TIDM53HO
RNS Number : 3037I
South East Water Limited
11 December 2020
South East Water Limited
Condensed group financial statements
for the six months ended 30 September 2020
Chairman's introduction
I am pleased to present our interim report for the six months
ended 30 September 2020.
Our priority over the last six months has been to continue to
provide the essential water service our community needs while
rapidly adapting to the impacts of the Covid-19 pandemic. We have
continued to supply drinking water for more than 900,000 households
in the south east and carry out essential repairs, while ensuring
we keep our colleagues safe and well. As lockdown arrived we had to
switch most of our office based staff to be able to work from home,
including the customer call centre. For field staff new safe
working procedures had to be implemented including the provision of
additional PPE and additional vehicles so that social distancing
could be respected. We made a clear commitment from the outset to
support customers who struggle to pay their bills, with 40,000
benefiting from our financial assistance schemes including
WaterSure and our social tariff. We have also increased the number
of vulnerable customers supported through our Priority Services
Register (PSR), with an additional 10,000 added during the first
half of year bringing the total number on the PSR to 24,000.
Our purpose is "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".
The response of the company, employees and partner organisations to
Covid-19 has clearly demonstrated how the organisation's stated
purpose really is at the heart of everything we do.
This purpose, which we are inserting into our Articles of
Association, is centred on our core function as a provider of a
public water service, both for now and the future. It reflects our
wider societal and environmental goals delivered through performing
our core service, recognising key challenges we face - such as
climate change and sustainability.
With our 2020 to 2025 investment period now underway we are
focused on delivering our purpose-led plan which will see the
expenditure of GBP433 million (2017/18 prices) in improvements
across the network. We will track our progress against more than 40
challenging performance and responsible business commitments.
Examples include:
-- reducing leakage by 15 per cent by 2025 maintaining our upper quartile industry position
-- protecting wildlife and increasing biodiversity - 1,460 hectares
-- engaging and working with landowners - catchment management - 14,000 hectares
-- reducing per capita consumption by seven per cent
-- greenhouse gas emissions reduced by 68 per cent by 2025
-- engaging and working with 20 other abstractors to improve catchment resilience to low flows
-- increasing the number of household customers receiving
financial support by 100 per cent and those receiving non-financial
support through our Priority Services Register by over 700 per
cent
Today's public water service during challenging times
The first six months of the financial year have undoubtedly been
challenging as the impacts of Covid-19 coupled with heatwaves in
May and August put the company under great operational pressures.
Household water use has increased significantly since March 2020
when the nationwide lockdown was first introduced. There has been a
reduction in the number of workers commuting into London and more
people staying at home and using more water than normal. Also the
majority of residents remained in the region for their summer
holidays when in normal years we see a significant holiday exodus.
Non household, business and industrial consumption did reduce
slightly but not by enough to offset the rise in household
consumption. Hence there was a significant increase in the volumes
of water we had to put into supply across all areas throughout the
summer.
In readiness for the anticipated high demand we ensured our
level of outage (sites out for maintenance) was very low across the
business. Performance year-to-date against the outage target has
been very good at 1.5 per cent versus a 4.0 per cent target so we
were in a good position before the hot weather arrived.
As we were operating at almost maximum production capacity a key
activity to maintain supplies was customer communication on using
water efficiently and responsibly. Water efficiency advice and
messaging is something we do all year round, but from early spring
we significantly increased our activity. This was intensified
during the summer and ahead of the extreme hot weather.
During July and August average day demand was 579 Ml/d compared
to a pre-Covid July and August average day demand of 545 Ml/d in
2019. We saw demand reach a peak of 695 Ml/d on Friday 7 August -
one of the highest levels on record for South East Water. Demand
was consistently above 650 Ml/d for a total of six days
during the heatwave period of 6 - 13 August, which saw record
maximum temperatures of 33 - 35degC sustained over the six days.
Although across the organisation as a whole this level of demand
was within our planned headroom, there were pockets where this
consistently high demand exceeded our planned headroom.
Employees from across the business and our contractors responded
superbly, working to keep water flowing for most of our customers,
and striving to restore supplies for those impacted. Clearly at a
time of pandemic the seriousness of the situation was increased and
the welfare of our customers, particularly the vulnerable, was
always our priority.
While we were able to manage and maintain water supplies for
more than 99 per cent of our customers during this period, there
were unfortunately some, particularly in parts of Mid Sussex, who
were without water or experienced low pressure as the volumes of
water being used by customers outstripped the design capacity of
our network.
The community impacted was reliant on bottled water while we
worked to refill the water network and restore water supplies.
During the event we worked with community organisations, support
agencies, local councils and other water companies to provide
alternative water for those who needed it. We are very grateful for
the invaluable support that these organisations provided.
