RNS Number:4183F
South East Water Limited
29 June 2006
SOUTH EAST WATER LIMITED
Preliminary consolidated results
for the year ended 31 March 2006
Contents
Page
3 Chairman's statement
6 Managing Director's report
12 Consolidated income statement
12 Consolidated statement of recognised income and expense
13 Consolidated balance sheet
14 Consolidated cash flow statement
15 Notes to the preliminary consolidated results
Chairman's statement
In my first year as Chairman of the Board, I am delighted that South East Water
has continued to deliver strong financial and operational results despite some
significant challenges in the operating environment, most notably the drought.
Results
South East Water has adopted the EU endorsed International Financial Reporting
Standards for its group consolidated financial statements, but has continued to
present the financial statements of the company as a single entity in accordance
with United Kingdom Generally Accepted Accounting Practice (UK GAAP).
For the 12 month period ended 31 March 2006, the first year of the new
quinquennium, the group delivered an operating profit of #59.8 million after an
exceptional credit on sale of property of #5.5 million (12 months ended 31 March
2005: #29.8 million after an exceptional charge of #10.3 million for asset write
off costs relating to a customer billing system) on turnover of #113.7 million
(12 months ended 31 March 2005: #96.0 million). The regulated business
performance was supported by another strong year for our non-appointed business
activities most notably in the area of e-conveyancing.
For 2005/6 our pre-tax profit was #37.2 million, and #41.0 million was
reinvested back in to the business through the investment in our capital
programme.
The increase in turnover was driven largely from an average price increase of
19.25%, reflecting the K factor of 15.2% agreed with Ofwat as part of the 5 year
Price Determination. The key drivers for this increase and the front loaded
profile of the prices are our capital programme, and increased operating costs
of power, tax and pensions. The increase in like for like operating profit
reflects the company's continuing drive to deliver a value for money service to
all our stakeholders. The business has continued to show the steady financial
returns that its shareholders, principally pensions funds and similar long-term
institutional investors need.
Whilst the company has performed well in respect of all controllable costs, the
Board is concerned about the impact in future years of the volatility in the
power market. Power accounts for almost 10% of the company's operating costs and
the company will continue to work to reduce power usage including investigation
into self-generation. It is important that the company works to reduce its
carbon footprint and minimise our impact on the environment.
Investment
Capital investment during the year was #41.0 million (2004/5: #44.8 million).
This was less than our planned expenditure and reflects a delay in investment in
our Hazard's Green water treatment works treating water from Southern Water's
Bewl Reservoir, while satisfactory bulk supply contract terms are agreed with
Southern Water, ultimately with the assistance of Ofwat. To date this
determination is still outstanding.
The key outputs delivered in 2005/6 were: completion of Phase 1 of the
Bewl-Darwell transfer scheme increasing our water resource by 5 million litres
per day; completion of the rehabilitation of the final 165km of mains in our
programme of nearly 1,100km over 15 years; construction of the final three in
our programme of 9 plants protecting against Cryptosporidium and installation of
a further 7,816 water meters.
The balance of the capital programme has shifted from quality to quantity with
resource investigation and development playing a predominant role in the current
capital programme. Asset maintenance continues to be a high priority for the
company with 3 sites refurbished and 22km of mains replaced in 2005/6.
The capital programme is a tangible reflection of our commitment to the
sustainable development of our business.
Drought
The first year of the new quinquennium also marked the second year of drought in
the South East of England caused by a second dry winter. Records indicate that
we have experienced the driest period on record since 1933.
Chairman's statement (continued)
The effect of the below average rainfall has varied between our two regions,
with the greater impact being on our Sussex and Kent Region.
The company's drought plan was activated in November 2004 and in line with this
plan and with the full agreement and support of Ofwat and the Environment Agency
hosepipe restrictions were introduced in our Southern Region on 30 July 2005,
the first time restrictions have been used by the company since 1995.
Restrictions are now in place throughout large parts of the South East of
England.
The drought has brought into very sharp focus the need to address long-term
water resource requirements and in particular to address the issue of a lack of
raw water storage capacity in the South East of England.
It also raises questions about the viability of bulk supplies during a drought.
South East Water would very much welcome a thorough review of the impacts of
this drought and most importantly to review and act upon the lessons learned.
South East Water continues to work with the Environment Agency, the economic
regulator (Ofwat), the Consumer Council for Water and all the other water
companies in the region on drought related issues and has taken a lead role in
the regional communication initiatives which include the jointly supported
Environment Agency and water companies website www.beatthedrought.com.
Clearly the management of this current drought has generated a significant
amount of additional activity and work across the whole company and I need to
record my thanks to the management and staff of South East Water for their
continued dedication in difficult operating conditions.
The current drought has also brought leakage management back into the spotlight
and I am pleased to confirm that the company has for the fifth year in a row
achieved its economic level of leakage.
The first application for Water Resources scarce status was also granted in 2005
/6 and we will watch with interest Folkestone & Dover Water company's
experience, acknowledging that this may offer assistance as a longer term option
for water resource monitoring.
Debt
Continued focused effort on reducing uncollected water revenues has resulted in
South East Water managing its customer debt down to 14.26% of annual turnover by
31 March 2006 (equivalent debt at 31 March 2005: 15.2%). This has been a
significant achievement given the increase in water charges of 19.25% in 2005/6.
The company recognises that some of our customers do have genuine difficulties
in paying their water bills and to assist these customers the company makes a
financial contribution to the EOS Foundation, an independent Charitable Trust.
There are, however, a number of customers who choose not to pay and these have
been rigorously pursued, where appropriate, using debt agencies and county court
actions. Recognition of the debt problem for water companies is still needed at
political level and we continue to lobby for this.
Regulation
There have been a number of changes to the regulatory environment in 2005/6,
with the creation of the Consumer Council for Water and from 1 April 2006, the
role of the Director General of Water being replaced with that of a Chairman and
Board. Whilst in its early days in terms of these new structures we do welcome
the appointment of Philip Fletcher as Chairman of the Water Services Regulation
Authority in the interests of continuity for the industry.
Chairman's statement (continued)
The Board was also pleased to welcome Professor Jeni Colbourne, Chief Inspector,
Drinking Water Inspectorate to a Board meeting in the year. As a Board we
believe that such meetings are invaluable and invitations have been extended to
Ofwat, CC Water and the Environment Agency for 2006.
As a Board we have followed very closely the news of the regulatory reporting
irregularities in two water companies. The Board place utmost importance on the
integrity of data submitted by the company to third parties. Our internal
control framework is outlined in our Corporate Governance Statement.
Board
During the year, Jim Craig resigned as Non-Executive Director and Chairman of
the Board and John Stent resigned as Non-Executive Director. I should like to
thank them for their contribution. I replaced Jim Craig as Chairman and I would
like to welcome Martin Stanley, who has served previously on the South East
Water Board, and Howard Higgins. I am also pleased to welcome on the Board,
Keith Henry, who joined the Board as an Independent Non-Executive Director on 1
March 2005; his contributions are greatly welcomed.
The year also marks the departure of Margaret Devlin following 15 years with the
company with the last 7 years as Managing Director. Margaret has made a
significant contribution to the industry both at company and national level. I
wish to formally thank her for the contribution she has made to the overall
development of South East Water as a respected player in the water sector. I and
the Board wish her every success as she embarks on her new life in New Zealand.
We are delighted to welcome Martin Baggs as our new Managing Director.
