TIDM53HO
RNS Number : 9732I
South East Water Limited
07 December 2022
South East Water Limited
Condensed group financial statements
for the six months ended 30 September 2022
Chair and CEO joint report
We are pleased to present our interim report for the six months
ended 30 September 2022. Our interim report and our company's
performance for this period is set against the backdrop of an
unprecedented summer.
We saw record-breaking temperatures exceed 40degC (104degF) for
the first time, the driest spell of weather in this country since
1975/76, and the driest July in Kent and Sussex since records
began, with just eight per cent of the average monthly
rainfall.
After one of the most challenging periods on record, we want to
thank everyone involved in our business and supply chain who has
gone above and beyond throughout the summer to keep taps flowing
for our customers.
While we deeply regret the disruption to water supplies
experienced by a small percentage of our customers in Kent and part
of Sussex, the sterling efforts of our teams meant that, despite
the exceptional conditions, only 0.7 per cent of our 2.3 million
customers suffered any interruption to their mains water supply
caused by the record levels of demand.
Our decision to implement a Temporary Use Ban (TUB) on 12 August
was not one we took lightly but was absolutely necessary to protect
water supplies and the environment. This was the first time we have
implemented a temporary use ban since 2012, which underlines the
seriousness of the situation we faced in the summer.
Our aim is always to ensure we will have enough water to supply
our customers, whatever the weather, and that's why our planning
for summer was critical.
We continually monitor the weather and prepared by making sure
all our assets were ready for the challenge and postponed any
planned activity that would reduce our capacity as well as ensuring
our field teams were ready and fully focused on maintaining
supplies.
From a very early stage, we emailed customers, posted water
efficiency advice on our social media channels and signposted
customers to our Water Latest webpage. Our large-scale
communications campaign continued throughout the summer and into
autumn.
Despite all our planning and preparation, the combination of
factors we experienced in the summer were unprecedented, and even
more severe than those experienced during the summer lockdowns of
the Covid-19 pandemic.
At the start of the dry conditions in June, our raw water stocks
were in a good position. Our challenge was to ensure we could treat
raw water quickly enough to keep up with customer demand.
Unfortunately as the summer developed and with very low levels of
rainfall, we became concerned about the impact on the environment
of abstracting more water.
Despite using multiple channels to ask initially for voluntary
restraint, demand for water remained very high and we still
received less than half of the average expected rainfall during
August. We had to take action to make sure we had drinking water
available for everyone, including for our vulnerable customers,
protect the environment and for essential uses (eg. hospitals).
The temporary use ban helped us to maintain essential supplies
for drinking and sanitation and gave us time to treat and pump more
water through the network. At the height of the summer, we were
pumping an extra 120 million litres of water a day around our
region - the equivalent of supplying a further four towns the size
of Maidstone or Eastbourne. The amount of water entering our
network hit a high of 697 million litres per day, compared to the
average daily amount of 530 million litres per day.
In the summer we saw more leaks and bursts reported to us than
ever before. In Kent and Sussex alone, we had nearly 2,000 reported
to us in just two months - an increase of 50 per cent. Leaks
increased due to ground movement around pipes during the very hot
weather and reports rose as the leaks became more visible in the
drier weather. Our communications campaign also increased awareness
among customers which prompted higher response levels.
It was a vast team effort, involving all our operational team
and supply chain, to record, investigate, prioritise and fix these
leaks as quickly as possible. Customer services advisers,
technicians, scheduling teams and repair gangs worked around the
clock to tackle the record number of reported leaks.
We have a proud track record of proactively tackling leaks and,
before the summer period, the number of leaks across our network
was at an all-time low. Since 2000/01, we have reduced leakage by
22 per cent, outperforming the target set by our regulator, Ofwat,
and we remain committed to halving leakage levels by 2050. Although
our downward trend has been impacted by the record-breaking number
of leaks this summer, we remain determined to find and fix more
leaks, using innovation and the latest satellite technology to do
so.
We successfully applied for a drought permit at Ardingly
Reservoir due to water resources being very low for the time of
year. This has enabled us to pump water into the reservoir from a
500-metre stretch of the River Ouse in West Sussex, under licence
from the Environment Agency.
However, due to the above average rainfall received from
September onwards, we have been able to lift the TUB on Wednesday
30 November. This decision was enabled by a combination of our
reservoirs refilling more quickly than expected and our aquifers
starting to recharge earlier. Our two biggest reservoirs at
Ardingly and Arlington in Sussex, which provide eight per cent of
all the water we supply to our region were 82 per cent and 47 per
cent full respectively by late November. At the same time the soil
moisture deficit, which indicates whether rainfall is reaching
underground aquifers was favourable - indicating an earlier than
expected commencement of winter recharge.
As a result of these significant operational challenges, our ODI
performance has been disappointing in the first half of the year.
The summer drought created significant demand in Kent which
resulted in supply interruptions. We expect to reach our penalty
collar for this ODI in 2022/23 of GBP3.2 million. A combination of
historical factors, including housing growth and investment
policies have resulted in a situation where our service is not as
resilient to this kind of drought as we believe it should be, and
our customers expect it to be. We are engaged in discussions with
DEFRA, Ofwat, the EA and DWI on how we can improve the resilience
of our service, particularly through further future investment.
The drought has also had an effect on a number of other ODIs.
