TIDM53HO
RNS Number : 7250W
South East Water Limited
13 December 2019
South East Water Limited
Condensed group financial statements
for the six months ended 30 September 2019
Chairman's introduction
I am pleased to present our interim report for the six months
ended 30 September 2019.This is the last year of the 2015 to 2020
investment period known as AMP6. Our business activities during the
first half of the 2019-20 financial year have focused on
preparations for the start of a new five year period, AMP7,
starting in April 2020, together with long-term planning for the
management of water resources over a 60 year time horizon.
At the same time the business continues with day-to-day
activities relating to our provision of a first class drinking
water service to our customers, further developing support for
vulnerable customers and delivery of a number of ground-breaking
environmental initiatives.
A resilient service for the future
Our five year business plan for the period 2020 to 2025 was
published in September 2018, and has been subject to extensive
scrutiny and challenge by Ofwat, firstly through its Initial
Assessment of Plan (IAP) in January 2019 and more recently in July
2019 when it announced its Draft Determination.
On 30 August we issued our response to Ofwat's Draft
Determination in which we provided further evidence in support of
our business plan. - southeastwater.co.uk/businessplan.
We consider this to be the most ambitious business plan South
East Water has ever produced. It challenges us to deliver
performance levels well beyond anything we have achieved
historically at an efficient cost. The performance commitments we
have set ourselves are very challenging, especially as we operate
in a region that is in serious water stress with a growing
population.
Ofwat's Final Determination is expected on 16 December 2019 and
following this the Board will complete a detailed review of their
decision.
Planning water resources through to 2080
For the longer term, our water resource management plan
(WRMP19), sets out how we plan to secure water supplies for today's
and tomorrow's customers, from 2020 to 2080. Our plan was one of
the first to be approved by the Secretary of State, and the final
plan was published on our website in August.
The plan sets out our estimate of the amount of water our
customers will need, and what we will need to do - where and by
when - to meet those future water needs. The plan balances the
needs of our customers and the needs of the broader environment in
the most economic way.
In the plan we build on our industry leading leakage reduction
strategy, targeting a further 15 per cent reduction by 2025, and
plan to halve leakage levels by 2050. The innovation and dedication
behind our approach to leakage over the years means we are starting
in a good position. This includes using the latest technology
available, such as satellite and advanced data analysis, to drive
leakage down further (see below for further details of activities
this period).
Reducing per capita consumption by nine per cent by 2025 is
another key element of the plan which will require behavioural
changes in how customers use water as well the development of more
water efficient household appliances and how houses are designed to
better conserve water.
By fully participating in the Water Resources in the South East
(WRSE) Group we have developed a plan that ensures we continue to
share resources across the region. We have a final plan that is
resilient to a forecast one in 200 year drought event.
Many stakeholders and individuals have contributed significant
time towards the development of the plan. We wish to extend our
thanks to: the members of our Environmental Scrutiny Group,
Customer Challenge Group, the WRSE group for their valued input and
challenge; to individuals and stakeholders who met with us during
the public consultation; to those customers who were involved in
our customer research; and to everyone who took the time to make a
formal representation and provide feedback on our plan. -
southeastwater.co.uk/wrmp19
In the short-term our resources are in a good position, as so
far the winter recharge period of 2019/20 has seen above average
rainfall enabling our reservoirs and groundwater sources to
replenish during October and November. The team will continue to
monitor our resources carefully as we head towards summer 2020 and
we continue to work closely with our customers to encourage water
efficiency whatever the weather.
Valuing water through engagement and innovation
We continue to be an industry leader in reducing leakage and
engaging customers on the value of water.
South East Water has met its leakage target for more than 10
years in a row, but we are not complacent and are committed to
using the latest, most innovative technology to drive leakage down
further. An example of our ambition is the significant progress
made during this period in our Smart Water Network trial which
could revolutionise the way the water industry detects and prevents
leaks and reduces interruptions, hence reducing the amount of water
we take from the environment and increasing the resilience of the
service we provide to our customers.