Pensions
In line with many other companies, not just in the water sector but throughout
the business community, the pension fund of South East Water is currently in
deficit. The FRS 17 measure of deficit has reduced by #10.4 million to #23.9
million during the year 2005/6.
Management and Staff
The Board recognises the significant contribution of the management and staff in
delivering a safe and reliable service to our 1.5 million customers whilst
meeting these complex challenges. We are proud to have been awarded the Gold
RoSPA Safety Award for the third year.
Like many utility companies we remain concerned about the continued skill
shortage and continue to support the work of organisations such as the Energy
and Utility Sector Skills Council in addressing this issue. One such option is
the rehabilitation of young offenders, through the national young offender's
programme and we are pleased to be working with one of our contractors Clancy
Docwra on this initiative.
Competition
In preparation for the extension of competition within the water industry,
Watercall Ltd has been set up as an associated company to South East Water under
Macquarie Water UK Ltd. Watercall was one of the first competitive companies to
be licensed by Ofwat and it reflects our robust attitude to competition within
the industry.
Prospects
The company strategy is to continue to operate the regulated water business as
efficiently as possible whilst maintaining high service standards. In addition
we will continue to develop the non-regulated business. Significant challenges
which I am confident will be delivered.
Peter Dyer
Chairman
Date: 28 June 2006
Managing Director's report
Introduction
Whilst I joined South East Water as Managing Director after the reporting year,
I would like to highlight some of the significant business issues which have
been dealt with successfully during the year. We have continued to provide our
customers with a safe and reliable supply of drinking water 24 hours a day, 365
days a year, demonstrating our vision of 'Success as a Service Business through
Innovation and Growth' in action.
Key Performance Indicators (KPIs)
The company monitors its financial and operating performance by way of KPI
measurements on a monthly and annual basis.
Financial KPIs
The company manages its financial performance through the control of its costs
and cash flows. One key measure of profitability is the ratio of operating
profit before exceptional items to revenue. At the group level the ratios for
2005/6 and 2004/5 were 47.8% and 41.8% respectively, indicating improved margins
through increased revenue and improved cost control.
The cash flow measure of net cash generated from operations for the group in
2005/6 of #62.4 million, shows an improvement of #5.3 million from the 2004/5
levels of #57.1 million.
The outstanding customer debt to revenue ratio as at March 2006 of 14.26% shows
an improvement from the March 2005 level of 15.2% with strategies in place to
improve the overall debt collection as well as to target the older outstanding
debt.
Covenant KPIs
The company, under Licence condition F, is required to maintain a credit rating
equivalent to investment grade, which is currently defined as:
Moody's: Baa3 S & P: BBB-
The company's credit rating is better than required, and is as follows:
Moody's: Baa2 S & P: BBB
The company, as part of the ring-fenced group for the issuance of the bond by
its wholly-owned subsidiary South East Water (Finance) Limited, is required to
comply with financing covenants, and these include:
* Regulatory Asset Ratio (RAR) with a distribution lock up at 85%
* Interest Cover Ratio (ICR) with a default at 1.4 times cover
* Adjusted Interest Cover Ratio with a trigger event at 1.1 times cover.
The company was compliant under the financing covenants at 31 March 2006.
Operational KPIs
Key performance indicators measuring the operational performance of the water
company are those used by Ofwat and comprise the following:
* Number of properties suffering inadequate pressure
* Number of properties affected by unplanned and prolonged interruptions to
supply
* Number of properties affected by water restrictions
* Speed of response to billing contacts
* Speed of response to written complaints
* Meter reading performance
* Ease of telephone contact
* Drinking water quality
* Leakage
* Environmental impact (pollution incidents)
Managing Director's report (continued)
Although measured and monitored separately, each of the above indicators is
weighted and combined by Ofwat to give an "Overall Performance Assessment" which
is compared with the assessment for other water providers in England and Wales.
Ofwat assessed the overall performance achieved in the year ended 31st March
2005 to be a score of 271 out of a maximum possible score of 288. Ofwat's
assessment for the current year will be published in September 2006.
In addition to the above regulatory measures, the company produces and monitors
a number of departmental performance indicators associated with the quality of
customer service, corporate staff and environmental health and safety issues and
operational water resource prospects.
The staff absence rate was closely monitored during the year and stood at 2.8%
against an internal target of 3.0%, and our labour turnover rate at 15% compared
favourably with the national average.
The company's safety audit compliance stood at 99.8% against a target of 90% for
2005/6. This audit result demonstrates a high level of compliance with the
fundamental Health & Safety requirements and the continuing good Health & Safety
culture within management and staff. These audits results are reinforced by
external verification with the company's safety management systems being
certified to OHSAS18001 standard and gaining a third RoSPA Gold Award for Health
& Safety Management.
Water Resources
2005/6 was a year of very low rainfall, following an exceptionally dry winter in
2004/5. November 2004 to February 2006 was the driest 16-month period since
1933, with only 72% of long term average rainfall. As a result of this
significant dry period, the company drought plan was activated in November 2004.
Despite this, we managed to start the year with our reservoirs full, but
groundwater sources, from which we derive some 70% of our supplies, started
lower than average.
Continuation of the drought into the summer months heightened concerns about the
adequacy of water resources across the south east. By August, South East Water,
Southern Water, and Mid Kent Water had hosepipe bans in place across Sussex and
Kent for the first time in a decade.
The subsequent dry winter prevented adequate recharge of resources and thus a
deteriorating position to the end of the year, particularly in relation to
groundwater levels. Hosepipe bans remain in place across Kent and Sussex and
look set to stay for much of the coming year.
Investment
Capital investment in 2005/6 in the first year of the new five year programme
was #41 million. The #211.5 million programme from 2005 to 2010 (#174 million
net of developer receipts) demonstrates our commitment to developing new water
resources and renewing the existing infrastructure.
A third is allocated to essential new resource projects, as our supply area is
recognised as being water resource deficient, highlighted by the current drought
conditions. Much of the expenditure in this first period has been on the
preliminary design, environmental studies and planning of water resource
schemes.
Phase 1 of the Bewl-Darwell transfer scheme was completed in 2005, providing an
additional five million litres of water each day to meet growing demand in East
and West Sussex. Construction of a #9 million, 12Mld extension to Hazards Green
WTW is progressing, this being the final phase of the Bewl-Darwell transfer
scheme.
We continue to plan for the future and during 2005 we started a major
investigation into the feasibility of a new reservoir near Lewes in Sussex. Clay
Hill Reservoir could provide an additional 18 million litres of water each day.
We are working with other companies in the region to determine whether this
option would form part of the most sustainable solution to managing water
resources for the region.
We also continued operation of the pilot desalination plant at Newhaven,
groundwater development in our Northern Region, and design of an extension of
the strategic Bray Water Treatment Works on the River Thames.
Managing Director's report (continued)
As part of our twin track approach to resource planning we have also invested in
demand management. An increasing number of customers opted to have a meter
fitted during the year. The company continues to view metering as an important
tool in managing demand and welcomes the Government's decision to allow
compulsory metering within the Folkestone and Dover area and will watch with
interest the Folkestone and Dover Water company's experience of this issue.
7,816 customer meters have been installed at a cost of #1.5 million and #1.1
million has been spent on leakage control equipment, contributing to the
achievement for the fifth successive year of our leakage target. Leakage has
been reduced to 69.12Ml/day, beating the Ofwat target, importantly in this year
of drought. A performance-based leak detection contract is now in place, which
will lead to optimising resources in maintaining the leakage level.
A large proportion of our programme covers the replacement or refurbishment of
deteriorating assets.
