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TIDM53HO
RNS Number : 7079S
South East Water Limited
15 July 2022
South East Water Limited
Preliminary results
for the year to 31 March 2022
Chair and CEO joint report
This is a joint statement and as CEO, I'd like to take the opportunity to formally welcome Chris to the organisation. Chris is a former CEO of Cadent, Britain's largest gas distribution network. His knowledge and experience will be of invaluable benefit to us as we face new challenges ahead.
Chris succeeds Nick Salmon, who stepped down as Chair on 31 March 2022 after seven years' service, having presided over a crucial period of transformation and improvement for the business. Chris and I would like to thank Nick for his leadership and I would like to personally thank him for his support.
Nick presided over a period where we have continued to evolve the strength of the business. We intend to build on the firm foundation he has given us. We remain committed to our purpose; 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.
We feel that this review should start with a huge 'thank you' to everyone in the business, our contractors and our partner organisations who have continued to adapt and respond to the challenges that this past year has sent in our direction. Despite the overall level of Covid-19 restrictions lifting slightly during the year, the hurdles that we've had to overcome have been significant, whilst also focussing on returning to normal operations and preparing for the future.
It seems expecting the unexpected has become normal, as we reflect on another year of achievement, ambition and challenges and as we enter the mid-point year of the five year business plan period.
Despite considerable challenges from the impact of the pandemic, this has been a strong year for the business. We have made significant progress in the year on our regulated performance commitments. We achieved 87 per cent of our financial performance measures, and overall saw an improved performance in 80 per cent of our financial performance measures. The highlights include the lowest level of leakage that the company has ever recorded and our best ever performance for CRI, the DWI's lead measure of water quality.
We are proud to supply high quality drinking water to our customers at a time when other water companies are under scrutiny regarding storm water overflows. Protecting and enhancing our local environment is integral to what we do and you will see in this report the industry leading commitment we have made to planning how we protect our environment over the next 25 years.
The impact of the Covid-19 global pandemic has continued to be felt, affecting everything we do. As we entered the second year of Covid-19, the depth of the strong foundations we set in 2020/21 has reaped huge benefits. However economic conditions have worsened impacting our costs and this is set to continue in 2022/23. High energy costs and the rising cost of living are affecting our customers.
We have a number of key engineering projects underway to deliver improved resilience across our network. The temporary water treatment works in Aylesford, Kent - built in just eight months to replace the loss of a key strategic service reservoir caused by a sinkhole that opened up - continues to support the area. Construction is now underway on a permanent water treatment works solution on the site.
This project is just one of a number of significant investments we're making, such as the strategic pipeline being laid between Fleet and Greywell in Hampshire to enable more water to be pumped into the region as the population increases. We've also been working to upgrade our existing network. In Chilham we've invested GBP2.1 million installing new equipment in the area to prevent customers going without water during power cuts, and in Pluckley, Kent a GBP700,000 new 1.2 km water main will reduce the likelihood of bursts and supply interruptions.
The multi-million-pound expansion of our flagship Keleher treatment site in Bray was officially unveiled in February by the Rt Hon Theresa May MP, in her role as constituency MP for Maidenhead. The site is now capable of pumping up to 68 million litres of water a day - a 50 per cent capacity increase and enough to fill 27 Olympic-sized swimming pools.
Our ability to respond to increased demand has therefore increased, putting in place extra capacity where needed.
We have found opportunities to learn more about our customers, their expectations of us and our services and to promote water efficiency initiatives to protect the environment and help with the cost of living pressures.
We have increased our support for vulnerable customers and to help those customers who are facing financial hardship. An industry first data partnership with two councils in Kent has enabled us to automatically enrol customers onto our social tariff, helping those most financially at risk in our communities. We will continue to review the provision of these partnerships to reflect the changing economic climate in the future, supporting the most vulnerable in our society.
