TIDM53HO
RNS Number : 4141F
South East Water Limited
15 July 2019
South East Water Limited
Preliminary results
for the year to 31 March 2019
Chairman's Statement
On behalf of the Directors of South East Water, I am pleased to
present our preliminary results announcement for the year ended 31
March 2019. This was the fourth year of the current five year
regulatory period. It has been a pivotal year in building our
long-term plans placing people (customers, the community we serve
and our employees) and our environmental impact at the centre of
our strategy to responsibly deliver exemplary customer
satisfaction.
Our team has worked hard throughout the year to achieve the
stretching objectives set in the 2015 to 2020 business plan,
providing great service to all our household customers and to water
retailers who rely on our wholesale water services. In addition, we
have been developing our plans for the future in the form of the 60
year water resources management plan and publishing a very
ambitious business plan for the next five year regulatory
period.
Customer satisfaction responsibly delivered - our ambitious
business plan
On 3 September 2018 we published our business plan for the five
year period commencing April 2020, as did all of the other water
and wastewater companies in England and Wales, following which
Ofwat published its Initial Assessment of Plan (IAP) for each
company in January 2019.
We were very pleased that Ofwat recognised the ambition in our
plan and how we had challenged ourselves to deliver significant
improvements over current performance levels at efficient cost. In
particular, Ofwat commended us for showing ambition and innovation
in the areas of improving customer service, support for vulnerable
customers and the environment. We were one of only three companies
to meet Ofwat's stretching requirements with a high quality package
of outcome delivery incentives (ODI's) based on customer views.
However, Ofwat's overall assessment was that in certain areas
our plan required further evidence and/or justification for some of
the decisions made. We have responded comprehensively to all of the
issues and actions raised by Ofwat and published our full response
to the IAP on our website on 1 April 2019. We have provided more
evidence in those areas where Ofwat did not find our initial
evidence compelling and made a limited number of changes. For
example, we have:
-- given greater protection to customers with a re-design of how
any outperformance payments should be
shared with them
-- provided additional evidence in critical areas, such as per
capita consumption (PCC) and leakage, to
justify our approach in a water stressed region
The plan has been built through an extensive engagement process
involving nearly 13,000 customers, other stakeholders and
businesses through 120 separate elements of research.
This research used both traditional methods and more innovative
approaches and has enabled us to build a business plan that goes
further to deliver a more personalised service for customers.
The plan, if agreed, will see the investment of a further GBP472
million to improve water infrastructure over the five year period.
We consider this to be the most ambitious five year plan we have
ever proposed. With a 36-strong suite of performance commitments,
and innovative incentives - the plan challenges us to deliver
performance levels well beyond anything we have delivered
before.
Our plan also recognises our wider responsibilities as the
provider of an essential service. To reflect this responsibility we
have created 10 specific responsible business measures for key
areas that customers and stakeholders have identified that we
should focus on. The business plan also includes six very
stretching new performance commitments relating to vulnerable
customers and six new environmental performance commitments.
We firmly believe our ambitious business plan will deliver the
service customers rightly expect in a responsible way, while
maintaining the average annual bill at GBP204 before inflation for
the next five years.
Throughout the year we worked closely with our independent
Customer Challenge Group, led by chair Zoe McLeod, who provided
challenge throughout which helped us build a business plan truly
driven by customer priorities. I would like to thank Zoe and her
team for their contribution and look forward to continuing the
relationship as we develop a new Customer Engagement Panel which
will support our efforts to continue to embed customer engagement
in the way we conduct our business.
Engaging for long-term water resilience and sustainability
During 2018 we held a 12 week public consultation on our draft
water resources management plan which formed part of our business
plan submission. This plan takes a long term view, over 60 years,
of how we aim to ensure that there are adequate supplies of water
both throughout normal conditions and during periods of drought,
taking account of forecast population growth and the potential
effects of climate change. We need to achieve this while balancing
the needs of the natural environment on a sustainable basis. We
engaged with hundreds of customers and stakeholders during this
time and the web page for the consultation received more than 1,900
visits.
In August 2018 we published a revised water resources management
plan which took on board the key challenges raised in the
consultation, and in particular customer and stakeholder support
for the reduction of customers' water use and overall leakage. In
line with the guidelines we have made an estimate of the cost of
our preferred plan. Over the 60 year planning period we estimate
that the current cost of our plan will be GBP986.2 million in net
present value (NPV) terms and will increase the supply of water by
266.5 Ml/d (52 per cent) to secure the long-term resilience of
water resources in our area. The revised plan is with the Secretary
of State for approval and we hope to publish a final plan later
this year.
