TIDM53HO
RNS Number : 0183T
South East Water Limited
15 July 2020
South East Water Limited
Preliminary results
for the year to 31 March 2020
Chairman's Statement
Welcome to our preliminary results announcement for the year
ended 31 March 2020.
This year saw the culmination of our 2015 to 2020 business plan,
with excellent performance across our business commitments, and
significant focus on the preparations for the next five years.
During the last five years South East Water has invested GBP437
million in the water infrastructure of the South East of England. A
key success has been reducing demand for water, which must continue
if we are to balance the needs of customers and the environment in
the longer term. We completed our Customer Metering Programme with
90 per cent of customers now metered. Working with these customers
we have encouraged water efficiency, including through our
innovative use of behavioural science and delivering a "my water
report" which has seen per capita consumption in our region reduce
by seven per cent compared to the previous five-year period. Side
by side with customers we have also continued to reduce our own
leakage levels and each year met or exceeded our regulatory target
- an important signal that we are taking our responsibilities to
save water seriously too.
Further successes include maintaining our high water quality
standards throughout the period, achieving on average above 99.95
per cent mean zonal compliance. Work included installing three new
microfiltration treatment plants in Kent and East Sussex along with
a programme of water mains flushing. Our award-winning
environmental programme goes from strength to strength taking an
industry leading approach, particularly to catchment management as
we aim to improve water quality right from the source.
Our household retail team has continued to improve the service
offerings for our customers. Over the last five years we have
introduced a new responsive website, including the My Account
service which enables customers to manage their account online, and
an online map to keep people updated with work in their region.
The team also completed a significant billing project in 2018
introducing 'One Bill' meaning we now bill wastewater charges to
over 465,000 customers on behalf of Southern Water.
A huge effort through the year has been put into the final
stages of agreeing the Price Review 2019 (PR19) with Ofwat, with
close involvement of the board throughout. Ofwat's Final
Determination announced in December, which defines the prices we
can charge and what we are expected to deliver over the five year
period, will be extremely challenging and is forecast to result in
minimal returns to shareholders. Further it did not, in our
opinion, adequately reflect our customer's priorities in areas such
as resilience and investment for the future. The board gave careful
consideration to appealing this Determination to the Competition
and Markets Authority, weighing the significant costs and diversion
of resources involved in the appeal process versus the risks and
uncertainty of the outcome. After much deliberation we decided not
to appeal. We have now finalised a very detailed Corporate Plan for
the next five years to meet the challenges as far as is possible.
This will require a step change in performance and cost efficiency
in all areas. The plan includes building on our innovative customer
satisfaction programme, delivering high performance levels far
beyond any we have committed to previously and enhanced focus on
our responsible business commitments. The Managing Director's
report provides details of the activities we have planned.
In the final months of the financial year these plans have had
to be put on hold to a large extent with the arrival of Covid-19
which has required us to urgently adapt our operational priorities
and ways of working.
None of us have ever experienced an event like the Covid-19
pandemic, however our business has worked relentlessly to deal with
the emerging and ongoing threat. At all times, we have worked hard
to ensure that our vital water service was maintained and at the
same time ensuring that we have supported all our customers, our
supply chain, the community and our employees.
Our essential role in society has never felt more important.
South East Water has drawn on the enormous strength and
commitment of each and every employee. All have stepped up with
professionalism and determination to confront a fast-changing and
uncertain situation. Over the last few months the teams have not
only moved to new ways of working but also had to manage our water
network to ensure we have been able to keep up with very high
levels of demand due to changing habits in water use as more people
are at home due to the lockdown restrictions. The hot weather in
May exacerbated this demand situation and this important work will
have to continue throughout the summer. With the heavy rainfall
last winter our water resources are in a good position but with the
finite installed capacity of our treatment works and network there
is a limit to how much fresh water we can produce and distribute on
a daily basis.
We have therefore been enhancing communications to the public to
use water responsibly at this time to ensure there is enough
available to the NHS and other critical services.
"Clean hands, brown lawn and dirty car - protect the NHS and
save lives".
Environmental, Social and Governance (ESG)
Over the last year we have made further progress with our
Environmental, Social, Governance (ESG) framework. We set up a
responsible business committee to help the board in defining the
company's strategy in this area and to review our approach to
ensure it remains relevant and effective. In September 2019 we
achieved the highest award of five stars in the GRESB global ESG
benchmarking, demonstrating our commitment to industry leading
performance.
We have also developed a clear purpose statement which we are in
the process of embedding in our articles of association:
"To provide today's public water service and create tomorrow's
water supply solutions, fairly and responsibly, working with others
to help society and the environment to thrive."
