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53HO Sth.e.wtr.5%db

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South East Water Limited Preliminary results (5082U)

13/07/2018 7:00am

UK Regulatory


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TIDM53HO

RNS Number : 5082U

South East Water Limited

13 July 2018

South East Water Limited

Preliminary results

for the year to 31 March 2018

Chairman's Statement

On behalf of the Directors of South East Water, I am pleased to present our annual report and financial statements for the year ended 31 March 2018. This is the third reporting year of the current five year regulatory period and we have put particular emphasis this year on our ambition to ensure people (customers, the community we serve and our employees) and our environmental impact on the planet are at the centre of our strategy to responsibly deliver a continuous improvement in customer satisfaction.

The team has worked hard throughout the year to deliver the stretching objectives set in the 2015 to 2020 business plan, ensuring we provide great service to all our household customers and within the new non-household retail market, which opened on 1 April 2017. A great deal of effort has also been focused on developing our plans for the future in the form of the 60 year water resources management plan and our draft business plan for the next five year regulatory period from 2020 to 2025.

The operations team works hard 24 hours a day, seven days a week to maintain our extensive network of underground pipes while also finding and fixing more than 30,000 leaks and bursts, however in March 2018 we experienced a severe operational challenge caused by the "Beast from the East" (several days of freezing temperatures, high winds and significant snowfall), followed by a very rapid thaw. This led to a break out of burst pipes across the network at a scale we have never witnessed in our area, with around 70 per cent of the leaks on customer private plumbing. A dedicated team worked around the clock to get water supplies restored to around 20,000 properties, while distributing large volumes of bottled water to the public, focusing on vulnerable customers, and ensuring temporary supplies for livestock at affected farms. A major effort was made in communicating up-to-date information to our customers through our website, social media, tv and radio etc. We have now written to all customers impacted to apologise for the disruption and credited their account with above statutory compensation in recognition of the inconvenience that was caused. We would like to thank all our customers who were very patient and understanding of the circumstances. We are also very grateful to the number of organisations who helped, whether it was identifying vulnerable customers, or the fire service supporting filling bowsers for farmers. Our liaison with our local resilience forum made an important difference during the event.

I would like to add my personal thanks to all those who worked with such passion and dedication throughout the incident while at the same time apologising to all our customers who were affected. A full review into this incident has taken place.

The team had done a lot to prepare for the impact of the freeze and thaw on our network, and those bursts that occurred on our pipes were quickly identified and repaired. But the speed and scale of the upsurge in demand following the rapid thaw, due primarily to leaks on customer properties, is something we've never experienced before. That said we recognise that we must learn from the experience to identify opportunities to minimise the impact of such a severe incident in the future including what more we can do to proactively support customers so they can better protect their own properties' pipes - in fact customers being part of the resilience solution will be a key part of our next five year business plan. Ofwat has completed its own review into the impact of the freeze/thaw across the whole country and the lessons to be learned therefrom. We will work closely with the industry to ensure best practice approaches are built into our emergency plans for future events.

Customer engagement - shared know h(2) ow

During 2017/18 we have engaged with more customers and stakeholders than ever before to help develop together our 2020-2025 business plan, which will be published in September 2018. Our engagement strategy "Shared know h(2) ow" seeks to develop a sustainable legacy by working together with all those who are impacted by our service. Partnerships with our community and all users of water will be the key to continuing to protect and improve the service we provide into the future.

We have worked closely with our independent Customer Challenge Group, led by chair Zoe McLeod, to develop our innovative engagement strategy both for the purposes of finalising a business plan driven by customer priorities and also to embed customer engagement in the way we do business day in day out. I would like to thank Zoe and her team for the challenge they have put to us during the year. In particular, their experience in identifying and understanding the needs of people in vulnerable circumstances is helping us develop our offering so our services are affordable and accessible at those times when they need support and protection the most.