Our award winning catchment management partnership has continued
as part of our large programme of environmental work under the
Water Industry National Environment Programme (WINEP). The team has
had some notable successes during the year, including picking up a
Water Industry Achievement Award for water resilience and
successfully removing more than a tonne of agricultural chemicals
from 23 farms across three catchments as part of a pesticide
amnesty.
We are particularly proud to be a part of Interreg, a four year
programme which aims to address the impacts of climate change and
enhance the availability of raw water in Europe. The cross-border
project is called PROWATER, which stands for 'protecting and
restoring raw water sources through actions at the landscape scale'
and will contribute to climate adaptation by restoring water
storage in the environment through catchment management. Examples
of this are forest conservation, natural water retention and
restoration of compacted soils. These are all examples of
Ecosystem-based Adaptation (EbA) measures.
Targeting five-out-of-five customer service
We have continued with our "five-out-of-five" customer
commitment across the business including:
-- increased digital communications such as 'My Account' with
more than 60,000 customers signed up during 2018/19 taking total
numbers to 162,000, and 138,000 customers using our 'in your area'
map showing supply updates
-- improving our customer account management tool giving our
advisors a clearer view of customer information and ability to
offer better advice for customers on payment plans
-- training 20 innovation champions across the business to embed
a culture that supports new ideas and continual improvement
-- engaging with more than 5,800 people via our community
events, open days and school programme
This year we became the first water company to receive BSI
(British Standards Institution) accreditation to BS 18477, the
standard which demonstrates that an organisation provides a
comprehensive service for identifying and responding to vulnerable
customers.
This was the last year of Ofwat operating its service incentive
mechanism (SIM) survey. This compares customer service and
satisfaction across the industry. It will be replaced by a customer
experience measure (C-Mex) which is currently in development. For
this final year we were pleased to see our SIM score for 2018/19
end the year at 85.4 out of 100 (85.6 in 2017/18). This is
commendable as achieved against a backdrop of embedding the
significant change in our billing processes through the
introduction of "One Bill".
"One Bill" is our project with Southern Water to simplify
465,000 customer bills, enabling one bill to be issued for water
and wastewater services. This project was in response to customers'
requests for simpler bills for water and wastewater. This has been
an important improvement for customers as many have said they
wanted to be able to manage their water and wastewater bill through
one account, just as our customers who have Thames Water as their
wastewater service provider have done for many years.
Science and engineering excellence to deliver quality water
An exciting development this year has been the commencement of a
year-long innovation programme to trial a smart water network.
Around 2,000 properties in our Hartley district have been provided
with the latest technology that could enable a further step change
in leakage detection and repair times. What makes this trial
different is 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.
This in turn will enable us to become far more proactive when
discovering and prioritising leak repairs, alongside opening up our
engagement with customers in a much more innovative and interactive
way. We are expecting the trial to inform subsequent wider
programmes of work across the company.
We are continually looking for the latest innovations to drive
leakage levels down further. In Kent we are pioneering a new
satellite technology to identify leaks that are difficult to find
with traditional methods. This technology, which is used to
identify water on other planets, creates images which cover
approximately 5,700 square kms. An algorithm then detects treated
water, by looking for a particular chemical signature present in
drinking water. This data is presented in a leakage graphic report
overlaid on a map with streets and water pipes.
Our technicians in the area have an app on their phones which
shows the location of suspected leaks, which they can then check
and verify. This trial is in its early stages but the initial
results look promising both in terms of leaks found and
productivity.
The leakage figures we report include leaks on customer's pipes
as well as our own, and we have also been trialling customer-side
leak identification and repair innovations. We are currently
partnering with Centrica Hive (a smart home technology provider) in
an industry first to test new devices to alert customers to issues
on their own plumbing.
I am pleased to report that the leakage team has beaten our
target of 89.1 million litres a day (Ml/d), achieving 86.9 Ml/d
during the year - a good step towards our commitment of reducing
leakage by a further 15 per cent by 2025. Beating the target was a
significant achievement given that the team started the year with
additional leaks resulting from the severe cold weather and sudden
thaw caused by the Siberian 'Beast from the East' in March 2018,
and having recovered from this position, then had to mitigate a
similar impact from a prolonged summer heatwave. Through round the
clock working, and the diversion of other technical resources to
the leakage effort we managed to repair an additional 1,717 leaks,
compared to an average year.
The long heatwave of summer 2018 required us to produce up to an
additional 100 million litres of treated water a day, 19 per cent
more than a normal day.