A clear purpose is a key step in our move to focus the business
on what matters most to customers, the community and society and is
integral to our plans for the 2020 to 2025 period and beyond.
We will continue to engage with customers, communities,
employees, regulators and shareholders to ensure we make a positive
impact today and for the future.
Our people
This year, possibly more than ever, we have seen just how
important our great team spirit is.
Our employees have been exceptional in their response to
Covid-19 and quite rightly, our people are proud of the roles they
undertake and of their expertise in this vital social contribution.
This is on top of the contribution everyone has made to the
business, delivering such a good overall performance this year.
We seek to support all our employees throughout the
organisation. South East Water is recognised as an Investors in
People organisation, an accredited Living Wage employer and a
Disability Confident Committed employer.
We are working to provide fulfilling employment opportunities
across our community. This year we are signing up to the Social
Mobility Pledge where we have committed to do more to boost
opportunities for all through outreach, access and recruitment.
The mental health and wellbeing of our employees has been given
particular focus this year. Our Mental Health Strategy, launched at
an event for managers across the organisation and supply chain,
ensures that colleagues know how we will support them. Working in
partnership with MIND, we now have 30 mental health first aiders
who are there for employees in times of crisis and can help support
them to find the appropriate professional help they may need.
This year we were the first water company to sponsor the Women's
Utilities Network. Women make up nearly half our workforce and we
are dedicated to progressing leadership talent through the company
and supporting their recruitment into senior roles.
Environment
As a major landowner and guardian of some of the region's most
precious environmental resources, our teams work hard to maintain
and improve many of the region's flora and fauna. This work has
resulted in the successful conclusion of a ground-breaking
programme to increase biodiversity at a number of our sites and
improving the quality of the water catchments as part of the Water
Industry National Environment Programme (WINEP). I am proud to say
we have committed to almost trebling the investment in this area
over the next five years.
Our Environment team won two Green Apple awards at the Houses of
Parliament for their Pesticide Amnesty and Woodgarston Markets
project. The awards recognise and promote environmental excellence,
and as winners, we automatically become a Green World Ambassador
and will be put forward to represent the UK in the Green World
Awards.
We are continually reviewing how we can minimise our carbon
emissions which this year included an in-depth energy management
review and assessment of potential renewable options. We will build
on our work so far to align our reporting with the recommendations
of the Task Force on Climate-related Financial Disclosures
(TCFD).
Governance
We have carried out an in-depth review of our corporate
governance and compliance this year.
Alongside the articulation of our company purpose, we have
adopted a revised corporate governance framework which has been an
important part of defining our strategy in the five-year corporate
plan. This helps us demonstrate that South East Water can be
trusted as a provider of an essential public service into the
future.
The proposed amendment to our articles of association and
revised directors' duties mark our commitment to become a
purpose-led organisation and promote a culture of public service
and inclusiveness. This demonstrates our ambition to develop a
model of corporate governance that achieves a fair balance between
our interests and those of our customers, other stakeholders and
the environment.
During the year there was one change to the board membership
with Rachel Drew joining the team as Non-Executive Director
representing our 50 per cent shareholder, UTA. She replaces Stephen
Jordan, who stepped down in December 2019. I would like to thank
Stephen for his service since joining the board in August 2018.
We are now preparing for Managing Director Paul Butler to retire
in July 2020, having served in the role at South East Water and
previously Mid Kent Water for 18 years. This is a significant
moment as Paul has overseen three price reviews since the merger of
South East Water and Mid Kent Water in 2007 and his strategic
leadership has developed a company which puts customer satisfaction
at its heart and his legacy is an organisation with a strong
future. On behalf of the board and shareholders of South East Water
I would like to thank Paul for his dedicated service, not just to
the company, but the water industry as a whole.
David Hinton, has been promoted from the role of Asset and
Regulation Director to replace Paul as CEO. He has many years'
experience within the organisation and was instrumental in
developing the 2020 to 2025 plan and our responsible business
strategy.
In addition to David as CEO and Andrew Farmer as CFO, the top
leadership team now comprises Tanya Sephton - Customer Services
Director, Oliver Martin - Asset and Regulation Director and Douglas
Whitfield -Operations Director. All three were promoted internally
to these roles over the past several months. They each have
considerable experience in the business and it is good to see we
have a refreshed but experienced team to lead the business.
