TIDM53HO
RNS Number : 4299F
South East Water Limited
15 July 2021
South East Water Limited
Preliminary results
for the year to 31 March 2021
Chair's Statement
Welcome to our preliminary results announcement for the year
ended 31 March 2021.
First and foremost I must begin by saying thank you to all our
colleagues, both at South East Water and through our supply chain
partners for their resolute dedication and determination to
maintain a focus on excellent service through this most testing of
years.
Covid-19 necessitated a significant shift in the way we work,
with more than 600 office based colleagues moving to home working
within three weeks of the first lockdown and our operational
colleagues developing new working practices to keep themselves and
our customers safe.
Not only did we have to change the way we work and support
customers, but the pandemic meant we experienced significant
operational challenges. The lockdown measures saw the domestic
water use in our commuter-belt supply region change dramatically.
The vast majority of our customers spent the year staying at home
and using considerably more water (15.9 per cent more compared to
2019/20).
This was compounded by the summer heatwaves in May and August
2020 which led to unprecedented levels of water demand, far
exceeding levels we had ever experienced previously, or indeed that
our system had been designed to meet. Many other water companies
were more fortunate in that their total water demand fell due to a
reduction in industrial and business demand but our net water
demand increased overall as our supply region has relatively low
industrial and business demand.
Recognising that there is also likely to be significantly higher
demand this summer, the team has been putting in place operational
improvements, including completing schemes that can provide
additional treated water, and we have made changes to our network
to enable us to move water around more easily.
At the same time communication plans are in place which aim to
encourage consumers to reduce usage this summer and over the year
we have delivered more than 120,000 water efficiency products as a
result of our proactive campaigns.
Some of our customers are experiencing both emotional and
financial hardship due to the pandemic and we have been supporting
them through our priority services register and providing payment
support options, which we will continue to prioritise.
Clearly these changes to the way we work, the support for
customers and the operational impacts that Covid-19 has caused have
also affected our financial performance. We have estimated our
additional expenditure incurred due to Covid-19 during the year is
approximately GBP5 million. This comprises the costs incurred in
putting an increased level of water into supply, mainly power and
chemicals, increased contractor costs due to restricted working
practices and an increase in our bad debt provision due to a change
in methodology to give greater emphasis to our recent cash
collection history. Despite this the overall financial performance
of the company has been satisfactory, with improved profits
year-on-year and strong cash collections from customers.
The global pandemic has highlighted the disruption and
uncertainty we can face as a business. This has given us a glimpse
into a future that we must be prepared for. Climate change and
changing weather patterns will have an impact on the ability of our
existing infrastructure to meet the demands for water sustainably.
We intend to build a business that is well positioned to meet these
future challenges, but this will require support from Government,
our regulators and society as a whole.
A key step in meeting these challenges is to put them at the
front of our mind in everything we do. The sense of duty seen
across the organisation last year is the embodiment of our company
purpose, enshrined in November 2020, in our Articles of
Association.
This is just one of many steps taken to continue to focus on
growing our responsible business approach. We were delighted to see
this work recognised with sector leader status in the GRESB ESG
infrastructure asset benchmarking for 2020.
This was the first year of our 2020 to 2025 investment period
and while our capital programme was to a degree impacted by
Covid-19, with a number of schemes being disrupted or activity
reduced to facilitate safe working, GBP34.4 million of
infrastructure improvements have been completed.
This year we have prepared our draft drought plan, our
operational plan for managing periods of drought, and we are
working with our partners in the Water Resources in the South East
(WRSE) to create a regional plan which looks forward to 2100. This
will be the basis of our own water resources management plan
designed to secure long term future water resources for the
community we serve.
Climate change remains our highest risk and we are preparing our
next climate change adaptation report to be published this year. As
a business we have committed to achieve net zero for operational
emissions by 2030, which is an important part of our environmental
leadership - but we believe we must go further. We have started to
work with our stakeholders to develop an ambitious 25 year
environment plan. We believe this approach to be an industry first.
