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| Sth.e.wtr.5%db | LSE:53HO | London | Debenture |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
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From Nov 2023 to May 2024
TIDM53HO
RNS Number : 9555V
South East Water Limited
07 December 2023
South East Water Limited
Condensed group financial statements
for the six months ended 30 September 2023
Chair and CEO joint report
We are pleased to present our interim report for the six months ended 30 September 2023. Our interim report and our company's performance for this period is set against the backdrop of another challenging, dry, hot early summer. We would like to start by saying thank you to everyone involved in our business and supply chain who has continued to go above and beyond throughout the summer to maintain supplies in challenging conditions. Despite these challenges and the regrettable localised interruptions we saw in June, we are pleased to be able to report continued progress and good performance in other areas such as priority services, water quality and unplanned outages.
Business plan submission
We have just submitted our next and most important Business Plan ever to our regulator, Ofwat, which sets out how we are going to provide the public water service in the next five years. The plan includes a proposal to invest GBP1.9 billion into our network to deliver a reliable and high-quality service for our customers, whilst ensuring that the environment thrives.
This business plan is the most important in our long history because we recognise that our service has not been of the high standard our customers and stakeholders expect of us and we expect of ourselves. Our operational capacity and resilience has been under severe pressure from the long-term impact of the Covid pandemic and accelerated impact of climate change. Included in our plan is a significant investment into the capacity of our network to improve customer service, reduce customer supply interruptions and strengthen network resilience, all areas our customers tell us are important to them.
This business plan demonstrates a vital step forward for us by developing new water sources such as a reservoir at Broad Oak near Canterbury, increasing clean drinking water storage capacity, improving the interconnectivity of the network, implementing smart meters, using new technology to help reduce leaks and continuing and expanding our work with land owners to maintain excellent water quality.
A plan of this size and scope requires us to raise significant new capital to fund it, which we have assessed carefully, in line with guidance from Ofwat. Our plan limits the impact on customer bills over this period by funding investment through raising capital from our lenders, as well as from shareholders.
While increasing bills is never welcome, investment in our water system is essential in ensuring the security of our water supply for the future. Using the Ofwat investment methodology, we believe that delivery of this plan will see bills rise on average from GBP19.33 a month in 2025 to GBP23.12 a month in 2030. The funds we raise are guaranteed only to fund improvements in our water systems and, if these improvements aren't delivered, bills will automatically be reduced.
Supporting customers
A key focus of our business plan is to ensure that it works for and actively supports our most vulnerable customers, something which has always been important to us, but never more so than in the current cost of living crisis, which we know is having a significant impact on family budgets.
We have redesigned our social tariffs, working hard to ensure they benefit all those customers who need our support. Working with partners such as local authorities, we have increased the reach of our social tariffs to support more people than ever before and made it much easier for people to apply.
Our Priority Services Register (PSR), which is free to join and provides extra care and support to those who need it most, continues to grow, with almost 90,000 customers now registered to receive additional support from us to ensure their needs are met. From priority treatment during a water supply interruption, to receiving information in large print or spoken word, we are committed to growing our PSR and ensuring we provide that additional support for any customer who needs it.
We are proud to be one of the first nine organisations to receive and pilot the BS ISO 22458 Inclusive Service Kitemark, which recognises our commitment to supporting vulnerable customers, and we continue to develop our staff training and the support we offer customers to ensure we remain industry leaders in supporting vulnerable customers.
Investment adaptation
Since 2018, we have experienced some of the most significant weather-related events in over 50 years across our supply area. Freeze/thaws, powerful storms, heatwaves, droughts and flooding across the region in such a short space of time demonstrate the very real issue of climate change and the pressure that our network has been put under.
Our business plan is bold and ambitious, and it calls for significant investment to improve our network capacity, delivering a more resilient and reliable service for our customers. Like most water companies, we have known about and planned for climate change, but what we are seeing now is a pattern of accelerated climate change, far exceeding forecasts made just a few years ago, and this is impacting our ability to supply our customers with the public water service they deserve. We want to put that right.
Our business plan tackles the challenges of climate change head on, with a highly researched, cost-effective proposal that addresses the challenges we have faced in providing our customers with water in an efficient and affordable way. The level of investment we expect to make in the next five years represents a near doubling of the investment approved in the last business plan, PR19.
June and the Temporary Use Ban (TUB)
Responding to unprecedented high levels of demand, due to the hottest June since records began, our network treatment and distribution capacity was exceeded, which regrettably resulted in customers in the Wadhurst, Rotherfield and Mayfield area suffering a lengthy interruption over several days. During this time, we produced an additional 110 million litres of water per day, which is the equivalent of adding an additional four towns the size of Eastbourne or Maidstone to our network overnight. Despite all our assets functioning at full capacity, with demand rising to 678 million litres per day, our ability to keep up with demand was severely impacted, which regrettably led to customer outages.
This situation was compounded by the fact that the preceding six-weeks saw little to no rainfall across our supply area. Despite this, our raw water stocks were in a good position and reflected the careful planning undertaken to ensure we were prepared for summer. Regrettably, despite all our planning and preparation, this long, extreme period of hot weather challenged us deeply and, even with all our treatment works and water sources working at full output, we were unable to keep up with demand and return our drinking water storage tanks to acceptable levels.
On 16 June, we took the difficult but necessary decision to implement a temporary use ban (TUB), which came into effect on 26 June. Whilst we never do this lightly, it was necessary in our efforts to secure water supplies for our customers. The combination of implementing the TUB, effective customer messaging and a break in the extreme hot weather had the desired effect of reducing consumption and enabling us to recover water storage levels.
Although this was the second temporary use ban in two years, it is important to note that it is the first temporary use ban implemented due to demand alone and reflects the significant change we've seen in customer water usage, both domestic and agricultural, since the Covid pandemic. It also highlights the very real and rapid increase in climate change we are seeing here in south east England, which is something we have factored into our latest business plan.
Ofwat Company Performance Report
In September, our regulator Ofwat published their 'Water Company Performance Report 2022/23'. Whilst we always look closely at our regulator's view of our performance and respond accordingly, we are, of course, disappointed that our customer service and leakage performance has not met the stringent targets set by Ofwat.
For 14 of the past 15 years, we have achieved our regulatory targets for leakage, leading the industry in this field. Last year we faced exceptional challenges from events outside of our control, such as Storm Eunice and the summer heatwave, which was followed by flooding in the autumn and a severe freeze/thaw in the winter.
Those unprecedented extreme weather events were the cause of the majority of supply interruptions, but we appreciate that problems experienced by our customers will result in lower levels of customer satisfaction. We are deeply sorry to customers who have been affected by supply interruptions and continue to work tirelessly to recover. We have 52 teams actively repairing leaks, and 40 technicians proactively looking for them.