The team has since carried out a thorough review to learn
lessons and the Board will monitor progress against the action plan
that has been created which aims to reduce the impact or likelihood
of a similar event in the future. A report has been published
detailing the event, lessons learned, key actions and some wider
policy implications. This can be found at
southeastwater.co.uk/midsussex
In September a different challenge was faced when a series of
large sinkhole voids appeared on the site of two treated drinking
water storage tanks that serve the Maidstone area. The voids
appeared after heavy rain, with one being large enough to hold
three buses and caused extensive damage to our tanks which between
them hold 20 million litres of water and rendering the area unsafe.
The team worked quickly to reconfigure the network to bypass the
two tanks and were able to ensure customer water supplies were not
impacted. We worked closely with the Local Resilience Forum and
kept local residents informed. Working with specialist
organisations we are now developing engineering solutions to
stabilise the site and restore the storage capacity in the area
ahead of summer 2021.
Covid-19 has challenged our ability to deliver some elements of
our capital investment programme during this period. Work had to
stop on a small number of schemes while safe working practices were
developed and a reduction in the number of people able to work
safely on site together impacted progress.
The GBP22 million project to increase the capacity of the
Keleher water treatment works in Berkshire has reached a pivotal
stage as we have now started treating water through the newly
expanded works. The site treats water extracted from the River
Thames to drinking water standards, increasing treatment capacity
from 45 million litres per day to 68 million litres per day.
We have installed eight kilometres of new water mains in the
first six-months of the year. This includes a GBP1.4 million
project in Wokingham, Berkshire, where we laid more than three
kilometres of pipe to replace an old pipeline which had become
prone to bursting.
In Sevenoaks, Kent we are investing GBP7 million in upgrading
the town's drinking water supply. A new treated drinking water
storage tank is now installed which can hold five million litres,
replacing the previous three million litre tank which had come to
the end of its useful life after 96 years' service. The first phase
of work to lay a new GBP2.8 million water main that will connect
the upgraded storage tank to Solefields was completed in September.
The second phase of work has had a delayed start due to Covid-19,
but will now begin next year, as we install approximately three
kilometres of new pipe through Knole Park. Once complete it will
help supply residents and businesses in the town with top quality
water for decades to come.
Water quality is of course of the upmost importance. Throughout
this year we have worked closely with the Drinking Water
Inspectorate (DWI) to ensure we are maintaining the highest
standards for the water we provide. I am pleased to confirm for the
first six months of the year we have achieved 99.98 per cent of our
water quality samples meeting requirements and our performance in
the DWI headline measure of water quality, Compliance Risk Index
(CRI) is better than industry average.
We have continued to make improvements in our customer service
capabilities. Using our cloud based platform, we have built a
modern 'My Account' application with Artificial Intelligence
capabilities. We have listened to customers through webchat and
phone calls when they have asked for greater control of their
account and their feedback on our online billing portal My Account
has resulted in a complete redesign boasting an innovative
supermarket-style self-service checkout system. Customers are now
benefitting from a fully automated round the clock online system
where they can submit their own meter readings, manage their
payment plan, make payments and change their address as well as
keeping track of their water use to help them see where they could
save water and money. Of course customers can still have direct
personal contact with our locally based Customer Service team
whenever they need it.
This is just one example of the work underway to improve the
customer experience. For the first half of the year the company has
scored 80.5 out of 100 - and is 12th out of 17 in the industry in
Ofwat's new C-Mex (customer experience measure).
Creating tomorrow's water supply solutions
Much of the focus of 2020 so far has understandably been on the
here and now challenges, however we are always looking ahead to
ensure we are ready to meet the water supply needs of tomorrow.
Aiming to protect future water quality, construction of a
brand-new GBP5 million treatment station at our Woodgarston Water
Treatment Works in Upper Wooton, Hampshire began this summer for
completion by December 2021. The new equipment will futureproof the
water supply against forecast increases in nitrate levels in the
area, which will help to protect water supplies for future
generations.
Alongside this vital investment, we continue to work with local
farmers on their nutrient management practices and promoting cover
crop usage. It will take time to see the benefits as improvements
to groundwater quality can take several years to work through the
water cycle. We are confident that our success in working with the
farms in the Woodgarston catchment and others across our area will
bring about a water quality improvement in future years.
The implementation of our latest water resources management plan
(WRMP19) is underway. The plan manages the predicted future
shortfall in available water for our region by reducing demand for
water and developing new sources of water. Key water resource
schemes for the next 25 years include upgrading existing treatment
works alongside investment in two new reservoirs and a new
treatment works at Aylesford, Kent. To reduce demand we have an
ambitious water efficiency programme coupled with our commitment to
reduce leakage by 15 per cent by 2025 and we aim to halve leakage
levels by 2050. To achieve this level of reduction it is clear that
we will need to innovate. We were therefore delighted to be
recognised with three innovation awards for our Smart Network trial
at this year's Water Industry Awards; Data Project of the Year,
Most Innovative Project of the Year and Water Innovation Project of
the Year. The trial involved bringing together 15 specialist
companies to test cutting edge digital water meters, sensors,
advanced analytics and telecommunications channels with 2,000
customers in north Kent. To combine all the elements into a smart
network was an industry-first in England.