Once again our colleagues across the business have risen to the trials of lockdowns and the restrictions which have been placed on all of us, responding quickly and with professionalism. Those attributes extend to our contractors and partner organisations who once again supported us in every way.
We have reacted with agility to all the challenges that we have faced as an organisation, including macro environmental challenges such as those created by the instability in the global energy market and, of course, Storm Eunice - more of which later.
We are very pleased to present our group annual report and the audited financial statements for the year ended 31 March 2022.
Across the business we have continued to make progress on delivering on the commitments we have made in our five year plans and have ambitious targets. We are particularly proud of our achievements in the environment area of our business, as we know our connection to the natural world is crucial.
Climate change is - and will continue to be - a huge challenge for us. It's an area of uncertainty in terms of risk. We operate in an area of water-stress and in recent years have done a lot to overcome this, including our hugely successful Customer Metering Programme, where we have the highest level of meter penetration of any water company in the UK.
However, as population growth continues we must make further changes and as new evidence and research emerges, we will use innovation and best practice to overcome the challenges that this will bring.
This year we have prepared our draft 25 year environment plan. This is a first in the water industry and we believe that this ambitious approach will make significant improvements to our environment within a generation.
We have sought feedback from stakeholders and customers alike. We invited over 500,000 customers to give us their views, which is the largest consultation we have ever undertaken. This feedback will be vital in helping us to develop our plan, and protect the unique environment which is an integral part of everything we do.
In addition, we have shown our commitment to working in partnership to make sure we secure our resources for the future by working with Water Resources in the South East (WRSE) to create a regional plan which looks forward to 2100. This will be the basis of our own water resources management plan designed for the long-term.
For a long time, we've been talking to the farmers in our region to see how we can join together to keep our water sources and rivers cleaner, to reduce the amount of fertilisers going in to them in the first place. This proactive partnership approach is making a marked difference in helping to clean our rivers.
Our commitment to achieve net zero carbon by 2030 is also on track. We will continue to track our progress and make robust decisions which will ensure we achieve our goal as it edges ever-closer. We are always looking towards renewable energy sources, as well as how we operate more generally to improve the environment.
Of course, we consider ourselves a service industry and people are at the very heart of every area of service.
Whether it's our own colleagues whose expertise we want to harness and nurture or our consumers in the communities we serve, we aim to put service front and centre.
We have committed to learn more about our customers, their expectations of us and how we can help them to reduce their water bills and play their part in water efficiency drives.
We have continued to reach out to the sectors of the community that are more difficult to engage with and to learn more about how we can offer extra support.
An industry-leading data share initiative, where we are working in partnership with two local authorities to auto enrol customers onto a social tariff, is a great example of this. We are actively seeking to offer assistance as an early intervention to avoid customers becoming unable to pay their bills, especially where there may be financial pressures for families and individuals.
Providing excellent customer service across the board is not just an ambition for us, it is embedded in our vision and values.
That's why being awarded the ServiceMark Accreditation with Distinction from The Institute of Customer Service - one of only a handful of companies to receive it - was so important to us. We are extremely proud of that achievement and it is a reflection of the teamwork across the business.
Among the areas highlighted by ServiceMark were knowledge and empathy, both attributes we encourage in all our colleagues.
That's why we have produced our people plan. This important accreditation is a validation of our people plan, which clearly sets out our vision and plans for how we will attract and retain the very best professionals to South East Water.
We are particularly pleased to be promoting apprenticeships as a means of training or retraining in all areas of our business, before moving on to focus on continuous professional development.
This programme has resulted in the number of apprenticeships in the company increasing by 250 per cent.
Bringing in new and diverse talent is also a long-term aim and we have engaged with the Leonard Cheshire Foundation to give talented graduates with a disability access to internships before they enter the workplace full time.
Our on-going training services have been enhanced as we are keen to keep and develop our talent. Many of our workforce live in our supply area and they are our best ambassadors.
Supporting our colleagues beyond the work environment is also important to us and the change in the way we work has presented an opportunity to reassess how work-life balance can be achieved.