Our draft water resources management plan was published in February 2018. This plan takes a long term view (60 years) of how to ensure adequate supplies of water for both normal and drought conditions while balancing the needs of the natural environment on a sustainable basis. We engaged with customers to develop our draft plan, and have since held a 12 week public consultation during which time we have had 430 conversations with customers and met with more than 100 individual stakeholders to obtain feedback. This public consultation has included holding eight drop-in sessions for the public to meet members of our team, a joint stakeholder event with other water companies in the south east region and numerous press and social media messages to encourage people to view the plans. Our web pages for the consultation received more than 1,900 visits during the period.

I'm pleased that many of the responses we received were very supportive of our plan - particularly the medium term need to develop new reservoirs at Broad Oak in Kent and Arlington in Sussex. Where we saw more challenge was around our ambitions for reducing customers' water use and overall leakage. We have listened to these challenges and have committed to deliver more ambitious plans to reduce demand for water both through reducing leakage and consumption, with a revised plan due to be published during summer 2018.

Engaging with others to develop our plans is important and will ensure customers are at the centre of our work. Ultimately it is continuing that engagement as we deliver the plan that will help us to realise our vision. We have seen the success of this collaborative approach over the last few years as we have strived to increase customer satisfaction with our service.

The "five-out-of-five" focus across the business continues to grow with employees from teams in both the office and the field adopting the measure to reward and recognise dedication to customer satisfaction. The Consumer Council for Water published a report in September 2017 that recognised our continuous improvement in customer service and highlighted our commitment to getting things right first time for customers. We have continued with the initiatives which have helped us achieve this, including:

-- increased digital communications such as 'My Account' with 60,029 customers signed up by April 2018, and

an    online 'in your area' map showing supply updates; 

-- improved technology to help resolve customer queries, such as our dedicated digital team to support

social   media and live chat channels via our website; and 

-- encouraging ideas from employees and acting on feedback through our 'Pipe Up' ideas forum and employee workshops

Initiatives like these have seen our customer satisfaction measure scores increase to an average of 4.33 up from 4.28 in 2016/17 - customer satisfaction scores have increased slightly for all measures but most significantly for low pressure which has increased by 0.1.

Customers have told us it would make their lives easier to receive a combined bill rather than separate bills for drinking water from us and another one from Southern Water for wastewater services. This year we have teamed up with Southern Water to launch 'One Bill' - a single bill from South East Water that will also include Southern Water's wastewater charges too.

Designed to make things simpler for our shared customers, One Bill means customers only need to contact one company - South East Water - to make payments for both of the services they receive. This is an approach we have successfully followed for many years with Thames Water, and means now all our customers receive just the one bill, wherever they live.

This has been a significant project through the year and I commend the team for managing a complex billing transition smoothly for 465,466 customers.

With a project of this scale we anticipated a temporary rise in customer contacts and complaints due to the complexity of transferring thousands of accounts. As anticipated the project did lead to an increase in complaints, and together with those caused by the incident in March we have seen an increase in written complaints for the second half of the year, ending the year with 1,498 complaints compared to 1,400 the previous year. We are confident that now the transition is complete we can bring this number back down and continue our long-term improvement in reducing complaints, a fact already recognised by the Consumer Council for Water in its September 2017 report.

Our service incentive mechanism (SIM) score for 2017/18 was 85.6 out of 100 - a one point improvement on the previous year's score of 84.6. We are particularly pleased to see continued improvement in our qualitative SIM scores; in particular our billing scores are improving as a result of us billing on behalf of Southern Water as these have risen to 4.50 out of five, compared to 4.42 the previous year, which means that our combined billing and water scores this year bring us above industry average for the first time.

