South East Water Limited Annual Financial Report

RNS Number : 8039V

South East Water Limited

10 July 2024

 

South East Water Limited

Preliminary results

for the year to 31 March 2024

 

Chair and CEO joint report

Our joint Chair/CEO statement reflects on our performance during a year where we have made significant progress by investing in key engineering projects that will improve resilience across our network. We have also continued our industry-leading work to protect and enhance the environment, whilst helping customers to use less water at home. We understand it is important to reach and support all customers, including those in our society who are vulnerable. Positive progress has been made in many areas during the year, but some severe weather events have affected our overall performance. However, we were much better prepared to deal with incidents in the financial year, learning lessons from previous weather events, with better planning and collaboration as well as our ongoing investment to boost the resilience and flexibility of our network. This meant that many events had no impact on our customers while others experienced a reduced impact due to the proactive work we had done. You can read more about this work later in our report.

 

Climate change remains a huge challenge but we must adapt to it and mitigate against the risk to our purpose, operations and resilience. Higher temperatures and lower rainfall levels continue to compete with rising demand for water due to population and economic growth. The way we adapt to more volatile weather, which brings more flooding, sinkholes and burst pipes, will affect how we serve our customers in the future and how we protect and improve the environment. Whatever the weather, customers rightly expect a reliable supply of drinking water.

 

We are proud to supply around 544 million litres of top-quality drinking water to 2.3 million customers in south east England every day through 9,000 miles of pipes. It takes an army of dedicated people to maintain this critical service, especially during the record-breaking hot weather and the severe storms that we saw during the financial year. That is why we begin our report with a thank you to everyone in our business for responding to the challenges we faced. Our colleagues, contractors, partners and stakeholders have all played a vital role in ensuring we kept the taps flowing for as many customers as possible, even during the extreme weather which impacted on our operations and overall performance in 2023/24. Despite all our efforts, there were still some issues during the year and we'd like to apologise to customers who experienced any supply interruptions.

 

Impact of extreme weather events

June 2023 was officially the hottest June on record according to the Met Office. High temperatures and a prolonged dry period led to customer demand for water rising so quickly that we could not treat and pump water fast enough into our network. This resulted in some customers experiencing low water pressure, intermittent supply or no water at all as drinking water stocks fell very low. Our teams worked around the clock to ensure facilities worked at maximum output to meet demand. Despite producing an extra 138 million litres of water a day - equivalent to supplying four towns like Maidstone or Eastbourne - demand for water broke all previous records. The situation developed much quicker than in 2022 and on 26 June we introduced a Temporary Use Ban (TUB) or 'hosepipe' ban to bring down demand and protect customers' water supplies across Kent and Sussex. This remained in place until 4 August. We would like to thank our customers for their understanding and co-operation during this period.

 

Severe storms then punctuated the autumn and winter with Storm Ciarán (November 2023) and Storm Isha (January 2024) affecting power supplies. Power cuts and an increase in burst water mains affected the amount of water stored within our drinking water storage tanks in Kent and Sussex. Our 24-hour incident teams worked hard to find and repair bursts and move water around our underground pipe network but several areas still experienced intermittent water supplies. We used generators at some key sites to keep treating and pumping water to properties. Then we had one of the wettest winters on record, with numerous flood alerts and warnings, and groundwater flooding too. Ensuring our sites can still operate during weather extremes is vital for a resilient water supply. That is why we have continued to invest in protecting our assets from future flooding.

 

The financial cost of weather-related events has been considerable again this year. In total, we incurred more than £3.1 million of costs through incident activity. This includes the provision of alternate water, compensation to customers and other operational costs such as increased repairs, overtime and materials. An incident in Wadhurst accounted for more than 60 per cent of this expenditure during the year.

Weather-related factors also affected our business performance as measured through Outcome Delivery Incentives (ODIs). A net penalty of £7.9 million was incurred (2022/23: £5.2 million). We outperformed our ODI target on both the taste and appearance of water, and a reduction in the number of household voids. Despite this, weather-related factors caused us to miss our supply interruptions target, which coupled with an increase in leakage led to a reduction in customer satisfaction. This penalty will be returned to customers through reduced bills in future years.