We have been using an innovative partnership approach with nine
specialist organisations to collect data for analysis from digital
water meters at 2,000 homes in a trial area, as well as information
from other network sensors. In this trial we are the first water
company in the UK to be using the 5G network as a key component to
collect higher volumes of data, and then analysing this data to
provide a centralised view of the digital network.
We are now assessing the success of the preliminary stages of
the trial.
At the end of July we joined a national "Love Water" campaign
aimed at engaging everyone on the value of water. Supported by more
than 40 environmental groups, charities, water companies and
regulators, the consumer campaign, as part of the Government's Year
of Green Action, highlights the importance of water and the role
everyone plays in protecting it. We are pleased to support Love
Water as, being guardians of the environment, we work hard to
protect our water supply in our region where water is scarce.
Engineering excellence to ensure a resilient service
During the last six months we have made significant progress in
the construction of the company's largest 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 civil works used innovative
precast concrete building techniques to help deliver the project
build quickly and safely. To date the project has seen 150,000 man
hours worked with no accidents. The project team is now completing
the electrical installations and testing and hydraulic testing of
the 750,000 litre Granular Activated Carbon (GAC) filter unit
before final commissioning - the project is anticipated to complete
by spring 2020.
In Kent, we are preparing to install a new 2.9km trunk main
through the centre of Sevenoaks to meet growing demand,
supplementing the existing 12-inch diameter pipe laid in Sevenoaks'
High Street in the 1950s. Over the last six months there has been
extensive customer and stakeholder engagement to ensure we
developed the best route for the work to minimise disruption to the
environment and community. In September we published the preferred
route and are now making preparations during the winter period so
work can begin in the spring.
Clancy Docwra have been employed as our Network Maintenance
Contractor for the past eight years, with responsibilities
including reactive network repairs and maintenance and planned
mains renewals. As such they are a key partner in the success of
our operations. This contract expires in April 2020 and we have
undertaken a full competitive tender process for the equivalent
contract covering the next five years, with an option for an
additional 3 years. The specification for this GBP50 million a year
Contract put even greater emphasis on collaboration, innovation and
supporting our responsible business objectives. After a rigorous
evaluation of the tenders, Clancy Docwra emerged as the winning
bidder and we look forward to the continuation of our successful
partnership.
Responsible business values
The company has made significant steps in building our
Environmental, Social and Governance (ESG) framework during the
year aiming to be recognised as a leading responsible business.
Within the new business plan we have developed a responsible
business strategy with 10 new responsible business commitments to
reflect the actions and behaviours customers expect a responsible
business to display
Environmental
Innovation is a recurring theme across everything our
environmental team is involved in. As a water company we are
intrinsically linked to the environment. Our innovative approaches
to how we protect and care for our raw water supplies has been
recognised as leading the industry and the partnership working
approach we have developed, such as our Catchment Sensitive Farming
programme with Natural England, is an integral part of how our team
operates.
Examples of the work include a pesticide amnesty project which
enabled the safe removal of over a tonne of unused and out-of-date
pesticides from farms in Kent facilitating the anonymous, safe
disposal of agricultural chemicals from 23 farms across three
catchments.
Our unique Woodgarston Markets project is a farmer-led concept
that aims to explore opportunities for new markets and sustainable
farming practices, while also delivering wider environmental
improvements and social benefits. 78 per cent of land holdings
within the catchment have actively engaged with the Woodgarston
Markets project.
Both of these examples have recently received a prestigious
Green Apple Award, run by The Green Organisation - an independent,
non-political, non-profit environment group dedicated to
recognising, rewarding and promoting environmental best practice
around the world.
Our StAR (Slaugham to Ardingly) project in partnership with the
Ouse and Adur Rivers Trust (OART), has recently been awarded
GBP250,000 from the government's Water Environment Grant. This
grant provides funding for schemes that can be shown to restore
local eco-systems and deliver substantial benefits to people and
the environment.
A key focus of our environmental work comes under the Water
Industry National Environment Programme (WINEP) - a statutory
programme for environmental improvement schemes that all UK water
companies must comply with. Several years of studying the
biodiversity of land within which our company assets lie led to the
development of 10 pilot projects to enhance the biodiversity,
focussed on priority habitats and species.