We have created our hybrid working plan with the objective of moving towards an agile working approach, which we believe will also support our goal of attracting and retaining the best talent.
Of course, the year was not without adversity, most notably Storm Eunice, the worst storm to hit our region in more than a generation.
Sussex bore the brunt of the issues caused by the high winds, which hit again when Storm Franklin swept in immediately after.
Despite significant planning for the storm, including the provision of alternative power sources, unprecedented power outages left us in a very difficult position. In the aftermath of the storms, over 100 assets were inoperable due to lack of power. This represented the most significant loss of power in our company's history.
Whilst we worked closely with UK Power Networks to restore electricity, the power cuts also caused damage to vital equipment in some areas, which meant we weren't able to pump water into the network as soon as power was restored. Once again, our colleagues rose to the challenges, but some customers were affected whilst power supplies were impacted.
We were in direct contact with hospitals, supplying tankers to various NHS sites, and other healthcare centres to make sure they were prioritised, and supported our livestock farmers and their specialist needs. At the same time, we prioritised our vulnerable customers and made over 5,000 deliveries to those customers.
During the height of the emergency we set up and had volunteers at more bottled water stations than we have had in any previous incidents, the logistics of which alone were immense.
Our early and intense engagement with our stakeholders was also crucial in our success in getting essential messages to our communities in extremely testing circumstances, especially where many were without power and internet access.
We are doing all we can to support the communities worst affected and, as always, reflecting on any lessons to be learned, working with local stakeholders to gather feedback on how we can respond better in the future.
For impacted customers who fell outside our General Standards of Service (GSS), specifically those in East Grinstead, we set up a Community Fund of GBP100,000 to be distributed to charities, community groups and not for profit organisations, selected by the local community. Our customers are currently voting on how this fund should be distributed and we look forward to making a real difference in the community.
Overall we have made good progress against our plans set out under our four strategic themes and you will see more of those throughout this report.
As we return to more normal times, with the pandemic behind us, we will continue to develop the positive outcomes that we have delivered in challenging times. I am sure that this will put us in a great position to build strongly in the coming year.
The year ahead
This year has shown again how we are facing ever-increasing challenges from the weather and rapidly changing economic pressures on our business and our customers.
In the year ahead we are looking to build on the improved performance from this year. We will focus on building resilience in our existing networks and creating plans to ensure we have the right investment in place for future generations via the up and coming Price Review process.
As part of this we will be publishing our 25 year environment plan which aims to understand and engage on the complex trade-offs between different environmental priorities and affordability using feedback from customers, staff and stakeholders.
This will be supported by our strategic direction statement bringing all our long-term plans and ambitions together in one place and set the long-term direction of the business driven from our overriding purpose.
We will continue to assist more customers in need of financial support, or our help during interruptions to supply, through our innovative data sharing exercise with our local authority partners. This is particularly important given the rising cost of living challenge our customers are facing.
We remain very confident that we will continue to deliver excellent service and deal with the challenges immediately ahead of us whilst beginning to plan the key activities and investment needed to sustain the vital service we provide for future generations and the good of the environment.
Chris Train OBE David Hinton
Chair CEO
14 July 2022 14 July 2022
Group income statement
for the year ended 31 March 2022
2022 2021 Notes GBP000 GBP000 Revenue 2 251,276 248,156 Bad debt (5,010) (3,788) Net operating costs 3 (184,364) (178,285) Other income 2 21,928 11,439 ---------- ---------- Profit from operations 83,830 77,522 Finance income 5 705 3,093 Finance expense 5 (67,565) (42,956) Profit before taxation 16,970 37,659 Taxation 6 (45,880) (6,343) ---------- ---------- Profit for the year (28,910) 31,316 Earnings per share attributable to the ordinary equity holders of the parent Basic and diluted 8 (58.63p) 63.51p ---------- ----------
The group activities above are derived from continuing operations.