We are already well underway in developing our next water
resources management plan (WRMP24), which will set out how we plan
to secure water supplies for today's and tomorrow's customers, from
2025 to 2100.
As part of this plan, we are key partners in the regional Water
Resources South East (WRSE) group which is looking at how water
will be supplied across the whole of the South East region in the
future, not just within our supply area. WRSE is an alliance
between six water companies in the south east - ourselves, Southern
Water, Thames Water, Affinity Water, SES Water and Portsmouth
Water.
WRSE is currently creating its own draft regional water
resources management plan which will be consulted on in January
2022, we will then use the results of that report to form the basis
of our 2024 plan.
Early engagement is also underway on updating our drought plan
which is being refreshed to ensure it not only provides clear
guidance on how we would manage a severe drought, but also makes it
easier for stakeholders and customers to understand the steps we
are taking and the part they play. The draft drought plan will be
published in March 2021 for public consultation.
Thriving together as a fair and responsible business
As an intrinsic part of our corporate plan, we have a
responsible business strategy to further develop our environmental,
social and governance (ESG) framework. We have also established a
Responsible Business Board sub-committee to oversee progress. One
way we are monitoring progress is through GRESB, a global
benchmarking of ESG practice. This year we maintained the maximum
five star rating and increased our score from 81 out of 100 in 2019
to 90 in the 2020 GRESB survey versus a peer group average of 77,
making us the sector leader globally for water and wastewater
companies.
Environmental
This year has seen the start of our 2020 to 2025 Environment
Programme which doubles the amount we are spending compared with
the previous five years to GBP37m. We are putting nature-based
solutions into the heart of our long-term water quality and
sufficiency management, building on our established catchment
management approach.
Our catchment programme includes work at 44 groundwater sites to
be delivered by 2022. This work will investigate increasing nitrate
levels in raw groundwater, with the aim to reduce the need for more
expensive water treatment solutions in the future by working with
landowners to improve soil conditions and reduce pollution at
source. Due to Covid-19 we have moved some of our engagement online
and were pleased to host our first virtual workshop with more than
60 attendees discussing a range of topics from cover crops to
beneficial insects for soil health.
We are proud to be a part of the 2 Seas Interreg programme which
aims to address the impacts of climate change and enhance the
availability of raw water. The multinational collaborative project
we are working on is called PROWATER, which stands for 'protecting
and restoring raw water sources through actions at the landscape
scale'. The four-year project has a budget of more than EUR5.5
million. It is part funded by the European Regional Development
Fund (EUR3.3 million) and part by project partners. This year has
seen the commencement of pilot trials on our catchment land near
Eastbourne to test which habitat types are best for allowing
rainfall to reach the chalk groundwater sources. This work will
help to develop understanding of which habitat type is likely to
improve the resilience of the environment to drought in turn
potentially helping the development of future nature-based
solutions to complex environmental problems.
A company-wide trial is underway to reduce carbon and vehicular
emissions with the investment in seven new electric vehicles and
the installation of 10 charging points at South East Water sites
across our supply area. This initiative is part of the company's
commitment to reduce carbon emissions by 80 per cent by 2025 and
joins a number of hybrid cars already in our fleet. Although the
main driver for the trial is to reduce our carbon footprint, we are
confident that the lower running costs and longer usable lifespan
compared to diesel vans makes financial sense too.
Social
The health, safety and wellbeing of our people and those we work
with has been our priority during the pandemic. Throughout the
first half of the year we worked to develop Covid-19 safe
practices, we were able to get 93 per cent of office-based staff
working from home by the beginning of April, and have developed a
wellbeing hub with information and a place to share advice. We are
pleased to say our regular employee pulse surveys have shown an
average of 93 per cent of our colleagues have a positive view of
our health and safety commitment and 92 per cent feel positive
about their wellbeing. For any employees who have been struggling
during the pandemic we have put a range of support measures in
place.
South East Water has signed the Social Mobility Pledge, this is
one of our industry Public Interest Commitments and an important
step to ensure diversity of our workforce and our commitment to
social mobility. Taking steps to boost opportunities and social
mobility is more important than ever as we face the challenges of a
growing opportunity gap in the wake of Covid-19. The development of
our workforce is key, we have continued with training through a
combination of e-learning and in a bespoke Covid-19 secure training
environment. We also continue to recruit apprentices despite the
pandemic and have signed the EU Skills Apprentice Pledge to
demonstrate our commitment to developing future workers.
In 2018 South East Water was the first water company to achieve
the prestigious British Standards Institute (BSI) accreditation
BS18477 for supporting vulnerable customers. This accreditation for
inclusive service provision shines a spotlight on companies that
excel in identifying and supporting vulnerable customers. This year
we retained the accreditation for another year. The upgrade to our
website, which is now AA accredited for accessibility, was noted as
a key improvement.