Despite the increased demand for water throughout the heatwave,
we were able to maintain supplies to customers without the need for
temporary water restrictions. This was helped by customers
themselves responding responsibly to our communication campaigns to
save water usage during the hot, dry, spell and we thank everyone
for doing their bit to save water. Rainfall through the winter
2018/19 has enabled our reservoirs and groundwater sources to
replenish and means, as we move into summer 2019, our water
resources are in a good position.
We saw an increase in burst water mains during the year, 2,826
compared with 2,747 in 2017/18, as the hot weather of the summer
led to ground movements and the increased demand for water put
pressure on the network. The number of bursts were a challenge for
our operational teams. We ended the year with overall interruption
to supply performance at 14.2 minutes per property (against our
target of 12 minutes for the year). We undertake a wide range of
activities to minimise the number of burst mains including dynamic
pressure management, calm network operations and a targeted mains
replacement policy.
During the year we invested GBP104.7 million in new and existing
assets as part of the GBP437 million investment planned for the
period from 2015 to 2020. The expenditure in the year saw us
install 33km of new mains pipelines and renew a further 30km of old
pipelines across the region, continue our customer metering
programme and improve our water treatment works. Schemes such as
these are supporting our efforts to improve services for our
customers and help safeguard the environment. We are committed to
continuing this level of investment in 2020 to 2025 business
plan.
Our largest single investment commenced this year at the Keleher
Water Treatment Works at Bray in Berkshire. The GBP21 million
project is increasing the capacity of the treatment works, which
celebrated its 25(th) anniversary this year, from the current 45
million litres per day to 68 million litres per day. The work got
underway during the summer with a site clearance programme which
was completed ahead of schedule. Work will continue throughout 2019
and is on track to complete in early 2020.
We strive to keep improving the quality of the water we supply.
We have maintained high overall water quality with 99.98 per cent
of samples passing standards set by the Drinking Water Inspectorate
in the calendar year from January to December 2018. I am pleased to
report we have also made progress on reducing the number of
contacts received from customers about discoloured water. In
2018/19 we received 0.59 contacts (per 1,000 population) compared
to 0.82 the previous year. This improvement was the result of our
successful Seaquest dosing and mains flushing programme which
removes the harmless naturally occurring deposits which build up
over time within the mains which can cause the discoloration
incidents.
A very important water demand management project over the last
eight years has been the compulsory Customer Metering Programme,
which aimed to have 90 per cent of properties metered by 2020. The
project has achieved the 90 per cent target in March 2019. I would
like to commend the team, including our partner Clancy Docwra,
which has delivered this metering programme. The project, which was
shortlisted this year for a Water Industry Achievement Award, has
been a success with demand for water reducing by 18 per cent in the
homes that we have compulsorily metered.
Non-household customers
During the earlier part of the financial year the decision was
taken to exit the non-household retail market and focus solely on
the provision of wholesale water services to retailers in this new
market. I am pleased to report that the transfer of our
non-household customers to the new retailers has been
successful.
Brexit
The proposed exit of the UK from the European Economic Area has
been included in our risk analysis. Throughout the year we have
been making contingency plans for this evolving issue. We have been
working with our suppliers and other partners in the industry to
ensure the consequences of the various exit scenarios have minimal
impact on our services. Further details are set out in the Managing
Directors Report.
Financial results
The results published in this report describe our performance
for the year and incorporate the performance of South East Water
Limited and South East Water (Finance) Limited.
This year we have had a strong financial performance, having
generated a group operating profit of GBP86.4 million for the year
to 31 March 2019, compared with GBP75.0 million for the prior year.
Our turnover was GBP238.3 million for the year compared to GBP221.5
million in the prior year. This additional revenue is primarily due
to the allowed price increase in the year of GBP9.2 million and the
additional turnover taken to the income statement following the
adoption of IFRS 15 of GBP7.5 million.
Group net operational costs, including charges for doubtful
debt, have increased in the year to GBP164.8 million compared to
GBP155.3 million in the prior year, an increase of GBP9.5 million.
Included in this increase are additional costs of GBP2.3 million
reflecting the impact of the adoption of IFRS 15 (see note 2),
GBP1.4 million additional depreciation on fixed assets and GBP1.5
million of additional energy and bulk water supply costs.
Profit before tax has increased by GBP12.6 million from GBP23.8
million to GBP36.4 million. Net finance costs have reduced in the
year by GBP1.2 million to GBP50.0 million. This is due to an
increase in finance income of GBP1.3 million being offset by an
increase in finance costs of GBP0.1 million.
