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TIDM53HO
RNS Number : 7250W
South East Water Limited
13 December 2019
South East Water Limited
Condensed group financial statements
for the six months ended 30 September 2019
Chairman's introduction
I am pleased to present our interim report for the six months ended 30 September 2019.This is the last year of the 2015 to 2020 investment period known as AMP6. Our business activities during the first half of the 2019-20 financial year have focused on preparations for the start of a new five year period, AMP7, starting in April 2020, together with long-term planning for the management of water resources over a 60 year time horizon.
At the same time the business continues with day-to-day activities relating to our provision of a first class drinking water service to our customers, further developing support for vulnerable customers and delivery of a number of ground-breaking environmental initiatives.
A resilient service for the future
Our five year business plan for the period 2020 to 2025 was published in September 2018, and has been subject to extensive scrutiny and challenge by Ofwat, firstly through its Initial Assessment of Plan (IAP) in January 2019 and more recently in July 2019 when it announced its Draft Determination.
On 30 August we issued our response to Ofwat's Draft Determination in which we provided further evidence in support of our business plan. - southeastwater.co.uk/businessplan.
We consider this to be the most ambitious business plan South East Water has ever produced. It challenges us to deliver performance levels well beyond anything we have achieved historically at an efficient cost. The performance commitments we have set ourselves are very challenging, especially as we operate in a region that is in serious water stress with a growing population.
Ofwat's Final Determination is expected on 16 December 2019 and following this the Board will complete a detailed review of their decision.
Planning water resources through to 2080
For the longer term, our water resource management plan (WRMP19), sets out how we plan to secure water supplies for today's and tomorrow's customers, from 2020 to 2080. Our plan was one of the first to be approved by the Secretary of State, and the final plan was published on our website in August.
The plan sets out our estimate of the amount of water our customers will need, and what we will need to do - where and by when - to meet those future water needs. The plan balances the needs of our customers and the needs of the broader environment in the most economic way.
In the plan we build on our industry leading leakage reduction strategy, targeting a further 15 per cent reduction by 2025, and plan to halve leakage levels by 2050. The innovation and dedication behind our approach to leakage over the years means we are starting in a good position. This includes using the latest technology available, such as satellite and advanced data analysis, to drive leakage down further (see below for further details of activities this period).
Reducing per capita consumption by nine per cent by 2025 is another key element of the plan which will require behavioural changes in how customers use water as well the development of more water efficient household appliances and how houses are designed to better conserve water.
By fully participating in the Water Resources in the South East (WRSE) Group we have developed a plan that ensures we continue to share resources across the region. We have a final plan that is resilient to a forecast one in 200 year drought event.
Many stakeholders and individuals have contributed significant time towards the development of the plan. We wish to extend our thanks to: the members of our Environmental Scrutiny Group, Customer Challenge Group, the WRSE group for their valued input and challenge; to individuals and stakeholders who met with us during the public consultation; to those customers who were involved in our customer research; and to everyone who took the time to make a formal representation and provide feedback on our plan. -
southeastwater.co.uk/wrmp19
In the short-term our resources are in a good position, as so far the winter recharge period of 2019/20 has seen above average rainfall enabling our reservoirs and groundwater sources to replenish during October and November. The team will continue to monitor our resources carefully as we head towards summer 2020 and we continue to work closely with our customers to encourage water efficiency whatever the weather.
Valuing water through engagement and innovation
We continue to be an industry leader in reducing leakage and engaging customers on the value of water.
South East Water has met its leakage target for more than 10 years in a row, but we are not complacent and are committed to using the latest, most innovative technology to drive leakage down further. An example of our ambition is the significant progress made during this period in our Smart Water Network trial which could revolutionise the way the water industry detects and prevents leaks and reduces interruptions, hence reducing the amount of water we take from the environment and increasing the resilience of the service we provide to our customers.
We have been using an innovative partnership approach with nine specialist organisations to collect data for analysis from digital water meters at 2,000 homes in a trial area, as well as information from other network sensors. In this trial we are the first water company in the UK to be using the 5G network as a key component to collect higher volumes of data, and then analysing this data to provide a centralised view of the digital network.
We are now assessing the success of the preliminary stages of the trial.