The plan will ensure we support both Government and global
ambitions through the UN Sustainable Development Goals and I am
looking forward to seeing this take shape. Building a sustainable
future where our society and the environmental can thrive will be a
cornerstone of our preparations for the next price review, PR24,
and we will work closely with our customers, communities and
stakeholders to ensure a collaborative approach in order to realise
our purpose and create value together.
Nick Salmon
Chairman
15 July 2021
Group income statement
for the year ended 31 March 2021
2021 2020
Notes GBP000 GBP000
Revenue 2 248,156 243,481
---------- ----------
Bad debt (3,788) (4,198)
---------- ----------
Net operating costs 3 (178,285) (170,151)
---------- ----------
Other income 2 11,439 12,199
---------- ----------
Profit from operations 77,522 81,331
---------- ----------
Finance income 3,093 5,333
Finance expense 5 (42,956) (52,862)
Profit before taxation 37,659 33,802
Taxation 7 (6,343) (16,918)
---------- ----------
Profit for the year 31,316 16,884
Earnings per share attributable to the
ordinary equity holders of the parent
Basic and diluted 9 63.51p 34.24p
---------- ----------
Group statement of comprehensive income
for the year ended 31 March 2021
Notes 2021 2020
GBP000 GBP000
Profit for the year 31,316 16,884
Other comprehensive income:
Items that will not be reclassified
to profit or loss:
Net actuarial (loss)/gain on pension
schemes (14,967) 4,879
Deferred tax (credit)/charge on net
actuarial (loss)/gain 7 2,844 (927)
Impact of deferred tax rate change in
respect of pension schemes 7 - (124)
Other comprehensive income for the year (12,123) 3,828
----------- ---------
Total comprehensive income 19,193 20,712
----------- ---------
Group statement of financial position
as at 31 March 2021
31 March 31 March
2021 2020
GBP000 GBP000
Assets
Non-current assets
Property, plant and equipment 1,631,312 1,595,916
Right of use assets 11,952 12,929
Intangible assets 8,787 9,568
Amount due from parent undertaking - 135,941
Defined benefit pension surplus 34,368 35,912
-------------- --------------
1,686,419 1,790,266
-------------- --------------
Current assets
Inventories 673 689
Trade and other receivables 86,735 84,441
Cash and cash equivalents 41,617 12,981
-------------- --------------
129,025 98,111
-------------- --------------
Total assets 1,815,444 1,888,377
-------------- --------------
Liabilities
Non-current liabilities
Trade and other payables (4,623) (4,997)
Loans and borrowings (1,038,371) (1,028,997)
Deferred income (3,625) (3,438)
Defined benefit pension liabilities (3,172) (3,115)
Deferred tax liability (167,228) (166,352)
(1,217,019) (1,206,899)
-------------- --------------
Current liabilities
Loans and borrowings (80,318) (30,329)
Trade and other liabilities (88,961) (97,627)
Deferred income (5,336) (5,418)
Provisions (7,983) (4,457)
-------------- --------------
(182,598) (137,831)
-------------- --------------
Total liabilities (1,399,617) (1,344,730)
-------------- --------------
Net assets 415,827 543,647
-------------- --------------
I ssued capital and reserves attributable
to owners of the parent
Share capital 49,312 49,312
Revaluation reserve 235,774 241,386
Retained earnings 130,741 252,949
-------------- --------------
Total equity 415,827 543,647
-------------- --------------
Group statement of changes in equity
for the year ended 31 March 2021
Issued
share capital Revaluation Retained Total equity
GBP000 reserve earnings GBP000
GBP000 GBP000
Balance at 1 April 2019 49,312 251,259 238,253 538,824
--------------- -------------- ----------- ---------------
Comprehensive income for the
year
Profit for the year - - 16,884 16,884
Other comprehensive income - - 3,828 3,828
Total comprehensive income - - 20,712 20,712
Dividends (see note 8) - - (11,000) (11,000)
Amortisation of revaluation reserve - (6,129) 6,129 -
Release revaluation on disposals - (19) 19 -
Deferred tax on revaluation and
retained earnings transfer - 1,164 (1,164) -
Impact of deferred tax rate change - (4,889) - (4,889)
Balance at 31 March 2020 49,312 241,386 252,949 543,647
As at 1 April 2020 49,312 241,386 252,949 543,647
Comprehensive income for the
year
Profit for the year - - 31,316 31,316
Other comprehensive income - - (12,123) (12,123)
Total other comprehensive income - - 19,193 19,193
Dividends (see note 8) - - (147,013) (147,013)
Amortisation of revaluation reserve - (6,127) 6,127 -
Revaluation of infrastructure
assets - (783) 783 -
Release of revaluation reserve
on disposals - (15) 15 -
Deferred tax on revaluation and
retained earnings transfer - 1,313 (1,313) -
Balance at 31 March 2021 49,312 235,774 130,741 415,827
--------------- -------------- ----------- ---------------
All transactions relate to the equity holders of the group.