Profit for the year has increased from GBP16.2 million to
GBP38.7 million, which is driven by the improved operational
performance detailed above together with the profit on disposal of
the company's non-household business of GBP9.2 million. The
reduction in tax during the year is largely due to the treatment of
deferred tax on the group's revaluation reserve being revised in
the prior year.
We have developed a Sustainability Finance Framework, under
which the company can issue Sustainability Bonds and Sustainability
Loans. The framework will finance a range of activities, not only
environmental projects but also ones which will benefit society
such as improving drinking water quality. The framework was
supported by ING, which acted as sole Green Structuring Advisor and
independently reviewed by VigeoEiris.
This Sustainability Finance Framework highlights how our
activities are supporting five of the United Nation Sustainable
Development Goals, including climate action and sustainable cities
and communities. It is an important step in our continuous
development as a responsible business.
We have secured the funding to replace the GBP311m of our debt
which matures on 30 September 2019. We have secured GBP120m of debt
from banks, which matures in 2025, and GBP175m from US insurance
companies and pension funds in the form of a Private Placement. The
Private Placement is in two tranches with GBP75 million maturing in
2031 and GBP100 million maturing in 2042. In addition we have
secured a GBP54m equity injection from our shareholders which
allows our gearing to reduce and is consistent with the commitment
they provided in our business plan. The funds for each tranche are
committed and will be drawn down in September. We look forward to
working with our new investors to continue to develop our
sustainable business strategy.
Our people, working together towards future success
We know that great people, who see purpose in their work, are
the key to the success of our business. That is why ensuring South
East Water is "the water company people want to work for" is an
integral part of our vision. We are delighted that this year we
were shortlisted in the Utility Week Environment Award and that in
May 2018 we won the Resilience Initiative of the Year at the Water
Industry Achievement Awards. Our people should be rightly proud of
the job they do and the important role they play in our
society.
Our "Thrive 365!" health, safety and wellbeing strategy,
consists of two strands, safe people and safe working, and is about
more than just preventing accidents; it is about enhancing the
overall wellbeing of our people.
This year we have been developing our mental health strategy to
combat poor mental health and the first stage has been to recruit
and train 16 mental health first aiders. The course, conducted by
the charity Mind, was thought provoking and those who took part
said they left with a determination to ensure that everyone has
access to the support they need at the times they need it.
In March we published our gender pay gap report which shows an
average hourly rate pay gap of 23 per cent, while a small drop from
the previous year it is still above the national average. We ensure
that on a like for like role there is no gender pay gap, but our
gap is the result of having more men in higher paid roles. To
continue to reduce the gap we therefore need to increase the number
of women we appoint and develop into higher paid roles. Accordingly
we have concentrated this year on a review of our recruitment
processes, to ensure that we benefit from the widest possible
talent pool, alongside a review of our job evaluation system, to
ensure that there is a clearer progression path for all our
colleagues. We are also continuing with the initiatives we put into
place last year, such as our women at work group, to help women
progress their careers in the company and STEM ambassadors, to
encourage recruitment into technical roles.
Engaging with our employees is important so we can continue to
improve as an employer of choice. We were pleased that our 2018
engagement survey achieved a response rate of 88 per cent, and that
90 per cent of the employees who responded are proud to work for
South East Water. We also undertook to achieve reaccreditation of
the Investors in People (IIP) award during the year. The IIP
framework has recently been updated and therefore we are pleased to
confirm we have achieved the silver award, a great result against
much more stretching standards that is only achieved by six per
cent of IIP accredited companies. Thank you to the 100 colleagues
who participated in the interview and review process that focused
on nine indicators and 27 themes developed to reflect the features
of leading businesses and organisations which outperform industry
norms.
To support continued development of our employees we introduced
a new employee performance management framework called iReview in
2017 and developed it further this year. We are delighted that this
second year saw 100 per cent completion putting employees in the
driving seat of their personal development. Building on the
ambitions of our employees is vital and we are pleased to confirm
last year more than 19,000 hours of official training and
development were recorded.
Building a sustainable future
During the year we have been building our environmental, social
and governance (ESG) framework and we aim to be recognised as a
leading responsible business. As highlighted earlier the business
plan incorporated a responsible business strategy with 10 new
responsible business commitments to reflect the actions and
behaviours customers expect a responsible business to display.
Activities we've been developing include increasing our schools
programme of engagement, developing more partnerships by working
with charities and universities, ensuring fair reward and
recognition for all employees and working with Water UK and the
Refill organisation to encourage the use of tap water as a
sustainable alternative to bottled water. Full details of our work
and example case studies can be seen in our Performance, People and
Planet report.