At the end of July we joined a national "Love Water" campaign aimed at engaging everyone on the value of water. Supported by more than 40 environmental groups, charities, water companies and regulators, the consumer campaign, as part of the Government's Year of Green Action, highlights the importance of water and the role everyone plays in protecting it. We are pleased to support Love Water as, being guardians of the environment, we work hard to protect our water supply in our region where water is scarce.
Engineering excellence to ensure a resilient service
During the last six months we have made significant progress in the construction of the company's largest single investment at the Keleher Water Treatment Works at Bray in Berkshire.
This GBP21 million project will increase the capacity of the Keleher plant, which treats water extracted from the River Thames to drinking water standards, from the current 45 million litres per day to 68 million litres per day. The civil works used innovative precast concrete building techniques to help deliver the project build quickly and safely. To date the project has seen 150,000 man hours worked with no accidents. The project team is now completing the electrical installations and testing and hydraulic testing of the 750,000 litre Granular Activated Carbon (GAC) filter unit before final commissioning - the project is anticipated to complete by spring 2020.
In Kent, we are preparing to install a new 2.9km trunk main through the centre of Sevenoaks to meet growing demand, supplementing the existing 12-inch diameter pipe laid in Sevenoaks' High Street in the 1950s. Over the last six months there has been extensive customer and stakeholder engagement to ensure we developed the best route for the work to minimise disruption to the environment and community. In September we published the preferred route and are now making preparations during the winter period so work can begin in the spring.
Clancy Docwra have been employed as our Network Maintenance Contractor for the past eight years, with responsibilities including reactive network repairs and maintenance and planned mains renewals. As such they are a key partner in the success of our operations. This contract expires in April 2020 and we have undertaken a full competitive tender process for the equivalent contract covering the next five years, with an option for an additional 3 years. The specification for this GBP50 million a year Contract put even greater emphasis on collaboration, innovation and supporting our responsible business objectives. After a rigorous evaluation of the tenders, Clancy Docwra emerged as the winning bidder and we look forward to the continuation of our successful partnership.
Responsible business values
The company has made significant steps in building our Environmental, Social and Governance (ESG) framework during the year aiming to be recognised as a leading responsible business. Within the new business plan we have developed a responsible business strategy with 10 new responsible business commitments to reflect the actions and behaviours customers expect a responsible business to display
Environmental
Innovation is a recurring theme across everything our environmental team is involved in. As a water company we are intrinsically linked to the environment. Our innovative approaches to how we protect and care for our raw water supplies has been recognised as leading the industry and the partnership working approach we have developed, such as our Catchment Sensitive Farming programme with Natural England, is an integral part of how our team operates.
Examples of the work include a pesticide amnesty project which enabled the safe removal of over a tonne of unused and out-of-date pesticides from farms in Kent facilitating the anonymous, safe disposal of agricultural chemicals from 23 farms across three catchments.
Our unique Woodgarston Markets project is a farmer-led concept that aims to explore opportunities for new markets and sustainable farming practices, while also delivering wider environmental improvements and social benefits. 78 per cent of land holdings within the catchment have actively engaged with the Woodgarston Markets project.
Both of these examples have recently received a prestigious Green Apple Award, run by The Green Organisation - an independent, non-political, non-profit environment group dedicated to recognising, rewarding and promoting environmental best practice around the world.
Our StAR (Slaugham to Ardingly) project in partnership with the Ouse and Adur Rivers Trust (OART), has recently been awarded GBP250,000 from the government's Water Environment Grant. This grant provides funding for schemes that can be shown to restore local eco-systems and deliver substantial benefits to people and the environment.
A key focus of our environmental work comes under the Water Industry National Environment Programme (WINEP) - a statutory programme for environmental improvement schemes that all UK water companies must comply with. Several years of studying the biodiversity of land within which our company assets lie led to the development of 10 pilot projects to enhance the biodiversity, focussed on priority habitats and species.
These projects, which are due to complete by March 2020, include the restoration of rare chalk grassland, the creation of feeding areas for turtle doves and removing invasive non-native species. We have recently produced a booklet summarising each of the 10 pilot projects, which cover a total area of approximately 78 hectares across Sussex and Hampshire, the work we are undertaking and how we are working towards achieving our target and the exciting successes we've achieved to date. This is available on our website -
corporate.southeastwater.co.uk/about-us/our-environment/protecting-the-environment
This year we completed the delivery of our Eel Regulations project and we are one of the first water companies in the industry to have all of our intakes Eel Regulation compliant.
