TIDM53HO
RNS Number : 1408G
South East Water Limited
17 July 2023
South East Water Limited
Preliminary results
for the year to 31 March 2023
Chair and CEO joint report
Our joint Chair/CEO statement reflects on our performance during
one of the most challenging years for our company, our colleagues,
and our customers, as well as the communities we serve and our
natural environment.
We know what our customers expect from us - a reliable supply of
high-quality drinking water that represents good value for money -
and we strive to deliver consistently high levels of service via a
business that is safe, efficient and effective. Every year we are
proud to provide top quality drinking water to 2.3 million
customers across the south east of England. Over the last year we
treated and pumped around 542 million litres of water a day into
our network of nearly 15,000kms (9,000 miles) of pipes at a cost to
each customer of around 60p a day.
We couldn't do this without the sterling support of everyone in
our business and so we start this review with a huge 'thank you' to
all those who played their part in responding to the unprecedented
challenges we have faced over the past year. This includes our
colleagues, our contractors and our partners.
Our core 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.
Annual performance targets that stretch us year-on-year are
important as they help to drive sustained improvements in
performance, innovation and delivery of service outcomes.
Whilst we acknowledge that the climate is changing, we have seen
an exceptional combination of extreme weather events this year that
has significantly impacted on our business operations and financial
performance. While we have done everything we can to meet the
exacting performance targets and rigorous environmental commitments
that go even beyond our statutory obligations, extreme weather
events have had a significant impact on our performance in the past
year.
Climate change fuelled three major weather-related events during
our last financial year, and these were preceded by another serious
event, Storm Eunice, within the calendar year. First, we
experienced an unprecedented extreme heatwave, with record-breaking
temperatures, the driest conditions in Kent since records began in
1836 and the lowest rainfall in Sussex since 1911. While reservoirs
were running low, demand for water was at an all-time high, peaking
close to 700 million litres per day, compared to the daily average
of 542 million litres. That's even higher than demand during the
2020 summer lockdown heatwave. Then, in less than two months, we
went from a 'hosepipe ban' and drought to incessant rainfall,
flooding and power cuts, followed by a major freeze-thaw when
temperatures rose dramatically by +20 degrees within a 24-hour
period, from -70C to +130C. Flooding had a major impact across our
water network, especially in Tonbridge in Kent, and this
contributed to the impact of the freeze-thaw event in December.
During June 2023, which has now been acknowledged as the warmest
June on record, soaring temperatures continued to impact our
ability to supply drinking water to all customers. Following six
weeks with almost no rainfall, demand for water consistently
exceeded the capacity at which we can supply all our customers.
Service outages in both Kent and Sussex have left us with no option
but to implement a Temporary Use Ban (TUB) - also known as a
'hosepipe ban' from 26 June across both counties, to manage
demand.
Financially, the cost of the exceptional weather events in 2022
to our company was around GBP17 million. Our immediate response to
the incidents cost in the region of GBP6.6 million, through the
provision of alternate water, increased utility costs and
additional communications. Whilst in the aftermath, the impact that
the events had on our pipe network incurred an additional GBP4.9
million of costs, repairing leaks and bursts. As extreme weather
events, supply interruptions were not covered by our Guaranteed
Standard of Service. Despite this, we felt that it was right to
recognise the difficulty that had been caused to householders and
communities. Through a combination of individual compensation to
those directly affected and community compensation a further cost
of GBP5.5 million was incurred.
We are seeing the true cost of these events, both in tangible
and intangible terms. These events have impacted our performance on
ODIs, including those for supply interruptions. We have seen this
reflected in significant penalties which will reduce our revenues
in future years. Intangibly, the impact on the wider business was
also great, because normal business was interrupted on multiple
occasions, when resources had to be redeployed to tackle the
operational requirements of these exceptional weather events.
You can read more about all these exceptional events and their
impact later in this report. Although these incidents and their
impact have dominated our workload and headlines, we must not lose
sight of all the other important work that has continued alongside
the response to these major weather events.
We are therefore pleased to present our group annual report and
the audited financial statements for the year ended 31 March
2023.
Our financial performance has also been impacted by the
exceptional weather related events mentioned above and by other
pressures on our cost base, including significant increases in the
cost of power, chemicals and other energy intensive products.
Operating profit for the year decreased by GBP42.5 million, while
the group recorded a loss before tax of GBP74.2 million (2021/22:
profit of GBP17.0 million).
Despite the extraordinary challenges we have faced, we have
continued to make progress on delivering on the commitments and
ambitious targets we set in our five-year plans. For instance,
protecting and enhancing our local environment remains integral to
what we do and this report outlines our industry-leading work in
this field. We have also made great progress with some key
engineering projects which will deliver improved resilience across
our network, and we have extended our support for vulnerable
customers and those who are facing financial hardship as the
cost-of-living crisis continues to bite.
Until the exceptional weather events occurred, we had been well
ahead of our target to reduce leakage too. For the first time in
over a decade we have not been able to achieve our annual leakage
targets but we have an ambitious recovery plan under way to make up
the ground lost during the exceptional events of the past year.
Having said this, the total leaks (non-visible leaks detected by
our teams and the visible ones reported by customers) and the water
savings we achieved by fixing them were above target.
It was the long run time of the leaks, due to the volumes we
were dealing with during incidents, that detrimentally affected our
overall leakage performance. This was the case even though we
maximised the resource on this activity, both internally and from
the supply chain. We are pleased that we improved our detection of
non- visible leaks by 12 per cent in the past year and we know that
our leakage strategy remains sound.