To ensure we are prepared to continue to lead in this area,
embed the commitments within the business and never stand-still, we
have set up a Responsible Business board committee. The main
purpose of the committee is to assist the board in defining the
company's strategy relating to ESG matters and in reviewing related
practices and initiatives to ensure they remain effective and up to
date.
On behalf of the Board I would like to thank all our employees,
the management team and our business partners for all they achieved
during 2018/19. Yet again this year the South East Water community
has demonstrated dedication and passion for providing customers
with a sustainable water supply today and into the future. Our
plans prepared during 2018/19 are the most ambitious we have seen
and will support a long-term vision and legacy for the region. I
look forward to the year ahead as we work together to prepare for
the start of a new five year period and complete the commitments we
made through to 2020.
Nick Salmon
Chairman
15 July 2019
Group income statement
for the year ended 31 March 2019
2019 2018
Notes GBP000 GBP000
Continuing operations
Revenue 5 238,281 221,492
---------------- ------------------
Bad debt (1,584) (1,199)
---------------- ------------------
Group net operating costs (163,257) (154,068)
---------------- ------------------
Other income 5 12,997 8,816
Group operating profit 86,437 75,041
Finance costs (56,110) (56,017)
Finance income 6,076 4,803
Profit before taxation 36,403 23,827
Taxation 6 (6,992) (7,590)
---------------- ------------------
Profit for the year from continuing
operations 29,411 16,237
Discontinued operations
Profit/(Loss) on discontinued operations 8 9,253 (69)
---------------- ------------------
Profit for the year 38,664 16,168
---------------- ------------------
Earnings per share
Basic and diluted 9 78.41p 32.79p
---------------- ------------------
Group statement of comprehensive income
for the year ended 31 March 2019
Notes 2019 2018
GBP000 GBP000
Profit for the year 38,664 16,168
Items that will not be reclassified
subsequently to profit or loss:
Remeasurement of defined benefit (deficit)/surplus (3,525) 9,355
Deferred tax on defined benefit pension
schemes 6 600 (1,590)
(2,925) 7,765
---------- ---------
Total comprehensive income for the year
attributable to owners of the company 35,739 23,933
---------- ---------
Group statement of financial position
as at 31 March 2019
31 March 31 March
2019 2018
GBP000 GBP000
Non-current assets
Intangible assets 10,501 10,758
Property, plant and equipment 1,555,123 1,501,707
Amount due from parent undertaking 189,911 190,013
Defined benefit pension surplus 25,564 24,510
-------------- --------------
1,781,099 1,726,988
-------------- --------------
Current assets
Inventories 592 236
Trade and other receivables 86,190 78,255
Cash and cash equivalents 12,804 6,528
-------------- --------------
99,586 85,019
-------------- --------------
Total assets 1,880,685 1,812,007
-------------- --------------
Current liabilities
Loans and borrowings (254,890) (20,000)
Derivative financial instruments (108,836) -
Trade and other payables (92,263) (94,379)
Deferred income (7,183) (7,593)
Provisions (3,972) (2,515)
-------------- --------------
(467,144) (124,487)
-------------- --------------
Non-current liabilities
Loans and borrowings (717,604) (900,897)
Trade and other payables (5,379) (5,979)
Derivative financial instruments - (104,169)
Net deferred tax liabilities (145,395) (140,085)
Defined benefit pension liability (3,154) (3,281)
Deferred income (3,185) (74,471)
(874,717) (1,228,882)
-------------- --------------
Total liabilities (1,341,861) (1,353,369)
-------------- --------------
Net assets 538,824 458,638
-------------- --------------
Equity
Ordinary share capital 49,312 49,312
Revaluation reserve 251,259 256,396
Retained earnings 238,253 152,930
-------------- --------------
Total equity 538,824 458,638
-------------- --------------
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 2019
Issued
share capital Revaluation Retained Total equity
GBP000 reserve earnings GBP000
GBP000 GBP000
Balance at 1 April 2017 49,312 261,549 141,845 452,706
--------------- -------------- ----------- ---------------
Profit for the year - - 16,168 16,168
--------------- -------------- ----------- ---------------
Other comprehensive income:
Remeasurement of defined benefit
surplus/(deficit) - - 9,355 9,355
Deferred tax on defined benefit
pension schemes - - (1,590) (1,590)
Total other comprehensive income - - 7,765 7,765
Total comprehensive income 23,933 23,933
Dividends (see note 5) - - (18,000) (18,000)
Amortise revaluation reserve - (6,129) 6,129 -
Release revaluation on disposals - (70) 70 -
Deferred tax on revaluation and
retained earnings transfer - 1,046 (1,046) -
Balance at 31 March 2018 49,312 256,396 152,931 458,639
Change in accounting policy IFRS
15 (see note 2) - - 72,548 72,548
--------------- -------------- ----------- ---------------
Change in accounting policy IFRS
9 (see note 3) (102) (102)
--------------- -------------- ----------- ---------------
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
surplus/(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 5) - - (28,000) (28,000)
Amortise of revaluation reserve - (6,127) 6,127 -
Release of revaluation reserve
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
--------------- -------------- ----------- ---------------
All transactions relate to the equity holders of the
Company.