 

Ofwat investigation into supply resilience

Ofwat launched an investigation into our supply resilience in November 2023 following the high demand incidents the company experienced in 2022 and 2023. Since the investigation was launched, we have entered into a constructive and transparent dialogue with Ofwat. This has allowed us to further demonstrate the challenges we face in providing today's public water supply in Kent and Sussex, whilst awaiting the outcome of the draft determination in July.

 

In response to the investigation, we have developed a detailed action plan with a number of short-term responses that already improve our supply resilience and will provide additional resilience in the coming year. However, these short-term responses are no substitute to the proposals in our business plan for 2025 to 2030 addressing the root causes of our supply resilience issues, and which by their nature, scale, the time required for design, planning and delivery, must be included in our multi-year investment programme for the next AMP.

 

We are currently in discussions with lenders and shareholders regarding additional liquidity. Further information on the funding position and the impact on going concern, including the related material uncertainty is included in our going concern statement in note 1.

 

Despite these challenges and pressures, we have still made positive progress in many areas. We are pleased to present our group annual report and the audited financial statements for the year ended 31 March 2024.

 

As already mentioned, the results for the year have again been impacted by the additional costs associated with the high temperatures in June 2023 and continuing costs resulting from other weather events in previous years. Energy prices also remain high, which has a significant effect on several other costs we incur as part of our operations. Despite these notable cost pressures, operating profit for the year increased to £63.8 million (2023: £41.3 million). After taking into account the net finance costs for the year, the company's loss before tax showed a significant improvement at £36.7 million compared to the prior year's loss before tax of £74.2 million.

Positive progress

Progress across our six strategic priorities has been considerable during 2023/24. Some key engineering projects have been completed which will deliver improved resilience and flexibility across our network. We are also proud to lead the industry with our award-winning support for vulnerable customers. In January we achieved recertification to the Inclusive Service Kitemark in recognition of this commitment. We distributed more than 180,000 free water saving devices and introduced an audit programme for household and non- household customers to measure water usage and offer water efficiency advice and free devices. The environment remains integral to everything we do too. We have gone above and beyond our statutory obligations to actively protect and enhance the environment by successfully engaging with landowners and forging strong partnerships with conservation groups, communities and charities. This year we have collaborated on an exciting venture to create a new super National Nature Reserve in the South Downs, supported a pioneering project to tackle road run-off pollution, and planted almost 8,000 trees. You can read more about these projects later in our report.

 

We are already among the top five UK water companies for our leakage performance, but we want to do more. Tackling leaks is a long-term challenge and we continue to invest millions each year to meet our targets. We are committed to reducing the amount of water lost to leaks by 15 per cent between 2020 and 2025 and to halve it by 2050. Before the 2022 heatwave, leakage was at an all-time low, and we had met the target set by our regulator for 13 consecutive years. Since then, extreme weather events have affected our performance, but we have still reduced leakage this year. We have helped customers reduce their water use through a proactive water efficiency programme, reducing the Per Capita Consumption (PCC) of water during 2023/24. Each customer used an average of 143.4 litres of water a day, 4.6 per cent less than in 2022/23. Free water-saving devices, awareness campaigns and a programme of household visits to offer water audits and advice will help us reduce the PCC further.

Improving infrastructure and service

Our business can never stand still and we have continued to deliver on our commitment to invest £489 million between 2020 and 2025 on replacing underground pipes and leakage control, developing new water resources, introducing new treatment processes and installing the latest water testing technology. In January we showed the former Minister for Water, Robbie Moore MP, how we have restored our drinking water storage reservoir at Aylesford (Kent) after sinkholes opened up in 2020. These sinkholes resulted in the loss of millions of litres of water in just a few hours. We completed the three-year restoration in autumn 2023 and received industry recognition for it at the Utility Week Awards (December 2023) with the Infrastructure Delivery Award. We also discussed progress with building a new, state-of-the-art water treatment works (WTW) on a section of the old Aylesford Newsprint site, near Maidstone. The £39 million project is the first WTW to be built in Kent for 18 years and will provide around 18 million litres of treated drinking water a day to the area once it is operational in 2025. This will ensure we can continue to supply the area with tap water as the population grows.

 

Other progress has included a £6 million network reconfiguration project at Barcombe WTW (Sussex) including the installation of additional booster pumping, and a major upgrade at Tilford Meads WTW to deal with naturally occurring contaminants at source. In April 2023 we completed a two-year £11 million project to lay 11km of new pipe to protect future water supplies in Fleet, Hampshire. We are also investing

£12.1 million to create a more resilient water supply network within Wealden - a direct response to recent incidents. In May 2023 we undertook emergency repairs to a slipped bank alongside Ardingly Reservoir, earning us recognition at the Ground Engineering Awards 2023 for the project's technical excellence.