Our business plan (PR24) sets out clearly how we intend to tackle these challenges head on, creating a more resilient water supply for all our customers.
Wadhurst supply interruptions
Regrettably, our customers in the Wadhurst area were disproportionately affected by the June incident and we give an unreserved apology for this. This is a challenging part of our distribution network, with limited network flexibility and interconnectivity.
As part of our ongoing commitment to improving resilience and removing these pinch points from our network, our business plan includes several measures which will greatly benefit Wadhurst and the wider Wealden district. These include a new transfer water main between Bewl Water and Best Beech, increasing the transfers available to support Cottage Hill from Popeswood and to Ashdown from Horsted Keynes drinking water storage tanks. By summer 2024, we will have commissioned Forest Row water treatment works, which will provide an additional two and a half million litres of water to Wadhurst and the surrounding area.
Tough current operating conditions
The extreme weather events we've experienced this year, combined with high energy and chemical prices and high general inflation continue to have a significant impact on our operating costs. Rising interest rates have also resulted in higher financing costs than in previous years. These economic conditions combined with a preset revenue continue to challenge our financial performance.
Ofwat investigation into supply resilience
In November, Ofwat launched an investigation into our supply resilience. We acknowledge the decision by Ofwat to open this investigation and will fully cooperate with them on this matter. Resilience forms a major focus for us, and is a significant part of our PR24 business plan, which has been submitted to Ofwat.
GRESB
We were delighted to have received 'Infrastructure Asset Sector Leader' status in the 2023 GRESB Infrastructure Assessment for our sustainability leadership. Each year, GRESB assesses and benchmarks the Environmental, Social, and Governance (ESG) performance of assets worldwide, which provides clarity and insights to financial markets on complex sustainability topics.
GRESB data is used by hundreds of capital providers and thousands of asset managers to benchmark investment across portfolios and to better understand the opportunities, risks and choices that need to be made as industry transitions to a more sustainable future.
This GRESB Infrastructure Asset Sector Leader award recognises our outstanding leadership in sustainability and drive towards a net-zero future amongst an international business community, and is a testament to the hard work and commitment of everyone involved.
AquAlerter
Responding to customer feedback on the quality of our communications during incidents, we have completely reviewed our incident communications strategy. This has included developing new tools and techniques to keep customers updated during supply interruptions. Phase one of a new communications tool - AquAlerter - was launched in the summer with the aim to give customers timely updates when they experience no water or low pressure. Further phases of this new tool are planned in the second half of the year.
WRMP24
In August, we published our revised Water Resource Management Plan (WRMP24), which sets out how we propose to provide our customers with safe, reliable water supplies now and in the future and, at the same time, protect and enhance our precious environment.
Developed through our work with Water Resources South East (WRSE), our plan details how we will efficiently deliver a resilient and sustainable supply of clean drinking water, while managing the challenges of operating in an area of severe water stress. By joining forces with other water companies, we have been able to develop inter-regional options for water resource management, and will continue to develop our plans through close and continuous engagement, regional collaboration and consultation.
Our revised WRMP24 follows the very latest national framework, regulatory requirements, government guidance and policy for water resources planning. It also incorporates the feedback we received from stakeholders and customers during our consultation.
Going above and beyond the minimum 25-year period, our WRMP looks forward to 2075, enabling us to fully investigate, scrutinise and plan future water resource needs. Our plan is ambitious, but not without risk due to the significant demand reductions assumed, and has been guided by extensive research, detailed data, customer involvement, and engagement with stakeholders and other interested parties.
Throughout its development, ongoing stakeholder challenge has been provided by our Customer Challenge Group (CCG) and Environmental Scrutiny Group (ESG). We have collaborated in more ways than ever before, with more stakeholders, customers and communities, to create a plan that meets future needs and priorities.
Results and key financial performance indicators
The results published in this statement summarise our performance for the six months ended 30 September 2023. The financial statements are prepared under International Financial Reporting Standards ("IFRS") and incorporate the performance of South East Water Limited and its subsidiary, South East Water (Finance) Limited.
Revenue
Revenue for the period was GBP147.1 million (2022: GBP137.8 million). The additional GBP9.3 million of revenue was due to tariff increases of GBP15.2 million, partially offset by GBP5.9 million of lower consumption experienced this year when compared with the record consumption during last year's summer heatwave. Other revenue remained stable compared with last year.
Operating expenditure
Operating costs, excluding bad debt, were GBP115.4 million for the six months to 30 September 2023. This compares to costs of GBP107.9 million in the corresponding period for the previous year. The increase of GBP7.5 million was driven by increased reactive maintenance costs of GBP2.8 million, due to additional leakage gangs being employed, and by inflationary pressures, such as chemicals (GBP0.8 million), bulk supply and abstraction charges (GBP0.8 million) and power (GBP0.7 million). Staff costs also increased by GBP1.3 million driven by an average staff pay award of 6.6 per cent, a budgeted increase in average FTE and higher underlying overtime, plus the transition to the cloud added a further GBP0.6 million in computer costs.
Depreciation charges in the period increased by GBP0.8 million and other cost increases totalled GBP1.6 million, while savings of GBP0.9 million were seen on the six month's business rates charge.
The results for the six months to 30 September 2023 included GBP3.0 million of costs associated with the high temperatures in June 2023, including customer compensation of GBP1.5 million, bottled water costs of GBP0.7 million and other related charges of GBP0.8 million. This was GBP1.9 million lower than the weather-related costs incurred in the first half of the previous year.
Profit from Operations
Operating profit for the six months period was GBP35.9 million (2022: GBP33.8 million), an increase of GBP2.1 million as detailed above.
Finance expenses
Finance expenses for the period were GBP54.8 million (2022: GBP47.4 million). The increase of GBP7.4 million reflects higher indexation charges on our four indexed linked loans of GBP2.9 million, due to a significant rise in inflation over the period. Additionally, cash interest on our index linked loans has increased by GBP1.2 million and interest on our variable rate bank loan has increased by GBP2.1 million due to the increase in the SONIA rate. During the period we drew an additional GBP23 million (2022: GBPnil) from our revolving credit facility ("RCF") resulting in an increased interest charge during the period of GBP1.2 million.
Finance Income
Interest receivable for the six months to 30 September 2023 was GBP0.8 million (2022: GBP0.9 million), which comprises interest earned on bank deposits and returns on pension scheme assets.
Loss before taxation
The loss before tax for the six months to 30 September 2023 was GBP18.1 million (2022: loss of GBP12.7 million). The result was significantly impacted by the increase in operating and finance expenses in the period.