By the end of May, all five identified screens had been installed and were operating automatically. In June, the screens were inspected by the Environment Agency (EA) who were satisfied with the work and issued a certificate of compliance.
The company is now preparing for the delivery of our 2020 to 2025 WINEP (Water Industry National Environment Programme) which is double the size of our existing programme including 44 groundwater schemes to be delivered by 2022. This work will investigate the sources that are leading to increasing nitrate levels in raw groundwater.
Social
In 2018 we achieved accreditation to BSI 18477, the prestigious British Standards Institute (BSI) standard for supporting vulnerable customers, South East Water was the first water company to achieve this accreditation and we have now retained this certification for another year.
As well as a range of tariffs to make bills affordable for all, we have also published a Vulnerability Strategy. The strategy was launched at a stakeholder event, attended by more than 60 representatives from companies and support agencies. The day included case studies, networking sessions and marketplace-style stands to promote services, schemes and future events.
As part of our Thrive365 strategy for health, safety and wellbeing the company has trained 16 employees from across the business to be mental health first aiders. Everyone trained now wears a yellow lanyard so it is clear they are available for anyone in the company to talk to. This is just one part of a full mental health strategy that has been developed during the year and recently launched to managers in November at a conference for more than 200 employees. The conference had a number of speakers including from Mind and the Health and Safety Executive (HSE). A strong message was given by mental health ambassadors, Clarke Carlisle the former professional footballer and his wife Carrie, who gave an open and thought-provoking account of their own experiences. Feedback from all who attended has been very positive and an important step in the company continuing to put mental health on a par with physical health.
We continue to build career progression programmes for our employees through the development of the "Our Talent" programme. The programme has been designed following engagement with employees which concluded that clearer personal development routes were needed. This year more than 60 employees went through an additional process that runs alongside the annual iReview in order to assess high performance and high potential.
Supporting the development of women at South East Water, we are proud to have become the first water company to sponsor the Women's Utilities Network (WUN), an organisation dedicated to encouraging greater industry diversity and better careers progression for women in the utilities sector. Founded in 2017, the aim of WUN is to give women the skills and confidence they need to build lasting, fulfilling careers in the utility sector. As sponsors we will be active participants in events and mentoring programmes organised by WUN - sharing its expertise, helping to create role models and conveying the benefits of a more diverse workforce in the water industry and utility sector as a whole.
Governance
The Board is committed to maintaining the highest standards of corporate governance and transparency. We fully comply with Ofwat's defined governance requirements, including maintaining an independent Chairman and having a larger number of independent Non-executive directors (iNeds) than either shareholder representative directors or executive directors.
Trusted corporate governance is one of the 10 responsible business commitments made as part of our business plan for 2020 to 2025. All 10 commitments are being governed through a new
Board Sub-Committee which has been established specifically with the purpose of providing assistance to the Board in defining South East Water's strategy relating to Environment, Social, Governance (ESG) matters and in reviewing the practices and initiatives relating to ESG matters ensuring they remain effective and up to date.
One way we are monitoring progress against our strategy is through GRESB, a global benchmarking of ESG practice. We are pleased to report that South East Water obtained five stars in the 2019 GRSEB survey, the highest possible rating, and increased our standing with a score of 81 out of 100.
Preparations for the exit of the UK from the European Union continues. The main areas of potential concern for us are the availability of critical chemicals currently supplied from Europe and the impact on traffic in Kent. Throughout the year we have been making contingency plans for this evolving issue working closely with Government, our suppliers and other water companies to ensure the consequences of the various exit scenarios have minimal impact on our services.
Leadership changes
Earlier in the year, Paul Butler, Managing Director, advised the Board of his intention to retire at the end of July next year. The Board is pleased to announce that David Hinton, currently Asset and Regulation Director, will be his successor. Paul's departure is still some way off and he will continue to lead the business through our assessment of the Final Determination and into the new financial year.
In December 2019, Rachel Drew joined the Board as Non-Executive Director to replace Stephen Jordan, who stepped down from the Board. Rachel represents one of our shareholders and on behalf of the Board I would like to thank Stephen for his service since joining the Board in August 2018.
Results and key financial performance indicators
The results published in this statement summarise our performance for the six months ended 30 September 2019. The financial statements are prepared under International Financial Reporting Standards ("IFRS") and incorporate the performance of South East Water Limited and our subsidiary, South East Water (Finance) Limited.