Group statement of other comprehensive income
for the year ended 31 March 2022
Notes 2022 2021 GBP000 GBP000 Profit for the year (28,910) 31,316 Other comprehensive income: Items that will not be reclassified to profit or loss: Net actuarial (loss)/gain on pension schemes 17,408 (14,967) Deferred tax (credit)/charge on net actuarial (loss)/gain 7 (4,352) 2,844 Impact of deferred tax rate change in respect of pension schemes 7 1,639 - Other comprehensive income for the year 14,695 (12,123) --------- --------- Total comprehensive income (14,215) 19,193 --------- ---------
Group statement of financial position
Registered number: 02679874
as at 31 March 2022
31 March 31 March 2022 2021 GBP000 GBP000 Assets Non-current assets Property, plant and equipment 1,678,147 1,631,312 Right of use assets 10,980 11,952 Intangible assets 8,294 8,787 Defined benefit pension surplus 57,346 34,368 -------------- -------------- 1,754,767 1,686,419 -------------- -------------- Current assets Inventories 851 673 Trade and other receivables 84,037 86,735 Cash and cash equivalents 14,539 41,617 -------------- -------------- 99,427 129,025 -------------- -------------- Total assets 1,854,194 1,815,444 -------------- -------------- Liabilities Non-current liabilities Trade and other payables (4,154) (4,623) Loans and borrowings (1,120,478) (1,038,371) Deferred income (4,315) (3,625)
Defined benefit pension liabilities (2,869) (3,172) Deferred tax liability (228,790) (167,228) (1,360,606) (1,217,019) -------------- -------------- Current liabilities Loans and borrowings (339) (80,318) Trade and other liabilities (99,851) (88,961) Deferred income (5,740) (5,336) Provisions (8,314) (7,983) -------------- -------------- (114,244) (182,598) -------------- -------------- Total liabilities (1,474,850) (1,399,617) -------------- -------------- Net assets 379,344 415,827 -------------- -------------- I ssued capital and reserves attributable to owners of the parent Share capital 49,312 49,312 Revaluation reserve 217,906 235,774 Retained earnings 112,126 130,741 -------------- -------------- Total equity 379,344 415,827 -------------- --------------
The financial statements were approved and authorised for issue by the board of directors on 14 July 2022 and were signed on its behalf by:
David Hinton Andrew Farmer CEO CFO 14 July 2022 14 July 2022
Group statement of changes in equity
for the year ended 31 March 2022
Issued share Revaluation Retained Total capital reserve earnings equity Notes GBP000 GBP000 GBP000 GBP000 ========================================== ============= ============= ============== ================ At 1 April 2020 49,312 241,386 252,949 543,647 Comprehensive income for the year Profit for the year - - 31,316 31,316 Other comprehensive loss - - (12,123) (12,123) ========================================= ============= ============= ============== ================ Total comprehensive income for the year - - 19,193 19,193 ========================================= ============= ============= ============== ================ Dividends 7 - - (147,013) (147,013) Amortisation of revaluation reserve - (6,127) 6,127 - Revaluation of infrastructure assets - (783) 783 - Release revaluation reserve on disposals - (15) 15 - Deferred tax on revaluation and retained earnings transfer 1 - 1,313 (1,313) - ========================================= ============= ============= ============== ================ - (5,612) (141,401) (147,013) ========================================= ============= ============= ============== ================ At 31 March 2021 49,312 235,774 130,741 415,827 ========================================= ============= ============= ============== ================ At 1 April 2021 49,312 235,774 130,741 415,827 Comprehensive loss for the year Loss for the year - - (28,910) (28,910) Other comprehensive income - - 14,695 14,695 ========================================= ============= ============= ============== ================ Total comprehensive loss 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 - (13,551) - (13,551) ========================================= ============= ============= ============== ================ - (17,868) (4,400) (22,268) ========================================= ============= ============= ============== ================ At 31 March 2022 49,312 217,906 112,126 379,344 ========================================= ============= ============= ============== ================ All transactions relate to the equity holders of the group. 1 The movement between the revaluation reserve and retained earnings arises from the depreciation and associated 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 2022