Taxation
The group tax credit for the period was GBP5.2 million (2022: GBP4.5 million). The current tax charge in the period was GBPnil. The deferred tax credit was generated primarily by the deferral of capital allowances for future use.
Loss after taxation
The group has recorded a loss after tax of GBP12.9 million for the period (2022: loss of GBP8.2 million). The increased loss for the period is primarily due to the rise in finance costs because of the increase in inflation throughout the reporting period.
Net debt and cash flow
During the six months to 30 September 2023, cash generated from operations was GBP67.0 million (2022:
GBP69.2 million). Net payments in respect of capital activities in the period totalled GBP61.5 million (2022: GBP42.5 million). Net payments in respect of interest and other finance income and costs were GBP19.1 million (2022:
GBP14.8 million).
The higher net interest paid in the period is due to higher interest rates in the period and additional borrowing on our RCF (see above).
The group statement of cash flows shows an increase in the cash balance, from GBP4.0 million at the beginning of the financial year to GBP7.8 million at the end of the period. The increase is largely because of the RCF drawdowns.
Dividend
The dividend paid for the six months period ended 30 September 2023 of GBP2.25 million (2022: GBP4.5 million) was lower than that paid in the corresponding period last year and this represents a nominal dividend yield of 0.9 per cent. The dividend was in line with our dividend policy and was lower than Ofwat's view of what is a reasonable nominal dividend yield, which is 4 per cent.
Going concern
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.
In preparing the financial statements the directors considered the group's ability to meet its debts as they fall due for a period of one year from the date of this report. The directors have considered the current economic uncertainty associated with various factors including high inflation, pressures on household finances, supply chain constraints and high power prices caused by Russia's invasion of Ukraine.
The group's business activities together with the factors likely to affect its future development were set out in the strategic report included in the group's annual report for the financial year ended 31 March 2023.
The group finances its working capital requirements through cash generated from operations and committed facilities that can be called upon as required. The group's liquidity position and cashflow projections are closely monitored and are updated each month. When necessary, mitigating actions are identified and implemented. The group has significant headroom in its GBP125 million revolving credit facility, of which GBP53 million had been drawn at 30 September 2023.
The directors have assessed the going concern review that has been completed for the group. That assessment considered the output of the viability assessment for the year ended 31 March 2023 and performance since that date compared with budget.
In adopting the going concern basis of preparation for these financial statements, the directors have considered the liquidity position of the group, financial forecasts, stress testing of principal risks and uncertainties and the impact of these stress tests on committed funding facilities levels and applicable covenants.
In forming their view on going concern, the directors are aware that the financial statements of HDF (UK) Holdings Limited ("HDF") for the year ended 31 March 2022 contained a material uncertainty in respect of going concern. HDF had GBP150 million of debt that was due for repayment on 18 December 2023. The directors are aware that the debt was refinanced on 26 September 2023. The directors of HDF are in the process of evaluating the going concern position of that company.
The directors of South East Water Limited have a reasonable expectation that South East Water Limited has sufficient resources to continue in operation for the foreseeable future and therefore continue to adopt the going concern basis of accounting in preparing the financial statements.
A trusted and affordable service supporting customers and society
In the first half of this financial year, we have continued to increase the number of customers who have joined our Priority Services Register (PSR). Through active promotion of this support, as well as strategic partnerships with key organisations and support networks across our supply area, the current total number of customers on our PSR is 88,492, representing a 9.73 per cent increase since the beginning of this financial year.
By restructuring our Resilient Customer team to now include two brand new Community Partnership Leads, we have been able to work closely with food banks, cost of living hubs and community cafes to identify and support those customers who are most difficult to reach and most vulnerable, giving them vital support around affordability and water efficiency, helping with their household budget and ensuring their wellbeing.
Both our Community Partnership Leads have developed bespoke, targeted community campaigns in specific areas, such as Hailsham and East Hampshire, where we had identified a need for this support. They are working closely with charitable organisations and statutory services in these areas to ensure a joined-up and collaborative approach to this crucial outreach work.
We have developed an exciting partnership with Basingstoke and Deane Borough Council, working with its green teams to support the promotion of water efficiency and supporting vulnerable customers and those who are struggling to pay their bills. We have also built a wider partnership with the council, implementing auto-enrolment data sharing between us for our social tariffs, whilst working directly with the teams on the ground to enable them to register customers directly for our support services.
Our continued partnership with Ashford Borough Council has focused on climate campaigns in its locality, ranging from improving efficiency work on housing developments, community campaigns for water efficiency, attending cost of living events for residents and the promotion of water saving devices. We are also working with a number of local councils to develop a new water butt giveaway scheme which will be aimed at benefiting customers in lower income households.
In redesigning our social tariffs, we engaged extensively with stakeholders across all our regions to gain their views on eligibility, current gaps in support, ease of application for our support and the overall impact they feel the social tariffs are having. Working with a multitude of stakeholders across a wide range of sectors, we worked hard to ensure we gained as much insight from our communities as possible.
Our new social tariff will apply a discount, rather than the current capped approach. The discount will be based on the household income for our customers, with a 30 per cent discount provided for those earning between GBP17,000 and GBP21,000, rising to a discount of 50 per cent for those with a household income of less than GBP17,000.
Overall, stakeholders were very supportive of the new social tariff design and provided valuable feedback on how we communicate these social tariffs to customers and ensure their easy accessibility. We will accelerate our efforts to bring eligible customers onto this new tariff in the first two years of AMP8, and will reach 105,000 customers by 2030. Our WaterSure offering will remain in place and we plan to nearly double its reach to 13,000 customers by 2030. As with our existing social tariff, the proposed new tariffs are funded by our wider customer base who, through extensive research, have indicated a willingness to subsidise this support to those who need it most.
We remain proud to be one of the first nine organisations to receive and pilot the BS ISO 22458 Inclusive Service Kitemark in recognition of our commitment to supporting vulnerable customers. Since our last accreditation, we have continued to enhance the vulnerability training we offer our staff, and are developing new training modules with our expert stakeholders and teams to ensure we continue to be industry leaders in supporting vulnerable customers.
As of October, we have 538,567 active accounts on My Account, which is 50.25 per cent of our total customers. This represents an 8.25 per cent increase, up from 42 per cent in May. We continue to actively encourage customers to sign up for and utilise their My Account, which makes it easy for customers to manage their account online anytime, anywhere. Using the My Account portal, customers can view and download their bills, set up and amend direct debits and manage payments, manage their home move and track water usage.
We are pleased to see continuing large order numbers for water saving devices, with customer engagement in this area remaining very high. We are working with our partners to innovate in this space to provide new products which promote behavioural change around water usage.