Group statement of cash flows
for the year ended 31 March 2019
Notes 2019 2018
GBP000 GBP000
Operating activities
Net cash flow from operating activities 125,023 123,172
Interest received 5,437 4,554
Interest paid (36,940) (35,617)
Group tax relief paid (1,314) (4,036)
--------- ---------
Net cash flow before investing and financing
activities 92,206 88,073
--------- ---------
Investing activities
Proceeds from the sale of property, plant
and equipment 736 264
Purchase of property, plant and equipment (97,132) (93,763)
Proceeds from the sale of non-household
customer base 9,156 (69)
Purchase of intangible assets (2,997) (3,106)
Fixed asset contributions received - 1,758
Net cash flow used in investing activities (90,237) (94,916)
--------- ---------
Financing activities
New bank loans received 35,000 20,000
Issue cost of new debt (2,693) -
Dividends paid to shareholder 7 (28,000) (18,000)
Net cash flow from financing activities 4,307 2,000
--------- ---------
Increase/(Decrease) in cash and cash
equivalents 6,276 (4,843)
Cash and cash equivalents at the beginning
of the year 6,528 11,371
--------- ---------
Cash and cash equivalents at the year
end 12,804 6,528
--------- ---------
Net Cash flow from operating activities
2019 2018
GBP000 GBP000
Profit for the year 38,664 16,168
Adjustments for:
Income tax charge 6,992 7,590
Finance income (6,076) (4,835)
Finance costs 56,110 56,049
Depreciation and impairment of property, plant
and equipment 48,046 46,253
Amortisation and impairment of intangibles 3,254 3,405
Profit on disposal of fixed assets (9,253) (120)
Proceeds from the sale of non-household customer
base (9,156) 69
Difference between pension contributions paid
and amounts recognised in the income statement (4,086) (3,861)
Changes in working capital:
Increase in trade and other receivables (5,451) (5,958)
Increase in inventory (356) (22)
Increase/(Decrease) in trade and other payables (2,444) 8,434
Net cash flow from operating activities 125,023 123,172
-------- ----------
Notes
1 Basis of preparation
(i) The financial information included within this statement has
been prepared on the basis of accounting policies consistent with
those set out in the Annual Report and Financial Statements for the
year ended 31 March 2019.
(ii) The information shown for the years ended 31 March 2019 and
31 March 2018 does not constitute statutory accounts within the
meaning of section 435 of the Companies Act 2006 and has been
extracted from the full accounts for the year ended 31 March 2019.
The reports of the auditors on those accounts were unqualified and
did not contain a statement under either Section 498(2) or Section
498(3) of the Companies Act 2006. The accounts for the year ended
31 March 2019 will be delivered to the Registrar of Companies in
due course.
(iii) The financial information included in this statement was
approved by the board on 15 July 2019.
2 Adoption of IFRS 15
The group adopted IFRS 15 Revenue from Contracts with Customers
("IFRS15") on 1 April 2018 using the modified retrospective method.
The group has a number of different income streams that need to be
considered in the context of IFRS 15.
Income from the supply of water services is currently recognised
as the service is supplied. Under IFRS 15 there is no significant
judgment required in identifying the customer in these contracts
with customers. The performance obligations are the supply of the
water services and revenue is recognised as these obligations are
satisfied over time. The adoption of the new standard has had no
material impact on the timing and amount of revenue recognised in
these services.
Other income, including billing and collections services and
laboratory services, involve similarly readily identifiable
contracts with customers with clearly defined performance
obligations to which prices are allocated.
Income from transactions relating to the group's network assets
in providing a network connection and on-going access to the
network ("capital income") requires significantly more judgment in
identifying contracts with customers and the related performance
obligations.