Rehabilitating our ageing mains infrastructure formed a major part of our
capital investment programme during 2005/6 when 165km of mains were either
replaced or relined at a cost of #9.4 million. This was the final stage of our
rehabilitation programme to upgrade nearly 1,100km of mains to maintain quality
and pressure for our customers.
We thank our customers in Farnham, Frensham, Petersfield, Sevenoaks, East
Grinstead and Tonbridge for their patience while we carried out this essential
work in their areas.
In addition to this programme a further 22km of mains were replaced at a cost of
#3.9 million. This followed an assessment of the likelihood of failure according
to customer performance criteria on a risk based approach using the capital
maintenance methodology established as part of the PRO4 process.
A further #0.72 million has been invested in the construction of two
ultrafiltration and one microfiltration plant to complete a programme of nine
plants and reduce any risk of Cryptosporidium. A second phase of service
reservoir construction is in hand at Swainshill near Alton and a new treatment
plant has been commissioned at Aldershot for iron removal and at Barcombe for
sludge thickening.
Sand media has been replaced in three of our existing filtration plants together
with general refurbishment. Investment in mains rehabilitation and filtration
systems is an important means of ensuring that we continue to meet the stringent
requirements of drinking water quality standards.
There has been significant expenditure during the year on the successful
replacement of two of our key business systems. For financial management "Great
Plains" software has been purchased and implemented at a cost of #0.5 million
and for customer billing and management "Basis 2" software has also been
introduced at a cost of #1.76 million. The replacement of these essential
systems in a one-year period has been a significant achievement.
Water Quality and Supply
The quality of the water supplied by South East Water remains among the best in
the world with 99.89% of 95,500 tests complying with EU and UK mandatory
standards.
In addition to these regulatory tests we carried out a further 102,000 tests to
ensure our assets consistently performed to deliver excellent quality water to
our customers.
Our laboratory testing procedures once again received UKAS accreditation.
Our Customers
During the last 12 months we have continued to provide a first class service to
all of our customers. We are only human however, and we do make mistakes from
time to time. When we do, we aim to correct the matter with our customers
quickly and efficiently. Our commitment to quality and a right first time
culture has lead to a steady reduction of 10% in the number of complaints
received by the company during the year.
We recognise however that we still have room for improvement and we are
constantly striving to improve our systems and procedures.
Managing Director's report (continued)
In October 2005, WaterVoice, the body representing customers' interests became
the Consumer Council for Water, CCWater. CCWater have a new and wide ranging
remit covering affordability, water resources and the handling of customer
contacts and complaints.
CCWater audited the company's customer complaints handling procedures and its
activities relating to the recovery of bad debt from customers. CCWater
complimented the company on its procedures and activities in both of these
areas, and we look forward to working with them in the years to come. Complaints
by our customers to CCWater have reduced by 20% over the year.
The company carried out its annual unmeasured billing for 2006/7 on a new
billing platform. The new system was introduced to allow improved flexibility in
handling customer accounts. The new system has also enabled us to redesign and
introduce a new bill format, which provide a clearer indication of the amount
due and payment date.
In addition to our new bills, we have also introduced a new tariff for 2006/7.
All customers who opt to pay by Direct Debit will receive a #5 credit on their
water account once all their payments have been made. The initial customer
response to this initiative has been favourable.
Our Staff
Our staff remain at the heart of South East Water's operational excellence,
maintaining and improving their skills through an active programme of training
and development.
A total of 960 days of training, averaging over 2 days per employee, was
undertaken in essential job skills, health and safety and development of new
competencies during 2005/6.
Support was given for staff to gain professional qualifications in IT,
engineering, accountancy and Human Resources - leading to membership of
professional bodies.
On National Learning Day a number of staff took the opportunity to shadow
colleagues to improve their understanding of other parts of the business.
Individual appraisals have continued to underpin our approach to personal
development.
We have worked hard to maintain good communication throughout the business,
backed by regular team briefings.
In its first year the Staff Council has played a key role as a forum for
business issues and, in particular, the company's search for operating cost
efficiencies.
Quarterly meetings of all managers were instituted and face to face briefings by
the executive team with groups of staff at multiple locations have taken place
twice during the year. This has promoted understanding on complex issues such as
pension funding.
The staff newsletter, Reflections, was published quarterly and the staff
intranet, the Source, continued as an effective communication tool.
Safe working practices have continued to deliver good results, with only two
reportable accidents recorded in the year and our accident-free days since the
last reportable accident improved to 292 days by year-end. Our safety systems
are certified to OHSAS 18001 standard and we gained our third RoSPA Gold Award.
Our absence rate, at 2.8%, and our labour turnover rate, at 15% each compared
favourably with the national average.
Our approach to staff rewards is dealt with in the report of the Remuneration
Committee.
Managing Director's report (continued)
Our Environment
The environment is fundamental to South East Water's operations and the company
adopts an environmentally responsible approach to all areas of its business.
The on-going drought in the South East has put severe pressure on water
resources, with reservoirs, rivers and aquifers at very low levels and a
prolonged period of below average rainfall. A key part of managing the drought
has been to undertake extensive environmental assessments of areas where the
company had considered drought permits, although the company did not operate
under any drought permits during 2005/6.
Environmental assessments of major capital projects continue to be a priority.
At Hazards Green Water Treatment Works a project was undertaken to re-home Great
Crested Newts during the final stages of this #25 million scheme to secure
future water resources in East Sussex. 'Newt fences' were erected round the
construction compound to catch the protected species for re-housing whilst new
wetland habitats have been created to ensure the future survival of these
protected species.
As part of the scheme South East Water also restored wasteland in Robertsbridge
and built a living willow bridge as an environmental gift to the community. This
has earned the company a bronze Green Apple Award for best environmental
practice.
Other key environmental projects during the year included installing traditional
Sussex post and rail fencing at Ardingly Reservoir, which created a haven for
nesting birds. The company worked with the British Trust for Ornithology on the
project to record new bird species. Butterfly, mammal and reptile surveys have
also been undertaken at Ardingly Reservoir, utilising funds generated from the
newly introduced car parking charges.
As a major landowner, South East Water continues to protect the biodiversity of
its sites. As of March 2006, 78% of SSSIs managed by South East Water were in
favourable or recovering condition. A programme of improvement has been agreed
with English Nature to improve 90% of our SSSI holdings to favourable or
recovering condition by 2010 and this work is ongoing.
Recycling remains a priority, both in the company's offices, on site and during
highway excavations. Trials of SMR, a soil conditioner, have allowed re-cycling
of 150 tonnes per day of excavated spoil as backfill and has gained the
acceptance of highways departments in Hampshire, Wokingham, Windsor and
Maidenhead.
Our Communities
The company's approach to sustainable development of its business includes a
strong commitment to corporate social responsibility and the company has
continued to engage with its communities throughout the year.
Public access to a number of our sites, particularly Arlington and Ardingly
Reservoirs, provides facilities for walking, fishing, bird watching and, at
Ardingly, water sports. These are leisure facilities particularly valued by the
public.
An active programme of charitable donations, focussed particularly on local
causes, was once again well supported by our staff. In our Hampshire, Surrey and
Berkshire region staff organised fund-raising activities on
behalf of the Make a Wish Foundation, based in Camberley, Surrey dedicated to
granting wishes of children aged 3 to 18 living with life-threatening illnesses.
Staff in our Sussex and Kent region chose The St Peters and St. James Hospice,
based in Wivelsfield near Haywards Heath, as their preferred charity and
organised a programme of events.