Extended drought causes the ground to dry, crack and shrink. This
is particularly true in parts of the country such as South East
England that are rich in clay based soils. This movement damages
pipes buried in the ground and causes an increase in both leakage
and mains failures. The extended drought created a large backlog of
repairs, which we are now working our way through. We expect the
situation to be essentially recovered by the end of the year, in
terms of the integrity of our network. However, in the meantime we
have incurred more leakage and mains repairs than in a normal year,
and we are not certain at this point in the year whether or not we
will be able to recover our ODI scores to target by the end of the
year.
Our Water Quality ODIs are all ahead of target at the end of
September and we expect small levels of outperformance on 'taste
and odour'; 'appearance of water'; 'low pressure'; 'Priority
Services Register'; and household voids. We continue to work hard
to lead the industry on environmental stewardship and we remain on
target to deliver our WINEP (Water Industry National Environment
Programme) programme in both the year and the five year period.
At the same time as managing the unprecedented summer situation,
we have been developing our new water resources management plan
which water companies are required to do every five years. This
looks at how we'll keep your taps flowing over the longer term
(2025 to 2075) while striking the delicate balance of protecting
the environment and keeping bills affordable.
Due to the unique challenges we face here in the south east,
we're looking 50 years into the future with our plan, rather than
the standard 25 years. By doing this, we can make sure the work we
do now lays the best foundation for future generations. Our plan
outlines how we will invest GBP1.2 billion over the next 50 years
to drive down leaks, help customers reduce water use and build
large-scale infrastructure projects such as reservoirs, water
recycling plants and desalination schemes.
It also demonstrates how we will reduce the amount of water we
abstract from the environment by 158 million litres a day by 2050
to protect our precious natural environment, and how we will
support our customers to reduce demand for water through, for
example, smart metering and water efficiency initiatives.
We are grateful for all the support, feedback and collaboration
we have received across the region, and through the Water Resources
South East alliance, to complete our draft plan, which we will be
consulting on over the coming months, before publishing our final
plan in 2023.
We have seen this summer how water and the environment are
intrinsically linked. In April we became the first water company in
the UK to produce a draft 25-year Environment Plan, mapping out how
we will help to create a more resilient environment across all
parts of our operational area, now and into the long-term.
In April we also published the final version of our five-year
Drought Plan. Both documents have been created with widespread
community and stakeholder input from the outset.
A major focus area for us remains the way we can support our
customers, especially those who may need extra help. Our Priority
Services Register played a vital role in ensuring we were able to
protect our most vulnerable customers during the summer water
supply issues and registrations continue to rise.
We are proud of the collaborations we have formed with other
organisations and stakeholders to make sure we identify and support
customers who may be facing challenging circumstances.
This is critical work given the current cost of living crisis.
We have continued to promote our affordability schemes and taken a
sympathetic approach to arrears management in cases where customers
have been struggling to pay their water bills.
Even with the extraordinary challenges we've faced over the
summer, there have also been many positives during the first six
months of this financial year. Some of the headlines for each of
our company's four strategic pillars are summarised in this report.
These four themes help us focus on how we run our business today
and influence how we plan for the long-term future.
Results and key financial performance indicators
The results published in this statement summarise our
performance for the six months ended 30 September 2022. The
financial statements are prepared under International Financial
Reporting Standards ("IFRS") and incorporate the performance of
South East Water Limited and its subsidiary, South East Water
(Finance) Limited.
Revenue for the period was GBP137.8 million compared with
GBP130.8 million for the same period in the previous year. The
additional GBP7.0 million of revenue is due to tariff increases of
GBP4.6 million and the higher demand experienced during the summer
heatwave of GBP3.4 million. This has been offset by a reduction in
other sales of GBP1.0 million, with lower new connections income
and infrastructure income as a result of the slowdown in the
housing and construction industries in the current economic
environment.
Net operating costs, including bad debt, for the period to 30
September 2022 were GBP110.2 million, which is GBP16.4 million more
than the corresponding period last year. This increase has been
caused by a combination of weather events and the significant
increase in key elements of our cost base namely power and
chemicals.
The combined impact of Storm Eunice, the summer heatwave and the
application of TUBs has resulted in an additional cost of GBP4.9
million in the first half of the year. Additionally, recent high
inflation has led to significant increases in the cost of power
(GBP3.4 million) and chemicals and materials (GBP1.8 million).
Contractor and consultant costs, including reactive maintenance,
have increased by GBP2.7 million following last year's unusually
low burst numbers. Other increases include personnel costs of
GBP1.3 million, plus bulk supply and abstraction costs of GBP1.2
million.
Finance costs have increased from GBP23.2 million to GBP47.4
million. The increase of GBP24.2 million reflects higher indexation
costs on the four indexed linked loans of GBP21.9 million due to
sharp rise in inflation over the period. Additionally, cash
interest on the index linked loans have increased by GBP0.8
million, interest on the variable rate bank loan has increased by
GBP0.8 million due to the increase in SONIA and there is an
additional charge of GBP0.5 million on the fixed rate loan notes
issued in the second half of the last financial year. Other finance
charges increased by GBP0.2 million.
Interest receivable for the six months to 30 September 2022,
which comprises interest earned on bank deposits and returns on
pension scheme assets, was GBP0.9 million compared to GBP0.3
million in the prior year.
Loss before tax in the six month period was GBP12.7 million.
This compares to a profit before tax of GBP20.1 million in the same
period last year.
The group tax credit of GBP4.5 million in the period compares to
charge of GBP38.6 million for the same period last year. The
current tax charge in the period is nil. The deferred tax credit is
made up of deferred tax on the loss in the period and the deferral
of capital allowances for future use.