It is one based on improving our understanding of the network,
data, leakage monitoring systems and operational management, as
well as finding and fixing leaks on our vast pipe network and
replacing the oldest parts of our network. We continue to invest
and innovate through satellite technology, intelligent pressure
monitoring (calm network) and use of the latest digital reporting
and data analysis system (Waternet).
We have committed to investing GBP489 million into our network
between 2020 and 2025 and we have continued to deliver on this
commitment in 2022/23.
At the time of writing, one of our most ambitious pipelaying
projects in Hampshire was nearing completion. The GBP11 million,
two-year project to protect the future of water supplies in Fleet
involved laying 11 kilometres of new pipe. We used specially
trained dogs to sniff out and protect great crested newts as part
of an innovative trial during this project. The dogs were able to
identify where the protected newts were living at key construction
stages so they could be safely relocated. This approach also helped
to reduce our environmental footprint as it avoided the use of
kilometres of plastic exclusion fencing.
Among other projects completed during the year were the renewal
of 1.2km of water main in Pluckley, the replacement of an ageing
water pipe in Uckfield, 200m of new water pipe in Marden, the
installation of 845m of new water pipe in Balcombe and the
installation of a new generator at our Godmersham Water Treatment
Works site, which will enable us to maintain supplies in the event
of future power cuts.
We submitted designs for a GBP39million state-of-the-art water
treatment works on the site of the old Aylesford Newsprint in
Aylesford, Kent, to the local planning authority in February 2023.
If approved, work on the new treatment works, which will enable us
to produce an additional 18 million litres of water per day, should
begin later in 2023 and become fully operational and pumping water
to homes by March 2025.
It's vital we plan ahead over many years to ensure we can
deliver a reliable supply of drinking water to our customers, at a
fair price, so we can protect and enhance the environment for
future generations.
Last year we became the first water company to co-create a 25
Year Environment Plan and launched this for consultation, setting
out the actions we commit to taking to protect and enhance our
environment in the short and long-term. These actions include ways
to future-proof water for the environment and the next generation,
building an environment that adapts to climate change and working
with partners to keep rivers and underground water sources healthy.
Work on finalising the plan has continued this year, following a
public consultation in April and May 2022. The revised final plan,
which will be reviewed at least every five years, will be launched
in Autumn 2023 and will feed in to our business plan covering the
period 2025 to 2030.
Our environmental achievements reflect our commitment to doing
everything we can to protect and enhance the natural environment
around us. Although climate change remains a huge challenge and
poses a risk to our operations due to its uncertainty, we have not
shied away from tackling the challenges head-on through investment,
innovation, engagement and partnerships.
We own or manage 33 Sites of Special Scientific Interest, a
National Nature Reserve, two local nature reserves and numerous
Areas of Outstanding Natural Beauty. A healthy, vibrant environment
where nature can flourish is essential to protecting our valuable
water resources and our dedicated Environment team ensure all our
day-to-day operations support the environment's protection and
conservation.
As custodians of the environment, we pride ourselves on adopting
a proactive partnership approach which continues to reap rewards.
We have worked closely with farmers and landowners to improve the
quality of our water at the source and to protect our rivers and
chalk aquifers. In priority areas, we have part-funded rainwater
harvesting systems for farmers so they can store up water during
wet weather ready for when their crops and animals need it most.
This also helps prevent soil, nutrients and other chemicals being
washed into local rivers during heavy rainfall, and it eases
pressure on our treatment works. During the year we have organised
a series of free events and workshops as part of our ongoing
efforts to work alongside farmers. For example, in March we held a
sustainable maize management 'walk and talk' and ran farm funding
workshops aimed at jointly increasing sustainability and
resilience.
In September we recruited our very first Environmental
Apprentice and look forward to building on the success of this
scheme as we continue to make environmental considerations integral
to our planning. We unveiled details of our catchment restoration
strategy and our flagship chalk stream project on the River Stour
in October. The River Stour is one of only 200 chalk rivers in the
world. Chalk rivers are rare and precious and provide a unique
habitat to support a wide and diverse range of wildlife due to
their cool, crystal-clear waters. However, these important and
irreplaceable features of our local landscape are under threat from
land management practices, pollution, invasive species and climate
change. Our project on the River Stour forms part of Defra's wider
catchment restoration programme and will serve as a best practice
model to improve the ecological and chemical status of our chalk
streams. Our work in this area will continue to involve close
collaboration with key stakeholders and community groups, including
the Kentish Stour Catchment Partnership, to develop and deliver the
most appropriate catchment-wide solutions for the River Stour. Our
chalk stream strategy is closely linked to our longer-term Water
Resources Management Plan (WRMP), Water Industry National
Environment Programme (WINEP24) and our 25 Year Environment Plan
which have all helped to shape our approach.
As well as protecting the environment that we work in and
abstract water from, a key part of our biodiversity ethos concerns
the protection of all species. In addition to protecting great
crested newts, as mentioned above, we also part-funded a project
last June to release 100 water voles back into the River Thames
near Cookham in Berkshire. We worked closely with Wild Cookham, a
registered charitable community group dedicated to supporting
biodiversity and caring for local wildlife to boost numbers of the
declining species.
We also remain proud of our industry-leading partnership
approach to helping the most vulnerable members of our society. We
are absolutely committed to helping customers who need additional
support, especially during the current cost-of-living crisis. We
continue to lead the industry with our work on data sharing with
councils to automatically identify and enrol more eligible
customers on to our social tariff. In January we were one of the
first nine organisations to achieve the BSI's new Inclusive Service
Kitemark in recognition of our commitment to supporting vulnerable
customers. Even more of our customers will have received support
when the income cap on our social tariff increased in December
2022.