The company engaged with local stakeholders and interest groups from schools and
parish and district councils to local Rotarians and the W.I. giving talks on
water efficiency, water treatment, desalination and drinking water as part of a
healthy lifestyle as well as providing water bottles and water butts. The level
of interest in water resources and planning has undoubtedly increased during the
current drought with a significant number of presentations on water resources
made to local councils and planning authorities.
Sponsorship has been provided for a number of local institutions which enrich
the life of the communities we serve including the Sussex Wildlife Trust and the
Hampshire Milestone Museum.
Managing Director's report (continued)
Whilst the principal focus of our corporate concerns is local, we also assist
overseas communities without access to clean drinking water which we take for
granted. One of our managers was assigned under the Partnership in Water and
Sanitation to a water project in Ethiopia.
Our customer newsletter, Big Blue, is intended to keep our customers informed on
important developments, and our website is updated throughout the year with
essential information easily accessible.
Non Regulated Business
2005/6 has been another strong year for our non-appointed business activities,
with strong revenue performance from e-conveyancing of company asset data for
customers buying properties or moving within our supply area, billing commission
income from neighbouring wastewater companies, as well as our Mast Rentals
portfolio, which maintains steady income performance.
The newest product in the commercial services portfolio is
southeastwatertele.com a wholesale telecommunications offering for business
customers throughout the South East of England, provided seamlessly through
Business Network Services (BNS) as a virtual South East Water offering.
southeastwatertele.com can save businesses the equivalent of their annual water
bill charges off their annual telecommunications charges and this product is in
early stages of marketing.
Our Engineering and Commercial Services Teams have had another year of firsts,
winning 2 new borehole contracts for private clients, in addition to our first '
multi-lay' job to supply 250 properties with water, gas and electricity. This
work was won in the face of strong competition, where we bid and won the project
in conjunction with Scottish & Southern Energy.
The Year In Summary
The business has been particularly demanding throughout 2005/6 with pressure
placed on our staff and resources in dealing with drought conditions in much of
our supply area, introducing two major IT systems, delivering a major programme
of capital investment and continuously seeking to drive cost out of our
operation. However, we will continue to build on our successes and deliver for
all our stakeholders a business which is ' Fit for Purpose, Fit for the Future.'
Martin Baggs
Managing Director
Date: 28 June 2006
Consolidated income statement
for the year ended 31 March 2006
2006 2005
Note #000 #000
Continuing operations
Revenue 2 113,691 96,010
Net operating costs - non-exceptional (62,711) (59,131)
Net operating costs - exceptional profit on sale of
property 3 5,468 -
Net operating costs - exceptional intangible asset
write off 3 - (10,302)
Net operating costs 3 (57,243) (69,433)
Other income 4 3,367 3,254
Operating profit 59,815 29,831
Finance costs 5 (36,791) (20,637)
Finance income 6 14,218 10,212
Profit before tax 37,242 19,406
Taxation 7 (11,887) (6,732)
Profit for the year 25,355 12,674
Consolidated statement of recognised income and expense
for the year ended 31 March 2006
Note 2006 2005
#000 #000
Profit for the year 25,355 12,674
Actuarial gains/(losses) on defined benefit
pension plans 9,802 (9,868)
Movement on deferred tax on actuarial
(gains)/losses on defined benefit pension plans 7 (2,941) 2,960
Net profit/(loss) not recognised in the Income
Statement 6,861 (6,908)
Total recognised income for the year 32,216 5,766
Change in accounting policy on adoption of IAS 32 and
IAS 39:
Fair value movement on interest rate swap (2,198)
Deferred tax on fair value movement on interest
rate swap 7 660
Consolidated balance sheet
as at 31 March 2006
2006 2005
Note #000 #000
Assets
Non-current assets
Goodwill - 142
Intangible assets 2,824 2,982
Property, plant and equipment 561,268 534,014
Non-current receivables 190,013 190,013
754,105 727,151
Current assets
Inventories 64 40
Trade and other receivables 29,096 27,864
Cash and cash equivalents 15,748 32,434
Assets held for sale - 1,732
44,908 62,070
Liabilities
Current liabilities
Financial liabilities
- Loans and borrowings (1,447) (1,321)
Trade and other payables (41,900) (40,861)
Current tax payables (963) (664)
(44,310) (42,846)
Non-current liabilities
Financial liabilities
- Loans and borrowings (397,211) (387,969)
- Derivative financial instruments (22,248) (3,439)
Deferred tax liabilities (104,150) (97,368)
Defined benefit liability 9 (28,416) (38,572)
Trade and other payables (37,014) (37,378)
(589,039) (564,726)
NET ASSETS 165,664 181,649
Equity
Ordinary shares 5,092 5,092
Capital redemption reserve 4,000 4,000
Retained earnings 156,572 172,557
TOTAL EQUITY 10 165,664 181,649
The accompanying notes are an integral part of this balance sheet.
These preliminary results were approved by the Board of Directors on 28 June
2006 and were signed on its behalf by:
Martin Baggs
Managing Director
28 June 2006
Consolidated cash flow statement
for the year ended 31 March 2006
2006 2005
#000 #000
Cash flows from operating activities
Net cash generated from operations 62,378 57,064
Interest received 25,863 3,578
Interest paid (23,639) (16,086)
Issue costs of new listed debt (71) (5,971)
Pension contributions paid (2,385) (1,717)
Tax paid (5,052) -
Net cash from operating activities 57,094 36,868
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 7,232 43
Purchase of property, plant and equipment (43,381) (38,110)
Purchase of intangible assets (818) (2,986)
Fixed asset contributions received 772 1,044
Acquisition of fellow subsidiary contracts and assets - (250)
Net cash used in investing activities (36,195) (40,259)
Cash flows from financing activities
Finance lease principal payments (1,321) (5,254)
Repayment of debentures (1,601) (3,803)
Proceeds from borrowings 12,000 366,000
Dividends paid to shareholder (46,663) (13,030)
Loans repaid - 3,635
Repayment of borrowings - (126,154)
Loan to parent undertaking - (190,013)
Net proceeds from issue of ordinary share capital - 3,800
Net cash from financing activities (37,585) 35,181
Net (decrease)/increase in cash and cash equivalents (16,686) 31,790
Cash and cash equivalents at 1 April 32,434 644
Cash and cash equivalents at 31 March 15,748 32,434
Notes to the preliminary consolidated results
1. Summary of significant accounting policies
The principal accounting policies are summarised below.
Basis of preparation
The consolidated financial statements for the year ended 31 March 2006 have
been prepared for the first time in accordance with International Financial
Reporting Standards (IFRS) and International Financial Reporting
Interpretations Committee interpretations endorsed by the European Union,
and those parts of the Companies Act 1985 applicable to groups reporting
under IFRS. Previously, the consolidated financial statements were prepared
under UK Generally Accepted Accounting Principles (UK GAAP). A
reconciliation of the effect of the transition to IFRS and explanation of
key changes is given in note 11. Comparative figures prepared under IFRS are
included subject to the exemptions identified below.
IFRS 1 First Time Adoption of IFRS requires that IFRS be applied
retrospectively unless a specific exemption is applied. In preparing these
financial statements, the group has adopted the following exemptions:
* Property, Plant and Equipment is recognised at the date of transition at
deemed cost by reference to fair value;
* All actuarial gains and losses have been recognised in full at the date of
transition;
* IAS 32 Financial Instruments: Disclosure and presentation and IAS 39
Financial Instruments: Recognition and measurement are to apply
prospectively from 1 April 2005 and as such the restated figures for the
year ended 31 March 2005 and the balance sheet as at 31 March 2005 do not
reflect the impacts of these standards.