 

Planning ahead and investing in important projects enables us to continue delivering a reliable supply of top-quality drinking water to customers. We are pleased with our strong performance against water quality targets and industry averages and also to be in the top five water companies for the DWI's Compliance Risk Index performance measure. We have outperformed our targets for customer contacts about water quality issues this year too.

 

We always aim to provide an excellent customer experience, but when there is a service interruption, it is even more important to communicate efficiently to minimise customer frustration and effort. Our new AquAlerter text messaging system has improved our proactive communication and has been well-received by customers. Data, insight, technology and collaborations help us to prepare for severe weather events. We have worked with the Met Office to trial a new weather forecasting system to predict temperature changes and other weather events more accurately. We also value our collaborations with local resilience forums (LRF) during incidents. This year we have invested in flood prevention measures at our company sites, undertaken more catchment management initiatives and arranged alternative provision for water, which will make us more resilient. We have also appointed a permanent Alternative Water Manager to manage the deployment of bottled water stations and work with local authorities and LRFs to develop alternative water plans.

 

Even during major events, the health and safety of colleagues remains our number one priority. We had one reportable (RIDDOR) accident during 2023/24, compared to four in 2022/23. In April 2023 we launched a new online reporting tool to make it easier and quicker for colleagues to report potential safety issues and for us to act on concerns. We have also rolled out e-learning training on workplace slips, trips and falls.

 

Serving and supporting customers and society

We aim to provide a trusted and affordable service that supports all our customers' needs. Customers and communities are front and centre of our approach to service delivery. Priority Service Register (PSR) numbers have risen by 38.6 per cent during the year which means 11.03 per cent of customers are on the PSR. This is testament to the work being done to reach more customers who may need extra support. Our new Community Partnership Leads have had a successful first year, forging relationships with local organisations and stakeholders to ensure we reach customers needing support. We are very pleased to have received Inclusive Service Kitemark reaccreditation with zero non-conformities highlighted and we are proud to lead the industry with our support for vulnerable customers. More than 50 stakeholders and experts attended our annual vulnerability event in January to help inform and shape a revised strategy for submission to the regulator this summer.

 

We continue to develop partnerships with key organisations and charities (Age Concern, SCOPE and Kidney Care UK) to provide better support to our older customers and those with specific disabilities or other needs.

We are working with primary schools to teach children to look after water through pilots of our AquaSmart initiative before a wider educational roll-out. Schools and other community and charitable groups have benefitted from our annual £20,000 Community Chest scheme. We always try to support the communities we serve, and this includes areas severely impacted by service interruptions. In June 2023 we distributed a £50,000 fund between 21 charities in Crowborough and surrounding areas to thank the community for their patience when a rapid freeze-thaw event (December 2022) caused widespread supply interruptions.

 

My Account online customer registrations continue to increase. More than 50 per cent of customers have now registered, enabling them to easily access accounts, compare water use to neighbours, submit meter readings and request free water-saving devices. During 2023/24 we have given away 180,495 water-saving devices, surpassing our target of 130,000. Thank you to everyone committed to helping us save water.

 

Ensuring our environment thrives

We have a responsibility to ensure water supplies remain plentiful, reliable and sustainable while helping the environment to thrive. Our achievements reflect our commitment to do everything possible to protect and enhance the environment, as outlined in our 25 Year Environment Plan, launched on 14 May 2024. We work closely with farmers and landowners to improve water quality through catchment management initiatives and by conducting cover crop trials. Our work to reduce nitrates in the Hampshire chalk catchment resulted in a special paper being issued in a prestigious publication, while our catchment management team has collaborated to develop a pioneering new tool to tackle road run-off pollution. We continue to support landowners to increase sustainability and resilience by providing water efficiency advice, funding towards rain harvesting systems and free events and workshops throughout the year.

 

We have outperformed our year four biodiversity ODI (outcome delivery incentive) target and now manage 76 per cent of our company-owned land for biodiversity. Our work has supported many species, including water voles, beavers, wart-biter bush crickets, bumblebees and butterflies. With colleagues and communities, we have also planted nearly 8,000 trees. A second environmental apprentice has joined the team and we have developed successful partnerships with many environmental and wildlife organisations, including Natural England, Buglife, the Zoological Society of London, Butterfly Conservation, the Wild Cookham project and Bumblebee Conservation Trust.