Feedback from our customers through informal daily interactions
and more formal focus groups and interviews gives us vital insight
into their priorities and expectations. We are proud of the
connections we have forged with stakeholders, partner organisations
and local communities in 2022/23. These connections help us to
develop our plans and align our business priorities with the
priorities that matter most to our customers and the communities we
serve. Partnerships are vital because some of the challenges facing
us need us to work together with customers and communities. We want
to support customers to play their part in water efficiency drives
and show them how we can help to reduce their water bills. The
take-up of our free water-saving devices rocketed by 115 per cent
last year, particularly during the summer drought event, showing
the appetite among customers for this kind of support.
In October 2022 we launched an exciting new interactive portal,
AquaSmart, to encourage Key Stage One aged children to engage in
water-saving missions and learn about the importance of protecting
wildlife and our environment. By becoming Aquanauts, they have
access to a number of fun-filled, downloadable activities.
We plan to develop this educational initiative and extend it to
older age groups as we seek to engage children in important
water-saving messages.
As a company, we endeavour to deliver a 10 out of 10 service
every time customers interact with us, whether that is by phone,
email, social media or other channel. We know we don't always get
things right, but we will do everything we can to learn and improve
from all the constructive feedback we receive.
Technology is helping us on this journey and the first phase of
the implementation of a major new communications platform, Genesys,
has gone well. In February our new fully automated communications
system went live. We switched off our old phone system and switched
on our new one seamlessly, with no downtime.
Our phone system is now fully integrated with our customer
service agents' user screens so we can handle customer calls much
more intelligently and, as a result, improve the customer journey
and experience. We're starting to phase in the new functionality
which will enable us to respond faster, resolve more customer
queries at the first point of contact and provide a more consistent
level of service, no matter how customers choose to interact with
us. We'll know if customers have contacted us before so they won't
need to listen to the same recorded message during a second call.
We'll know which agent a customer spoke to previously and we'll be
able to route them through to the same agent again if they're
free.
This major five-year investment will also open up new customer
communication channels which will allow us to improve the customer
experience and enhance the service we can provide. For instance, in
the future, customers will be able to easily WhatsApp photos and
videos of leaks to us free of charge so we can send engineers out
to fix them, rather than having to send someone out to investigate
the leak first. We'll benefit from obtaining better information and
customers will benefit from a faster response and resolution. All
our agents have been trained on the Genesys system, which is
easy-to-use and very intuitive, and the feedback to date has been
very positive. We look forward to sharing more details of the
exciting developments with this system over the next year.
People are at the heart of everything we do, and our colleagues'
health, safety and wellbeing are of paramount importance to us. We
were thrilled to be awarded the Kent and Medway Gold Workplace
Wellbeing Award in recognition of all the work we are doing to keep
our colleagues safe and well.
As a service industry, we want our people to thrive and grow so
they can consistently provide our customers with excellent service
and enjoy a rewarding career. They are our company's best
ambassadors. We have produced a people plan which sets out our
recruitment and retention plans and, as part of these, we are
particularly pleased to be promoting apprenticeships to train or
retrain the professionals of the future. Apprentices now account
for 6.6 per cent of our headcount.
Building a more diverse and inclusive workplace and workforce
remains a goal for our company and we have continued to work
closely with the Leonard Cheshire Foundation this year to give
talented graduates with disabilities access to internships with our
company which we hope will lead them into full-time employment.
We operate in an area of water-stress with a growing population
and so we must continue to adapt and innovate to create a business
that is fit to meet tomorrow's challenges as well as those we face
today. We do this by ensuring we keep abreast of the latest data,
trends, research and best practice and use this in our long- term
strategic planning and investment choices.
As a water company, we don't work in isolation. We collaborate
closely with other water companies across the south east, through
the Water Resources South East (WRSE) alliance, to develop a
regional resilience plan that will help us to secure water
resources for years to come, together. This work has fed directly
into our own company Water Resources Management Plan. In November
2022 we launched a 14-week public consultation on our draft WRMP.
The plan sets out how we'll provide a reliable and resilient supply
of drinking water from 2025 to 2075 and outlines how we propose to
invest GBP2.2 billion during the next 50 years in building new
infrastructure, and a further GBP2.1 billion in leakage reduction
and initiatives to help customers reduce their water use. During
the consultation period, we hosted stakeholder meetings, joint
webinars with neighbouring water companies and public exhibitions
at locations where key infrastructure have been proposed.
We are acutely aware of the commitment required by us as a
company to ensure we put all necessary operational measures in
place to improve our readiness and response to extreme events like
drought and to prioritise short-term investment as appropriate, in
addition to the need for additional and longer-term investment.
In May 2022 we published our final drought plan 2022 to 2027
following widespread consultation and approval from Defra. The plan
details the actions we will take to conserve water and secure
customers' supplies in the event of a drought event, while
balancing the needs of the environment. We collaborated closely
with customers, stakeholders and our colleagues to ensure we
developed the best plan possible. Climate change impacts are core
factors in the development of our long-term plans for water
resource management and also a reason why we plan for and test our
drought plan against more severe drought events than have been
previously experienced.
Climate change forecasts predict hotter summers and warmer,
wetter winters. We expect droughts to become more frequent and more
severe in the future and so we are planning for this and increasing
the resilience of our systems as a result. 2022/23 served as a
sharp reminder to us all of the growing climate change crisis and
the need for everyone to work together to solve the environmental
and societal challenges we are facing, particularly in the
water-stressed south east region.