The prior year included a charge of GBP35.9 million for the
impact on deferred tax of the change in the tax rate from 19 per
cent to 25 per cent, which is effective from 1 April 2023.
The group has recorded a loss after tax of GBP8.2 million for
the six months to 30 September 2022. This compares to a loss after
tax of GBP18.6 million for the same period in the prior year. The
loss for the year is primarily due to the rise in finance costs as
a result of the sharp increase in inflation throughout the
reporting period.
The dividend paid for the six months ended 30 September 2022 of
GBP4.5 million is same as that paid in the corresponding period
last year and this represents a nominal dividend yield of 1.8 per
cent. The dividend is in line with our dividend policy and is lower
than Ofwat's view of what is a reasonable nominal dividend yield,
which is 4 per cent.
The cash generated from operations was GBP69.2 million for the
six months to 30 September 2022, down from GBP80.3 million for the
corresponding period last year. This reflects the reduction in
operating profit in the period.
The group has cash and cash equivalent balances of GBP21.3
million as at 30 September 2022. This compares to the balance of
GBP22.7 million as at 30 September 2021. During the period there
has been no movement on the revolving credit facility which remains
undrawn.
Going concern
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.
In preparing the financial statements the directors considered
the group's ability to meet its debts as they fall due for a period
of one year from the date of this report, especially in light of
the current economic uncertainty associated with various factors
including high inflation, pressures on household finances, supply
chain constraints and high power prices caused by Russia's invasion
of Ukraine.
The group's business activities together with the factors likely
to affect its future development were set out in the strategic
report included in the group's annual report for the financial year
ended 31 March 2022.
The group finances its working capital requirements through cash
generated from operations and committed facilities that can be
called upon as required.
The directors have assessed the going concern review that has
been completed for the group. That assessment considered the output
of the viability assessment for the year ended 31 March 2022 and
performance since that date compared with budget. The assessment
also took into account the material uncertainties that could affect
going concern, reported by the company's ultimate parent, HDF (UK)
Holdings Limited for the year ended 31 March 2022. The material
uncertainties in HDF have no effect on the going concern status of
the group nor on the ability of the group to carry out normal
operational activities.
In adopting the going concern basis of preparation for these
financial statements, the directors have considered the liquidity
position of the group, financial forecasts, stress testing of
principal risks and uncertainties and the impact of these stress
tests on committed funding facilities levels and applicable
covenants.
The directors have a reasonable expectation that the company has
sufficient resources to continue in operation for the foreseeable
future and therefore continue to adopt the going concern basis of
accounting in preparing the financial statements.
Trusted and reliable service
How we build trust in what we do and deliver a high-quality
service to our customers
-- The vast majority of our customers had no issues with their
water supply in the summer, despite record- breaking temperatures,
minimal rainfall, exceptional demand levels and unprecedented
reports of leaks caused by the very dry ground. In total, 0.7 per
cent of our 2.3 million customers regretfully experienced water
supply interruptions while 0.06 per cent of the one million
properties we supply suffered an interruption beyond 48 hours.
-- Our dedicated teams worked 24/7 to treat and pump record
amounts of water through our 9,000 milesof water mains and to
investigate, prioritise and fix leaks. In August we fixed 50 per
cent more leaks than planned.
-- We reallocated resources quickly from flushing operations to
optimise the effectiveness and speed of our incident response.
Regular meetings have helped us to tackle the backlog of work in
Kent, which was most affected by the summer incident.
-- Collaboration and communication have been strengthened with
neighbouring water companies who experienced similar challenges,
including supply chain issues. Securing fuel supplies and chemicals
to treat our raw water required a co-ordinated effort.
-- Away from the main summer incident, we continued our
satellite surveying programme to identify ground water composition
levels around 2,500km of our Kent pipe network. By overlaying our
pipe network on to the surveys, we can pinpoint other emerging
leaks to proactively tackle.
-- Our UKAS-accredited specialist laboratory at Farnborough in
Hampshire conducted more than 100,000 water quality tests in the
first half of the year, with 99.99 per cent passing the Drinking
Water Inspectorate's (DWI) stringent quality standards.
-- We have carried out more network pressure monitoring and
servicing than ever before, prior to reallocating teams to support
the summer demand response. Pressure changes can severely damage
pipes, causing leaks and breaks, so this work is necessary to drive
down leakage and prevent bursts.
-- Our multimillion-pound refurbishment of the Arlington water
treatment works safeguarded reliable water supplies for our Sussex
customers, with no reported outages during the drought.
-- We have performed strongly against the target and industry
average in the DWI's new Compliance Risk Index performance measure
in the first half of the year. This considers water quality
compliance failures at water treatment works and in domestic
household water plumbing (cause, location and customer impact). Our
Event Risk Index, based on the seriousness of an event, how it's
managed and its impact, is currently above our corporate target,
mainly due to the summer incident, but we continue to fare very
well against the industry average.
-- Repairs to our drinking water storage tanks in mid-Kent are
continuing following sinkhole damage in 2020. One reservoir cell
has been back in operation for over a year, one has been safely
demolished and the third, and largest, cell is being extensively
repaired to strengthen the structure. When complete in 2023, the
site will provide 14.6 million litres of drinking water a day.
-- The treatment process at Woodgarston is starting to benefit
from new GBP5.5 million nitrate removal equipment installed at the
treatment works to future-proof the water supply from forecasted
nitrate level increases in the area. We have also completed the
installation of ten new UV disinfection plants across our network
to make our disinfection process more resilient to parasites.