- The consolidated financial statements have been prepared on a historical
cost basis, except for pension assets and liabilities and certain financial
instruments that have been measured at fair value and property, plant and
equipment which is recognised at the date of transition at deemed cost by
reference to fair value.
Basis of consolidation
The consolidated financial statements incorporate the financial information
of South East Water Limited (the company) and its subsidiary South East
Water (Finance) Limited.
Transactions and balances between the company and its subsidiary have been
eliminated fully on consolidation.
Subsidiaries are consolidated from the date on which control is transferred
to the group and cease to be consolidated from the date on which control is
transferred out of the group.
Use of estimates
The preparation of financial statements requires the application of
estimates and judgement by management, which affects assets and liabilities
at the balance sheet date and income and expenditure for the year. Actual
results may differ from those estimates.
Estimates made by the management of South East Water in the preparation of
financial information, affect the remaining useful lives of infrastructure
assets, bad debt provision, deferred revenue and pensions and other post
retirement benefits.
Notes to the preliminary consolidated results (continued)
1. Summary of significant accounting policies (continued)
Revenue
Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the group, there has been a transfer of risk and
control and the revenue can be reliably measured. All revenue arises within
the United Kingdom and is recorded net of VAT. The following specific
recognition criteria must also be met before revenue is recognised:
Metered and unmetered water income
Revenue is recognised when water has been delivered to the customer. Revenue
includes an estimation of the volume of mains water supplied but unbilled at
the year end. This is estimated using a defined methodology based upon a
measure of unbilled water consumed, which is calculated from historical
customer data.
Cash received in advance from customers is not treated as current year
revenue, being recognised as payments received in advance within creditors.
Other income
Other income includes rechargeable works and infrastructure charges.
Rechargeable works represent payments received from developers for
installing meters and connections to new property developments. Revenue is
recognised when the work is complete.
Infrastructure charges represent 'joining the network fees'. Such fees are
recognised in the Income Statement when the property is first connected to
the network.
Finance income
Finance income is recognised using the effective interest method.
Taxation
Current tax, being UK Corporation tax, is provided at amounts expected to be
paid (or recovered) using tax rates and laws that have been enacted or
substantially enacted by the balance sheet date.
Tax relating to items recognised directly in equity is recognised in equity
and not in the Income Statement.
Deferred tax is provided, using the liability method, on all temporary
differences at the balance sheet date between the tax bases of assets and
liabilities and their carrying amounts in the financial statements.
Deferred tax liabilities are recognised for all taxable temporary
differences except where the deferred tax liability arises from goodwill
amortisation or the initial recognition of an asset or liability in a
transaction that is not a business combination and at the time of the
transaction affects neither the accounting profits nor taxable profit or
loss. Deferred tax assets are recognised for all deductible temporary
differences, carry forward of unused tax assets and unused tax losses to the
extent that it is probable that taxable profits will be available against
which the deductible temporary differences, and the carry-forward of unused
tax assets and unused tax losses can be utilised. Deferred tax assets are
recognised for the deductible temporary differences arising from the initial
recognition of an asset or liability in a transaction that is not a business
combination and at the time of the transaction affects neither the
accounting profit nor taxable profit or loss.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply to the year when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the balance sheet date. In accordance with IAS 12
Income Taxes deferred taxes are not discounted.
Goodwill
Goodwill on acquisition is initially measured at cost being the excess of
the cost of the acquired subsidiary or business over the net fair value of
identifiable assets, liabilities and contingent liabilities.
Goodwill is not amortised and is reviewed for impairment annually.
Notes to the preliminary consolidated results (continued)
1. Summary of significant accounting policies (continued)
Impairment
Goodwill
Impairment tests on goodwill are made annually. This is carried out by
assessing the recoverable amount of the cash-generating unit, to which the
goodwill relates. Given that the company operates its regions under a single
licence for the whole Water Supply Area and, that operations are monitored
on a group-wide basis, the cash-generating unit for the company is deemed to
be the business as a whole. Where the recoverable amount is less than the
carrying amount, the goodwill asset is reduced to the recoverable amount
with an impairment loss recognised as an operating cost in the Income
Statement.
Property, plant and equipment, investments and intangible assets
At each reporting date an assessment is carried out to determine whether
there is any indication that property, plant and equipment, investment and
software intangible assets may be impaired. If there is an indication of
impairment, the recoverable amount of the asset or respective
cash-generating unit is compared to the carrying amount. Where the
recoverable amount is less than the carrying amount, the asset is reduced to
the recoverable amount with an impairment loss recognised as an operating
cost in the Income Statement in the year in which the respective assessment
takes place.
Financial assets
At each reporting date an assessment is carried out to determine whether
there is any indication that financial assets may be impaired. Where there
is objective evidence that impairment loss has arisen, the carrying amount
is reduced in accordance with IAS 39, with the loss being recognised in the
Income Statement in the year in which the respective assessment takes place.
Intangible assets
Software
Software intangible assets acquired separately are recognised at cost. They
have finite useful lives and are amortised over 3 to 5 years on a straight
line basis.
Residual values and useful lives of all assets are re-assessed annually and,
where necessary, changes are accounted for prospectively.
Capitalisation of employee and other directly attributable costs
Employee and other costs directly attributable to intangible asset projects
are capitalised in the financial statements as part of the cost of the
intangible asset to which they relate. Training costs, administration and
other general overhead costs including interest are not capitalised.
Derecognition
An intangible asset is derecognised upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. Any
gain or loss arising on derecognition of the asset, calculated as the
difference between the net disposal proceeds and the carrying amount of the
item, is included in the Income Statement in the year in which the item is
derecognised
Property, plant and equipment
Infrastructure Assets
Infrastructure assets comprise a network of systems relating to water
distribution, such as water mains and surface reservoirs. Infrastructure
assets in the course of construction are depreciated from the time they are
brought into use. Infrastructure assets are stated at deemed cost less
accumulated depreciation and any impairment in value. Depreciation is
calculated on a straight-line basis over the estimated useful life of the
assets as follows:
Years
Surface reservoirs 250
Mains 20-100
Notes to the preliminary consolidated results (continued)
1. Summary of significant accounting policies (continued)
Property, plant and equipment (continued)
Non - Infrastructure Assets
Freehold land is not depreciated. Assets in the course of construction are
depreciated from the time they are brought into use. All other
non-infrastructure assets are stated at cost less accumulated depreciation
and any impairment in value. Depreciation is calculated on a straight-line
basis over the estimated useful life of the asset as follows:
Years
Freehold buildings 80
Operational structures 60-80
Plant and machinery including telemetry 10-35
Vehicles, mobile plant, office equipment and computers 3-7
Derecognition
An item of property, plant and equipment is derecognised upon disposal or
when no future economic benefits are expected to arise from the continued
use of the asset. Any gain or loss arising on derecognition of the
asset (calculated as the difference between the net disposal proceeds and
the carrying amount of the item) is included in the Income Statement in the
year the item is derecognised.
Residual values and useful lives
Residual values and useful lives of all assets are re-assessed annually and,
where necessary, changes are accounted for prospectively.
Capitalisation of employee and other directly attributable costs
Employee and other costs directly attributable to capital projects are
capitalised in the financial statements as part of the cost of the property,
plant and equipment to which they relate. Training costs administration and
other general overhead costs including interest are not capitalised.
Leased Assets
Property, plant and equipment held under finance lease are capitalised at
the lower of the fair value of the leased asset and the present value of
lease payments. These assets are depreciated over the shorter of the
estimated useful life of the asset or the lease term.