These projects, which are due to complete by March 2020, include
the restoration of rare chalk grassland, the creation of feeding
areas for turtle doves and removing invasive non-native species. We
have recently produced a booklet summarising each of the 10 pilot
projects, which cover a total area of approximately 78 hectares
across Sussex and Hampshire, the work we are undertaking and how we
are working towards achieving our target and the exciting successes
we've achieved to date. This is available on our website -
corporate.southeastwater.co.uk/about-us/our-environment/protecting-the-environment
This year we completed the delivery of our Eel Regulations
project and we are one of the first water companies in the industry
to have all of our intakes Eel Regulation compliant.
By the end of May, all five identified screens had been
installed and were operating automatically. In June, the screens
were inspected by the Environment Agency (EA) who were satisfied
with the work and issued a certificate of compliance.
The company is now preparing for the delivery of our 2020 to
2025 WINEP (Water Industry National Environment Programme) which is
double the size of our existing programme including 44 groundwater
schemes to be delivered by 2022. This work will investigate the
sources that are leading to increasing nitrate levels in raw
groundwater.
Social
In 2018 we achieved accreditation to BSI 18477, the prestigious
British Standards Institute (BSI) standard for supporting
vulnerable customers, South East Water was the first water company
to achieve this accreditation and we have now retained this
certification for another year.
As well as a range of tariffs to make bills affordable for all,
we have also published a Vulnerability Strategy. The strategy was
launched at a stakeholder event, attended by more than 60
representatives from companies and support agencies. The day
included case studies, networking sessions and marketplace-style
stands to promote services, schemes and future events.
As part of our Thrive365 strategy for health, safety and
wellbeing the company has trained 16 employees from across the
business to be mental health first aiders. Everyone trained now
wears a yellow lanyard so it is clear they are available for anyone
in the company to talk to. This is just one part of a full mental
health strategy that has been developed during the year and
recently launched to managers in November at a conference for more
than 200 employees. The conference had a number of speakers
including from Mind and the Health and Safety Executive (HSE). A
strong message was given by mental health ambassadors, Clarke
Carlisle the former professional footballer and his wife Carrie,
who gave an open and thought-provoking account of their own
experiences. Feedback from all who attended has been very positive
and an important step in the company continuing to put mental
health on a par with physical health.
We continue to build career progression programmes for our
employees through the development of the "Our Talent" programme.
The programme has been designed following engagement with employees
which concluded that clearer personal development routes were
needed. This year more than 60 employees went through an additional
process that runs alongside the annual iReview in order to assess
high performance and high potential.
Supporting the development of women at South East Water, we are
proud to have become the first water company to sponsor the Women's
Utilities Network (WUN), an organisation dedicated to encouraging
greater industry diversity and better careers progression for women
in the utilities sector. Founded in 2017, the aim of WUN is to give
women the skills and confidence they need to build lasting,
fulfilling careers in the utility sector. As sponsors we will be
active participants in events and mentoring programmes organised by
WUN - sharing its expertise, helping to create role models and
conveying the benefits of a more diverse workforce in the water
industry and utility sector as a whole.
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.
Trusted corporate governance is one of the 10 responsible
business commitments made as part of our business plan for 2020 to
2025. All 10 commitments are being governed through a new
Board Sub-Committee which has been established specifically with
the purpose of providing assistance to the Board in defining South
East Water's strategy relating to Environment, Social, Governance
(ESG) matters and in reviewing the practices and initiatives
relating to ESG matters ensuring they remain effective and up to
date.
One way we are monitoring progress against our strategy is
through GRESB, a global benchmarking of ESG practice. We are
pleased to report that South East Water obtained five stars in the
2019 GRSEB survey, the highest possible rating, and increased our
standing with a score of 81 out of 100.
Preparations for the exit of the UK from the European Union
continues. The main areas of potential concern for us are the
availability of critical chemicals currently supplied from Europe
and the impact on traffic in Kent. Throughout the year we have been
making contingency plans for this evolving issue working closely
with Government, our suppliers and other water companies to ensure
the consequences of the various exit scenarios have minimal impact
on our services.