Thriving people
How we help the people who work with us to thrive
-- We are proud of our colleagues from across the business who
rose to every challenge during the difficult summer period,
demonstrating dedication, commitment, resilience and agility.
-- Welfare vehicles visited our frontline teams dealing with
incidents and handing out bottled water in affected communities.
This was a first for our company, providing a welcome pitstop with
refreshments, a toilet and rest facilities.
-- We held our first company wellbeing walks in June, aimed at
encouraging colleagues to take time out, while around 40 of our
more energetic colleagues have started a Couch to 5k running
group.
-- We are in the third year of our five-year people plan. Plans
are progressing for a new Foundation for Leadership programme for
line managers and a Leading for Change senior leadership
programme.
-- Our apprenticeship programme continues to thrive, offering
opportunities for new joiners but also for existing employees to
upskill. For the first time we are trialling apprenticeships in our
customer services department and, with our new intake, we will have
a 50/50 split between male and female apprentices. This new intake
of 20 apprentices will bring our total up to 56 apprentices.
-- We have launched a Domestic Abuse policy and also a Menopause
policy to provide support to colleagues and to encourage open and
honest conversations.
-- We relaunched our Staff Council in June, giving our employee
voice a higher profile and involving more people across the
business. Members of the council meet regularly to discuss staff
issues, including four times a year with our executive board.
-- Our safety committee has more representatives across more
areas of the business following a relaunch and we have a new safety
policy. Our executive board conducted a deep dive into health and
safety in April and we have re-started our pre-pandemic visible
leadership tours of operational and construction sites. In the
first six months of the year, we have had one reportable (RIDDOR)
incident and no other lost time injuries.
-- There has been a 225 per cent increase in the number of job
applications we receive per vacancy between June and September. We
are continuing to look at ways to attract top talent, and have used
social media channels, including LinkedIn and Facebook, for the
first time to promote our customer service vacancies.
-- Our wellbeing programme continues to go from strength to
strength. April marked the second anniversary of the launch of our
mental health first aiders (MHFA). We now have 42 MHFAs who have
been contacted 800 times in two years (including repeat contacts).
In addition, we have 37 wellbeing champions, and organise lunch and
learn sessions on a range of wellbeing issues. Our company intranet
now features a wellbeing hub too.
-- Our efforts to become a healthier place to work have resulted
in us receiving a bronze wellbeing award from Kent and Medway's
Healthy Workplace programme in recognition of the progress we are
making to support health and wellbeing at work.
Community and society focussed
How we understand and respond to the needs of society
-- 13,505 additional households (1.5 per cent) joined our
Priority Services Register (PSR) in the first half of the year. We
contacted vulnerable customers during the heatwave and
implementation of the temporary use ban (TUB) to proactively inform
them if they were exempt from the TUB. Almost 8,000 bottled water
drops were made to PSR customers who lost/risked losing supply. We
worked with councils to reach other 'at risk' customers.
-- We have successfully recertified our BSI18477: Inclusive
Service Provision standard and plan to join the first pilot group
of water companies transitioning to the new BS ISO 22458 Customer
Vulnerability standard. We were delighted to receive the Credit
Awards 2022 Vulnerable Customer Strategy of the Year (Creditor)
award in June.
-- To auto-enrol more customers onto support tariffs, we have
followed up our industry-first council datashare to join an
industry/Department for Work and Pensions project to help more
eligible customers access our affordability tariffs, without having
to apply. Our Trusted Partnership programme will support customers
during the cost-of-living crisis.
-- We have developed our East Grinstead Town Council partnership
to sponsor community events and promote our vulnerability,
affordability and water efficiency schemes. We have worked with
West Sussex County Council on environment-focussed water efficiency
messaging.
-- Take-up of free water-saving devices has more than tripled
since last year with nearly 209,000 devices given out in six
months, compared to more than 59,000 in the same period last year.
We are delivering water efficiency-focussed messaging and
supporting low-income families in partnership with Kent County
Council (KCC).
-- Issuing a million pieces of information about the summer
challenges led to more customers contacting us. Consequently, our
overall downward complaints trend suffered; complaints peaked at
400 in a month. Upfront communications, via email, social media and
My Account on our website, limited complaints. Investing in a fully
automated communications system in 2023 will enhance our incident
interaction with customers. 42 per cent of our customers now have
an online My Account, with registrations increasing by 108 per cent
since 2020. More customers are using My Account to track water use
and compare use to neighbours, download bills and manage
payments.
-- With KCC we have helped to lead the distribution of a
government hardship fund for those struggling with bills, with
GBP500,000 given to customers in Kent.
-- To better understand our customers' needs, we have joined
Centre for Sustainable Energy, Sustainability First, National
Energy Action and SCOPE to implement a key horizon scanning project
on vulnerability and affordability.
-- We published our annual performance report (2021/22) on a
dedicated interactive microsite in July to aid transparency and
accessibility.
-- To support the East Grinstead community impacted by Storm
Eunice, when UK Power Networks failures meant we couldn't pump/move
water into the area, we have distributed GBP100,000 to local
charitable and community groups. We are also distributing
GBP250,000 to parish councils affected by the summer demand
challenges as a goodwill gesture. Councils will redistribute to
local good causes. Furthermore, ten south east good causes received
GBP2,000 from our company Community Chest fund in May.