Leases
Finance leases, which transfer to the group substantially all the risks and
benefits incidental to ownership of the leased item, are capitalised at the
inception of the lease at the present value of the minimum lease payments.
Lease payments are apportioned between the finance charges and reduction of
the lease liability so as to achieve a constant rate of interest on the
remaining balance of the liability.
Finance charges are charged directly to the Income Statement.
Operating lease payments are recognised as an expense in the Income
Statement on a straight-line basis over the lease term.
Grants and Contributions
Grants and contributions are received in respect of both infrastructure and
non-infrastructure assets. These are recognised as deferred income and are
released to the Income Statement over the life of the assets to which they
relate.
Notes to the preliminary consolidated results (continued)
1. Summary of significant accounting policies (continued)
Inventory
Inventory is valued at the lower of average cost or net realisable value. No
value is placed upon stocks of treated water in accordance with accepted
practice in the water industry. Consumable chemical purchases are recognised
as an expense in the Income Statement at the point of purchase.
Work in progress for chargeable services is valued at the lower of cost and
net realisable value.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in
hand and short-term deposits with an original maturity of three months or
less.
Included within cash and cash equivalents are amounts that are held in
designated bank accounts as short term deposits in order to meet the
interest and associated swap payments falling due in respect of listed debt.
Pension and other post employment benefits
The group accounts for pensions and other post employment benefits under IAS
19 Employee Benefits. The group operates both defined benefit and defined
contribution pension schemes. Defined benefits are provided using both
funded and unfunded pension plans.
Defined contribution plans
Contributions to defined contribution plans are recognised as an expense in
the Income Statement when the contributions fall due.
Defined benefit plans
The pension scheme liability in the balance sheet represents the net of the
present value of the defined benefit obligation and the fair value of scheme
assets at the balance sheet date. The present value of the defined benefit
obligation is analysed between the funded and unfunded pension plans.
The present value of the defined benefit obligation and the cost of
providing benefits under defined benefit plans is determined on a triennial
basis, and updated to each year end by an independent qualified actuary
using the Projected Unit Credit actuarial valuation method, discounted at an
interest rate equivalent at measurement date to the rate of return on a high
quality corporate bond of equivalent term and currency to the scheme
liabilities.
The pension cost in the Income Statement includes current and past service
cost and the effect of any settlements and curtailments.
A net finance charge or credit is recognised within finance cost in the
Income Statement and comprises the net of the expected return on pension
scheme assets and the interest on pension scheme liabilities.
Actuarial gains and losses and the related deferred taxation are recognised
outside the Income Statement in the Statement of Recognised Income and
Expense.
The company has taken advantage of the exemption under IFRS1 and has
recognised all actuarial losses at date of transition.
Financial instruments
The group's financial instruments comprise fixed and variable rate
borrowings, fixed rate debentures, an interest rate swap, finance leases,
loans to parent and fellow subsidiary undertakings, cash, short term
deposits, trade debtors and trade and other creditors.
Recognition
Financial instruments are recognised in the balance sheet when the group
becomes party to the contractual provisions of the instrument.
Derecognition
Financial liabilities are removed from the balance sheet when the related
obligation is discharged, cancelled or expires.
Financial assets are removed from the balance sheet when the rights to the
cash flows from the asset expire, or when the risks and rewards of ownership
of the asset are transferred or when control of the asset is transferred.
Notes to the preliminary consolidated results (continued)
1. Summary of significant accounting policies (continued)
Financial instruments (continued)
Embedded derivatives
Financial instruments that are not carried at fair value through the profit
and loss account are reviewed to determine if they contain embedded
derivatives. Embedded derivatives are accounted for separately as derivative
financial instruments when the economic characteristics and risks are not
closely related to the respective host financial instrument.
Derivative financial instruments
The group uses derivative financial instruments such as an interest rate
swap to hedge its risks associated with interest rate fluctuations. This use
does not qualify for hedge accounting. For the year ended 31 March 2006
derivative financial instruments are recognised initially and subsequently
in the balance sheet at fair value with any movements during the year
charged or credited to the Income Statement. The fair value is determined by
reference to market values for similar instruments. In the comparative
information for the year ended 31 March 2005 the interest rate swap on
principal repayments of RPI linked loans is recognised on an accruals basis
over the period of the swap with a corresponding charge included within
interest charges.
Interest bearing loans and borrowings
All loans and borrowings are initially recognised at cost, being the fair
value of the consideration received net of issue costs associated with the
borrowing.
Interest-bearing loans and borrowings are subsequently measured at amortised
cost using the effective interest method. Amortised cost is calculated by
taking into account any issue costs, and any discount or premium on
settlement.
Short-term trade and other receivables
Short- term trade receivables are recognised and carried at original invoice
amount less an allowance for any doubtful debts. An estimate for the
provision for doubtful debts is calculated by the group's management based
on applying expected recovery rates to an aged debt profile and an
assessment of current socio-economic conditions.
Trade payables
Trade payables are carried at payment or settlement amounts.
Assets held for sale
Assets are classified as held for sale when the carrying amount of an asset
will be recovered principally through a sale transaction rather than
continuing use. These assets are held at the lower of carrying amount and
fair value less costs to sell and are no longer depreciated.
Investments
All investments are initially recorded at cost being the fair value of the
consideration given and including any acquisition charges associated with
the investment.
Segments
The group operates one business segment being the supply of water and in one
geographic segment, being the United Kingdom.
Dividends
Dividends are recognised as a distribution when paid. Dividends either
proposed or declared but unpaid at the balance sheet date, are disclosed in
the notes to the financial statements.
Notes to the preliminary consolidated results (continued)
2. Revenue
2006 2005
#000 #000
Metered water income 45,243 37,007
Unmetered water income 63,524 53,735
Other sales 4,924 5,268
113,691 96,010
All revenue is to customers within the United Kingdom.
3. Net operating costs
2006 2005
#000 #000
Employee benefits expense 10,022 9,967
Asset expense/(income):
Depreciation - owned assets 11,082 10,365
Depreciation - leased assets 663 663
Amortisation of intangible assets 974 674
Exceptional profit on sale of property (5,468) -
Profit on sale of fixed assets - (40)
Goodwill write off 142 -
Mains disposals 1,192 784
Exceptional intangible asset write off - 10,302
8,585 22,748
Other operating expenses:
Operating lease rentals:
- vehicles and office equipment 806 835
- land and buildings 354 221
Auditors' remuneration:
- statutory audit 106 121
- audit related regulatory reporting 59 88
Other expenses 40,246 38,651
Other operating expenses charged to capital (2,935) (3,198)
projects
38,636 36,718
57,243 69, 433
The exceptional profit on sale of property relates to the disposal of a
property asset held for sale concluded in September 2005 for proceeds of
#7.2 million. Part of the office space has been leased by the group under an
operating lease at market rates.
For the year ended 31 March 2005 the exceptional intangible asset write off
of #10.3 million relates to a customer billing system.
Notes to the preliminary consolidated results (continued)
4. Other income
2006 2005
#000 #000
Rental income 557 542
Charges to group undertakings 34 45
Sundry income 2,776 2,667
3,367 3,254
Sundry income includes charges for engineering, scientific, laboratory,
billing and cash collection services.