Financial performance
Our financial performance has been in line with expectations
this year. Group turnover has increased from GBP238.3 million to
GBP243.5 million. The increase of GBP5.2 million includes an
increase in our tariffs which is permitted under the regulatory
settlement mechanism, an allowance for RPI increases, offset by a
reduction in water consumption this year. Group net operational
costs, including charges for doubtful debt, have increased in the
year to GBP174.3 million compared to GBP164.8 million in the prior
year, an increase of GBP9.5 million. Included in this increase are
additional costs of GBP3.3 million relating to depreciation on new
assets, GBP3.8 million in increased supplier costs for energy, bulk
water supplies and contractors and GBP2.6 million of additional bad
debt provision to reflect an increase in our older debt and the
potential impact of Covid-19.
When assessing the appropriate level of dividend, considerations
are given to the company's actual and forecast level of gearing,
the need to maintain the company's credit rating, the allowed cost
of capital, and the performance of the business. The net dividend
paid in the year, being the gross dividend of GBP11.0 million less
the interest on the loan to parent of GBP4.5 million, was GBP6.5
million (2019: GBP22.7 million).
Outlook
Innovation is driving our company forward as we pursue first
class customer service, sustainability and resilience, not only for
today's customers but also for generations to come.
We have some very stretching commitments to deliver in the next
five years and beyond. Our responsible business approach to
governance will help us deliver our commitments to those we
serve.
I look forward to the start of the new five-year chapter for
South East Water and the year ahead. I have confidence in the
ability of our people, our new but experienced leadership team and
the strength of the business.
On behalf of the board, I would like to thank all the employees,
the management team and our business partners for all their
achievements during 2019/20, but especially for the passion and
purpose displayed in the face of the Covid-19 challenge. We wish
Paul all the best for his retirement and we will work throughout
the year to continue to build an organisation where everyone can
thrive.
Nick Salmon
Chairman
15 July 2020
Group income statement
for the year ended 31 March 2020
2020 2019
Notes GBP000 GBP000
Continuing operations
Revenue 3 243,481 238,281
---------- ----------------
Bad debt (4,198) (1,584)
---------- ----------------
Group net operating costs 4 (170,151) (163,257)
---------- ----------------
Other income 3 12,199 12,997
Group operating profit 81,331 86,437
Finance costs 6 (52,862) (56,110)
Finance income 7 5,333 6,076
Profit before taxation 33,802 36,403
Taxation 8 (16,918) (6,992)
---------- ----------------
Profit for the year from continuing
operations 16,884 29,411
Discontinued operations
Profit on discontinued operations - 9,253
---------- ----------------
Profit for the year 16,884 38,664
---------- ----------------
Earnings per share
Basic and diluted 10 34.24p 78.41p
---------- ----------------
Group statement of comprehensive income
for the year ended 31 March 2020
Notes 2020 2019
GBP000 GBP000
Profit for the year 16,884 38,664
Items that will not be reclassified
subsequently to profit or loss:
Remeasurement of defined benefit (deficit)/surplus 4,879 (3,525)
Deferred tax on defined benefit pension
schemes 8 (927) 600
Impact of deferred tax rate change in
respect of pension schemes 8 (124) -
3,828 (2,925)
--------- ----------
Total comprehensive income for the year
attributable to owners of the company 20,712 35,739
--------- ----------
Group statement of financial position
as at 31 March 2020
31 March 31 March
2020 2019
GBP000 GBP000
Non-current assets
Intangible assets 9,568 10,501
Property, plant and equipment 1,608,845 1,555,123
Amount due from parent undertaking 135,941 189,911
Defined benefit pension surplus 35,912 25,564
-------------- --------------
1,790,266 1,781,099
-------------- --------------
Current assets
Inventories 689 592
Trade and other receivables 84,441 86,190
Cash and cash equivalents 12,981 12,804
-------------- --------------
98,111 99,586
-------------- --------------
Total assets 1,888,377 1,880,685
-------------- --------------
Current liabilities
Loans and borrowings (30,000) (254,890)
Derivative financial instruments - (108,836)
Trade and other payables (97,627) (92,263)
Deferred income (5,418) (7,183)
Provisions (4,457) (3,972)
-------------- --------------
(137,502) (467,144)
-------------- --------------
Non-current liabilities
Loans and borrowings (1,029,326) (717,604)
Trade and other payables (4,997) (5,379)
Net deferred tax liabilities (166,352) (145,395)
Defined benefit pension liability (3,115) (3,154)
Deferred income (3,438) (3,185)
(1,207,228) (874,717)
-------------- --------------
Total liabilities (1,344,730) (1,341,861)
-------------- --------------
Net assets 543,647 538,824
-------------- --------------
Equity
Ordinary share capital 49,312 49,312
Revaluation reserve 241,386 251,259
Retained earnings 252,949 238,253
-------------- --------------
Total equity 543,647 538,824
-------------- --------------
The accompanying notes are an integral part of this statement of
financial position.