As part of our ongoing commitment to engage with schools and local communities, we have been working closely with eco-schools and councils to test our AquaSmart platform, gaining their expert insight on the activities and characters. AquaSmart is our online, water efficiency learning platform that allows children to work through a series of fun and educational activities, learning about the ways in which they can help to save water. We will be continuing to develop this work with our partners in the community to ensure AquaSmart becomes a trusted resource everyone is aware of and able to easily access.
Flexible, resilient infrastructure and service
Wellwood to Charing
A GBP12 million project to lay 16 kilometres of new water main between Wellwood and Charing has begun, which will increase the flexibility and resilience of our network in Kent, enabling us to move water around more easily when supplies are disrupted. With phase one due to complete in autumn 2023, we have laid 2.7 kilometres of new pipe in the Wichling and Doddington area, as well as 5.7 kilometres from our service reservoir in Warren Street to The Pilgrims Way carriageway in Charing.
Butler Water Treatment Works
We are building a brand-new, state-of-the-art water treatment works on a section of the old Aylesford Newsprint site near Maidstone. This new GBP39 million facility will provide up to 20 million litres of treated drinking water per day to the area, once built. This site is a key investment scheme for Maidstone and is a vital part of our plans to ensure we can continue to supply the area with tap water as the population grows.
Once operational, it will take water from underground sources via boreholes and turn it into top-quality drinking water, before pumping it into the local area. In addition to drilling new boreholes, we will be making use of existing boreholes, pipework and storage tanks originally built on the site. By upgrading infrastructure already in place, we will ensure these existing facilities reach drinking water quality standards and reduce construction costs and impact on the area. Work is underway and the site is due to be fully operational by March 2025.
Aylesford storage tanks
A complex three-year project has been completed after millions of litres of water were lost when sinkholes appeared at our water storage reservoir in Aylesford in 2020. Of the three cells on site, one was demolished, a second repaired and a third split in two, increasing resilience and efficiency.
This extraordinary project utilised a wide range of specialist surveys and assessments, including geophysical, laser scanning ground level monitoring and dynamic probing, helping increase understanding of what was happening underground after the sinkholes appeared.
This GBP12.4 million project demonstrates our ability to rise to significant challenges, the likes of which had not been experienced before and has resulted in a much-improved facility with greater water turnover and guaranteed water quality, whilst cost and carbon efficiency savings have been made by re-using or recycling everything on site, including pipework.
This was an incredibly innovative and successful project and, in acknowledgment of that, the project has been shortlisted for the UtilityWeek Awards 'Infrastructure Delivery Award', which "celebrates best-in-class performance and innovative approaches to delivering infrastructure projects for the benefit of customers and the environment."
We will find out in December if we have won, but to be shortlisted among seven industry-leading entries is a huge achievement.
Leeds Village
Phase two of our water main replacement in Upper Street, Leeds began on 24 July. This vital scheme replaces approximately 535 metres of ageing, burst-prone pipe with a new, wider water main, enabling us to feed more water into the village and surrounding areas, reducing the risk of leaks and the subsequent disruption this causes to the community when closing the road to repair the existing main.
Due to the volume of other utility service networks in the area, as well as ensuring the safety of residents, motorists and our workforce, we had no choice but to operate a phased closure of Upper Street, which allowed for access for residents and businesses, but was closed to through traffic.
Initially scheduled to take six months, through the hard work and dedication of our team, we were able to use a faster technique to lay the water main, meaning all work was completed by the end of October and disruption to residents and businesses was greatly minimised. Whilst disruption to businesses was reduced significantly, we appreciate there was disruption and, in acknowledgment of this, compensation was awarded to businesses in Leeds village.
Tongham
The community in Tongham is growing and, to ensure there is sufficient pressure in the area and meet increasing demand, we have installed new pipework along The Street to future-proof water supplies in the area.
Working collaboratively with the community and taking their feedback on board, we reviewed the scheme to see if there was anything we could do to minimise the project's impact on the community whilst works took place. Starting at the end of June, through careful planning and skilled delivery, we were able to reduce the completion time to just three weeks during the summer from an original projected completion date in November.
Whilst projects like these are essential in continuing to meet our statutory and legal duties to provide water, we understand that they can cause disruption to residents and businesses. By fully engaging with and consulting residents and businesses, we are doing our best to ensure the most positive outcome for everyone.
College Avenue Water Treatment Works upgrade
Work began in July on our GBP14 million project to upgrade College Avenue Water Treatment Works in Maidenhead. This upgrade includes various new tanks and the addition of a UV plant, which will further improve the quality of water supplied to customers in the Maidenhead area.
This vital work is being done to ensure we continue to meet our statutory requirements with the Drinking Water Inspectorate and maintain the high standard of our drinking water for customers.
The first phase of the project was completed successfully in August, with the planning application for phase two due to be submitted to the Royal Borough of Windsor and Maidenhead later this year. The project is utilising the most up-to-date technology to future-proof the quality of drinking water for Maidenhead.
Water Quality
We have once again performed strongly against our target and industry average in the DWI's Compliance Risk Index performance measure in the first half of this year. This considers water quality compliance failures at water treatment works and in domestic household water plumbing (cause, location and customer impact).
Our Event Risk Index, based on the seriousness of an event, how it is managed and its impact, is currently short of our corporate target as a direct result of this summer's loss of supply event. However, when compared with the industry average, we continue to fare very well.
Thriving environment
Holland visit
In September, members from our Environment Team, along with delegates from a group of statutory and government agencies visited Holland with the Kent Wildlife Trust and other wildlife NGOs to look at and understand how the Dutch have approached rewilding and natural recovery. In particular, the visit focused on the re-introduction of European bison to manage the land naturally, helping preserve rich grasslands and prevent this botanically rich grassland from being taken over by trees, non-native invasive species and bracken.
The visit also explored the introduction of 'green bridges' to allow safe movement of wildlife across major roads and railways. This ensures that wildlife can thrive and allows us to continue to effectively manage habitats naturally - ensuring that these habitats are maintained or restored to their functional state.
As part of our ongoing commitment to improving biodiversity on our sites and securing our sites of special scientific interest (SSSIs) for the future, this research is fascinating and offers an innovative and environmentally sympathetic approach for the future.
Sustainability of water sources
Working with PhD students from Reading University, we have been developing hydrology models of Greywell Site of Special Scientific Interest (SSSI) in Hampshire. This bespoke, intensive research is being conducted to better understand how vegetation management and sustainable abstraction can work together to enable us to better manage the SSSI for its designated features.
With climate change and increasing demand becoming huge areas of concern for us, it is vital that we understand how to safely abstract in order to safeguard these sources for the future. We are working closely with the Hampshire and Isle of Wight Wildlife Trust on the long-term management of the Greywell site, as well as with landowners to the north, and we are committed to improving the SSSI status of Greywell.