Group statement of cash flows
for the year ended 31 March 2021
Notes 2021 2020
GBP000 GBP000
Cash flows from operating activities
Profit for the year 31,316 16,884
Adjustments for
Depreciation and impairment of property,
plant and equipment 55,259 51,615
Amortisation of intangible assets 3,497 3,049
Finance income (3,093) (5,333)
Finance expense 42,956 52,862
Loss/(gain) on sale of property, plant
and equipment 723 (50)
Difference between pension contributions
paid and amounts recognised in the income
statement (12,605) (4,896)
Taxation on profit on ordinary activities 6,343 16,918
---------- ----------
124,396 131,049
Movement in working capital:
Increase in trade and other receivables (2,435) (1,165)
Decrease/(increase) in inventories 16 (97)
(Decrease)/increase in trade and other
payables (2,053) 4,656
---------- ----------
Cash generated from operations 119,924 134,443
Income taxes (paid)/refund (1,623) 44
Interest element on lease liability payments (128) (110)
Interest received 2,341 4,705
Interest paid (35,919) (41,828)
Net cash generated by operating activities 84,595 97,254
---------- ----------
Cash flow from investing activities
Purchase of property, plant and equipment (92,129) (96,153)
Proceeds from the sale of property, plant
and equipment 215 94
Purchase of intangible assets (2,716) (2,116)
Net cash used in investing activities (94,630) (98,175)
---------- ----------
Cash flows from financing activities
Loan to Parent undertaking repaid 136,013 54,000
Loan drawdown/(repayments) of borrowings 50,000 (336,550)
Proceeds from bank borrowings - 120,000
Loan note issued - 175,000
Issue cost of listed debt paid (1) (130)
Payment of lease liability (328) (222)
Dividends paid to shareholders 8 (147,013) (11,000)
Net cash from financing activities 38,671 1,098
---------- ----------
Net cash increase in cash and cash equivalents 28,636 177
Cash and cash equivalents at the beginning
of the year 12,981 12,804
---------- ----------
Cash and cash equivalents at the end
of the year 41,617 12,981
---------- ----------
Notes
1. Basis of preparation and authorisation of financial statements
The financial statements have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and International Financial
Reporting Standards (IFRS Standards) adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union. The
financial information set out in this announcement does not
constitute the Company's statutory accounts, within the meaning of
section 430 of the Companies Act 2006, for the years ended 31 March
2021 or 2020, but is derived from those accounts. While the
financial information included within this announcement has been
prepared in accordance with the recognition and measurement
criteria of IFRS, it does not comply with the disclosure
requirements of IFRS. Statutory Financial Statements for the year
ended 31 March 2020 have been delivered to the Registrar of
Companies and those for the year ended 31 March 2021 will be
delivered to the Registrar of Companies in due course. The auditor
has reported on those Financial Statements; their reports were
unqualified, did not draw attention to any matters by way of
emphasis and did not contain statements under section 498(2) or (3)
of the Companies Act 2006.
The group financial statements are presented in Sterling and all
values are rounded to the nearest thousand pounds (GBP000) except
where otherwise indicated.
1.1 Basis of measurement
The financial statements have been prepared on the historical
cost basis except for the following items, which are measured on an
alternative basis on each reporting date.