Group statement of changes in equity
for the year ended 31 March 2020
Issued
share capital Revaluation Retained Total equity
GBP000 reserve earnings GBP000
GBP000 GBP000
Balance at 1 April 2018 49,312 256,396 225,377 531,085
--------------- -------------- ----------- ---------------
Profit for the year - - 38,664 38,664
--------------- -------------- ----------- ---------------
Other comprehensive income:
Remeasurement of defined benefit
(deficit) - - (3,525) (3,525)
Deferred tax on defined benefit
pension schemes - - 600 600
Total other comprehensive income - - (2,925) (2,925)
Total comprehensive income 35,739 35,739
Dividends (see note 9) - - (28,000) (28,000)
Amortisation of revaluation reserve - (6,127) 6,127 -
Release revaluation on disposals - (51) 51 -
Deferred tax on revaluation and
retained earnings transfer - 1,041 (1,041) -
Balance at 31 March 2019 49,312 251,259 238,253 538,824
Profit for the year - - 16,884 16,884
--------------- -------------- ----------- ---------------
Other comprehensive income:
Remeasurement of defined benefit
surplus - - 4,879 4,879
Deferred tax on defined benefit
pension schemes - - (927) (927)
Impact of deferred tax rate change
in respect of pension schemes - - (124) (124)
Total other comprehensive income - - 3,828 3,828
Total comprehensive income - - 20,712 20,712
Dividends (see note 9) - - (11,000) (11,000)
Amortisation of revaluation reserve - (6,129) 6,129 -
Release of revaluation reserve
on disposals - (19) 19 -
Deferred tax on revaluation and
retained earnings transfer - 1,164 (1,164) -
Impact of deferred tax rate change - (4,889) - (4,889)
Balance at 31 March 2020 49,312 241,386 252,949 543,647
--------------- -------------- ----------- ---------------
All transactions relate to the equity holders of the group.
Group statement of cash flows
for the year ended 31 March 2020
Notes 2020 2019
GBP000 GBP000
Operating activities
Net cash flow from operating activities 134,443 125,023
Interest received 4,705 5,437
Interest element of lease payments (110) -
Other interest paid (41,828) (36,940)
Corporation tax received/(group tax relief
paid) 44 (1,314)
---------- ---------
Net cash flow before investing and financing
activities 97,254 92,206
---------- ---------
Investing activities
Proceeds from the sale of property, plant
and equipment 94 736
Purchase of property, plant and equipment (96,153) (97,132)
Proceeds from the sale of non-household
customer base - 9,156
Purchase of intangible assets (2,116) (2,997)
Net cash flow used in investing activities (98,175) (90,237)
---------- ---------
Financing activities
Loan to Parent undertaking repaid 54,000 -
New loans and borrowing received 295,000 35,000
Issue cost of new debt (130) (2,693)
Repayment of capital element of lease
liability (222) -
Repayment of other loans and borrowing (336,550) -
Dividends paid to shareholder 9 (11,000) (28,000)
Net cash flow from financing activities 1,098 4,307
---------- ---------
Increase in cash and cash equivalents 177 6,276
Cash and cash equivalents at the beginning
of the year 12,804 6,528
---------- ---------
Cash and cash equivalents at the year
end 12,981 12,804
---------- ---------
Group cash flow from operating activities
for the year ended 31 March 2020
2020 2019
GBP000 GBP000
Profit for the year 16,884 38,664
Adjustments for:
Tax charge 16,918 6,992
Finance income (5,333) (6,076)
Finance costs 52,862 56,110
Depreciation and impairment of property, plant
and equipment 51,615 48,046
Amortisation and impairment of intangibles 3,049 3,254
Profit on disposal of fixed assets (50) (377)
Proceeds from the sale of non-household customer
base - (9,253)
Difference between pension contributions paid
and amounts recognised in the income statement (4,896) (4,086)
Changes in working capital:
(Increase) in trade and other receivables (1,165) (5,451)
(Increase) in inventory (97) (356)
Increase/(Decrease) in trade and other payables 4,656 (2,444)
Net cash flow from operating activities 134,443 125,023
-------- --------
Notes
1. Basis of preparation
The financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union and applied in accordance with the Companies Act
2006. The financial information set out in this announcement does
not constitute the Company's statutory accounts, within the meaning
of section 430 of the Companies Act 2006, for the years ended 31
March 2020 or 2019, but is derived from those accounts. While the
financial information included within this announcement has been
prepared in accordance with the recognition and measurement
criteria of IFRS, it does not comply with the disclosure
requirements of IFRS. Statutory Financial Statements for the year
ended 31 March 2019 have been delivered to the Registrar of
Companies and those for the year ended 31 March 2020 will be
delivered to the Registrar of Companies in due course. The auditor
has reported on those Financial Statements; their reports were
unqualified, did not draw attention to any matters by way of
emphasis and did not contain statements under s498(2) or (3)
of the Companies Act 2006.