As part of our Board/Customer engagement programme, my fellow non-executive directors and I have spent time with the Customer Care team and have witnessed their dedication to supporting customers in vulnerable circumstances who may need extra support. They are always looking for opportunities to talk to customers and tell them about the services we offer, attending events from dementia cafes through to parent and toddler groups and working with partner organisations such as Citizens Advice to meet those who may need a helping hand. Throughout the year the team attended 45 per cent more events which enabled them to listen to customers about any issues they may have with their water services and offered ways to help manage their water bills. The team took an innovative approach this year by having specialist water efficiency training, run by Waterwise, so they can also provide advice to customers about further ways to manage their water use and see bill savings as a result. This proactive approach has led to a further 7,318 (a 32 per cent increase) customers benefiting from our support tariffs for those who are financially vulnerable and 12,903 (a 71 per cent increase) people being added to our priority services register to support their personal circumstances.

The Customer Care team has also worked with our digital specialists to find innovative ways to support customers with a range of issues via the ReciteMe system. Customers can now set visibility and language preferences on our website or have the content of our website spoken for those who can't see. The website can be translated into a number of different languages if English is not the user's first language. We are pleased to see that more than 26,000 customers have used the ReciteMe system during the year helping them engage with our business more easily.

Science and engineering excellence to deliver quality water

During the year we invested GBP96.0 million in new and existing assets as part of the GBP437 million investment planned for the period from 2015 to 2020. The expenditure in the year saw us install 36km of new pipelines and renew a further 11km of old pipelines across the region, continue our customer metering programme and improve our water treatment works. Schemes such as these are supporting our efforts to improve services for our customers and help safeguard the environment, and we are committed to continuing this level of investment.

Our largest capital scheme during this five year investment programme is the extension of our water treatment works at Bray, Berkshire which extracts water from the River Thames. The site is currently capable of treating up to 45 million litres of fresh drinking water per day and we plan to extend the works to be able to treat up to 68 million litres per day in order to secure water supplies for current and future customers across Berkshire, Surrey and Hampshire. The scheme was submitted for planning permission in November 2017 and work on the ground is now due to start in May 2018.

We also have our largest environmental programme of work taking place during this five year period through the Water Industry National Environment Programme (WINEP). Our catchment management partnership with Natural England has been recognised as industry leading, picking up the water resilience initiative at the Water Industry Awards, while our biodiversity programme has seen continued success with the reintroduction of the rare wart-biter cricket to our land at Deep Dean in East Sussex.

We strive to keep improving the quality of the water we supply. While we have maintained high overall water quality with 99.95 per cent of samples passing standards set by the Drinking Water Inspectorate (calendar year January to December 2017), we want to reduce the number of calls we receive about discoloured water which relate to naturally occurring, harmless deposits which build up over time. To do this we are carrying out a flushing programme of approximately 900 miles of pipework per year to draw sediment deposits - such as iron and manganese - out of the network.

This year has been a particularly testing one operationally. We started the year working to ensure we managed our water resources following the dry winter experienced in 2016/17 by proactively moving water around our region to maintain supplies to customers without the need for temporary water restrictions. The winter of 2017/18 started dry again, but we have since seen increased rainfall later in the year which means as we move into the summer our water resources are in a good position.

The changeable weather during the winter put particular pressure on our distribution teams as they managed the impact of the various freeze/thaws on the network. Our supply interruption performance before March was good and April 2017 to the end of February 2018 our overall interruption performance for both planned and unplanned work was at 5.6 minutes per property (against our target of 12.0 minutes for the year). However the unprecedented "Beast from the East" freeze/thaw incident referred to previously had a major impact and our overall interruption performance for unplanned work for the full year as a whole deteriorated to 44.6 minutes.

Leakage is calculated to include leaks on customer pipes as well as our own, so this event also put our leakage target at risk as we saw a sudden rise in leaks across the network when the pipes thawed. When customer supplies were restored the incident team focussed on stepping up leakage activity to get back on target. The team had worked hard throughout the year to beat the target and therefore despite the severe weather we have been able to outperform our target of 90Ml/d, achieving 87.7Ml/d.