We regret that any customers suffered interruptions to their
supplies in 2022/23 and would like to take this opportunity to
apologise again to those customers and communities affected by any
of the incidents outlined below. We have made every effort possible
to compensate those affected, over and above our statutory
obligations, and this has clearly had a severe impact on our
company's financial performance this year. We spent a huge amount
on fixing the core problems, such as leaks and bursts on the pipe
network, caused by these exceptional events but also on supplying
alternate water to customers who experienced supply issues and on
payments to those affected, either in line with our Guaranteed
Standards of Service (GSS) or as compensation when GSS do not
apply, such as in extreme weather conditions. The costs associated
with these three extreme weather events in 2022/23, including
bottled water, compensation, community grants, standby tankering,
chemicals, fuel, power and postage amounted to GBP17 million.
It is essential to place the summer of 2022, and the
unprecedented combination of storms, flooding and sudden
temperature changes, in the context of climate change to understand
the exceptional nature of these events and the need for a change in
approach and adaptation going forward. As the challenges caused by
climate change continue to increase, they impact and reveal
pressure points in our specific network and supply areas, as well
as in the supply systems of other water companies.
Looking ahead
This year has again pulled into sharp focus the challenges that
extreme weather and the economic climate present to us as a
business and to our customers. We will learn as many lessons as we
can from the exceptional weather events of 2022/23, but we can't
act alone. By working together with regulators, stakeholders and
our customers, we will be better placed to sustain the vital
service we provide for years to come and, at the same time, protect
and enhance our natural environment.
Work is already well under way to prepare for our business plan
submission, Price Review 24 (PR24), which will be submitted in
October 2023.
By gaining valuable insights from customers and stakeholders,
we've identified seven key strategic priorities for the next 25
years. These priorities, which are outlined in our draft Strategic
Direction Statement (SDS), are to:
-- Provide top quality drinking water and an efficient service,
support our customers and deliver greater value to society.
-- Manage and steward our assets, invest and innovate to ensure
our water supply system is resilient to future challenges.
-- Protect and enhance the environment and biodiversity.
-- Reduce our carbon footprint, adapt to the impact of climate
change and be a truly sustainable business.
-- Secure the future of water by protecting freshwater resources
and developing new sustainable sources.
-- Secure the future of water by halving leakage and helping
reduce the demand for water.
-- Be ready for the future through technology, innovation and
investing in people.
The business plan will take a regional approach this year,
reflecting the differing challenges that occur in each of our three
regions - Kent, Sussex and our western region (Hampshire, Berkshire
and Surrey). These include operational, historic, meteorological
and customer-related challenges and differences.
The SDS will also set out how we will deal with risks and
uncertainties through adaptive planning to ensure our strategy
evolves and to ensure we deliver the right solutions at the right
time.
In March 2023 we invited feedback on our SDS from a wide range
of customers and stakeholders and this will be used to develop the
SDS.
Our investment in infrastructure will continue at pace in
2023/24, combining both reactive developments to help in the very
short term, and longer term planned strategic investments. To boost
resilience in our network in the short term, we are bringing
forward pump replacements, optimising the amount of water we can
extract from water sources and increasing our maintenance. Longer
term investment includes a GBP12 million investment to improve the
resilience of the water supply network in east Kent is now under
way. This essential project will see 16 kilometres of new water
main installed in the area in two phases over a two-year
period.
Despite the pressures and challenges faced in the last year,
together with the financial implications of these, we remain
resolute in our determination to continue investing, innovating and
improving in all the areas that matter most to our customers and to
continue safeguarding water supplies and the environment for
generations to come.
Group income statement
for the year ended 31 March 2023
2023 2022
Note GBP000 GBP000
================================= ====== ==================== =====================
Revenue 2 257,482 251,276
Bad debts (4,770) (5,010)
Net operating costs 3 (228,412) (184,364)
Other income 2 16,999 21,928
================================= ====== ==================== =====================
Profit from operations 41,299 83,830
Finance income 5 1,925 705
Finance expense 5 (117,459) (67,565)
================================= ====== ==================== =====================
(Loss)/profit before taxation (74,235) 16,970
Taxation 6 18,798 (45,880)
================================= ====== ==================== =====================
Loss for the year (55,437) (28,910)
========================================= ==================== =====================
Loss per share attributable to
the ordinary equity holders of 2023 2022
the parent Note Pence Pence
================================= ====== ==================== =====================
Basic and diluted 8 (112.42) (58.63)
================================= ====== ==================== =====================
The group activities above are derived from continuing
operations.