Leadership changes
Earlier in the year, Paul Butler, Managing Director, advised the
Board of his intention to retire at the end of July next year. The
Board is pleased to announce that David Hinton, currently Asset and
Regulation Director, will be his successor. Paul's departure is
still some way off and he will continue to lead the business
through our assessment of the Final Determination and into the new
financial year.
In December 2019, Rachel Drew joined the Board as Non-Executive
Director to replace Stephen Jordan, who stepped down from the
Board. Rachel represents one of our shareholders and on behalf of
the Board I would like to thank Stephen for his service since
joining the Board in August 2018.
Results and key financial performance indicators
The results published in this statement summarise our
performance for the six months ended 30 September 2019. 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 GBP122.8 million compared with
GBP120.7 million for the same period in the previous year. The
increase of GBP2.1 million is due to the allowed average price
increase of 5% which is offset by lower household demand in the
period when compared to the hot summer of 2018 and the effect of
the customer transfers to measured supply through the metering
programme.
Net operating costs for the period to 30 September 2019 were
GBP84.5 million, which is GBP1.6 million higher than the
corresponding period last year. Depreciation was GBP1.1 million
higher due to the continued high investment in the group's assets.
Additionally, there was GBP0.5 million of other inflationary costs,
including a 3% pay award for staff, and Brexit preparation costs of
GBP0.3 million.
Finance costs have marginally increased from GBP25.8 million to
GBP25.9 million. This is due to increased indexation on our loans
and bonds due to slightly higher inflation during the period to 30
September 2019.
Profit before tax was GBP19.9 million compared with GBP19.5
million for the same period last year. This represents 16.2 per
cent of revenue, the same as the corresponding period last
year.
The group has incurred a tax charge of GBP1.9 million in the
period compared to GBP2.8 million for the period to 30 September
2018, being GBP1.1 million of current tax on our ordinary
operations and GBP0.8 million of deferred tax. The lower tax charge
in the current period is due to the change in the tax treatment of
the revaluation reserve in the prior year which resulted in a
one-off adjustment to deferred tax.
As a result of the above, profit after tax has increased from
GBP16.7 million to GBP18.1 million for the six months ended 30
September 2019.
The dividend for the six months ended 30 September 2019 of
GBP5.5 million is significantly less than the GBP14.0 million paid
in the same period last year and represents a nominal dividend
yield of two 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 five per cent.
Net cash generated from operations was GBP77.8 million for the
six months to 30 September 2019 compared to GBP79.4 million in the
same period for the previous year. This is primarily caused by the
delay in receiving capital contributions and new connections income
following the change by Ofwat which means these funds are no longer
received in advance of the work being performed. This has been
partially offset by strong water income collections from
customers.
In September we successfully refinanced our GBP311.5 million
debt which matured on 30 September 2019. The funding was secured to
repay the maturing debt in three tranches; A GBP120m floating rate
bank loan was secured in December 2018 and drawn in September 2019,
GBP175m of fixed rate debt was raised on the US private placement
market in March 2019 and GBP54m was invested by our parent company
South East Water (Holdings) Limited through the partial repayment
of an intercompany loan in line with our Business Plan commitment.
The excess of funds raised was used to reduce borrowing on our
revolving credit facility.
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 2018/19 financial year, 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 2020 we will be focussed
on closing out the current business plan and ensuring South East
Water is in a good position to start the next five year investment
period in April 2020. We look forward to working with the support
of our employees, partners, supply chain and all stakeholders in
these preparations.
On behalf of the Board I would like to thank all the employees
and business partners at South East Water for their dedication and
hard work over the last six months. The team continues to embrace
innovation and change in order to keep delivering great customer
service. We are proud of their efforts to ensure South East Water
is not only maintaining an excellent water service, but that we do
so as a responsible business committed to ensuring a resilient and
sustainable future for the community and environment we serve.