2022 2021 ============================================ Notes GBP000 GBP000 ============================================ ====== ================ ================ Cash flows from operating activities (Loss)/profit for the year (28,910) 31,316 Adjustments for Depreciation and impairment of property, plant and equipment 55,666 55,259 Amortisation of intangible assets including impairment 3,013 3,497 Finance income 5 (705) (3,093) Finance expense 5 67,565 42,956 Loss on disposal of property, plant and equipment 884 723 Insurance proceeds from loss of property, (6,000) - plant and equipment Difference between pension contributions paid and amounts recognised in the income statement (5,181) (12,605) Taxation on profit 6 45,880 6,343 132,212 124,396 Movements in working capital Decrease/(increase) in trade and other receivables 3,286 (2,435) (Increase)/decrease in inventories (178) 16 Increase/(decrease) in trade and other payables 533 (2,053) ====== ================ ================ Cash generated from operations 135,853 119,924 ====== Income taxes paid (1,100) (1,623) ====== Interest element on lease liability payments (100) (128) Interest received 6 2,341 Interest paid (36,913) (35,919) ============================================ ====== ================ ================ Net cash generated from operating activities 97,746 84,595 ============================================ ====== ================ ================ Cash flows from investing activities ====== Purchase of property, plant and equipment (89,016) (92,129) ====== Proceeds from disposal of property, plant and equipment 314 215 Purchase of intangible assets (2,520) (2,716)
Insurance proceeds from loss of property, 6,000 - plant and equipment ============================================ ====== ================ ================ Net cash outflow from investing activities (85,222) (94,630) ============================================ ====== ================ ================ Cash flows from financing activities Loan to Parent undertaking repaid 0 136,013 Credit facility (repayment)/drawdown of borrowings (80,000) 50,000 Debenture redemption (5) - Loan notes issued 50,000 - Payment of lease liabilities (337) (329) Issue costs of debt (260) - Dividends paid to shareholders 7 (9,000) (147,013) -------------------------------------------- ------ ---------------- ---------------- Net (used in)/generated from financing activities (39,602) 38,671 ============================================ ====== ================ ================ Net (decrease)/increase in cash and cash equivalents (27,078) 28,636 ====== Cash and cash equivalents at the beginning of year 41,617 12,981 ============================================ ====== ================ ================ Cash and cash equivalents at the end of the year 14,539 41,617 ============================================ ====== ================ ================
Notes to the group financial statements
for the year ended 31 March 2022
1. Basis of preparation and authorisation of financial statements
The financial statements of South East Water and its subsidiary (the "group") for the year ended 31 March 2022 were authorised for issue by the board of Directors on 14 July 2022 and the Statement of Financial Position was signed on the board's behalf by David Hinton and Andrew Farmer. South East Water is a private company that has limited liability by shares and is incorporated in the United Kingdom and domiciled in England and Wales.
On 31 December 2020, International Financial Reporting Standards ("IFRS") as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. The Group transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 April 2021.
These consolidated and Company only financial statements have been prepared under IFRS as adopted by the UK Endorsement Board. This change in basis of preparation is required by UK company law for the purposes of financial reporting as a result of the UK's exit from the EU on 31 January 2020 and cessation of the transition period on 31 December 2020. This change does not constitute a change in accounting policy but rather a change in framework which is required to ground the use of IFRS in company law. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework.
The group financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (GBP000) except where otherwise indicated.
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
Going concern
The directors have, at the time of approving the financial statements, a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. In coming to this decision they have considered the implications of the current economic uncertainty associated with various factors including the on-going Covid-19 pandemic, supply chain constraints and pressures on household finances, and the impact these may have on the business. The directors have concluded that it is appropriate to continue to adopt the going concern basis of accounting in preparing the financial statements.