Group statement of other comprehensive income
for the year ended 31 March 2023
2023 2022
Note GBP000 GBP000
============================================== ====== ==================== =====================
Loss for the year (55,437) (28,910)
====================================================== ==================== =====================
Other comprehensive (loss)/income:
Items that will not be reclassified
to the income statement:
Net actuarial (loss)/gain on pension
schemes (39,449) 17,408
Deferred tax credit/(charge) on net actuarial
(loss)/gain 6 9,862 (4,352)
Impact of deferred tax rate change in
respect of pension schemes 6 - 1,639
============================================== ====== ==================== =====================
Other comprehensive (loss)/income for the year (29,587) 14,695
====================================================== ==================== =====================
Total comprehensive income (85,024) (14,215)
====================================================== ==================== =====================
Group statement of financial position
Registered number: 02679874
as at 31 March 2023
2023 2022
Note GBP000 GBP000
====================================== ====== ==================== =====================
Assets
Non-current assets
Property, plant and equipment 1,718,604 1,678,147
Right of use assets 11,153 10,980
Intangible assets 7,768 8,294
Defined benefit pension surplus 23,842 57,346
====================================== ====== ==================== =====================
1,761,367 1,754,767
============================================== ==================== =====================
Current assets
Inventories 1,132 851
Trade and other receivables 92,375 84,037
Cash and cash equivalents 4,002 14,539
====================================== ====== ==================== =====================
97,509 99,427
============================================== ==================== =====================
Total assets 1,858,876 1,854,194
============================================== ==================== =====================
Liabilities
Non-current liabilities
Trade and other payables 4,104 4,154
Loans and borrowings 1,198,501 1,120,478
Deferred income 4,876 4,315
Defined benefit pension liabilities 2,482 2,869
Deferred tax liability 6 200,205 228,790
====================================== ====== ==================== =====================
1,410,168 1,360,606
============================================== ==================== =====================
Current liabilities
Trade and other payables 120,271 99,851
Loans and borrowings 30,520 339
Deferred income 5,312 5,740
Provisions 7,285 8,314
====================================== ====== ==================== =====================
163,388 114,244
============================================== ==================== =====================
Total liabilities 1,573,556 1,474,850
============================================== ==================== =====================
Net assets 285,320 379,344
============================================== ==================== =====================
Issued capital and reserves attributable to
owners of the parent
Share capital 49,312 49,312
Revaluation reserve 213,254 217,906
Retained earnings 22,754 112,126
====================================== ====== ==================== =====================
Total equity 285,320 379,344
============================================== ==================== =====================
The financial statements were approved and authorised for issue
by the board of directors and were signed on its behalf by:
David Hinton Andrew Farmer
CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER
14 JULY 2023
14 JULY 2023
Group statement of changes in equity
for the year ended 31 March 2023
Issued Revaluation Retained Total
share capital reserve earnings equity
Note GBP000 GBP000 GBP000 GBP000
=============================================== ====================== =============== ============ ==============
At 1 April 2021
Comprehensive loss for the year 49,312 235,774 130,741 415,827
Loss for the year - - (28,910) (28,910)
Other comprehensive income - - 14,695 14,695
========================================= ==== ====================== =============== ============ ==============
Total comprehensive income for
the year - - (14,215) (14,215)
========================================= ==== ====================== =============== ============ ==============
Dividends 7 - - (9,000) (9,000)
Amortisation of revaluation reserve - (6,112) 6,112 -
Revaluation of infrastructure assets - 283 - 283
Release revaluation reserve on disposals - (21) 21 -
Deferred tax on revaluation and
retained earnings transfer 1 - 1,533 (1,533) -
Impact of deferred tax rate change 6 - (13,551) - (13,551)
========================================= ==== ====================== =============== ============ ==============
- (17,868) (4,400) (22,268)
========================================= ==== ====================== =============== ============ ==============
At 31 March 2022 49,312 217,906 112,126 379,344
========================================= ==== ====================== =============== ============ ==============
At 1 April 2022
Comprehensive loss for the year 49,312 217,906 112,126 379,344
Loss for the year - - (55,437) (55,437)
Other comprehensive income - - (29,587) (29,587)
========================================= ==== ====================== =============== ============ ==============
Total comprehensive income for
the year - - (85,024) (85,024)
========================================= ==== ====================== =============== ============ ==============
Dividends 7 - - (9,000) (9,000)
Amortisation of revaluation reserve - (6,112) 6,112 -
Release revaluation reserve on disposals - (91) 91 -
Deferred tax on revaluation and
retained earnings transfer 1 6 - 1,551 (1,551) -
========================================= ==== ====================== =============== ============ ==============
- (4,652) (4,348) (9,000)
========================================= ==== ====================== =============== ============ ==============
At 31 March 2023 49,312 213,254 22,754 285,320
========================================= ==== ====================== =============== ============ ==============
All transactions relate to the equity holders
of the group.
1 The movement between the revaluation reserve s from the reciation associated
and retained earnings arise dep and
deferred tax on the fair value uplift of assets at the time of
transition to IFRS.
Group statement of cash flows
for the year ended 31 March 2023
2023 2022
Note GBP000 GBP000
============================================== ====== ==================== =====================
Cash flows from operating activities
Loss for the year
Adjustments for (55,437) (28,910)
Depreciation and impairment of property,
plant and equipment 58,541 55,666
Amortisation of intangible assets including
impairment 2,934 3,013
Finance income 5 (1,925) (705)
Finance expense 5 117,459 67,565
Loss on sale of property, plant and equipment 244 884
Insurance proceeds from loss of property,
plant and equipment - (6,000)
Difference between pension contributions paid
and amounts recognised
in the income statement (4,796) (5,181)
Income tax (credit)/charge 6 (18,798) 45,880
============================================== ====== ==================== =====================
Movements in working capital 98,222 132,212
(Increase)/decrease in trade and other
receivables (8,538) 3,286
Increase in inventories (281) (178)
Increase in trade and other payables 15,592 533
============================================== ====== ==================== =====================
Cash generated from operations 104,995 135,853
Income taxes paid (1,332) (1,100)
Interest element on lease liability payments (153) (100)
Interest received 387 6
Interest paid (41,618) (36,913)
============================================== ====== ==================== =====================
Net cash generated from operating activities 62,279 97,746
====================================================== ==================== =====================
Cash flows from investing activities
Purchase of property, plant and equipment (91,158) (89,016)
Proceeds from disposal of property, plant
and equipment 201 314
Purchase of intangible assets (2,431) (2,520)
Insurance proceeds from loss of property,
plant and equipment - 6,000
============================================== ====== ==================== =====================
Net cash outflow from investing activities (93,388) (85,222)
====================================================== ==================== =====================
Cash flows from financing activities
Credit facility drawdown/(repayment)
of borrowings 30,000 (80,000)
Debenture redemption (4) (5)
Loan notes issued - 50,000
Payment of lease liabilities (376) (337)
Issue costs of debt (48) (260)
Dividends paid to shareholders 7 (9,000) (9,000)
============================================== ====== ==================== =====================
Net cash generated from/(used in) financing
activities 20,572 (39,602)
====================================================== ==================== =====================
Net decrease in cash and cash equivalents (10,537) (27,078)
Cash and cash equivalents at the beginning
of year 14,539 41,617
============================================== ====== ==================== =====================
Cash and cash equivalents at the end
of the year 4,002 14,539
============================================== ====== ==================== =====================
Notes to the group financial statements
for the year ended 31 March 2023
1. Basis of preparation and authorisation of financial
statements
The financial statements of South East Water Limited and its
subsidiary (the "group") for the year ended 31 March 2023 were
authorised for issue by the board of Directors on 14 July 2023 and
the Statement of Financial Position was signed on the board's
behalf by David Hinton and Andrew Farmer. South East Water Limited
is a private company that has limited liability by shares and is
incorporated in the United Kingdom and registered in England and
Wales.