The financial statements are prepared under the historical cost
convention except for pension assets that have been measured at
fair value and certain assets under property, plant and equipment
which were recognised at the date of transition to IFRS at deemed
cost by reference to fair value.
The group financial statements are presented in Sterling and all
values are rounded to the nearest thousand pounds (GBP000) except
where otherwise indicated.
Going concern
The directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for
the foreseeable future. In coming to this decision they have
considered the implications of the on-going Covid-19 pandemic and
the impact this may have on the business. The directors have
concluded that it is correct to continue to adopt the going concern
basis of accounting in preparing the financial statements.
Basis of consolidation
These financial statements incorporate the financial information
of South East Water Limited and its subsidiary, South East Water
(Finance) Limited (together the "group").
Transactions and balances between the company and its subsidiary
have been eliminated fully on consolidation. Subsidiaries are
consolidated from the date on which control is transferred to the
group and cease to be consolidated from the date on which control
is transferred out of the group.
2. Adoption of IFRS 16
The group has adopted IFRS 16 at the beginning of the financial
year. The group has taken the practical expedient to apply this
Standard only to contracts which were previously identified as
leases when applying IAS 17 Leases and IFRIC 4 Determining whether
an Arrangement Contains a Lease.
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 initial values of lease liabilities equate to the present
value of future lease payments under the relevant lease contracts.
The group have applied the practical expedient of using a single
discount rate to leases with reasonably similar characteristics.
The discount rates used in calculating the liabilities reflect the
interest rates at which the group would currently be able to borrow
in order to finance similar assets to those under the lease
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 the transition. The
interest rates attached to the new facilities have, therefore, been
deemed appropriate proxies for the incremental borrowing rates, as
follows:
-- Lease lengths of zero to ten years remaining on transition - 2.94 per cent
-- Lease lengths of ten to twenty years remaining on transition - 3.22 per cent
The right-to-use assets at the date of initial application have
been measured as an amount equal to the lease liability under each
lease affected by the transition.
At 1 April 2019, the group held the following operating leases
previously accounted for under IAS 17 which met the criteria under
IFRS 16 for such recognition. There were no long-term leases with
outstanding periods of less than 12 months at the adoption
date.
Values of
assets and
Annual liabilities
rent on adoption
Leased asset Start date End date GBP000 GBP000
22 May
Laboratory at Farnborough 2015 21 May 2035 195 2,466
Unit at Brooke House,
Larkfield 8 Aug 2018 7 Aug 2021 19 43
Water Tower at Blackhill, 19 Jan
Camberley 2004 14 Jun 2022 17 52
Offices at Leithrim House,
Larkfield 4 Apr 2018 4 Apr 2028 67 537
-------- -------------
298 3,098
-------- -------------
The impact of the adoption of IFRS 16 on the group's financial
statements in the period has been:
Adjustment
31 March for the 31 March
2020 adoption 2020
pre IFRS of IFRS post IFRS
16 16 16
GBP000 GBP000 GBP000
Revenue 243,481 - 243,481
Group net operating costs (174,361) 12 (174,349)
Other income 12,199 - 12,199
Group operating profit 81,319 12 81,331
Finance costs (52,752) (110) (52,862)
Finance income 5,333 - 5,333
Profit before taxation 33,900 (98) 33,802
Taxation (16,918) - (16,918)
----------- ----------- ------------
Profit for the period 16,982 (98) 16,884
----------- ----------- ------------
Adoption of IFRS 16 has resulted in an adjustment to net
operating costs of GBP12,000. This represents the removal of the
rental charges of GBP319,000 offset by the depreciation change of
GBP307,000 on the right-to-use assets, which have been included in
the balance sheet at 1 April 2019.
Further, the interest chargeable on the lease finance has been
accrued to 31 March 2020 resulting in a finance charge of
GBP110,000.
The adoption if IFRS 16 has no material impact on EPS in the
year.
The value of payments under leases in the year has been
GBP332,000.