Basis of consolidation
These financial statements incorporate the financial information of South East Water Limited and its subsidiary, South East Water (Finance) Limited (together the "group").
Transactions and balances between the company and its subsidiary have been eliminated fully on consolidation. Subsidiaries are consolidated from the date on which control is transferred to the group and cease to be consolidated from the date on which control is transferred out of the group.
Notes to the group financial statements
for the year ended 31 March 2022
2. Total Income
The following is an analysis of the group and company's revenue and other income for the year from continuing operations:
2022 2021 Group GBP000 GBP000 ======================= ======= ================= Revenue Unmetered water income 20,343 19,983 Metered water income 219,244 219,168 Other sales 11,689 9,005 ======================= ======= ================= Total revenue 251,276 248,156 Other income Rent receivable 1,134 1,174 Other income 20,794 10,265 ======================= ======= ================= Total other income 21,928 11,439 ======================= ======= ================= 273,204 259,595 ======================= ======= =================
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 GBP5.2 million (2021: GBP3.9 million), infrastructure income of GBP2.7 million (2021: GBP1.8 million) and capital contributions of GBP2.3 million (2021: GBP1.8 million).
Other income includes charges for billing and cash collection services amounting to GBP6.9 million (2021:
GBP8.0 million), interim insurance proceeds in respect of an insurance claim relating to the Aylesford sinkholes of GBP10.0 million (2021: GBPnil) and laboratory income of GBP2.7 million (2021: GBP2.3 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.
3. Net Operating Costs
2022 2021 GBP000 GBP000 Employee benefits expense 32,416 26,919 ---------- ---------- Asset expense/(income): Depreciation - owned assets 54,702 51,922 Depreciation - right-to-use 964 985 Amortisation of intangible assets 2,994 3,497 Impairment of property, plant and equipment 19 2,353 Loss/(gain) on disposal of property, plant and equipment 884 723 ---------- ---------- 59,563 59,480 ---------- ---------- Other operating expenses: Operating lease rentals: vehicles and office equipment 364 255 land and buildings 63 16 Fees payable to the group's auditor (see below) 410 434 Energy costs 20,858 19,795 Rates 18,470 18,403 Contractors 26,894 28,727 Bulk water supplies and abstraction licences 8,326 9,251 Chemicals 4,037 3,797 Insurance and related costs 2,840 3,350 Other 14,674 13,500 Other operating expenses charges to capital
projects (4,551) (5,642) 92,385 91,886 ---------- ---------- Total operating costs 184,364 178,285 ---------- ---------- Fees payable to the group's auditor in respect of: Audit of the group and company financial statements 329 325 Audit of subsidiary 1 1 ---------- ---------- Total audit 330 326 ---------- ---------- Regulatory accounts 65 84 Other assurance services 15 22 Services relating to iXBRL account coding - 2 ---------- ---------- Total non-audit services 80 108 ---------- ---------- Total fees payable to the group's auditor 410 434 ---------- ----------
4. Employees and directors
2022 2021 Group GBP000 GBP000 ======================================= ======= ================ Employee costs (including directors) comprise: Wages and salaries 34,549 34,842 National insurance 3,465 3,501 Defined contribution pension cost 2,512 2,481 Defined benefit scheme charge/(credit) 586 (6,895) Labour costs capitalised (8,696) (8,513) ======================================= ======= ================ 32,416 25,416 ======================================= ======= ================
The defined benefit scheme credit for the prior year included a past service credit of GBP7.8 million due to the change in indexation in pension increases from RPI to CPI.
Key management personnel compensation
Emoluments of the directors, who are the group's key management, were:
2022 2021 GBP000 GBP000 ======================================= ======= ================ Aggregate emoluments including bonuses 1,176 1,092 Defined contribution scheme costs 4 14 ======================================= ======= ================ 1,180 1,106 ======================================= ======= ================
Emoluments of the highest paid director including bonuses were: GBP528,000 (2021: GBP439,000).