These consolidated and company only financial statements have
been prepared in accordance with international accounting standards
in conformity with the requirements of the Companies Act 2006 as
applicable to companies using IFRS and UK adopted international
financial reporting standards.
The group financial statements are presented in Sterling and all
values are rounded to the nearest thousand pounds (GBP000) except
where otherwise indicated.
1.1 Basis of measurement
The financial statements have been prepared on the historical
cost basis except for the following items, which are measured on an
alternative basis on each reporting date.
Items Measurement basis
Pension assets Fair value
Certain assets in property, Measured at deemed cost by reference
to fair
plant and equipment value on adoption of IFRS on 1 April
2014
1.2 Going concern
The directors have, at the time of approving the financial
statements, a reasonable expectation that the company and the group
has adequate resources to continue in operational existence for the
foreseeable future. The directors have considered the current
economic uncertainty and the impact that this might have on the
business. The directors have concluded that it is correct to
continue to adopt the going concern basis of accounting in
preparing the financial statements. Further details are provided in
the Strategic Report.
1.3 Basis of consolidation
These financial statements incorporate the financial information
of South East Water Limited and its subsidiary, South East Water
(Finance) Limited (together the "group").
Transactions and balances between the company and its subsidiary
have been eliminated fully on consolidation. Subsidiaries are
consolidated from the date on which control is transferred to the
group and cease to be consolidated from the date on which control
is transferred out of the group.
2. Total Income
The following is an analysis of the group and company's revenue
and other income for the year from continuing operations:
2023 2022
Group and Company GBP000 GBP000
=========================== ==================== =====================
Revenue
Unmetered water income 20,480 20,343
Metered water income 226,812 219,244
Other sales 10,190 11,689
=========================== ==================== =====================
Total revenue Other income 257,482 251,276
Rent receivable 1,228 1,134
Other income 15,771 20,794
=========================== ==================== =====================
Total other income 16,999 21,928
=========================== ==================== =====================
274,481 273,204
=========================== ==================== =====================
All revenue is from customers within the United Kingdom.
Other sales comprise a number of income streams, including those
associated with activities typically performed for property
developers, which impact the group's infrastructure network assets,
including diversions works to relocate water assets, and activities
that facilitate the creation of an authorised connection through
which properties can obtain water services. Other sales includes
new connections income of GBP4.1 million (2022: GBP5.2 million),
infrastructure income of GBP1.6 million (2022: GBP2.7 million) and
capital contributions of GBP2.2 million (2022: GBP2.3 million).
Other income includes charges for billing and cash collection
services amounting to GBP7.1 million (2022: GBP6.9 million), final
insurance proceeds in respect of an insurance claim relating to the
Aylesford sinkholes of GBP4.6 million (2022: interim proceeds of
GBP10.0 million) and laboratory income of GBP3.0 million (2022:
GBP2.7 million).
Under the terms of the group's insurance policies we are able to
claim for the additional costs of working, or business
interruption, arising from the damage to the service reservoirs at
Aylesford in 2020 caused by a series of sinkholes. The cover is for
additional costs of working incurred for up to a year from the date
of the damage. An interim payment of GBP4.0 million was received in
respect of business interruption cover in March 2022. We also
received insurance proceeds of GBP6.0 million in respect of the
damage caused to the service reservoirs.
In 2022/23 final insurance payments were agreed of GBP3.4
million in respect of business interruption cover and GBP1.2
million in respect of damage to the reservoirs.
3. Net Operating Costs
2023 2022
Group Note GBP000 GBP000
====================================== ====== ==================== =====================
Employee benefits expense 4 36,165 32,416
Asset expense:
Depreciation - owned assets 57,361 54,702
Depreciation - right-of-use assets 1,180 964
Amortisation of intangible assets 2,934 2,994
Impairment of intangible assets - 19
Loss on disposal of property, plant
and equipment 244 884
====================================== ====== ==================== =====================
61,719 59,563
============================================== ==================== =====================
Other operating expenses: Operating
lease rentals:
Vehicles and office equipment 481 364
Land and buildings (23) 63
Fee payable to group's auditors (see
below) 435 410
Energy costs 29,300 20,858
Rates 18,467 18,470
Contractors 41,831 26,894
Bulk water supplies and abstraction
licences 11,831 8,326
Chemicals 6,492 4,037
Insurance and related costs 4,008 2,840
Compensation and donations 6,875 1,045
Other 15,407 13,629
Other operating expenses charged to
capital projects (4,576) (4,551)
====================================== ====== ==================== =====================
130,528 92,385
============================================== ==================== =====================
Total operating costs 228,412 184,364
============================================== ==================== =====================
The other operating costs includes admin fees of GBP3,000 (2022:
GBP5,000) for South East Water Finance.