 

We are collaborating on a ground-breaking Nature recovery project with Natural England to create a new super National Nature Reserve in the South Downs, which we showcased to former Secretary of State for the Environment, Therese Coffey MP, in August. This is part of the King's Series of National Nature Reserves to enhance biodiversity and climate resilience through well-connected and wildlife-rich habitats. Technology is helping us protect the environment too. We use drones to identify leaks on our own infrastructure, on customers' supplies, and to pinpoint water features on land that may pose a pollution risk. We are using cutting-edge eDNA survey techniques to monitor invasive non-native species at our reservoirs too.

 

Building a future-ready business

People remain at the heart of our business. Our five-year People Plan drives our approach so we can provide the best service and ensure we are future-ready. We are proud of our progress in extending our apprenticeships and offering more upskilling and career development opportunities through our Aspire, Inspire and Lead programmes. This year we have joined The 5% Club, recognising how we encourage colleagues to earn and learn at the same time. We continue to outperform our industry on gender diversity, but we recognise there is more to do to address the gender imbalance on the operational side of the business. We have launched a major review to see how we can attract and retain more women in operational roles. A new human resources IT system is in the pipeline which will connect all business areas and further professionalise services, including recruitment, on-boarding and payroll.

 

Our company remains committed to transitioning to become a low carbon sustainable business. We are trialling the latest EV technologies for our company vehicle fleet and researching home charging options which will allow us to remain responsive. We have already installed more charging points at company sites and we are looking at green power purchase agreements. We are also exploring on-site solar projects and battery storage technology options. Our suppliers and contractors share our environmental ambitions and we are working together to reduce plastic packaging. We hope to reduce the number of plastic water bottles used during incidents through our investment in 10 more water tankers this year. Our tankering fleet can directly inject water into networks during supply interruptions.

Securing the future of water

Resilience is important in a water-stressed area with a growing population and economy. In August we published our revised draft Water Resources Management Plan 2024 (rWRMP24) and consultation Statement of Response. This details how we will provide a reliable and resilient drinking water supply over the next 50 years, while delivering schemes that promote sustainability and protect the environment. 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. This sets out how, together, we can secure water for years to come for our region and has fed directly into our company rWRMP24. Our plan explains how we will invest £1.2 billion between 2025 and 2075 to build new infrastructure and a further £1.1 billion to reduce leakage and help customers reduce their water use. Developing new sources of water, like the Broad Oak reservoir scheme (east Kent), is vital to increase resilience.

 

Even with significant investment, we cannot meet the challenges of the future without help from our customers, stakeholders and regulators. Customer satisfaction is rooted in a resilient infrastructure and we know we must improve our performance and service quality. However, we all have important roles to play to maintain a top-quality, resilient, affordable drinking water supply, while also protecting and enhancing the natural environment for years to come.

 

Looking ahead

We submitted our latest business plan, Price Review 24 (PR24), in October. This is the most ambitious five-year plan we have ever produced, involving extensive consultation and engagement with a wide range of customers and stakeholders to ensure our priorities reflect customers' expectations. Hundreds joined us virtually for two 'Your Water, Your Say' customer sessions in June and October which helped to shape the plan.

 

Our Strategic Direction Statement (SDS) forms the cornerstone of PR24. It explains our aims for the next 25 years, and the challenges we expect to face to meet customers' expectations, secure future water resources, and reduce leaks and demand:

A trusted and affordable service supporting customers and society. Flexible, resilient infrastructure and service.

Thriving environment.

Low carbon sustainable business. Securing the future of water.

Future-ready business.

 

We will continue to invest significantly into our network to improve customer service, reduce supply interruptions and strengthen network resilience. Over the next five years we will invest nearly £1.9 billion into the network as previously mentioned. We are also increasing reservoir storage capacity and improving network connections. Alongside this, we will invest in reducing leakage further and supporting customers and businesses to use water wisely. A £14 million upgrade of our WTW in Maidenhead is ongoing and we are constructing the first new WTW to be built in Kent for 18 years in Maidstone. When fully operational next year, this state-of-the-art WTW will produce an extra 18 million litres of water per day for the growing community.