One director (2021: one) has a deferred pension from the defined benefit pension schemes which closed to future accrual in 2015. There are currently two directors (2021: 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:
2022 2021 No. No. =============================== ============================================= ============== Operations 429 416 Management and Administration 572 570 =============================== ============================================= ============== 1,001 986 =============================== ============================================= ==============
5. Finance income and expense
2022 2021 GBP000 GBP000 Finance income Interest receivable on bank balances and short-term deposits 13 59 Interest receivable from group companies - 2,273 Net interest income on defined benefit asset 692 761 -------- -------- Total finance income 705 3,093 -------- -------- Finance expense Debenture interest 42 30 Effective interest on listed debt 13,997 13,755 Interest on lease liabilities 100 128 Financing guarantee fees 1,291 949 Bank interest and other finance charges 8,419 8,350 Amortisation of loan issue costs 624 616 Indexation on variable rate bonds 13,563 2,383 Interest payable on index linked loans 13,114 12,745 Indexation on index linked loans 18,601 6,694 Interest capitalised (2,186) (2,694) -------- -------- Total finance expense 67,565 42,956 -------- --------
Interest is capitalised at the weighted average rate of interest on the group senior long-term debt of 3.7 per cent (2021: 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 expense
6.1 Income tax recognised in profit or loss
2022 2021 Group GBP000 GBP000 =============================================== ======= =============== Current tax Current tax on profits for the year 1,476 2,855 Adjustments in respect of prior years (894) (232) =============================================== ======= =============== Total current tax 582 2,623 =============================================== ======= =============== Deferred tax expense Origination and reversal of timing differences 1,383 4,495 Adjustments in respect of prior years 3,091 (775) Impact of rate change 40,824 - =============================================== ======= =============== Total deferred tax 45,298 3,720 =============================================== ======= =============== Total tax expense 45,880 6,343 =============================================== ======= ===============
Total tax expenses above consists of GBP45,877,000 (2021: GBP6,339,000) for South East Water Limited and
GBP3,000 (2021: GBP4,000) 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 profits for the year are as follows:
2022 2021 Group GBP000 GBP000 ================================================ ============================= ================ Profit before income taxes 16,970 37,659 Tax using the company's domestic tax rate of 19% (2021:19%) 3,224 7,155 Expenses not deductible for tax purposes, other than goodwill, amortisation and impairment 607 130 Adjustments to current tax charge in respect of prior periods (894) (232) Adjustments to deferred tax charge in respect of prior years 3,091 (775) Tax effect of income not taxable in determining taxable profit (972) 137 Other - research and development depreciation allowed - (72) Impact of rate change 40,824 - ================================================ ============================= ================ Total tax expense 45,880 6,343 ================================================ ============================= ================
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 deferred tax liability. The total impact amounts to GBP52.7 million, of which GBP40.8 million is charged to the income statement; a liability of GBP13.5 million relating to revaluation reserves is charged directly to equity and an asset of GBP1.6 million relating to pension is recognised in other comprehensive income.
The deferred tax on temporary differences as at 31 March 2022 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
The UK Government's Budget announcement to grant 130 per cent super-deduction capital allowance for qualifying plant and machinery (and 50 per cent allowance for special rate assets) expenditures from 1 April 2021 provides greater incentive to boost capital allowance availability to mitigate future tax charges.
Notes to the group financial statements
for the year ended 31 March 2022
6. Taxation expense continued
6.2 Income tax recognised directly in equity
2022 2021 GBP000 GBP000 Deferred tax Impact on deferred tax rate change on revaluation (13,551) - reserve --------- --------
The impact of the rate change in respect of revaluation reserves amounts to GBP13.5 million, which is recognised directly in equity.