5. Finance costs
2006 2005
#000 #000
Debenture interest 1,231 1,611
Effective interest on listed debt 15,640 10,713
Fair value movements on interest rate swap 16,611 3,439
Financing guarantee fees 1,020 492
Interest payable on finance leases 912 1,380
Pension fund finance charge 685 177
Amortisation of issue costs 381 243
Other finance charges 311 98
Interest payable on loans from group undertakings - 2,484
36,791 20,637
At 31 March 2006 the interest rate swap is stated in the balance sheet at
its fair value of #22,248,000. The fair value movements on the interest rate
swap for 2006 are #16,611,000.
Under the exemption from retrospective application of IAS 39 at 31 March
2005, interest rate swap costs of #3,439,000 for 2005 are calculated on an
accruals basis.
6. Finance income
2006 2005
#000 #000
Interest receivable from group undertakings 12,926 8,932
On bank balances and short term deposits 1,292 1,280
14,218 10,212
Notes to the preliminary consolidated results (continued)
7. Taxation
Major components of the tax expense for the years ended 31 March 2006 and
2005 are:
Consolidated Income Statement
2006 2005
#000 #000
Current tax
Current UK tax charge 7,386 5,143
Deferred tax
Relating to origination and reversal of temporary differences 4,501 1,589
Tax expense reported in the Income Statement 11,887 6,732
Deferred tax charge to equity
2006 2005
#000 #000
Deferred income tax
Deferred tax charge/(credit) on actuarial gain/(loss) 2,941 (2,960)
Deferred tax credit on change in accounting policy on
adoption of IAS 32 and IAS 39 (660) -
Tax reported in equity 2,281 (2,960)
8.Dividends
Note Year ended Year ended
31 March 2006 31 March 2005
#000 #000
Equity dividends paid during the year:
First interim dividend paid in 2005/6 and declared but
unpaid at 31 March 2005 #3.269 per ordinary share
(paid in 2004/5 and declared but unpaid at
31 March 2004: #4.049) 16,643 5,230
Second interim dividend paid in 2005/6 #3.704 per
ordinary share (paid in 2004/5: #0.786) 18,860 4,000
Third interim dividend paid in 2005/6 #2.192 per
ordinary share (paid in 2004/5: #0.746) 11,160 3,800
10 46,663 13,030
Equity dividends proposed for approval
There were no dividends proposed for approval as at 31 March 2006. As at 31
March 2005 the directors proposed a dividend of #16,643,000 in respect of the
financial year ending 31 March 2005 of #3.269 per ordinary share.
Notes to the preliminary consolidated results (continued)
9.Retirement benefit schemes
Analysis of pensions liability
2006 2005
#000 #000
Present value of defined benefit obligations 136,605 127,985
Fair value of plan assets (108,189) (89,413)
Net liability 28,416 38,572
10.Changes in shareholders' equity
Share capital Capital redemption reserve Retained earnings Total
#000 #000 #000 #000
At 1 April 2004 1,292 4,000 179,821 185,113
Dividends paid - - (13,030) (13,030)
Total recognised income and expense - - 5,766 5,766
for the year
Proceeds from shares issued 3,800 - - 3,800
At 31 March 2005 5,092 4,000 172,557 181,649
Change in accounting policy on
adoption of IAS 32 and IAS 39 (note
21):
Fair value movement on interest rate (2,198) (2,198)
swap
Deferred tax on fair value movement - - 660 660
on interest rate swap
At 1 April 2005 5,092 4,000 171,019 180,111
Dividends paid - - (46,663) (46,663)
Total recognised income and expense - - 32,216 32,216
for the year
At 31 March 2006 5,092 4,000 156,572 165,664
Notes to the preliminary consolidated results (continued)
Reconciliation of consolidated equity, profit and cash flow under UK GAAP to IFRS
South East Water has adopted the EU endorsed International Financial Reporting
Standards for its group consolidated financial statements. The previously
published consolidated financial statements for the year ended 31 March 2005
were under United Kingdom Generally Accepted Accounting Practice (UK GAAP). The
analysis below is to assist users to understand how the transition from the
previous UK GAAP to IFRS affected the financial position, financial performance
and cash flows. This analysis is shown using IFRS formats and consists of - a
reconciliation of total equity under UK GAAP and IFRS at the date of transition
to IFRS on 1 April 2004 - a reconciliation of total equity under UK GAAP and
IFRS at the end of the last set of UK GAAP published consolidated financial
statements on 31 March 2005 - a reconciliation of profit under UK GAAP and
IFRS for the last set of UK GAAP published consolidated financial statements for
the year to 31 March 2005 - an explanation of the material differences of cash
flow under UK GAAP and IFRS for the last set of UK GAAP published consolidated
financial statements for the year to 31 March 2005 - a note explaining the
numerical impacts shown in the above reconciliations
Material adjustments to the cash flow
The IFRS consolidated cash flow shows an increase of cash and cash equivalents
of #31,790 k for the year ended 31 March 2005, while that for UK GAAP shows an
increase in net cash of #3,177 k. The difference relates to the treatment of
cash equivalents, which are included in the cash flow statement under IFRS, but
are shown separately for the UK GAAP cash flow statement.
Explanation of reconciling items between UK GAAP and IFRS
A.Property plant and equipment A fair value uplift has been applied to the deemed
cost of mains assets of #93,591k recognised under IFRS 1 at 1 April 2004. The
change in cost together with renewals accounting for mains assets applied under
UK GAAP not being permissible under IFRS, has reduced the depreciation charged
by #1,783k in the Income Statement for the year to 31 March 2005.
B. Employee benefits i. As at 1 April 2004 the retirement benefit scheme
liability recognised under IFRS was #29,457k compared to that under UK GAAP
SSAP 24 of #3,568k, reducing retained earnings by #25,899k. As at
31 March 2005 the IFRS and UK GAAP liability was #38,572k and #3,927k
respectively, reducing retained earnings by a total of #34,645k.
The impact on the Income Statement for the year to 31 March 2005 comprised a
reduction in operating costs of #1,289k, and pension net finance cost
charge of #177k.
ii A UK GAAP error meant that holiday pay accruals of #191k as at
1 April 2004 and #198k as at 31 March 2005 were not recognised in current
trade and other payables and that operating costs were understated by #7k
in the Income Statement for the year to 31 March 2005.
C. Assets held for sale A property asset held for sale at 31 March 2005
recognised under IRFS was previously shown in property plant and equipment
under UK GAAP with a net book value of #1,703k. Under IFRS this asset is not
depreciated, reducing operating costs in the Income Statement for the
year to 31 March 2005 by #29k and increasing the non current asset held for
sale to #1,732k.
D. Income taxes
As at 1 April 2004 the deferred income tax liability recognised under IFRS
was #98,739k compared to that under UK GAAP of #21,242k. This difference is
due to the various other balance sheet adjustments detailed in the
reconciliation together with the impact that discounting of the deferred
income tax liability is not permissible under IFRS which was previously
allowed under UK GAAP.
E. Post balance sheet events Dividends proposed are not recognised as
a liability under IFRS whereas under UK GAAP they were previously recognised
as a liability in creditors. Dividends proposed were #5,230k as at
1 April 2004 and #16,643k as at 31 March 2005 and derecognition of these
under IFRS has resulted in a corresponding increase in retained earnings on
those dates.
F. Intangible assets
Computer software is recognised as an intangible asset under IFRS whereas UK
GAAP recognised these assets as property plant and equipment. The relevant
amounts were #10,972k as at 1 April 2004 and #2,982k as at 31 March 2005
G. Grants and contributions IFRS treats grants and contributions relating to
infrastructure assets as deferred income in trade and other payables whereas
under UK GAAP they were treated previously as a deduction from the asset cost.