Items Measurement basis
Pension assets Fair value
Certain assets in property, plant Measured at deemed cost by reference
and equipment to fair value on adoption of IFRS
on 1 April 2014
Going concern
The directors have, at the time of approving the financial
statements, a reasonable expectation that the company and the group
have adequate resources to continue in operational existence for
the foreseeable future. In coming to this decision they have
considered the implications of the on-going Covid-19 pandemic and
the impact this may have on the business. The directors have also
considered the discussions that are on-going for the replacement of
the revolving credit facility which has received credit approval
and will be completed in 2021. The directors have concluded that it
is correct to continue to adopt the going concern basis of
accounting in preparing the financial statements.
Basis of consolidation
These financial statements incorporate the financial information
of South East Water Limited and its subsidiary, South East Water
(Finance) Limited (together the "group").
Transactions and balances between the company and its subsidiary
have been eliminated fully on consolidation. Subsidiaries are
consolidated from the date on which control is transferred to the
group and cease to be consolidated from the date on which control
is transferred out of the group.
2. Total income
2021 2020
GBP000 GBP000
Revenue
Unmetered water income 19,983 20,800
Metered water income 219,168 208,405
Other sales 9,005 14,276
---------- ----------
Total Revenue 248,156 243,481
---------- ----------
Other income
Rental income 1,174 1,284
Other income 10,265 10,915
---------- ----------
Total other income 11,439 12,199
---------- ----------
Total income 259,595 255,680
---------- ----------
All revenue is from customers within the United Kingdom.
Other sales includes new connections income of GBP5.3 million
(2020: GBP5.8 million), infrastructure income of GBP1.8 million
(2020: GBP5.8 million) and capital contributions of GBP1.8 million
(2020: GBP1.4 million).
Other income includes charges for billing and cash collection
services amounting to GBP8.0 million (2020: GBP7.6 million), and
laboratory income of GBP2.3 million (2020: GBP2.5 million).
3. Net operating costs
2021 2020
GBP000 GBP000
Employee benefits expense 26,919 30,166
---------- ----------
Asset expense/(income):
Depreciation - owned assets 51,922 50,537
Depreciation - right-to-use 985 885
Amortisation of intangible assets 3,497 3,049
Impairment of property, plant and equipment 2,353 193
Loss/(gain) on disposal of property, plant
and equipment 723 (50)
---------- ----------
59,480 54,614
---------- ----------
Other operating expenses:
Operating lease rentals:
vehicles and office equipment 255 242
land and buildings 16 14
Fees payable to the group's auditor (see below) 434 300
Energy costs 19,795 18,346
Rates 18,403 18,186
Contractors 28,727 26,218
Bulk water supplies and abstraction licences 9,251 86,19
Chemicals 3,797 3,524
Insurance and related costs 3,350 2,646
Other 13,500 12,435
Other operating expenses charges to capital
projects (5,642) (5,159)
91,886 85,371
---------- ----------
Total operating costs 178,285 170,151
---------- ----------
Fees payable to the group's auditor in respect
of:
Audit of the group and company financial statements 325 208
Audit of subsidiary 1 1
---------- ----------
Total audit 326 209
---------- ----------
Regulatory accounts 84 49
Other assurance services 22 37
Services relating to iXBRL account coding 2 5
---------- ----------
Total non-audit services 108 91
---------- ----------
Total fees payable to the group's auditor 434 300
---------- ----------
4. Employees and directors
The average monthly number of employees, including salaried
directors, of the group in the year was:
2021 2020
Number Number
Operations 416 434
Management and administration 570 525
--------- ---------
986 959
--------- ---------
GBP000 GBP000
The aggregate payroll costs of these persons
were:
Wages and salaries 34,842 31,124
National insurance 3,501 2,550
Defined contribution scheme cost 2,481 2,385
Defined benefit scheme (credit)/cost (6,895) 710
Labour costs capitalised (7,010) (6,603)
26,919 30,166
--------- ---------
Emoluments of the directors, who are the group's key management,
were:
2021 2020
GBP000 GBP000
Aggregate emoluments including bonuses 1,092 1,666
Company contributions to defined contribution
scheme 14 10
-------- --------
1,106 1,676
-------- --------
Emoluments of the highest paid director including bonuses were:
GBP439,000 (2020: GBP647,000)
Retirement benefits are accruing to one director (2020: one)
under the defined benefit pension schemes. There are currently two
directors (2020: two) under a defined contribution scheme.