We have also published our Resilient Customer Strategy. The
strategy was launched at an online stakeholder event, attended by
more than 60 representatives from support agencies, community
leaders and the water industry. The event was held over three days
and included interactive online sessions with case studies,
networking sessions and presentations to talk about ways to
collaborate and build resilient customers of the future.
Governance
In July, Managing Director Paul Butler retired after 18 years'
service both at South East Water and previously Mid Kent Water.
Paul's legacy is an organisation with a strong future which has
customer satisfaction, responsibly delivered, at its heart. We
thank Paul for his dedicated service to both the company and the
water industry as a whole. David Hinton, promoted from the role of
Asset and Regulation Director, replaced Paul as CEO and has been
leading the corporate plan delivery and the company's response to
the challenges faced in 2020.
The new purpose statement adopted by South East Water earlier
this year recognised the greater importance placed on the purpose
of companies and the public service purpose of water companies.
We have decided to enshrine our purpose into the company's
articles of association and into the duties of its directors who
must act in a way that fulfils the purpose. It is a strong
foundation on which to build a culture of public service for the
board and everyone working at South East Water and for the company
to act as a responsible business.
Results and key financial performance indicators
The results published in this statement summarise our
performance for the six months ended 30 September 2020. 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 GBP133.7 million compared with
GBP128.9 million for the same period in the previous year. The
increase of GBP4.8 million is due to the following factors:
-- the allowed average price increase of 4 per cent, increasing revenue by GBP4.9 million
-- the effect of Covid-19 on demand coupled with the heatwave in
the summer amounted to an increase in water revenue of GBP3.7
million, offset by lower contributions from developers of GBP3.3
million as a result of the Covid-19 restrictions
-- the effect of the lockdown on our non-appointed business
including laboratory sampling income and third party work leading
to a reduction of GBP0.5 million
Net operating costs for the period to 30 September 2020 were
GBP84.7 million, GBP0.2 million less than 2019. After allowing for
an exceptional credit of GBP7.8 million for one of our group
pension schemes (see below), our operating cost base has increased
by GBP7.6 million and this is due to:
-- the heatwave in August costing GBP1.8 million comprising
additional production and pumping costs and
compensation paid to customers for supply interruptions
-- increased depreciation for the six months of GBP1.6 million
in line with the continued investment in the group's fixed
assets
-- the costs associated with overall higher demand of GBP0.7
million including power costs, bottled water provisions and
additional chemical costs
-- the net impact of the Covid-19 pandemic quantified at GBP1.0
million comprising business interruption costs, protective
equipment and reduced debt recoveries
-- the costs associated with responding to a number of unplanned
incidents in the period of GBP0.5 millions
-- other general inflationary pressures have added in excess of
GBP2.0 million across the cost base including contractor costs and
power costs
Offsetting the cost increase above is a cost reduction of GBP7.8
million in respect of past service costs on one of the group's
defined benefit pension schemes, which is a result of the change
from RPI to CPI in measuring the liabilities of the scheme. This
change has taken place in the Mid Kent Group Pension Scheme and was
agreed with the Trustees following a review of the pension scheme
rules.
Finance costs show significant savings at GBP20.1 million
compared to GBP25.9 million for the prior year's comparative
period. The reduction in costs is largely due to the lower finance
costs of the new loans replacing the bonds that matured in
September 2019 which amounts to GBP2.4 million. These is also a
significant lower indexation charges in the year of GBP2.5 million
and reduction in fees of GBP0.9 million. Finance income at GBP2.1
million for the period is GBP0.9 million less than the prior year,
reflecting the repayment of GBP54.0 million of the variable rate
loan by the group's parent company in September 2019.
Profit before tax was GBP29.8 million compared with GBP19.9
million for the same period last year. This represents 22.3 per
cent of revenue, up from 15.4 per cent for the corresponding period
last year.
The group has incurred a tax charge of GBP1.7 million in the
period compared to GBP1.9 million for the period to 30 September
2019. The tax expense for the year comprises GBP0.8 million of
current tax and GBP0.9 million of deferred tax.
Our profit after tax has increased from GBP18.1 million in the
prior period to GBP28.1 million for the six months ended 30
September 2020.
The dividend for the six months ended 30 September 2020 of
GBP5.5 million is the same as that paid in the same period last
year and represents a nominal dividend yield of 2.2 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.
Net cash generated from operations was GBP63.9 million for the
six months to 30 September 2020 compared to GBP77.8 million in the
same period for the previous year. The significant reduction of in
cash flow of GBP13.9 million has been largely caused by the impact
of Covid-19 on trade and other receivables. The impact of Covid-19
has been particularly strong in the non-household sector and cash
receipts from water retailers are GBP6.4 million lower than in
previous year. Also, there has been a noticeable reduction in
non-water activities, such as laboratory testing and new
connections, which has also contributed GBP1.9 million to the
reduction of cash received in the period. The combined effect has
been a reduction in cash receipts of approximately GBP8.3
million.