Nick Salmon
Chairman
13 December 2019
Condensed group income statement
for the six months ended 30 September 2019
Six months Six months
ended ended
30 September 30 September
2019 2018
Notes GBP000 GBP000
Revenue 4 122,818 120,650
Impairment losses on trade receivables 5 (1,590) (1,588)
Group net operating costs 5 (84,544) (82,952)
Other income 4 6,060 6,320
Group operating profit 42,744 42,430
Finance costs 6 (25,859) (25,767)
Finance income 7 3,038 2,860
Profit before taxation 19,923 19,523
Taxation 8 (1,851) (2,812)
-------------- --------------
Profit for the period from continuing
operations 18,072 16,711
-------------- --------------
Discontinued operations
Profit on discontinued operations - 8,255
Profit for the period 18,072 24,966
-------------- --------------
Earnings per share
Basic and diluted from continuing
operations 36.65p 50.63p
-------------- --------------
Condensed group statement of comprehensive income
for the six months ended 30 September 2019
Six months Six months
ended ended
30 September 30 September
2019 2018
GBP000 GBP000
Profit for the period 18,072 24,966
-------------- --------------------
Items not reclassified subsequently to
profit or loss:
Remeasurement of defined benefit surplus 11,666 1,534
Deferred tax on defined benefit pension
schemes (1,983) (262)
9,683 1,272
-------------- --------------------
Total comprehensive income for the period
attributable to owners of the company 27,755 26,238
-------------- --------------------
Condensed group statement of financial position
as at 30 September 2019
31
30 September March 30 September
2019 2019 2018
Notes GBP000 GBP000 GBP000
Non-current assets
Intangible assets 10 10,703 10,501 11,137
Property, plant and equipment 11 1,580,566 1,555,123 1,528,087
Amount due from parent
undertaking 135,941 189,911 189,918
Defined benefit pension
surplus 40,178 25,564 25,086
1,767,388 1,781,099 1,754,228
------------- ------------ ---------------------
Current assets
Inventories 640 592 334
Trade and other receivables 12 87,318 86,190 77,314
Cash and cash equivalents 12,787 12,804 26,082
100,745 99,586 103,730
------------- ------------ ---------------------
Total assets 1,868,133 1,880,685 1,857,958
------------- ------------ ---------------------
Current liabilities
Loans and borrowings 13 (15,000) (254,890) (219,782)
Derivative financial instruments - (108,836) (105,143)
Trade and other payables 14 (103,900) (92,263) (119,806)
Deferred income (5,238) (7,183) (6,714)
Provisions (3,742) (3,972) (2,495)
(127,880) (467,144) (453,940)
Non-current liabilities
Loans and borrowings 15 (1,017,728) (717,604) (708,324)
Trade and other payables 15 (5,312) (5,379) (5,791)
Net deferred tax liabilities (148,106) (145,395) (142,895)
Defined benefit pension
liability (3,126) (3,154) -
Deferred income (4,902) (3,185) (3,690)
(1,179,174) (874,717) (860,700)
------------- ------------ ---------------------
Total liabilities (1,307,054) (1,341,861) (1,314,640)
------------- ------------ ---------------------
Net assets 561,079 538,824 543,318
------------- ------------ ---------------------
Equity
Ordinary share capital 49,312 49,312 49,312
Revaluation reserve 248,711 251,259 253,820
Retained earnings 263,056 238,253 240,186
------------- ------------ ---------------------
Total equity 561,079 538,824 543,318
------------- ------------ ---------------------
The notes on pages 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 2019
Issued Revaluation Retained
share capital reserve earnings Total equity
GBP000 GBP000 GBP000 GBP000
At 1 April 2019 49,312 251,259 238,253 538,824
--------------- -------------- ---------- -------------
Profit for the period - - 18,072 18,072
Other comprehensive income - - 9,683 9,683
Total comprehensive income - - 27,755 27,755
Dividends (see note 9) - - (5,500) (5,500)
Amortisation of revaluation
reserve - (3,064) 3,064 -
Release revaluation on disposals - (5) 5 -
Deferred tax on reserve
releases - 521 (521) -
At 30 September 2019 49,312 248,711 263,056 561,079
--------------- -------------- ---------- -------------
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 - - 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 9) - - (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
--------------- ------------ ---------- -------------
Condensed group statement of cash flows
for the six months ended 30 September 2019
Six months Six months
ended ended
30 September 30 September
2019 2018
Notes GBP000 GBP000
Operating activities
Net cash flow from operating activities 77,757 79,432
Interest received 2,656 2,541
Interest paid (22,043) (9,122)
Tax received 56 -
Group tax relief paid - (652)
Net cash flow before investing and