Flourishing environment
How we contribute to an environment that flourishes today and
tomorrow
-- In April we became the first UK water company to produce a
draft 25-year Environment Plan. This involved our largest ever
consultation exercise when we emailed 500,000+ customers and
stakeholders. We await feedback on our draft water resources
management plan (dWRMP24) and Water Industry National Environment
Programme (WINEP24) to ensure our final Environmental Plan is
reflective of our stakeholder and customer views.
-- We have prepared a Strategic Environmental Assessment (SEA),
a key part of our dWRMP24, covering our long-term planning for 2025
to 2075. This ensures we consider the environment at all stages of
the draft plan preparation.
-- In June we launched a water saving week campaign to support
the annual Waterwise water efficiency initiative with website,
social media and blog content.
-- We have continued to engage with farmers and landowners over
land management improvements and capital grant scheme applications.
We have agreed to fund a water harvesting/water efficiency pilot
project in the River Teise catchment, with support funding from
Catchment Sensitive Farming. Through our award-winning catchment
work, we have partnered with the Ouse and Adur Rivers Trust to
seed-fund the development of a catchment-wide strategy to tackle
Invasive Non-Native Species eg, Himalayan balsam, which impacts on
the River Ouse.
-- We successfully delivered more improvement schemes as part of
the WINEP than ever before and held three stakeholder workshops
across our regions to discuss environmental issues. This work will
underpin our next WINEP 2025 to 2035. Through the WINEP, we have
researched improvements to the habitat of numerous rivers and
streams and worked with local environmental groups and elected
stakeholders to discuss improvements to the River Darent in Kent
and Maidenhead Ditch in Berkshire. We have also installed river
habitat enhancements in a WINEP River Cuckmere pilot trial.
-- Our final five-year Drought Plan was published following
widespread consultation and Defra approval in May. This outlines
the actions we will take before, during and after periods of
drought to conserve water and secure supplies, while balancing the
needs of the environment.
-- A summer wart-biter bush cricket survey confirmed that the
reintroduced population has expanded and spread out across the Deep
Dean valley in East Sussex following a WINEP habitat restoration
project. Two sand martin nesting banks and nesting islands for
terns have been installed at the Wakehurst arm of Ardingly
Reservoir and we part-funded the release of almost 100 water voles
into the River Thames in Berkshire in a project led by Wild Cookham
and the Berks, Bucks and Oxon Wildlife Trust to increase
biodiversity and boost river health.
-- We have surveyed thousands of square kilometres of land near
the River Ouse, Cuckmere and River Stour using ultra-high
resolution aerial imagery to identify leaks on company-owned or
private water pipes. Our leakage and engagement teams use this
information to liaise directly with landowners about the leaks and
to offer other support (eg, water efficiency audits, rainwater
harvesting).
-- We continue to work with Sussex maize growers to trial
different ways of preventing soil and valuable nutrients reaching
rivers and groundwater. We plan to nearly double our funding for
farmers who sow grass on their fields during the autumn too.
-- Shortlisting is under way after we invited community groups
and businesses to express their interest in running new
recreational activities at Arlington Reservoir in East Sussex.
-- An introductory report outlining our catchment restoration
strategy and our flagship chalk stream project on the River Stour
has been prepared and will be published shortly.
Condensed group income statement
for the six months ended 30 September 2022
Six months Six months
ended 30 ended 30
September September
2022 2021
Note GBP000 GBP000
========================================== ======== ====================== ========================
Revenue 6 137,839 130,775
Bad debt (2,378) (2,128)
Net operating costs 8 (107,857) (91,691)
Other income 6 6,198 5,952
========================================== ======== ====================== ========================
Profit from operations 33,802 42,908
Finance income 9 890 345
Finance expense 9 (47,394) (23,194)
========================================== ======== ====================== ========================
(Loss)/profit before taxation (12,702) 20,059
Taxation 10 4,494 (38,631)
========================================== ======== ====================== ========================
Loss for the six months (8,208) (18,572)
==================================================== ====================== ========================
Other comprehensive income:
Items that will not be reclassified to the
income statement:
Net actuarial (loss)/gain on
pension schemes (11,348) 4,463
Deferred tax credit/(charge) on the net actuarial
(loss)/gain 1,959 (1,375)
==================================================== ====================== ========================
Other comprehensive (loss)/profit for the six
months (9,389) 3,088
==================================================== ====================== ========================
Total comprehensive loss (17,597) (15,484)
==================================================== ====================== ========================
Six months Six months
ended 30 ended 30
September September
2022 2021
Pence Pence
========================================== ======== ====================== ========================
Loss per share attributable to the ordinary
equity holders of the parent
====================== ========================
Basic and diluted 12 (16.64) (37.66)
========================================== ======== ====================== ========================
The notes form part of these financial statements.