Revenue for the period was GBP122.8 million compared with GBP120.7 million for the same period in the previous year. The increase of GBP2.1 million is due to the allowed average price increase of 5% which is offset by lower household demand in the period when compared to the hot summer of 2018 and the effect of the customer transfers to measured supply through the metering programme.
Net operating costs for the period to 30 September 2019 were GBP84.5 million, which is GBP1.6 million higher than the corresponding period last year. Depreciation was GBP1.1 million higher due to the continued high investment in the group's assets. Additionally, there was GBP0.5 million of other inflationary costs, including a 3% pay award for staff, and Brexit preparation costs of GBP0.3 million.
Finance costs have marginally increased from GBP25.8 million to GBP25.9 million. This is due to increased indexation on our loans and bonds due to slightly higher inflation during the period to 30 September 2019.
Profit before tax was GBP19.9 million compared with GBP19.5 million for the same period last year. This represents 16.2 per cent of revenue, the same as the corresponding period last year.
The group has incurred a tax charge of GBP1.9 million in the period compared to GBP2.8 million for the period to 30 September 2018, being GBP1.1 million of current tax on our ordinary operations and GBP0.8 million of deferred tax. The lower tax charge in the current period is due to the change in the tax treatment of the revaluation reserve in the prior year which resulted in a one-off adjustment to deferred tax.
As a result of the above, profit after tax has increased from GBP16.7 million to GBP18.1 million for the six months ended 30 September 2019.
The dividend for the six months ended 30 September 2019 of GBP5.5 million is significantly less than the GBP14.0 million paid in the same period last year and represents a nominal dividend yield of two per cent.
The dividend is in line with our dividend policy and is lower than Ofwat's view of what is a reasonable nominal dividend yield, which is five per cent.
Net cash generated from operations was GBP77.8 million for the six months to 30 September 2019 compared to GBP79.4 million in the same period for the previous year. This is primarily caused by the delay in receiving capital contributions and new connections income following the change by Ofwat which means these funds are no longer received in advance of the work being performed. This has been partially offset by strong water income collections from customers.
In September we successfully refinanced our GBP311.5 million debt which matured on 30 September 2019. The funding was secured to repay the maturing debt in three tranches; A GBP120m floating rate bank loan was secured in December 2018 and drawn in September 2019, GBP175m of fixed rate debt was raised on the US private placement market in March 2019 and GBP54m was invested by our parent company South East Water (Holdings) Limited through the partial repayment of an intercompany loan in line with our Business Plan commitment. The excess of funds raised was used to reduce borrowing on our revolving credit facility.
We continue to comply with the financial covenants set out in our securitisation structure and continue to hold ratings from Moody's and Standard & Poor's consistent with the requirements of both our securitisation and our instrument of appointment.
Principal risks and uncertainties
The principle risks and uncertainties facing the business are set out in the Strategic Report within the group's Annual Report for the 2018/19 financial year, which can be found on the South East Water website.
Going concern
The directors are satisfied that the group has sufficient resources to continue in operation for the foreseeable future; a period of not less than 12 months from the date of this report.
Looking ahead
For the rest of this year and through 2020 we will be focussed on closing out the current business plan and ensuring South East Water is in a good position to start the next five year investment period in April 2020. We look forward to working with the support of our employees, partners, supply chain and all stakeholders in these preparations.
On behalf of the Board I would like to thank all the employees and business partners at South East Water for their dedication and hard work over the last six months. The team continues to embrace innovation and change in order to keep delivering great customer service. We are proud of their efforts to ensure South East Water is not only maintaining an excellent water service, but that we do so as a responsible business committed to ensuring a resilient and sustainable future for the community and environment we serve.