Capital income can be categorised under the following
headings:
-- Infrastructure charges;
-- New connections income; and
-- Developer contributions to new mains and mains diversions.
Infrastructure charges were previously recognised in the income
statement when access to the mains supply is granted. This
treatment is consistent with the principles of IFRS 15 and no
change is required for this income stream.
New connections income, to the extent it relates to the cost of
the new connection, and developer contributions were previously
held as deferred income on the statement of financial position and
released to the income statement over the life of the underlying
assets.
These activities relate to the establishing a connection to the
water network and are performed for developers. Each of these
activities are performed as separate contracts with the developers
as required and on request from developers. Not all developments
require all of these activities to be performed. The overall result
from these contracts is that properties are allowed access to the
network prior to the properties being sold. These activities are
part of the group's ordinary activities associated with the
operation, maintenance and expansion of a water network and,
because they are deemed to result in an exchange transaction, we
have determined that they fall within the scope of IFRS 15 as
transactions arising from contracts with customers, i.e. the
developers who request the services.
The performance obligations in contracts for the different
capital related income streams are recognised as:
-- Infrastructure charges - the provision of access to the network.
-- New connections income - the connection of individual
properties via a communication pipe to the mains supplying the
development.
-- Developer contributions to new mains and mains diversions -
the completion of the laying of a new main or replacement main, as
defined by the contract.
The prices attaching to these contracts and relating to these
performance obligations are set in line with the guidance provided
by Ofwat. In the case of infrastructure charges and new connections
a number of properties are aggregated together in determining when
performance obligations are completed and the price relating to the
obligation.
Revenue is recognised on each of these capital income streams on
completion of the performance as described above.
Applying IFRS 15 has resulted in a significant change to the
accounting policy for new connections income and developer
contributions to new and diverted mains.
At the date of adoption of IFRS 15, the group had GBP75.7
million of deferred income in respect of infrastructure charges,
new connection charges and developer contributions to new and
diverted mains. Of this amount, GBP71.9 million related to
contracts that have been completed and where the assets are in
current use. An adjustment has been made to deferred income upon
adoption of IFRS 15 for the contributions on completed jobs and
retained earnings has increased by GBP71.9 million accordingly.
In addition, non-current trade and other payables includes
amounts received from developers for self-lay, discounted aggregate
deficit and relevant deficit schemes of GBP5.4 million at 1 April
2018. Of this amount, GBP0.5 million related to projects that have
been completed in prior years and are not refundable to the
developers. An adjustment has been made to non-current trade and
other payable for the amounts received in respect of completed jobs
and retained earnings has increased by GBP0.5 million
accordingly.
The remaining amounts received from developers at 1 April 2018,
being GBP3.8 million in respect of contributions and GBP4.9 million
in respect of self-lay and similar schemes, relate to contracts
where the performance obligations have not yet been satisfied.
These will be recognised in the income statement on completion of
the respective performance obligation under each contract.
In summary, the adjustments relating to the opening balances of
net assets and retained earnings are:
GBP000
Non-current trade and other payables 543
Deferred Tax 107
Non-current deferred income 71,898
Increase in net assets 72,548
---------
Increase in retained earnings 72,548
---------
3 Adoption of IFRS 9
On 1 April 2018, the group adopted IFRS 9 Financial Instruments
("IFRS 9"). IFRS 9 specifies how the group should classify and
measure financial assets and liabilities.
IFRS 9 does not change the classifications of financial
liabilities from the current IAS 39 requirements. IFRS 9 requires
all financial liabilities to be measured at amortised costs, except
for financial liabilities through profit or loss.
In adopting the Standard, the group has assessed the
classification of its financial instruments and reclassified its
financial assets as follows:
Financial asset IAS 39 classification IFRS 9 classification
Amount due from parent
due in more than one Loans and receivables Measured at amortised
year cost
------------------------ ------------------------
Trade receivables Loans and receivables Measured at amortised
cost
------------------------ ------------------------
Accrued income Loans and receivables Measured at amortised
cost
------------------------ ------------------------
Amounts due from parent
and fellow subsidiary
undertakings due within Loans and receivables Measured at amortised
one year cost
------------------------ ------------------------
There were no changes to the classification of the company's
financial liabilities.
The group has considered the credit risk of its financial assets
and concluded that:
-- the policy for provision for doubtful trade debts should be
updated to include allowance for future environmental and economic
conditions. In making this change management has concluded that no
adjustment is required or has been recorded to the provision
previously calculated under their old accounting policy following
the adoption of IFRS 9; and
-- the risk of non-recovery of the group's parent loan is
considered very small. In accordance with the requirements of IFRS
9, management has assessed the risk and recognised an allowance on
transition for credit loss of GBP102,000 in its opening retained
earnings. A provision for this allowance has been created and
offset against the carrying value of the relevant asset in the
group statement of financial position.