Condensed group statement of financial position
as at 30 September 2022
Note 30 September 31 March 30 September
2022 2022 2021
GBP000 GBP000 GBP000
Assets
Non-current assets
Property, plant and equipment 14 1,692,091 1,678,147 1,653,840
Right of use assets 14 10,647 10,980 11,525
Intangible assets 13 8,152 8,294 8,624
Defined benefit pension surplus 49,001 57,346 41,653
================================== =========================== ============ ========= ============
1,759,891 1,754,767 1,715,642
=============================================================== ============ ========= ============
Current assets
Inventories 832 851 668
Trade and other receivables 15 94,104 84,037 88,821
Cash and cash equivalents 21,261 14,539 22,749
================================== =========================== ============ ========= ============
116,197 99,427 112,238
=============================================================== ============ ========= ============
Total assets 1,876,088 1,854,194 1,827,880
=============================================================== ============ ========= ============
Liabilities
Non-current liabilities
Trade and other payables 16 4,284 4,154 4,062
Loans and borrowings 17 1,148,687 1,120,478 1,044,540
Defined benefit pension liability 2,365 2,869 3,221
Deferred tax liability 222,416 228,790 220,122
Deferred income 3,974 4,315 3,235
================================== =========================== ============ ========= ============
1,381,726 1,360,606 1,275,180
=============================================================== ============ ========= ============
Current liabilities
Trade and other payables 16 122,993 99,851 102,997
Loans and borrowings 17 409 339 50,324
Deferred income 6,224 5,740 6,712
Provisions 7,489 8,314 10,375
================================== =========================== ============ ========= ============
137,115 114,244 170,408
=============================================================== ============ ========= ============
Total liabilities 1,518,841 1,474,850 1,445,588
=============================================================== ============ ========= ============
Net assets 357,247 379,344 382,292
=============================================================== ============ ========= ============
Issued capital and reserves attributable
to owners of the parent
Share capital 49,312 49,312 49,312
Revaluation reserve 215,608 217,906 219,922
Retained earnings 92,327 112,126 113,058
================================== =========================== ============ ========= ============
Total equity 357,247 379,344 382,292
=============================================================== ============ ========= ============
The financial statements were approved and authorised for issue
by the board of directors and were signed on its behalf by:
David Hinton Andrew Farmer
DIRECTOR
DIRECTOR
7 DECEMBER 2022.
7 DECEMBER 2022.
The notes form part of these financial statements.
Condensed group statement of changes in equity
for the six months ended 30 September 2022
Share Revaluation Retained Total
capital reserve earnings equity
Note GBP000 GBP000 GBP000 GBP000
========================================= ====== ============= ============ =========== ==============
At 1 April 2022 49,312 217,906 112,126 379,344
========================================= ====== ============= ============ =========== ==============
Comprehensive income for the six
months
Loss for the six months - - (8,208) (8,208)
Other comprehensive loss - - (9,389) (9,389)
========================================= ====== ============= ============ =========== ==============
Total comprehensive income for
the six months - - (17,597) (17,597)
Dividends 11 - - (4,500) (4,500)
Amortisation of revaluation reserve - (3,056) 3,056 -
Release revaluation reserve on disposals - (8) 8 -
Deferred tax on revaluation and
retained earnings transfers 1 - 766 (766) -
========================================= ====== ============= ============ =========== ==============
- (2,298) (2,202) (4,500)
========================================= ====== ============= ============ =========== ==============
At 30 September 2022 49,312 215,608 92,327 357,247
========================================= ====== ============= ============ =========== ==============
At 1 April 2021 49,312 235,774 130,741 415,827
========================================= ==================== ======== ======== ========
Comprehensive income for the six
months
Loss for the six months - - (18,572) (18,572)
Other comprehensive loss - - 3,088 3,088
========================================= ======== ========== ======== ======== ========
Total comprehensive loss for the
six months - - (15,484) (15,484)
========================================= ======== ========== ======== ======== ========
Dividends 11 - - (4,500) (4,500)
Amortisation of revaluation reserve - (3,056) 3,056 -
Release revaluation reserve on disposals - (9) 9 -
Deferred tax on revaluation and
retained earnings transfers 1 - 764 (764) -
Impact of deferred tax rate change - (13,551) - (13,551)
========================================= ======== ========== ======== ======== ========
- (15,852) (2,199) (18,051)
========================================= ======== ========== ======== ======== ========
At 30 September 2021 49,312 219,922 113,058 382,292
========================================= ======== ========== ======== ======== ========
All transactions relate to the equity holders of the group.
1 The movement between the revaluation reserve and retained
earnings arises from the depreciation and associated deferred tax
on the fair value uplift of assets at the time of transition to
IFRS.
Condensed group statement of cash flows
for the six months ended 30 September 2022
Six months Six months
ended 30 ended 30
September September
2022 2021
GBP000 GBP000
================================================ ==================== ======================
Cash flows from operating activities
Loss for the six months (8,208) (18,572)
Adjustments for
Depreciation and impairment of property, plant
and equipment 28,994 28,404
Amortisation of intangible assets including
impairment 1,487 1,432
Finance income (890) (345)
Finance expense 47,394 23,194
(Gain)/Loss on disposal of property, plant and
equipment (126) 67
Difference between pension contributions paid
and amounts recognised
in the income statement (2,791) (2,773)
Taxation on loss (4,494) 38,631
================================================ ==================== ======================
Movements in working capital: 61,366 70,038
Increase in trade and other receivables (10,248) (1,474)
Decrease in inventories 19 5
Increase in trade and other payables 18,095 11,730
================================================ ==================== ======================
Cash generated from operations 69,232 80,299
Interest paid (14,989) (14,048)
Interest received 148 345
Income tax paid (522) (518)
================================================ ==================== ======================
Net cash generated from operating activities 53,869 66,078
================================================ ==================== ======================
Cash flows from investing activities
Purchases of property, plant and equipment (41,320) (48,587)
Proceeds from disposal of property, plant and
equipment 159 143
Purchase of intangibles (1,345) (1,269)
Contributions to infrastructure assets received - (562)
================================================ ==================== ======================
Net cash outflow from investing activities (42,506) (50,275)
================================================ ==================== ======================
Cash flows from financing activities
Issue costs of debt (6) (66)
Credit facility repayment of borrowings - (80,000)
Loan notes issued - 50,000
Debenture redemption (1) -
Dividends paid to shareholders (4,500) (4,500)
Payment of lease liabilities (134) (105)
================================================ ==================== ======================
Net cash used in financing activities (4,641) (34,671)
================================================ ==================== ======================
Net cash increase/(decrease) in cash and cash
equivalents 6,722 (18,868)
Cash and cash equivalents at the beginning of
six months 14,539 41,617
================================================ ==================== ======================
Cash and cash equivalents at the end of the
six months 21,261 22,749
================================================ ==================== ======================
The notes form part of these financial statements.