Nick Salmon
Chairman
13 December 2019
Condensed group income statement
for the six months ended 30 September 2019
Six months Six months ended ended 30 September 30 September 2019 2018 Notes GBP000 GBP000 Revenue 4 122,818 120,650 Impairment losses on trade receivables 5 (1,590) (1,588) Group net operating costs 5 (84,544) (82,952) Other income 4 6,060 6,320 Group operating profit 42,744 42,430 Finance costs 6 (25,859) (25,767) Finance income 7 3,038 2,860 Profit before taxation 19,923 19,523 Taxation 8 (1,851) (2,812) -------------- -------------- Profit for the period from continuing operations 18,072 16,711 -------------- -------------- Discontinued operations Profit on discontinued operations - 8,255 Profit for the period 18,072 24,966 -------------- -------------- Earnings per share Basic and diluted from continuing operations 36.65p 50.63p -------------- --------------
Condensed group statement of comprehensive income
for the six months ended 30 September 2019
Six months Six months ended ended 30 September 30 September 2019 2018 GBP000 GBP000 Profit for the period 18,072 24,966 -------------- -------------------- Items not reclassified subsequently to profit or loss: Remeasurement of defined benefit surplus 11,666 1,534 Deferred tax on defined benefit pension schemes (1,983) (262) 9,683 1,272 -------------- -------------------- Total comprehensive income for the period attributable to owners of the company 27,755 26,238 -------------- --------------------
Condensed group statement of financial position
as at 30 September 2019
31 30 September March 30 September 2019 2019 2018 Notes GBP000 GBP000 GBP000 Non-current assets Intangible assets 10 10,703 10,501 11,137 Property, plant and equipment 11 1,580,566 1,555,123 1,528,087 Amount due from parent undertaking 135,941 189,911 189,918 Defined benefit pension surplus 40,178 25,564 25,086 1,767,388 1,781,099 1,754,228 ------------- ------------ --------------------- Current assets Inventories 640 592 334 Trade and other receivables 12 87,318 86,190 77,314 Cash and cash equivalents 12,787 12,804 26,082 100,745 99,586 103,730 ------------- ------------ --------------------- Total assets 1,868,133 1,880,685 1,857,958 ------------- ------------ --------------------- Current liabilities Loans and borrowings 13 (15,000) (254,890) (219,782) Derivative financial instruments - (108,836) (105,143) Trade and other payables 14 (103,900) (92,263) (119,806) Deferred income (5,238) (7,183) (6,714) Provisions (3,742) (3,972) (2,495) (127,880) (467,144) (453,940) Non-current liabilities Loans and borrowings 15 (1,017,728) (717,604) (708,324) Trade and other payables 15 (5,312) (5,379) (5,791) Net deferred tax liabilities (148,106) (145,395) (142,895) Defined benefit pension liability (3,126) (3,154) - Deferred income (4,902) (3,185) (3,690) (1,179,174) (874,717) (860,700) ------------- ------------ --------------------- Total liabilities (1,307,054) (1,341,861) (1,314,640) ------------- ------------ --------------------- Net assets 561,079 538,824 543,318 ------------- ------------ --------------------- Equity Ordinary share capital 49,312 49,312 49,312 Revaluation reserve 248,711 251,259 253,820 Retained earnings 263,056 238,253 240,186 ------------- ------------ --------------------- Total equity 561,079 538,824 543,318
------------- ------------ ---------------------
The notes on pages below are an integral part of these condensed group financial statements.
Condensed group statement of changes in equity
for the six months ended 30 September 2019
Issued Revaluation Retained share capital reserve earnings Total equity GBP000 GBP000 GBP000 GBP000 At 1 April 2019 49,312 251,259 238,253 538,824 --------------- -------------- ---------- ------------- Profit for the period - - 18,072 18,072 Other comprehensive income - - 9,683 9,683 Total comprehensive income - - 27,755 27,755 Dividends (see note 9) - - (5,500) (5,500) Amortisation of revaluation reserve - (3,064) 3,064 - Release revaluation on disposals - (5) 5 - Deferred tax on reserve releases - 521 (521) - At 30 September 2019 49,312 248,711 263,056 561,079 --------------- -------------- ---------- -------------
for the six months ended 30 September 2018
Issued Revaluation Retained share capital reserve earnings Total equity GBP000 GBP000 GBP000 GBP000 At 31 March 2018 49,312 256,396 152,930 458,638 IFRS 15 adoption - - 72,442 72,442 --------------- ------------ ---------- ------------- At 1 April 2018 49,312 256,396 225,372 531,080 --------------- ------------ ---------- ------------- Profit for the period - - 24,966 24,966 Other comprehensive income - - 1,272 1,272 Total comprehensive income - - 26,238 26,238 Dividends (see note 9) - - (14,000) (14,000) Amortisation of revaluation reserve - (3,063) 3,063 - Release revaluation on disposals - (34) 34 - Deferred tax on reserve releases - 521 (521) - At 30 September 2018 49,312 253,820 240,186 543,318 --------------- ------------ ---------- -------------
Condensed group statement of cash flows
for the six months ended 30 September 2019