An analysis of the maturity of lease liabilities is provided
below:
Year ended 31 March 2020 Within 1 - 2 2 - 5 Over
1 year years years 5 years Total
GBP000 GBP000 GBP000 GBP000 GBP000
Laboratory at Farnborough 195 195 585 1,979 2,954
Unit at Brooke House, Larkfield 19 7 - - 26
Water Tower at Blackhill,
Camberley 17 17 3 - 37
Offices at Leithrim House,
Larkfield 68 68 204 201 541
Lenham Depot 160 160 480 741 1,541
-------- -------- -------- --------- ---------
459 447 1,272 2,921 5,099
-------- -------- -------- --------- ---------
The impact of the adoption of IFRS 16 on the Group's opening
statement of financial position has been:
1 April 2019 1 April 2019
pre IFRS Adoption post IFRS
16 of IFRS 16 16
GBP000 GBP000 GBP000
Intangible assets 10,501 - 10,501
Property, plant and equipment 1,555,123 3,098 1,558,221
Amount due from parent undertaking 189,911 - 189,911
Defined benefit pension surplus 25,564 - 25,564
-------------- ------------ --------------
Non-current assets 1,781,099 3,098 1,784,197
Current assets 99,586 - 99,586
-------------- ------------ --------------
Total assets 1,880,685 3,098 1,883,783
-------------- ------------ --------------
Loans and borrowings (254,890) - (254,890)
Derivative financial instruments (108,836) - (108,836)
Trade and other payables (92,263) (92,263)
Deferred income (7,183) - (7,183)
Provision (3,972) - (3,972)
-------------- ------------ --------------
Current liabilities (467,144) (467,144)
-------------- ------------ --------------
Non-current liabilities
Loans and borrowings (717,604) (3,098) (720,702)
Trade and other payables (5,379) - (5,379)
Net deferred tax liabilities (145,395) - (145,395)
Defined benefit pension liability (3,154) - (3,154)
Deferred income (3,185) - (3,185)
(874,717) (3,098) (877,815)
-------------- ------------ --------------
Total liabilities (1,341,861) (3,098) (1,344,959)
-------------- ------------ --------------
Net assets 538,824 - 538,824
-------------- ------------ --------------
Equity
Ordinary share capital 49,312 - 49,312
Revaluation reserve 251,259 - 251,259
Retained earnings 238,253 - 238,253
-------------- ------------ --------------
Total equity 538,824 - 538,824
-------------- ------------ --------------
The following tables show the movement in the year in the values
of right-to-use assets and lease financing liabilities.
Right-to-use
assets
GBP000
Balance at 1 April 2019 on adoption of IFRS 16 3,098
Additions from new lease arrangements 1,585
Depreciation (307)
-------------
Balance at 31 March 2020 4,376
-------------
Lease financing
liabilities
GBP000
Balance at 1 April 2019 on adoption of IFRS 16 3,098
Additions from new lease arrangements 1,363
Capital element of lease payments (222)
----------------
Balance at 31 March 2020 4,239
----------------
3. Total income
2020 2019
GBP000 GBP000
Revenue
Unmetered water income 20,800 24,966
Metered water income 208,405 199,278
Metered sewerage income - (15)
Other sales 14,276 14,052
---------- ----------
Total Revenue 243,481 238,281
---------- ----------
Other income
Rental income 1,284 1,233
Sundry income 10,915 11,764
---------- ----------
Total other income 12,199 12,997
---------- ----------
Total income 255,680 251,278
---------- ----------
All revenue is from customers within the United Kingdom.
Other sales includes new connections income of GBP5.8 million
(2019: GBP7.7 million), infrastructure income of GBP5.8 million
(2019: GBP5.2 million) and capital contributions of GBP1.4 million
(2019: GBP1.0 million).
Sundry income includes charges for billing and cash collection
services amounting to GBP7.6 million (2019: GBP8.1 million), and
laboratory income of GBP2.5 million (2019: GBP2.3 million).