A-WINEP project success
For over a decade, we have seen concentrations of nitrates increasing in the chalk groundwater we abstract from Woodgarston, just west of Basingstoke. With nitrate concentrations increasing and breaching Drinking Water Standards at our abstraction boreholes, in 2022 we completed the installation of a nitrate removal plant at Woodgarston but, with large ongoing operational costs and a high carbon budget, this is not cost-effective or sustainable as a long-term solution.
In September, we received confirmation from the Environment Agency and Ofwat that our proposal for the Advanced Water Industry National Environment Programme (A-WINEP) was accepted. Our proposal was to work with local farmers to extensively trial different agricultural techniques such as covered crop implementation, which uses less fertiliser, improves soil health, biodiversity and carbon infiltration, increasing crop yield for farmers and making it a cost-effective and sustainable method of farming whilst improving groundwater. The outputs will provide a blueprint for the water industry and agricultural sector to manage land sustainably in chalk groundwater catchments.
INNS Mapper
In August, the INNS Mapper, co-funded by South East Water was launched. This free-to-use app and website enables people to quickly and effectively report sightings, surveys and the management of invasive non-native species (INNS) in England, Wales and Scotland.
INNS are species that have been accidentally or intentionally introduced by people and cause negative impacts. The negative impacts of these species are far reaching for the environment, economy and society.
We work closely with other water companies and stakeholders through groups such as the Aquatic Biosecurity Partnership and the Water UK INNS Forum in a combined effort to manage the impact of INNS. As part of these groups, information is shared regarding biosecurity best practice; for things like field work and water transfers, as well as new innovations such as using eDNA for surveys and discovery of new species of concern.
The INNS Mapper app will give us early warning of new arrivals in our area which allows our environment team and catchment partners to take quick action to tackle invasive species before they become established. It will also build up a picture of where INNS might be a particular threat to native biodiversity.
Low carbon sustainable business
Net-zero schemes in the business plan
Our business plan, which was submitted in October features a number of net-zero schemes, including;
-- The replacement of 70 per cent of our fleet with low carbon alternatives.
-- Switching two of our water treatment works, Barcombe and Arlington, to liquid oxygen ozonation to reduce our operational carbon emissions.
-- Pilot projects to decarbonise our resilience generators, switching from diesel to either full battery, hybrid (diesel/electric) or hydrotreated vegetable oil (HVO) generators.
EV salary sacrifice scheme
In October, we launched our EV salary sacrifice scheme, which is a fantastic way for staff to lease an electric vehicle at a significantly reduced cost, enabling more of our staff to transition from an ICE (internal combustion engine) vehicle to electric.
This way of leasing a new EV provides many benefits to our staff. By sacrificing a portion of their pre- tax salary, we can help them get behind the wheel of a new EV at a competitive price. This scheme is designed to encourage our staff to make the change to an EV, reducing the carbon footprint of the journeys they make for work and helping us achieve our commitment to reaching operational net zero by 2030.
With the price of EVs, insurance, servicing and parts increasing in recent years, this is one way we have been able to support staff and mitigate against the increases in cost of living. This scheme will enable staff who perhaps would otherwise have been unable to afford to drive an EV to do so.
Securing the future of water
Great Stour project
As part of our commitment to improving the condition of the Chalk catchments we operate in, we have selected the Great Stour as our Chalk stream flagship project area. We are the only public water supply abstractor in this catchment.
With more than 70 per cent of baseflow into the river coming from groundwater, we understand that how we manage the groundwater catchment has a huge impact on flow and water quality of chalk streams. Effective catchment management is crucial, which is why we are working with developers and local authorities to ensure they don't build in the areas that are key to recharging the groundwater catchment that supplies the river.
Through our PROWATER, 2-seas Interreg project, we have researched the most effective ways to manage the landscape and agricultural land to improve water infiltration to ground and protect water quality. We aim to use this knowledge to further protect this chalk stream and groundwater catchment. This long-term project is part of our strategy to improve the Great Stour's Water Framework Directive waterbody status, and part of our 25 Year Environmental Plan.
South Downs - Super National Nature Reserve
We continue to work hard to link people with their local environment. So, on the back of our 25-year plan, we have started the process with our partners Natural England, to create a new super National Nature Reserve (sNNR) in the South Downs, as a way of protecting this outstanding and unique environment, whilst protecting both the quality and quantity of raw water it provides in the face of climate change and other potentially damaging factors.
With Natural England, we have now begun a public consultation for this, which has enjoyed ministerial support following a tour of the site by our Environment Team in August.
With groundwater providing 70 per cent of the water we abstract from the environment, it is crucial we protect the water quality and quantity of groundwater sources such as the South Downs Chalk. The Seaford to Eastbourne sNNR will be an ambitious project with a land management plan covering 12,000 ha, creating a mosaic of habitats from species-rich chalk grassland to sustainable and profitable farming land for improved food security, all whilst protecting groundwater supplies.
We are aware that we cannot do this alone, so we are working in collaboration with multiple partners including land managers and farmers to make this ambitious plan come to life.
Future-ready business
AquAlerter
We have launched AquAlerter, our new way of communicating with customers during incidents. This brand-new SMS (text message) system will eventually replace our current 'In Your Area' system, which is being phased out. Through AquAlerter, during an incident, all affected customers who have given us their mobile number will receive text message updates from us. They don't need to sign up for the service and, already, we are reaching in the region of 75 per cent of affected customers in each incident which is significantly higher than on the 'In Your Area' system.
We have listened to customer feedback and researched what utility companies such as UK Power Networks do, adopting some of its approaches within AquAlerter to create a more effective system and, already, feedback from customers is incredibly positive. One customer messaged us to say, "I wanted to thank you for the great communication during the Hurst Green/ Robertsbridge/Flimwell burst water main. The text alerts, links and photos of the repair were really helpful and the estimated repair times were also good and accurate."
Aspire to Lead
In May this year, we launched our newly developed 'Aspire to Lead' programme. The purpose of the programme is to engage future managers across the business, helping them develop the essential skills and behaviours required to take an effective assistant manager on the journey to becoming a highly successful team manager.
Staff participating in the Aspire to Lead programme learn practical ways to lead, organise and motivate others to achieve high performance in their roles. Each staff member participating is offered up to six hours of coaching support throughout the modules, helping support them with skills application and development planning. The programme actively encourages participants to take ownership of their learning and development through self-directed learning.
Leading for Change
'Leading for Change', our senior development programme entered its second phase. Designed by our internal organisational development team, the programme recognises the importance of developing a more collaborative, empowered performance culture.