 

We are introducing a new structured social tariff system to replace the current capped approach following feedback from customers and stakeholders. We are also reviewing how we can further reduce water poverty with more support.

 

We have faced significant challenges, which have impacted on our financial performance, but we remain committed to improving how we deliver a reliable and resilient supply of top-quality drinking water, while helping the environment to thrive.

Group income statement

for the year ended 31 March 2024

 

	Note	2024 £000	2023 £000
Revenue	2	281,775	257,482
Bad debts		(5,714)	(4,770)
Net operating costs	3	(225,711)	(228,412)
Other income	2	13,427	16,999
Profit from operations		63,777	41,299
Finance income	5	1,711	1,925
Finance expense	5	(102,151)	(117,459)
Loss before taxation		(36,663)	(74,235)
Taxation	6	8,620	18,798
Loss for the year		(28,043)	(55,437)
Loss per share attributable to the ordinary equity holders of the parent	Note	2024 Pence	2023 Pence
Basic and diluted	8	(56.87)	(112.42)

The group activities above are derived from continuing operations.

 

Group statement of other comprehensive income

for the year ended 31 March 2024

 

	Note	2024 £000	2023 £000
Loss for the year		(28,043)	(55,437)
Other comprehensive (loss)/income:
Items that will not be reclassified to the income statement:
Net actuarial loss on pension schemes		(8,015)	(39,449)
Deferred tax credit on net actuarial loss	6	2,004	9,862
Other comprehensive loss for the year		(6,011)	(29,587)
Total comprehensive loss		(34,054)	(85,024)

 

Group statement of financial position

Registered number: 02679874

as at 31 March 2024

 

	Note	31 March 2024 £000	31 March 2023 £000 Restated*	1 April 2022 £000 Restated*
Assets Non-current assets
Property, plant and equipment		1,777,640	1,718,604	1,678,147
Right of use assets		3,804	4,917	4,744
Intangible assets		10,066	7,768	8,294
Defined benefit pension surplus		23,014	23,842	57,346
		1,814,524	1,755,131	1,748,531
Current assets
Inventories		1,343	1,132	851
Trade and other receivables		97,477	92,375	84,037
Cash and cash equivalents		4,986	4,002	14,539
		103,806	97,509	99,427
Total assets		1,918,330	1,852,640	1,847,958
Liabilities Non-current liabilities
Trade and other payables		3,864	4,104	4,154
Loans and borrowings		1,250,980	1,198,501	1,120,478
Deferred income		3,646	4,876	4,315
Defined benefit pension liability		2,493	2,482	2,869
Deferred tax liability	6	189,665	200,205	228,790
		1,450,648	1,410,168	1,360,606
Current liabilities
Trade and other payables		114,849	120,271	99,851
Loans and borrowings		97,436	30,520	339
Deferred income		5,651	5,312	5,740
Provisions		6,966	7,285	8,314
		224,902	163,388	114,244
Total liabilities		1,675,550	1,573,556	1,474,850
Net assets		242,780	279,084	373,108
Issued capital and reserves attributable to owners of the parent
Share capital		49,312	49,312	49,312
Revaluation reserve		208,657	213,254	217,906
Retained (losses)/earnings		(15,189)	16,518	105,890
Total equity		242,780	279,084	373,108

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

9 JULY 2024                                                                                         9 JULY 2024

Group statement of changes in equity

for the year ended 31 March 2024

 

	Note	Issued share capital £000	Revaluation reserve £000	Retained (losses)/ earnings £000	Total equity £000
At 1 April 2022		49,312	217,906	112,126	379,344
Correction on historic depreciation		-	-	(6,236)	(6,236)
Restated* At 1 April 2022		49,312	217,906	105,890	373,108
Comprehensive loss for the year
Loss for the year		-	-	(55,437)	(55,437)
Other comprehensive loss		-	-	(29,587)	(29,587)
Total comprehensive loss 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 transfer1		-	1,551	(1,551)	-
		-	(4,652)	(4,348)	(9,000)
At 31 March 2023		49,312	213,254	16,518	279,084
At 1 April 2023 Comprehensive loss for the year		49,312	213,254	16,518	279,084
Loss for the year		-	-	(28,043)	(28,043)
Other comprehensive loss		-	-	(6,011)	(6,011)
Total comprehensive loss for the year		-	-	(34,054)	(34,054)
Dividends	7	-	-	(2,250)	(2,250)
Amortisation of revaluation reserve		-	(6,110)	6,110	-
Release revaluation reserve on disposals		-	(19)	19	-
Deferred tax on revaluation and retained earnings transfer1		-	1,532	(1,532)	-
		-	(4,597)	2,347	(2,250)
At 31 March 2024		49,312	208,657	(15,189)	242,780