2023 2022
Group and Company GBP000 GBP000
===================================================== ==================== =====================
Fees payable to the group's auditors in respect
of:
Audit of the group and company financial statements 347 329
Audit of subsidiary 1 1
===================================================== ==================== =====================
Total audit 348 330
===================================================== ==================== =====================
Regulatory accounts 71 65
Other assurance services 16 15
===================================================== ==================== =====================
Total non-audit services 87 80
===================================================== ==================== =====================
Total fees payable to the group's auditors 435 410
===================================================== ==================== =====================
4. Employees and directors
2023 2022
Group and Company GBP000 GBP000
================================================ ==================== =====================
Employee benefit expenses (including directors)
comprise:
Wages and salaries 37,448 34,549
Social security costs 3,933 3,465
Defined contribution pension cost 2,749 2,512
Defined benefit scheme charge 1,340 586
Labour costs capitalised (9,305) (8,696)
================================================ ==================== =====================
36,165 32,416
================================================ ==================== =====================
Key management personnel compensation
Emoluments of the directors, who are the group's key management,
were:
2023 2022
GBP000 GBP000
=================================================== ==================== =====================
Aggregate emoluments including bonuses (short-term
employee benefits) 974 1,176
Pension scheme costs - defined contribution
plans 16 4
=================================================== ==================== =====================
990 1,180
=================================================== ==================== =====================
Emoluments of the highest paid director including bonuses were:
GBP405,000 (2022: GBP528,000).
One director (2022: one) has a deferred pension from the defined
benefit pension schemes which closed to future accrual in 2015.
There are currently two directors (2022: two) under a defined
contribution scheme.
The monthly average number of persons, including the directors,
employed by the group during the year was as follows:
2023 2022
No. No.
============================== ================== ==================
Operations 427 429
Management and Administration 584 572
============================== ================== ==================
1,011 1,001
============================== ================== ==================
5. Finance income and expense
2023 2022
Group GBP000 GBP000
==================================================== ==================== =====================
Finance income
Interest receivable on bank balances and short-term
deposits 389 13
Net interest income on defined benefit asset 1,536 692
==================================================== ==================== =====================
Total finance income 1,925 705
==================================================== ==================== =====================
Finance expense
Debenture interest 42 42
Effective interest on listed debt 14,582 13,997
Interest on lease liabilities 153 100
Financing guarantee fees 1,237 1,291
Bank interest and other finance charges 11,552 8,419
Amortisation of loan issue costs 652 624
Indexation on index linked bonds 25,107 13,563
Interest payable on index linked loans 14,441 13,114
Indexation on index linked loans 51,512 18,601
Interest capitalised (1,819) (2,186)
==================================================== ==================== =====================
Total finance expense 117,459 67,565
==================================================== ==================== =====================
Interest is capitalised at the weighted average rate of interest
on the group senior long-term debt of 4.7 per cent (2022: 3.7 per
cent).
Indexation on index linked bonds and loans are higher due to the
increased inflation and higher RPI compared to prior year.
6. Taxation
6.1 Income tax recognised in profit or loss
2023 2022
Group GBP000 GBP000
=============================================== ==================== =====================
Current tax
Current tax on profits for the year 7 1,476
Adjustments in respect of prior years (82) (894)
=============================================== ==================== =====================
Total current tax (credit)/charge (75) 582
=============================================== ==================== =====================
Deferred tax expense
Origination and reversal of timing differences (13,467) 1,383
Adjustments in respect of prior years (5,256) 3,091
Impact of rate change - 40,824
=============================================== ==================== =====================
Total deferred tax (credit)/charge (18,723) 45,298
=============================================== ==================== =====================
Total tax expense (credit)/charge (18,798) 45,880
=============================================== ==================== =====================
Total tax expense above consists of a tax credit of
GBP18,805,000 (2022: GBP45,877,000 charge) for South East Water
Limited and a charge of GBP7,000 (2022: GBP3,000 charge) for South
East Water (Finance) Limited.
The reasons for the difference between the actual tax charge for
the year and the standard rate of corporation tax in the United
Kingdom applied to losses for the year are as follows:
2023 2022
Group GBP000 GBP000
================================================== ==================== =====================
(55,437) (28,910)
Loss for the year (18,798) 45,880
==================== =====================
Income tax (credit)/charge (including income
tax on associate, joint venture and discontinued
operations)
================================================== ==================== =====================
(Loss)/profit before income taxes (74,235) 16,970
Tax using the company's domestic tax rate of
19% (2022:19%) (14,105) 3,224
Expenses not deductible for tax purposes, other
than goodwill,
amortisation and impairment 645 607
Adjustments to current tax charge in respect
of prior periods (82) (894)
Adjustments to deferred tax charge in respect
of prior periods (5,256) 3,091
Tax effect of income not taxable in determining
taxable profit - (972)
Impact of rate change - 40,824
================================================== ==================== =====================
Total tax expense (credit)/charge (18,798) 45,880
================================================== ==================== =====================
As enacted by the Finance Act 2021, the main rate of UK
corporation tax increases from 19 per cent to 25 per cent,
effective 1 April 2023. The impact of the change in corporation tax
has been included in the prior year deferred tax liability.