Additionally, the increase in costs has resulted in a higher
cash outflow to suppliers than in the previous year. We have also
reduced the payment terms on a small number of key contracts to
safeguard supplies during the current difficult trading conditions.
The joint effect of the increased costs and faster payment of
suppliers has resulted in an increased outflow of cash of
approximately GBP5.6 million.
Principal risks and uncertainties
The principle risks and uncertainties facing the business are
set out in the Strategic Report within the group's Annual Report
for the financial year 2019/20, which can be found on the South
East Water website.
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 on-going Covid-19 pandemic.
The group's business activities, together with the factors
likely to affect its future development, performance and position
were set out in the strategic report included in the year end
finance report.
The group finances its working capital requirements through cash
generated from operations and committed facilities that can be
called upon as required. The group has called GBP40 million from
its committed facilities, which is currently being held in reserve,
to ensure against any potential liquidity issues during the
on-going Covid-19 pandemic.
The group prepared an annual budget in March, which has been
reforecast as appropriate to take account of the changed
circumstances brought on by Covid-19. The financial results for the
six months to 30 September are consistent with our reforecast. The
directors are therefore satisfied that the group has sufficient
resources to continue in operation for a period of not less than 12
months from the date of this report.
In coming to this decision the Board has considered the
implications of the on-going Covid-19 pandemic and the impact this
may have on the business. The Board has considered a range of
plausible scenarios and has stress tested the financial covenants
against these scenarios. The Board have considered specifically the
impact on cash flows in the first half of the financial year
against expectation and hold some comfort that the financial
performance exceeds the assessments made at the previous year
end.
Looking ahead
The remainder of the year-ahead will be focussed on ending the
first year of the 2020 to 2025 investment period in a good
position, embedding our ongoing engagement activities and ensuring
that no matter what we are protecting our employees and customers
as Covid-19 continues to challenge us all. We look forward to
working closely with our employees, partners and supply chain in
these efforts through 2021.
Preparations had been made previously for the exit of the UK
from the European Economic Area. We have continued with contingency
planning, particularly as the timing now coincides with the
increased risks that winter weather brings. We have been working
with our suppliers and other partners in the industry and through
local resilience forums to ensure any potential impact on our
services is minimised.
In the short-term, we are watching the winter recharge of our
water sources and rainfall over the next few months. Most of our
water sources are in a good position, but some areas are lower than
we would want at this time of year, although we expect normal
winter rainfall will see these quickly recover. The team will
continue to monitor our resources and are working to manage
operations to move water around the network, increase supplies and
reduce leakage. We will continue engaging widely on our water
efficiency campaigns with customers as we expect lifestyle changes
from Covid-19 to continue to influence demand during 2021 whatever
the weather.
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 - in Covid-19 times the
importance of their roles and the purpose of our organisation to
support our local communities has never been clearer.
Nick Salmon
Chairman
11 December 2020
Condensed group income statement
for the six months ended 30 September 2020
Six months Six months
ended ended
30 September 30 September
2020 2019
Notes GBP000 GBP000
Revenue 4 133,736 128,878
Bad debt 5 (1,146) (1,590)
Group net operating costs 5 (84,732) (84,544)
Group operating profit 47,858 42,744
Finance expense 6 (20,130) (25,859)
Finance income 7 2,055 3,038
Profit before taxation 29,783 19,923
Taxation 8 (1,677) (1,851)
-------------- --------------
Profit for the six months 28,106 18,072
-------------- --------------
Other comprehensive income:
Items not reclassified subsequently to
profit or loss:
Remeasurement of defined benefit pension
schemes' surplus or (deficit) (19,446) 11,666
Deferred tax on defined benefit pension
schemes 1,663 (1,983)
Other comprehensive income for six months (17,783) 9,683
-------------- --------------
Total comprehensive income 10,323 27,755
-------------- --------------
Earnings per share
Basic and diluted earning per share 57p 37p
---- ----
Condensed group statement of financial position
as at 30 September 2020
31
30 September March 30 September
2020 2020 2019
Notes GBP000 GBP000 GBP000
Assets
Non-current assets
Property, plant and equipment 12 1,624,466 1,608,845 1,580,566
Intangible assets 11 8,925 9,568 10,703
Amount due from parent
undertaking 17 135,941 135,941 135,941
Defined benefit pension
surplus 27,344 35,912 40,178
1,796,676 1,790,266 1,767,388
------------- ------------ -------------
Current assets
Inventories 690 689 640
Trade and other receivables 13 94,293 84,441 87,318
Cash and cash equivalents 59,288 12,981 12,787
154,271 98,111 100,745
------------- ------------ -------------
Total assets 1,950,947 1,888,377 1,868,133
------------- ------------ -------------
Liabilities
Non-current liabilities
Trade and other payables 15 5,207 4,997 5,312
Loans and borrowings 15,17 1,032,537 1,029,326 1,017,728
Corporation tax payable 54 - -
Defined benefit pension