4. Net operating costs
2020 2019
GBP000 GBP000
Employee benefits expense (see note 5) 30,166 30,078
---------- ----------
Asset expense/(income):
Depreciation - owned assets 50,537 47,456
Depreciation - right-to-use 885 579
Impairment of fixed assets 193 10
Amortisation of intangible assets 3,049 3,129
Impairment of intangible assets - 126
(Profit)/loss on disposal of non-current assets (50) (377)
---------- ----------
54,614 50,923
---------- ----------
Other operating expenses:
Operating lease rentals:
vehicles and office equipment 242 211
land and buildings 14 287
Fees payable to the group's auditor (see below) 300 279
Other expenses (see below) 89,974 87,190
Other operating expenses charged to capital
projects (5,159) (5,711)
85,371 82,256
---------- ----------
Total operating costs 170,151 163,257
---------- ----------
Fees payable to the group's auditor in respect
of:
Audit of the group and company financial statements 208 203
Audit of subsidiary 1 1
---------- ----------
Total audit 209 204
---------- ----------
Regulatory accounts 49 50
Other assurance services 37 15
---------- ----------
86 65
---------- ----------
Services relating to taxation 5 10
Total non-audit services 91 75
---------- ----------
Total fees payable to the group's auditor 300 279
---------- ----------
2020 2019
GBP000 GBP000
Other expenses comprise:
Energy costs 18,346 16,440
Rates 18,186 17,770
Contractors 26,218 23,768
Bulk water supplies and abstraction licences 8,619 9,195
Chemicals 3,524 3,300
Insurance and related costs 2,646 3,083
Other 12,435 13,634
Total other expenses 89,974 87,190
--------- ---------
5. Directors and employees
The average monthly number of employees, including salaried
directors, of the group in the year was:
2020 2019
Number Number
Operations 434 440
Management and administration 525 510
--------- ---------
959 950
--------- ---------
GBP000
The aggregate payroll costs of these persons
were:
Wages and salaries 31,124 30,193
Social security costs 2,550 3,049
Pension costs for defined benefit schemes 710 1,067
Pension costs for unfunded pensions - 266
Pension costs for defined contribution schemes 2,385 2,143
36,769 36,718
Less: direct salary costs charged to capital
projects (6,603) (6,640)
--------- ---------
30,166 30,078
--------- ---------
Emoluments of the directors, who are the group's key management,
were:
2020 2019
GBP000 GBP000
Aggregate emoluments including bonuses 1,666 1,071
Company contributions to defined contribution
scheme 10 39
-------- --------
1,676 1,110
-------- --------
Emoluments of the highest paid director were:
Aggregate emoluments including bonuses 647 395
-------- --------
Retirement benefits are accruing to one director (2019: one)
under the defined benefit pension schemes and two directors (2019:
two) under a defined contribution scheme.
6. Finance Costs
2020 2019
GBP000 GBP000
Debenture interest 42 42
Effective interest on listed debt 18,411 22,842
Fair value movements on interest rate swap 2,713 4,668
Indexation on variable rate bonds 4,378 4,564
Bank interest and other finance charges 5,068 975
Financing guarantee fees 1,430 1,289
Interest payable on index linked loans 12,500 12,174
Indexation on index linked loans 10,444 11,487
Lease interest 110 -
Amortisation of loan issue costs 594 546
Interest and related fees payable 55,690 58,587
Interest capitalised (2,828) (2,477)
-------- --------
52,862 56,110
-------- --------
Interest capitalised during the year amounted to GBP2.8 million
(2019: GBP2.5 million) and is calculated using the weighted average
interest rate of the group's long-term lending of 4.25% (2019:
4.44%).
7. Finance income
2020 2019
GBP000 GBP000
Interest receivable on bank balances and short-term
deposits 201 135
Interest receivable from group undertakings 4,499 5,305
Pension fund finance income 633 636
-------- --------
5,333 6,076
-------- --------
8. Taxation
Major components of the group's tax expense for the years ended
31 March 2020 and 2019 are:
2020 2019
GBP000 GBP000
Group income statement
Current tax:
Current UK tax charge 2,042 878
Amounts over provided in previous years (141) -
-------- --------
1,901 878
-------- --------
Deferred tax:
Relating to origination and reversal of temporary
differences 3,052 6,017
Relating to impact of change in tax rate 11,965 -
15,017 6,017
-------- --------
Tax charge reported in the group income statement 16,918 6, 895
-------- --------
Tax charge/(credits) to equity
Deferred tax on defined benefit pension schemes 927 (600)
Impact of rate change on pension scheme 124 -
Tax reported in comprehensive income statement 1,051 (600)
-------- --------
Factors affecting the tax charge for the year
The tax for the year is lower than the standard rate of
corporation tax in the UK. The differences are explained below:
2020 2019
GBP000 GBP000
Profit for the year on Continued operation 33,802 36,403
--------- ---------
Profit multiplied by the rate of corporation
tax in the UK of 19% (2019: 19%) 6,423 6,917
Effects of:
Adjustments to current tax charge in respect (141) -
of previous years
Adjustment to deferred tax in respect of rate 11,965 -
change
Adjustments to deferred tax charge in respect
of previous years (1,846) ( 451 )
Expenses not deductible for tax purposes 534 594
Tax effect of income not taxable in determining
taxable profit (10) ( 68 )
Other - RD depreciation allowed (7) -
Total tax charge reported in the group income
statement 16,918 6, 992
--------- ---------
The adjustments to deferred tax in respect of previous years
represents the changes between the year end and submitted
computations and, in respect of the prior year, a revision of the
corporation tax rate from 17% to 19%. The expenses not deductible
for tax purposes are made up of the movement on general provisions,
entertainment expenses and depreciation on non-qualifying capital
expenditure.