Group statement of cash flows

for the year ended 31 March 2024

 

	Note	2024 £000	2023 £000
Cash flows from operating activities
Loss for the year Adjustments for		(28,043)	(55,437)
Depreciation and impairment of property, plant and equipment		61,054	58,541
Amortisation of intangible assets including impairment		2,315	2,934
Finance income	5	(1,711)	(1,925)
Finance expense	5	102,151	117,459
(Profit)/loss on sale of property, plant and equipment		(69)	244
Difference between pension contributions paid and amounts recognised in the income statement		(5,996)	(4,796)
Income tax credit	6	(8,620)	(18,798)
Movements in working capital		121,081	98,222
Increase in trade and other receivables		(5,196)	(8,538)
Increase in inventories		(211)	(281)
Increase in trade and other payables		3,160	15,592
Cash generated from operations		118,834	104,995
Income taxes paid		(8,464)	(1,332)
Interest element on lease liability payments		(121)	(153)
Interest received		526	387
Interest paid		(46,294)	(39,800)
Net cash generated from operating activities		64,481	64,097
Cash flows from investing activities
Purchase of property, plant and equipment		(123,342)	(92,976)
Proceeds from disposal of property, plant and equipment		256	201
Purchase of intangible assets		(4,613)	(2,431)
Net cash outflow from investing activities		(127,699)	(95,206)
Cash flows from financing activities
Credit facility drawdowns		67,000	30,000
Debenture redemption		-	(4)
Payment of lease liabilities		(548)	(376)
Issue costs of debt		-	(48)
Dividends paid to shareholders	7	(2,250)	(9,000)
Net cash generated from financing activities		64,202	20,572
Net increase/(decrease) in cash and cash equivalents		984	(10,537)
Cash and cash equivalents at the beginning of year		4,002	14,539
Cash and cash equivalents at the end of the year		4,986	4,002

Notes to the group financial statements

for the year ended 31 March 2024

 

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 2024 were authorised for issue by the board of directors on 9 July 2024 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 UK- adopted international accounting standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

Details of the group's accounting policies, including changes during the year.

The group financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£000) 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 undertaken a detailed review of the group's and company's liquidity requirements compared with the cash and facilities available, which includes cash at hand, cash on deposit, and committed bank facilities of which £28.0 million remained undrawn at 31 March 2024. The directors have also considered the financial covenant position including cashflow projections based on 2024/25 forecasts and the PR 24 business plan, the current credit ratings and financial risk.

 

The group has a significant level of planned expenditure over the remainder of this year and into AMP8 to continue to improve resilience and operational performance and to enhance its assets. The group continues to face the effect of higher operating costs as a result of the direct and indirect impact of higher power prices, higher demand for water leading to additional costs, and the impact of climate change including recovering from a number of extreme weather events over the last few years.

 

In order to provide additional liquidity and finance our plans we have engaged with lenders and shareholders. Although discussions with external lenders to provide funds to meet budgetary projections and provide sufficient headroom are at an advanced stage, at the date of approval of these financial statements the financing has not been completed. If it is not possible to raise the additional liquidity, the group and therefore company would not have sufficient liquidity for the going concern period but in this event, the ultimate shareholders have confirmed that they are minded in principle to support the group if the need arises.

 

The directors expect to raise sufficient additional liquidity to cover the going concern period as required, but as this has not been committed at the date of approval of these financial statements and the commitment is not within the control of the directors, the risk that the funding will not be received constitutes a material uncertainty that may cast significant doubt on the ability of the group and company to continue as a going concern.

 

Notwithstanding the material uncertainty described above, and on the basis of their assessment of the group's overall financial position and the latest cash flow forecast shared with the board, the directors have a reasonable expectation that the group and therefore the company have adequate resources to continue in operational existence for the foreseeable future, being a period of at least 12 months from the date of approval of these financial statements. This assessment includes the group's ability to raise new finance to repay existing debt and the management of operational cash flows along with the availability of committed and undrawn facilities. For this reason, the directors continue to adopt the going concern basis of accounting in preparing the financial statements. Further details can be found in the strategic report. The financial statements do not include the adjustments that would result if the group and company were unable to continue as a going concern.