Our Executive team recognise that it is essential to invest in building and developing the skills and behaviours of the senior leadership team, who have a challenging remit and objectives to deliver. The programme has been developed to enhance the skill set of the senior management team, supporting and enabling them to achieve our company objectives. All of our senior leaders have committed to this programme.
As of June this year, Leading for Change entered phase two, which runs until January 2024. Phase two takes the team through a series of bespoke workshops and project activities which run in parallel. Topics include leading through change, crisis management and commercial acumen. This has enabled more collaborative working across the business, and created really positive initiatives such as Project IMI, our incident management improvement project.
Apprenticeships
It is our continued ambition that, by the end of this business cycle, 10 per cent of our workforce will either be an apprentice or on an apprenticeship. As of September this year, having almost doubled our apprenticeship rate in the past 12 months, we have 6.4 per cent of our workforce who are either an apprentice or on an apprenticeship, and this really is exceptional. In recognition of this incredible achievement, we are joining the '5% Club', a dynamic movement of 850+ employer-members working to create a shared prosperity across the UK by driving 'earn and learn' skills training opportunities. Its members strive to achieve 5 per cent of their workforce in 'earn and learn' positions, such as apprentices and apprenticeships, within five years of joining.
Part of our vision is to be the water company people want to work for and, in showing that we actively encourage and reward personal development, we believe this sends a very strong, positive message to both existing staff and potential future staff. Our official audit from the 5% Club will take place next year, and it is our hope that we will receive its gold status as an employer.
Ask HR
With a continued desire to be available for all our colleagues across our 24/7 business, we have expanded our online HR offering which allows managers and colleagues to make requests at a point which suits them. This includes flexible working requests, transfers and engaging new starters and contractors. This system allows requests to be tracked from start through to completion, giving managers and colleagues peace of mind that their requests are being dealt with, together with a knowledge base which answers frequently asked questions.
Condensed group income statement
for the six months ended 30 September 2023
Hot Features
Premium
Six months Six months
ended 30 ended 30 September
September 2022
2023 GBP000
Note GBP000
------------------------------------- ------- --------------------- ----------------------
Revenue 6 147,146 137,839
Bad debt (2,415) (2,378)
Net operating costs 8 (115,370) (107,857)
Other income 6 6,567 6,198
===================================== ======= ===================== ======================
Profit from operations 35,928 33,802
Finance income 9 788 890
Finance expense 9 (54,825) (47,394)
===================================== ======= ===================== ======================
Loss before taxation (18,109) (12,702)
Taxation 10 5,202 4,494
===================================== ======= ===================== ======================
Loss for the six months (12,907) (8,208)
============================================== ===================== ======================
Other comprehensive income:
Items that will not be reclassified to the
income statement:
Net actuarial loss on pension
schemes (3,666) (11,348)
Deferred tax credit on the
net actuarial loss 26 1,959
===================================== ======= ===================== ======================
Other comprehensive loss for the six months (3,640) (9,389)
============================================== ===================== ======================
Total comprehensive loss (16,547) (17,597)
============================================== ===================== ======================
Six months Six months
ended 30 ended 30 September
September 2022
2023 Pence
Pence
------------------------------------- ------- --------------------- ----------------------
Loss per share attributable to the ordinary
equity holders of the parent
===================== ======================
Basic and diluted 12 (26.17) (16.64)
===================================== ======= ===================== ======================
Condensed group statement of financial position
as at 30 September 2023
Registered number: 02679874
30 September 31 March 30 September
2023 2023 2022
GBP000 GBP000 GBP000
----------------------------------------- ------------ --------- ------------
Assets
Non-current assets
Intangible assets 9,528 7,768 8,152
Property, plant and equipment 1,747,979 1,718,604 1,692,091
Right of use assets 10,596 11,153 10,647
Defined benefit pension surplus 23,681 23,842 49,001
========================================== ============ ========= ============
1,791,784 1,761,367 1,759,891
========================================== ============ ========= ============
Current assets
Inventories 1,127 1,132 832
Trade and other receivables 106,017 92,375 94,104
Cash and cash equivalents 7,759 4,002 21,261
========================================== ============ ========= ============
114,903 97,509 116,197
========================================== ============ ========= ============
Total assets 1,906,687 1,858,876 1,876,088
========================================== ============ ========= ============
Liabilities
Non-current liabilities
Trade and other payables 4,005 4,104 4,284
Loans and borrowings 1,229,345 1,198,501 1,148,687
Defined benefit pension liability 2,427 4,876 2,365
Deferred tax liability 195,064 200,205 222,416
Deferred income 5,283 2,482 3,974
========================================== ============ ========= ============
1,436,124 1,410,168 1,381,726
========================================== ============ ========= ============
Current liabilities
Trade and other payables 138,754 120,271 122,993
Loans and borrowings 53,435 30,520 409
Deferred income 5,136 5,312 6,224
Provisions 6,715 7,285 7,489
========================================== ============ ========= ============
204,040 163,388 137,115
========================================== ============ ========= ============
Total liabilities 1,640,164 1,573,556 1,518,841
========================================== ============ ========= ============
Net assets 266,523 285,320 357,247
========================================== ============ ========= ============
Issued capital and reserves attributable
to owners of the parent
Share capital 49,312 49,312 49,312
Revaluation reserve 210,958 213,254 215,608
Retained earnings 6,253 22,754 92,327
========================================== ============ ========= ============
Total equity 266,523 285,320 357,247
========================================== ============ ========= ============
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
DIRECTOR DIRECTOR
7 DECEMBER 2023. 7 DECEMBER 2023.
Condensed group statement of changes in equity
for the six months ended 30 September 2023
Share Revaluation Retained Total
capital reserve earnings equity
GBP000 GBP000 GBP000 GBP000
Note
-------------- ------------- ------------ ---------------
At 1 April 2023 49,312 213,254 22,754 285,320
========================================= ====== ============== ============= ============ ===============
Comprehensive income for the six
months
Loss for the six months - - (12,907) (12,907)
Other comprehensive loss - - (3,640) (3,640)
========================================= ====== ============== ============= ============ ===============
Total comprehensive income for the
six months - - (16,547) (16,547)
========================================= ====== ============== ============= ============ ===============
Dividends 11 - - (2,250) (2,250)
Amortisation of revaluation reserve - (3,055) 3,055 -
Release revaluation reserve on disposals - (6) 6 -
Deferred tax on revaluation and retained
earnings transfers 1 - 765 (765) -
========================================= ====== ============== ============= ============ ===============
- (2,296) 46 (2,250)
========================================= ====== ============== ============= ============ ===============
At 30 September 2023 49,312 210,958 6,253 266,523
========================================= ====== ============== ============= ============ ===============
At 1 April 2022 49,312 217,906 112,126 379,344
========================================= ==================== ========== ========== ==========
Comprehensive income for the six
months
Loss for the six months - - (8,208) (8,208)
Other comprehensive loss - - (9,389) (9,389)
========================================= ======== ========== ========== ========== ==========
Total comprehensive loss for the
six months - - (17,597) (17,597)
========================================= ======== ========== ========== ========== ==========
Dividends 11 - - (4,500) (4,500)
Amortisation of revaluation reserve - (3,056) 3,056 -
Release revaluation reserve on disposals - (8) 8 -
Deferred tax on revaluation and
retained earnings transfers 1 - 766 (766) -
========================================= ======== ========== ========== ========== ==========
- (2,298) (2,202) (4,500)
========================================= ======== ========== ========== ========== ==========
At 30 September 2022 49,312 215,608 92,327 357,247
========================================= ======== ========== ========== ========== ==========
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.
