertakings 378 26 273
70,043 69,995 70,732
------------- --------- -------------
Non-financial asset receivables
Prepayments 5,203 5,132 4,727
Other receivables 2,068 3,128 1,877
------------- --------- -------------
7,271 8,260 6,604
------------- --------- -------------
77,314 78,255 77,336
------------- --------- -------------
15. Cash and cash equivalents
30 September 31 March 30 September
2018 2018 2017
GBP000 GBP000 GBP000
Cash at bank and in hand 26,082 6,528 27,697
------------- --------- -------------
16. Non-current financial liabilities
30 September 31 March 30 September
2018 2018 2017
GBP000 GBP000 GBP000
Irredeemable debenture stock 991 991 991
Listed bonds 332,170 529,337 526,284
Index linked loans 375,163 370,569 361,311
------------- ---------- -------------
Loans and borrowings 708,324 900,897 888,586
Derivative financial instruments - 104,169 104,501
Trade and other payables 5,791 5,979 5,347
------------- ---------- -------------
714,115 1,011,045 998,434
------------- ---------- -------------
17. Financial instruments
Fair values of financial assets and financial liabilities
Fair value is the amount at which a financial instrument could
be exchanged in an arm's length transaction between informed and
willing parties. In the opinion of the directors, the fair values
of the financial assets and liabilities of the group (apart from
the specific items shown in the fair value table below) are not
materially different from the book values.
Book Fair Book Fair Book Fair
Value Value Value Value Value Value
30 September 30 September 31 31 30 September 30 September
2018 2018 March March 2017 2017
GBP000 GBP000 2018 2018 GBP000 GBP000
GBP000 GBP000
Measured at amortised cost
Amounts due from
parent undertaking 189,918 174,736 190,013 142,573 190,013 173,920
-------------- -------------- ---------- ------------ -------------- --------------
Current liabilities
Bank loan 20,000 20,000 20,000 20,000 15,000 15,000
Listed bond 199,782 222,960 - - - -
-------------- -------------- ---------- ------------ -------------- --------------
219,782 242,960 20,000 20,000 15,000 15,000
-------------- -------------- ---------- ------------ -------------- --------------
Non-current liabilities
Irredeemable debentures 991 935 991 862 991 841
Listed bonds 332,170 449,177 529,337 672,137 526,284 631,450
Index linked loans 375,163 677,802 370,569 694,765 361,311 660,655
-------------- -------------- ---------- ------------ -------------- --------------
708,324 1,127,914 900,897 1,367,764 888,586 1,292,946
-------------- -------------- ---------- ------------ -------------- --------------
The following table details the financial instruments that are
carried in the group's books at the fair value at 30 September
2018.
Book and Book and Book and
Fair Value Fair Value Fair Value
30 September 31 March 30 September
2018 2018 2017
GBP000 GBP000 GBP000
At fair value through profit
or loss
Derivative financial instruments
- Interest rate swap 105,143 104,169 104,501
-------------- ------------ --------------
The book value of the interest rate swap has been adjusted to
reflect its fair value.
Fair value hierarchy
The group held the following financial instruments measured at
fair value:
Total Level 1 Level 2 Level 3
GBP000 GBP000 GBP000 GBP000
Financial liabilities at fair value through
profit or loss
-------- ------------ --------
30 September 2018
Interest rate swap (105,143) - (105,143) -
---------------- -------- ------------ --------
31 March 2018
Interest rate swap (104,169) - (104,169) -
---------------- -------- ------------ --------
30 September 2017
Interest rate swap (104,501) - (104,501) -
---------------- -------- ------------ --------
During the reporting period ended 30 September 2018, there were
no transfers between Level 1 and Level 2 fair value measurements
and no transfers into and out of Level 3 fair value
measurements.
The group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
-- Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
-- Level 2: other techniques for which all inputs with a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3: techniques using inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
18. Current loans and borrowings
30 September 31 March 30 September
2018 2018 2017
GBP000 GBP000 GBP000
Financial liabilities
Bank loan 20,000 20,000 15,000
Listed bonds 200,000 - -
Unamortised costs (218) - -
------------- --------- -------------
219,782 20,000 15,000
------------- --------- -------------
19. Current liabilities
30 September 31 March 30 September
2018 2018 2017
GBP000 GBP000 GBP000
Financial liabilities
Trade payables 11,995 13,610 10,674
Amounts due to group undertakings 15,607 9,217 10,191
Other payables 11,771 1,866 5,119
Accruals 47,525 32,556 46,088
------------- --------- -------------
86,898 57,249 72,072
------------- --------- -------------
Non-financial liabilities
Payments received in advance 31,853 36,118 37,516
Other taxes and social security 1,055 1,012 956
------------- --------- -------------
32,908 37,130 38,472
------------- --------- -------------
119,806 94,379 110,544
------------- --------- -------------
20. Post balance sheet event
On 26 October 2018, the High Court issued a judgment involving
the Lloyds Banking Group's defined benefit pension schemes in
relation to Guaranteed Minimum Pension (GMP) benefits being
calculated differently for men and women. The judgment concluded
that the schemes should be amended to equalise pension benefits for
men and women in relation to GMP benefits. The issues determined by
the judgment arise in relation to many other defined benefit
pension schemes.
We are working with the trustees of our pension schemes and our
advisers to assess the impact of the judgment on our schemes, but
high level estimates based on industry expectations indicate this
could be up to around 1 - 2 per cent of accrued liabilities. This
issue is being treated as a plan amendment and the impact is
expected to be recognised as a past service cost in our 31 March
2019 year-end accounts.
Overall, our pension schemes are appropriately funded and the
condensed group statement of financial position shows the defined
benefit schemes have a surplus of approximately GBP25.1m on an IAS
19 basis.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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