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. Revenue and other income

The following is an analysis of the group and company's revenue and other income for the year from continuing operations:

 

Group	2024 £000	2023 £000
Revenue
Unmetered water income	22,273	20,480
Metered water income	248,418	226,812
Other revenue	11,084	10,190
Total revenue Other income	281,775	257,482
Rental income	1,172	1,228
Other income	12,255	15,771
Total other income	13,427	16,999
	295,202	274,481

 

All revenue is from customers within the United Kingdom.

Other revenue comprises 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 revenue includes new connections income of £3.9 million (2023: £4.1 million), infrastructure income of £1.0 million (2023: £1.6 million) and capital contributions of £3.5 million (2023: £2.2 million).

Other income includes charges for billing and cash collection services amounting to £7.2 million (2023:

£7.1 million), and laboratory income of £3.8 million (2023: £3.0 million). Other income in 2023 also included final insurance proceeds in respect of an insurance claim relating to the Aylesford sinkholes of £4.6 million.

3.Net Operating Costs

 

Group	Note	2024 £000	2023 £000
Employee benefits expense	4	38,643	36,165
Asset expense:
Depreciation - owned assets		59,874	57,361
Depreciation - right-of-use assets		1,180	1,180
Amortisation of intangible assets		2,315	2,934
(Profit)/loss on disposal of property, plant and equipment		(69)	244
		63,300	61,719
Other operating expenses: Operating lease rentals:
Vehicles and office equipment		324	481
Land and buildings		(7)	(23)
Energy costs		27,674	29,300
Rates		16,640	18,467
Contractors		41,484	41,831
Bulk water supplies and abstraction licences		10,294	11,831
Chemicals		6,758	6,492
Insurance and related costs		4,161	4,008
Compensation and donations		2,152	6,875
Other		20,010	15,842
Other operating expenses charged to capital projects		(5,722)	(4,576)
		123,768	130,528
Total operating costs		225,711	228,412

 

Group	2024 £000	2023 £000
Fees payable to the group's auditors in respect of: Audit of the group and company financial statements	564	347
Audit of subsidiary	1	1
Total audit	565	348
Regulatory accounts	76	71
Other assurance services	17	16
Total non-audit services	93	87
Total fees payable to the group's auditors	658	435

4.Employees and directors

 

Group	2024 £000	2023 £000
Employee benefit expenses (including directors) comprise:
Wages and salaries	41,467	37,448
Social security costs	4,181	3,933
Defined contribution pension cost	3,114	2,749
Defined benefit scheme charge	957	1,340
Labour costs capitalised	(11,076)	(9,305)
	38,643	36,165

 

Key management personnel compensation

Emoluments of the directors, who are the group's key management, were:

 

	2024 £000	2023 £000
Aggregate emoluments including bonuses (short-term employee benefits)	1,016	974
Pension scheme costs - defined contribution plans	20	16
	1,036	990

Emoluments of the highest paid director including bonuses were: £430,000 (2023: £405,000).

One director (2023: one) has a deferred pension from the defined benefit pension schemes which closed to future accrual in 2015. There are currently two directors (2023: two) under a defined contribution scheme.

Further disclosures in respect of directors' emoluments are set out in the remuneration report on page 148.

The monthly average number of persons, including the directors, employed by the group during the year was as follows:

 

	2024 No.	2023 No.
Operations	443	427
Management and Administration	628	584
	1,071	1,011

5. Finance income and expense

 

Group	2024 £000	2023 £000
Finance income
Interest receivable on bank balances and short-term deposits	530	389
Net interest income on defined benefit asset	1,181	1,536
Total finance income	1,711	1,925
Finance expense
Debenture interest	42	42
Effective interest on listed debt	15,003	14,582
Interest on lease liabilities	121	153
Financing guarantee fees	1,188	1,237
Bank interest and other finance charges	18,151	11,552
Amortisation of loan issue costs	652	652
Indexation on index linked bonds	12,349	25,107
Interest payable on index linked loans	16,044	14,441
Indexation on index linked loans	39,942	51,512
Interest capitalised	(1,341)	(1,819)
Total finance expense	102,151	117,459

Interest is capitalised at the weighted average rate of interest on the group senior long-term debt of 5.0 per cent (2023: 4.7 per cent).