We recognise the importance of regular and timely communication with customers during any supply interruption. Investment in technology is giving us the opportunity to keep customers updated with the information they need through our "in your area" portal operating on the website. It enables customers to enter their postcode to get up-to-date information on work in their region that may affect them and receive texts or emails to keep them informed. This online information comes into its own during an incident and works well. This year we have sent more than 45,000 emails and 36,000 SMS text messages to help keep customers informed about our work; indeed during the major freeze/thaw event in March our website was viewed more than 320,000 times.

Non-household retail competition

On 1 April 2017 we, along with the other water companies in England and Wales, were ready for the opening of a new retail market for non-household customers. We welcomed the challenge and continue to work hard to ensure the new market is successful. Our dedicated Wholesale Service Desk is working closely with the new retailers to ensure a smooth transition and that the non-household customers continue to receive an excellent and reliable service.

We began the year with our non-household retail business, South East Water Choice operating within our supply region and the company had a good first year of trading. At the same time, Water Choice, owned by another company within our group of companies, Invicta Water Ltd, was offering water and wastewater retail services to all non-household customers across England. In April 2018 we transitioned South East Water Choice across to become one business owned by Invicta Water.

Invicta Water has subsequently sold the business to Castle Water with the completion of the sale on 1 July 2018. Castle Water has the scale and experience to build on the progress Water Choice has made since the market opened. South East Water is committed to providing an excellent wholesale service to all business retailers. We have worked closely with both Castle Water and Invicta Water during this period to ensure a smooth transition.

We look forward to building our relationships with all non-household retailers that operate within our region during 2018/19 as we concentrate on ensuring we provide an excellent wholesale customer service. Household customers in our region will continue to receive retail services exclusively from South East Water.

You can find out more about the new business retail market at open-water.org.uk.

Financial results

The results published in this report describe our performance for the year and incorporate the performance of South East Water Ltd and South East Water (Finance) Ltd.

This year we have had a steady financial performance having generated an operating profit of GBP75.0 million for the year to 31 March 2018, compared with GBP79.0 million for the prior year. Our turnover was GBP224.8 million for the year compared to GBP218.9 million in the prior year.

Net operational costs have increased in the year to GBP158.7 million compared to GBP147.3 million in the prior year, an increase of GBP11.4 million. Included in this increase are additional costs of GBP2.1 million in respect of the major incident in March 2018, GBP2.2 million of additional business rates charges and GBP3.2 million additional depreciation on fixed assets.

Profit before tax has fallen by GBP1.6 million from GBP25.3 million to GBP23.7 million. Net finance costs have decreased in the year by GBP2.5 million to GBP51.2 million, offsetting the reduced operating performance. The decrease in net finance costs reflects the significantly smaller increase in the fair value of the Group's interest rate swap liability in the year of GBP3.3 million (2017: GBP13.7 million). However, interest and indexation charges on the Group's index linked loans and bonds have increased by GBP7.5 million to GBP52.5 million due to the significant upward movement in the Retail Price Index over the course of the year.

Profit after tax has reduced from GBP27.1 million to GBP16.2 million, a reduction of GBP10.9 million which is driven by the additional operating costs noted above, an adjustment to the deferred tax treatment of the group's revaluation reserve resulting in a charge of GBP4.2 million and the tax benefit in the prior year of GBP6.2 million, due to the effect of changes in the future rate of corporation tax on deferred tax, not available in the 2017/18 financial year.

Overall the Board is pleased with our financial performance in the year.

We want to ensure that South East Water is a trusted business and therefore our reporting aims to provide a transparent account of our performance and financial governance. We are this year carrying out further research with customers and stakeholders to ensure we continue to improve our reporting to ensure we are a trusted business.

Our people, working together towards future success

We want to ensure South East Water is the water company people want to work for - it's an integral part of our vision as we know great people, who see purpose in their work, are key to our future success. We are proud that this year we were shortlisted in three Water Industry Achievement Awards, including Water Company of the Year. Our people are proud of the job they do and the important role they play in our society.