6.3 Income tax recognised in other comprehensive income
2022 2021 Group GBP000 GBP000 ================================================= ========================== ================ Deferred tax Deferred tax on defined benefit pension schemes (4,352) (2,844) Impact of deferred tax rate change in respect of pension schemes 1,639 - ================================================= ========================== ================ (2,713) (2,844) ================================================= ========================== ================
The net liability recognised in other comprehensive income at 31 March 2022 of GBP2.7 million (2021: GBP2.8 million net asset) consists of a liability of GBP4.3 million relating to pension valuation and an asset of GBP1.6 million relating to the impact of rate change on pension that goes to equity.
6.4 Deferred tax balances
The following is the analysis of deferred tax (assets)/liabilities presented in the consolidated statement of financial position:
2022 2021 Group GBP000 GBP000 ========================= ======= ================= Deferred tax liabilities 228,790 167,228 ========================= ======= ================= Recognised Recognised Opening in profit Recognised directly Closing balance or loss in OCI in equity balance GBP000 GBP000 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 provision - NI & incentive plan (29) 29 - - - Remeasurement if defined benefit obligation 5,927 1,469 4,352 - 11,748 Impact of deferred tax rate change in respect of pension scheme - 3,510 -1,639 - 1,871 ---------- ----------- ------------- ----------- ---------- 167,228 45,298 2,713 (13,551) 228,790 ---------- ----------- ------------- ----------- ----------
Notes to the group financial statements
for the year ended 31 March 2022
6. Taxation expense continued
6.5 Deferred tax balances continued Recognised in other Opening Recognised comprehensive Closing balance in profit income balance Group GBP000 or loss GBP000 GBP000 GBP000 ======================================= ============== ============== ======================== ============ 2021 Deferred tax liabilities/(assets) in relation to: Property, plant and equipment 160,319 1,011 - 161,330 General provisions - NI & Incentive plan (198) 169 - (29) Remeasurement of defined benefit obligation 6,231 2,540 (2,844) 5,927 ======================================= ============== ============== ======================== ============ 166,352 3,720 (2,844) 167,228 ======================================= ============== ============== ======================== ============
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 2022 was GBP228.8 million (2021: GBP167.2 million).
Temporary timing differences
All temporary timing differences are recognised in the deferred tax calculation.
The total amount of Tangible Fixed Assets (TFA) for R&D claims recognised in deferred tax asset for the year ended 31 March 2022 is GBP169,000 (2021: GBP236,000).
7. Dividends
2022 2021 GBP000 GBP000 ================================================== ================= ================= Interim dividend of 4.56 pence (2021: 5.58 pence) per Ordinary share paid during the year 2,250 2,750 Interim dividend of 4.56 pence (2021: 5.58 pence) per Ordinary share paid during the year 2,250 2,750 Interim dividend of 4.56 pence (2021: 5.58 pence) per Ordinary share paid during the year 2,250 2,750 Special restructuring dividend of 275.8 pence per Ordinary share paid during 2020/2021 - 136,013 Final dividend of 4.56 pence (2021: 5.58 pence) per Ordinary share paid during the year 2,250 2,750 ================================================== ================= ================= 9,000 147,013 ================================================== ================= =================
There were no dividends proposed for approval as at 31 March 2022 and 31 March 2021.
The company issued a special restructuring dividend of GBP136 million in December 2020 to its parent company South East Water Holdings. These funds were used by the parent company to repay its intercompany loan to South East Water Limited on the same day resulting in a net nil cash impact.
8. Earnings per share 2022 2021 Group GBP000 GBP000 =========================================== ================================== ================ (Loss)/profit for the year from continuing operations (28,910) 31,316 =========================================== ================================== ================ 2022 2021 Number Number ========================================== ================================ ============= Basic and diluted weighted average number of shares 49,312,354 49,312,354 ========================================== ================================ =============
2022 2021 Pence Pence ========================================== ========================= ============= Basic and diluted earnings per share from continuing operations (58.63p) 63.51p ========================================== ========================= =============
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END
FR SFWFIIEESEIW
(END) Dow Jones Newswires
July 15, 2022 12:00 ET (16:00 GMT)
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