Notes to the condensed group financial statements
for the six months ended 30 September 2022
1. Reporting entity
South East Water Limited (the 'company') is a limited company
incorporated in the United Kingdom. The company's registered office
is at Rocfort Road, Snodland, Kent, ME6 5AH. These consolidated
financial statements comprise the company and its subsidiary South
East Water (Finance) Limited (collectively the 'group'). The
group's principal activities are the supply of water to a
population of 2.3 million in an area of 5,700 square kms and the
provision of certain ancillary services for customers, developers
and other bodies within the limits of the relevant legislation.
2. Basis of preparation
The condensed consolidated financial statements for the six
months ended 30 September 2022, 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 UK endorsement board. The statements should be
read in conjunction with the financial statements for the year
ended 31 March 2022, which have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the UK endorsement board.
The condensed group financial statements are presented in
sterling.
These interim financial results have not been audited or
reviewed by our auditor. The information herein for the year ended
31 March 2022 does not comprise statutory accounts within the
meaning of section 434 of the Companies Act 2006. Statutory
accounts for the year ended 31 March 2022 were approved by the
Board of Directors on 14 July 2022 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.
3. Key judgements and sources of estimation uncertainty
The preparation of interim financial statements requires the
application of judgements and assumptions by management which
affects the value of assets and liabilities at the balance sheet
date and income and expenditure for the six months ended 30
September 2022. Actual results may differ from those arrived at
based on management's judgements and assumptions. In preparing
these condensed interim financial statements, the significant
judgements made by management in applying the group's accounting
policies and the key sources of estimation uncertainty were the
same as those applied to the Group Annual Report for the year ended
31 March 2022.
4. Going concern
The directors have, at the time of approving the financial
statements, a reasonable expectation that the group has adequate
resources to continue in operational existence for the foreseeable
future. The directors have considered the current economic
uncertainty and the impact that this might have on the business.
The directors have concluded that it is correct to continue to
adopt the going concern basis of accounting in preparing the
financial statements. Further details are provided in the Chair and
Chief Executive's joint statement.
Notes to the condensed group financial statements
for the six months ended 30 September 2022
5. Accounting policies
The accounting policies applied in these condensed interim
financial statements are the same as those applied in the last
annual financial statements for the year ended 31 March 2022.
6. Revenue and other income
Six months Six months
ended 30 ended 30
September September
2022 2021
GBP000 GBP000
======================= ==================== ======================
Revenue
Unmetered water income 10,294 10,233
Metered water income 122,561 114,556
Other sales 4,984 5,986
======================= ==================== ======================
Total revenue 137,839 130,775
======================= ==================== ======================
Other income
Rental income 625 624
Other income 5,573 5,328
======================= ==================== ======================
Total other income 6,198 5,952
======================= ==================== ======================
Total income 144,037 136,727
======================= ==================== ======================
Other sales comprise a number of income streams, including those
associated with activities typically performed for property
developers, which impact the group's infrastructure network assets,
including diversions works to relocate water assets, and activities
that facilitate the creation of an authorised connection through
which properties can obtain water services. Other sales includes
new connections income of GBP2.0 million (2021: GBP2.5 million),
infrastructure income of GBP0.7 million (2021: GBP1.3 million) and
capital contributions of GBP1.3 million (2021: GBP1.4 million).
Other income includes charges for billing and cash collection
services amounting to GBP3.5 million (2021: GBP3.5 million) and
laboratory income of GBP1.5 million (2021: GBP1.3 million).
Notes to the condensed group financial statements
for the six months ended 30 September 2022
7. Segmental analysis
Financial and other performance information is reported
internally every month to the South East Water Executive Committee.
The Executive Committee is responsible for the day to day running
of the business, and accordingly the Executive Committee is
considered to be the chief operating decision maker of the group
for the purposes of segmental reporting under IFRS 8: Operating
Segments. The Executive Committee considers that the Group's
activities largely fall into one main business segment, namely
Regulated Water, with all other activities included in "Other"
below. Regulated Water is the supply of potable water on a
wholesale and retail basis, both of which are governed by the Water
Act 2014.
A segmental analysis of the management results are presented
below together with a reconciliation to the statutory revenue and
profit before tax.
Regulated Other activities
water GBP000 Total
GBP000 GBP000
==================================== ========= ========================== =================
Six months to 30 September 2022
Water revenue 132,855 - 132,855
Other income 3,000 8,181 11,181
Net operating costs (77,965) (7,034) (84,999)
==================================== ========= ========================== =================
EBITDA 57,890 1,147 59,037
Depreciation and profit on disposal (30,331) - (30,331)
==================================== ========= ========================== =================
Company operating profit 27,559 1,147 28,706
==================================== ========= ========================== =================
Six months to 30 September
2021
Water revenue 124,790 - 124,790
Other income 3,717 8,221 11,938
Net operating costs (62,655) (6,148) (68,803)
================================== ======== ============ ========
EBITDA 65,852 2,073 67,925
Depreciation and loss on disposal (29,870) - (29,870)
================================== ======== ============ ========
Company operating profit 35,982 2,073 38,055
================================== ======== ============ ========
Notes to the condensed group financial statements
for the six months ended 30 September 2022
7. Segmental analysis continued
The water revenue on a management accounts basis above of
GBP132.9 million (2021: GBP124.8 million) compares with total
revenue on a statutory basis of GBP137.8 million (2021: GBP130.8
million). The difference is Other sales of GBP4.9 million (2021:
GBP6.0 million) (see note 6).