Our health, safety and wellbeing strategy, Thrive 365, was launched at the end of last year. The strategy focusses on two strands, safe people and safe working, and is about more than just preventing accidents; it is about enhancing the overall wellbeing of our people.

From a wellbeing perspective a number of activities go from strength to strength. One member of staff, Lee Allen, has set himself an impressive challenge and has now run 10km every day for more than 500 days. He has inspired a number of employees to increase their physical activities and there is now a thriving running club.

This year through this focus on fitness South East Water won the Kent Active Workplace Challenge, a competition involving 122 workplaces in Kent, we logged more activity than any other during the eight week challenge.

We work closely with every department to ensure safety is always the first thing that is considered before completing any task. During 2017/18 we unfortunately had two reportable accidents, one due to a strained shoulder injury, the other following a slip on some ice.

In March we published our gender pay gap report which shows an average hourly rate pay gap of 25 per cent, which is above the national average. We recognise that this is predominately due to more women working in our call centre, while more men are in technical operational roles. However, all our employees are paid the same for the same task. We also recognise that we have more men in senior leadership roles. Publishing this report is an important step to encourage a dialogue within the business about the gap and identify areas that require further attention.

We want to encourage more diversity across our business and the range of roles available to people. This includes thinking about our next generation of South East Water employees; that's why we have been developing our STEM (Science, Technology, Engineering and Maths) ambassador scheme, particularly led by women in our organisation to inspire a new generation to work in our industry.

Supporting the continuous development of our employees has seen us deliver more than 10,000 hours of training and development through the year. We have also implemented a new employee review system, called iReview, which encourages employees to think about their own development, performance throughout the year and their ambitions for the future.

We welcome the appointment to the Board in June 2018 of Célia Pronto as an independent non-executive director. Célia brings her expertise in customer engagement and service improvement, digital engagement, e-commerce and technology and innovation to the board. She will help us expand our customer engagement and continue our efforts to place customers at the heart of what we do.

This year, maybe more than any other, has demonstrated the dedication of the workforce at South East Water. During the March freeze/thaw incident, people from right across the business volunteered to help and took on roles outside their normal duties to ensure we were there for our customers. It is this passion and dedication to our business that comes through time and again from our employees. We will work with our employees and business partners, together with our customers and stakeholders, to develop a sustainable future for water in our community of the south east. On behalf of the Board I would like to thank all our employees, the management team and our business partners for all they have achieved in 2017/18 and look forward to the year ahead.

Nick Salmon

Chairman

13 July 2018

Group income statement

for the year ended 31 March 2018

 
                                                                        2018        2017 
                                                   Notes              GBP000      GBP000 
 
 Revenue                                            3                224,776     218,905 
                                                          ------------------  ---------- 
 
 Group net operating costs                                         (158,713)   (147,302) 
                                                          ------------------  ---------- 
 
 Other income                                       3                  8,895       7,407 
 
   Group operating profit                                             74,958      79,010 
 Finance costs                                                      (56,019)    (58,793) 
 Finance income                                                        4,803       5,119 
 
   Profit before taxation                                             23,742      25,336 
 Taxation                                           4                (7,574)       1,759 
                                                          ------------------  ---------- 
  Profit for the year                                                 16,168      27,095 
                                                          ------------------  ---------- 
 
 Earnings per share 
 Basic and diluted from continuing operations       6                 32.79p      54.95p 
                                                          ------------------  ---------- 
 

Profit for the current and prior year is generated entirely from continuing operations.