Six months Six months ended ended 30 September 30 September 2019 2018 Notes GBP000 GBP000 Operating activities Net cash flow from operating activities 77,757 79,432 Interest received 2,656 2,541 Interest paid (22,043) (9,122) Tax received 56 - Group tax relief paid - (652) Net cash flow before investing and financing activities 58,426 72,199 -------------- -------------- Investing activities Proceeds from sale of property, plant and equipment 79 639 Purchase of property, plant and equipment (49,216) (47,224) Purchase of intangible assets (1,633) (1,927) Proceeds from sale of non-household customer base - 9,658 Fixed asset contributions received 476 388 Net cash flow used in investing activities (50,294) (38,466) -------------- -------------- Financing activities Net proceeds from Issue of new loans 292,187 (179) Repayment of borrowings (294,836) - Dividends paid to shareholder 9 (5,500) (14,000) Net cash flow used in financing activities (8,149) (14,179) -------------- -------------- (Decrease)/Increase in cash and cash equivalents (17) 19,554 Cash and cash equivalents at 1 April 12,804 6,528 -------------- -------------- Cash and cash equivalents at 30 September 12,787 26,082 -------------- --------------
Group cash flow from operating activities
for the six months ended 30 September 2019
Six months Six months ended ended 30 September 30 September 2019 2018 GBP000 GBP000 Profit on operating activities 42,744 42,430 Adjustments for: Depreciation and impairment of property, plant and equipment 25,408 24,184 Amortisation and impairment of intangibles 1,431 1,548 Profit on disposal of fixed assets (51) (330) Difference between pension contributions paid and amounts recognised in the income statement (2,647) (2,016) Changes in working capital: Increase in trade and other receivables (1,442) (1,049) Increase in inventory (48) (98) Increase in trade and other payables 12,362 14,763 -------------- -------------- Net cash flow from operating activities 77,757 79,432 -------------- --------------
Notes to the condensed group financial statements
for the six months ended 30 September 2019
1. Basis of preparation
The condensed group financial statements for the six months ended 30 September 2019 are set out below, and have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and IAS 34 Interim Financial Reporting as endorsed by the European Union. The statements should be read in conjunction with the financial statements for the year ended 31 March 2019, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") endorsed by the European Union.
The condensed group financial statements are presented in sterling.
These interim financial results are neither audited nor reviewed by our auditor. The information herein for the year ended 31 March 2019 does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2019 were approved by the Board of Directors on 15 July 2019 and delivered to the Registrar of Companies. The report of the auditors on those accounts was not qualified, did not include any reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.
2. Accounting policies
Changes in accounting policies
The accounting policies adopted in these condensed group financial statements are consistent with those of the financial statements for the year ended 31 March 2019 as described in those financial statements except for the changes brought about by the adoption of IFRS 16 Leases ("IFRS 16") on 1 April 2019, which are detailed below.
The annual rents for these leases were previously charged to the income statement as operating costs under IAS 17 Leases ("IAS 17"). From 1 April 2019, right of use assets have been recognised under property, plant and equipment at an initial value of GBP3.1 million and the corresponding lease liabilities have been recognised as financial liabilities of the same value.
The initial values of the right of use assets and corresponding liabilities on adoption of IFRS 16 were calculated as the present value of future lease payments under the relevant lease contracts. Under the modified retrospective approach adopted by the group, the discount rates used reflect the interest rates at which the group would currently be able to borrow in order to finance similar assets to those under the leases affected by the transition (the incremental borrowing rate).
The company has recently entered into loan facilities at fixed rates and with weighted average repayment maturities comparable with the lengths of the leases affected by this transition. It was, therefore, decided that the interest rates attached to the new facilities were appropriate proxies for the incremental borrowing rates to be applied in calculating the present value of the future lease liabilities, as follows:
-- lease length of zero to ten years remaining on transition - 2.94% -- lease length of ten to twenty years remaining on transition - 3.22% 3. Transition disclosures
The group has adopted IFRS 16 in the period. Details of the impact of the adoption of this Standard are provided below.