Condensed group statement of cash flows
for the six months ended 30 September 2023
Six months Six months
ended 30 ended 30
September September
2023 2022
GBP000 GBP000
-------------------------------------------------- -------------------- ----------------------
Cash flows from operating activities
Loss for the six months (12,907) (8,208)
Adjustments for
Depreciation of property, plant and equipment 29,970 28,994
Amortisation of intangible assets 1,316 1,487
Finance income (788) (890)
Finance expense 54,825 47,394
Gain on disposal of property, plant and equipment (12) (126)
Difference between pension contributions paid
and amounts recognised
in the income statement (3,022) (2,791)
Taxation on loss (5,202) (4,494)
================================================== ==================== ======================
Movements in working capital: 64,180 61,366
Decrease in inventories 5 19
Increase in trade and other receivables (13,740) (10,248)
Increase in trade and other payables 16,565 18,095
================================================== ==================== ======================
Cash generated from operations 67,010 69,232
Interest paid (19,365) (14,989)
Interest received 246 148
Income tax paid (3,059) (522)
================================================== ==================== ======================
Net cash generated from operating activities 44,832 53,869
================================================== ==================== ======================
Cash flows from investing activities
Purchases of property, plant and equipment (58,489) (41,320)
Proceeds from disposal of property, plant and
equipment 84 159
Purchase of intangibles (3,076) (1,345)
================================================== ==================== ======================
Net cash outflow from investing activities (61,481) (42,506)
================================================== ==================== ======================
Cash flows from financing activities
Issue costs of debt - (6)
Revolving credit facility 23,000 -
Debenture redemption - (1)
Dividends paid to shareholders (2,250) (4,500)
Payment of lease liabilities (344) (134)
================================================== ==================== ======================
Net cash generated/(used) in financing activities 20,406 (4,641)
================================================== ==================== ======================
Net increase in cash and cash equivalents 3,757 6,722
Cash and cash equivalents at the beginning of
six months 4,002 14,539
================================================== ==================== ======================
Cash and cash equivalents at the end of the
six months 7,759 21,261
================================================== ==================== ======================
Notes to the condensed group financial statements
for the six months ended 30 September 2023
1. Reporting entity
South East Water Limited (the 'company') is a limited company incorporated in the United Kingdom. The company's registered office is at Rocfort Road, Snodland, Kent, ME6 5AH. These consolidated financial statements comprise the company and its subsidiary South East Water (Finance) Limited (collectively the 'group'). The group's principal activities are the supply of water to a population of 2.3 million in an area of 5,700 square kms and the provision of certain ancillary services for customers, developers and other bodies within the limits of the relevant legislation.
2. Basis of preparation
The condensed consolidated financial statements for the six months ended 30 September 2023 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 UK endorsement board. The statements should be read in conjunction with the financial statements for the year ended 31 March 2023, which have been prepared in accordance with International accounting standards in conformity with the requirements of the Companies Act 2006 as applicable to companies using IFRS and UK adopted international financial reporting standards.
The condensed group financial statements are presented in sterling.
These interim financial results have not been audited or reviewed by our auditor. The information herein for the year ended 31 March 2023 does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2023 were approved by the Board of Directors on 14 July 2023 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.
3. Key judgements and sources of estimation uncertainty
The preparation of interim financial statements requires the application of judgements and assumptions by management which affects the value of assets and liabilities at the balance sheet date and income and expenditure for the six months ended 30 September 2023. Actual results may differ from those arrived at based on management's judgements and assumptions. In preparing these condensed interim financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the Group Annual Report for the year ended 31 March 2023.
4. Going concern
The directors have, at the time of approving the financial statements, a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. The directors have considered the current economic uncertainty and the impact that this might have on the business. The directors have concluded that it is correct to continue to adopt the going concern basis of accounting in preparing the financial statements. Further details are provided in the Chair and Chief Executive's joint statement.
5. Accounting policies
The accounting policies applied in these condensed interim financial statements are the same as those applied in the annual financial statements for the year ended 31 March 2023.
6. Revenue and other income
Six months Six months
ended 30 ended 30
September September
2023 2022
GBP000 GBP000
----------------------- -------------------- ----------------------
Revenue
Unmetered water income 11,221 10,294
Metered water income 130,910 122,561
Other sales 5,015 4,984
======================= ==================== ======================
Total revenue 147,146 137,839
======================= ==================== ======================
Other income
Rental income 599 625
Other income 5,968 5,573
======================= ==================== ======================
Total other income 6,567 6,198
======================= ==================== ======================
Total income 153,713 144,037 ======================= ==================== ======================
Other sales comprise several income streams, including those associated with activities typically performed for property developers. These activities impact the group's infrastructure network assets, including diversions works to relocate water assets. Activities that facilitate the creation of an authorised connection through which properties can obtain water services are also included in other sales. Other sales include new connections income of GBP2.3 million (2022: GBP2.0 million), infrastructure income of GBP0.5 million (2022: GBP0.7 million) and capital contributions of GBP1.3 million (2022: GBP1.3 million).
Other income includes charges for billing and cash collection services amounting to GBP3.6 million (2022: GBP3.5 million) and laboratory income of GBP1.9 million (2022: GBP1.5 million).
7. Segmental analysis
Financial and other performance information is reported internally every month to the South East Water Executive Committee. The Executive Committee is responsible for the day to day running of the business, and accordingly the Executive Committee is considered to be the chief operating decision maker of the group for the purposes of segmental reporting under IFRS 8: Operating Segments. The Executive Committee considers that the Group's activities largely fall into one main business segment, namely Regulated Water, with all other activities included in "Other" below. Regulated Water is the supply of potable water on a wholesale and retail basis, both of which are governed by the Water Act 2014.
A segmental analysis of the management results are presented below together with a reconciliation to the statutory revenue and profit before tax.