5. Finance expenses
2021 2020
GBP000 GBP000
Debenture interest 30 42
Effective interest on listed debt 13,755 18,411
Interest on lease liabilities 128 110
Financing guarantee fees 949 1,430
Fair value movements on interest rate swap - 2,713
Bank interest and other finance charges 8,350 5,068
Amortisation of loan issue costs 616 594
Indexation on variable rate bonds 2,383 4,378
Interest payable on index linked loans 12,745 12,500
Indexation on index linked loans 6,694 10,444
Interest capitalised (2,694) (2,828)
Total finance expense 42,956 52,862
-------- --------
Interest is capitalised at the weighted average rate of interest
on the group senior long term debt of 3.7 per cent (2020: 4.25 per
cent).
6. Finance income
2021 2020
GBP000 GBP000
Interest receivable on bank balances and short-term
deposits 59 201
Interest receivable from group companies 2,273 4,499
Net interest income on defined benefit asset 761 633
-------- --------
3,093 5,333
-------- --------
7. Taxation
2021 2020
GBP000 GBP000
Current tax:
Current UK tax charge 2,855 2,042
Adjustments in respect of prior years (232) (141)
-------- --------
2,623 1,901
-------- --------
Deferred tax expenses:
Origination and reversal of timing differences 4,495 4,898
Adjustments in respect of prior years (775) (1,846)
Relating to impact of change in tax rate - 11,965
3,720 15,017
-------- --------
Tax charge reported in the group income statement 6,343 16,918
-------- --------
The reasons for the difference between the actual tax charge for
the year and the standard rate of corporation tax in the United
Kingdom applied to profits for the year are as follows:
2021 2020
GBP000 GBP000
Profit before taxation 37,659 33,802
--------- ---------
Profit multiplied by the rate of corporation
tax in the UK of 19% (2020: 19%) 7,155 6,423
Effects of:
Adjustments to current tax charge in respect
of previous years (232) (141)
Adjustment to deferred tax in respect of rate
change - 11,965
Adjustments to deferred tax charge in respect
of previous years (775) (1,846)
Expenses not deductible for tax purposes 130 534
Tax effect of income not taxable in determining
taxable profit 137 (10)
Other - research and development depreciation
allowed (72) (7)
Total tax charge reported in the group income
statement 6,343 16,918
--------- ---------
Changes in tax rates and factors affecting the future tax
charges
The adjustments to current and deferred tax charge in respect of
previous years represent the changes between the prior year
financial statements and the prior year tax computations submitted.
The expenses not deductible for tax purposes are primarily driven
by the movement on general provisions, non-deductible entertainment
expenditure, and depreciation on non-qualifying capital
expenditure.