financing activities 58,426 72,199
-------------- --------------
Investing activities
Proceeds from sale of property,
plant and equipment 79 639
Purchase of property, plant and
equipment (49,216) (47,224)
Purchase of intangible assets (1,633) (1,927)
Proceeds from sale of non-household
customer base - 9,658
Fixed asset contributions received 476 388
Net cash flow used in investing
activities (50,294) (38,466)
-------------- --------------
Financing activities
Net proceeds from Issue of new loans 292,187 (179)
Repayment of borrowings (294,836) -
Dividends paid to shareholder 9 (5,500) (14,000)
Net cash flow used in financing
activities (8,149) (14,179)
-------------- --------------
(Decrease)/Increase in cash and
cash equivalents (17) 19,554
Cash and cash equivalents at 1 April 12,804 6,528
-------------- --------------
Cash and cash equivalents at 30
September 12,787 26,082
-------------- --------------
Group cash flow from operating activities
for the six months ended 30 September 2019
Six months Six months
ended ended
30 September 30 September
2019 2018
GBP000 GBP000
Profit on operating activities 42,744 42,430
Adjustments for:
Depreciation and impairment of property,
plant and equipment 25,408 24,184
Amortisation and impairment of intangibles 1,431 1,548
Profit on disposal of fixed assets (51) (330)
Difference between pension contributions
paid and amounts recognised in the income
statement (2,647) (2,016)
Changes in working capital:
Increase in trade and other receivables (1,442) (1,049)
Increase in inventory (48) (98)
Increase in trade and other payables 12,362 14,763
-------------- --------------
Net cash flow from operating activities 77,757 79,432
-------------- --------------
Notes to the condensed group financial statements
for the six months ended 30 September 2019
1. Basis of preparation
The condensed group financial statements for the six months
ended 30 September 2019 are set out below, 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 2019, 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 herein for the year ended 31 March
2019 does not comprise statutory accounts within the meaning of
section 434 of the Companies Act 2006. Statutory accounts for the
year ended 31 March 2019 were approved by the Board of Directors on
15 July 2019 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 in these condensed group
financial statements are consistent with those of the financial
statements for the year ended 31 March 2019 as described in those
financial statements except for the changes brought about by the
adoption of IFRS 16 Leases ("IFRS 16") on 1 April 2019, which are
detailed below.
The annual rents for these leases were previously charged to the
income statement as operating costs under IAS 17 Leases ("IAS 17").
From 1 April 2019, right of use assets have been recognised under
property, plant and equipment at an initial value of GBP3.1 million
and the corresponding lease liabilities have been recognised as
financial liabilities of the same value.
The initial values of the right of use assets and corresponding
liabilities on adoption of IFRS 16 were calculated as the present
value of future lease payments under the relevant lease contracts.
Under the modified retrospective approach adopted by the group, the
discount rates used reflect the interest rates at which the group
would currently be able to borrow in order to finance similar
assets to those under the leases affected by the transition (the
incremental borrowing rate).
The company has recently entered into loan facilities at fixed
rates and with weighted average repayment maturities comparable
with the lengths of the leases affected by this transition. It was,
therefore, decided that the interest rates attached to the new
facilities were appropriate proxies for the incremental borrowing
rates to be applied in calculating the present value of the future
lease liabilities, as follows:
-- lease length of zero to ten years remaining on transition - 2.94%
-- lease length of ten to twenty years remaining on transition - 3.22%
3. Transition disclosures
The group has adopted IFRS 16 in the period. Details of the
impact of the adoption of this Standard are provided below.
IFRS 16 is effective for periods commencing on or after 1
January 2019 and has been adopted by the group for the year ending
31 March 2020. For lessees, IFRS 16 removes the distinction between
operating and finance leases and requires the recognition of right
of use assets and corresponding liabilities, equating to the
present value of the future lease payments. The group currently
holds the following operating leases which meet the criteria under
IFRS 16 for such recognition.