Group statement of comprehensive income

for the year ended 31 March 2018

 
                                                                2018        2017 
                                                              GBP000      GBP000 
 
 Profit for the year                                          16,168      27,095 
 Items that will not be reclassified 
  subsequently to profit or loss: 
  Remeasurement of defined benefit asset/liability             9,355     (3,933) 
  Deferred tax on defined benefit pension 
   schemes                                             4     (1,590)         708 
  Impact of deferred tax rate change in 
   respect of the pension schemes                       4          -       (286) 
 
                                                               7,765     (3,511) 
                                                           ---------  ---------- 
 
   Total comprehensive income for the year 
   attributable to owners of the Company                      23,933      23,584 
                                                           ---------  ---------- 
 

Group statement of financial position

as at 31 March 2018

 
                                             31 March        31 March 
                                                 2018            2017 
                                               GBP000          GBP000 
 
 Non-current assets 
 Intangible assets                             10,758          11,058 
 Property, plant and equipment              1,501,707       1,455,380 
 Amount due from parent undertaking           190,013         190,013 
 Defined benefit pension surplus               21,229           9,616 
                                       --------------  -------------- 
 
                                            1,723,707       1,666,067 
                                       --------------  -------------- 
 
 Current assets 
 Inventories                                      236             214 
 Trade and other receivables                   78,255          72,113 
 Cash and cash equivalents                      6,528          11,371 
                                       --------------  -------------- 
 
                                               85,019          83,698 
                                       --------------  -------------- 
 
  Total assets                              1,808,726       1,749,765 
                                       --------------  -------------- 
 
 Current liabilities 
 Loans and borrowings                        (20,000)               - 
 Trade and other payables                    (94,379)        (96,130) 
 Deferred income                              (7,593)         (6,573) 
 Provisions                                   (2,515)         (2,472) 
                                       --------------  -------------- 
 
                                            (124,487)       (105,175) 
                                       --------------  -------------- 
 
 Non-current liabilities 
 Loans and borrowings                       (900,897)       (882,024) 
 Trade and other payables                     (5,979)         (4,261) 
 Derivative financial instruments           (104,169)       (100,916) 
 Net deferred tax liabilities               (140,085)       (132,895) 
 Defined benefit pension liability                  -         (1,851) 
 Deferred income                             (74,471)        (69,938) 
 
                                          (1,225,601)     (1,191,885) 
                                       --------------  -------------- 
 
   Total liabilities                      (1,350,088)     (1,297,060) 
                                       --------------  -------------- 
 
   Net assets                                 458,638         452,705 
                                       --------------  -------------- 
 
 
 Equity 
 Ordinary share capital                        49,312          49,312 
 Revaluation reserve                          256,396         261,549 
 Retained earnings                            152,930         141,844 
                                       --------------  -------------- 
 
   Total equity                               458,638         452,705 
                                       --------------  -------------- 
 

The accompanying notes are an integral part of this statement of financial position.

Group statement of changes in equity

for the year ended 31 March 2018

 
                                                   Issued 
                                            share capital     Revaluation     Retained     Total equity 
                                                   GBP000         reserve     earnings           GBP000 
                                                                   GBP000       GBP000 
 
 
 Balance at 1 April 2016                           49,312         264,134      129,328          442,774 
                                          ---------------  --------------  -----------  --------------- 
 
 Profit for the year                                    -               -       27,095           27,095 
                                          ---------------  --------------  -----------  --------------- 
 Other comprehensive income: 
     Remeasurement of defined benefit 
      asset/liability                                   -               -      (3,933)          (3,933) 
     Deferred tax on defined benefit 
      pension schemes                                   -               -          708              708 
     Impact of deferred tax rate change 
      in respect of the pension schemes                 -               -        (286)            (286) 
                                          ---------------  --------------  -----------  --------------- 
 
   Total other comprehensive income                     -               -      (3,511)          (3,511) 
 
 Total comprehensive income                             -               -       23,584           23,584 
 Dividends (see note 5)                                 -               -     (16,000)         (16,000) 
 Amortise revaluation reserve                           -         (6,130)        6,130                - 
 Release revaluation on disposals                       -            (28)           28                - 
 Deferred tax on reserve releases                       -           1,226      (1,226)                - 
 Impact of deferred tax rate change                     -           2,347            -            2,347 
                                          ---------------  --------------  -----------  --------------- 
 