2020 2019
GBP000 GBP000
Profit for the year on discontinued operation - 9,156
--------- --------
Profit multiplied by the rate of corporation
tax in the UK of 19% (2019: 19%) - 1,739
Effects of:
Tax effect of income not taxable in determining
taxable profit - (1,836)
Total tax charge reported in the group income
statement - (97)
--------- --------
Deferred tax
The movement on the net deferred tax liability is as shown
below:
2020 2019
GBP000 GBP000
At 1 April 145,395 140,085
Charge to the income statement 15,017 6,017
(Credit)/Charge to equity 927 (600)
Impact of rate change on pension scheme 124 -
Impact of IFRS taken to Reserves 4,889 (107)
---------- -----------
At 31 March 166,352 145, 395
---------- -----------
Deferred tax assets have been recognised in respect of all tax
losses and other temporary differences giving rise to deferred tax
assets because it is probable that these assets will be recovered
by giving relief against future taxable profits.
The movements in deferred tax assets and liabilities during the
year are shown below:
Accelerated
tax depreciation Pension provision
GBP000 GBP000 Total
GBP000
Deferred tax liabilities
At 1 April 2018 138,239 3,607 141,846
Charge to the income statement 4,034 800 4, 834
Charge to equity - (600) (600)
At 1 April 2019 142, 273 3,807 146,080
Charge to the income statement 13,157 1,373 14,530
Charge to equity - 927 927
Impact of rate change on deferred
taxation on the revaluation reserve 4,889 124 5,013
At 31 March 2020 160,319 6,231 166,550
------------------ -------------------- ----------
Fair value Other provision
swap GBP000 Total
GBP000 GBP000
Deferred tax assets
At 1 April 2018 1,502 259 1,761
(Charge)/credit to the income statement (1, 100 ) 24 (1, 076 )
At 1 April 2019 402 283 685
Credit/(charge) to the income statement (402) (85) (487)
At 31 March 2020 - 198 198
----------- ---------------- ----------
Deferred tax assets and liabilities are only offset where there
is a legally enforceable right of offset and there is an intention
to settle the balances net. All of the deferred tax assets were
available for offset against deferred tax liabilities and hence the
net deferred tax liability at 31 March 2020 was GBP166.4 million
(2019: GBP145.4 million).
Capital investment is expected to remain at similar levels and
the group expects to be able to claim capital allowances in excess
of depreciation in future years, allowing for any group relief
arrangements within the HDF (UK) Holdings Ltd group of
companies.
Deferred tax is calculated in full on temporary differences
under the liability method using a tax rate of 19%. The reversal of
the 17% (back to 19%) tax rate previously enacted by Finance Act
2016 to take effect from 1 April 2020 has resulted in an additional
deferred tax provision of GBP17.0 million (included in the charge
to income statement) attributed to the impact of corporation tax
rate change.
For the year ended 31 March 2020 a UK corporation tax rate of
19% has been used as enacted by the March 2020 Budget. The deferred
tax on temporary differences as at 31 March 2020 have been
calculated at the current rate applicable.
9. Dividends
2020 2019
GBP000 GBP000
Equity dividends paid during the year:
First interim dividend of 5.58p per
ordinary share (2019: 14.20p per ordinary
share) 2,750 7,000
Second interim dividend of 5.58p per
ordinary share (2019: 14.20p per ordinary
share) 2,750 7,000
Third interim dividend of 5.58p per
ordinary share (2019: 14.20p per ordinary
share) 2,750 7,000
Final dividend of 5.58p per ordinary
share (2019: 14.20p per ordinary share) 2,750 7,000
--------- ---------
11,000 28,000
--------- ---------
There were no dividends proposed for approval as at 31 March
2020 and 31 March 2019.
10. Earnings per ordinary share
Basic earnings per share amounts are calculated by dividing
profit for the year attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares
outstanding during the year. The following reflects the income and
shares data used in the basic and diluted earnings per share
computations:
2020 2019
GBP000 GBP000
Profit for the year from continuing operations 16,884 29,411
----------- -----------
Profit/(loss) for the year from discontinued
operations - 9,253
2020 2019
Number Number
Basic and diluted weighted average number
of shares 49,312,354 49,312,354
----------- -----------
Basic and diluted earnings per share from
continuing operations 34.24p 59.64p
----------- -----------
Basic and diluted earnings per share from
discontinued operations - 18.77p
----------- -----------
There have been no other transactions involving ordinary shares
or potential ordinary shares between the reporting date and the
date of completion of these financial statements.
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
FR FFFEFDFISLII
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