The business segments' management accounts operating profit is
reconciled to the group's statutory operating profit and profit
before tax as follows:
30 September 30 September
2022 2021
GBP000 GBP000
=============================================== ============ ============
Management operating profit 28,706 38,055
Results of South East Water (Finance) Limited
(1) - 1
Pension costs adjustment (2) 2,791 2,434
Additional loss on disposal of property, plant
and equipment (24) (36)
Capitalistion of new connections (3) 2,329 2,456
Other statutory adjustments - (2)
=============================================== ============ ============
Statutory profit from operations 33,802 42,908
Finance income 890 345
Finance expense (47,394) (23,194)
=============================================== ============ ============
Statutory (loss)/profit before taxation (12,702) 20,059
=============================================== ============ ============
1) The losses of South East Water (Finance) Limited are
consolidated into these financial statements but not included in
the finance reports presented to the Executive Committee
2) The internal finance reports include pension costs on the
basis of contributions paid whereas the financial statements
include pension costs on the basis of IAS 19 Employee Benefits
3) The internal finance reports record the costs associated with
new connections in operating costs but these costs are capitalised
as Property, Plant and Equipment in the financial statements
Notes to the condensed group financial statements
for the six months ended 30 September 2022
8. Net operating costs
Six months Six months
ended 30 ended 30
September September
2022 2021
GBP000 GBP000
===================================================== ==================== =====================
Employees benefits expenses 18,048 16,126
Asset expenses 30,355 29,903
Operating lease rentals:
Vehicles and office equipment 206 178
Land and buildings 7 8
Fee payable to group's auditor 219 239
Energy costs 13,800 9,708
Rates 9,233 9,235
Contractors 19,430 14,023
Bulk water supplies and abstraction licences 5,163 3,962
Chemicals 2,855 1,849
Insurance and related costs 2,047 1,600
Other 8,663 7,014
Other operating expenses charged to capital projects (2,169) (2,154)
===================================================== ==================== =====================
107,857 91,691
===================================================== ==================== =====================
9. Finance income and expense Six months Six months
ended 30 ended 30
September September
2022 2021
GBP000 GBP000
==================================================== ==================== ======================
Finance income
Interest receivable on bank balances and short-term
deposits 140 1
Net interest income on defined benefit assets 750 344
==================================================== ==================== ======================
Total finance income 890 345
==================================================== ==================== ======================
Finance expense
Effective interest on listed debt 7,231 6,964
Indexation on listed debt 12,559 5,048
Interest on index linked loans 6,958 6,437
Indexation on index linked loans 15,338 982
Other finance costs 6,133 5,039
Interest capitalised (825) (1,276)
==================================================== ==================== ======================
Total finance expense 47,394 23,194
==================================================== ==================== ======================
Interest is capitalised at the weighted average rate of interest
on the group senior long-term debt of
3.9 per cent (2021: 3.7 per cent).
Notes to the condensed group financial statements
for the six months ended 30 September 2022
10. Taxation
Six months Six months
ended 30 ended 30
September September
2022 2021
GBP000 GBP000
================================== ==================== ======================
Current taxation (credit)/charge (79) 663
Deferred taxation (credit)/charge (4,415) 37,968
================================== ==================== ======================
(4,494) 38,631
================================== ==================== ======================
The current tax charge is based on management's estimate of the
weighted average annual corporation tax rate expected for the
full financial year.
The total deferred tax is estimated to be a credit of GBP4.4 million.
This is due to the deferred tax on the loss for the period and
the deferral of capital allowances.
The rate of corporation tax used for the deferred tax calculated
at 25 per cent future corporation tax rate.
Factors that may affect future tax charges
From 1 April 2023, the corporation tax rate increases to 25 per
cent under the Finance (c.26) Act June 2021.
11. Dividends
Six months Six months
ended 30 ended 30
September September
2022 2021
GBP000 GBP000
================================================ ==================== ======================
Interim dividend of 4.6 pence (2021: 4.6 pence)
per Ordinary share paid during the six months
==================== ======================
2,250 2,250
Interim dividend of 4.6 pence (2021: 4.6 pence)
per Ordinary share paid during the six months 2,250 2,250
================================================ ==================== ======================
4,500 4,500
================================================ ==================== ======================
Notes to the condensed group financial statements
for the six months ended 30 September 2022
12. Earnings per share
Six months Six months
ended 30 ended 30
September September
2022 2021
GBP000 GBP000
=================================================== ==================== ======================
Loss for the six months from continuing operations (8,208) (18,572)
=================================================== ==================== ======================
Six months Six months
ended 30 ended 30
September September
2022 2021
Number Number
=================================================== ==================== ======================
Basic and diluted weighted average number of
shares 49,312,354 49,312,354
=================================================== ==================== ======================
Basic and diluted loss per share from continuing
operations (16.64p) (37.66p)
=================================================== ==================== ======================
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END
IR BRBDDIDGDGDR
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