IFRS 16 is effective for periods commencing on or after 1 January 2019 and has been adopted by the group for the year ending 31 March 2020. For lessees, IFRS 16 removes the distinction between operating and finance leases and requires the recognition of right of use assets and corresponding liabilities, equating to the present value of the future lease payments. The group currently holds the following operating leases which meet the criteria under IFRS 16 for such recognition.
Values of assets Annual and liabilities rent on adoption Leased asset Start date End date GBP000 GBP000 Laboratory at Farnborough 22 May 2015 21 May 2035 195 2,466 Unit at Brooke House, Larkfield 8 Aug 2018 7 Aug 2021 19 43 Water Tower at Blackhill, Camberley 19 Jan 2004 14 Jun 2022 17 52 Offices at Leithrim House, Larkfield 4 Apr 2018 4 Apr 2028 67 537 -------- ----------------- 298 3,098 -------- -----------------
IFRS 16 has been adopted using the modified retrospective method which has led to the accumulated historical adjustments being made to opening balances at 1 April 2019.
The impact of the adoption of IFRS 16 on the Group's financial statements in the period has been:
Condensed group income statement
30 September Adjustment 30 September 2019 pre for the adoption 2019 post IFRS 16 of IFRS 16 IFRS 16 GBP000 GBP000 GBP000 Revenue 122,818 - 122,818 Group net operating costs (86,155) 21 (86,134) Other income 6,060 - 6,060 Group operating profit 42,723 21 42,744 Finance costs (25,810) (49) (25,859) Finance income 3,038 - 3,038 Profit before taxation 19,951 (28) 19,923 Taxation (1,846) (5) (1,851) ------------- ------------------- ------------- Profit for the period 18,105 (33) 18,072 ------------- ------------------- -------------
Adoption of IFRS 16 has resulted in the net adjustment to net operating costs of GBP21,000. This represents the removal of the rental charges of GBP145,000 offset by the depreciation change of GBP124,000 on the right to use assets, which have been included in the balance sheet at 1 April 2019.
4. Total income Six months Six months ended ended 30 September 30 September 2019 2018 GBP000 GBP000 Revenue Unmetered water income 10,379 13,414 Metered water income 105,291 100,437 Other sales 7,148 6,799 -------------- -------------- Total revenue 122,818 120,650 -------------- -------------- Other income Rental income 623 636 Sundry income 5,437 5,684 -------------- -------------- Total other income 6,060 6,320 -------------- -------------- Total income 128,878 126,970 -------------- --------------
All revenue is from customers within the United Kingdom.
5. Net operating costs Six months Six months ended ended 30 September 30 September 2019 2018 GBP000 GBP000 Employee benefits expenses 15,550 15,353 Asset expenses 26,788 25,402 Other operating expenses 42,206 42,197 -------------- ---------------------- 84,544 82,952 Impairment losses on trade receivables 1,590 1,588 86,134 84,540 -------------- ---------------------- 6. Finance costs Six months Six months ended ended 30 September 30 September 2019 2018 GBP000 GBP000 Effective interest on listed debt 11,568 11,371 Fair value movements on interest rate swap 2,713 974 Indexation on listed debt 2,481 2,908 Interest on index linked loans 6,184 6,032 Indexation on index linked loans 2,188 4,208 Other finance costs 2,197 1,317 27,331 26,810 Less: interest capitalised (1,472) (1,043) -------------- -------------- 25,859 25,767 -------------- -------------- 7. Finance income Six months Six months ended ended 30 September 30 September 2019 2018 GBP000 GBP000 Interest receivable from group undertakings 2,599 2,490 Pension fund finance credit 319 314 Interest receivable on bank balances and short term deposits 120 56 3,038 2,860 -------------- -------------- 8. Taxation Six months Six months ended ended 30 September 30 September 2019 2018 GBP000 GBP000 Current taxation charge 1,123 262 Deferred taxation charge 728 2,550 1,851 2,812 -------------- -------------------------
The current tax charge is based on management's estimate of the weighted average annual corporation tax rate expected for the full financial year.