Values
of assets
Annual and liabilities
rent on adoption
Leased asset Start date End date GBP000 GBP000
Laboratory at Farnborough 22 May 2015 21 May 2035 195 2,466
Unit at Brooke House,
Larkfield 8 Aug 2018 7 Aug 2021 19 43
Water Tower at Blackhill,
Camberley 19 Jan 2004 14 Jun 2022 17 52
Offices at Leithrim House,
Larkfield 4 Apr 2018 4 Apr 2028 67 537
-------- -----------------
298 3,098
-------- -----------------
IFRS 16 has been adopted using the modified retrospective method
which has led to the accumulated historical adjustments being made
to opening balances at 1 April 2019.
The impact of the adoption of IFRS 16 on the Group's financial
statements in the period has been:
Condensed group income statement
30 September Adjustment 30 September
2019 pre for the adoption 2019 post
IFRS 16 of IFRS 16 IFRS 16
GBP000 GBP000 GBP000
Revenue 122,818 - 122,818
Group net operating costs (86,155) 21 (86,134)
Other income 6,060 - 6,060
Group operating profit 42,723 21 42,744
Finance costs (25,810) (49) (25,859)
Finance income 3,038 - 3,038
Profit before taxation 19,951 (28) 19,923
Taxation (1,846) (5) (1,851)
------------- ------------------- -------------
Profit for the period 18,105 (33) 18,072
------------- ------------------- -------------
Adoption of IFRS 16 has resulted in the net adjustment to net
operating costs of GBP21,000. This represents the removal of the
rental charges of GBP145,000 offset by the depreciation change of
GBP124,000 on the right to use assets, which have been included in
the balance sheet at 1 April 2019.
4. Total income
Six months Six months
ended ended
30 September 30 September
2019 2018
GBP000 GBP000
Revenue
Unmetered water income 10,379 13,414
Metered water income 105,291 100,437
Other sales 7,148 6,799
-------------- --------------
Total revenue 122,818 120,650
-------------- --------------
Other income
Rental income 623 636
Sundry income 5,437 5,684
-------------- --------------
Total other income 6,060 6,320
-------------- --------------
Total income 128,878 126,970
-------------- --------------
All revenue is from customers within the United Kingdom.
5. Net operating costs
Six months Six months
ended ended
30 September 30 September
2019 2018
GBP000 GBP000
Employee benefits expenses 15,550 15,353
Asset expenses 26,788 25,402
Other operating expenses 42,206 42,197
-------------- ----------------------
84,544 82,952
Impairment losses on trade receivables 1,590 1,588
86,134 84,540
-------------- ----------------------
6. Finance costs
Six months Six months
ended ended
30 September 30 September
2019 2018
GBP000 GBP000
Effective interest on listed debt 11,568 11,371
Fair value movements on interest
rate swap 2,713 974
Indexation on listed debt 2,481 2,908
Interest on index linked loans 6,184 6,032
Indexation on index linked loans 2,188 4,208
Other finance costs 2,197 1,317
27,331 26,810
Less: interest capitalised (1,472) (1,043)
-------------- --------------
25,859 25,767
-------------- --------------
7. Finance income
Six months Six months
ended ended
30 September 30 September
2019 2018
GBP000 GBP000
Interest receivable from group undertakings 2,599 2,490
Pension fund finance credit 319 314
Interest receivable on bank balances and
short term deposits 120 56
3,038 2,860
-------------- --------------
8. Taxation
Six months Six months
ended ended
30 September 30 September
2019 2018
GBP000 GBP000
Current taxation charge 1,123 262
Deferred taxation charge 728 2,550
1,851 2,812
-------------- -------------------------
The current tax charge is based on management's estimate of the
weighted average annual corporation tax rate expected for the full
financial year.