4 Going concern
The group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the strategic 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's annual budget and forecasts, together with its five year
plan and longer resources planning, all indicate that the group
should be able to continue operating.
Therefore, the directors believe that the South East Water and
the group are well placed to manage their business risks
successfully. Accordingly, they continue to adopt the going concern
basis in preparing the annual report and financial statements.
5 Total income
Group and company 2019 2018
GBP000 GBP000
Revenue
Unmetered water income 24,966 34,868
Metered water income 199,278 180,363
Unmetered sewerage income - -
Metered sewerage income (15) -
Other sales 14,052 6,261
---------- ----------
Total Revenue 238,281 221,492
---------- ----------
Other income
Rental income 1,233 1,178
Sundry income 11,764 7,638
---------- ----------
Total other income 12,997 8,816
---------- ----------
Total income 251,278 230,308
---------- ----------
6. Corporation tax
Major components of the tax expense for the years ended 31 March
2019 and 2018 are:
2019 2018
GBP000 GBP000
Group income statement
Current tax:
Current UK tax charge 878 1975
Amounts (over) provided in previous years - (1)
-------- --------
878 1,974
-------- --------
Deferred tax:
Relating to origination and reversal of temporary
differences 6,017 5,600
Tax charge reported in the group income statement 6,895 7,574
-------- --------
Tax charge/(credit) to equity - -
Deferred tax on defined benefit pension schemes (600) 1,590
Tax reported in comprehensive income statement (600) 1,590
-------- --------
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:
2019 2018
GBP000 GBP000
Profit for the year on Continued operation 36,403 23,827
-------- --------
Profit multiplied by the rate of corporation
tax in the UK of 19% (2018: 19%) 6,917 4,527
Effects of:
Adjustments to current tax charge in respect
of previous years - (1)
Adjustments to deferred tax charge in respect
of previous years (451) 2,523
Expenses not deductible for tax purposes 594 541
Tax effect of income not taxable in determining (68) -
taxable profit
Total tax charge reported in the group income
statement 6,992 7,590
-------- --------
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
tax treatment of the amortisation of the revaluation reserve. 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.
7 Dividends
2019 2018
GBP000 GBP000
Equity dividends paid during the year:
First interim dividend of 14.20p per ordinary
share (2017: 9.13p per ordinary share) 7,000 4,500
Second interim dividend of 14.20p per ordinary
share (2017: 9.13p per ordinary share) 7,000 4,500
Third interim dividend of 14.20p per ordinary
share (2017: 9.13p per ordinary share) 7,000 4,500
Final dividend of 14.20p per ordinary share
(2017: 9.13p per ordinary share) 7,000 4,500
--------- ---------
28,000 18,000
--------- ---------
There were no dividends proposed for approval as at 31 March
2019 and 31 March 2018.
8 Profit on discontinued operations
On 1 May 2018, the group sold its rights to the non-household
customer base to its fellow wholly owned subsidiary, Invicta Water
Limited, for a consideration of GBP10.0 million which has resulted
in a profit on disposal of GBP9.2 million. The rights to the
non-household customer base are an internally generated intangible
asset and, as per IAS 38, these were not recognised on the group's
statement of financial position.
2019 2018
GBP000 GBP000
Revenue 354 3,363
Operating expenses (361) (3,446)
Finance costs - (2)
-------- --------
Profit before tax (7) (85)
Proceeds from disposal of intangible asset 10,000 -
Legal fee (244) -
Consultancy (91) -
Bad debt provision (502) -
Taxation 97 16
Profit/(loss) attributable to discontinued
operation 9,253 (69)
-------- --------
9 Earnings per ordinary share - basic and diluted
The following reflects the income and shares data used in the
basic and diluted earnings per share computations:
2019 2018
GBP000 GBP000
Profit for the year from continuing operation 29,411 16,237
----------- -----------
Profit/(loss) for the year from discontinued
operation 9,253 (69)
Number Number
Basic and diluted weighted average number
of shares 49,312,354 49,312,354
----------- -----------
Basic and diluted earnings per share from
continuing operation 59.64p 32.93p
----------- -----------
Basic and diluted earnings per share from
discontinued operation 18.77p (0.14)p
----------- -----------
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 LLFFFDDIFLIA
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