Indexation on index linked bonds and loans are lower due to the decreased inflation and lower RPI compared to prior year.

6. Taxation

6.1  Income tax recognised in profit or loss

 

Group	2024 £000	2023 £000
Current tax
Current tax on profits for the year	9	7
Adjustments in respect of prior years	(92)	(82)
Total current tax credit	(83)	(75)
Deferred tax credit
Origination and reversal of timing differences	(9,054)	(13,467)
Adjustments in respect of prior years	517	(5,256)
Total deferred tax credit	(8,537)	(18,723)
Total tax credit	(8,620)	(18,798)

The reasons for the difference between the actual tax credit for the year and the standard rate of corporation tax in the United Kingdom applied to losses before income tax for the year are as follows:

 

Group	2024 £000	2023 £000
Loss for the year	(28,043)   (8,620)	(55,437)   (18,798)
Income tax credit (including income tax on associate, joint venture and discontinued operations)
Loss before income taxes	(36,663)	(74,235)
Tax using the company's domestic tax rate of 25% (2023: 19%)	(9,166)	(14,105)
Expenses not deductible for tax purposes, other than goodwill, amortisation and impairment	138	645
Adjustments to current tax charge in respect of prior periods	(92)	(82)
Adjustments to deferred tax charge in respect of prior periods	517	(5,256)
Tax effect of income not taxable in determining taxable profit	(17)	-
Total tax credit	(8,620)	(18,798)

As enacted by the Finance Act 2021, the main rate of UK corporation tax is 25 per cent (2023: 19 per cent).

6.2 Income tax recognised in profit or loss continued

The deferred tax on temporary differences as at 31 March 2024 have been calculated using 25 per cent (2023: 25 per cent), the enacted corporation tax 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 or higher levels and the group expects to be able to claim capital allowances in excess of depreciation in future years. There are losses of £58.6 million available within the company to mitigate future profits. The enacted enhanced 100 per cent first year full expensing capital allowance for qualifying plant and machinery and 50 per cent allowance for special rate assets expenditure have been made permanent.

 

6.3 Income tax recognised in other comprehensive income

 

Group	2024 £000	2023 £000
Deferred tax	2,004	9,862
Deferred tax on defined benefit pension schemes

The net credit recognised in other comprehensive income for the year ended 31 March 2024 is £2.0 million (2023: £9.9 million).

 

6.4 Deferred tax balances

The following is the analysis of deferred tax liabilities presented in the consolidated statement of financial position:

 

Group	2024 £000	2023 £000
Deferred tax liabilities	(189,665)	(200,205)

 

Group	Opening balance £000	Recognised in profit or loss £000	Recognised directly in equity £000	Closing balance £000
2024 Deferred tax (liabilities)/assets in relation to:
Property, plant and equipment	(206,514)	7,317	-	(199,197)
Losses carried forward	11,649	3,013	-	14,662
Defined benefit obligations	(5,340)	(1,794)	2,004	(5,130)
	(200,205)	8,536	2,004	(189,665)

 

Group	Opening balance £000	Recognised in profit or loss £000	Recognised directly in equity £000	Closing balance £000
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)

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 2024 was £189.7 million (2023: £200.2 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 as at 31 March 2024 is £144,000 (2023: £174,000).

 

7.  Dividends

 

Group	2024 £000	2023 £000
Interim dividend of 4.56 pence (2023: 4.56 pence) per Ordinary share paid during the year	2,250	2,250
Interim dividend of 0.00 pence (2023: 4.56 pence) per Ordinary share paid during the year	-	2,250
Interim dividend of 0.00 pence (2023: 4.56 pence) per Ordinary share paid during the year	-	2,250
Final dividend of 0.00 pence (2023: 4.56 pence) per Ordinary share paid during the year	-	2,250
	2,250	9,000

There were no dividends proposed for approval as at 31 March 2024 and 31 March 2023.

 

8.  Earnings per share

 

Group	2024 £000	2023 £000
Loss for the year from continuing operations	(28,043)	(55,437)

 

	2024 Number	2023 Number
Basic and diluted weighted average number of shares	49,312,354	49,312,354

 

	2024 Pence	2023 Pence
Basic and diluted loss per share from continuing operations	(56.87)	(112.42)

 

 

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 [e-mail] or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.

 

END

 

 

FR SFMSSSELSEDW