liability 3,302 3,115 3,126
Deferred tax liabilities 165,553 166,352 148,106
Deferred income 4,663 3,438 4,902
------------- ------------ -------------
1,211,316 1,207,228 1,179,174
------------- ------------ -------------
Current liabilities
Trade and other payables 14 102,633 97,627 103,900
Loans and borrowings 13 80,000 30,000 15,000
Deferred income 3,899 5,418 5,238
Provisions 4,629 4,457 3,742
191,161 137,502 127,880
Total liabilities 1,402,477 1,344,730 1,307,054
------------- ------------ -------------
Net assets 548,470 543,647 561,079
------------- ------------ -------------
Equity
Ordinary share capital 49,312 49,312 49,312
Revaluation reserve 238,893 241,386 248,711
Retained earnings 260,265 252,949 263,056
------------- ------------ -------------
Total equity 548,470 543,647 561,079
------------- ------------ -------------
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 2020
Revaluation Retained
Share capital reserve earnings Total equity
GBP000 GBP000 GBP000 GBP000
At 1 April 2020 49,312 241,386 252,949 543,647
Comprehensive income for
the six months
Profit for the six months - - 28,106 28,106
Other comprehensive income - - (17,783) (17,783)
---------------- -------------- ---------- -------------
Total comprehensive income
for the six months - - 10,323 10,323
---------------- -------------- ---------- -------------
Contributions by and distributions
to owners
Dividends - - (5,500) (5,500)
Transfer to retained earnings - (2,953) 2,953 -
Transfer between other reserves - (11) 11 -
Deferred tax on release
from revaluation reserve - 471 (471) -
---------------- -------------- ---------- -------------
Total contribution by and
distributions to owners - (2,493) (3,007) (5,500)
At 30 September 2020 49,312 238,893 260,265 548,470
---------------- -------------- ---------- -------------
At 1 April 2019 49,312 251,259 238,253 538,824
Comprehensive income for
the six months
Profit for the year - - 18,072 18,072
Other comprehensive income - - 9,683 9,683
---------------- -------------- ---------- -------------
Total comprehensive income
for the six months - - 27,755 27,755
---------------- -------------- ---------- -------------
Contributions by and distributions
to owners
Dividends - - (5,500) (5,500)
Transfer to retained earnings - (3,064) 3,064 -
Transfer between other reserves - (5) 5 -
Deferred tax on release
from revaluation reserve - 521 (521) -
---------------- -------------- ---------- -------------
Total contributions by and
distributions to owners - (2,548) (2,952) (5,500)
At 30 September 2019 49,312 248,711 263,056 561,079
---------------- -------------- ---------- -------------
Condensed group statement of cash flows
for the six months ended 30 September 2020
Six months Six months
ended ended
30 September 30 September
2020 2019
Notes GBP000 GBP000
Cash flows from operating activities
Profit for six months 28,106 18,072
Adjustments for
Depreciation property, plant and
equipment 26,582 25,408
Amortisation and impairment of intangibles 1,855 1,431
Finance income (2,055) (3,038)
Finance expense 19,975 25,859
Loss/(gain)on sale of property,
plant and equipment 23 (51)
Difference between pension contributions
paid and amount recognised (10,309) (2,647)
Tax (paid)/received 1,677 1,851
-------------- --------------
Operating cash flows before movement
in working capital 65,854 66,885
-------------- --------------
Movement in working capital:
Increase in trade and other receivables (10,045) (1,442)
Increase in inventories (1) (48)
Increase in trade and other payables 8,057 12,362
-------------- --------------
Cash generated from operations 63,865 77,757
Interest paid (13,113) (22,043)
Interest received 1,679 2,656
Tax received (765) 56
Net cash from operating activities 51,666 58,426
-------------- --------------
Cash flow from investing activities
Purchase of property, plant and
equipment (48,822) (49,216)
Sale of property, plant and equipment (20) 79
Purchase of intangible assets (1,212) (1,633)
Contributions to infrastructure
assets received 210 476
Net cash used in investing activities (49,844) (50,294)
-------------- --------------
Cash flows from financing activities
Issue costs of listed debt (15) (2,813)
Proceeds from bank borrowings 50,000 295,000
Repayment of borrowings - (294,836)
Dividends paid to the holders of
the parent 9 (5,500) (5,500)
Net cash from/(used in) financing
activities 44,485 (8,149)
-------------- --------------
Net cash increase/(Decrease) in
cash and cash equivalents 46,307 (17)
Cash and cash equivalents at the
beginning of six months 12,981 12,804
-------------- --------------
Cash and cash equivalents at the
end of six months 59,288 12,787
-------------- --------------
Notes to the condensed group financial statements
for the six months ended 30 September 2020
1. Reporting entity
South East Water Limited (the 'company') is a limited company
incorporated in England. The company's registered office is at
Rocfort Road, Snodland, Kent, ME6 5AH. These condensed consolidated
financial statements comprise the company and its subsidiary
(collectively the 'group'). The group is primarily involved in the
supply of water to a population of 2.2 million in an area of 5,700
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 group financial statements for the six months
ended 30 September 2020 are set out on pages 8 to 21, 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 2020, 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 not audited but reviewed by
our auditor. The information herein for the year ended 31 March
2020 does not comprise statutory accounts within the meaning of
section 434 of the Companies Act 2006. Statutory accounts for the
year ended 31 March 2020 were approved by the Board of Directors on
15 July 2020 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. 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 2020.