Income tax recognised directly in equity
2021 2020
GBP000 GBP000
Deferred tax
Impact on deferred tax rate change - 4,889
--------- --------
Income tax recognised on other comprehensive income
2021 2020
GBP000 GBP000
Deferred tax
Remeasurement of defined benefit scheme (2,844) 927
Impact of rate change on pension scheme - 124
-------- --------
(2,844) 1,051
-------- --------
Deferred tax
The following is the analysis of deferred tax
(assets)/liabilities presented in the consolidated statement of
financial position:
2020 2019
GBP000 GBP000
Deferred tax liability 167,228 166,352
-------- --------
Recognised Recognised
Opening in profit Recognised directly Closing
balance or loss in OCI in equity balance
GBP000 GBP000 GBP000 GBP000 GBP000
2021
Deferred tax liabilities/(assets)
in relation to:
Property, plant and equipment 160,319 1,011 - - 161,330
Rate change impact on - - - - -
PPE
General provision - NI
& incentive plan (198) 169 - - (29)
Fair value of swap - - - - -
Remeasurement if defined
benefit obligation 6,231 2,540 (2,844) - 5,927
Rate change impact on
defined benefit obligation - - - - -
---------- ----------- ------------- ----------- ----------
166,352 3,720 (2,844) - 167,228
---------- ----------- ------------- ----------- ----------
2020
Deferred tax liabilities/(assets)
in relation to:
Property, plant and equipment 142,273 1,519 - - 143,792
Rate change impact on
PPE - 11,638 - 4,889 16,527
General provision - NI
& incentive plan (283) 85 - - (198)
Fair value of swap (402) 402 - - -
Remeasurement if defined
benefit obligation 3.807 1,049 927 - 5,783
Rate change impact on
defined benefit obligation - 324 124 - 448
---------- ----------- ------------- ----------- ----------
145,395 15,017 1,051 4,889 166,352
---------- ----------- ------------- ----------- ----------
Deferred tax assets and liabilities are only offset where there
is a legally enforceable right of offset and there is an intention
to settle the balances net. All of the deferred tax assets were
available for offset against deferred tax liabilities and hence the
net deferred tax liability at 31 March 2021 was GBP167.2 million
(2020: GBP166.4 million).
The UK Government's Budget announcement to grant 130 per cent
super-deduction capital allowance for qualifying plant and
machinery (and 50 per cent allowance for special rate assets)
expenditure from 1 April 2021 provides greater incentive to boost
capital allowance availability to mitigate future tax charges.
In the March 2021 Budget it was announced that legislation will
be introduced in Finance Bill 2021 to increase the main rate of UK
corporation tax from 19 per cent to 25 per cent, effective 1 April
2023. As substantive enactment is after the balance sheet date,
deferred tax balances as at 31 March 2021 continue to be measured
at a rate of 19 per cent. If the amended tax rate had been used, we
estimate that the deferred tax liability would have been GBP49.4
million higher.
The deferred tax on temporary differences as at 31 March 2021
have been calculated using 19 per cent, the substantively enacted
rate for the periods during which the temporary differences are
expected to unwind.
Temporary timing differences
All temporary timing differences are recognised in the deferred
tax calculation. In the prior years to 31 March 2020, the available
additional allowances resulting from research and development
(R&D) expenditure in respect of qualifying tangible fixed
assets (TFA) were not included in the deferred tax calculation due
to the immaterial level. As our R&D claims have now increased,
we have now included the additional claims available in the
deferred tax calculations appropriately. The total amount of TFA
recognised in deferred tax asset for the year ended 31 March 2021
is GBP236,000 (all prior years: GBP348,000).
8. Dividends
2021 2020
GBP000 GBP000
Final dividend of 5.58p per ordinary
share (2020: 5.58p) per ordinary share
proposed and paid during the year relating
to the previous year's results 2,750 2,750
Special restructuring dividend of 276p
per ordinary share (2020: Nil) per ordinary 136,013 -
share paid during the year
Interim dividend of 5.58p per ordinary
share (2020: 5.58p) per ordinary share
paid during the year 2,750 2,750
Interim dividend of 5.58p per ordinary
share (2020: 5.58p) per ordinary share
paid during the year 2,750 2,750
Interim dividend of 5.58p per ordinary
share (2020: 5.58p) per ordinary share
paid during the year 2,750 2,750
147,013 11,000
---------- ---------
There were no dividends proposed for approval as at 31 March
2021 and 31 March 2020.
Group issued a special restructuring dividend of GBP136 million
in December 2020 to its parent company South East Water Holdings.
These funds were used by the parent company to repay its
intercompany loan to South East Water Limited on the same day
resulting in a net nil cash impact.
9. Earnings per share
2021 2020
GBP000 GBP000
Profit for the year from continuing operations 31,316 16,884
----------- -----------
2021 2020
Number Number
Basic and diluted weighted average number
of shares 49,312,354 49,312,354
----------- -----------
Basic and diluted earnings per share from
continuing operations 63.51p 34.24p
----------- -----------
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