   Balance at 31 March 2017                        49,312         261,549      141,844          452,705 
                                          ---------------  --------------  -----------  --------------- 
 
 Profit for the year                                    -               -       16,168           16,168 
                                          ---------------  --------------  -----------  --------------- 
 Other comprehensive income: 
     Remeasurement of defined benefit 
      asset/liability                                   -               -        9,355            9,355 
     Deferred tax on defined benefit 
      pension schemes                                   -               -      (1,590)          (1,590) 
 
   Total other comprehensive income                     -               -        7,765            7,765 
 
   Total comprehensive income                                                   23,933           23,933 
 Dividends (see note 5)                                 -               -     (18,000)         (18,000) 
 Release of revaluation reserve                         -         (6,129)        6,129                - 
 Release of revaluation reserve 
  on disposals                                          -            (70)           70                - 
 Deferred tax on revaluation and 
  retained earnings transfer                            -           1,046      (1,046)                - 
 
   Balance at 31 March 2018                        49,312         256,396      152,930          458,638 
                                          ---------------  --------------  -----------  --------------- 
 

All transactions relate to the equity holders of the Company.

Group statement of cash flows

for the year ended 31 March 2018

 
                                                                     Notes       2018       2017 
                                                                               GBP000     GBP000 
 
 Operating activities 
 Net cash flow from operating activities                      7               123,089    127,462 
 Interest received                                                              4,554      4,827 
 Interest paid                                                               (35,619)   (35,169) 
 Group tax relief paid                                                        (4,020)    (2,000) 
                                                                            ---------  --------- 
 
   Net cash flow before investing and financing 
   activities                                                                  88,004     95,120 
                                                                            ---------  --------- 
 
 Investing activities 
 Proceeds from sale of property, plant 
  and equipment                                                                   264        212 
 Purchase of property, plant and equipment                                   (93,763)   (83,423) 
 Purchase of intangible assets                                                (3,106)    (3,197) 
 Fixed asset contributions received                                             1,758      1,712 
 
   Net cash flow used in investing activities                                (94,847)   (84,696) 
                                                                            ---------  --------- 
 
 Financing activities 
 Repayments of borrowings                                                      20,000          - 
 Dividends paid to shareholder                                5              (18,000)   (16,000) 
 
   Net cash flow used in financing activities                                   2,000   (16,000) 
                                                                            ---------  --------- 
 
 Decrease in cash and cash equivalents                                        (4,843)    (5,576) 
 Cash and cash equivalents at the beginning 
  of the year                                                                  11,371     16,947 
                                                                            ---------  --------- 
 
   Cash and cash equivalents at the year 
   end                                                                          6,528     11,371 
                                                                            ---------  --------- 
 

Notes

   1          Basis of preparation 

(i) The financial information included within this statement has been prepared on the basis of accounting policies consistent with those set out in the Annual Report and Financial Statements for the year ended 31 March 2018.

(ii) The information shown for the years ended 31 March 2018 and 31 March 2017 does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006 and has been extracted from the full accounts for the year ended 31 March 2018. The reports of the auditors on those accounts were unqualified and did not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006. The accounts for the year ended 31 March 2018 will be delivered to the Registrar of Companies in due course.

(iii) The financial information included in this statement was approved by the Board on 13 July 2018.

    2         Going concern 

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 annual budget and forecasts together with its five year plan and longer-term resources planning all indicate that the group should be able to continue in operation utilising its current financial resources and the proceeds of future borrowing opportunities expected to become available.

The directors believe that the company and group are well placed to manage its business risks successfully. After making enquiries, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and financial statements.