6.1 Income tax recognised in profit or loss continued
The deferred tax on temporary differences as at 31 March 2023
have been calculated using 25 per cent, the enacted future rate for
the periods during which the temporary differences are expected to
unwind.
The adjustments to current and deferred tax charge in respect of
previous years represent the changes between the prior year
financial statements and the prior year tax computations submitted.
The expenses not deductible for tax purposes are primarily driven
by the movement on general provisions, non- deductible
entertainment expenditure, and depreciation on non-qualifying
capital expenditure.
Changes in tax rates and factors affecting the future tax
charges
Capital investment is expected to remain at similar levels and
the group expects to be able to claim capital allowances in excess
of depreciation in future years. There are losses of GBP46.6
million available within the company to mitigate future profits.
The UK Government's Budget announcement to grant 100 per cent first
year full spending capital allowance for qualifying plant and
machinery and 50 per cent allowance for special rate assets
expenditures from 1 April 2023 to 31 March 2026, with the
possibility of becoming permanent thereafter, provides greater
incentive to boost capital investment. The main rate of UK
corporation tax increases from 19 per cent to 25 per cent,
effective 1 April 2023.
6.2 Income tax recognised directly in equity
2023 2022
Group and Company GBP000 GBP000
=================================================== ===================== =====================
Deferred tax
Impact on deferred tax rate change on revaluation
reserve - (13,551)
=================================================== ===================== =====================
No impact of rate change has been recognised directly in equity
in respect of fixed assets revaluation reserves at 31 March 2023
(2022: GBP13.5 million).
6.3 Income tax recognised in other comprehensive income
2023 2022
Group and Company GBP000 GBP000
================================================ ==================== =====================
Deferred tax
Deferred tax on defined benefit pension schemes 9,862 (4,352)
Impact of deferred tax rate change in respect
of pension schemes - 1,639
================================================ ==================== =====================
9,862 (2,713)
================================================ ==================== =====================
The net credit recognised in other comprehensive income for the
year ended 31 March 2023 is GBP9.9 million (2022: GBP2.7 million
net charge). There is no impact of rate change on pension schemes
that goes to equity in the year (2022: GBP1.6 million credit).
6.4 Deferred tax balances
The following is the analysis of deferred tax
assets/(liabilities) presented in the consolidated statement of
financial position:
2023 2022
Group and Company GBP000 GBP000
========================= ==================== =====================
Deferred tax liabilities (200,205) (228,790)
========================= ==================== =====================
Recognised Recognised
Opening in profit directly Closing
balance or in balance
Group and Company GBP000 loss equity GBP000
GBP000 GBP000
=================================== =================================== ============= ============= ==============
2023 Deferred tax
(liabilities)/assets
in relation to:
Property, plant and equipment (215,171) 8,657 - (206,514)
Losses carried forward - 11,649 - 11,649
Defined benefit obligations (13,619) (1,583) 9,862 (5,340)
=================================== =================================== ============= ============= ==============
(228,790) 18,723 9,862 (200,205)
=================================== =================================== ============= ============= ==============
Recognised
in other Recognised
Opening Recognised comprehensive directly Closing
balance in profit income in balance
Group and Company GBP000 or loss GBP000 equity GBP000
GBP000 GBP000
=========================== ============== ============== ======================== =============== ==============
2022 Deferred tax
(liabilities)/
assets in relation to:
Property, plant and
equipment (161,330) (2,976) - - (164,306)
Impact of rate change
on property,
plant and equipment - (37,314) - (13,551) (50,865)
General provisions -
NI and incentive plan 29 (29) - - -
Defined benefit obligations (5,927) (1,469) (4,352) - (11,748)
Impact of deferred tax
rate change in respect
of pension schemes - (3,510) 1,639 - (1,871)
=========================== ============== ============== ======================== =============== ==============
(167,228) (45,298) (2,713) (13,551) (228,790)
=========================== ============== ============== ======================== =============== ==============
Deferred tax assets and liabilities are only offset where there
is a legally enforceable right of offset and there is an intention
to settle the balances net. All of the deferred tax assets were
available for offset against deferred tax liabilities and hence the
net deferred tax liability at 31 March 2023 was GBP200.2 million
(2022: GBP228.8 million).
Temporary timing differences
All temporary timing differences are recognised in the deferred
tax calculation.
The total amount of qualifying tangible fixed assets for R&D
claims recognised in the deferred tax liability for the year ended
31 March 2023 is GBP174,000 (2022: GBP169,000).
7. Dividends
2023 2022
GBP000 GBP000
================================================== ==================== =====================
Final dividend of 4.56 pence (2022: 4.56 pence)
per Ordinary share paid during the year 2,250 2,250
Interim dividend of 4.56 pence (2022: 4.56 pence)
per Ordinary share paid during the year 2,250 2,250
Interim dividend of 4.56 pence (2022: 4.56 pence)
per Ordinary share paid during the year 2,250 2,250
Interim dividend of 4.56 pence (2022: 4.56 pence)
per Ordinary share paid during the year 2,250 2,250
================================================== ==================== =====================
9,000 9,000
================================================== ==================== =====================
There were no dividends proposed for approval as at 31 March
2023 and 31 March 2022.
8. Earnings per share
2023 2022
Group GBP000 GBP000
============================================= ==================== =====================
Loss for the year from continuing operations (55,437) (28,910)
============================================= ==================== =====================
2023 2022
Number Number
============================================= ============== ===============
Basic and diluted weighted average number of
shares 49,312,354 49,312,354
============================================= ============== ===============
2023 2022
Pence Pence
================================================= ================= ==================
Basic and diluted loss per share from continuing
operations (112.42) (58.63)
================================================= ================= ==================
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