9. Dividends Six months Six months ended ended 30 September 30 September 2019 2018 GBP000 GBP000 Equity dividends paid during the period of 11.2p per share (2018: 28.4p) 5,500 14,000 -------------- --------------
10. Intangible assets
GBP000 Net book amount At 1 April 2019 10,501 Additions for the period 1,633 Reclassification of assets in the period - Amortisation for the period (1,431) -------- At 30 September 2019 10,703 -------- Net book amount At 1 April 2018 10,758 Additions for the year 4,067 Reclassification of assets in the period (1,069) Amortisation for the year (3,129) Impairment for the year (126) -------- At 31 March 2019 10,501 -------- Net book amount At 1 April 2018 10,758 Additions for the period 1,908 Reclassification of assets in the period 19 Amortisation for the period (1,548) -------- At 30 September 2018 11,137 --------
11. Property, plant and equipment
GBP000 Net book amount At 31 March 2019 1,555,123 IFRS 16 (see note 3) 3,098 ------------ At 1 April 2019 1,558,221 Additions for the period 47,775 Reclassification of assets in the period - Disposals for the period (22) Depreciation for the period (25,408) ------------ At 30 September 2019 1,580,566 ------------ Net book amount At 1 April 2018 1,501,707 Additions for the year 100,621 Reclassification of assets in the period 1,069 Disposals for the year (228) Depreciation for the year (48,035) Impairment for the year (11) ------------ At 31 March 2019 1,555,123 ------------ Net book amount At 1 April 2018 1,501,707 Additions for the period 50,752 Reclassification of assets in the period (13) Disposals for the period (173) Depreciation for the period (24,186) At 30 September 2018 1,528,087 ------------
12. Trade and other receivables
30 September 31 March 30 September 2019 2019 2018 GBP000 GBP000 GBP000 Financial asset receivables Trade receivables 39,686 38,562 33,630 Accrued income 41,520 37,835 36,035 Amounts due from group undertakings 35 4 378 81,241 76,401 70,043 ------------- --------- ------------- Non-financial asset receivables Prepayments 4,779 3,856 5,203 Other receivables 1,298 5,933 2,068 ------------- --------- ------------- 6,077 9,789 7,271 ------------- --------- ------------- 87,318 86,190 77,314 ------------- --------- -------------
13. Current loans and borrowings
30 September 31 March 30 September 2019 2019 2018 GBP000 GBP000 GBP000 Financial liabilities Bank loan 15,000 55,000 20,000 Listed bonds - 200,000 200,000 Unamortised costs - (110) (218) ------------- --------- ------------- 15,000 254,890 219,782 ------------- --------- -------------
On 30 September 2019 index linked bonds with a nominal value of GBP200.0 million together with accumulated indexation of GBP111.5 million were repaid by the group on maturity. Also on 13 September 2019 the group reduced its borrowing from its committed facility by GBP40 million.
14. Current liabilities
30 September 31 March 30 September 2019 2019 2018 GBP000 GBP000 GBP000 Financial liabilities Trade payables 11,638 13,890 11,995 Amounts due to group undertakings 10,117 8,786 15,607 Other payables 13,493 2,303 11,771 Accruals 34,419 33,553 47,525 ------------- --------- ------------- 69,667 58,532 86,898 ------------- --------- ------------- Non-financial liabilities Payments received in advance 33,232 32,724 31,853 Other taxes and social security 1,001 1,007 1,055 ------------- --------- ------------- 34,233 33,731 32,908 ------------- --------- ------------- 103,900 92,263 119,806 ------------- --------- -------------
15. Non-current financial liabilities
30 September 31 March 30 September 2019 2019 2018 GBP000 GBP000 GBP000 Irredeemable debenture stock 990 991 991 New loans 292,312 - - Operating lease capital element 2,977 - - Listed bonds 336,949 334,387 332,170 Index linked loans 384,500 382,226 375,163 ------------- --------- ------------- Loans and borrowings 1,017,728 717,604 708,324 Trade and other payables 5,312 5,379 5,791 ------------- --------- ------------- 1,023,040 722,983 714,115 ------------- --------- -------------
On 16 September 2019 the group has issued new fixed rate loan notes totalling GBP175 million. The notes were issued in two tranches being:
-- GBP75 million falling due for repayment on 16 September 2031 -- GBP100 million falling due for repayment on 16 September 2042
In December 2018 the group entered into a new bank loan arrangement for GBP120 million at a variable rate of LIBOR plus 1.2 per cent which matures on 31 March 2027. This loan was drawn down in September as part of the refinancing of the maturing index linked bonds on 30 September 2019.
16. Post balance sheet events
There are no post balance sheet events to report.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
IR BSBDDSXBBGCD
(END) Dow Jones Newswires
December 13, 2019 02:00 ET (07:00 GMT)
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