4. Total income
Six months Six months
ended ended
30 September 30 September
2020 2019
GBP000 GBP000
Revenue
Unmetered water income 9,986 10,379
Metered water income 114,222 105,291
Other sales 3,898 7,148
-------------- --------------
Total revenue 128,106 122,818
-------------- --------------
Other income
Rental income 579 624
Sundry income 5,051 5,436
-------------- --------------
Total other income 5,630 6,060
-------------- --------------
Total income 133,736 128,878
-------------- --------------
5. Segmental analysis
Wholesale Retail Other
activities activities activities Total
GBP000 GBP000 GBP000 GBP000
Period to 30 September 2020
Total income 117,494 8,835 7,407 133,736
------------ ------------ ------------ ---------
Operating profit 45,741 616 1,501 47,858
------------ ------------ ------------
Finance costs (20,130)
Finance income 2,055
---------
Profit before taxation 29,783
Taxation (1,677)
---------
Profit for the period 28,106
Period to 30 September 2019
Total income 108,975 10,932 8,971 128,878
------------ ------------ ------------ ---------
Operating profit 38,675 1,871 2,198 42,744
------------ ------------ ------------
Finance costs (25,859)
Finance income 3,038
---------
Profit before taxation 19,923
Taxation (1,851)
---------
Profit for the period 18,072
---------
6. Net operating costs
Six months Six months
ended ended
30 September 30 September
2020 2019
GBP000 GBP000
Employee benefits expenses 9,070 15,550
Asset expenses 28,460 26,788
Other operating expenses 47,202 42,206
-------------- ----------------------
84,732 84,544
Impairment losses on trade receivables 1,146 1,590
85,878 86,134
-------------- ----------------------
7. Finance income
Six months Six months
ended ended
30 September 30 September
2020 2019
GBP000 GBP000
Interest receivable from group undertakings 1,620 2,599
Pension fund finance credit 382 319
Interest receivable on bank balances and
short term deposits 53 120
2,055 3,038
-------------- --------------
8. Finance costs
Six months Six months
ended ended
30 September 30 September
2020 2019
GBP000 GBP000
Effective interest on listed debt 6,880 11,568
Fair value movements on interest rate swap - 962 2,713
Indexation on listed debt 6,348 2,481
Interest on index linked loans 2,096 6,184
Indexation on index linked loans 5,167 2,188
Other finance costs 6,880 2,197
21,453 27,331
Less: interest capitalised (1,323) (1,472)
-------------- --------------
20,130 25,859
-------------- --------------
9. Taxation
Six months Six months
ended ended
30 September 30 September
2020 2019
GBP000 GBP000
Current taxation charge 813 1,123
Deferred taxation charge 864 728
1,677 1,851
-------------- -------------------------
The current tax charge is based on management's estimate of the
weighted average annual corporation tax rate expected for the full
financial year.