Of the #33,664k accounted under UK GAAP within infrastructure assets as at
1 April 2004, # 29,784k has been transferred to non-current trade and other
payables and # 3,916k to retained earnings to reflect release over the asset
life in accordance with IFRS. As at 31 March 2005 #30,050k has been
transferred to non-current trade and other payables, #371k to current trade
and other payables and #3,916k to retained earnings with a release of
#371k recognised as revenue in the Income Statement for the year to
31 March 2005.
Notes to the preliminary consolidated results (continued)
11. Reconciliation of consolidated equity, profit and cash flow under UK GAAP to
IFRS (continued)
Reconciliation IAS 16 IAS 19 IAS 12 IAS 10 IAS 38 Effect of
of Equity
as at 1 April UK GAAP Property, Employee Income Post Intangible Grants & adoption Restated
2004 Balance
in IFRS plant & benefits tax Sheet assets contributions of IFRS under
Events IFRS
format equipment
#000 #000 #000 #000 #000 #000 #000 #000 #000
Explanation note A B D E F G
reference
ASSETS
Non-
current
assets
Intangible
assets - - - - - 10,972 - 10,972 10,972
Property
plant 389,434 93,591 - - - (10,972) 33,664 116,283 505,717
and
equipment
389,434 93,591 - - - - 33,664 127,255 516,689
Current
assets
Inventories 38 - - - - - - - 38
Trade and
other
receivables 27,708 - - - - - - - 27,708
Cash and
cash 644 - - - - - - - 644
equivalents
28,390 - - - - - - - 28,390
LIABILITIES
Current
liabilities
Financial
liabilities
- loans and (33,388) - - - - - - - (33,388)
borrowings
Trade and
other (25,163) - (191) - - - - (191) (25,354)
payables
Income tax
payable (790) - - - - - - - (790)
Proposed
dividends (5,230) - - - 5,230 - - 5,230 -
(64,571) - (191) - 5,230 - - 5,039 (59,532)
Net current
assets/
(liabil (36,181) - (191) - 5,230 - - 5,039 (31,142)
ities)
Total
assets
less 353,253 93,591 (191) - 5,230 - 33,664 132,294 485,547
current
liabilities
Non-
current
liabilities
Financial
liabilities
- loans and (133,668) - - - - - - - (133,668)
borrowings
Deferred
income tax
liabilities (21,242) - - (77,497) - - - (77,497) (98,739)
Defined
benefit
liability (3,568) - (25,889) - - - (25,889) (29,457)
Trade and
other (8,822) - - - - - (29,748) (29,748) (38,570)
payables
(167,300) - (25,889) (77,497) - - (29,748) (133,134) (300,434)
Net assets 185,953 93,591 (26,080) (77,497) 5,230 - 3,916 (840) 185,113
Shareholder
equity
Issued 1,292 - - - - - - - 1,292
capital
Capital
redemption
reserve 4,000 - - - - - - - 4,000
Retained
earnings 180,661 93,591 (26,080) (77,497) 5,230 - 3,916 (840) 179,821
TOTAL 185,953 93,591 (26,080) (77,497) 5,230 - 3,916 (840) 185,113
EQUITY
Notes to the preliminary consolidated results (continued)
11. Reconciliation of consolidated equity, profit and cash flow under UK GAAP to
IFRS (continued)
Reconciliation of IAS 16 IAS 19 IFRS 5 IAS 12 IAS 10 IAS 38 Effect of
Equity
as at 31 UK GAAP Property, Employee Non Income Post Intangible Grants & adoption Restated
March 2005 current Balance
in IFRS plant & benefits assets tax Sheet assets contributions of IFRS under
held Events IFRS
format equipment for sale
#000 #000 #000 #000 #000 #000 #000 #000 #000 #000
Explanation note A B C D E F G
reference
ASSETS
Non- current
assets
Goodwill 142 - - - - - - - - 142
Intangible
assets - - - - - - 2,982 - 2,982 2,982
Property plant
and equipment 408,617 95,374 - (1,703) - - (2,982) 34,708 125,397 534,014
Non- current
receivables 190,139 - - - - - - - - 190,139
598,898 95,374 - (1,703) - - - 34,708 128,379 727,277
Current assets
Inventories 40 - - - - - - - - 40
Assets held
for sale - - - 1,732 - - - - 1,732 1,732
Trade and
other
receivables 27,738 - - - - - - - - 27,738
Cash and cash
equivalents 32,434 - - - - - - - - 32,434
60,212 - - 1,732 - - - - 1,732 61,944
LIABILITIES
Current
liabilities
Financial
liabilities -
loans and
borrowings (1,321) - - - - - - - - (1,321)
Trade and
other payables (40,292) - (198) - - - - (371) (569) (40,861)
Income tax
payable (664) - - - - - - - - (664)
Proposed
dividends (16,643) - - - - 16,643 - - 16,643 -
(58,920) - (198) - - 16,643 - (371) 16,074 (42,846)
Net current
assets/(liabil
ities) 1,292 - (198) 1,732 - 16,643 - (371) 17,806 19,098
Total assets
less current
liabilities 600,190 95,374 (198) 29 - 16,643 - 34,337 146,185 746,375
Non- current
liabilities
Financial
liabilities -
loans and
borrowings (391,408) - - - - - - - - (391,408)
Deferred
income tax
liabilities (21,495) - - - (75,873) - - - (75,873) (97,368)
Defined
benefit
liability (3,927) - (34,645) - - - - (34,645) (38,572)
Trade and
other payables (7,328) - - - - - - (30,050) (30,050) (37,378)
(424,158) - (34,645) - (75,873) - - (30,050) (140,568) (564,726)
Net assets 176,032 95,374 (34,843) 29 (75,873) 16,643 - 4,287 5,617 181,649
Shareholder
equity
Issued capital 5,092 - - - - - - - - 5,092
Capital
redemption
reserve 4,000 - - - - - - - - 4,000
Current period
earnings (13,721) 1,783 1,105 29 (1,336) 11,413 - 371 13,365 (356)
Retained
earnings 180,661 93,591 (35,948) - (74,537) 5,230 - 3,916 (7,748) 172,913
TOTAL EQUITY 176,032 95,374 (34,843) 29 (75,873) 16,643 - 4,287 5,617 181,649
Notes to the preliminary consolidated results (continued)
11. Reconciliation of consolidated equity, profit and cash flow under UK GAAP to
IFRS (continued)
Reconciliation
of Profit
for the year
ended 31 March
2005
IAS 16 IAS 19 IFRS 5 IAS 12 Effect
of
UK GAAP Property, Employee Non Income Grants and adoption Restated
current
in IFRS plant & benefits Assets tax contributions of IFRS under
held IFRS
format equipment for
sale
#000 #000 #000 #000 #000 #000 #000 #000
Explanation note A B C D G
reference
Revenue 95,639 - - - - 371 371 96,010
Net
operating (72,527) 1,783 1,282 29 - - 3,094 (69,433)
costs
Other 3,254 - - - - - - 3,254
income
Operating
profit 26,366 1,783 1,282 29 - 371 3,465 29,831
Finance (20,460) - (177) - - - (177) (20,637)
costs
Finance 10,212 - - - - - - 10,212
income
Profit
before 16,118 1,783 1,105 29 - 371 3,288 19,406
tax
Income tax
expense (5,396) - - - (1,336) - (1,336) (6,732)
Profit for
the 10,722 1,783 1,105 29 (1,336) 371 1,952 12,674
year
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SESFWUSMSESM
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