9. Dividends
Six months Six months
ended ended
30 September 30 September
2019 2018
GBP000 GBP000
Equity dividends paid during the period
of 11.2p per share (2018: 28.4p) 5,500 14,000
-------------- --------------
10. Intangible assets
GBP000
Net book amount
At 1 April 2019 10,501
Additions for the period 1,633
Reclassification of assets in the period -
Amortisation for the period (1,431)
--------
At 30 September 2019 10,703
--------
Net book amount
At 1 April 2018 10,758
Additions for the year 4,067
Reclassification of assets in the period (1,069)
Amortisation for the year (3,129)
Impairment for the year (126)
--------
At 31 March 2019 10,501
--------
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
--------
11. Property, plant and equipment
GBP000
Net book amount
At 31 March 2019 1,555,123
IFRS 16 (see note 3) 3,098
------------
At 1 April 2019 1,558,221
Additions for the period 47,775
Reclassification of assets in the period -
Disposals for the period (22)
Depreciation for the period (25,408)
------------
At 30 September 2019 1,580,566
------------
Net book amount
At 1 April 2018 1,501,707
Additions for the year 100,621
Reclassification of assets in the period 1,069
Disposals for the year (228)
Depreciation for the year (48,035)
Impairment for the year (11)
------------
At 31 March 2019 1,555,123
------------
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
------------
12. Trade and other receivables
30 September 31 March 30 September
2019 2019 2018
GBP000 GBP000 GBP000
Financial asset receivables
Trade receivables 39,686 38,562 33,630
Accrued income 41,520 37,835 36,035
Amounts due from group undertakings 35 4 378
81,241 76,401 70,043
------------- --------- -------------
Non-financial asset receivables
Prepayments 4,779 3,856 5,203
Other receivables 1,298 5,933 2,068
------------- --------- -------------
6,077 9,789 7,271
------------- --------- -------------
87,318 86,190 77,314
------------- --------- -------------
13. Current loans and borrowings
30 September 31 March 30 September
2019 2019 2018
GBP000 GBP000 GBP000
Financial liabilities
Bank loan 15,000 55,000 20,000
Listed bonds - 200,000 200,000
Unamortised costs - (110) (218)
------------- --------- -------------
15,000 254,890 219,782
------------- --------- -------------
On 30 September 2019 index linked bonds with a nominal value of
GBP200.0 million together with accumulated indexation of GBP111.5
million were repaid by the group on maturity. Also on 13 September
2019 the group reduced its borrowing from its committed facility by
GBP40 million.
14. Current liabilities
30 September 31 March 30 September
2019 2019 2018
GBP000 GBP000 GBP000
Financial liabilities
Trade payables 11,638 13,890 11,995
Amounts due to group undertakings 10,117 8,786 15,607
Other payables 13,493 2,303 11,771
Accruals 34,419 33,553 47,525
------------- --------- -------------
69,667 58,532 86,898
------------- --------- -------------
Non-financial liabilities
Payments received in advance 33,232 32,724 31,853
Other taxes and social security 1,001 1,007 1,055
------------- --------- -------------
34,233 33,731 32,908
------------- --------- -------------
103,900 92,263 119,806
------------- --------- -------------
15. Non-current financial liabilities
30 September 31 March 30 September
2019 2019 2018
GBP000 GBP000 GBP000
Irredeemable debenture stock 990 991 991
New loans 292,312 - -
Operating lease capital element 2,977 - -
Listed bonds 336,949 334,387 332,170
Index linked loans 384,500 382,226 375,163
------------- --------- -------------
Loans and borrowings 1,017,728 717,604 708,324
Trade and other payables 5,312 5,379 5,791
------------- --------- -------------
1,023,040 722,983 714,115
------------- --------- -------------
On 16 September 2019 the group has issued new fixed rate loan
notes totalling GBP175 million. The notes were issued in two
tranches being:
-- GBP75 million falling due for repayment on 16 September 2031
-- GBP100 million falling due for repayment on 16 September 2042
In December 2018 the group entered into a new bank loan
arrangement for GBP120 million at a variable rate of LIBOR plus 1.2
per cent which matures on 31 March 2027. This loan was drawn down
in September as part of the refinancing of the maturing index
linked bonds on 30 September 2019.
16. Post balance sheet events
There are no post balance sheet events to report.
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
IR BSBDDSXBBGCD
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