   3    Total income 
 
                                   2018        2017 
                                 GBP000      GBP000 
 
   Revenue 
 Unmetered water income          34,971      46,115 
 Metered water income           183,033     166,513 
 Unmetered sewerage income            4           - 
 Metered sewerage income            507           - 
 Other sales                      6,261       6,277 
                             ----------  ---------- 
 
   Total Revenue                224,776     218,905 
                             ----------  ---------- 
 
 Other income 
 Rental income                    1,178       1,245 
 Sundry income                    7,717       6,162 
                             ----------  ---------- 
 
   Total other income             8,895       7,407 
                             ----------  ---------- 
 
   Total income                 233,671     226,312 
                             ----------  ---------- 
 
   4      Corporation tax 

Major components of the tax expense for the years ended 31 March 2018 and 2017 are:

 
                                                          2018        2017 
                                                        GBP000      GBP000 
 Group income statement 
 Current tax: 
 Current UK tax charge                                   1,975       3,168 
  Amounts over) provided in previous years                 (1)        (25) 
                                                      --------  ---------- 
 
                                                         1,974       3,143 
                                                      --------  ---------- 
 Deferred tax: 
  Relating to origination and reversal of temporary 
   differences                                           5,600       1,300 
  Impact of deferred tax rate change                         -     (6,202) 
 
                                                         5,600     (4,902) 
                                                      --------  ---------- 
  Tax charge/(credit) reported in the group 
   income statement                                      7,574     (1,759) 
                                                      --------  ---------- 
 
 Tax charge/(credit) to equity 
 Deferred tax on defined benefit pension schemes         1,590       (708) 
 Impact of deferred tax rate change in respect 
  of the pension schemes                                     -         286 
                                                      --------  ---------- 
 
   Tax reported in comprehensive income statement        1,590       (422) 
                                                      --------  ---------- 
 
   5     Dividends 
 
                                                    2018       2017 
                                                  GBP000     GBP000 
 
 Equity dividends paid during the year: 
  First interim dividend of 9.13p per 
   ordinary share (2017: 8.11p per ordinary 
   share)                                          4,500      4,000 
  Second interim dividend of 9.13p per 
   ordinary share (2017: 8.11p per ordinary 
   share)                                          4,500      4,000 
  Third interim dividend of 9.13p per 
   ordinary share (2017: 8.11p per ordinary 
   share)                                          4,500      4,000 
  Final dividend of 9.13p per ordinary 
   share (2017: 8.11p per ordinary share)          4,500      4,000 
                                               ---------  --------- 
 
                                                  18,000     16,000 
                                               ---------  --------- 
 

There were no dividends proposed for approval as at 31 March 2018 and 31 March 2017.

   6     Earnings per ordinary share - basic and diluted 

The following reflects the income and shares data used in the basic and diluted earnings per share computations:

 
                                                    2018         2017 
                                                  GBP000       GBP000 
 
 Profit for the year                              16,168       27,095 
                                             -----------  ----------- 
 
                                                    2018         2017 
                                                  Number       Number 
 
 Basic and diluted weighted average number 
  of shares                                   49,312,354   49,312,354 
                                             -----------  ----------- 
 
   Basic and diluted earnings per share           32.79p       54.95p 
                                             -----------  ----------- 
 

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

   7          Group Cash flow from operating activities 
 
                                                          2018        2017 
                                                        GBP000      GBP000 
 
 Profit for the year                                    16,168      27,095 
 Adjustments for: 
   Income tax charge/(credit)                            7,574     (1,759) 
   Finance income                                      (4,835)     (5,119) 
   Finance costs                                        56,051      58,793 
  Depreciation and impairment of property, plant 
   and equipment                                        46,253      43,313 
   Amortisation and impairment of intangibles            3,405       3,183 
   Profit on disposal of fixed assets                    (120)        (94) 
  Difference between pension contributions paid 
   and amounts recognised in the income statement      (3,861)     (3,839) 
 Changes in working capital: 
  Increase in trade and other receivables              (5,958)     (5,492) 
  Increase in inventory                                   (22)        (29) 
  Increase in trade and other payables                   8,434      11,410 
                                                    ----------  ---------- 
 
   Net cash flow from operating activities             123,089     127,462 
                                                    ----------  ---------- 
 

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

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