10. Dividends
Six months Six months
ended ended
30 September 30 September
2020 2019
GBP000 GBP000
Interim dividend of 11.2 pence (2019: 11.2
pence) per share paid during the period 2,750 2,750
Interim dividend of 11.2 pence (2019: 11.2
pence) per share paid during the period 2,750 2,750
-------------- --------------
5,500 5,500
-------------- --------------
11. Intangible assets
30 September 31 March 30 September
2020 2020 2019
GBP000 GBP000 GBP000
Net book amount
At 1 April 9,568 10,501 10,501
Additions for the period 1,212 2,985 1,633
Reclassification of assets in the - (869) -
period
Amortisation for the period (1,855) (3,049) (1,431)
------------- --------- -------------
Closing balance as at 8,925 9,568 10,703
------------- --------- -------------
12. Property, plant and equipment
30 September 31 March 30 September
2020 2020 2019
GBP000 GBP000 GBP000
Net book amount
At 1 April 1,608,845 1,558,221 1,558,221
Additions for the period 42,242 101,485 47,775
Reclassification of assets in the - 869 -
period
Depreciation for the period (26,582) (51,422) (25,408)
Disposals for the period (39) (115) (22)
Impairment for the period - (193) -
------------- ------------ -------------
Closing balance as at 1,624,466 1,608,845 1,580,566
------------- ------------ -------------
13. Trade and other receivables
30 September 31 March 30 September
2020 2020 2019
GBP000 GBP000 GBP000
Financial asset receivables
Trade receivables 41,746 39,752 39,686
Accrued income 47,839 39,018 41,520
Amounts due from group undertakings - - 35
89,585 78,770 81,241
------------- --------- -------------
Non-financial asset receivables
Prepayments 3,380 3,872 4,778
Other receivables 1,328 1,799 1,299
------------- --------- -------------
4,708 5,671 6,077
------------- --------- -------------
94,293 84,441 87,318
------------- --------- -------------
14. Trade and other payables
30 September 31 March 30 September
2020 2020 2019
GBP000 GBP000 GBP000
Financial liabilities
Trade payables 7,118 12,877 11,638
Amounts due to group undertakings 10,720 10,727 10,117
Other payables 11,441 4,606 13,493
Accruals 37,539 33,546 34,419
------------- --------- -------------
66,818 61,756 69,667
------------- --------- -------------
Non-financial liabilities
Payments received in advance 34,729 34,856 33,232
Other taxes and social security 1,086 1,015 1,001
------------- --------- -------------
35,815 35,871 34,233
------------- --------- -------------
102,633 97,627 103,900
------------- --------- -------------
15. Non-current financial liabilities
30 September 31 March 30 September
2020 2020 2019
GBP000 GBP000 GBP000
Irredeemable debenture stock 989 990 990
Fixed and Variable rate loans 292,474 292,332 292,312
Lease liabilities 4,084 4,239 2,977
Listed bonds 339,969 338,926 336,949
Index linked loans 395,021 392,839 384,
------------- ---------- -------------
Loans and borrowings 1,032,537 1,029,326 1,017,728
Trade and other payables 5,207 4,997 5,312
------------- ---------- -------------
1,037,744 1,034,323 1,023,040
------------- ---------- -------------
16. Earnings per 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 28,106 18,072
------------- -------------
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 57p 37p
------------- -------------
17. Financial instruments
Fair values of financial assets and financial liabilities
Fair value is the amount at which a financial instrument could
be exchanged in an arm's length transaction between informed and
willing parties. In the opinion of the directors, the fair values
of the financial assets and liabilities of the group (apart from
the specific items shown in the fair value table below) are not
materially different from the book values.
Book value Fair value Book value Fair value Book value Fair value
30 September 30 31 March 31 March 30 September 30 September
2020 September 2020 2020 2019 2019
GBP000 2020 GBP000 GBP000 GBP000 GBP000
GBP000
Measured at
amortised
cost
Amounts due
from parent
undertaking 135,941 108,345 135,941 107,771 135,941 107,125
----------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
Current
liabilities
Bank loan 80,000 80,000 30,000 30,000 15,000 15,000
----------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
Non-current
liabilities
Irredeemable
debentures
Bank
loan 989 843 990 842 990 844
Bank loan 292,474 362,444 292,332 292,332 292,312 366,428
Listed bond 339,969 430,369 338,926 430,369 336,949 430,369
Index linked
loans 395,021 686,893 392,839 504,074 384,500 391,611
Lease
liabilities
capital
element 4,084 4,084 4,239 4,239 2,977 2,977
----------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
1,032,537 1,484,633 1,029,326 1,231,856 1,017,728 1,192,229
----------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------
18. Analysis of amounts recognised in other comprehensive
income
Retained
earnings
GBP000
Six Months to 30 September 2020
Actuarial gain/loss on defined benefit pension schemes (19,446)
Deferred tax on defined benefit pension schemes 1,663
-------------
(17,783)
-------------
Retained
earnings
GBP000
Six Months to 30 September 2019
Actuarial gain/loss on defined benefit pension schemes 11,666
Deferred tax on defined benefit pension schemes (1,983)
-------------
9,683
-------------
19. Events after the reporting date
In December 2020, the company's parent company will repay GBP136
million variable rate loan to the company. This will be funded by
an exceptional dividend payable to the parent company by South East
Water Limited.
On 20 November 2020, the High Court issued a supplementary
ruling in the Lloyds Bank GMP equalisation case with respect to
members that have transferred out of their scheme prior to the
ruling. The results of this mean that Trustees are obliged to make
transfer payments that reflect equalised benefits and are required
to make top up payments where this was not the case in the
past.
The extent to which the judgement will increase the liabilities
of the schemes is under consideration but is not expected to be
material. Any adjustment necessary is expected to be recognised by
the company in the second half of the period ending 31 March
2021.
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END
IR BCBDDLSBDGGG
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December 11, 2020 02:00 ET (07:00 GMT)
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