Regulated Other activities Total
water GBP000 GBP000
GBP000
------------------------------------ --------- -------------------------- -----------------
Six months to 30 September 2023
Water revenue 142,131 - 142,131
Other income 3,264 8,686 11,950
Net operating costs (85,560) (6,944) (92,504)
==================================== ========= ========================== =================
EBITDA 59,835 1,742 61,577
Depreciation and profit on disposal (30,819) - (30,819)
==================================== ========= ========================== =================
Company operating profit 29,016 1,742 30,758
==================================== ========= ========================== =================
Six months to 30 September
2022
Water revenue 132,855 - 132,855
Other income 3,000 8,181 11,181
Net operating costs (77,965) (7,034) (84,999)
================================== ======== ============ ========
EBITDA 57,890 1,147 59,037
Depreciation and loss on disposal (30,331) - (30,331)
================================== ======== ============ ========
Company operating profit 27,559 1,147 28,706
================================== ======== ============ ========
7. Segmental analysis continued
The water revenue on a management accounts basis above of GBP142.1 million (2022: GBP132.9 million) compares with total revenue on a statutory basis of GBP147.1 million (2022: GBP137.8 million). The difference is Other sales of GBP5.0 million (2022: GBP4.9 million) (see note 6).
The business segments' management accounts operating profit is reconciled to the group's statutory operating profit and profit before tax as follows:
30 September 30 September
2023 2022
GBP000 GBP000
------------------------------------------------- ------------ ------------
Management operating profit 30,758 28,706
Losses of South East Water (Finance) Limited
(1) (1) -
Pension costs adjustment (2) 3,088 2,791
Additional gain/(loss) on disposal of property,
plant and equipment 12 (24)
Capitalisation of new connections (3) 2,482 2,329
Statutory depreciation and write-off adjustments
(4) (467) -
Other statutory adjustments 56 -
================================================= ============ ============
Statutory profit from operations 35,928 33,802
Finance income 788 890
Finance expense (54,825) (47,394)
================================================= ============ ============
Statutory loss before taxation (18,109) (12,702)
================================================= ============ ============
1) The losses of South East Water (Finance) Limited are consolidated into these financial statements but not included in the finance reports presented to the Executive Committee.
2) The internal finance reports include pension costs on the basis of contributions paid whereas the financial statements include pension costs on the basis of IAS 19 Employee Benefits.
3) The internal finance reports record the costs associated with new connections in operating costs but these costs are capitalised as Property, Plant and Equipment in the financial statements.
4) Adjustments are made to depreciation and impairment or write-off of assets between internal finance reports and the financial statements.
8. Net operating costs
Six months Six months
ended 30 ended 30
September September
2023 2022
GBP000 GBP000
----------------------------------------------------- -------------------- ---------------------
Employees benefits expenses 19,343 18,048
Asset expenses 31,286 30,481
Profit on asset sales (12) (126)
Operating lease rentals:
Vehicles and office equipment 142 206
Land and buildings 2 7
Fee payable to group's auditor 220 219
Energy costs 14,282 13,800
Rates 8,302 9,233
Contractors 21,374 19,430
Bulk water supplies and abstraction licences 5,689 5,163
Chemicals 3,700 2,855
Insurance and related costs 2,159 2,047
Other 11,757 8,663
Other operating expenses charged to capital projects (2,874) (2,169)
===================================================== ==================== =====================
115,370 107,857
===================================================== ==================== =====================
9. Finance income and expense
Six months Six months
ended 30 ended 30
September September
2023 2022
GBP000 GBP000
---------------------------------------------------- -------------------- ----------------------
Finance income
Interest receivable on bank balances and short-term
deposits 247 140
Net interest income on defined benefit assets 541 750
==================================================== ==================== ======================
Total finance income 788 890
==================================================== ==================== ======================
Finance expense
Effective interest on listed debt 7,498 7,231
Indexation on listed debt 8,383 12,559 Interest on index linked loans 7,890 6,958 Indexation on index linked loans 22,395 15,338 Variable rate loan 3,632 1,483 Fixed rate loan note 3,231 3,231 Other finance costs 2,506 1,419 Interest capitalised (710) (825) ==================================================== ==================== ====================== Total finance expense 54,825 47,394 ==================================================== ==================== ======================
Interest is capitalised at the weighted average rate of interest on the group senior long-term debt of
4.67 per cent (2022: 3.9 per cent).
10. Taxation
Six months Six months
ended 30 ended 30
September September
2023 2022
GBP000 GBP000
------------------------- -------------------- ----------------------
Current taxation credit (87) (79)
Deferred taxation credit (5,115) (4,415)
========================= ==================== ======================
(5,202) (4,494)
========================= ==================== ======================
The current tax credit is based on management's estimate of the weighted average annual corporation tax rate expected for the full financial year.
The total deferred tax credit is estimated to be GBP5.1 million. This is due mainly to the deferred tax on the deferral of capital allowances.
The rate of corporation tax used for calculation of current and deferred tax is 25 per cent, the corporation tax rate as enacted by the Finance Act 2021 and further endorsed under section 5 (2) of the Finance Act 2023.
Factors that may affect future tax charges
The UK Government's March 2023 budget announcement as enacted by Finance Act (No. 2) 2023 grants 100 per cent first year full expensing capital allowances for qualifying plant and machinery; and 50 per cent allowance for special rate assets expenditure, from 1 April 2023 to 31 March 2026. As announced in the November 2023 autumn statement, this capital allowance incentive has been made permanent beyond the enacted expiry date of 31 March 2026, and so, it provides greater incentive to boost capital allowance availability to mitigate future tax charges.
11. Dividends
Six months Six months
ended 30 ended 30
September September
2023 2022
GBP000 GBP000
------------------------------------------------ -------------------- ----------------------
Interim dividend of 4.6 pence (2022: 4.6 pence)
per ordinary share paid during the six months 2,250 2,250
- 2,250
==================== ======================
Interim dividend of nil pence (2022: 4.6 pence)
per ordinary share paid during the six months
================================================ ==================== ======================
2,250 4,500
================================================ ==================== ======================
12. Earnings per share
Six months Six months
ended 30 ended 30
September September
2023 2022
GBP000 GBP000
--------------------------------------------------- -------------------- ----------------------
Loss for the six months from continuing operations (12,907) (8,208)
=================================================== ==================== ======================
Six months Six months
ended 30 ended 30
September September
2023 2022
--------------------------------------------------- -------------------- ----------------------
Basic and diluted weighted average number of
shares (number) 49,312,354 49,312,354
=================================================== ==================== ======================
Basic and diluted loss per share from continuing
operations (pence) (26.17p) (16.64p)
=================================================== ==================== ======================
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END
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